VMware Software India Private Limited , Bangalore V. The Deputy Commissioner of Income TAx Circle-7(1)(2), Bangalore

ITA 2127/BANG/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6349 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 02-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Assessment record; Capital expenditure; Set aside
• Section: 143(3); 244A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B”, BANGALORE Before Shri George George K, JM & Ms.Padmavathy S, AM IT(TP)A No.2127/Bang/2017 : Asst.Year 2012-2013 M/s.VMware Software India Private Limited, Kalyani Magnum Block-I, 3 rd Floor 165/2 Doraisanipalya, IIM Post Bannerghatta Road Bengaluru – 560 076. PAN : AACCV4573E. v. The Deputy Commissioner of Income-tax, Circle 7(1)(2) Bangalore. (Appellant) (Respondent) Appellant by : Sri.T.Suryanaranayana, Advocate Respondent by : Dr.Manjunath Karkihalli, CIT -DR Date of Hearing : 03.06.2022 Date of Pronouncement : 17.06.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 24.01.2017 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2012-2013. 2. The issues raised in the appeal are as follows:- (i) Validity of the impugned final assessment order; (ii) Transfer pricing (TP) adjustment of Rs.26,85,43,457 made by the Transfer Pricing Officer (TPO) towards the international transactions of provision of contrct Software Development and Information Technology Enabled Services to the assessee’s Associated Enterprises (AEs); (iii) Addition of Rs.7,62,39,388 being the alleged suppressed income of the assessee; and IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 2 (iv) Non-grant of depreciation on certain expenses incurred in earlier years and held to be capital in nature in such years. 3. The brief facts of the case are as follows: The assessee is a company engaged in the business of provision of contract Software Development (SWD) services and Information Technology Enabled (ITE) services to its AEs as a captive service provider. The assessee is a subsidiary of VMware International Limited, Ireland, which in turn is an affiliate of VMWare Inc. US. During the previous year relevant to the assessment year 2012-2013, two of the international transactions undertaken between the assessee and its AEs were the provision of SWD services by the assessee at a price of Rs.172,98,97,393, for which a TP adjustment of Rs.11,27,08,575 was made by the TPO, and the provision of ITE services by the assessee at a price of Rs.155,66,80,620 in respect of which an adjustment of Rs.15,58,34,882 was made by the TPO. Pursuant to the TPO’s order, a draft assessment order dated 24.03.2016 was passed by the Assessing Officer (AO) in which he incorporated the aforesaid TP adjustments. Further, the AO made an addition of Rs.6,44,37,710 by alleging that the same represents the assessee’s suppressed income. Further, the AO did not grant depreciation on certain expenditure incurred in the earlier year which was held to capital expenditure. IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 3 4. Aggrieved, the assessee filed its objections before the DRP. The DRP vide its directions dated 23.12.2016 rejected most of the assessee’s objections insofar as the TP adjustments made by the TPO were concerned. As for the issue of alleged suppression of income, the DRP directed the AO to make an addition of Rs.7,62,39,388 instead of the sum proposed by him in the draft assessment order. The DRP did not grant any relief on the assessee’s claim for depreciation on the basis that the same did not relate to a variation proposed in the draft assessment order that could be the subject matter of the proceedings before it. Pursuant to the DRP’s directions, final assessment order dated 24.01.2017 was passed. It was claimed by the assessee that the final assessment order was received by it only on 03.10.2017. In the final assessment order, despite some relief having been allowed by the DRP, the TP adjustment remained the same. Further, the assessee’s claim for depreciation on certain expenses incurred in earlier years and held to be capital in nature in such years was not allowed in the impugned order. However, the addition made on account of alleged suppression of income was increased in line with the DRP’s directions. 5. Aggrieved, the assessee has preferred this appeal before the Tribunal, raising following grounds:- “The grounds mentioned herein by the Appellant are without prejudice to one another. 1. That the final assessment order passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ("the Act") by the learned Deputy Commissioner of Income Tax, IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 4 Circle 7(1)(2), Bangalore ("learned Assessing Officer") is void- ab-initio and hence liable to be quashed. 2. That the final assessment order is passed beyond the time period prescribed under section 143(3) read with section 144C(13) of the Act and is therefore not in conformity with the provisions of section 144C(13) the Act and hence bad in law. 3. That the notings of the learned Assessing Officer, that the final assessment order was collected by the Appellant in person on 24 January 2017 and that the final assessment order was posted to the Appellant via speed post on 28 March 2016 are erroneous. Grounds of appeal relating to Corporate Tax matters 4. On the facts and in the circumstances of the case and in law, the learned Dispute Resolution Panel - 2, Bangalore ("DRP") erred in confirming the action of the learned Assessing Officer by rejecting the audit adjustments made in the financial statements amounting to INR 7,62,39,388 and thereby adding back the same to the taxable income as suppression of income. 5. That the DRP erred in not adjudicating on the ground that the action the learned Assessing Officer resulted in double taxation given the revenue has already been adjusted by the learned Additional Commissioner of Income tax, Transfer Pricing - Range 2(2) ('learned TPO') under section 92CA of the Act. 6. The learned Assessing officer erred in not granting the allowance for depreciation on expenditure treated as capital in nature in earlier years and the DRP further erred in not interfering with the same. Grounds of appeal relating to Transfer Pricing matters 7. The learned Assessing Officer in pursuance of the directions of the Dispute Resolution Panel (learned DRP) erred in upholding the rejection of Transfer Pricing (TP') documentation by the learned TPO and in upholding the adjustment to the transfer price of the Appellant in respect of its software development services and information technology enabled service segments; 8. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in disregarding application of multiple year/prior year data as used by the Appellant in the TP documentation IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 5 and holding that current year (i.e. Financial Year 2011-12) data for companies should be used for comparability; 9. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in upholding the learned TPO's approach of using data as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for comparable companies while determining the arm's length price; 10. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in upholding the fresh comparability analysis performed by the learned TPO with application of certain filters like rejecting companies having service income less than INR 1 crore, export service income <75% of the sales, employee cost <25% of turnover filter and modified filters, namely, the service revenue> 75%, and the related party transaction > 25% filters; 11. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in rejecting the filters applied by the Appellant in its TP documentation, namely, service revenue >50%, net fixed to sales < 200%, R & D expenses < 3%, advertisement and marketing < 3%, negative net worth filters and related party transaction; 12. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in concluding that there is no correlation between the operating mark-up on cost earned and the turnover of a company (effect of economies of scale) .Accordingly, the learned Assessing Officer erred in not -rejecting companies based on their turnover; 13. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in upholding the rejection of comparable companies considered in the TP documentation with respect to software development service (viz. Helios and Matheson Information Technology Limited, IDBI Intech Ltd, Allied Digital Services Ltd.) and information technology enabled services (viz. Cameo Corporate Services Ltd, In-House Productions Ltd. etc.), which are functionally comparable with the service rendered by the Appellant; 14. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 6 Panel erred in excluding a comparable company for the software development service segment (viz. RS Software Ltd.) and comparable companies for the information technology enabled services segment (viz. Informed Technologies India Ltd, and Jindal Intellicom Limited) which are functionally comparable to the information technology enabled service rendered by the Appellant; 15. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in arbitrarily arriving at a set of companies as comparable for the information technology enabled service segment by including companies (viz. Universal Print System Ltd, Infosys BPO Ltd, Excel Infoways Limited, BNR Udyog Limited and TCS Eserve Ltd.) that are functionally dissimilar to the Appellant and otherwise fail the test of comparability and filters as applied by the learned TPO; 16. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in upholding the TPO's approach of not providing Risk Adjustment and thus ignored the limited risk nature of the services provided by the Appellant and in not providing an appropriate adjustment towards the risk differential, even when full-fledged entrepreneurial companies are selected as comparables; 17. On the facts and circumstances of the case, learned Assessing Officer erred in not giving effect to the directions issued by the learned DRP with respect to the Transfer Pricing matter while passing the final Assessment order such as erroneous computation of working capital adjustment and treatment of foreign exchange gain / loss as operating in nature for the Appellant and the comparable companies; 18. On the facts and circumstances of the case, learned Assessing Officer erred in not giving effect to the directions issued by the learned Panel wherein post the DRP directions entire TP adjustment for software development services segment ought to have been deleted; 19. Without prejudice to the above, on the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in arbitrarily arriving at a set of companies as comparable for the software development service segment by including companies (viz. Genesys International Corp Ltd., Infosys Ltd., L&T Info tech Ltd., Persistent Systems Ltd., and Sasken Communication Tech Ltd.) that are functionally dissimilar to IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 7 the Appellant and otherwise fail the test of comparability and filters as applied by the learned TPO. 20. That the learned AO has erred in computing interest under section 234B of the Act amounting to INR 7,02,13,338.” 6. The assessee has filed multiple paper books enclosing therein the TP study, the objections raised before the DRP, communications between the assessee and the Revenue, the financials of the assessee and the comparables, etc. The learned AR has also filed a brief written submission. The assessee has raised grounds on legal issues and also on merits. As regards the legal issue is concerned, the learned AR submitted that the final assessment order has not been passed within the time prescribed u/s 144C(13) of the I.T.Act, and therefore, the same is barred by limitation and thus void ab initio. In this context, the learned AR submitted that there is nothing on record to suggest that the final assessment order (though dated 24.01.2017), was dispatched within the time limit prescribed u/s 144C(13) of the I.T.Act so as to be beyond the control of the A.O. It was stated that the assessee has received demand from CPC on 15.03.2017 (the demand refers to the assessment order dated 13.03.2017) and interest u/s 234B of the I.T.Act was computed upto 31.03.2017. In support of the submission, the learned AR relied on the following judicial pronouncements:- (i) Maharaja Shopping Complex v. DCIT [ITA No.832/2008) (Karnataka High Court) (ii) CIT v. B J N Hotels Ltd. (2017) 79 taxmann.com 336 (Karnataka High Court) (iii) Government Wood Works v. State of Kerala (1988) 69 STC 62 (Kerala HC) (iv) State of Andhra Pradesh v. M.Ramakishtaiah and Co. IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 8 (1994) 93 STC 406 (SC) (v) CIT v. Sincere Construction (2015) 229 Taxman 186 (Allahabad) (vi) ACIT v. Dr.Tulsi Prasad Mohapatra (2012) 27 taxmann.com 125 (Cuttack-Trib.) (vii) Aalaya Jewel Industry Pvt. Ltd. v. ACIT (2018) 93 txmann.com 23 (Chennai-Trib.) 7. As regards the other legal issue is concerned (Ground 17), the learned AR submitted that the final assessment order is not in conformity with the DRP’s directions, and therefore, illegal, bad in law and not sustainable. In this context, the learned AR relied on the order of the Bangalore Bench of the Tribunal in the case of Software Paradigms Infotech Pvt. Ltd. v. ACIT (2018) 89 taxmann.com 339 (Bangalore-Trib.). As regards the issue on merits, the learned AR submitted that all the issues are covered in favour of the assessee by the various orders of the Tribunal. 8. The learned Departmental Representative, on the other hand, candidly admits as regards the issues on merits, the same are covered in favour of the assessee by the various orders of the Tribunal. As regards the legal issues, the learned DR submitted that the final assessment order being dated 14.01.2017 was passed within the time limit prescribed u/s 144C(13) of the I.T.Act. The learned DR had produced the assessment records and by referring to the final assessment order (wherein the dispatch seal is mentioned as 24.01.2017) submitted that the same was dispatched on 24.01.2017 itself. As regards the uploading of demand in March 2017, the learned DR submitted that at the first instance, the manual IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 9 orders are passed before the time limit and thereafter, the demand was uploaded