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Income Tax Appellate Tribunal, BANGALORE ‘A’ BENCH, BANGALORE
Before: SHRI ABRAHAM P GEORGE & SHRI VIJAY PAL RAO
PER SHRI ABRAHAM P GEORGE, AM;
These are appeal and stay petition filed by the assessee against an assessment done on it pursuant to directions of the Dispute Resolution Panel (DRP) for the impugned assessment. Assessee has altogether raised nine grounds. Ground no.9 is on levy of interest u/s 234B of the IT Act, 1961 which is consequential in nature.
2 IT(TP)A No.537(B)/15 & SP No.58(B)/15
Vide its ground no.1 & 2 assessee is aggrieved that the net working equipments used for audio/video conference and video streaming were allowed depreciation only at the rate of 15% as against the claim of 60% made by it.
Learned AR at the outset submitted that similar issue had come up before this Tribunal in the case of assessee itself for assessment year 2009-10. As per the learned AR similar disallowance was made for assessment year 2008-09 and 2009-10 also. The Tribunal had set aside this issue to the file of the AO for considering whether the net working equipment could function independently or only in conjunction with a computer. This Tribunal held that in the former case, it should be considered as a computer eligible for depreciation at the rate of 60%, whereas in the latter case it would be eligible for only 15%.
Per contra, learned DR fairly admitted that the issue requires a fresh look by the AO.
We have perused the orders and heard the rival contention. Claim of the assessee before the AO, was that the audio/video conference equipment and video streaming equipment were also net working equipment eligible for depreciation at 60%. The AO had held the claim of the assessee to be farfetched.
According to him, the devices had long period of effective use and were not 3 IT(TP)A No.537(B)/15 & SP No.58(B)/15 amenable to virus attacks or redundancy. Learned CIT(A) also approved such view, taken by the AO and held that such equipment would be eligible for only 15% depreciation as available for general plant & machinery. In this regard, we find that the similar issue had come up before this Tribunal both for the assessment year 2008-09 & 2009-10 in assessee’s own case. Relevant para no.5 of the order of this Tribunal in IT(TP)A No.116(B)/2014 dated 10-10-2013, for assessment year 2009-10 is re-produced hereunder;
“5. As regards the first issue i.e. depreciation on networking equipment allowed at 15% as against 60% as claimed by the assessee, we find that the issue is covered in favour of the assessee by the decision of this Tribunal, to which one of us i.e. the Judicial Member is the signatory, in assessee’s own case for assessment year 2008-09 in IT(TP)A No.1558/Bang/2012 dated 19/9/2014. The Tribunal in para.6 to 8.3 of its order has considered this issue at length and has held as under:
“6. Having heard both the parties and having considered the rival contentions as well as the material on record, we find that the issue is covered in favour of the assessee by the decision of the Apex Court as well as the Special Bench (cited supra) as regards depreciation on routers and switches is concerned and the AO, for the assessment years 2006-07, 2007-08 and 2010-11, has followed the same in allowing depreciation at the rate of 60%. In view of the same, we direct the AO to adopt the said rationale for the relevant assessment year also and allow depreciation at the rate of 60% on routers and switches.
7. As regards Audio visual conferencing equipments and video streaming equipments, the learned counsel for the 4 IT(TP)A No.537(B)/15 & SP No.58(B)/15
assessee has filed detailed submissions before the AO as well as before us to convince us that they are also part of the computer system and are not independently functional. He has drawn our attention to the detailed submissions filed by the assessee which has also been reproduced by the AO in his order.
The learned Departmental Representative, on the other hand, supported the orders of the authorities below and submitted that they have considered the issue at length and have given elaborate reasons for treating these equipments as ‘plant and machinery’ only and not as computer.
8. Having heard both the parties and having considered the rival contentions, we find that to treat the equipment as computer or computer system, the nature of the equipment and the functions they perform are to be examined.
8.1 As per the details furnished by the learned counsel for the assessee, audio and video conferencing system comprise of audio-video devices/equipments which facilitate in bringing people at different sites together for a meeting. Besides the audio and visual and meeting activities, these systems can also be used to share document, computer information and boards, Conferencing works across IT net- work, ISD through computers/computer network etc., and audio/video facility consist of many elements including the use of CODEC which stands for coder-decoder. Codec is a device, which converts and compresses an analog audio-video signal into digital data and then sends it over a digital line. The decoder reverses the processes at the receiving end and this compression and decompression allows large amount of data to be transferred across a network at close to real time. Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi. Therefore, according to the learned counsel for the assessee, computer system is extremely important to conferencing
5 IT(TP)A No.537(B)/15 & SP No.58(B)/15 process and therefore the audio visual transmission equipment should be considered as part of a computer.
8.2 Regarding the video streaming equipment, it was submitted that the video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of initiating and buffering, the file will begin to stream or play in real time. Video streaming involves a series of steps involving the use of media content, a computer that runs encoding software, servers for upholding the streamed media format and access to such media through various devices. From the above submissions, it is clear that the equipment used by the assessee for audio visual conferencing and also video streaming involves the use of computer. As certain input and output equipment may have independent functionality and existence but the computer devices which are involved in these activities would be of no use if these input and output devices are not used. Therefore, though the input and output devices may have independent existence and functionality in so far as the activity of the assessee is concerned, they do form part of the computer network system without which the computer used for the purpose of audio and video conferencing would be useless. The Special Bench of the Tribunal in the case of Datacraft India Ltd., (cited supra) has held that peripheral equipments used along with computer are also part of the computer. We find that a similar issue had come up before ‘B’ Bench of the Tribunal at Delhi in the case of M/s. Crabtree India Ltd. vs. ACIT in & 3639/Del/2008 and the Tribunal vide orders dated 25-2-2010 has held that video conferencing system is a computer device that accepts information in the form of digital data by way of video input i.e. with the help of web/cam or video camera and audio input with the help of microphone and the system thereafter processed the data and transfer through analogue or digital telephone network or LAN and digital gives the output data by way of audio video output. Therefore, it is a technical device whose functions are similar to the computer because basically computer also responds to a specific set of instructions in a well defined manner. The Tribunal considered the decision of the ITAT, Calcutta Bench in the case of ITO vs. Simran Majumdar (98 ITD 119) wherein the Tribunal had considered the similar issue wherein depreciation at the rate of 60% was 6 IT(TP)A No.537(B)/15 & SP No.58(B)/15 claimed on printers and scanners and it was held that they were eligible for depreciation at the rate of 60%. The Tribunal, however, held that the contentions of the assessee therein were not before the AO and therefore the issue was set aside to the file of the AO to consider each of the items in detail and find out which can be equated and construed as computer for the purpose of granting depreciation at the rate of 60% after providing the assessee due opportunity of hearing.
8.3 In the case before us also, all the components of the equipment are necessary for fulfillment of the objective of the audio-visual conferencing and video streaming. Some of the components may exist independently and may also be functioning independently but in the assessee’s business they are only performing the functions as input and output devices. The assessee can also use this equipment independent of the computer system used in the audio visual conferencing and video streaming activity. But did the assessee use them independently is the question. In view of the same, we are of the opinion that the AO, instead of classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery. The AO, shall, thus allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery. This issue is accordingly set aside to the file of the AO for re- adjudication in accordance with law and our observation above”.
Respectfully following the decision of the co-ordinate Bench of the Tribunal in the assessee’s own case, we remand the issue to the file of the AO with similar directions. Needless
7 IT(TP)A No.537(B)/15 & SP No.58(B)/15 to mention the assessee shall be given a fair opportunity of hearing”.
We are of the opinion, that in line with the above decision for the impugned assessment year also the AO has to take a close look at the claim to verify whether such claim was for standalone equipment or equipment which could be used only in conjunction with a computer. Similar directions as given earlier in the two earlier assessment years are issued here also. Ground no.1 & 2 of the assessee are treated as allowed for statistical purposes.
Vide its ground no.3 grievance raised by the assessee is that the set off of brought forward depreciation of los of Rs.15,84,08,221/- was not given to it despite claim being made in the return of income.
Learned AO had in connection with the claim of assessee for set off of depreciation noted as under passed on the DRP.
“ As the ITAT in its orders for the assessment years 2008- 09 and 2009-010 in dated 19-09-2014 and 116/B/2014 dated 10-10-2014 respectively have held that the routers/switches have to be considered as computers and accordingly depreciation at the rate of 60% is to be allowed. With regard to audio/video streaming equipments the 8 IT(TP)A No.537(B)/15 & SP No.58(B)/15
Hon’ble Tribunal has remanded the issue to the AO for classification of the equipments as Computers or Plant & Machinery. Any exercise carried to rework the written down value in view of the aforesaid decisions would be infructuous and pre-mature. However, once the audio/video streaming equipments are classified the WDV value will be re-worked and the depreciation allowed accordingly. With regard to the disallowance of brought forward losses, the benefits will be passed on to the assessee on giving effect to the orders of the ITAT received”.
Thus, we find that the claim of brought forward loss was not considered by the AO. The AO is directed to verify such claim and to give a set off of brought forward loss as allowed under law. Ground no.3 is allowed for statistical purposes.
In its ground nos.4 to 8 assessee assails the treatment given by the lower authorities to the international transactions pertaining to payments made by it for administrative support services received by it from its associated enterprises namely M/s Cisco Systems Capital Asia Pte Ltd. Singapore and M/s Cisco Systems Capital Pte Ltd. Australia.
9 IT(TP)A No.537(B)/15 & SP No.58(B)/15
Learned AR submitted that the AO/TPO had substituted CUP method to the TNM method adopted by the assessee for evaluating the international transactions relating to the payments made by the assessee to its associated enterprises (AE) for administrative support services received from them. As per the learned AR, lower authorities wrongly took nil amount as the benefit received by the assessee from such services rendered by the Associated Enterprises. Learned AR also submitted that the very same issue had come up in assessee’s own case for assessment years 2008- 09 as well as 2009-10 before this Tribunal. Reliance was placed on the order dated 10-10-2014 in IT(TP)A No.116/B/21014 (Supra). Further, as per the learned AR it had evidence to show that the benefits were received through the services rendered by the AE. According to the learned AR if an opportunity was given evidence could be produced to substantiate its claim that the benefits were indeed received on account of services rendered by the AE to it, for which payments were effected.
Per contra, learned DR submitted that the facts for the impugned assessment year were different in that, even before the DRP, assessee did not produce evidence for any benefit it had received on account of services rendered by the AE. According to him, Tribunal’s order dated 10-10-2014
10 IT(TP)A No.537(B)/15 & SP No.58(B)/15 was available with the assessee when it appeared for hearing before the DRP on 05-12-2014. However, assessee paid scant regard to such order. If the asssessee was serious, atleast for the impugned assessment year, in line with the orders of the Tribunal for the earlier years, it should have produced the evidence for benefits received by it on account of services rendered by the AEs before the DRP. However, this was not done. Hence, according to him, fresh evidence could not be considered nor allowed to be admitted at this stage.
We have perused the orders and heard the rival contentions.
Lower authorities have considered the value of the benefit if any received by the assessee from its AE as nil due to failure of the assessee to produce evidence in this regard. Similar failures were there in the earlier years also.
This Tribunal held as under at para-7 of its order for the assessment year :
2009-10 as under;
“7. As regards the transfer pricing adjustment made in relation to the administrative support services, we find that this issue had also arisen in the assessee’s own case for assessment year 2008-09 and this Tribunal, at paragraph 13.2 of its order dated 19-9-2014 (supra) has discussed the issue at length and has remanded the issue with certain directions to the TPO. The 11 IT(TP)A No.537(B)/15 & SP No.58(B)/15 relevant portion of the order is reproduced hereunder for ready reference: “13.2 Having heard both the parties and having considered the rival contentions and also material on record, we find that the AO has given a finding that the tax payer did not produce any supporting evidence to establish that the services were actually received by it. Similarly, before us also, except for stating that the assessee has received administrative management services, no evidence is produced before us to substantiate the claim. The assessee has filed copies of agreement with the associated enterprises in support of its contentions that services were rendered pursuant to the said agreement and the payment for such services is allowable. The assessee has further submitted that the assessee has paid the administrative services fee at 5% of cost which was less than the average margin of 13 comparables companies. A chart displaying the margins of comparable cases as well as the assessee-company is also filed before us. We find that the TPO has held that the assessee has failed to produce any evidence to substantiate its claim of receiving services, but has not compared the margins declared by the assessee with the margins of the comparable companies for similar services. In order to substantiate the claim, the assessee not only has to file the copies of agreement with the associated enterprise to show that there is a liability of the assessee to pay, but that it is also essential to prove that the associated enterprise has rendered services to the assessee for which management fee is being paid. When this was put to the learned counsel for the assessee, he submitted that the assessee is in possession of the relevant evidence to prove that the relevant services have been rendered by the associated enterprise. He prayed that the issue may be remanded to the file of the TPO for re-adjudication of the issue by giving the assessee an opportunity to produce the relevant material before the TPO. Accepting the contention of the assessee, we remand this issue to the file of the TPO with a direction to allow the assessee to produce the relevant evidence in support of its contention that it has received management services from its associated enterprise and thereafter the TPO shall determine the ALP after considering the margins of the comparable companies in similar set of facts. In view of the same, the issue is set aside to the file of the AO/TPO for re-adjudication”.
12 IT(TP)A No.537(B)/15 & SP No.58(B)/15
The facts and circumstances for the relevant assessment year being the same, we remand this issue also to the file of the TPO with a similar direction”.
No doubt, this Tribunal had allowed assessee to produce evidence to substantiate its case and had for that purpose remitted it back to the AO/TPO, in the earlier years. Nevertheless, we find that order of the Tribunal for the assessment year 2008-09 in IT(TP)A No.1558(B)/2012, which was followed by the Tribunal in subsequent assessment year as well was pronounced on 19-09-2014. The date of hearing before the DRP for the impugned assessment year was 05-012-2014. There was a gap of about two and a half months mentioned by the learned DR. As per the learned DR, assessee ought to have brought all the evidence in support of its claim that it had received benefits from its AE, due to the services rendered before the DRP, in view of the Tribunal’s order for assessment year 2008-09. However, it is also possible that the order dated 19-09-2014 would have been received by the assessee only much later. There is a distinct probability that the assessee after receipt of the order of the Tribunal for assessment year 2008- 09, did not have sufficient time to gather and produce such details before the learned DRP for substantiating its case due to short interval. Due to this reason, we are of the opinion, that the benefit of doubt can be given to the 13 IT(TP)A No.537(B)/15 & SP No.58(B)/15 assessee for the impugned assessment year also. We therefore, give similar directions as given in the earlier years by the Tribunal re-produced at para - 11 above. Ground no.4 to 8 of the assessee are treated as allowed for statistical purposes.
To summaize the result, the appeal of the assessee is partly allowed for statistical purposes.
Since the appeal of the assesee is disposed of, the stay petition has become infructuous and is dismissed.
Order pronounced in the open Court on the 19th February, 2016