9911796707
TMI Blog2023 (1) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... learly did not involve any rendering of services by the assessee. DR was unable to clarify the nature of services which the AO/TPO found the assessee to have rendered while making these payments on behalf of the assessee. We agree with the Ld.CIT(A) therefore that in such circumstances there arises no question at all of making any adjustment to the reimbursements of any operational profit element therein. Even with respect to the findings of the Ld.CIT(A) that all expenses of the AE were met out of advances given by the AE to it, we find that the findings of the Ld.CIT(A) are exhaustive and detailed, pointing out the fact that the AE has throughout the year maintained sufficient advances with the assessee to the tune of Rs. 12 Crs odd and even when the assessee has made any payments on its behalf during the year the same were immediately reimbursed. CIT(A) has noted that details to this effect were before the AO/TPO also who had made no adverse observations with respect to the same. Even before us no infirmity was pointed out by the Ld. DR on the factual findings of the Ld.CIT(A) as above. We find no infirmity in the order of the CIT(A) holding that in the light of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of rate of depreciation applied that they were in the nature of machineries being vacuum cleaner, water dispenser, EPBAX installation etc. Clearly, the same are not in the nature of furniture and fittings to which 10% rate of depreciation is applicable. CIT(A) has taken note of the provisions of Section 32A of the Act relating to investment allowance as well as to the provisions of Section 32(iia) of the Act relating to the additional deprecation on plant and machinery which rule out the allowance or additional depreciation on old plant and machinery and while doing so provide an exemption to office appliances. CIT(A) has derived that office appliances qualify as plant and machinery for depreciation @ 15%. DR has been unable to point out any infirmity in this finding of the learned CIT(A). CIT(A) has relied on the decision of Park Devis (India) Limited [ 1994 (12) TMI 46 - BOMBAY HIGH COURT] which has laid down the proposition that even office appliances qualify as plant and machinery for depreciation @ 15%. DR has been unable to distinguish the said case before us. In view of the above, we do not find any infirmity in the order of the learned CIT(A) holding the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly agreed with the same. Therefore Ground No.(a) and (b) are being taken up and dealt with by us together. 4. Ground Nos. (a) and (b) read as under:- a) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.1,06,54,295/- made on account of margin @ 11% on the transaction of reimbursement of expenses of Rs. 9,68,57,231/- as per order of TPO. b) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.90,18,586/- made on account of delayed recovery on the transaction as per order of TPO. 5. Drawing our attention to the facts of the case from the orders of the authorities below, it was pointed out that the assessee is a service provider of Vessels Traffic Port Management System. The assessee was a joint venture between Kongsberg Norway group of companies and Aatash Indian group of companies, where Aatash was holding 51% equity shares and Kongsberg was holding 49% equity shares. The joint venture company was engaged into a project of Vessels Traffic Port Management System ( VTPMS for short) in consequent to a BOOT contract/agreement with the Gujarat Government. As per the Transfer Pricing (TP) documents furnished for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed charging interest on the reimbursement made by the assessee on the basis of SBI base rate of 7.75% plus 150 basis points, effective interest rate 9.25%, and made adjustment on account of interest chargeable on the alleged credit facility extended by the assessee by meeting expenses of the AE amounting to Rs.90,18,586/-. Before the learned CIT(A), the assessee reiterated its contention that no services were rendered by the assessee while meeting the expenses of the AE pointing out that all the expenses so made of the AE related to Custom Duty, Guarantee, GIEK premium, MPT Tender Fees and Factory Acceptance Test Fees which were the liability of the AE in the joint venture made by the assessee that the assessee had simply made payment of all these fees and taxes and no services had been rendered on account of the same. That further there was no question of any reimbursement at all since sufficient advances had been given by the AE to the assessee through which all these expenses had been made. Finding merit in the contention of the assessee, learned CIT(A) held that there was actually no reimbursement of expenses to the assessee and accordingly both the upward adjustments on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stallation/commissioning and training etc. The same being not company's responsibility, it was paid out of the amount received in advance from AE. Generally it has been received back to the Company transaction-wise to maintain sufficient advance balance. The contract s Standard Conditions for Sale and Installation, Point No. 2 of Annexure E Kongsberg Norcontrol IT AS states, Custom Duty, Installation/Commissioning and raining are included in the Contract Price . Hence all the above expenditures were to be borne by the AE i.e. Kongsberg Norcontrol IT AS only. Copy of Standard Conditions for Sale and Installation is enclosed herewith for your ready reference. Moreover, enclosed herewith annexure which shows that the company has received ad hoc advance payment of Rs.3.00 cr. on 13/02/2009 from Kongsberg Norcontrol IT AS (AE) for custom duty payment and the company has started making payment of custom duty after 13/02/2009 only. Similarly, the company has also paid Rs.1,92,765/- for Custom duty for Radar Spares on behalf of the AE which is also reimbursed by the AE. It is very clear from the agreement's Standard Conditions for Sale Installation that the custom duty wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well trained by AE. Therefore it was decided that whenever AE is becoming prime contractor, the company will act as a sub contractor. Since there is mutual benefit, and since AE was not having any establishment in India, assessee has paid EMD of tender on behalf of AE which was reimbursed by AE. In doing so, no service is rendered by the company to its AE. Therefore any mark up on the amount reimbursed does not arise. Your honour will agree from the above explanation why the Company has not added any mark up on this transaction. d) Expenses of FAT Rs.5,71,203/- The company has paid travelling expense, visa charges, medical insurance, conveyance and hospitality of Government officials from Gujarat Maritime Board (GMB) and Director General of Light House and Light Ships (DGLL). Though they are not direct buyer but since this system will provide service which is affecting them, they insisted to have Factory .Acceptance Test (FAT), which was extra burden on company and was affecting project cost. Though the cost for obtaining FAT is of the company as the company is owner and user of equipments, yet due to persuasion by the company, between company and AE it was decided that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate enterprises. The AE was to install the VTPMS (Vessel Traffic and Port Management System) system and the company is to operate and maintain it at the ports. Thus in any installations by the AE, the company is to be benefited by way of operation and maintenance charges. The AO has added Rs.1,06,54,295/- as margin on the transaction of reimbursement of expenses of Rs. 9,68,57,231/- as per Transfer Pricing Order. The TPO has mentioned on. page no 3 of Transfer Pricing order that margin of 11% is equivalent to what the company has earned from its operational activities and also mentioned on page no 10 of order that such is the practice of this office. The TPO has treated the reimbursement of expenses to the transactions and charged mark up on these. The appellant has submitted that the TPO has wrongly given the colour of reimbursement to the transaction but the transactions under consideration cannot be considered as reimbursement as it has been spent from the advance money received from AE only and not out of own funds. The TPO has charged interest rate of 9.25% and mentioned as reasonable rate. The appellant has submitted that Assessee doesn't agree with the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant has further submitted that when an AE is also a joint venture partner in the project, and for whose behalf certain payments are made which are reimbursed, no services can be said to have been rendered so as to charge mark up on the same. Even when the expenses were to be incurred, we have from time to time received advances for the same. Thus, it is established that no services are rendered to the AE. Other operational services rendered to non AE are not comparable to the amount received from AE and hence no adjustment u/s 92C is warranted. It is also not specified as to which method is proposed to be applied and what is comparable transaction functionally similar to that with the AE, it is not possible to comment upon the same. In absence of any functionally similar transaction, no adjustment is warranted. 2.6. In view of the above facts and detailed discussion, it is seen from the Bank statements, the appellant was in possession of advance money received from AE (credit balance of Kongsberg Norcontrol IT AS). The appellant company is having advance money of Rs.12,88,10,315/- as on 01/04/2010 and Rs.12,47,93,835/- as on 31/03/2011 which is related to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ie. time gap between expenses paid and recovered from Kongsberg Norcontrol IT AS in reimbursement of expenses. The TPO has observed that though the assessee claimed that it was having the fund of the AE with itself, the claim of the assessee that expenses for the AE was meet out from this fund cannot be verified. Accordingly, an upward adjustment amounting to Rs.90,78,586/- is made to the total income of the company in order that the international transaction undertaken by the company are at arm's length. The appellant has submitted that the TPO has added Rs.90,18,586/- as interest on delayed recovery ie. time gap between expenses paid and recovered from Kongsberg Norcontrol IT AS in reimbursement of expenses. As explained in ground no. 1 above, the question of charging interest does not arise because the fact is that company has received advance of Rs.3.00 Cr. before starting payment of expenses and also that transactions cannot be called as reimbursement of expenses. The chart shows that the assessee was in a possession of advance money received from AE (Credit balance of Kongsberg Norcontrol IT AS). The company is having advance money of Rs. 12,88,10,315/- as on 01/04/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on delayed recovery ie. time gap between expenses paid and recovered from Kongsberg Norcontrol IT AS in reimbursement of expenses, is deleted. The ground of the appeal is allowed. 13. The Revenue has been unable to controvert before us the fact that all the expenses made by the assessee on behalf of the AE involved no services to be rendered by the assessee but was merely meeting the expenses of statutory dues/fees/charges of the AE. The Revenue has also not disputed the fact that all the expenses were made out of advances given by the AE to the assessee. The Ld.CIT(A), has given detailed finding with respect to both the aspects ,noting that all the payments made by the assessee on behalf of its AE were majorly on account of fees/duty to be paid to the government for the project which clearly did not involve any rendering of services by the assessee. The Ld. DR was unable to clarify the nature of services which the AO/TPO found the assessee to have rendered while making these payments on behalf of the assessee. We agree with the Ld.CIT(A) therefore that in such circumstances there arises no question at all of making any adjustment to the reimbursements of any operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not entitled to deduction. The learned CIT(A), however, noted that only Rs.25,000/- out of total expenses of Rs.4,91,063/- claimed by the assessee under Section 35D of the Act qualified as capital expenditure as per the decision of the Hon ble Apex Court in the case of Brooke Bond India (supra) having been incurred for increase in share capital. Accordingly, he upheld the order of Assessing Officer denying claim of deduction to this extent. For the remaining claim of Rs.4,66,063/-, he noted that the same was 1/5th of expenses which the assessee had been claiming in the previous years also as per Section 35D of the Act being pertaining to expenditure of company incorporation and other expenses of preliminary in nature; and, that they do not relate to expenses incurred merely for increase in share capital of the company. Accordingly, he allowed the claim of the assessee to this extent. The finding recorded by the learned CIT(A) at paragraph nos. 5.3 and 5.4 of his order in this regard is as under:- 5.3. I have carefully considered the Assessment Order and submission filed by the Appellant, The Assessing Officer has observed that the appellant has increased its Authorized Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of company incorporation and other expenses of preliminary in nature when the company has gone for the IPO which is allowable as per the IT Act. However, the appellant has incurred expense of Rs.1,25,000/- in the year under consideration for increase in share capital and claimed 1/5th of the same i.e.Rs.25,000/- under section 35D is not allowable in view of the decisions of the Supreme Court in Brooke Bond India Vs CIT. 225 ITR 798 (SC) Vareli Textiles Ltd 284 ITR 238 (Guj)(supra). In view of the above, the AO is directed to delete Rs.4,66,063/- which is written off as preliminary expenses. The amount of Rs. 25,000/- is confirmed as discussed above. The ground of the appellant is partly allowed. 18. Before us, the learned Departmental Representative was unable to controvert the factual finding of the learned CIT(A) to the effect that the amount of Rs.4,66,063/- claimed by the assessee under Section 35D of the Act pertained to preliminary expenses incurred on the incorporation of the company; 1/5th of which the assessee had been claiming consistently in the preceding years. In view of the same, we see no reason to disagree with the learned CIT(A) that the said claim of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that Office Equipment are part of Plant Machinery and entitled to depreciation @15% as per provisions of the Act. The Hon'ble Bombay High Court in the case of CIT V/s. Park Devis (India) Limited 214ITR 587 has also held the same. The decision of Ahmedabad ITAT in the case of Madhu Industries, Bombay High Court in the case of CIT v/s. Park Devis (India) Ltd. and Decision of Karnataka High Court in the case of Hindustan Aeronautics Ltd are relevant on this subject where it has been held that Office Equipments are part of Plant Machinery and entitled to depreciation @15% as per provisions of the Act, Considering the facts discussed herein above and on the basis of the above decisions it is held that disallowance of depreciation made by Assessing Officer for Rs.15,555/- is not justified and directed to be deleted. This Ground of appeal is allowed. 20. Before us, the learned DR was unable to controvert the factual finding with respect to the nature of assets on which the issue of rate of depreciation applied that they were in the nature of machineries being vacuum cleaner, water dispenser, EPBAX installation etc. Clearly, the same are not in the nature of furni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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