in CPC in the month of March 2017, hence, the interest has been calculated up to 31 st March, 2017. As regards the legal contention raised in ground 17, the learned DR submitted that the final assessment order had discussed the directions given by the DRP and incorporated the enhancement on alleged suppression of income in line with DRP’s direction. Therefore, it was submitted that the final assessment passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act was pursuant to the directions of the DRP. 9. We have heard rival submissions and perused the material on record. The DRP’s directions is dated 23.12.2016. As per section 144C(13) of the I.T.Act, the A.O. has to pass the final assessment order within one month from the end of the month in which such direction of the DRP is received by him. In the instant case, the final assessment order is dated 24.01.2017 (i.e., well within the time limit contemplated u/s 144C(13) of the I.T.Act). However, the learned AR contends that the final assessment order is not dispatched within the time limit prescribed, therefore, the final assessment order is barred by limitation. The above contention is raised for the reason that (i) the assessee received the final assessment order only on 15.09.2017, (ii) the assessee received the intimation from CPC (about the demand raised) which mentions that the date of the order is 13.03.2017). The point to be deliberated is whether the final assessment was passed on 24.01.2017 or on 13.03.2017 IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 10 (Manual order). The learned DR has produced the assessment record. On perusal of the assessment records, it is seen that the first page of the assessment order dated 24.01.2017 shows the dispatch seal duly signed by the Tapal official (dispatch seal on 24.01.2017 itself). As regards the claim that the assessee received the intimation of demand from CPC on 13.03.2017, it is the submission of the learned DR that the procedure followed in department is that the officers pass manual assessment orders before time barring date. Then they upload manual orders on CPC-AST portal whenever systemic errors are sorted out. Uploading of manual orders on CPC can take two forms – either upload the manual order, or feed the computation of taxable income on the online platform. Once the figures are fed on the online form, the form automatically calculates the tax payable, interest payable etc. The date in CPC’s records is the date on which the computation is fed onto it. In the present case, the screenshot of order processing on AST dated 13.03.2017 is in the assessment records. The screenshot of rectification to the online order processing on AST dated 30.03.2017 is also in the assessment records. The system automatically calculates section 234A, 234B and 244A interest. The reference point of calculation of interest is 5 th March, 2017. As a result, the computation will be different from the computation in the manual order. In most of the cases, the date of order as per the manual order is different from the date of order as per CPC till 2018. Only since initiation of e-assessment in the year 2018, the full order is uploaded in the new system with IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 11 ITBA (ITBA replaced the earlier AST). In the instant case, the manual final assessment order is dated 24.01.2017. The final assessment order has dispatch seal also. There is nothing on record to show that the final assessment order has not been dispatched on the said date. The demand was uploaded to CPC portal on 13.03.2017, so the CPC shows the date as the date of order. The CPC will always show the date on which the demand is fed into. The entire order is not uploaded, but only the demand was uploaded in the CPC. For the aforesaid reasons, we reject grounds 1 to 3 raised by the assessee. 10. The other legal issue raised by the learned AR is with regard to ground 17. In the above ground, it is submitted that the final assessment order is not in conformity with the directions of the DRP, and therefore, void. The learned AR relied on the following judicial pronouncements:- (i) Flextronics Technologies (India) Private Limited v. ACIT [IT(TP)A No.832/Bang/2017 (order dated 31.12.2018)] (ii) July Systems & Technologies Pvt. Ltd. v. DCIT [IT(TP)A No.368/Bang/2016 (order dated 31.10.2018)] (iii) Software Paradigms Infotech Pvt. Ltd. v. ACIT [IT(TP)A No.150/Bang/2014 (order dated 05.01.2018)] (iv) Xchnging Solutions Limited v. DCIT [IT(TP)A No.2664/Bang/2017 (order dated 21.12.2020)] (v) Yokogawa India Ltd. v. ACIT [IT(TP)A No.1715 & 692/Bang/2016 (order dated 08.03.2021)] (vi) ESS Distribution (Mauritius) S.N.C. ET Compagnie v. Union of India [WP(C) No.2384/2015 & CM No.4277/2015 (judgment dated 23.03.2016)] (vii) Basware Corporation