ACIT, CHENNAI V. Ford Business Services Centre P Ltd., CHENNAI

ITA 1925/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7920 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 31-08-2015
• Court: TRIBUNAL
• Assessee Lawyers: M M BUSARICIT
• Keywords: Depreciation; Transfer pricing; Rectification of order
• Section: 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! , ' # $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD , JUDICIAL MEMBER ./ I.T.A.NO.1701 /MDS./2015 ( / ASSESSMENT YEAR :2008-09) M/S.FORD MOTOR PRIVATE LTD. (FORMERLY KNOWN AS FORD BUSINESS SERVICES CENTRE PRIVATE LTD.,) BLOCK NO.1B,RMZ MILLINIA, 143,DR.MGR ROAD, (NORTH VEERANAM SALAI), PERUNGUDI, CHENNAI 603 204. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE- II(1), AAYAKAR BHAVAN, CHENNAI 34. PAN AAACF 5984 H ( () / APPELLANT ) ( $*() / RESPONDENT ) ./ I.T.A.NOS.1925 & 1926 /MDS./2015 ( / ASSESSMENT YEAR :2005-06 & 2008-09) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(1), AAYAKAR BHAVAN, CHENNAI 34. VS. M/S.FORD MOTOR PRIVATE LTD. (FORMERLY KNOWN AS FORD BUSINESS SERVICES CENTRE PRIVATE LTD.,)BLOCK NO.1B, RMZ MILLINIA, 143,DR.MGR ROAD, (NORTH VEERANAM SALAI),PERUNGUDI,CHENNAI AAACF 5984 H ( () / APPELLANT ) ( $*() / RESPONDENT ) ITA NOS.1701,1925,1926/MDS/2015 2 / APPELLANT BY : MR.RAGHUNATHAN SAMPATH,ADVOCATE / RESPONDENT BY : MR M M BUSARI,CIT, D.R / DATE OF HEARING : 18.02.2016 ! /DATE OF PRONOUNCEMENT : 19.02.2016 + / O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER: THESE CROSS APPEALS ARE FILED BY THE ASSESSEE IN ITA NO.1926/MDS./15 AND BY THE REVENUE IN ITA NO.1701/M DS./2015 FOR ASSESSMENT YEAR 2008-09 AND THE OTHER APPEAL FILED BY THE REVENUE IN ITA NO.1925/MDS,.2015 IS FILED FOR ASSESSMENT YE AR 2005-06 AGAINST THE COMMON ORDER OF CIT(A)-6,CHENNAI DATED 06.03.2015. 2. FIRST WE TAKE UP THE APPEAL OF REVENUE IN ITA NO.1925/MDS./15 (A.Y.2005-06) THE REVENUE HAS RAISED THE FOLLOWING GROUNDS FOR ADJUDICATION:- 1. THE ORDER OF THE LD.CIT(A) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2.1 THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE F UNCTIONAL SIMILARITY BETWEEN THE TWO COMPANIES AND HENCE THE LD. CIT(A) OUGHT TO HAVE CONSIDERED M/S.ECLERK SERVICES LTD., AS THE COMPARABLE. ITA NOS.1701,1925,1926/MDS/2015 3 2.2. THE M/S.ECLERK SERVICES LTD., STAND TAKEN BY THE LD.CIT(A) IS CONTRADICTORY AS THE PROFITS EARNED BY TWO COMPARAB LES VIZ. M/S.CORAL HUB LTD.,(51.28%) AND M/S.ECLERK SERVICES LTD.,(58.78 %) WERE ALMOST NEAR TO EACH OTHER. 2.3. THE LD.CIT(A) WHILE ACCEPTING M/S.CORAL HUB L TD. AS A COMPARABLE SHOULD ALSO HAVE ACCEPTED M/S.ECLERK SERVICES LTD., AS A S UITABLE COMPARABLE COMPANY AS THESE COMPANIES ARE FUNCTIONALLY SIMILAR TO THOS E OF THE ASSESSEE. 3. AT THE OUTSET, LD.D.R FAIRLY SUBMITS THAT THE A O I.E. JCIT,TPO-1 CHENNAI BY ORDER DATED 31.05.2012 ACCEPTED THE APPL ICATION FILED BY THE ASSESSEE U/S.154 OF THE ACT AND MODIFIED THE TP OS ORDER PASSED U/S.92CA(3) DATED 27.10.2011 BY WITHDRAWING THE TRA NSFER PRICING ADJUSTMENT. IN VIEW OF MODIFICATION ORDERS DATED 3 1.05.2012 AND DATED 6.8.2012, HE SUBMITS THAT THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL WILL NOT SURVIVE AS THE ADDITION ITSE LF IS WITHDRAWN. THE LD.A.R SUBMITS THAT THE REVENUES APPEAL WILL NOT SURVIVE IN VIEW OF MODIFICATION ORDER DATED 06.08.12 WHEREIN THE AO MO DIFIED THE ASSESSMENT IN VIEW OF TPOS RECTIFICATION ORDER DA TED 31.05.2012 BY DELETING THE ADDITION MADE U/S.92C(4)OF THE ACT. TH E LD.D.R FURTHER SUBMITTED THAT THE CIT(A) HAS TAKEN NOTE OF THE REC TIFICATION ORDER PASSED BY THE AO U/S.154 DATED 31.05.2012 DELETING THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT PROPOSED BY TPO AND HELD ITA NOS.1701,1925,1926/MDS/2015 4 THAT THE APPEAL BECAME REDUNDANT. IN VIEW OF THE SU BMISSIONS OF BOTH THE COUNSELS, THE APPEAL OF REVENUE IS DISMISSED AS INFRUCTUOUS. 3. ITA NO.1926/MDS./2015 (REVENUE APPEAL FOR A.Y 2008-09) THE FIRST ISSUE IN THE REVENUES APPEAL IS THAT L D.CIT(A) ERRED IN HOLDING THAT DEPRECIATION FOR UPS HAS TO BE GRAN TED @ 60% AND NOT @ 15%. 4. AT THE OUTSET, LD.A.R SUBMITS THAT THE ISSUE IN APPEAL HAS BEEN CONSIDERED IN THE CASE OF M/S.INDIAN OVERSEAS BANK IN ITA NO.1999/MDS./10 DATED 19.03.2013 WHEREIN THE TRIBUN AL FOLLOWING THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF M/S .ORIENT CERAMICS & INDUSTRIES LTD., HELD THAT UPS IS PART OF COMPUTER HARDWARE AND ELIGIBLE FOR DEPRECIATION @ 60%. LD.A.R ALSO SUBMIT S THAT THIS ISSUE HAS BEEN CONSIDERED BY THE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS.M/S. SOUTHERN ROADWAYS LTD.(2006) 282 ITR 37 9(MAD.), COPY OF WHICH IS PLACED ON RECORD AND SUBMITS THAT THE H ONBLE HIGH COURT HELD THAT EXPENDITURE INCURRED ON COMPUTER SOFTWARE PACKAGES AND REPLACEMENT OF UPS SYSTEM AND PRINTER IS REVENUE E XPENDITURE. THE LD.D.R SUPPORTS THE ORDER OF LOWER AUTHORITIES. ITA NOS.1701,1925,1926/MDS/2015 5 5. THE QUESTION IS WHETHER THE UPS IS PART OF COMP UTER ELIGIBLE FOR DEPRECIATION @ 60% OR @ 15%. THE CIT(A) FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF INDIAN OVERSEAS BA NK (SUPRA) HELD THAT UPS ATTACHED TO THE COMPUTERS IS PART OF COMPU TER SYSTEMS AND ELIGIBLE FOR DEPRECIATION @ 60% OBSERVING AS FOLLOW S:- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ASSE SSEE. THERE ARE SEVERAL DECISIONS, INCLUDING DELHI HIGH COURT AND T HE JURISDICTIONAL ITAT, WHERE IT WAS HELD THAT UPS ALSO FORMS PART OF THE C OMPUTER SYSTEM AND, THEREFORE, ELIGIBLE FOR DEPRECIATION @ 60%. SOME OF THE DECISIONS ARE AS UNDER (1) ITA NO.99/MDS/2010 (ITAT CHENNAI) IN THE CASE O F LOB. (II) ITA NO.3606/MUM/201 1 (ITAT MUMBAI) IN THE CAS E OF SARASWAT INFOTECH LTD. (III) ITA 474/DEL/2009 DELHI TRIBUNAL IN THE CASE O F GLOBAL TRUST BANK. (IV) ITA 962/DEL/2006 DELHI TRIBUNAL IN CASE OF NEP TUNE INFORMATION SOLUTIONS LTD THE RELEVANT PORTION OF THE DECISION OF THE CHENNAI ITAT IN THE CASE OF INDIAN OVERSEAS BANK IN ITA NO.99/MDS/2010 DATED 19 .03.20 13 IS AS UNDER 28. WE DO NOT AGREE WITH IE SUBMISSIONS OF THE AR T HAT THE UPS IS AN ENERGY SAVING DEVICE, THEREFORE, DEPRECIATION @ 80% SHOULD BE GRANTED. HOWEVER, WE ARE IN CONSONANCE WITH THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ORIENT CERAMICS & INDUSTRIES L TD. (SUPRA), WHEREIN THE HONBLE COURT HAS GRANTED DEPRECIATION @ 60% BY TRE ATING UPS AS PART OF COMPUTER HARDWARE. ACCORDINGLY, WE ALLOW DEPRECIATI ON 60% ON UPS AND PARTLY ALLOW THE GROUND OF APPEAL OF THE ASSESS EE. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL ITAT, IN THE CASE OF INDIAN OVERSEAS BANK IN ITA NO.99/MDS/2010 DATED 19 .03.2013, I HOLD THAT UPS ATTACHED TO THE COMPUTERS ARE PART OF COMP UTER SYSTEMS AND ELIGIBLE FOR DEPRECIATION @ 60%. ACCORDINGLY, I DIR ECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON UPS @ 60%. THE ASSESSEE SU CCEEDS IN ITS APPEALS IN THIS REGARD. ITA NOS.1701,1925,1926/MDS/2015 6 WE ALSO FIND THAT THE HONBLE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. SOUTHERN ROADWAYS LTD.(SUPRA) HELD THAT EXP ENDITURE INCURRED ON REPLACEMENT OF UPS AND PRINTER IS A REV ENUE EXPENDITURE. THUS WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASS ED BY THE LD.CIT(A) IN ALLOWING THE DEPRECIATION ON UPS AT 60%. 6. THE SECOND ISSUE IN THE APPEAL OF THE REVENUE I S THAT THE LD.CIT(A) ERRED IN HOLDING THAT OVERSEAS TRAVEL AND COMMUNICATION EXPENDITURE INCURRED IN FOREIGN CURRENCY ARE TO BE REDUCED FROM TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTATION OF DED UCTION U/S.10B OF THE ACT. 7. BRIEF FACTS ARE THAT THE AO WHILE COMPUTING THE DEDUCTION U/S.10B OF THE ACT REDUCED TELECOMMUNICATION CHARGE S AND OVERSEAS TRAVEL INCURRED IN FOREIGN CURRENCY FROM EXPORT TUR NOVER BY TREATING THE SAME AS EXPENSES ATTRIBUTABLE TO THE DELIVERY OF CO MPUTER SOFTWARE OUTSIDE INDIA. THE AO REJECTED THE CONTENTION OF T HE ASSESSEE THAT SUCH CHARGES SHOULD ALSO BE REDUCED FROM TOTAL TURN OVER. ON APPEAL, LD.CIT(A) FOLLOWING THE DECISION OF SPECIAL BENCH O F CHENNAI TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD.( 313 ITR (AT) ITA NOS.1701,1925,1926/MDS/2015 7 353)(CHENNAI)(SB) AND ALSO HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD (330 ITR 17 5), DIRECTED THE AO TO EXCLUDE THE FOREIGN CURRENCY EXPENSES OF TELE COMMUNICATION CHARGES FROM BOTH EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING DEDUCTIONS U/S.10B/10A.10AA OF THE ACT. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 8. LD.D.R SUPPORTS THE ORDER OF THE LD. ASSESSING OFFICER. LD.A.R RELIED ON THE DECISION OF SPECIAL BENCH IN THE CASE OF SAK SOFT LTD.(SUPRA). 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. LD.CIT(A) FOLLOWING THE DECISIO N OF SPECIAL BENCH OF CHENNAI TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD., CITED SUPRA AND ALSO HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. GEM PLUS JEWELLERY INDIA LTD. CITED SUPRA, DIRECTED THE AO TO EXCLUDE THE FOREIGN CURRENCY EXPENSES OF TELECOMMUNICATION EXPE NSES FROM BOTH EXPORT AS WELL AS TOTAL TURNOVER. THUS WE DO NOT F IND ANY INFIRMITY IN THE DIRECTION OF THE LD.CIT(A). ITA NOS.1701,1925,1926/MDS/2015 8 10. THE LAST ISSUE IN THE APPEAL OF THE REVENUE IS WITH REGARD TO TRANSFER PRICING ADJUSTMENTS AS WAS MADE IN THE ASS ESSMENT ORDER PERTAINING TO ASSESSMENT YEAR 2005-06. THE GROUNDS RAISED BY THE REVENUE ARE AS FOLLOWS:- 4.1 THE LD.CIT(A) OUTHT TO HAVE CONSIDERED THE FU NCTIONAL SIMILARITY BETWEEN THE TWO COMPANIES AND HENCE THE LD.CIT(A) O UGHT TO HAVE CONSIDERED M/S.ECLERK SERVICES LTD., AS THE COMPARA BLE. 4.2 THE STAND TAKEN BY THE LD.CIT(A) IS CONTRADICT ORY AS THE PROFITS EARNED BY TWO COMPARABLES VIZ. M/S.CORAL HUB LTD (51.28%) AND M/S.ECLERK SERVICES LTD., (58.78%) WERE ALMOST NEAR TO EACH OT HER. 4.3 THE LD.CIT(A) WHILE ACCEPTING M/S.CORAL HUB LT D AS A COMPARABLE SHOULD ALSO HAVE ACCEPTED M/S.ECLERK SERVICES LTD., AS A SUITABLE COMPARABLE COMPANY AS THESE COMPANIES ARE FUNCTIONA LLY SIMILAR TO THOSE OF THE ASSESSEE . 11. AT THE OUTSET, LD.A.R SUBMITS THAT THE GROUNDS WILL NOT SURVIVE IN VIEW OF THE MUTUAL AGREEMENT PROCEDURE (MAP) DATED 19.10.2015 WHEREIN THE INDIAN GOVERNMENT AND THE USA GOVERNMEN T AGREED FOR MARK-UP FOR THE ASSESSMENT YEAR 2008-09 AT 14.93% A S AGAINST 14.10% SHOWN BY THE ASSESSEE. LD.A.R SUBMITS THAT IN VIEW OF MAP WHEREIN THE MARK UP HAS BEEN FIXED AT 14.93%, THE G ROUNDS RAISED BY THE REVENUE WILL NOT SURVIVE. LD.D.R FAIRLY ACCEPTS THE POSITION. IN ITA NOS.1701,1925,1926/MDS/2015 9 VIEW OF THE SUBMISSIONS OF BOTH THE PARTIES THE GRO UND RAISED BY THE REVENUE IS DISMISSED. 12. ITA NO.1701/MDS./2015 (ASSESSEES APPEAL FOR A.Y 2008-09) THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO SUSTAINING THE DISALLOWANCE U/S.14A R.W.RULE 8D BY THE CIT(A). THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS GROU ND IS WITHDRAWN AND NOT PRESSED. THE SECOND ISSUE IN THE APPEAL IS THAT THE CIT(A) ERRED IN LAW BY FAILING TO ADJUDICATE ON THE AD HOC EXCLUSION OF DATA CONNECTION CHARGES FROM EXPORT TURNOVER. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS GROUND IS ALSO WITHDRAWN AND NOT PRESSED. THUS, BOTH THESE GROUNDS ARE DISMISSED AS WITHDRA WN. 13. THE ONLY GROUND LEFT FOR ADJUDICATION IS DISAL LOWANCE OF FRINGE BENEFIT TAX (FBT) WHILE COMPUTING BOOK PROFIT U/S.1 15JB OF THE ACT. LD.A.R SUBMITS THAT THE CIT(A) FAILED TO TAKE NOTE OF THE CIRCULAR NO.8 OF 2015 DATED 29.08.2015 ISSUED BY THE CBDT WHEREI N IT HAS BEEN STATED THAT FBT IS AN ELIGIBLE DEDUCTION WHILE COMP UTING BOOK PROFITS ITA NOS.1701,1925,1926/MDS/2015 10 U/S.115JB OF THE ACT. LD.A.R INVITING OUR ATTENTION TO PARA NO.103 OF THE SAID CIRCULAR SUBMITS THAT THE BOARD HAS CLARIF IED THAT FBT IS AN ALLOWABLE DEDUCTION IN COMPUTING BOOK PROFIT U/S.11 5JB OF THE ACT. THE LD.D.R SUPPORTS THE ORDER OF LOWER AUTHORITIES. 14. HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND CBDT CIRCULAR NO.8 OF 2015 DATED 29 .08.15. PARA103 OF THE SAID CIRCULAR READS AS UNDER:- WHETHER FBT WOULD BE ALLOWABLE DEDUCTION WHILE COMP UTING BOOK PROFIT U/S.115JB ? 103. FBT IS A LIABILITY QUA EMPLOYER. IT IS AN EXP ENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OF THE EMPLOYER. HOWEVER, SUB-CLAUSE (I C) OF CLAUSE (A) OF SEC.40 OF THE ACT EXPRESSLY PROHIBITS THE DEDUCTION OF THE AMOUNT OF FBT PAID, FOR THE PURPOSES OF COMPUTING THE INCOME UNDER HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THIS PROHIBIT ION DOES NOT APPLY TO THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSES OF SEC.115JB. ACCORDINGLY, THE FBT IS AN ALLOWABLE DEDUCTION IN T HE COMPUTATION OF BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT. FROM THE READING OF THE CIRCULAR, IT IS CLEAR THAT FBT IS ALLOWABLE DEDUCTION IN COMPUTATING BOOK PROFITS U/S.115JB OF THE ACT. THUS, IN VIEW OF THE CBDT CIRCULAR, WE DIRECT THE AO TO ALLO W FBT AS AN ALLOWABLE DEDUCTION IN THE COMPUTATION OF BOOK PROF ITS. ITA NOS.1701,1925,1926/MDS/2015 11 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.1925/MDS./15 IS DISMISSED AND THE APPEAL FILED B Y THE REVENUE IN ITA NO.1926/MDS./15 IS DISMISSED AND THE APPEAL FIL ED BY THE ASSESSEE IN ITA NO.1701/MDS./15 IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 19 TH OF FEBRUARY,2016 AT CHENNAI. SD/- SD/- ( ' # $ % ) & CHANDRA POOJARI ' ( ' # $ ) (CHALLA NAGENDRA PRASAD ) ( ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 19 TH FEBRUARY,2016 . K S SUNDARAM. )*(( +,(-, /COPY TO: ( 1. /APPELLANT 2. /RESPONDENT 3. ( .(&' /CIT(A) 4. ( . /CIT 5. ,/0( 1 /DR 6. 0(2 /GF