DCIT, NEW DELHI vs. M/S. BIO RAD LABORATORIES (INDIA) PVT. LTD., NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I-2”: NEW DELHI BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.3284/Del/2010 (Assessment Year: 2002-03) ITA No.3330/Del/2010 (Assessment Year: 2003-04) ITA No.4712/Del/2011 (Assessment Year: 2004-05) ITA No.2466/Del/2012 (Assessment Year: 2005-06) ITA No.490/Del/2011 (Assessment Year: 2006-07) ITA No.1266/Del/2013 (Assessment Year: 2008-09)

DCIT, Bio Rad Laboratories (India) Pvt. Ltd., E-375, 1st Floor, GK Part-II, Circle-3(1), Vs. New Delhi New Delhi PAN:AAACB3202A (Appellant) (Respondent)

ITA No.3526/Del/2012 (Assessment Year: 2007-08) ACIT, Bio Rad Laboratories (India) Pvt. Ltd., E-375, 1st Floor, GK Part-II, Circle-3(1), Vs. New Delhi New Delhi PAN:AAACB3202A (Appellant) (Respondent)

Assessee by : Sh Vishal Kalra, Adv Sh. Amit Bablani, CA Ms. Khyal Dadwal, Adv Sh. Sahil Gupta, CA Revenue by: Sh. Amit Raj, Sr. DR Date of Hearing 20/07/2016 Date of pronouncement 19/07/2016 O R D E R Per Prashant Maharishi A M 1. These are the appeals filed by the revenue against the order of the ld CIT(A) for respective years and therefore are dealt with by this common order as identical issues are involved in these appeals.

ITA No 2384/Del/2010 A Y 2002-03 2. We first take the appeal for AY 2002-03 wherein revenue has raised the following grounds of appeal in ITA No. 2384/Del/2010 as under:- “1. Whether on the facts and circumstances of the case, the Ld.ClT (A) has failed to examine that there was no analysis including the mandatory comparability analysis carried out by the

Page 2 of 24 assessee so as to establish the application of the profit split method. 2. Whether in the facts and circumstances of the case, the Ld.ClT (A) has erred -in applying the judgment of M/s Philips Software, M/s Sony India and the premises of circular 12 and 14 of 2001 in this. 3. Whether on the facts and circumstances of the case, the Ld.CIT(A) has erred in making subjective observations without examining the issues proving to the contrary relating to selection of comparables, usage of contemporaneous data and the application of the mean margin of the comparables.” 3. The brief facts of the case are that the 99.99% of the shares of the appellant company are held by Bio Rad USA and is engaged in the trading activity of diagnostic products, reagents and equipments manufactured by Bio Rad USA. It has two business divisions namely Life Science Group and Clinical Diagnostic Group. In business segment of clinic diagnostic group it purchases goods from its associated enterprises and resale them in the local market. In life science group assessee receives commission on direct sales made by the associates enterprises in Indian Market. The assessee provides after sales support services of equipment sold in the Indian Market for both the segments by its service engineers. 4. For the AY the assessee filed its return of income declaring income of Rs. 7604070/- on 30.10.2002. The ld Assessing Officer made a reference to the ld Transfer Pricing Officer to determine arm’s length price of the international transactions of purchase of finished goods amounting to Rs. 44637480/- and commission income of Rs. 12545078/- entered into by the assessee for the previous year. While filing its return of income assessee benchmarked purchase of goods by applying CUP method and submitted that the average margin of the assessee is 47% to 84% and therefore, it is at arm’s length. With respect to the commission income the assessee applied profits split method (PSM) as the Most Appropriate Method based on the functions performed and risk undertaken and ascertained profit split ratio of 22.33 : to 8.71 ( AE : Assessee) and therefore, 30% of the residual profit was allocated to the assessee and 70% to the holding company. It was contended that the functions of the assessee are only of sales office of gathering market information, presenting the

Page 3 of 24 products particulars to the customers and coordinating in obtaining purchase orders. Therefore, it does not have any commercial risk involved. Hence, it was contended that the transactions with the associated enterprises are at arm’s length. 5. The ld Transfer Pricing Officer examined the TP study report of the assessee and accepted the benchmarking of purchase of finished goods from its associated enterprises. However, it disagreed with the benchmarking of commission income for the reason that assessee has spent Rs. 4.15 crores as general expenses and Rs. 1.72 crores as selling and marketing expenses. However, same were considered by the assessee only for the purposes of distribution function of clinic diagnostic unit and no expenses were allocated to the life science division. Therefore, according to the ld Transfer Pricing Officer the transaction is benchmarked comparing the profit of AE with the receipt of commission without looking at the real profit of the life science segment of the assessee. Therefore, he rejected the bench marking analysis of the assessee of commission income. According the ld Transfer Pricing Officer the assessee has incurred loss of Rs. 4059069/- in life science segment on its gross receipt of commission income of Rs. 145089450/- therefore cost incurred by the assessee is Rs. 18148519/- which is (-) 22.33% loss over the cost. He compared this PLI by selecting 7 comparables and worked out arithmetic mean of the comparables at 7.99% and held that arm’s length commission income should be Rs. 18054213/- in place of Rs. 12545078/-. Consequently an adjustment of Rs. 5509135/- was proposed. Based on this the ld Assessing Officer incorporated the same in his final assessment order. Over and above this ld Assessing Officer disallowed depreciation on computers claimed by the assessee @60% which is allowable to the assessee according to the ld Assessing Officer @ 25% only and therefore, addition on account of depreciation was computed at Rs. 49053/-. Consequently, order u/s 143(3) of the Income Tax Act was passed by the ld Assessing Officer on 30.03.2005 assessing the total income of Rs. 13179999/- against the return income of the assessee of Rs.7604070/-.

Page 4 of 24 6. Assessee being aggrieved by the order of the ld. Assessing Officer preferred appeal before the ld CIT (A). The ld First appellate authority relying on the decision of the Bangalore Bench of ITAT in case of Philip Software Vs. ACIT and of Delhi Bench in Sony India Vs. DCIT deleted the transfer pricing adjustment. He further held that depreciation @ 25% is allowable on UPS, scanner and printers and @ 60% depreciation is allowable on computers only therefore, he dismissed the appeal of the assessee on this ground. Therefore revenue is in appeal before us against the deletion of transfer pricing adjustments deleted by ld CIT (A). 7. The ground No. 1 to 3 of the appeal of the revenue was with respect to the transfer pricing issues and also applicability of circular No. 12 and 14 of 2014. These grounds also cover the issue of the comparability etc. Ld Departmental representative referred to page NO. 3 of the order of the ld Transfer Pricing Officer and submitted that the assessee’s transfer pricing study report is faulty as the real profit of the life science division is not considered in view of non allocation of general and commission expenses. He further referred to para No. 7.8 of the order of the Transfer Pricing Officer that the functions for agency services are identical to the market support services hence it is appropriate for benchmarking of commission income. He further submitted that the decision of Bangalore Bench of tribunal in case of Philips Software Vs. ACIT has been stayed by Karnataka High Court and therefore the decision of the ld CIT(A) relying on that decision is erroneous. 8. Against this the ld Authorised representative submitted that the ld Assessing Officer has not recorded his satisfaction which is mandatory before making reference to TPO. It was further submitted that according to provisions of section 92C(3) of the Income Tax Act there are four criteria prescribed and only after satisfying them the ld Assessing Officer can make reference to the Transfer Pricing Officer. It was further contended that ld Transfer Pricing Officer has not given any reason for the rejection of PSM applied by the assessee. It was further submitted issues admitted by Hon’ble Karnataka High Court are not on the satisfaction of ld AO which has been accepted

Page 5 of 24 by the revenue. For the purpose of justifying the PSM he submitted a chart which was placed at page No. 75 of the PB submitting that the approach adopted by the assessee is correct. He further referred to page No. 73 of the PB to show the FAR analysis between parent and subsidiary and submitted that the assessee assumes no commercial risk and also do not undertake any responsibility of development, manufacturing distribution warranty and storage and financing operation. The 30% of the residual profit has been rightly allocated. It was further contended that the ld Transfer Pricing Officer has not given the FAR analysis of comparable companies and without that he has computed their margin. He further referred to the FAR analysis of the company to show that in the absence of the FAR analysis of comparables the order of the ld. TPO is erroneous. It was further submitted that the ld. TPO has never confronted the comparables selected to the appellant and therefore, the order of the ld Transfer Pricing Officer required to be set aside. 9. We have carefully considered the rival contentions and also perused the relevant material placed before us. The ld First appellate authority has decided this issue as under:- “5.8 I have carefully gone through the Assessment order and the various submissions of the appellant. In fact the Assessing Officer / Transfer Pricing Officer were given copies of the submissions made by the appellant so any objections to the same could be raised before me. The Assessing Officer / Transfer Pricing Officer in his report has stated facts similar to the ones stated in his order and has nothing new to state in this case. In fact most of the issues raised by the appellant were not answered by the A.O in his report. 5.9 A copy of the report was given to the appellant and the appellant has stated the following issues as not addressed to in the report by the A.O i) The very basis of calculation of net cost incurred by the company to earn commission income based on the turnover of the two segments of business of the appellant without taking into consideration other factors like functionality, working capital requirements and risk analysis is invalid in law and needs to be struck down. The TPO has completely ignored all the documents and information placed before him in support of their claim for bifurcation of expenses. The appellant places reliance on the order the case of Philips Software Centre Pvt. Ltd. V A.C.I.T (ITAT Bangalore Bench B) dated 26-h September, 2008 where on pages

Page 6 of 24 145 and 146 the Hon'ble ITAT bench clearly stipulates that due consideration has to be given to various factors like (i) working capital; (ii) adjustment for risk and growth; and (iii) adjustment of R& D expenses. A copy of the order is being submitted in on a CD. ii) The TPO or the AO have not mentioned any reasons for rejecting the Transfer Pricing study of the appellant or the ALP computed by the appellant whereas the conditions of section 92C(3) clearly stipulate that the AO may proceed to determine the ALP if he is of the opinion that certain conditions have been satisfied. Reliance is placed on the circular No. 12/2001 dated 23/8/2001 issued by the CBDT, wherein the following has been mentioned is binding on the AO. "it should be made clear to the concerned Assessing Officers that where an international transaction has been put to scrutiny, the Assessing Officer can have recourse to sub-section (3) of section 92C only under the circumstances enumerated in clauses (a) to (dj of that sub-section and in the event of material information or document in his possession on the basis of which an opinion can be formed that any such circumstance exists. In all other cases, the value of the international transaction should be accepted without further scrutiny," In the instant case it has not been mentioned in either the order of the AO or the TPO the clause of sub-section (3) of section 92C that has been invoked by them to reject the ALP, thereby rendering their calculations bad in law. iii) Transfer Pricing Officer in his order in his discussion under the head commission received- Life Sciences division has wrongly mentioned that "the assessee has admitted that similar products are being sold under both the segments and the same have been compared under CUP method followed by the assessee, it will be incorrect to assume that the entire general administration, marketing and selling expenses pertained only to the distribution segment.” In fact in its letter dated 9th March, 2005, the appellant clearly states otherwise, the observations made are strongly denied. A copy of this letter has been places as Annexure 1 on Page No. 24-25 in the Paper book. This fact has remained un-answered in both the Remand reports. iv) Secondly, the T.P.O's observations that "the profit split method followed by the assessee compared to the one of the associate enterprise with the gross receipt of commission without examining the real profit of the segment prima facie are wrong. In case by real profit it is to be understood that inter-segmental expenses are to be considered, then the observations are mis-conceived. In fact no such provision has been contemplated and thus not prescribed in law. The appellant has strictly followed the rule while computing the income from commission on the basis of profit split method. In fact it was explained that the profit from the international transactions has to be split between the AE and the appellant as per the method and then what expenses are being further incurred by either the AE or the appellant was not a subject matter of the principles laid

Page 7 of 24 down for calculation of ALP based on Profit split method. The TPO did not give any reasons what so ever for rejecting this method and started applying the TNMM which makes his order bad in law. It was also explained to the TPO that as per the Transfer Pricing guidelines it was the assessee's judgment as to which method was most appropriate to his business. The appellant further explained, that since data of comparable companies was not available TNMM method was not suitable in this case. v) The appellant strongly objects to the observations on the last page of the Remand report "that the assesses company was duly confronted with the above stipulation and was requested to file objections if any in this regard." As stated earlier by the assessee, no letter/intimation was issued to the company proposing the absurd calculations made by them since if the company received these stipulations it would have strongly objected to them. 5.10 The appellant has further relied on the rulings of the various ITAT benches in support of its claim and to prove that the order of the A.O is not valid and therefore needs to be struck down. 5.11 Appellant has argued that while it had. as part of its transfer pricing study documented its Functions (functional analysis), had profiled the risk undertaken and also the assets employed in the business and TPO while going through had ignored this aspect. The TPO broadly classified the appellant as "market support activity*' and searched to chose comparables from the prowess database. The appellant has argued that FAR analysis is very important keystone of any transfer pricing and proper comparable cannot be chosen without going in to the FAR analysis. In any FAR analysis the inputs are the study of organization, its functions, extent (value) and use of its assets, business plans, products, intergroup entities and the risk profile and correspondingly the output of the FAR study is characterization of the entity, understanding of business, risk and opportunity assessment. The appellant contented that typically an enterprise with low function and low risk will not be expected to earn a high margin. 5.12 Similarly the appellant contented that the TPO did not see the amount of assets employed in the respective business. All business work on the concept of return of investments and therefore a business employing large capital will invariably have higher return and vice a versa. In the absence of such an analysis, it would not fair to state that a proper, complete and accurate analysis was done and conclusion arrived. 5.13 As regard risk, the appellant further contended that it is imperative to identify the risk assumed by each entity in a transaction - risk related to market, inventory or finished goods and raw material, manpower, technology employed, price, credit default, capital, exchange fluctuations, service/product liability, performance, statutory, legal, etc. It becomes necessary to document these risks more particularly vis-a-vis comparables in order to identify risks which have an impact on the profitability. The appellant contended that by not going in the detailed FAR study in the transfer pricing report and also not undertaking the FAR study

Page 8 of 24 of the comparable companies the TPO had erred and therefore his conclusion were also erroneous. 5.14 I have considered the submissions of the appellant, the TPO has contended that proposal of prospered addition in respect of a mean net margin of 7.99% over cost in respect of commission business was made to the appellant. However the page-2 Para-3 speaks contrary to the assertion of TPO. The AO has recorded the denial of the appellant of any such proposal of addition. In such a situation the AO before proceeding to finalize the assessment should have confronted TPO and took necessary clarification of his assertion. There is no denial that objection was raised if not before TPO but before the AO. 5.15 Regarding prepositional distribution of expenses of service engineer and other staff to LSG & CSD, it was argued that the equipment attributable to LSG is sold in big research institution located in big cities like Delhi, Bombay etc. Since these machines are located in a smaller area fewer service engineer could attend them effectively with lesser travel and administration cost. Whereas in CSD attributable instruments, since they are scattered to small cities and places they require large force of service engineers to attend and also regular follow up. Thus there is no correlation with the value of sales, number of engineer and allocation of expenses. The unit should be seen as one and any division on this account may lead to erroneous result. 5.16 So far the comparable distribution and marketing company are concerned this is a wide field and every commodity is required to be marketed and distributed. This does not mean that a company dealing in marketing and distribution of medical equipment should be compared with a company in the field of printing of yellow pages or alike. Like should be compared with like. 5.17 The TPO has classified the services of the company as that of "market research" without further going into the exact nature of business being conducted by the appellant. Market research and marketing are terms of such wide implication that they have to be further analyzed. Similarly market research is further classified in to many more sub functions like customer analysis, choice modeling, competition analysis, risk analysis, product research, advertising research, market mix modeling etc. Comparables performing different sub functions will have different financial performance indicators. Similarly it can not be assumed that the two entities in similar business shall earn similar margins since margins are also a derivate to the functionality preformed, the assets employed. Therefore I hold that a simplistic classification like "market research" will lead to incorrect comparables as has done in this case and therefore erroneous conclusion. 5.18 Appellant has contended that it used profit split method because it was the most suitable method given the circumstances. As is accepted practice the profit split method may be applied where the operations of two or more associate enterprises are highly integrated, making it difficult to evaluate their transactions on an individual basis and the existence of valuable and unique intangibles makes it impossible to establish the proper level of

Page 9 of 24 comparability with uncontrolled transactions to apply a one-sided method. I hold that the TPO did not give any convincing reason for rejecting the method applied by the appellant. 5.19 After going through the submissions of the appellant, its reliance on various judgments of the ITAT and the order of the TPO I have concluded as follows: The TPO has adopted the TNMM method for arriving at the arm's length price of the international transactions which is in accordance with the law. However there are infirmities found in the TPO's order (not following the rules specified under Section 92C(3)). 1. By not specifying as to which of the four conditions prescribed in section 92C(3) are being satisfied for him to be able to reject the method adopted by the appellant. 2. not ensuring that the companies selected by him as comparable are actually comparable using all the benchmarks specified in the above mentioned rules. 3. By not confronting the appellant with the data available with him to reject their method and apply his method. 4. By not giving the list of companies chosen and financial data in respect of them used by him to arrive at the rate for application of TNMM method to the appellant. 5.20 The comparables used by the TPO are not comparable to the business of the appellant for various reasons. The appellant has produced various documents downloaded from the internet to show that the business of the comparable companies is vastly different from that of the appellant. The TPO has just adopted one yardstick of a marketing company and selected various marketing companies as comparables. He has not followed the specified procedure for ensuring that the selected companies are indeed comparable to the appellant company. 5.21 The appellant has presented a copy of the ITAT order in the case of Philips Software v ACIT (ITAT Bangalore) in the paperbook submitted before me. There are various conclusions in this order which are applicable in the instant case and have been discussed in detail below: i) Circular No. 14/2001 issued by the CBDT which is binding on the TPO states that The AO/TPO have to satisfy and communicate to the taxpayer which one of the four conditions prescribed in s. 92C (3) are satisfied before applying the transfer pricing provisions and the failure to demonstrate this to the assessee renders the transfer pricing order void." It was held by the ITAT that since the Learned TPO has not mentioned . any where as to which of the four conditions prescribed in s. 92 C(3) are being satisfied therefore rendering his order void. In the present case also the TPO fails to adhere to this circular. ii) It has also been held in the above mentioned case that "For purposes of making a comparability analysis it is essential that (a) the data should relate to the financial year and (b) be contemporaneous i.e. exist on the specified date. If one of the conditions is not fulfilled, the data should not be included for comparison."

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5.22 In the present case the Learned TPO has not shown whether the data of the companies selected by him are contemporaneous or not. In fact except for mentioning the percentage of net margin over cost no other details have been provided. No information as to how this figure has been arrived at and whether the various factors affecting the business of the appellant have been considered or not have not been discussed. No attempt has been made by the TPO to prove that the data selected by him is contemporaneous. Therefore the data used by the Learned TPO cannot be relied upon. iii) It was also held by the ITAT that "There was no infirmity in the TP study conducted by the assessee, and the TPO erred in disregarding the same for the purpose of computing, framing the assessment and making the transfer pricing adjustment. " The Learned TPO has not pointed out any defects/deficiencies in the TP study conducted by the appellant and therefore he has erred in making his own computations. iv) The ITAT in the above mentioned case stated that "Adjustment needs to be made to the margins of the comparables to eliminate differences on account of different functions, assets and risks and in particular for (a) differences in risk profile (b) difference in working capital position and (c) differences in accounting policies." 5.23 The appellant has also quoted the decision of Sony India vs. DCIT (ITAT Delhi), vide order dated 23rd September. 2008. This ITAT order of the Delhi bench is binding on the jurisdiction of the assessee. In this judgment the ITAT held that For purposes of determining what parties should be considered for purposes of comparison under Rule 10B (3), what is to be judged is the impact of the related party transaction vis-a-vis sales and not just profit since profit of an enterprise is influenced by large number of other factors. The facts and circumstances surrounding the company in question that should determine its status as a comparable and not its financial result. The cumulative effect of all factors has to be considered. In the present case the TPO has not made any effort to calculate the effect of various factors influencing the business of the selected companies and hence the entire process of application of the TNMM is void in law. Therefore the addition made by the TPO of Rs. 55,09,135 is hereby deleted.” 10. We have perused the transfer pricing methodology adopted by the assessee where the gross profit margin was worked out at 56.41% and out of that 27.37% is considered as profits for various costs assumed by the manufacturer, thereby determining the residual profit attributable to sales and marketing activity of 29.05%. This

Page 11 of 24 residual profit is required to be apportioned amongst the transacting parties based on the FAR analysis with respect to the services. As per para No. 8.1 of the Transfer Pricing study report there are no contractual agreements between the parties and all the terms and conditions are verbal. The commission being paid by the associated enterprises to the assessee is 10% on concluded sales in India. Based on this a FAR analysis was conducted and it was stated that no commercial risk with respect to the trading operation are assumed by the assessee and therefore, 30% of the residual profit is allocated to the assessee and balance 70% was allocated to the associates enterprises. On the residual profit of 29.05% assessee applied 30% which is 8.71% and as the commission income is less than 10%, hence it was submitted that commission income is at arm’s length. In this methodology the ld Transfer Pricing Officer found defect for the reason that the segmental allocation of the expenses shows that the net profit of the commission business was 27.76%. On the allocation of the number of employees it was found by him that there were 55 employees out of which 11 employees were on account of commission income and 20 employees for distribution business and therefore the contention of the assessee was that only 20% of the salary is required to be allocated to the segment. On the basis of allocation of other expenditure the redrawn segmental accounts submitted by the assessee demonstrated a net loss of Rs. 4059069/- in the commission income segment. Therefore the ld TPO held that such loss should be compared with the net margin over the cost of the comparable companies for the purpose of benchmarking commission income. The main reason for rejection is that the assessee has followed the profit split method comparing the profit of the associated enterprise with the gross receipt of commission without examining the real profit of this segment. Therefore, he rejected the PSM method adopted by the assessee. The ld. first appellate authority has held in para No. 5.22 that ld. Transfer Pricing Officer has not pointed out any defect or deficiency in the TP study conducted by the appellant. According to us this observation is erroneous as ld. TPO has stated that comparison of margin of 10 % on sales is not proper when in

Page 12 of 24 commission business on segmental analysis it is found that it has incurred considerable loss. Further, the ld. Transfer Pricing Officer has also adopted transactional net margin method (TNMM) as the most appropriate method and selected 7 comparables without carrying out FAR analysis of those comparables with the assessee. Therefore there is basic flaw in the transfer pricing mechanism adopted by the ld. Transfer Pricing Officer. Moreover, he has also not given an opportunity to the assessee to comment on the comparables selected by him. The ld. first appellate authority has relied upon the decision of Philips Software Vs. ACIT dated 26th September 2008 and has held that since the ld TPO has not mentioned any of the four conditions prescribed u/s 92C(3) of the Act rendering his order void. During the course of hearing the ld DR has submitted that Hon’ble Karnataka High Court has stayed the above judgment and therefore, the decision of the first appellate authority is erroneous as it relied on the stayed judgment. The Hon’ble Karnataka High Court vide its order dated 16.02.2009 has stayed the operation of the judgment on which the first appellate authority has relied upon. Though the Hon’ble High Court admitted the several questions of the law but stayed the whole of the judgment of the coordinate bench. Hence, we reject the contention the ld AR that the decision of the coordinate bench is stayed to the limited extent. In view of above facts it is apparent that ld first appellate authority vide his decision dated 25.03.2010 relying on the decision of the coordinate bench which was stayed by Hon’ble Karnataka High Court vide order dated 16.02.2009 deserves to be set aside. Hence, we set aside all the four grounds of the appeal to the file of the ld TPO to determine ALP of international Transactions after giving assessee a proper opportunity of hearing. In view of this the appeal of the revenue is allowed with above direction. 11. In the result the appeal of the revenue in ITA No. 2384/Del/2013 for AY 2002-03 is allowed for statistical purposes.

Page 13 of 24 ITA No. 3330/Del/2010 Assessment Year 2003-04 12. The revenue has raised the following grounds of appeal for the Assessment Year 2003-04 in ITA No. 3330/Del/2010 as under:- “1. The Ld.CIT(A) has erred in law and on facts in deleting addition of Rs.4687692/-on account of Arm's Length Price as: (a) the Ld.CIT(A) has failed to examine that there was no analysis including mandatory comparability analysis carried out by the assessee so as to establish the application of the profit split method. (b) the Ld.CIT(A) has erred in applying the judgments of Philips Software, Sony India and the premise of Circular 12 and 14 of 2001 in this. (c) the Ld.CIT(A) has erred in making subjective observations without examining the issues proving to the contrary relating to selection of comparables. usage of contemporaneous data and the application of the mean margin of the comparables. 2. The Ld.CIT(A) has erred in law and on facts in deleting addition of Rs.5715977/-on account of depreciation on rental assets. The Ld.CIT(A) failed to appreciate the features of Rule 46A which require affording reasonable opportunity to the Assessing Officer to consider fresh evidence.” 13. The parties before us submitted that the first ground of the appeal of the revenue is similar to the ground No. 1 of the appeal of the revenue for AY 2002-03 in ITA No. 2384/Del/2010, therefore, they submitted that their argument on this ground remains the same. 14. We have carefully considered the rival contentions and perused the facts of the ground No. 1 of this appeal to the facts of the ground No. 1 of the appeal of the revenue for AY 2002-03 found them to be similar. We have already decided ground No.1 appeal of the revenue for AY 2002-03 wherein we have set aside the above ground to the file of ld TPO with direction. Similarly, we also set aside this ground of appeal to the file of ld TPO with similar direction. In the result ground No. 1 of the appeal of the revenue is allowed accordingly. 15. Ground No.2 of the appeal of the revenue is against deletion of addition of Rs. 5715977/- on account of depreciation on rental assets. 16. Brief facts of this ground are that assessee is placing certain equipment at the premises of the customers with an intension to sell

Page 14 of 24 reagents and testing chemicals to the customers. The title to the equipment does not pass on to the customers at whose premises the equipments are placed. The assessee does not receive any rent or installments from those customers and therefore, according to the assessee the ownership of the assets are with the appellant and further these assets are used for the purposes of the business and hence assessee claims depreciation on these assets. The ld Assessing Officer disallowed the depreciation for the reason that the assessee is not using those assets for the purposes of the business as self use and at the end of the agreement the title of the assets passes to the hirer. Therefore, the depreciation was disallowed. On appeal before the ld CIT(A) the claim of the assessee was allowed. The ld CIT(A) noted the fact that as per the agreement which was valid for four years and at the end of the period the client has a right to purchase the above equipment for a token amount. At the time of placing this equipment at the place of the client there is minimum guarantee of quantity of reagents etc to be purchased by the client from the assessee. 17. The ld Departmental Representative relied upon the order of the AO whereas the ld Authorised Representative relied upon the order of the ld CIT(A) and also placing reliance on the decision of Hon'ble Supreme Court in case of ICDS Ltd. Vs. CIT 29 Taxmann.com 129. The ld Authorised Representative further relied upon the decision of coordinate bench in ITA No. 482/Del/2009 AY 2004-05 dated 18.02.2010. 18. We have carefully considered the rival contentions. The coordinate bench has considered the identical issue wherein depreciation was allowed on machineries which are installed at the manufacturing premises of another company from whom assessee purchases the packed fruit juices. The coordinate bench in ITA No. 482/Del/2009 dated 18.02.2010 vide para No. 5 to 7 has held as under:- “5. We have considered the rival submissions. A perusal of the decision of Hon'ble Supreme Court in the case of Liquidators of Pursa Ltd. shows that the Hon'ble Supreme Court therein has clarified the meaning of the words “used for the purpose of business” as was available in Section 10(2)(iv) of the I. T. Act, 1922 the I.T.A. term which is used in Section 32 of the I. T. Act, 1961. The Hon'ble Supreme Court has held that the said term means that the machinery & plant is used for the purpose

Page 15 of 24 of enabling the owner to carry on the business and earn profit in the business. With this meaning in mind if the facts in the present case are seen, it is noticed that the assessee is in the business of trading in packed fruit juices. As per the assessee’s product supply agreement entered into by the assessee with Dynamix right from 18th Feb 1999, it is noticed that Dynamix is to manufacture fruit juices as per the requirement of the assessee and it is to be packed in accordance with the packing instructions and the packing material and design have to be approved by the assessee. The manufacture and the packing are to be as per the specifications and quality standards decided by the assessee. The trademark belongs fully to the assessee. Even the raw material and other inputs as are required for the manufacture of the fruit juices are to be sourced from the sources and as per the specification approved by the assessee. Thus, a perusal of the product supply agreement shows that Dynamix is manufacturing the fruit juices for and on behalf of the assessee. Dynamix has no say in the method of manufacture, product mix, sourcing of raw material quality of raw material, method of packing, design of packing etc. It is not a case where Dynamix manufacture fruit juices and the assessee is a dealer for the fruit juice manufactured by Dynamix. A perusal of the equipment Supply Agreement between the assessee and the Dynamix clearly shows that it manufactures the fruit juices as per the requirement of the assessee and as agreed between the assessee and Dynamix in the Product Supply Agreement, the Dynamix required the assessee to provide the equipments and wanted to place a responsibility on the assessee so that the assessee does not end or terminate the agreement with Dynamix after Dynamix invests substantial amount in the machinery which would remain the liability in the hands of Dynamix if the assessee back out the agreement. It is noticed that the assessee as per the request of Dynamix has provided the machinery for the purpose of manufacturing the products under the Product Supply Agreement. A perusal of the agreement also shows that it is clearly understood that the machinery would belong to the assessee and not the Dynamix and Dynamix had no charge or claim over the machinery. Even the servicing, maintenance and spare parts of the machinery was to be in done in the presence of the representative of the assessee even though the cost for the same was to be borne by Dynamix. Its has also been clearly understood between the parties that the Dynamix cannot use the machinery provided by the assessee for the purpose other than manufacturing products as agreed upon in the Product Supply Agreement. In these circumstances, as it is noticed that the machinery has been provided by the assessee to Dynamix for the purpose of manufacturing the product of the assessee it would have to be held that the machinery has been used for the purpose of the business of the assessee and consequently the assessee would be entitled for claiming the depreciation. 6. In respect of the depreciation in regard to the Visi Refrigerators, it is noticed that these refrigerators have been installed at the premises of the dealers of the products dealt with by the assessee. Obviously, the product dealt in by the assessee are perishable commodities which have shelf life and which have to be maintained between a specific temperature. The A.O. has not pointed out anything to show that the refrigerators were not used for the business of the assessee. In fact the order of the A.O. specified that the refrigerators were not proved to have been put to business use during the relevant previous year. The fact that these refrigerators were at the various outlets all over India as recorded by the A.O. itself shows that the refrigerators have been put to use as these refrigerators are at the premises of the dealers of the product of the assessee and consequently the assessee would be entitled to the claim of depreciation. 7. In the appeal of the revenue in I.T.A. No. 810/Del/2009 identical issue has been raised and it is noticed that the CIT(A) has relied upon his decision for the

Page 16 of 24 Assessment Year 2004-05 for deleting the disallowance of depreciation. As we have held that the decision of the Ld. CIT(A) to the issue in I.T.A. No. 482/Del/2009 is on a right footing, the same finding would apply to this appeal also in I.T.A. No. 810/Del/2009.” 19. In view of the above and following the decision of coordinate bench , we do not find any infirmity in the order of the ld CIT(A) in allowing the claim of deduction of the depreciation to the assessee as assessee owns the assets and also uses it for the purposes of its business. The revenue’s another aspect of this ground is that ld CIT(A) has admitted the affidavit of the assessee before him. We have perused the order of the ld CIT(A) wherein the affidavit only says that the assessee has not received any rent or installment on account of these machines. We reject the argument of the revenue as the information in the form audited financial statement is available on record as assessee has not shown any rental income in its profit and loss account and further in its fixed assets schedule it has shown the rental assets. In view of this ground No. 2 of the appeal of the revenue is dismissed. 20. In the result appeal of the revenue is partly allowed for statistical purposes. ITA No. 4712/Del/2011 AY 2004-05 21. The revenue has raised the following grounds of appeal for Assessment Year 2004-05 in ITA No. 4712/Del/2011 as under:- “1. The order of the Ld.CIT(A) is erroneous & contrary to facts & law. 2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs.6488,415/- made on account of depreciation on rented assets. 3. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs.3,03,209/- made by disallowing the excess depreciation claimed on computer peripherals. 4. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs.6,11,626/- made by capitalizing the seminar expenses. 5. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs.3,26,520/- made by the AO on account of Bio-Rad display stand. 6. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs.59,93,211/- made u/s 92 CA(3) of the I.T. Act on account of T.P. adjustments.”

Page 17 of 24 22. The first ground of appeal is against the order of the ld CIT(A) deleting the disallowance made on account of deprecation on rented assets. 23. The parties before us submitted that this ground is identical to ground No. 2 of the appeal of the revenue for AY 2003-04. They also submitted that their arguments on this ground remain the same which were advanced by them in appeal of the revenue for AY 2003- 04. 24. We have carefully considered the rival contentions and perused the ground of appeal and are convinced that it is identical to ground No. 2 of the appeal of the revenue for the AY 2003-04. We while deciding that ground has dismissed the ground of the revenue holding that the assessee is eligible for the claim of depreciation on rented assets. Similarly, we also dismiss the ground No. 2 of the appeal of the revenue. 25. Ground No. 3 of the appeal is against depreciation claimed on computer peripherals. 26. The assessee has claimed depreciation on computer peripherals like printers, scanner and UPS @ 60% whereas the ld AO allowed it @ 25%. Ld CIT(A) has allowed the claim of the assessee of depreciation @60% on such assets following the decision of the Hon'ble Delhi High Court in CIT Vs. TSES Rajdhani Power Ltd. and therefore we do not find any infirmity in the order of the ld CIT(A). Ground No. 3 of the appeal of the revenue is dismissed. 27. Ground No. 4 of the appeal is on the issue of seminar expenses. The assessee has incurred Rs. 916540/- for the launch of new products D-10 systems. The ld Assessing Officer allowed 1/3 of these expenses holding that balance expenditure was to be amortized over the next two years. The ld CIT(A) deleted the above disallowance holding it as revenue in nature. 28. The ld DR relied upon the order of the ld AO and ld Authorised Representative relied on the order of the ld CIT(A). 29. We have carefully considered the rival contentions. The ld CIT(A) has held that these are the expenses for the marketing of new products launched by the assessee in the same line of business. They are

Page 18 of 24 routine in nature and further the decision of Hon'ble Supreme Court in case of Madras Industrial Investment Corporation Ltd. 225 ITR 802 does not apply to the facts of the case. We do not find any infirmity in the order of the ld CIT(A) and therefore, we dismiss ground No. 4 of the appeal of the revenue. 30. Ground No. 5 of the appeal of the revenue is on account of expenditure on display stand. During the year the above sum was incurred for display stand in seminar. The ld Assessing Officer held this expenditure as capital in nature instead of revenue expenditure and consequently allowed depreciation @ 25%. On appeal before the ld CIT(A) the expenditure were held to be revenue in nature. Before us the ld DR relied upon the order of the ld AO and ld Authorised Representative relied on the order of the ld CIT(A). 31. We have carefully considered the rival contentions. The ld CIT(A) has deleted the disallowance after verification of the invoices which demonstrated that expenses were incurred for display panel, banner stand and other kinds of display literature. He therefore held that looking to the nature of the expenditure and durability and longitivity of these items such expenditure is revenue in nature. We find no infirmity in the order of the ld CIT(A). Hence, ground No. 5 of the appeal of the revenue is dismissed. 32. Ground No. 6 of the revenue is against deletion of Rs. 5993211/- on account of transfer pricing adjustments. 33. The parties before us submitted that this ground of appeal is identical to ground No. 1 to 3 of the appeal of the revenue for AY 2002-03 therefore their arguments remains the same. 34. We have carefully considered the rival contentions. We have already decided ground No. 1 to 3 of that appeal of the revenue for AY 2002- 03 wherein, we have allowed the ground of the revenue with direction setting it aside to the file of LD TPO. Similarly, for this ground of appeal also we set it aside to the file of LD TPO with similar direction. In the result ground No. 6 of the appeal of the revenue is allowed with above direction. 35. In the result the appeal of the revenue is partly allowed for statistical purposes.

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ITA No. 2466/Del/2012 AY 2005-06 36. The revenue has raised the following grounds of appeal for Assessment Year 2005-06 in ITA No. 2466/Del/2012 as under:- “1. In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing AO to recalculate the depreciation on rental assets. 2. In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing AO to recomputed the depreciation on computer peripherals @ 60%. 3. In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing AO to allow the marketing expenses as claimed by the assessee. 4. In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing AO to delete the addition of Rs. 1,67,40,9887- on account of Arm's Length Price.” 37. The first ground of appeal of the revenue is against allowance of depreciation on rental assets. 38. The parties before us submitted that this ground is identical to ground No. 2 of the appeal of the revenue for AY 2003-04. They also submitted that their arguments on this ground remain the same which were advanced by them in appeal of the revenue for AY 2003- 04. 39. We have carefully considered the rival contentions and perused the ground of appeal and are convinced that it is identical to ground No. 2 of the appeal of the revenue for the AY 2003-04. We while deciding that ground has dismissed the ground of the revenue holding that the assessee is eligible for the claim of depreciation on rented assets. Similarly, we also dismiss the ground No. 1 of the appeal of the revenue. 40. The ground No. 2 of the appeal of the revenue is against depreciation on computer peripherals @ 60% instead of 25%. 41. The assessee has claimed depreciation on computer peripherals like printers, scanner and UPS @ 60% whereas the ld AO allowed it @25%. Ld CIT(A) has allowed the claim of the assessee of depreciation @60% on such assets following the decision of the Hon'ble Delhi High Court in CIT Vs. TSES Rajdhani Power Ltd. and

Page 20 of 24 therefore we do not find any infirmity in the order of the ld CIT(A). Ground No. 2 of the appeal of the revenue is dismissed. 42. Ground No. 3 of the appeal is against deletion of disallowance of marketing expenses of Rs. 718575/- holding it as capital expenditure. 43. The facts relating to this expenditure are identical to ground No.4 of the appeal of the revenue for AY 2004-05. 44. The ld DR relied upon the order of the ld AO and ld Authorised Representative relied on the order of the ld CIT(A). 45. We have carefully considered the rival contentions. The ld CIT(A) has held that these are the expenses for the marketing of new products launched by the assessee in the same line of business. They are routine in nature and further the decision of Hon'ble Supreme Court in case of Madras Industrial Investment Corporation Ltd. 225 ITR 802 do not apply to the facts of the case. We do not find any infirmity in the order of the ld CIT(A) and therefore, we dismiss ground No. 3 of the appeal of the revenue. 46. Ground No. 4 of the appeal of the revenue is against the transfer pricing adjustment of Rs. 16740988/- deleted by the ld CIT(A). 47. The parties before us submitted that this ground of appeal is identical to ground No. 1 to 3 of the appeal of the revenue for AY 2002-03 therefore their arguments remains the same. 48. We have carefully considered the rival contentions. We have already decided ground No. 1 to 3 of that appeal of the revenue for AY 2002- 03 wherein, we have allowed the ground of the revenue with direction setting it aside to the file of ld TPO. Similarly, for this ground of appeal also we set it aside to the file of ld TPO with similar direction. In the result ground No. 4 of the appeal of the revenue is allowed with above direction. 49. In the result appeal of the revenue is partly allowed for statistical purposes.

Page 21 of 24 ITA No. 490/Del/2011 AY 2006-07 50. The revenue has raised the following grounds of appeal for Assessment Year 2006-07 in ITA No. 490/Del/2011 as under:- “1. In the facts and circumstances of the case, the Ld.CIT(A) has erred in law and on facts in deleting addition of Rs.80,06,721/- on account of disallowance of depreciation on rental assets ignoring that transactions carried out by the assessee company with its customers were in the nature of hire-purchase. 2. In the facts and circumstances of the case, the Ld.CIT(A) has erred in law and on facts in deleting addition of Rs.1,45,837/- on account of disallowance of extra depreciation on computer peripherals/accessories ignoring that as per the IT Rules 60% depreciation is allowable only on computer and computer software and not on computer peripherals and accessories.” 51. The ground No. 1 of the appeal of the revenue is on depreciation of rental assets of Rs. 8006721/-. 52. The parties before us submitted that this ground is identical to ground No. 2 of the appeal of the revenue for AY 2003-04. They also submitted that their arguments on this ground remain the same which were advanced by them in appeal of the revenue for AY 2003- 04. 53. We have carefully considered the rival contentions and perused the ground of appeal and are convinced that it is identical to ground No. 2 of the appeal of the revenue for the AY 2003-04. We while deciding that ground has dismissed the ground of the revenue holding that the assessee is eligible for the claim of depreciation on rented assets. Similarly, we also dismiss the ground No. 1 of the appeal of the revenue. 54. Ground No. 2 of the appeal is against the depreciation on computer peripherals @ 60% instead @ 25% allowed by the AO. 55. The assessee has claimed depreciation on computer peripherals like printers, scanner and UPS @ 60% whereas the ld AO allowed it @25%. Ld CIT(A) has allowed the claim of the assessee of depreciation @60% on such assets following the decision of the Hon'ble Delhi High Court in CIT Vs. TSES Rajdhani Power Ltd. and therefore we do not find any infirmity in the order of the ld CIT(A). Ground No. 2 of the appeal of the revenue is dismissed. 56. In the result the appeal of the revenue is dismissed.

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ITA No. 3526/Del/2012 AY 2007-08 57. The revenue has raised the following grounds of appeal for Assessment Year 2007-08 in ITA No. 3526/Del/2012 as under:- “1. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs.82,17,372/- on account of depreciation on rented assets. 2. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 1,82,047/-claimed on computer peripherals.” 58. The ground No. 1 of the appeal of the revenue is on depreciation of rental assets of Rs. 8217372/-. 59. The parties before us submitted that this ground is identical to ground No. 2 of the appeal of the revenue for AY 2003-04. They also submitted that their arguments on this ground remain the same which were advanced by them in appeal of the revenue for AY 2003- 04. 60. We have carefully considered the rival contentions and perused the ground of appeal and are convinced that it is identical to ground No. 2 of the appeal of the revenue for the AY 2003-04. We while deciding that ground has dismissed the ground of the revenue holding that the assessee is eligible for the claim of depreciation on rented assets. Similarly, we also dismiss the ground No. 1 of the appeal of the revenue. 61. Ground No. 2 of the appeal is against the depreciation on computer peripherals @ 60% instead @ 25% allowed by the AO amounting to Rs. 182047/-. 62. The assessee has claimed depreciation on computer peripherals like printers, scanner and UPS @ 60% whereas the ld AO allowed it @ 25%. Ld CIT(A) has allowed the claim of the assessee of depreciation @ 60% on such assets following the decision of the Hon'ble Delhi High Court in CIT Vs. TSES Rajdhani Power Ltd. and therefore we do not find any infirmity in the order of the ld CIT(A). Ground No. 2 of the appeal of the revenue is dismissed. 63. In the result the appeal of the revenue is dismissed.

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ITA No. 1266/Del/2013 AY 2008-09 64. The revenue has raised the following grounds of appeal for Assessment Year 2008-09 in ITA No. 1266/Del/2013 as under:- “1. Whether the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 1,21,33,5427- on account of disallowance of depreciation on rental assets ignoring the fact that the assessee company is not the actual user of the machinery/equipments which were hired out. depreciation cannot be allowed to the assessee company. 2. Whether the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 18,024 on account of extra depreciation claimed on computer peripherals ignoring the fact that the computer and computer software are eligible for depreciation of 60% and the same cannot be extended to computer accessories and peripherals.” 65. The ground No. 1 of the appeal of the revenue is on depreciation of rental assets of Rs. 12133542/-. 66. The parties before us submitted that this ground is identical to ground No. 2 of the appeal of the revenue for AY 2003-04. They also submitted that their arguments on this ground remain the same which were advanced by them in appeal of the revenue for AY 2003- 04. 67. We have carefully considered the rival contentions and perused the ground of appeal and are convinced that it is identical to ground No. 2 of the appeal of the revenue for the AY 2003-04. We while deciding that ground has dismissed the ground of the revenue holding that the assessee is eligible for the claim of depreciation on rented assets. Similarly, we also dismiss the ground No. 1 of the appeal of the revenue. 68. Ground No. 2 of the appeal is against the depreciation on computer peripherals @60% instead @25% allowed by the AO amounting to Rs. 18024/-. 69. The assessee has claimed depreciation on computer peripherals like printers, scanner and UPS @ 60% whereas the ld AO allowed it @25%. Ld CIT(A) has allowed the claim of the assessee of depreciation @60% on such assets following the decision of the Hon'ble Delhi High Court in CIT Vs. TSES Rajdhani Power Ltd. and

Page 24 of 24 therefore we do not find any infirmity in the order of the ld CIT(A). Ground No. 2 of the appeal of the revenue is dismissed. 70. In the result the appeal of the revenue is dismissed. Order pronounced in the open court on 19/09/2016. -Sd/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:19 /09/2016 A K Keot Copy forwarded to