India v. DCIT [ITA No.1289/Chd/2019 (order dated 27.11.2019)] (viii) Global One India Pvt. Ltd. v. DCIT [ITA No.1980/Del/ IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 12 2014 (order dated 10.12.2019)] (ix) Olympus Medical Systems Pvt. Ltd. v. ACIT [ITA No.873/Del/2021 (order dated 13.01.2022)] (x) Nomura Research Institute Financial Technologies India Pvt. Ltd. v. DCIT [ITA No.1548/Kol/2019 (order dated 13.03.2020)] 11. The learned Departmental Representative submitted that non-compliance of direction of the DRP is not fatal so as to set aside final assessment order. It was submitted that the Tribunal may restore the matter to the A.O. for compliance of directions of the DRP. 12. We have heard rival submissions and perused the material on record. The DRP directed the TPO to recompute the margins of the assessee as well as the comparables to its SWD and ITE service segments after treating such foreign exchange gain / loss as operating in nature (refer pages 19-20 of the DRP’s directions). In addition, the DRP directed exclusion of three companies from its SWD service segment as well as three companies from its ITE service segments. Further, the DRP directed the TPO to verify and correct the factual inaccuracies by taking the correct figures for trade payables and receivables for the assessee as well as all the comparables while computing the working capital adjustment in respect of both service segments (refer pages 21-22 of the DRP’s directions). However, despite the above, in the final assessment order passed by the AO, the TP adjustment remained the same as was made in the TP order. If the aforesaid directions were properly given effect to, it is IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 13 inevitable that the TP adjustment proposed in the draft assessment order would vary from the TP adjustment that was ultimately incorporated in the final assessment order. However, a bare perusal of the adjustment proposed in the draft assessment order, i.e. Rs.26,85,43,457, and the adjustment that has ultimately been incorporated in the final assessment order, i.e. Rs.26,85,43,457, are one and the same. Thus, it is wholly apparent that the final assessment order is, to the extent, not in conformity with the DRP’s directions and is, therefore, illegal. As per section 144C(10) of the I.T.Act, every directions issued by the DRP is binding on the A.O. Further, section 144C(13) of the I.T.Act mandates that the A.O. shall complete the assessment in conformity with the directions issued by the DRP. Since the TP adjustment made in the final assessment order is not in conformity with the DRP’s directions, the final assessment order is, to this extent, bad in law and thus unsustainable. Therefore, we delete the TP adjustment made in the final assessment order, which is not in conformity with the DRP’s directions. In taking the above view, we are fortified by the judicial pronouncements referred supra at para 10. Since we have deleted the TP adjustment incorporated in the final assessment order, the specific grounds with regard to TP adjustment on merits is not adjudicated. Grounds 4 and 5 (Corporate Tax Issues) 13. In the above ground, the assessee is challenging the action of the AO in making an addition of Rs.6,44,37,710, IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 14 which was enhanced to Rs.7,62,39,388 pursuant to the DRP’s directions. The addition was made on the basis that the same represented suppressed income relatable to the difference in the assessee’s revenues as per the invoices raised by it vis-à- vis its financial statements. 14. The learned AR submitted that in terms of the Master Service Agreement, it enters into with its group companies for rendering captive SWD, IT and marketing support services. It was stated that the assessee works on a cost plus model wherein its invoices are raised based on the cost incurred by it after adding a certain agreed percentage of mark-up to the same. It was stated that such invoices are raised on a monthly basis based on the cost recorded by the assessee and sample copies of such invoices were submitted by the assessee to the AO during the course of assessment proceedings. However, due to certain receivables such as service tax credit, VAT refund as well as foreign exchange fluctuation, a difference arises between the revenue recorded in the assessee’s financial statements vis-à-vis the revenue as per such invoices raised by it on its AEs. It was submitted that the invoices are raised by the assessee after factoring the service tax credit / VAT refund receivable as a cost. Given that the service tax is recoverable, the same was reclassified as a receivable at the time of statutory audit in accordance with the Accounting Standards. Accordingly, to the extent the service tax was recorded as receivable, the corresponding cost was reduced. It was stated that the assessee follows cost plus IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 15 model wherein the revenue is a function of cost, the corresponding revenue would also stand accordingly reduced. Accordingly, suitable audit adjustment entries were passed to reduce the revenue, and the excess amount received was recorded as its current liability. In addition to the above, it was submitted that due to different exchange rates followed at the time of raising the invoice and recording of revenue in the financial statements, the revenue recorded in the financial statements came to be lower than the amount of revenue as per the invoices raised. Further, it was submitted that the foreign exchange fluctuation is separately recorded in the financial statements under the head `other income’ and is also offered to tax. It was clarified that when the assessee receives the service tax refunds in the subsequent years, the said refunds are adjusted against `receivables’ and not by reducing the cost. Therefore, the revenue is not lower in the subsequent years in which the refunds are received by the assessee. 15. The learned Departmental Representative supported the order of the A.O. and the DRP. 16. We have heard rival submissions and perused the material on record. The details of cost incurred by the assessee based on which the revenue as per its financials and reconciliation of revenue as per the invoices vis-à-vis the financial statements are as follows:- IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 16 Particulars Software Development services (Rs.) IT enabled services (Rs.) Marketing support services (Rs.) Total (Rs.) Employee cost 1,07,89,77,761 79,63,64,012 23,51,18,949 2,11,04,60,722 Administrative cost 33,61,51,570 36,28,43,640 6,88,23,568 76,78,18,778 Depreciation 18,92,65,484 14,75,79,667 5,83,197 33,74,28,348 Total cost 1,60,43,94,815 1,30,67,87,319 30,45,25,714 3,21,57,07,848 Add:Mark up 20,85,71,326 20,90,85,970 2,43,62,057 44,20,19,353 Revenue 1,81,29,66,141 1,51,58,73,289 32,88,87,771 3,65,77,27,201 Less : Foreign exchange gain 4,01,89,930 1,87,52,892 -- 5,89,42,822 Less : Adjustment on account of revenue movement across cross centres owing to change in cost centres. 4,28,78,818 (5,95,60,223) 1,66,81,406 -- Income from service 1,72,98,97,393 1,55,66,80,620 31,22,06,365 3,59,87,84,379 The reconciliation of revenue per invoice vis-à-vis financial statements is below:- Particulars Amount (Rs.) Amount (Rs.) Total invoice value 3,71,52,13,697 Add : Reversal of previous year adjustment 10,46,27,639 Less : Foreign exchange restatement (4,01,89,929) Sub total 3,77,96,51,407 Less : Closing balance of adjustment (18,08,67,027) Revenue as per financials 3,59,87,84,380 16.1 Therefore, according to the above reconciliation, it is only on account where the audit adjustments were made, IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 17 i.e., in order to reverse the excess revenue to the extent overstated. A similar issue was examined by the A.O. during the course of assessment proceedings, for the immediately succeeding assessment year, i.e., A.Y. 2013-2014. The AO accepted the assessee’s aforesaid submissions on the issue and accordingly made no addition to its returned income in the final assessment order for assessment year 2013-2014. Therefore, we direct the AO to take into account the reconciliation of revenue as per the invoices vis-à-vis the financial statement and take a decision after affording a reasonable opportunity of hearing to the assessee. Therefore, grounds 4 and 5 are allowed for statistical purposes. Ground 6 (Corporate Tax Issues) 17. In the above ground, the assessee submits that in the assessment orders passed in its case for assessment years 2009-2010, 2010-2011 and 2011-2012, the AO disallowed certain expenses by holding the same to be capital in nature. Such expenses pertained to expenses incurred for purchase of monitors and desktops, software, computer accessories and spare parts. Thus, as per the said assessment orders, the assessee is entitled to claim depreciation on the said amounts, which are disallowed as capital expenditure. 18. After hearing the rival submissions, we direct the A.O. to examine whether the assessee is entitled to depreciation on the expenditure disallowed in past years as capital expenditure. It is ordered accordingly. IT(TP)A No.2127/Bang/2017. M/s.VMware Software India Private Limited. 18 19. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 17 th day of June, 2022. Sd/- (Padmavathy S) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 17 th June, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-2, Bangalore. 4. The CIT(TP)-2, Bangalore. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore