ACIT, New Delhi V. M/s. B.T. (India) Pvt. Ltd., New Delhi

ITA 1496/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97784 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 22-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDEEP BANDHU
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence; Working capital adjustments; Revised return
• Section: 92C; 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2, NEW DELHI) BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER I.T.A. NO. 1496/DEL/2012 ASSESSMENT YEAR : 2005-06 ACIT, CIRCLE 3(1), VS. B.T. (INDIA) PVT. LTD., NEW DELHI JE 9/104, KHIRKI EXTENSION, MALVIYA NAGAR, NEW DELHI GIR / PAN:AABCC4785E (APPELLANT) (RESPONDENT) APPELLANT BY : SANDEEP BANDHU, SR. DR RESPONDENT BY : MS. ANANYA KAPOOR, ADV. DATE OF HEARING : 22.09.2015 DATE OF PRONOUNCEMENT : 30.10.2015 ORDER PER KULDIP SINGH, JM: THE APPELLANT, ACIT, CIRCLE 3(1), NEW DELHI BY FIL ING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATE D 20.01.2009 PASSED BY LD. CIT(A) - XX, NEW DELHI FOR THE ASSESSMENT YEAR 2005-06, ON THE GROUNDS INTER ALIA THAT:- THE LD. CIT(A) HAS ERRED ON FACTS AND IN DELETING ADDITION OF RS.1,26,74,054/- ON ACCOUNT OF ARMS LENGTH PRICE. II) THE LD. CIT(A) HAS ERRED ON FACTS AND IN DELETI NG ADDITION OF RS.22,150/- MADE BY THE A.O. ON ACCOUNT OF DISALLOW ANCE OF EXTRA DEPRECIATION CLAIMED BY ASSESSEE ON COMPUTER PERIPH ERALS. ITA NO.1496/DEL/2012 2 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE: ASSES SEE HAD FILED ORIGINAL RETURN OF INCOME ON 27.01.2006 DECLARING INCOME OF RS.72,60,680/- AND SUBSEQUENTLY FILED REVISED RETURN OF INCOME ON 10.1 1.10.11.2006 DECLARING NIL INCOME AFTER SETTING OFF OF B/F UNABSORBED DE PRECIATION OF RS.2,06,63,235/- IN THE STATEMENT OF TAXABLE INCOME . THE ASSESSEE WAS SUBJECTED TO SCRUTINY AND NOTICE U/S 143(2) DATED 1 4.06.2006 WAS SERVED ALONG WITH NOTICE U/S 142(1) AND PURSUANT THERETO S HRI PUNIT GUPTA AND SHRI GAURAG GUPTA CA/ ARS OF THE ASSESSEE COMPANY ATTEND ED THE PROCEEDINGS AND FILED NECESSARY DETAILS. 3. THE ASSESSEE IS INTO THE BUSINESS OF PROVIDING T ELECOMMUNICATION RELATED SERVICES AND SUPPORT SERVICES. AS PER THE FORM NO.3CEB FILED ALONG WITH THE RETURN THE ASSESSEE DURING THE YEAR HAD IN TERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISE / CONCERNS (AE) TO T HE TUNE OF RS.27,62,69,637/- AND AS SUCH IN ORDER TO DETERMINE ARMS LENGTH PRICE (ALP) IN RELATION TO INTERNATIONAL TRANSACTIONS, TH E CASE WAS REFERRED TO TRANSFER PRICING OFFICER (TPO) UNDER RULES. 4. THEN TPO PASSED ORDER U/S 92CA(3) DATED 25.09.20 08 WHEREIN THE ALP OF INTERNATIONAL TRANSACTION WITH ASSOCIATED EN TERPRISES IS COMPUTED AT RS.3,37,65,302/- AS AGAINST TRANSACTION VALUE OF RS .20,19,12,481/- DECLARED BY THE ASSESSEE I.E. UPWARD ADJUSTMENT OF RS.1,26,7 4,054/-. DURING THE COURSE OF PROCEEDINGS, THE ASSESSEE WAS ASKED TO SH OW CAUSE AS TO WHY ADDITION SHOULD NOT BE MADE ON ACCOUNT OF ALP TO T HE TUNE OF RS.1,26,74,054/-. THE ASSESSEE FILED REPLY STA TING THEREIN THAT THEIR SUBMISSIONS BEFORE THE TPO BE TREATED AS REPLY TO T HE SHOW CAUSE. FINDING SUBMISSIONS OF THE ASSESSEE NOT ACCEPTABLE U/S 92CA (3), THIS ISSUE HAS BEEN DEALT WITH IN DETAIL IN ORDER DATED 25.09.2008 AND ADDITION OF ITA NO.1496/DEL/2012 3 RS.1,26,74,054/- IS MADE TO THE TOTAL INCOME ON ACCOUNT OF ADJUSTMENT OF ALP ON INTERNATIONAL TRANSACTION WITH ASSOCIATED ENTERPRISES. 4. DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE H AS MADE ADDITION TO FIXED ASSETS UNDER HEAD COMPUTER AND CLAIMED DEPR ECIATION @ 60% ON THE GROUND THAT THE ASSESSEE HAD MADE PURCHASES OF COMP UTER ACCESSORIES AND PERIPHERALS AMOUNTING TO RS.63,290/-. HOWEVER, AS PER I. T. RULES, ONLY COMPUTER AND COMPUTER SOFTWARE ARE ELIGIBLE FOR DEP RECIATION @ 60% AND THE SAME CANNOT BE EXTENDED TO COMPUTER ACCESSORIES AND PERIPHERALS AND CONSEQUENTLY, THE ASSESSEES CLAIM OF RS.22,150/- W AS DISALLOWED. SO, THE ASSESSEES INCOME FOR THE YEAR UNDER CONSIDERATION HAS BEEN SHOWN AT RS.55,47,340/-. 5. THE ASSESSEE HAS CHALLENGED THE ORDER OF A.O. BE FORE LD. CIT(A) WHO HAS PARTLY ALLOWED THE APPEAL VIDE IMPUGNED ORDER. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF F ILING THE PRESENT APPEAL. 6. WE HAVE HEARD LD. AUTHORIZED REPRESENTATIVES OF BOTH THE PARTIES, HAVE GONE THROUGH THE MATERIAL ON RECORD IN THE LIG HT OF FACTS AND CIRCUMSTANCES OF THE CASE. 7. LD. D.R. CHALLENGING THE IMPUGNED ORDER, CONTEND ED INTER ALIA THAT SINCE THE ASSESSEE HAS FAILED TO DEMONSTRATE THE CI RCUMSTANCES FOR CLAIMING ADJUSTMENT OF ALP, LD. CIT(A) HAS ERRED IN DELEING THE ADDITION WITHOUT VERIFICATION; THAT LD. CIT(A) HAS ALSO ERRED IN DEL ETING THE ADDITION OF RS.22,150/- ON ACCOUNT OF DISALLOWANCE OF EXTRA DEP RECIATION CLAIMED BY THE ASSESSEE ON COMPUTER PERIPHERALS WHEREAS DEPRECIATI ON IS ONLY AVAILABLE ON COMPUTER AND COMPUTER SOFTWARE AND AS SUCH THE CASE IS REQUIRED TO BE RESTORED TO LD. CIT(A) FOR AFRESH ORDERS. ITA NO.1496/DEL/2012 4 8. ON THE OTHER HAND LD. A.R. REPELLED THE CONTENTI ONS RAISED BY LD. D.R. BY CONTENDING INTER ALIA THAT THE ASSESSEE HAS NEVER CLAIMED THE ASSESSMENT ON ACCOUNT OF ALP WHEREAS IT HAS CLAIMED THE WORKING CAPITAL ADJUSTMENT (WCA); THAT THE ONLY DISPUTE RAISED BY T HE REVENUE IS REGARDING VERIFICATION OF THE CLAIM OF ASSESSEE AND SINCE THE LD. CIT(A) HAS POWERS CO-TERMINUS TO THE A.O., HE HAS PASSED A VALID ORDE R AND RELIED UPON THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CITED AS CIT VS BSES YAMUNA POWERS LTD. IN I.T.A. NO. 1267/2010 DATED 31.08.2010 AND ORDERS OF DELHI BENCH I, NEW DELHI IN THE CASE CITED AS ITO VS HEARTLAND DELHI TRANSCRIPTION & SERVICES PVT. LTD I N I.T.A. NO. 6043/DEL/2012 DATED 17.10.2014. 9. UNDISPUTEDLY, THE ASSESSEE BEING ENGAGED IN THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES (AE) TO THE TUNE OF RS.27,62,69,637/- A REFERENCE U/S 92CA OF THE ACT WAS MADE TO THE TPO FOR DETERMINING THE ALP IN RELATION TO THE INTERNATIONA L TRANSACTIONS. THE TPO HAS PASSED THE ORDER U/S 92CA(III) DATED 25.09.2008 WHEREIN ALP OF INTERNATIONAL TRANSACTION WITH AE IS COMPUTED AT RS .3,37,65,302/- AS AGAINST THE TRANSACTION VALUE OF RS.2,01,91,248/- DECLARED BY THE ASSESSEE, I.E. AN UPWARD ADJUSTMENT OF RS.1,26,74,054/-. FINDING THE EXPLANATION MADE BY THE ASSESSEE UNACCEPTABLE, ADDITION OF RS.1,26,7405 4/- HAS BEEN MADE ON ACCOUNT OF ADJUSTMENT TO ALP OF INTERNATIONAL TRANS ACTION WITH AE. 10. THE FIRST QUESTION ARISES FOR DETERMINATION IS , AS TO WHETHER ADDITION AMOUNTING TO RS.1,26,74,054/- ON ACCOUNT OF TRANSFE R PRICING ADJUSTMENT AS MADE BY THE A.O. HAS BEEN ILLEGALLY AND WRONGLY DE LETED BY LD. CIT(A) VIDE IMPUGNED ORDER AS CONTENDED BY LD. D.R. 10.1 UNDISPUTEDLY, SUCH WORKING CAPITAL ADJUSTMENT S WERE NOT DMONSTRATED BY THE ASSESSEE BEFORE THE A.O. WHO WAS TO WORK OUT THE SAME ITA NO.1496/DEL/2012 5 WHETHER WORKING CAPITAL ADJUSTMENT ON ACCOUNT OF TR ANSFER PRICING ADJUSTMENT ARE ADMISSIBLE TO THE ASSESSEE. TPO HAS DECIDED THE ISSUE AS TO THE WORKING CAPITAL ADJUSTMENT IN PARA 6.7 AND 6.8 OF HIS ORDER DATED 25.09.2008, WHICH IS REPRODUCED BELOW FOR READY REF ERENCE: 6.7 A WORKING CAPITAL ADJUSTMENT HAS BEEN SOUGHT B Y THE ASSESSEE IN THE MARGIN TO ACCOUNT FOR THE DIFFERENCE IN ACCOUNT S PAYABLES AND RECEIVABLES POSITION BETWEEN THE ASSESSEE AND COMPA RABLES. THE BIGGEST PROBLEM ABOUT THIS ADJUSTMENT IS THE INABIL ITY TO FIND OUT THE POSITION OF THE PAYABLES AND RECEIVABLES AT THE BEG INNING AND END OF THE YEAR. MOREOVER, THE CREDIT TERMS OFFERED BY THE COMPARABLES ARE NOT KNOWN. THE DEBTORS AND CREDITORS SHOWN IN THE B ALANCE SHEET OF THE COMPARABLES CONTAIN BOTH TRADE AND NON-TRADE CR EDITORS. IN THE ABSENCE OF A BREAK UP, SUCH ADJUSTMENT CANNOT BE RE LIABLE AND JUSTIFIED. 6.8. SIMILARLY, THE ASSUMPTION OF PRIME LENDING RAT E AS THE INTEREST RATE APPLICABLE FOR MAKING THE WORKING CAPITAL ADJU STMENT SUFFERS FROM RISKS OF INACCURACY. THE COST OF CAPITAL FOR M NCS IS DETERMINED MORE BY THE GLOBAL INTEREST RATES RATHER THAN INDIA N PRIME LENDING RATE. THERE IS ALWAYS DIFFERENCE BETWEEN PRIME LEND ING RATE OF INDIA THAT OF INTERNATIONAL MARKET RATE OF INTEREST. CHOO SING ONE OF THESE RATES AMONG MULTIPLE RATES AVAILABLE IN THE MARKET IS AS DEBATABLE AS NOT ALLOWING ANY WORKING CAPITAL ADJUSTMENT. THIS I S MORE SO BECAUSE BT OPERATES ACROSS THE GLOBE AND HAVING DEEP POCKET S FOR FINANCING THE ACTIVITIES ANYWHERE, ANY PART OF THE WORLD BORR OWING FROM CHEAPEST AVAILABLE INTEREST RATE. ANY CHANGE IN THE INTEREST RATE IN THE WORKING CAPITAL ADJUSTMENT WILL GIVE DRASTICALLY DI FFERENT RESULTS MAKING THE RESULTS HIGHLY UNSCIENTIFIC. EVEN THOUGH IT POSSIBLE FOR THE COMPARABLE COMPANIES TO BORROW IN THE WORLD MARKET THE REALITY IS ENTIRELY DIFFERENT. A COMPANY WITH GLOBAL PRESENCE LIKE BT HAS A DISTINCT ADVANTAGE IN TERMS OF CREDIT WORTHINESS AN D ABILITY TO BARGAIN BASED ON ITS FINANCIAL MUSCLE. THIS IS NOT TRUE WIT H MOST OF THE COMPARABLES CHOSEN BY THE ASSESSEE. THEREFORE TO MA KE A WORKING CAPITAL ADJUSTMENT BASED ON SUCH BROAD APPROXIMATIO NS, ESTIMATIONS AND ASSUMPTIONS MAY NOT LEAD TO RELIABLE RESULTS. T HEREFORE, THE SAME IS NOT ACCEPTABLE. ITA NO.1496/DEL/2012 6 12. LD. A.R. OF THE ASSESSEE BY RELYING ON THE ORDE R PASSED BY ITAT DELHI BENCH I, NEW DELHI IN CASE ENTITLED ITO VS HEARTLAND DELHI TRANSCRIPTION & SERVICES PVT. LTD. IN I.T.A. NO. 60 43/DEL/2012 DATED 17.10.2014 CONTENDED THAT THE CONTENTION OF LD. D.R. THAT THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THE SIGNIFICANT CIRCUM STANCES AND DIFFERENCE ON THE PROFIT MAKING OF THE COMPARABLE COMPANIES BY DE PLOYING WORKING CAPITAL IS NOT SUSTAINABLE. WHILE EXAMINING REFERE NCE U/S 92CA(1) TPO DISCUSSED THE INTERNATIONAL TRANSACTION ENTERTAINED BY THE ASSESSEE WHICH ARE TABULATED AS UNDER: S.NO. NATURE OF TRANSACTION METHOD VALUEOF TRANSACT ION 1 PROVISION OF TELECOMMUNICATION AND RELATED SUPPORT SERVICES TNMM 135427604 2 PROVISION OF SUPPORT SERVICES CUPM 97093209 3 TRANSFER OF FIXED ASSET AND LIABILITIES CUPM 1109 4859 4 PAYMENT OF INTEREST ON EXTERNAL COMMERCIAL BORROWING CUPM 13151060 5 IMPORT OF HARDWARE & SOFTWARE 19502905 13. THEN THE TPO ISSUED A SHOW CAUSE NOTICE DATED 3 0.08.2011 TO THE ASSESSEE SEEKING CERTAIN SPECIFIC INFORMATION EXTRA CTED BELOW: TYPE OF INTERNATIONAL TRANSACTION METHOD SELECTED T OTAL VALUE (INR) PROVISION OF TELECOMMUNICATION AND RELATED SUPPORT SERVICES TNMM USING OPERATING PROFIT AS A PLI OPERATING COST 1548196287 PURCHASE OF ASSETS 215777093 REIMBURSEMENT OF EXPENSES TO AES 3065481 PAYMENT OF INTEREST ON EXTERNAL COMMERCIAL BORROWING (ECB) CUP 33211250 SALE OF EQUIPMENT TNMM USING OPERATING PROFIT AS A PLI OPERATING COST 31684509 PURCHASE OF SATELLITE SERVICES TNMM USING OPERATING PROFIT AS A PLI OPERATING REVENUE 43475178 ITA NO.1496/DEL/2012 7 14. THE ASSESSEE HAS COMPUTED ITS MARGIN @ 10% IN T HE TELECOMMUNICATION AND RELATED SUPPORT SERVICES AND PROVISIONS FOR SUPPORT SERVICE AGREEMENT. THE ASSESSEE HAS SELECTED 7 COM PARABLES AND GIVEN AVERAGE OPERATING PROFIT AND TAKEN THE AVERAGE OF O PERATING PROFIT MARGIN ON THESE COMPARABLES COMPUTED @ 9.42%. 15. TPO AFTER APPLYING THE FILTERS OF THE CORRECT A REA SELECTED CASES AS COMPARABLE FUNCTIONARIES SIMILAR TO THAT OF THE TES TED PARTIES EXCLUDED THE COMPANIES ON THE GROUNDS INTER ALIA THAT THE COMPAN IES WHOSE DATA IS NOT AVAILABLE FOR THE FINANCIAL YEAR 2007-08 ARE EXCLUD ED IN VIEW OF THE RULE 10B(4) OF THE I. T. RULES 1962, WHICH SAYS THAT TH E DATA FOR EARLIER TWO YEARS CAN ALSO BE USED IF IT IS SHOWN THAT SUCH EARLIER Y EAR DATA HAD AN INFLUENCE IN DETERMINING THE TRANSFER PRICING; THAT COMPANIES WH OSE BUSINESS SUPPORT SERVICES INCOME AT RS. ONE CRORE HAVE ALSO BEEN EXC LUDED ON THE GROUND THAT THE ANALYSIS MAY NOT LEAD TO A PROPER COMPARABILITY ; THE COMPANIES WHOSE REVENUE FROM BUSINESS SERVICES IS LESS THAN 75% AND FURTHER OPERATING REVENUE AND THE COMPANIES HAVING MORE THAN 25% RELA TED PARTIES TRANSACTION OF INCOME AND THE COMPANY HAVING DIFFERENT YEAR END ING I.E. NOT MARCH 31 ST , 2008 AND DATA OF COMPANY DOES NOT FALL WITHIN 12 MO NTHS PERIOD I.E. 01.04.2007 TO 31.03.2008, HAVE ALSO BEEN EXCLUDED; THE COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THE TAXPAYER AND THAT C OMPANIES THAT ARE HAVING EXCLUSIVE ECONOMIC CIRCUMSTANCES HAVE ALSO BEEN EXC LUDED 16. THE TPO PROPOSED TO USE LAST YEAR DATA ALONE. HE RAISED DATA PERTAINING TO FINANCIAL YEAR 2007-08 AND REJECTED T HE EARLIER YEAR DATA ON THE GROUND THAT ASSESSEE HAS FAILED TO SHOW AS TO HOW T HE EARLIER YEAR DATA HAS THE INFLUENCE ON TRANSFER PRICING. ITA NO.1496/DEL/2012 8 17. THE COMPARABLES SELECTED BY THE TAX PAYER ARE I NTER ALIA THAT ACCESS INDIA ADVISORS LTD. (ACCEPTED); HIMACHAL FUTURISTIC COMMUNICATIONS LTD. (REJECTED); EDUCATIONAL CONSULTANTS INDIA LTD. (REJ ECTED); ICRA MANAGEMENT CONSULTING SERVICES LTD. (ACCEPTED); IDC (INDIA) LT D. (ACCEPTED); IN HOUSE PRODUCTIONS LTD. (REJECTED); INDIA TOURISM DEVELOPM ENT CORPORATION LTD. (REJECTED); ORG INFORMATICS LTD. (REJECTED) AND TEL ECOMMUNICATIONS CONSULTATION INDIA LTD. (ACCEPTED). 18. THE TPO ALSO REJECTED THE DOCUMENTS BY RELYING UPON THE PROVISIONS OF SECTION 92C(3)(C) READ WITH SECTION 92CA THAT ON THE BASIS OF MATERIAL INFORMATION AND DOCUMENTS IN POSSESSION OF THE TPO, HE IS OF THE OPINION THAT THE INFORMATION AND DATA USED IN COMPUTATION O F ALP IS NOT RELIABLE AND CORRECT AND TPO MAY PROCEED TO DETERMINE ALP IN REL ATION TO INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SECTION 92C(1) AND 9 2C(2) ON THE BASIS OF SUCH MATERIAL INFORMATION AND DOCUMENTS AVAILABLE W ITH HIM. 19. THE TPO HAS HIGHLIGHTED THE FOLLOWING DEFECTS I N THE TRANSFER PRICING ANALYSIS CARRIED OUT BY THE TAX PAYER: 1. AS PER RULE 10B(4), IT IS MANDATORY TO THE USE THE CURRENT FINANCIAL YEAR DATA I.E. THE FINANCIAL YEAR IN WHIC H THE INTERNATIONAL TRANSACTIONS TOOK PLACE. (FY 2007-08). BUT THE TAX PAYER EXCLUDED THE CURRENT YEARS DATA IN MOST O THE COMPARABLE CASES. 2. SOME COMPANIES THOUGH QUALIFY ALL THE FILTERS AP PLIED BY THE TAX PAYER BASED ON THE DATA PERTAINING TO THE FY 2007-0 8, THEY HAVE NOT BEEN SELECTED. 3. MANY OF THE COMPARABLES CHOSEN BY THE TAXPAYER A RE NOT FUNCTIONALLY COMPARABLE. IN VIEW OF THE ABOVE DEFECT SAND THE FACT THAT THE INFORMATION AS WELL AS THE DATA USED IN COMPUTATION OF THE ARMS LE NGTH PRICE IS MOST RELIABLE AND CORRECT, THE PROVISIONS OF SECTION 92C (3)(C) ARE INVOKED ITA NO.1496/DEL/2012 9 AND THE TP DOCUMENTATION IS PROPOSED TO BE REJECTED . I PROCEED TO DETERMINE ARMS LENGTH PRICE AS PROPOSED IN THE FOL LOWING PARAGRAPHS. 20. THE TPO HAS SELECTED THE FINAL COMPARABLES BASE D ON THE SEARCH OF PROWESS CAPITALINE DATABASE AND EXAMINATION OF THE FOLLOWING FACTORS: 7.A. THE ANNUAL REPORTS OF THE COMPANY. NO COMPANY IS CONSIDERED AS A COMPARABLE WITHOUT IT S ANNUAL REPORT EITHER DOWNLOADED FROM THE PUBLIC DOMAIN OR OBTAINE D FROM THE COMPANY. THE ANNUAL REPORTS OF ALL THE FINAL COMPA RABLES ARE ENCLOSED AS A SOFT COPY WITH THIS NOTICE. B. WHEREVER COMPLETE INFORMATION OF A COMPANY IS NO T AVAILABLE IN THE ANNUAL REPORT, COMPANY WAS ASKED TO SUBMIT T HE INFORMATION U/S 133(6). REPLIES HAVE BEEN RECEIVED IN ALL CASE S. THE DECISION ON THE CHOICE OF COMPARABLES IS TAKEN BASED ON THE INF ORMATION AVAILABLE IN THE PUBLIC DOMAIN INCLUDING THE ANNUAL REPORT AS ALSO THE REPLIES RECEIVED IN RESPONSE TO NOTICE SENT U/S 133(6). 21. CONSEQUENTLY, THE TPO CONCLUDED THAT THE INFORM ATION AS WELL AS DATA USED IN THE COMPUTATION OF ALP BY THE TAX PAYER IS NOT RELIABLE AND BY INVOKING THE PROVISIONS CONTAINED U/S 92C(3)(C), PR OPOSED TO REJECT THE TP DOCUMENTS AND PROCEEDED TO DETERMINE THE ALP OF INT ERNATIONAL TRANSACTION BY USING TNMM METHODOLOGY AS SELECTED BY THE TAX PA YER. THE TPO DISCUSSED THE COMPARABLES ON THE BASIS OF SEARCH ON THE PROWESS OF CAPITAL LINE DATA AS UNDER: S. NO. NAME DATABASE TOTAL INCOME (RS. CR.) SERVICE INCOME (%) RPT (%) PBIT/ COSTS (%) 1 APITCO LTD PROWESS 10.67 98.5 0 49.35 2 BEST MULYANKAYAN CONSULTANTS LTD PROWESS 1.11 92.79 11 12.85 3 CHOKSI LABORATORIES LTD. CAPITALINE 9.45 98.7 0 2 9.2 4 GENINS INDIA TPA LTD PROWESS 5.34 96.69 0 9.22 ITA NO.1496/DEL/2012 10 5 ICRA MANAGEMENT CONSULTING SERVICES LTD. PROWESS 18.39 96.16 13.41 4.18 6 IDC (INDIA) LTD. PROWESS 15.77 99.43 0.95 15.48 7 INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. PROWESS 1.15 98.26 0 14.56 8 RITES LTD. (SEG.) PROWESS 353.13 84.43 3.49 25.77 9 TECHNICOMCHEMIE (INDIA) LTD. PROWESS 1.97 94.42 0 7.32 10 VAPI WASTE & EFFLUENT MGMT. CO. LTD. PROWESS 19.9 79.85 0 18.53 11 WAPCOS LTD. (SEG.) CAPITALINE 81.97 97.55 0 40.3 7 12 ACCESS INDIA ADVISORS LTD. 45.97 13 TELECOMMUNICATIONS CONSULTANTS INDIA LTD. 6.16 AVERATE 21.46 DATA USED: DATA PERTAINING TO THE FY 2007-08 AS MAN DATED UNDER RULE 10B(4): OPERATING COST RS.1362632678 ARMS LENGTH MEAN MARGIN 21.46% ARMS LENGTH PRICE (ALP) @ 120.69% OF OPERATING COST RS.292420973 PRICE RECEIVED RS.187381065 SHORTFALL BEING ADJUSTMENT U/S 92CA RS.105039908 22. THE TPO HAS DISCLOSED OFF THE OBJECTION FILED B Y THE TAX PAYER FOR EXCLUDING THE COMPANIES TAKEN BY IT AS COMPARABLE. TPO HAS ALSO GIVEN THE DETAILED REASONS FOR SELECTING THE COMPARABLES FOR TRANSFER PRICING STUDY. 23. THE ASSESSEE HAS CLAIMED WORKING CAPITAL ADJUST MENT REPRODUCED BY TPO IN PARA 10.3A AS UNDER: A) CLAIM FOR WORKING CAPITAL ADJUSTMENT: ITA NO.1496/DEL/2012 11 THE ASSESSEE HAS CLAIMED ADJUSTMENT ON ACCOUNT OF W ORKING CAPITAL ADJUSTMENT. IT IS SEEN THAT THE INTENSITY OF WORKI NG CAPITAL AS EMPLOYED BY THE ASSESSEE AND AS EMPLOYED BY THE DIF FERENT. THE CLAIM OF WORKING CAPITAL ADJUSTMENT HAS BEEN EXAMINED KEE PING IN VIEW THE REVISION OF CHAPTER 1-III OF OECD GUIDELINES AS PUB LISHED BY THE OECD ON 22.07.2010. IT IS RELEVANT TO MENTION THAT THE PRIME LENDING RATE TAKEN FOR THE SAKE OF THIS ADJUSTMENT IS 12.5% AS PER SBI GUIDELINES AND ONLY AVERAGE ONLY AVERAGE TRADE RECE IVABLES AND PAYABLE WORKING CAPITAL ADJUSTED MARGIN OF THE COM PARABLES ARE AS UNDER: S.NO. NAME OF THE COMPANY ADJUSTED OPERATING PROFITS ON OPERATING COST (%) FY 2007-08 1 APTICO LTD. 39.80 2 BEST MULYANKAYAN CONMSULTANTS LTD. -2.09 3 CHOKSI LAB LTD. 22.25 4 TELECOMMUNICATIONS CONSULTANTS INDIA LTD. (SEG) 8.08 5 ICRA MANAGEMENT CONSULTING SERVICES LTD. -3.31 6 IDC (INDIA) LIMITED 10.32 7 INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. 11.8 2 8 RITES LTD. 29.81 9 TECHNICOM CHEMIE (I) LTD. 7.18 10 VAPI WASTE & EFFLUENT MGMT. CO.LTD. 3.87 11 WAPCOS LTD. (SEG.) 52.37 AVERAGE 16.37% 24. HOWEVER, THE TPO PROCEEDED TO DISPOSE OF THE IS SUE AS TO THE WORKING CAPITAL ADJUSTMENT BY MAKING FOLLOWING OBSERVATIONS : WORKING CAPITAL ADJUSTMENT: THE ASSESSEE SUBMITTED CLAIM FOR WORKING CAPITAL ADJUSTMENT ALONG WITH THE RESPONSE TO THE SHOW CAUSE NOTICE. IT WAS NOTICED THAT THE ASSESSEE WAS USING THE SAME PROFIT MARGIN WHICH HAD NOT BEEN ACCEPTED EARLIER AND ALSO THE PLR USED WAS 13%. THE PLR DURING THE RELEVANT YEAR IS 12.5% AND THE SAME HAS BEEN USED AND A MENTIONED EARLIER THE RECALCULA TED MARGINS, WHICH WERE EXPLAINED TO THE ASSESSEE, HAVE BEEN USE D. FURTHER, FOR THE PURPOSE OF TAKING AVERAGE RECEIVABLES AND PAYABLES, ONLY TRADE RECEIVABLES AND PAYABLES HAVE BEEN TAKEN AND NO OTH ER ASSETS AND LIABILITIES HAVE BEEN CONSIDERED. THE WORKING CAPIT AL ADJUSTMENT SHEET IS ENCLOSED AS ANNEXURE-B. ITA NO.1496/DEL/2012 12 25. SO, THE TPO VIDE ORDER DATED 25.09.2008 DIRECTE D THE A.O. TO ENHANCE THE INCOME OF THE ASSESSEE BY RS.1,26,79,054/-. HO WEVER, A PERUSAL OF ORDER DATED 22.12.2008 PASSED BY A.O. APPARENTLY GOES TO PROVE THAT HE HAS ACTED AS A POST OFFICE WITHOUT EXAMINING THE ISSUE AS TO THE WORKING CAPITAL ADJUSTMENT SOUGHT BY THE ASSESSEE, RATHER A.O. HAS PREFERRED TO KEEP MUM AND PROCEEDED TO MAKE THE ADDITION AS PER ALP U/S 9 2CA(3) AS PROPOSED BY TPO IN HIS ORDER DATED 25.09.2008. 26. THE ASSESSEE BEING AGGRIEVED, CARRIED THE MATTE R TO LD. CIT(A) WHO HAS DELETED THE ADDITION ON ACCOUNT OF WORKING CAPI TAL ADJUSTMENT BY MAKING FOLLOWING OBSERVATIONS: 5.10 THE APPELLANT HAD PRODUCED THE FULL WORKING OF THE WORKING CAPITAL ADJUSTMENT IN ITS SUBMISSION DATED 19.01.2012 IN ANNEXURE TO THE PAPER BOOK. THE WORKING CAPITAL AD JUSTED MARGIN OF THE COMPARABLES ARE REPRODUCED BELOW: MARGIN ANALYSIS PROVISION OF TELECOMMUNICATION AN D RELATED SUPPORT SERVICES AFTER WORKING CAPITAL ADJUSTMENTS S.NO. NAME OF THE COMPANY OPERATING PROFIT ON OPERATING COST (%) F.Y. 2004-05 1 EDUCATIONAL CONSULTANTS INDIA LIMITED -0.47% 2 ENGINEERS INDIA LIMITED -0.20% 3 GEEFCEE FINANCELIMIT4ED -12.56% 4 IDC (INDIA) LIMITED -0.67% 5 INMACS MANAGEMENT SERVICES LIMITED 10.83% 6 GROW TALENT CO. LTD 12.01% 7 RITES LIMITED 14.20% 8 TATA SHARE REGISTRY LIMITED -0.99% ARITHMETIC MEAN 2.77% AS THE MEAN ADJUSTED MARGIN (OP/TC) OF THE COMPARAB LES ARE LESS THAN WHAT IS EARNED BY THE APPELLANT WHICH IS AT 10 %, THE INTERNATIONAL TRANSACTION IN RESPECT OF PROVISION O F TELECOMMUNICATION ITA NO.1496/DEL/2012 13 AND RELATED SUPPORT SERVICES ARE HELD TO BE AT ARM S LENGTH. THE A.O./TPO IS DIRECTED TO DELETE THE ADDITION MADE IN THIS REGARD. 