The Dy. Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad V. Aatash Norcontrol Limited, Ahmedabad

ITA 1111/AHD/2017

AI Insights

The case involves the Deputy Commissioner of Income-tax, Circle 1(1)(1), Ahmedabad as the appellant and Aatash Narcontrol Limited as the respondent. The primary issues pertained to transfer pricing adjustments made by the TPO concerning reimbursements of expenses from the AE, which included a profit margin and interest charges. The CIT(A) had deleted these adjustments, leading to the Revenue's appeal. The Tribunal examined the nature of the transactions and the applicable legal provisions, ultimately agreeing with the CIT(A) that no services were rendered by the assessee in lieu of the reimbursements, and thus no profit margin or interest should be applied. Furthermore, the Tribunal addressed the dispute over the depreciation rate of certain assets, affirming the CIT(A)'s decision that these assets were to be classified as plant and machinery, eligible for a higher depreciation rate.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 108251 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-10-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 04-05-2017
• Other Referred Cases: Brooke Bond India Vs. CIT, Vareli Textiles Ltd Vs. CIT, CIT Vs. Park Devis (India) Limited, CIT Vs. Hindustan Aeronautics Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Additional depreciation; Corroborative evidences
• Section: 92C

Judgement Text

, ‘ड ’ । IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER IT(TP)A No. 1111/Ahd/2017 /Assessment Year: 2011-12 Dy. Commissioner of Income-tax, Circle 1(1)(1), Ahmedabad Vs. Aatash Narcontrol Limited, 213, Dev Arc Commercial Complex, Iscon Circle, S.G. Highway, Ahmedabad-380015 PAN : AAFCA 9471 R / (Appellant) / (Respondent) Revenue by : Shri Atul Pandey, Sr. DR Assessee by : Shri Tushar Hemani, Sr. Advocate & Shri Parimalsinh B. Parmar, AR /Date of Hearing : 18.10.2022 /Date of Pronouncement: 17.01.2023 ेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-1, Ahmedabad (“CIT(A)” for short) dated 28.02.2017 passed u/s 250(6) of the Income Tax Act, 1961, (hereinafter referred to as “Act”) for Assessment Year (AY) 2011-12. 2. The grounds of appeal raised by the Revenue read as under: ”a) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.1,06,54,295/- made on account of margin @ 11% on the transaction of reimbursement of expenses of Rs. 9,68,57,231/- as per order of TPO. b) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.90,18,586/- made on account of delayed recovery on the transaction as per order of TPO. c) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.4,91,063/- made u/s 35D of the I.T. Act. 2 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 d) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.15,555/- made on account of disallowance of depreciation of Office Equipment.” 3. Ground Nos. (a) & (b) mentioned above, it was contended, related to transfer pricing adjustments made on two different counts to the same transaction undertaken by the assessee with its related entity, being reimbursement of expenses received by the assessee from its Associated Enterprise (“AE” for short). One adjustment being on account of profit margin on the said transaction treating it as services rendered by the assessee and the other on account of interest treating the payment made by the assessee which was stated to be reimbursed by AE as indirect funding by assessee to its AE. The arguments with respect to both the issues, it was contended was identical; and, the additions made by the Assessing Officer in respect of the same had been deleted by the learned CIT(A) for identical reasons. Therefore, Ground Nos. (a) and (b) were pleaded to be taken up together for hearing. Ld. DR fairly agreed with the same. Therefore Ground No.(a) and (b) are being taken up and dealt with by us together. 4. Ground Nos. (a) and (b) read as under:- ”a) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.1,06,54,295/- made on account of margin @ 11% on the transaction of reimbursement of expenses of Rs. 9,68,57,231/- as per order of TPO. b) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs.90,18,586/- made on account of delayed recovery on the transaction as per order of TPO.” 5. Drawing our attention to the facts of the case from the orders of the authorities below, it was pointed out that the assessee is a service provider of Vessels Traffic Port Management System. The assessee was a joint venture between Kongsberg – Norway group of companies and Aatash – Indian group of companies, where Aatash was holding 51% equity shares and Kongsberg was holding 49% equity shares. The joint venture company was engaged into a 3 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 project of Vessels Traffic & Port Management System (“VTPMS” for short) in consequent to a BOOT contract/agreement with the Gujarat Government. As per the Transfer Pricing (TP) documents furnished for the impugned year, the assessee company had entered into various international transactions with its AEs which included the transaction of reimbursement of expenses from the AE amounting to Rs.9,68,57,231/-. The assessee had contended the same to be reimbursed on actual cost basis. During the Transfer Pricing Assessment (TPA) proceedings, the assessee had explained that the nature of expenses reimbursed by its AE as relating to the following:- i) Custom duty of Rs.3,65,20,816/- ii) GIEK premium Rs.4,94,95,391/- iii) EMD and Tender Fees of Rs.1,02,44,055/- iv) Expenses of Factory Acceptance Test Rs.5,71,203/- 6. It was also pointed out that all these expenses were of AE which the assessee had made out of advances already given to it by its AE. That there was no service rendered as such by the assessee except for payment of duties, fees and premium on behalf of the AE and there was no reimbursement also on expenses since the AE had already advanced the same to the assessee for making payment out of the same. The TPO was not convinced with the explanation of the assessee and held that some services were certainly required by the AE and the assessee had incurred cost by extending the credit facilities; therefore, a markup was justifiable on the reimbursement by the AE to the assessee. The TPO accordingly took a markup of 11% equivalent to the operating margin of the assessee company itself and computed the margin to be earned by the assessee on the reimbursement of expenses at Rs.1,06,54,295/- proposing an upward adjustment on account of the same to the income of the assessee. 7. Further noting that the recovery against such expenses was received from the AE after substantial period of time since the assessee incurred 4 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 expenses on behalf of the AE, he held that tantamounted to assessee funding the AE for the said purpose. He held that in such circumstances, in an independent scenario, any entity would have expected remuneration for the same. The assessee’s contention, that there was no time gap between the expenditure incurred by the assessee and its reimbursement by the AE since already huge amount of advance had been given by the AE to the assessee, was rejected by the TPO stating that it could not be verified that expenses for the AE was made out of these fund and it was also not clear what was the actual purpose of this fund. Accordingly, he proposed charging interest on the reimbursement made by the assessee on the basis of SBI base rate of 7.75% plus 150 basis points, effective interest rate 9.25%, and made adjustment on account of interest chargeable on the alleged credit facility extended by the assessee by meeting expenses of the AE amounting to Rs.90,18,586/-. Before the learned CIT(A), the assessee reiterated its contention that no services were rendered by the assessee while meeting the expenses of the AE pointing out that all the expenses so made of the AE related to Custom Duty, Guarantee, GIEK premium, MPT Tender Fees and Factory Acceptance Test Fees which were the liability of the AE in the joint venture made by the assessee that the assessee had simply made payment of all these fees and taxes and no services had been rendered on account of the same. That further there was no question of any reimbursement at all since sufficient advances had been given by the AE to the assessee through which all these expenses had been made. Finding merit in the contention of the assessee, learned CIT(A) held that there was actually no reimbursement of expenses to the assessee and accordingly both the upward adjustments on account of profit element for the alleged services rendered by the assessee amounting to Rs.1,06,54,295/- and on account of interest for the alleged credit facility extended by the assessee amounting to Rs.90,18,586/- were deleted by the learned CIT(A). Aggrieved by the same, the Revenue has come up in an appeal before us. 5 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 8. Learned DR relied on the findings of the TPO/AO while the learned Counsel for the assessee relied on the order of the learned CIT(A) in this regard. 9. We have gone through the orders of the authorities below. We have noted that the assessee had explained the nature of expenditure incurred on behalf of the AE as relating to various duties and fees which were to be incurred by the AE for importing Port Management System equipments, Earnest Money Deposit and Tender Fees for the project, Factory Acceptance Test for the project and the premium which were undertaken by the AE to be given for loan taken by the assessee from a foreign entity in which the AE had stood as guarantor. The assessee has contended that no services were rendered in lieu of these expenses incurred by the assessee on behalf of the AE being payment of statutory dues etc. which involved no services to be rendered by the assessee at all. The explanation of the assessee of the various expenses made on behalf of the AE at paragraph Nos. 2.2 (a) to 2.2 (e) on page Nos. 3-6 of the order is as under:- “2.2.... The learned Assessing Officer has erred in adding of Rs.1,06,54,295/- as margin on the transaction of reimbursement of expenses of Rs.9,68,57,231/- as per Transfer Pricing Order. Details of expenses paid out of advance received is as follows:- a) Custom Duty of Rs. 3,65,20,816/-: The company has paid Rs.10,969/- for custom duty and Rs. 1,997/- for Courier Charges of Maintenance kit & connector for Elliptical waveguide, Rs. 35,788/- for custom duty of VHF cables and Rs.3,64,72,062/- as custom duty as also for clearance of Vessel Traffic and Port Management Systems (VTPMS) equipments. The amount includes custom duty as also charges of custom clearing agent. The company has purchased certain equipments including purchase of VTPMS equipments. The purchase was affected in earlier year. The duty is paid by the company on behalf of AE as AE do not have any office establishment in India. As per the terms of purchase, the price includes custom duty, installation/commissioning and training etc. The same being not company's responsibility, it was paid out of the amount received in advance from AE. Generally it has been received back to the Company transaction-wise to 6 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 maintain sufficient advance balance. The contract’s Standard Conditions for Sale and Installation, Point No. 2 of Annexure E Kongsberg Norcontrol IT AS states, "Custom Duty, Installation/Commissioning and raining are included in the Contract Price". Hence all the above expenditures were to be borne by the AE i.e. Kongsberg Norcontrol IT AS only. Copy of "Standard Conditions for Sale and Installation" is enclosed herewith for your ready reference. Moreover, enclosed herewith annexure which shows that the company has received ad hoc advance payment of Rs.3.00 cr. on 13/02/2009 from Kongsberg Norcontrol IT AS (AE) for custom duty payment and the company has started making payment of custom duty after 13/02/2009 only. Similarly, the company has also paid Rs.1,92,765/- for Custom duty for Radar Spares on behalf of the AE which is also reimbursed by the AE. It is very clear from the agreement's Standard Conditions for Sale & Installation that the custom duty was to be borne by the seller hence, though the duty has been paid by the assessee from the advance received from AE. While so paying the duty out of amount received from the AE, no service is rendered to the AE so as to charge any mark up on the same. The purchase of equipments was cleared by the custom house agents, whose charges are also borne by the AE, no service can be said to have been rendered by the company and hence question of any mark up on the same does not arise. Therefore, the question of any profit mark up cannot arise in these transactions because this is just part and parcel of total project cost. The actual business of company started only after the project was commissioned. b) GIEK premium of Rs, 4,94,95,391/-: The company has borrowed loan from Eksportfinans ASA a sum of USD 1,20,21,558 for purchase of VTPMS equipments. In fact, the company has taken two secured loans. One from Eksportfinans ASA Norway and other from IDFC, India. Rate of Interest is quite high in case of borrowings from Indian financial institute, compared to financial institute of Norway. Therefore, Kongsberg Norcontrol IT AS, company's Joint Venture partner, approached Eksportfinans, who can give term loan to assessee. But Eksportfinance require a guarantor from Norway to give loan. Therefore, Kongsberg Norcontrol IT AS has played a crucial role and convinced GIEK to give guarantee to Eksportfinans with understanding that Kongsberg (AE) will bear the premium of GIEK. Therefore, the premium which was paid by the company was reimbursed by AE. As a matter of fact, the project cost was very water tight and any cost escalation could put the project in financial crises and viability will be in doubt. Hence the company negotiated the terms with the AE and ultimately the AE after lots of deliberations decided to reimburse this amount of premium to the company. c) EMD and Tender fees of Rs.1,02,44,055/- The company has paid Earnest Money Deposit and tender fees of Rs. 81,70,420/- for Sethusamundarm & MPT Tender and Rs.20,73,635/- for Tuticorin Port 7 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 Tender on behalf of AE for the project of VTMPS. The AE was to install the VTPMS system and the company is to operate and maintain it. Thus in any installations by the AE, the company is to be benefited by way of operation and maintenance charges. Company is a joint venture company. The engineers of Company are well trained by AE. Therefore it was decided that whenever AE is becoming prime contractor, the company will act as a sub contractor. Since there is mutual benefit, and since AE was not having any establishment in India, assessee has paid EMD of tender on behalf of AE which was reimbursed by AE. In doing so, no service is rendered by the company to its AE. Therefore any mark up on the amount reimbursed does not arise. Your honour will agree from the above explanation why the Company has not added any mark up on this transaction. d) Expenses of FAT Rs.5,71,203/- The company has paid travelling expense, visa charges, medical insurance, conveyance and hospitality of Government officials from Gujarat Maritime Board (GMB) and Director General of Light House and Light Ships (DGLL). Though they are not direct buyer but since this system will provide service which is affecting them, they insisted to have Factory .Acceptance Test (FAT), which was extra burden on company and was affecting project cost. Though the cost for obtaining FAT is of the company as the company is owner and user of equipments, yet due to persuasion by the company, between company and AE it was decided that this extra burden will be taken by AE. Accordingly the company has taken reimbursement from Kongsberg Norcontrol IT AS and hence it is on the contrary a benefit to the company. But for such reimbursement, the amount would to be borne by the company. Hence, question of charging any mark up on the same does not arise. e) Ticket Charges of Rs. .25,766/- As stated earlier in para No. 3, the company and AE are joint venture (JV) partners. Hence, for mutual benefit company has incurred expenses for travelling & other expense for Chennai Port Trust staff training, on behalf of Kongsberg Norcontrol IT AS which AE has reimbursed.” 10. The assessee also contended that there was in fact no reimbursement since the assessee had received sufficient advance from its AE from which all the expenses had been made. The contention of the assessee in this regard reproduced by the learned CIT(A) in his order at page no. 6 is as under:- “In the case under consideration the company has received advance of Rs.3.00 cr to pay the amount and the company recovered the amount again to maintain sufficient amount of advance. We would like to draw your attention that the company is having advance money of Rs. 12,88,10,315 on 01/04/2010 and 8 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 Rs.12,47,93,835/- as on 31/03/2011. The company has maintained the level of advance throughout the year under consideration. Further as and when expenses were paid by the company on behalf of AE; it was received back from the AE. As the company has always huge advance to meet such expenses on behalf of AE, therefore, the transactions cannot be called reimbursement of expenses and question of charging interest or mark up does not arise at all. Enclosed herewith chart showing details of expenses paid and recovery date.” 11. Considering the above facts, learned CIT(A) held that there was no case of any services rendered by the assessee on account of the reimbursement of expenses made calling for no adjustment to extending of profit element embedded in the reimbursement to be made. His findings recorded in this regard from paragraph no. 2.4 to 2.4 of the order are as under:- “2.4. I have carefully considered the Assessment Order and submission filed by the Appellant. The appellant company is joint venture with Kongsberg Norcontrol of Norway. The company has taken reimbursement from Kongsberg Norcontrol of Norway which is taken as associate enterprises. The AE was to install the VTPMS (Vessel Traffic and Port Management System) system and the company is to operate and maintain it at the ports. Thus in any installations by the AE, the company is to be benefited by way of operation and maintenance charges. The AO has added Rs.1,06,54,295/- as margin on the transaction of reimbursement of expenses of Rs. 9,68,57,231/- as per Transfer Pricing Order. The TPO has mentioned on. page no 3 of Transfer Pricing order that margin of 11% is equivalent to what the company has earned from its operational activities and also mentioned on page no 10 of order that such is the practice of this office. The TPO has treated the reimbursement of expenses to the transactions and charged mark up on these. The appellant has submitted that the TPO has wrongly given the colour of reimbursement to the transaction but the transactions under consideration cannot be considered as reimbursement as it has been spent from the advance money received from AE only and not out of own funds. The TPO has charged interest rate of 9.25% and mentioned as reasonable rate. The appellant has submitted that Assessee doesn't agree with the addition made in order u/s 92CA, of the Act. The TPO has added margin of 11% on transactions of reimbursement of expenses. The appellant has further stated that enough supporting evidences for various transactions to explain that all transactions are of reimbursement only and for which Associated Enterprise has already given advance. Associated Enterprise has given advance as well as given reimbursement of all transactions to maintain advance amount with Assessee Company always. The assessee has also submitted agreement and correspondence with Associated Enterprise to show that various expenses are to be borne by the Associated Enterprise; hence, 9 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 question of mark up does not arise. Further, the assessee has submitted chart showing advance amount received and maintained throughout the year from Associated Enterprise, hence, question of charging interest does not arise. The appellant has also submitted Contract along with Annexure between ANL (appellant) and AE. The Contract's Standard Conditions for Sale and Installation, Point No. 2 of Annexure E of Kongsberg Norcontrol IT AS states, "Custom Duty, Installation/Commissioning and Training are included in the Contract Price". 2.5. The appellant has further submitted that AE has given the amount in advance to pay the expenses on its behalf hence it cannot be called reimbursement of expenses. In respect of all the payment, AO has added a mark up of 11% which is equivalent to profit earned by the Assessee Company in operational activities as per the Assessing Officer. Question of mark up does not arise for the reasons that these transactions cannot be called reimbursement of expenses and the Company have not rendered any services to the AE which generally rendered in operational activities though it is mentioned by the AO that "it is clear from the details of reimbursement recovered from AE that you have provided services to AE". The reimbursement or recoveries is not for services rendered by the Company. Operational activities are separate which are for specific services like VTS services rendered to ship owners, whereas no such services are rendered to the AE. Therefore, the rendering of VTS services cannot be compared with merely reimbursement received from the AE. Even Service Tax audit is also completed by Service Tax Department and have not raised question of considering these transactions as Services rendered. The appellant has further submitted that when an AE is also a joint venture partner in the project, and for whose behalf certain payments are made which are reimbursed, no services can be said to have been rendered so as to charge mark up on the same. Even when the expenses were to be incurred, we have from time to time received advances for the same. Thus, it is established that no services are rendered to the AE. Other operational services rendered to non AE are not comparable to the amount received from AE and hence no adjustment u/s 92C is warranted. It is also not specified as to which method is proposed to be applied and what is comparable transaction functionally similar to that with the AE, it is not possible to comment upon the same. In absence of any functionally similar transaction, no adjustment is warranted. 2.6. In view of the above facts and detailed discussion, it is seen from the Bank statements, the appellant was in possession of advance money received from AE (credit balance of Kongsberg Norcontrol IT AS). The appellant company is having advance money of Rs.12,88,10,315/- as on 01/04/2010 and Rs.12,47,93,835/- as on 31/03/2011 which is related to the year under consideration. Bank statements also show that the company was in a possession of advance money throughout the year, which was sent by AE to pay on its behalf for various expenses as has been agreed in the agreement entered by the 10 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 appellant and the AE. TPO in his order at para 6.2.1 on page 11 has mentioned the table of advance kept by the AE with the appellant company and has not been observed anything contrary by the AO. The appellant has shown that appellant throughout the year has the sufficient advance maintained to meet the expenses on behalf of the AE as per the terms and condition of the Agreement. The appellant has further submitted that AE has given the amount in advance to pay the expenses on its behalf hence it cannot be called reimbursement of expenses. In respect of all the payment, AO has added a mark up of 11% which is equivalent to profit earned by the Assessee Company in operational activities. The TPO has not clearly established the facts that what services have been rendered by the appellant company in this facts and situation. The TPO has a/so not specified as to which method is proposed to be applied and what is comparable transaction functionally similar to that with the AE. The A.O. has simply added the amount as suggested in TPO report without appreciating the facts involved in this case. In view of the above facts and on the basis on the above discussion, the adjustment u/s 92C of the Act appears to be out of context and is not required. In nutshell, the adjustment u/s 92C of the Act made by the A.O. is deleted. The ground of the appeal is allowed.” 12. Similarly, on the basis of all these facts, the learned CIT(A) held that since the assessee had made these expenses out of advances received from the AE, it could neither be termed as reimbursement of expenses nor could it be said that there was, by virtue of meeting expenses on behalf of the AE, any loan advanced by the assessee to the AE. Accordingly, he deleted the adjustment made on account of interest charged on the alleged advance made by the assessee on account of reimbursement of expenses. The findings recorded in this regard by the learned CIT(A) at paragraph Nos. 3.3 & 3.4 of his order are as under:- “3.3. I have carefully considered the Assessment Order and submission filed by the Appellant. The TPO has added Rs.90,18,586/- as interest on delayed recovery ie. time gap between expenses paid and recovered from Kongsberg Norcontrol IT AS in reimbursement of expenses. The TPO has observed that though the assessee claimed that it was having the fund of the AE with itself, the claim of the assessee that expenses for the AE was meet out from this fund cannot be verified. Accordingly, an upward adjustment amounting to Rs.90,78,586/- is made to the total income of the company in order that the international transaction undertaken by the company are at arm's length. The appellant has submitted that the TPO has added Rs.90,18,586/- as interest on delayed recovery ie. time gap between expenses paid and recovered 11 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 from Kongsberg Norcontrol IT AS in reimbursement of expenses. As explained in ground no. 1 above, the question of charging interest does not arise because the fact is that company has received advance of Rs.3.00 Cr. before starting payment of expenses and also that transactions cannot be called as reimbursement of expenses. The chart shows that the assessee was in a possession of advance money received from AE (Credit balance of Kongsberg Norcontrol IT AS). The company is having advance money of Rs. 12,88,10,315/- as on 01/04/2010 and Rs. 12,47,93,835/- as on 31/03/2011 which is the details of year under consideration. It means that the company was in a possession of advance money throughout the year, which was sent by AE to pay on its behalf for various expenses. Company was never in a position of receivable from the AE i.e. Kongsberg Norcontrol IT AS. Hence, question of charging of interest also does not arise. 3.4. In view of the above facts and discussion, this issue is closely related to the first ground and the adjudication thereof, it is seen from the Bank statements, the appellant was in possession of advance money received from AE (credit balance of Kongsberg Norcontrol IT AS). The appellant company is having advance money of Rs. 12,88,10,315/-as on 01/04/2010 and Rs.12,47,93,835/- as on 31/03/2011 which is related to the year under consideration. Bank statements also show that the company was in a possession of advance money throughout the year, which was sent by AE to pay on its behalf for various expenses as has been agreed in the agreement entered by the appellant and the AE. TPO in his order at para 6.2.1 on page 11 has mentioned the table of advance kept by the AE with the appellant company and has not been observed anything contrary by the AO. The appellant has shown that throughout the year it had the sufficient advance maintained to meet the expenses on behalf of the AE as per the terms and condition of the Agreement. The appellant has further submitted that AE has given the amount in advance to pay the expenses on its behalf hence it cannot be called reimbursement of expenses. In respect of all the payment, AO has added a mark up of 11% which is equivalent to profit earned by the Assessee Company in operational activities. The TPO has not clearly established the facts that what services have been rendered by the appellant company in this facts and situation. The TPO has also not specified as to which method is proposed to be applied and what is comparable transaction functionally similar to that with the AE. The A.O. has simply added the amount as suggested in TPO report without appreciating the facts involved in this case. In view of the above facts and on the basis of the above discussion, the adjustment u/s 92C of the Act appears to be out of context and is not required. In nutshell, the adjustment u/s 92C of the Act made by the A.O. Rs.90,18,586/- as interest on delayed recovery ie. time gap between expenses paid and recovered from Kongsberg Norcontrol IT AS in reimbursement of expenses, is deleted. The ground of the appeal is allowed.” 13. The Revenue has been unable to controvert before us the fact that all the expenses made by the assessee on behalf of the AE involved no services to be 12 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 rendered by the assessee but was merely meeting the expenses of statutory dues/fees/charges of the AE. The Revenue has also not disputed the fact that all the expenses were made out of advances given by the AE to the assessee. The Ld.CIT(A), has given detailed finding with respect to both the aspects ,noting that all the payments made by the assessee on behalf of its AE were majorly on account of fees/duty to be paid to the government for the project which clearly did not involve any rendering of services by the assessee. The Ld. DR was unable to clarify the nature of services which the AO/TPO found the assessee to have rendered while making these payments on behalf of the assessee. We agree with the Ld.CIT(A) therefore that in such circumstances there arises no question at all of making any adjustment to the reimbursements of any operational profit element therein. 14. Even with respect to the findings of the Ld.CIT(A) that all expenses of the AE were met out of advances given by the AE to it, we find that the findings of the Ld.CIT(A) are exhaustive and detailed, pointing out the fact that the AE has throughout the year maintained sufficient advances with the assessee to the tune of Rs. 12 Crs odd and even when the assessee has made any payments on its behalf during the year the same were immediately reimbursed. The Ld.CIT)(A) has noted that details to this effect were before the AO/TPO also who had made no adverse observations with respect to the same. Even before us no infirmity was pointed out by the Ld. DR on the factual findings of the Ld.CIT(A) as above. 15. In view of the above, we find no infirmity in the order of the learned CIT(A) holding that in the light of the fact where there is no finding of nature of the services rendered by the assessee to the AE while meeting the expenses of the AE and further on account of the fact that all these expenses were made out of advances given by the AE to the assessee, there was no reason to make any adjustment to the ALP of the international transactions of reimbursement of 13 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 expenses either on account of profit element or the interest element. In view of above, the grounds of appeal Nos. (a) and (b) raised by the Revenue are dismissed. 16. Ground No. (c) relates claim of preliminary expenses written off as per the provisions of Section 35D of the Act which the assessee had claimed to the extent of Rs.4,91,063/- and which was disallowed in entirety by the Assessing Officer while the learned CIT(A) had restricted the disallowance to Rs.25,000/-. 17. The facts of the case being that the assessee had claimed deduction of Rs.4,91,063/- being preliminary expenses written off to the extent of 1/5 th as per Section 35D of the Act comprising of Rs.4,66,063/- being claimed as per previous years relating to expenses incurred on incorporation of the company and Rs.25,000/- being 1/5 th of the expenditure incurred during the impugned year of Rs.1,25,000/- on increase in share capital of the company. The Assessing Officer had denied the entire claim following the decision of the Hon’ble Apex Court in the case of Brooke Bond India Vs. CIT, 225 ITR 798 (SC), to the effect that expenditure incurred on increase in share capital was a capital expenditure not entitled to deduction. The learned CIT(A), however, noted that only Rs.25,000/- out of total expenses of Rs.4,91,063/- claimed by the assessee under Section 35D of the Act qualified as capital expenditure as per the decision of the Hon’ble Apex Court in the case of Brooke Bond India (supra) having been incurred for increase in share capital. Accordingly, he upheld the order of Assessing Officer denying claim of deduction to this extent. For the remaining claim of Rs.4,66,063/-, he noted that the same was 1/5 th of expenses which the assessee had been claiming in the previous years also as per Section 35D of the Act being pertaining to expenditure of company incorporation and other expenses of preliminary in nature; and, that they do not relate to expenses incurred merely for increase in share capital of the company. Accordingly, he allowed the claim of the assessee to this extent. The finding recorded by the 14 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 learned CIT(A) at paragraph nos. 5.3 and 5.4 of his order in this regard is as under:- “5.3. I have carefully considered the Assessment Order and submission filed by the Appellant, The Assessing Officer has observed that the appellant has increased its Authorized Share Capital from Rs. 30.00 Crores to Rs. 32.50 Crores. It is seen that the assessee has claimed deduction of Rs.4,66,063/- and Rs.25,000/- u/s 35D of the Act. The A. O. has cited the case laws of the Supreme Court in Brooke Bond India v/s CIT. 225 ITR 798 (SC) Vareli Textiles Ltd 284 ITR 238 (Guj) where it is held that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit -making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. In view of the position of law as noted above, the expenses amounting to Rs.4,91,063/- claimed u/s. 35D of the Act are disallowed by the A.O. The appellant has submitted that the A.O. has wrongly disallowed claim u/s 35D of the Act. The fact is that deduction u/s 35D includes Rs. 4,66,063/- being 1/5th of expenses claimed as per last year. The expenditure claimed pertains to the expenditure of company incorporation and other expenses of preliminary in nature. The company has started writing off preliminary expenses after commencement of business. Hence, question of disallowance does not arise on Rs.4,66,063/-. The company has further incurred expense of Rs.1,25,000/- in the year under consideration for increase in share capital and claimed 1/5 th of the same i.e.Rs.25,000/- under section 35D. The appellant has further submitted that if above contention of the company is not agreeable, then it is requested to allow Rs.4,66,063/- and disallow Rs.25,000/- only being 1/5 th of Rs.1,25,000/- which is incurred during the year under consideration. 5.4. After going through the facts of the case, it is seen that deduction u/s35D includes Rs.4,66,063/- being 1/5 th of expenses claimed as per last year. The expenditure claimed pertains to the expenditure of company incorporation and other expenses of preliminary in nature. The company has started writing off preliminary expenses after commencement of business. However, the appellant has incurred expense ofRs.1,25,000/-in the year under consideration for increase in share capital and claimed 1/5 th of the same i.e.Rs.25,000/-under section 35D. In view of the above, as the appellant claimed expenditure pertaining to the expenditure of company incorporation and other expenses of preliminary in nature when the company has gone for the IPO which is allowable as per the IT Act. However, the appellant has incurred expense of Rs.1,25,000/- in the year under consideration for increase in share capital and claimed 1/5th of the same i.e.Rs.25,000/- under section 35D is not allowable in view of the decisions of the Supreme Court in Brooke Bond India Vs CIT. 225 ITR 798 (SC) Vareli Textiles 15 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 Ltd 284 ITR 238 (Guj)(supra). In view of the above, the AO is directed to delete Rs.4,66,063/- which is written off as preliminary expenses. The amount of Rs. 25,000/- is confirmed as discussed above. The ground of the appellant is partly allowed.” 18. Before us, the learned Departmental Representative was unable to controvert the factual finding of the learned CIT(A) to the effect that the amount of Rs.4,66,063/- claimed by the assessee under Section 35D of the Act pertained to preliminary expenses incurred on the incorporation of the company; 1/5 th of which the assessee had been claiming consistently in the preceding years. In view of the same, we see no reason to disagree with the learned CIT(A) that the said claim of the assessee was allowable as per law. The decision of the Hon’ble Apex Court in the case of Brooke Bond India (supra) relates only to expenditure incurred on increase in share capital which not being the fact pertaining to the impugned expense before us, the said decision has been rightly held as not applicable to the same by the learned CIT(A). In view of the above, we uphold the order of the learned CIT(A) allowing the claim of expenses amounting to Rs.4,66,063/- under Section 35D of the Act. The ground of appeal No. (c) is accordingly dismissed. 19. Apropos Ground No. (d), the issue raised in this ground relates to the rate of depreciation applicable on certain assets which as per the Revenue quality as office equipments entitled to rate of depreciation @ 10% while as per the assessee they quality as plant and machinery entitled for rate of depreciation @ 15%. The assets on which the dispute relating to the rate of depreciation is EPBAX equipment, vacuum cleaner, water dispenser etc. The learned CIT(A), after considering the nature of assets, held that they qualify as plant and machinery entitled for depreciation @ 15%. The findings recorded by him in this regard at paragraph No. 6.3 and 6.4 of his order are as under:- “6.3. I have carefully considered the assessment order and submission filed by appellant. The Assessing Officer has observed that appellant has claimed depreciation @ 15% on office equipment as against prescribed rate of @10%. It 16 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 was observed that appellant is not entitled to claim depreciation @15% on office equipment being, Vacuum Cleaner, Water Dispenser, EPBAX Installation, etc hence he disallowed excess depreciation claimed for Rs 15,555/-. The appellant has also referred to provisions of section 32A of the Act which relates to investment allowance on new plant & machineries wherein it is stated in statute that office equipment are not entitled to such deduction which means that such assets are covered within expression "Machinery and Plant". 6.4. On careful consideration of the above facts, it is pertinent to note that provisions of section 32A relating to investment allowance of as well as provisions of section 32(iia) relating to additional depreciation on Plant & Machinery clearly states that such allowance or additional depreciation as the case may be will be available on new plant & machinery except office appliances hence it is clear that Office Equipment are part of Plant & Machinery and entitled to depreciation @15% as per provisions of the Act. The Hon'ble Bombay High Court in the case of CIT V/s. Park Devis (India) Limited 214ITR 587 has also held the same. The decision of Ahmedabad ITAT in the case of Madhu Industries, Bombay High Court in the case of CIT v/s. Park Devis (India) Ltd. and Decision of Karnataka High Court in the case of Hindustan Aeronautics Ltd are relevant on this subject where it has been held that Office Equipments are part of Plant & Machinery and entitled to depreciation @15% as per provisions of the Act, Considering the facts discussed herein above and on the basis of the above decisions it is held that disallowance of depreciation made by Assessing Officer for Rs.15,555/- is not justified and directed to be deleted. This Ground of appeal is allowed.” 20. Before us, the learned DR was unable to controvert the factual finding with respect to the nature of assets on which the issue of rate of depreciation applied that they were in the nature of machineries being vacuum cleaner, water dispenser, EPBAX installation etc. Clearly, the same are not in the nature of “furniture and fittings” to which 10% rate of depreciation is applicable. Further, the learned CIT(A) has taken note of the provisions of Section 32A of the Act relating to investment allowance as well as to the provisions of Section 32(iia) of the Act relating to the additional deprecation on plant and machinery which rule out the allowance or additional depreciation on old plant and machinery and while doing so provide an exemption to office appliances. From the same, the learned CIT(A) has derived that office appliances qualify as plant and machinery for depreciation @ 15%. The learned DR has been unable to point out any infirmity in this finding of the learned 17 IT(TP)A No.1111/Ahd/2017 DCIT Vs. AatashNorcontrol Ltd AY :2011-12 CIT(A). Further, we have noted that the learned CIT(A) has relied on the decision of the Hon’ble Bombay High Court in the case of CIT vs. Park Devis (India) Limited, 214 ITR 587, which has laid down the proposition that even office appliances qualify as plant and machinery for depreciation @ 15%. Learned DR has been unable to distinguish the said case before us. In view of the above, we do not find any infirmity in the order of the learned CIT(A) holding the assessee entitled to depreciation @ 15% on office equipments. This ground of appeal of the Revenue is accordingly dismissed. 21. In effect, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 17/01/2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 17/01/2023 **bt ेश ! " #े"$ /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. %& & ' ( / Concerned CIT 4. ' ( ) (/ The CIT(A)- 5. "+, - . , /DR,ITAT, Ahmedabad, 6. - ड0 1 2 /Guard file. ेश . ' % / BY ORDER, TRUE COPY % &ज (Asstt. Registrar) ITAT, Ahmedabad 1. Date of dictation ......12/13/16.01.2023........ 1. Date on which the typed draft is placed before the Dictating Member :.....16.01.2023.......... 2. Other Member......17.01.2023.................. 3. Date on which the approved draft comes to the Sr.P.S./P.S......17.01.2023.................... 4. Date on which the fair order is placed before the Dictating Member for pronouncement...17.01.2023....... 5. Date on which the fair order comes back to the Sr.P.S./P.S...17.01.2023................ 6. Date on which the file goes to the Bench Clerk...17.01.2023............. 7. Date on which the file goes to the Head Clerk....... 8. The date on which the file goes to the Assistant Registrar for signature on the order............ 9. Date of Despatch of the Order..................