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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-1’ NEW DELHI
Before: SHRI N. K. SAINI & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the Assessment Order dated 30/11/2012 passed by the Assessing Officer u/s 144C read with Section 143(3) of the Income Tax Act, 1961.
The grounds of appeal are as under:-
“That on the facts and circumstances of the case and in law, the impugned order of assessment framed by the learned Assistant Commissioner of Income-tax, Circle 13(1), New Delhi (hereinafter referred to as ‘the learned AO’) pursuant to the directions of the Hon’ble Dispute Resolution Panel - II (hereinafter referred to as ‘the Hon’ble DRP’) under section 143(3) read with section 144C of the Income-tax Act, 1961 (‘Act’), is a vitiated order having been passed in violation of principles of natural justice and is otherwise
arbitrary and is thus bad in law and void ab-initio.
That on the facts and circumstances of the case and in law, the Hon’ble DRP/ learned AO has erred in reducing the rate of tax depreciation allowable on certain items, characterized as ‘computers’ by the Appellant (viz. UPS, LAN/ WAN equipment, catalyst switches, network equipments, etc.) from 60 percent to 15 percent, by treating the same as Plant and Machinery and thus, disallowing depreciation amounting to Rs 19,33,295 to the Appellant.
2.1. That on facts and circumstances of the case and in law, the Hon’ble DRP/ learned AO has failed to appreciate that UPS, LAN/ WAN equipment, catalyst switches, network equipment, etc. are “integral part of the computer system” and have been held to be in the nature of ‘Computers’ by the Hon’ble Jurisdictional Delhi High Court in the case of BSES Rajdhani Powers Ltd. (ITA No. 1266/ 2010), Orient Ceramics and Inds Ltd. (ITA No. 65 and 66 of 2011) and Citicorp Maruti Finance Ltd. (ITA No. 1712 and 1714 of 2010) and by the Hon’ble Special Bench of Mumbai Tribunal in the case of Datacraft India Limited (ITA No.7462 and 754/Mum/2007).
That on the facts and circumstances of the case and in law, the Hon’ble DRP/learned AO has erred in making a disallowance of Rs. 33,27,776 under section 40(a)(i) of the Act by alleging that the said payments made by the Appellant tantamount to income chargeable to tax in the hands of the recipient under the provisions of the applicable Double Taxation Avoidance Agreement (‘DTAA’) and/ or the Act and the Appellant has failed to withhold taxes under the provisions of section 195 of the Act in respect of the said expenses incurred by it in foreign currency.
3.1. That on the facts and circumstances of the case and in law, the Hon’ble DRP has erred in upholding the disallowance, on the basis that the Appellant was required to approach the tax officer for a NIL withholding order without appreciating the provisions of section 195 of the Act read with the order of the Hon’ble Supreme Court in the case of GE India Technology Centre Private Limited (Civil Appeals Nos 7541-7542 of 2010) which clearly provides that the Appellant was required to approach the tax officer only where the payments were chargeable to tax in India.
3.2. Without prejudice, on the facts and circumstances of the case and in law, the Hon’ble DRP/ learned AO has erred in making a disallowance amounting to Rs 10,71,227 under section 40(a)(i) of the Act, by holding that payments to:
Hemisphere Consulting Pte. Ltd, Singapore (Rs 34,473) a) Fitch Design Pte Limited, Singapore (Rs 2,78,199) b) Barlworld Optimus UK (Rs 7,58,555) c)
qualify as Fee for Technical Services (‘FTS’) under the provisions of Article 12 of India - Singapore DTAA and Article 13 of India - UK DTAA, respectively, without appreciating that the underlying services do not qualify as FTS under the restrictive provisions of the DTAA.
3.3. Without prejudice, on the facts and circumstances of the case and in law, the Hon’ble DRP/ learned AO has erred in making a disallowance amounting to Rs 17,17,572 in respect of payment to Nokia Siemens Networks MEA-FZ, LLC, UAE under section 40(a)(i) of the Act, without appreciating that the said amount is not chargeable to tax in India as FTS in the absence of any specific clause related to FTS under the provisions of India - UAE DTAA.
3.4. That on the facts and circumstances of the case and in law, the Hon’ble DRP/ learned AO has erred in making a disallowance amounting to Rs 5,38,977 in respect of payment to Nokia Hungary KFT, under section 40(a)(i) of the Act, without appreciating that the said amount is not chargeable to tax in India as FTS under Article 12 of India - Hungary DTAA, in view of the restritive definition of FTS provided under Article 12 read with the protocol to India - Hungary DTAA.
That on the facts and circumstances of the case and in law, the learned AO has erred in not granting depreciation at the rate of 25 percent under the provisions of section 32 of the Act in respect of goodwill amounting to Rs. 9,81,15,000 accounted for by the Appellant in its books of accounts arising out of purchase of networks business, despite of a specific claim having been made by the Appellant before finalization of the order dated November 30, 2012 by the learned AO.
4.1. That on the facts and circumstances of the case and in law, the learned AO has failed to appreciate that the said depreciation claim made by the Appellant is duly supported by the Hon’ble Supreme Court decision subsequently pronounced in the case of CIT vs Smifs Securities Ltd (Civil Appeal No 5961 of 2012) and accordingly was open to be given effect to as per Circular No. 68 dated November 17, 1971 issued by the Central Board of Direct Taxes.
4.2. Without prejudice, on the facts and circumstances of the case and in law, the learned AO has failed to appreciate that as per Circular No. 14 (XL- 35) of 1955 dated April 11, 1955, the benefit of claim of depreciation as made by the Appellant before finalization of the order dated November 30, 2012 should be accorded to the assessee.
That, on the facts and in law, the learned AO has grossly erred in making a transfer pricing addition of Rs. 3,57,02,972 in respect of certain international transactions of the Appellant while computing the income of the Appellant. The addition so made to the returned income is highly unjustified and also suffers from mistakes apparent from record.
5.1. That, in framing the impugned assessment, the reference made by the learned AO to the learned Transfer Pricing officer (hereinafter referred to as ‘the learned TPO') u/s 92CA (1) of the Act suffers from jurisdictional error, as the learned AO had not recorded any reasons nor he had any material whatsoever on the basis of which he could even reach a prima-facie opinion, that it was ‘necessary or expedient’ to refer the matter to the learned TPO for computation of arm’s length price (‘ALP’).
5.2. That, on the fact and the circumstances of the case and in law, the learned TPO/ Hon’ble DRP has grossly erred in not accepting the economic analysis of certain international transactions of the Appellant and re- determining the ALP which is not in accordance with the provisions of the Act read with the Income Tax Rules, 1962 (‘the Rules’).
5.3. That, on the facts and the circumstances of the case and in law, the learned TPO/ Hon’ble DRP has erred in rejecting certain comparables selected by the Appellant for international transaction related to provision of software development services to associated enterprises and additionally selecting certain new set of comparables for the determination of the ALP by adopting flawed approach and certain arbitrary filters.
5.4. That on the facts and circumstances of the case and in law, the learned TPO/ Hon’ble DRP has erred by not accepting the combined transaction approach followed by the Appellant for the international transactions related to Network’s division for arm’s length analysis and instead conducting separate analysis for certain international transactions of Networks division namely provision of marketing support services, warranty
services and other support services using Transactional Net Margin Method (‘TNMM’) without giving cognizance to the functions, risks and assets (‘FAR’) analysis of the Appellant vis- a-vis its associated enterprises for international transactions reassociate the networks division.
5.5 That without prejudice, the learned TPO/ Hon’ble DRP has erred, in law and on facts, in not separately bifurcating the costs of the marketing team attributable towards the support provided on the sales made by the Appellant itself vis-a-vis support provided to the associated enterprises and erroneously attributed entire costs of the of marketing team towards the marketing support services provided to the associated enterprises while undertaking separate transaction by transaction analysis using TNMM.
5.6. That without prejudice, the learned TPO/ Hon’ble DRP has erred, in law and on facts in the application of TNMM for transaction by transaction analysis of certain international transactions of Networks division using certain arbitrary filters.
5.7. That, on the facts and circumstances of the case and in law, the learned TPO/ Hon’ble DRP has erred in
(a) rejecting the data used by the Appellant which was available to it at the relevant time and proceeding to use the data which was available only at the time of transfer pricing assessment; and
(b) using data for a single year instead of multiple year data.
5.8. That, on the facts and circumstances of the case and in law, the learned TPO/ Hon’ble DRP has erred by not making appropriate adjustments on account of working capital differences between the Appellant vis-a-vis the comparables companies while redetermining the ALP of the certain international transactions of the Appellant.
5.9. That, on the facts and circumstances of the case and in law, the learned TPO/ Hon’ble DRP has erred by not allowing a risk adjustment to the Appellant on account of the fact that the Appellant is remunerated on a cost plus basis irrespective of the outcome of the services provided and hence undertakes no market risk, service liability risk, credit and collection risk as against the comparable companies identified by the learned TPO/ Hon’ble DRP which were full fledged risk taking entrepreneurs.
5.10 That, on the facts and the circumstances of the case and in law, the learned AO/ TPO ignored the fact that the Appellant is entitled to a tax holiday under section 10A of the Act on its profits earned from the provision of software services to associated enterprises and hence didn’t have an ulterior motive of shifting profits outside India.
5.11. That without prejudice, on the facts and circumstances of the case and in law, the learned AO/ TPO/ Hon’ble DRP has erred in not allowing the benefit of downward adjustment of 5 percent, as provided in the Proviso to section 92C of the Act, from the ALP of the international transactions as determined by them.
Without prejudice, on the facts and circumstances of the case and in law, the Hon’ble DRP/ learned AO has erred in granting short credit in respect of TDS claimed by the Appellant in its return of income.
That on the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under section 271 (1 )(c) of the Act.
That on the facts and circumstances of the case and in law, the learned AO has erred in levying interest under section 234B and section 234D of the Act.
That, without prejudice to ground 8 above, on the facts and circumstances of the case and in law, the learned AO has erred in calculation of interest under section 234B and section 234D of the Act.”
The assessee company incorporated in India under the provisions of the Companies Act, 1956. For the Assessment Year 2008-09, the assessee company was engaged in the business of manufacturing and trading of telecommunication network equipment and provision of related services such as network design, installation and commissioning. The company also provided support services to major telecom operators and IP service providers in India and to customers of its Associated Enterprises (AE). Further, the company also provided software development and certain network management support services. Furthermore, Nokia Siemens Networks Private Limited India rendered certain marketing support services to its AEs such as providing information on
potential customers, providing assistance in marketing products its AE. During the course of assessment proceedings for A.Y. 2008-09, the Assessing Officer referred the matter to Transfer Pricing Officer (TPO) made transfer pricing adjustment to the prices of two international transactions entered into by the assessee viz. provision of software development services (Rs.10,47,38,287) and marketing support services (Rs.12,49,95,967). Therefore, the TPO made a total transfer pricing adjustment of Rs.22,97,34,254 vide order dated 31.10.2011. The Assessing Officer passed the draft assessment order dated 27.12.2011. The assessee filed its objections under Section 144C(2)(b) of the Act with the Dispute Resolution Panel (DRP) against the transfer pricing adjustment proposed by the TPO/AO. The DRP provided certain relief (i.e. rejected certain non-comparable companies selected by the TPO and corrected computational errors committed by the TPO) to the assessee and reduced the quantum of transfer pricing adjustment. The AO passed the final assessment order dated 30.11.2012 in conformity with the DRP directions wherein the transfer pricing adjustment was Rs.3,57,02,972 (Rs. 2,50,08,872 for provision of software development services and Rs.1,06,94,100 for provision of marketing support services).
Being aggrieved by the Assessment Order, the assessee filed present appeal before us.
The Ld. AR submitted that Ground No. 1 is general in nature, hence the same is not adjudicated.
Ground Nos. 2 and 2.1 relates to depreciation claimed on certain items characterized as “computers” by the assessee (viz. UPS, LAN/WAN equipment, catalyst switches, network equipments, etc.) from 60% to 15%, by treating the same as Plant and Machinery and thus, disallowing depreciation amounting to Rs.19,33,295 to the assessee. The Ld. AR submitted that this issue is covered by the Tribunal decision for Assessment Year 2008-09 in ITA
No.333/DEL/2013 M/s Nokia Siemens Networks India vs. ACIT dated 16.02.2018). The Ld. DR relied upon the Assessment Order.
We have heard both the parties and perused all the relevant material available on record. It is found that the issue is identical in nature to that of M/s Nokia Siemens Networks India (supra) for A.Y. 2008-09 and no distinguishing factors were pointed out by the Ld. DR during the hearing. The Tribunal for A.Y. 2008-09 in case of M/s Nokia Siemens Networks India (supra) held as under:-
“5. Coming to Ground No. 2 and 2.1, relating to the depreciation on computer peripherals, assessee claimed depreciation on the equipment like UPS, stabilizer, LAN/WAN, catalyst switches, network switches etc. at 60%. However learned AO disallowed such a claim to an extent of Rs.1,44,75,008/- on the ground that they form part of the block of assets under plant and machinery, in respect of which depreciation is allowed only at 15%. Basing on the decision of the Hon’ble jurisdictional High Court in CIT vs. BSES Yamuna Power Ltd. (2013) 358 ITR 47 (Del), assessee argued before the learned DRP that these peripherals form an integral part of computer system, and therefore, 60% depreciation must be allowed. Learned CIT(A), however, observed that the issue of allowability of depreciation on computer peripherals is pending before the Hon’ble Supreme Court, and since it did not attain finality, the plea of the assessee cannot be entertained.
It is the argument of the learned AR that the equipment in respect of which the depreciation at 60% is claimed does not function on their own and for deriving any functionality they must be connected to the computer equipment, as such they are part and parcel of the computer systems in respect of which depreciation at 60% has to be allowed. He placed reliance on the decisions reported in BSES Yamuna (2013) 358 ITR 47 (Del); Nokia India (P.) Ltd. vs. ACIT (2012) 22 taxmann.com 109 (Del-Tri) & (2012) 20 taxmann.com 810 (Del); ACIT vs. Timex Watches Ltd. (2016) 71 taxmann.com 177 (Del-Tri.); GE
Capital Business Process Management Services (P) Ltd. vs. ACIT (2015) 64 taxmann.com 156 (Del-Tri.) in support of his contentions.
In BSES Yamuna (supra) the Hon’ble jurisdictional High Court has held as under:
“6. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as printers, scanners and server, etc., form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60 per cent.”
In the case of Nokia India (P.) Ltd. (supra), wherein a co-ordinate bench of this Tribunal has held as under:-
“13.1 This issue pertains to claim of depreciation @ 60% on UPS, LAN/WAN equipment, switches, network equipment and visual studio etc. 13.2 We find that this issue is squarely covered by the decision of the Hon’ble Jurisdictional High Court in IT Appeal No. 1266 (Delhi) of 2010 in the case of C.I.T. vs. BSES Rajdhani Powers Ltd. vide order dated 31.8.2010 wherein it was held that the Court was in agreement with the view of the tribunal that the computer peripherals such as printer, scanner etc. form an integral part of computer system. In fact the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation @ 60%. Respectfully following the above precedent, we set aside the order of the Assessing Officer and decide the issue in favour of the assessee.”
It is the further argument of the learned AR that by order dated 14.2.2014 in CIT vs. Birlasoft Ltd. (SLP No. 20645 of 2012), the Hon’ble Supreme Court dismissed the departmental appeal against the order of the Hon’ble
jurisdictional High Court in ITA No. 71 of 2010 wherein the Delhi High Court held that the depreciation on computer accessories and peripherals would be admissible at the rate of 60%. Lastly, he brought to our notice that the learned DRP while dealing with this aspect in assessee’s own case for the AY 2009- 10 and 2010-11 followed this legal position and the department also accepted the same.
In view of the above legal position, we find that the equipment forms integral part of the computer systems and the assessee is entitled to the claim of depreciation at 60% by treating the peripherals as part of block of computers. Grounds No. 2 and 2.1 are allowed accordingly.”
Thus, the facts in the present case are also identical. Therefore, Ground Nos. 2 and 2.1 are allowed.
The Ld. AR submitted that Ground Nos. 3, 3.1, 3.2, 3.3 and 3.4 related to disallowance u/s 40(a)(i) aggregating to Rs.33,27,776 on the ground that payment made to following companies was in the nature of FTS and hence, assessee was liable to deduct tax on the same. The Ld. AR submitted that at the time of the Assessment Proceedings, the assessee could not produced the details as the details were not received from the third parties, but since the same are now available with the assessee, therefore, the assessee is filing additional evidence which has to be decided by the Assessing Officer. Thus, the Ld. AR prayed that this issue be restored to the file of the Assessing Officer. The Ld. DR did not object the same.
We have heard both the parties and perused all the relevant material available on record. Since at the time of the Assessment Proceedings, the assessee could not produced the evidences due to non-availability at that time, therefore, it will be appropriate in the interest of natural justice that the said additional evidence be admitted. Hence, the additional evidence is admitted and the matter is remanded back to the file of the Assessing Officer for fresh
adjudication in respect of this issue. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 3, 3.1, 3.2, 3.3 and 3.4 are partly allowed for statistical purposes.
As regards to Ground No. 4, 4.1 and 4.2 relating to depreciation at 25% on Goodwill acquired from purchase of networks business disallowed at Rs.9,81,15,000/-, the Ld. AR submitted that these were fresh claims were raised before the Assessing Officer through submissions dated 04.10.2012. Thus, the Ld. AR requested that the additional grounds may be admitted and the issue may be remanded back to the file of the assessee. The Ld. AR relied upon the decision of the Tribunal in case of Rakesh Singh vs. ACIT (2012) 26 taxmann.com 240 (Bang). The Ld. DR opposed the admission of the fresh claims.
We have heard both the parties and perused all the relevant material available on record. The additional claims taken before us were already submitted before the Assessing Officer vide submissions dated 04.10.2012, therefore, we are inclined to admit the claims. We remand back this issue to the file of the Assessing Officer for adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 4, 4.1 and 4.2 are partly allowed for statistical purposes.
The Ld. AR submitted that Ground Nos. 5, 5.1 & 5.2 relating to Transfer Pricing issue are general and hence not pressed. Therefore, Ground Nos. 5, 5.1 and 5.2 are dismissed.
As regards to Ground No. 5.3 relating to Software Development Segment, the Ld. AR submitted that as far as the software development segment is concerned, the assessee’s functionality is identical to that of the erstwhile entity. The Ld. AR relied upon the order of Tribunal in case of M/s Nokia Siemens Networks India (supra) for Assessment Year 2008-09 wherein it is held as under:
“33. Assessee as a tested party has been characterized as provider of software development services to its AEs which had used Transactional Net Margin Method (TNMM) as the most appropriate method for its benchmarking of international transaction. Search for uncontrolled comparables was made using Prowess and Capitoline database by the Assessee in its Transfer Pricing Study. Assessee had taken 16 comparables in its TP study with an arithmetic mean of 9.71%. Assessee computed its profit level indicator (PLI) at 4.26% on cost which was falling within the arm’s length range of +/-5%.”
The Ld. AR submitted that the assessee is also engaged in providing software development services to its AEs. Thus, it is an undisputed position that assessee’s functional profile qua the software development service division is identical to that of the erstwhile entity which has been considered by the Tribunal in M/s Nokia Siemens Networks India (supra). The TPO selected 25 comparables to benchmark the transaction pertaining to software development services division. Subsequently, DRP deleted one of the comparables selected by TPO and thus the final set of comparables comes to 24. Out of these 24 comparables, the assessee wants to exclude 18 comparables and further wants inclusion of three comparables. Thus, the Ld. AR submitted that all the comparables under challenge were considered by this Tribunal in case of M/s Nokia Siemens Networks India (supra) for the same business and same Assessment Year. The comparables selected by the TPO for M/s Nokia Siemens Networks Private Ltd. are reproduced below along with the finding rendered by the Tribunal in case of M/s Nokia Siemens Networks India (supra):
S.No. Comparables Treatment afforded by Tribunal in ITA 333/D/2012
Akshay Software Technologies Ltd. Not disputed
Bodhtree Consulting Ltd. Excluded
Cat Technologies Ltd. Excluded
E-Infochips Bangalore Ltd. Excluded
E-Infochips Ltd. Excluded
F C S Software Solutions Ltd. Excluded
Goldstone technologies Ltd. Excluded
Helios & Matheson Information Excluded Technology Ltd.
IGate Global Solutions Ltd. Excluded
Infosys Ltd. Excluded
K P I T Cummins Infosystem Ltd. Not disputed
Kals Information Systems Ltd. (Seg) Excluded
Lanco Global Systems Ltd. Excluded
Larsen & Toubro Infotech Ltd. Excluded
Mindtree Ltd. Excluded
Persistent Systems Ltd. Excluded
Quintegra Solutions Ltd. Excluded
R S Software (India) Ltd. Not disputed
R Systems International (Seg) Excluded
Sasken Communication Technologies Not disputed Ltd. (Seg)
Softsol India Ltd. Included
Tata Elxi Ltd. (Seg) Excluded
VMF Softech Ltd. Not disputed
Zylog Systems Ltd. Not disputed
INCLUSIONS
CG-VAK Software Exports Ltd. Remanded to TPO to apply employee filter properly
SIP Technologies Ltd. Included
Indium Software India Ltd. Excluded
The Ld. AR submitted that the functional profile of the assessee is identical to that of M/s Nokia Siemens Networks India (supra), thus, the order passed by the Tribunal in ITA 333/D/2012 deserves to be followed. The Ld. DR relied upon the order of the TPO/AO, but could not distinguish the facts of the assessee’s case relating to the comparables disputed by the assessee in present Assessment Year and that to the comparables dealt by the Tribunal in case of M/s Nokia Siemens Networks India (supra).
We have heard both the parties and perused all the relevant material available on record. The functional profile of the assessee company and M/s Nokia Siemens Networks India (supra) are identical and there is no dispute raised by the Revenue at any point of time. Therefore, the treatment given to the comparables in case of M/s Nokia Siemens Networks India (supra) by the
Tribunal has to be followed in the present assessee’s case as well. Ground No. 5.3 is partly allowed for statistical purpose.
As regarding to Ground No. 5.4 relating to Network Division i.e. support service segment, this segment is separate from the software development service segment. The Ld. AR submitted that four comparables to be excluded has to be excluded which are Apitco Ltd., IDC (India) Ltd., RITES (Seg), WPCOS Ltd. (Seg). The Ld. AR submitted that these are all functionally different comparables. Therefore, the same should be excluded. The Ld. AR submitted that ICRA Management Consulting Services Ltd. is accepted by the assessee. The Ld. DR relied upon the order of the TPO/AO.
We have heard both the parties and perused all the relevant material available on record. We are giving our findings for each comparables hereinafter.
16.1 Apitco Ltd.: This company is a government undertaking and engaged in turnkey implementation, preparation of reports and into core activities and also provides high end technical consultancy. The substantial contracts of this company are with the government institutions. There is no segmental data available of this company. This company also fails the TPO’s own filter of export income of atleast 25% of total income. The assessee company is engaged in the business of manufacturing and trading of telecommunication network equipment and provision of related services such as network design, installation and commissioning. The company also provided support services to major telecom operators and IP service providers in India and to customers of its Associated Enterprises (AE). Further, the company also provided software development and certain network management support services. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable.
16.2 IDC (India) Ltd.: This company is a research company, primarily dealing in research and survey services and products. It’s a high end service provider rendering varied services in the nature of data measurement products, subscription services, industry research, IT executive program, Custom Solutions and events. Whereas the assessee company is engaged in the business of manufacturing and trading of telecommunication network equipment and provision of related services such as network design, installation and commissioning. The company also provided support services to major telecom operators and IP service providers in India and to customers of its Associated Enterprises (AE). Further, the company also provided software development and certain network management support services. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable.
16.3 Rites (Seg): This company provides comprehensive engineering and project management services such as pre-project planning involving project identification, feasibility studies and project appraisal. This company is full risk bearing company and thus cannot be compared to a service provider like assessee. It’s a Government undertaking and has different model of revenue recognition. Besides that the company has intangible assets and there is no segmental data available. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable.
16.4 WAPCOS Ltd. (Seg): This company is into provision of Engineering Consultancy Services and turnkey projects and has diverse business activities. This company has grant in aid by government and the same are treated as fee from other services. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable.
Therefore, we remand back the issue to the file of the TPO/AO as per above directions given for each comparables. Thus, Ground No. 5.4 is partly allowed for statistical purpose.
As regards Ground Nos. 5.5, 5.6, 5.7, the Ld. AR submitted that the issue should be kept open for future, but at this juncture, the assessee is not pressing and this statement should not be taken into consideration in future as it is related to this assessment year only. The Ld. DR did not object to the same. Therefore, we dismissed Ground Nos. 5.5, 5.6 and 5.7 as not pressed by the assessee.
As relates to Ground No. 5.8 regarding not making appropriate adjustments on account of working capital differences between the assessee vis-à-vis the comparables companies while re-determining the ALP of the certain international transactions of the assessee, the Ld. AR submitted that the DRP has taken the cognizance of Tribunal’s decision and the same should be given by the TPO/Assessing Officer. The Ld. DR relied upon the order of the TPO/AO.
We have heard both the parties and perused all the relevant material available on record. The Tribunal in case of M/s Nokia Siemens Networks India (supra) held as under:
“129. In view of this legal and factual position, we consider it just and proper to direct the Ld. TPO to grant working capital adjustment to account for difference in working capital employed by the assessee and the comparable companies.”
Since there is case to allow working capital adjustment in assessee’s case as held in case of M/s Nokia Siemens Networks India (supra). The issue is identical and hence we direct the TPO to grant working capital adjustment to account for difference in working capital employed by the assessee and the comparable companies. Ground No. 5.8 is partly allowed for statistical purpose.
As relates to Ground No. 5.9, 5.10 both are not pressed by the Ld. AR, hence dismissed.
As related to Ground No. 6, the Ld. AR submitted that the short credit of TDS be decided by the Assessing Officer within time bound period. Thus, this issue should be remanded back to the file of the Assessing Officer. The Ld. DR relied upon the Assessment Order.
We have heard both the parties. Since the issue is has not been properly dealt by the Assessing Officer, it will be appropriate to remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 6 is partly allowed for statistical purpose.
The Ld. AR submitted that Ground No. 7, 8, 9 are consequential. Ground Nos. 7, 8 and 9 are consequential, therefore, not adjudicated upon at this juncture.
In result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the Open Court on 1st October, 2018.
Sd/- Sd/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 01/10/2018 R. Naheed