27. NEEDLESS TO SAY THAT WHEN THE A.O. HAS NOT EXAM INED THE MATTER AS TO THE WORKING CAPITAL ADJUSTMENT SOUGHT FOR BY THE AS SESSEE AND REJECTED BY TPO. THE LD. CIT(A) THOUGH HAVING CO TERMINUS POW ERS, WAS NOT AUTHORIZED TO PROCEED WITH DELETING THE ADDITION WI THOUT ENTERTAINING ADDITIONAL EVIDENCE DURING APPELLATE PROCEEDINGS AN D WITHOUT CALLING THE REMAND REPORT FROM THE A.O. WHEN THE WORKING CAPIT AL ADJUSTMENT HAS BEEN DULY DEMONSTRATED BY THE ASSESSEE DURING PROCEEDING S BEFORE TPO, A QUASI JUDICIAL AUTHORITY, THE A.O. AS WELL AS LD. CIT(A) WERE LEGALLY BOUND TO ADDRESS THE ISSUE IN ACCORDANCE WITH LAW BY APPLYIN G THE RULE OF NATURAL JUSTICE. SO, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.12,67,405/-. SO, WE ARE OF THE CONSIDERED OPINION THAT THE FILE IS REQUIRED TO BE RESTORED TO LD. CIT(A) FOR FRESH ADJUDICATION. CONSEQUENTLY, G ROUND NO.1 IS DECIDED IN FAVOUR OF THE REVENUE. NEEDLESS TO SAY THAT LD. CI T(A) SHALL PASS THE ORDER AFRESH AFTER PROVIDING PROPER OPPORTUNITY OF BEING HEARD TO BOTH THE PARTIES. 28. GROUND NO.2 RAISED BY THE APPELLANT, THE LD. CIT(A) HAS ERRED ON FACTS AND IN DELETING ADDITION OF RS.22,150/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION CLAIMED BY ASSES SEE ON COMPUTER PERIPHERALS. 29. UNDISPUTEDLY, DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE HAS MADE ADDITION TO THE FIXED ASSETS UNDER THE HEAD C OMPUTER AND CLAIMED DEPRECIATION @ 60% AND HAS FILED THE DETAILS OF AD DITION TO FIXED ASSETS THAT THE DETAILS FILED BY THE ASSESSEE SHOW THE PURCHASE S OF COMPUTER ACCESSORIES AMOUNTING TO RS.63,290/-. HOWEVER, THE ASSESSEE CL AIMED THE DEPRECIATION @60% RATHER ALLOWED THE SAME @ 25% TREATING THE SAM E AS NORMAL PLANT ITA NO.1496/DEL/2012 14 AND MACHINERY AND THE EXCESS DEPRECIATION CLAIMED A T RS.22,150/- WAS DISALLOWED. 30. DURING APPELLATE PROCEEDINGS, LD. CIT(A) HAS DI SCUSSED THE ISSUE THREADBARE IN PARA 7 AT PAGE 14 OF THE IMPUGNED ORD ER AND PROCEEDED TO DELETE THE ADDITION OF RS.22,150/-. 31. THE HONBLE JURISDICTIONAL HIGH COURT IN CASE C ITED AS CIT VS BSES YAMUNA POWER LIMITED (I.T.A. NO. 1267/2010) UPHELD THE VIEW TAKEN BY THE TRIBUNAL THAT COMPUTER ACCESSORIES AND PERIPHER ALS SUCH AS PRINTERS, SCANNERS AND SERVER ETC. FORM AN INTEGRAL PART OF T HE COMPUTER SYSTEM AND AS SUCH FOUND THE ASSESSEE ENTITL4ED TO DEPRECIATION A T THE HIGHER RATE OF 60%. SO, RELYING UPON THE LAW LAID DOWN BY HONBLE JURIS DICTIONAL HIGH COURT, LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS.2 2,150/- MADE BY THE A.O. HENCE, GROUND NO.2 IS DETERMINED AGAINST THE APPELL ANT. 32. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, PRESE NT APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CASE IS OR DERED TO BE RESTORED TO LD. CIT(A) FOR FRESH DECISION IN ACCORDANCE WITH LAW WI THOUT INFLUENCED BY THE FINDINGS RETURNED BY THE TPO. SD./- SD./- ( INTURI RAMA RAO) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 30.10. 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). ITA NO.1496/DEL/2012 15 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 23/9 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 24/9,15,16,26,30,30 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 30/10/15 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 30/10 SR. PS/PS 7 FILE SENT TO BENCH CLERK 30/10 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER