DCIT, New Delhi V. M/s Nortel Networks India Pvt. Ltd., Gurgaon

ITA 2751/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7333 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 29-10-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 06-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Additional evidence
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH.O.P.KANT, ACCOUNTANT MEMBER I.T.A .NO.-2751/DE L/2013 (ASSESSMENT YEAR-2005- 06) DCIT, CIRCLE-13(1), NEW DELHI. (APPELLANT) VS NORTEL NETWORKS INDIA PVT. LTD., 2 ND FLOOR, ORCHID PLAZA SUNCITY, SECTOR-54, GURGAON PAN-AABCN1424B (RESPONDENT) APPELLANT BY SH.DEEPAK CHOPRA, ADV. & SH. ROHAN KHARE, ADV. RESPONDENT BY SH.SANJAY KUMAR, SR. DR ORDER PER DIVA SINGH, JM THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AS SAILING THE CORRECTNESS OF THE ORDER DATED 31.12.2013 OF CIT(A) -29, NEW DELHI PERTAINING TO 2005-06 ASSESSMENT YEAR ON THE FOLLOW ING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION ON ACCOUNT OF DIFFERENCE IN ALP DETERMINED BY THE TPO & THE ASSESSEE AMOUNTING TO RS.2,60,42,622/- IGNORING THE FACT THAT THE AS PER THE TRANSFER PRIC ING ISSUES, AN ENTITY IS HELD TO BE MAKING PERSISTENT LOSSES IF IT MAKES LOSSES IN 2 OUT OF 3 FINANCIAL YEARS' INCLUDING THE FINANCIAL YEAR UNDER CONSIDERATION. THE HFCL HAS MADE LOSSES IN FY 2003-04 AND FY 2004-05, THUS, IT HAS INCURRED LOSSE S IN 2 DATE OF HEARING 29.10.2015 DATE OF PRONOUNCEMENT 11.01.2016 I.T.A .NO.-2751/DEL/2013 PAGE 2 OF 16 OF THE 3 FINANCIAL YEARS WHICH HAVE BEEN CONSIDERED BY THE ASSESSEE IN ITS TP STUDY; 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF PROVISION OF WARRANTY AMOUNTING TO RS.22,92,76,418/- IGNORING TH E FACT THAT ASSESSEE DURING ASSESSMENT PROCEEDINGS HAS HIM SELF ADMITTED THAT THE AMOUNT OF RS.10.14 CRORES WAS MISTAKENLY CALCULATED EXCESSIVELY WHICH SHOWS THAT THE ASSESSEE HAS NOT AT ALL CRYSTALLIZED THE AMOUNT OF WARRANTY WHILE CREATING THE PROVISION; 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEPRECIATION ON UPS (UNINTERRUPTED POWER SUPPLY) @ 60% BY NOT CONSIDERING THE FACT THAT UPS IS MERELY A PA RT WHICH IS USED TO REGULATE THE ELECTRIC SUPPLY TO COMPUTER AND BY NO MEANS AS PER SECTION 32 OF THE ACT BE TERMED AS 'CO MPUTER INCLUDING COMPUTER SOFTWARE' AS COMPUTER CAN WORK W ITHOUT UPS ALSO; 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNT OF RECOGNITION OF REVENUE FOR B SNL PROJECT AMOUNTING TO RS.13,87,91,437/- BY IGNORING THE FACT THAT THE ASSESSEE HAS NOT PROVIDED ANY JUSTIFICATIO N FOR EXCLUDING AMC REVENUE FROM REVENUE RECOGNITION FOR THE RELEVANT ASSTT YEAR; AND 5. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FR ESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. RIGHT AT THE OUTSET THE LD.AR SUBMITTED THAT ALTHO UGH THE PRESENT APPEAL HAS BEEN FILED BY THE DEPARTMENT BUT HE HAS BEEN INSTRUCTED BY HIS CLIENT TO STATE THAT SINCE THE AS SESSEE IN THE PROCESS OF WINDING UP ITS ACTIVITIES AND IS LIQUIDA TING ITS BUSINESS THUS HE IS UNDER INSTRUCTION TO TAKE CERTAIN POSITI ON IN THE APPEAL IN ORDER TO FACILITATE AND ENSURE THAT THE LITIGATION ENDS. IT WAS HIS SUBMISSION THAT THIS FACT HAS BEEN BROUGHT TO THE N OTICE OF THE HONBLE HIGH COURT IN VARIOUS LITIGATIONS PENDING B EFORE IT ALSO. 2.1. IT WAS HIS SUBMISSION THAT THESE FACTS MAY BE KEPT IN MIND WHILE DECIDING THE DEPARTMENTAL APPEAL AS THE POSIT ION TAKEN BY THE I.T.A .NO.-2751/DEL/2013 PAGE 3 OF 16 ASSESSEE IN GROUND NO.4 IS ON ACCOUNT OF THESE PECU LIAR FACTS AND CIRCUMSTANCES AS IT IS IN AN ENDEAVOUR TO AVOID PR OTRACTED LITIGATION. 3. THE RELEVANT FACTS OF THE CASE AS AVAILABLE FROM P ARA 2 OF THE ASSESSMENT ORDER U/S 143(3) DATED 29.12.2008 ADDRES S THE BACKGROUND OF THE ASSESSEE AS UNDER:- 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MARK ETING AND AFTER SALES SUPPORT SERVICES TO NORTEL GROUP COMPAN IES, INSTALLATION, TESTING AND COMMISSIONING SERVICES IN RELATION TO TELECOM EQUIPMENT/I.T/OTHER PRODUCTS AND TECHNIC AL SERVICES, INCLUDING REPAIR AND MAINTENANCE SERVICES IN RELATION TO THE TELECOM EQUIPMENT/IT PRODUCTS SUPPL IED BY NORTEL GROUP OF COMPANIES IN INDIA. 3.1. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION RETUR NED AN INCOME OF RS.33,34,44,830/- WHEREIN THE ASSESSMENT WAS CONCLUDED AT A FIGURE OF RS.74,27,57,980/-. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION DISCLOSED THE FOLLOWING INTERNATIONAL TRANSACTIONS IN ITS 3CEB REPORT:- S.NO. INTERNATIONAL TRANSACTIONS METHOD VALUE RS. 1. IMPORT OF COMPONENTS TNMM 714,98,28,572 2. PROVISION OF TECHNICAL SUPPORT SERVICES (R&D) TNMM 4,63,56,666 3. AVAILING OF TECHNICAL SERVICES FROM AE TNMM 2,57 ,26,109 4. PROVISION OF PROFESSIONAL SERVICES (BSNL CONTRACT) TNMM 153,23,49,052 5. PROVISION OF PROFESSIONAL SERVICES (OTHERS) TNMM 31,82,66,038 6. PROVISION OF MARKETING AND AFTER SALES SUPPORT SERVICES TNMM 90,55,13,532 4. THE ISSUE RAISED BY THE REVENUE VIDE GROUND NO.1 P ERTAINS TO THE TRANSACTIONS DISCLOSED AT SL. NO.3 IN THE ABOVE CHART. THE FACTS AS APPRECIATED BY THE CIT(A) SHOW THAT THE ASSESSEE HAD ENTERED INTO I.T.A .NO.-2751/DEL/2013 PAGE 4 OF 16 A CONTRACT WITH RELIANCE INFOCOMM LTD. FOR PROVISIO N OF SERVICES IN RELATION TO INSTALLATION, COMMISSIONING, OPERATION, MANAGEMENT AND MAINTENANCE OF ITS OPTICAL NETWORK. ON CONSIDERATI ON OF THE SAID AGREEMENT IT WAS SEEN THAT IT REQUIRED THE ASSESSE E TO PROVIDE TRAINING TO RIL PERSONNEL IN RELATION TO OPTICAL SO FTWARE NETWORK BEING INSTALLED BY THE ASSESSEE. THE CONTRACT ALSO PROVIDED FOR TRAINING TO BE PROVIDED BY EXPATRIATES FROM NORTH A MERICA, ASIA PACIFIC AND EUROPE, THEREFORE THE ASSESSEE AS PER R ECORD WAS FOUND TO HAVE AVAILED OF THE SERVICES OF EXPATRIATES FROM ITS AES FOR PROVISION OF TECHNICAL SERVICES TO RIL UNDER THE AG REEMENT. THIS FACTUAL POSITION HAS NOT BEEN DISPUTED BY THE REVEN UE. 4.1. THE ASSESSEE IN ITS TRANSFER PRICING STUDY SELECTE D TNMM AS THE MOST APPROPRIATE METHOD AND APPLIED OPERATING PROFI T/OPERATING REVENUE AS PLI. THE FOLLOWING TEN COMPARABLE COMPA NIES WERE SELECTED BY THE ASSESSEE FOR WORKING OUT THE ARMS LENGTH PRICE:- S.NO. COMPARABLE COMPANIES ADJUSTED OPERATING PROFIT ON ADJUSTED OPERATING REVENUE % WEIGHTED AVERAGE ADJUSTED OPERATING PROFIT ON ADJUSTED OPERATING REVENUE % 2003-05 2005 2004 2003 1. ENGINEERS INDIA LIMITED 20.75 20.23 17.26 20.71 2. ESQUIRE ENGINEERS AND CONSULTANTS LIMITED NA NA -14.36 -14.36 3. F L SMIDTH LIMITED 5.01 NC NC 5.01 4. POWERPLANT PERFORMANCE IMPROVEMENT LTD. NA NA -12.04 -12.04 5. RITES LIMITED NA 21.16 9.53 15.38 I.T.A .NO.-2751/DEL/2013 PAGE 5 OF 16 6. TCE CONSULTING ENGINEERS LTD. 9.63 -0.02 4.18 4.96 7. WATER & POWER CONSULTANCY SERVICES LTD. NA 8.25 -9.86 1.08 8. CMC LTD. NC -0.17 1.46 0.52 9. HARTRON COMMUNICATION NA -26.25 -19.12 -21.99 10. HIMACHAL FUTURISTIC COMMUNICATION LTD. NA -31.38 9.08 -5.96 ARITHMETIC MEAN -0.67 4.2. CONSIDERING THE MEAN AVERAGE PROFIT MARGIN OF 0.67% OF THESE ABOVE TEN COMPARABLE COMPANIES THE ASSESSEE WHOSE O PERATING MARGIN OF THIS SEGMENT 7% AND SINCE IT WAS HIGHER T HAN THE MEAN MARGIN OF THE COMPARABLE COMPANIES, THE TRANSACTION WAS CONCLUDED TO BE AT ARMS LENGTH. 4.3. THE TPO CONSIDERING THE COMPARABLES CHOSEN BY THE A SSESSEE EXCLUDED 3 OF THE ABOVE ON THE GROUND THAT THEIR FI NANCIALS FOR F.Y. 2004-05 WERE NOT AVAILABLE. HE FURTHER EXCLUDED TW O LOSS MAKING COMPARABLES, NAMELY HARTRON COMMUNICATION AND HIMAC HAL FUTURISTIC COMMUNICATION LTD. ACCORDINGLY AFTER RE TAINING 5 COMPARABLES OF THE ORIGINALLY OFFERED COMPARABLE CO MPANIES BY THE ASSESSEE, HE PROPOSED AN UPWARD ADJUSTMENT OF RS.2. 60 CRORE ODD AS THEIR OPERATING PROFITS ON OPERATING REVENUE MA RGIN WORKED OUT AS 13.52% WHEREAS THE ASSESSEES MARGIN WAS ONLY 7% . THE FOLLOWING FIVE COMPARABLES RETAINED WERE RETAINED:- I.T.A .NO.-2751/DEL/2013 PAGE 6 OF 16 S.NO. PARTICULARS OPERATING PROFITS ON OPERATING REVENUE (%) (2005) 1. ENGINEERS INDIA LIMITED 20.75 2. F L SMIDTH LIMITED 5.01 3. RITES LIMITED 19.24 4. TCE CONSULTING ENGINEERS LTD. 13.01 5. WATER & POWER CONSULTANCY SERVICES LTD. 13.01 ARITHMETIC MEAN 13.52 5. AGGRIEVED THE ASSESSEE IN APPEAL BEFORE THE CIT(A) OBJECTED TO THE EXCLUSION OF HFCL BASED ON THE NEGATIVE FINANCI AL RESULT OF FY 2003-04 AND 2004-05 AND ARGUED THAT SIMPLY BECAUSE THE COMPANY SHOWN LOSS IN 01-02 YEARS IT CANNOT BE CONCLUDED TH AT IT IS CONSISTENTLY A LOSS MAKING COMPANY AS IT HAS EARNED AN OPERATING MARGIN OF 10.18% FOR FY 2002-03; 0.04% IN FY 2005-0 6; AND 17.82% IN FY 2006-07 THUS THE LOSS INCURRED IN 2003 -04 AND 2004- 05 CANNOT MAKE THE SAID COMPARABLE AN INHERENTLY LO SS MAKING COMPANY TO BE EXCLUDED. 5.1. CONSIDERING THESE ARGUMENTS THE CIT(A) CAME TO THE FOLLOWING SUBMISSIONS:- 9.1. I HAVE CAREFULLY GONE THROUGH VARIOUS CONTENT IONS RAISED BY THE APPELLANT. THE TPO HAS PROPOSED ADDITION IN RES PECT OF ONLY ONE SEGMENT OF INTERNATIONAL TRANSACTIONS I.E. 'TEC HNICAL SERVICES' AND ARM'S LENGTH NATURE OF OTHER CATEGORIES OF INTE RNATIONAL TRANSACTIONS HAVE BEEN ACCEPTED. BOTH APPELLANT AND TPO HAVE ADOPTED SAME SET OF COMPARABLES, TNMM AS MAM AND OP ERATING PROFIT / OPERATING REVENUE AS PLI. HOWEVER, TPO HAS REJECTED TWO COMPANIES AS COMPARABLE, BEING LOSS MAKING COMPANIE S. 9.2 THE APPELLANT HAS CONTENDED THAT A LOSS MAKING COMPANY CAN NOT BE DISCARDED FROM THE LIST OF COMPARABLES JUST BECAUSE IT HAS INCURRED LOSS WHEN ITS FAR IS COMPARABLE WITH THE T ESTED PARTY. I.T.A .NO.-2751/DEL/2013 PAGE 7 OF 16 THE APPELLANT HAS RELIED UPON INDIAN TP REGULATIONS , JUDICIAL DECISIONS AND OECD GUIDELINES FOR THIS PROPOSITION. I FIND FORCE IN CONTENTION OF THE APPELLANT THAT COMPARABILITY IS N OT ABOUT COMPARING ONLY THE PROFIT MAKING ENTITIES WITH THE TESTED PARTY. VARIOUS JUDICIAL DECISIONS HAVE LAID DOWN THE PRINC IPLE THAT ABNORMALLY HIGH PROFIT AND LOSS MAKING COMPANIES SH OULD BE EXCLUDED. FURTHER, IF A COMPANY IS CONSISTENTLY LOS S MAKING OVER A SUBSTANTIAL PERIOD, THEN OBVIOUSLY ITS BUSINESS MOD EL IS SUCH THAT IT CAN NOT BE TAKEN AS COMPARABLE. IN PRESENT CASE, THE APPELLANT HAS CONTENDED THAT HIMACHAL FUTURISTIC COMMUNICATIO N LTD. IS NOT A CONSISTENTLY LOSS MAKING COMPANY AS UNDER:- S.NO. PARTICULARS FY 2002- 03 FY 2003- 04 FY 2004-05 FY 2005- 06 FY 2006- 07 1. REVENUE 302.05 184.24 73.44 89.27 564.2 2. PROFIT 64.16 -23.57 -19.83 0.03 100.58 3. OP/OR % 21.24 -12.79 -27.01 0.04 17.82 THE TPO HAS NOT DISPUTED FAR OF HIMACHAL FUTURISTIC COMMUNICATION LTD. SO FAR AS ITS COMPARABILITY WITH THE APPELLANT IS CONCERNED. IN VIEW OF ABOVE, IT CANNOT BE SAID THAT HFCL IS A CONSISTENTLY LOSS MAKING COMPANY AND HENCE CAN BE T REATED AS COMPARABLE. THEREFORE, I HOLD THAT HFCL IS A COMPA RABLE COMPANY. 9.3. REGARDING HARTRON COMMUNICATION, TPO HAS DISCA RDED IT AS COMPARABLE BY OBSERVING THAT IT IS A BPO COMPANY SP ECIALIZING IN MEDICAL BILLING AND CODING. THE APPELLANT HAS CONTE NDED THAT IT HAS CONSIDERED ONLY JOB WORK SEGMENT OF THE SAID CO MPANY UNDER WHICH IT IS ENGAGED IN REPAIRING AND SERVICING OF E LECTRONIC CARDS FOR KELTRON LTD., A COMPANY OPERATING IN TELECOM SE CTOR. OBVIOUSLY, HARTRON COMMUNICATION IS NOT DIRECTLY ENGAGED IN TELECOMMUNICATION INDUSTRY AND HENCE ITS BUSINESS P ROFILE IS SUBSTANTIALLY DIFFERENT FROM THAT OF THE APPELLANT. EVEN IF THE APPELLANT HAS USED ITS JOB WORK SEGMENT, IT CAN NOT BE SAID THAT REPAIRING AND SERVICING OF ELECTRONIC CARDS ARE COM PARABLE WITH BUSINESS ACTIVITIES OF THE APPELLANT. HENCE, I HOLD THAT FAR ANALYSIS OF HARTRON COMMUNICATION DOES NOT PERMIT I T TO BE TAKEN AS COMPARABLE. 9.4 IN VIEW OF DISCUSSION SUPRA, THERE SHALL BE 6 COMPARABLES AND THEIR PROFIT MARGIN AFTER TAKING CURRENT YEAR D ATA ONLY IS WORKED OUT AS UNDER: S.NO. PARTICULARS OPERATING PROFITS ON OPERATING REVENUE (%) 1. ENGINEERS INDIA LIMITED 20.75 I.T.A .NO.-2751/DEL/2013 PAGE 8 OF 16 2. FL SMIDTH LIMITED 5.01 3. RITES LIMITED 19.24 4. TCE CONSULTING ENGINEERS LTD. 9.63 5. WATER & POWER CONSULTANCY SERVICES LTD. 13.01 6. HIMACHAL FUTURISTIC COMMUNICATION LTD. -27.01 ARITHMETIC MEAN 6.77 9.5. SINCE THE OPERATING MARGIN EARNED BY APPELLANT AT 7% IS HIGHER THAN THE MEAN MARGIN OF COMPARABLE COMPANIES , THE INTERNATIONAL TRANSACTION RELATING TO AVAILING OF S ERVICES BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISES IS CONSID ERED TO BE AT ARMS LENGTH. THEREFORE, AO IS DIRECTED TO DELETE THE ADDITION OF RS.2,60,42,622 MADE ON THIS ACCOUNT. 6. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL. LD. SR.DR SUBMITTED THAT NO DOUBT HFCL HAS SHOWN SOME PROFITS IN SUBSEQUENT YEARS AND IS MANAGING TO KEEP ALIVE BUT THE LOSS IN THE YEAR UNDER CONSIDERATION CANNOT BE STATED TO BE AGA INST THE TREND AND THUS THE SAID COMPARABLE WAS CORRECTLY EXCLUDED BY THE TPO. 7. THE LD. AR ON THE OTHER HAND HEAVILY RELYING UPON THE FINDING OF THE CIT(A) AND CARRYING US THROUGH THE SAME, SUB MITTED THAT THE REVENUE HAS NOT TILL DATE ASSAILED FAR ANALYSIS OF THE SAID COMPARABLES. THUS WHERE FUNCTIONAL SIMILARITY OF T HE COMPARABLES WITH THE ASSESSEE HAS NOT BEEN ASSAILED THE ARGUMEN TS RE-ITERATING THE TPOS VERSION SHOULD HAVE NO RELEVANCE. FURTHE R IT WAS ALSO HIS SUBMISSION THAT LOOKING AT THE FIGURES OF FY 2005-0 6 AND 2006-07, IT CANNOT BE SAID THAT THE SAID COMPARABLE IS BARELY S URVIVING AND THE LAW IS WELL-SETTLED AS THE CRITERIA FOR EXCLUSION ON THE GROUNDS OF LOSS I.T.A .NO.-2751/DEL/2013 PAGE 9 OF 16 MAKING OR PROFIT MAKING COMPANIES CANNOT BE ACCEPTE D. THE NON- ACCEPTANCE OF SUCH REASONING IS WELL SETTLED BY JUR ISPRUDENCE WHICH IS CLEAR THAT EITHER FUNCTIONAL SIMILARITY NEEDS TO BE ASSAILED OR THE PARTY PRAYING FOR EXCLUSION OR INCLUSION NEEDS TO E STABLISH THAT THERE WAS SOMETHING INHERENTLY WRONG WITH THE COMPANY. S OME FACTS AND CIRCUMSTANCES AS AN EVENT OF AMALGAMATION LIQUIDATI ON ETC. NEEDS TO BE ESTABLISHED AND NO SUCH EFFORT HAS BEEN MADE BY THE REVENUE TO JUSTIFY ITS EXCLUSION EXCEPT THAT IT IS A LOSS MAKI NG COMPANY. ACCORDINGLY RELYING UPON THE IMPUGNED ORDER IT WAS HIS SUBMISSION THAT THE SAME MAY BE UPHELD. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. ON A CAREFUL READING OF THE I MPUGNED ORDER, WE FIND THAT IN THE ABSENCE OF ANY INFIRMITY IN THE RE ASONING ADOPTED BY THE FIRST APPELLATE AUTHORITY, THE ARGUMENTS OF TH E LD. SR.DR CANNOT BE ACCEPTED. THE REVENUE HAS NOT ASSAILED TH E FINDING OF THE CIT(A) THAT FUNCTIONAL COMPARABILITY OF THE ASSESSE E WITH HFCL STANDS ESTABLISHED. THUS WHERE ON FAR ANALYSIS TH E CONCLUSION THAT IT IS CORRECTLY CHOSEN AS A COMPARABLE REMAINS IS UNASSAILED, THEN IT IS NECESSARY FOR THE REVENUE AT THAT STAGE TO BRING SOME COGENT REASON, ARGUMENT OR FACT JUSTIFYING THAT STI LL THE COMPARABLE NEEDS TO BE EXCLUDED. MERELY RE-ITERATING THE TPO S STAND AT THIS STAGE THAT IT WAS CONSISTENTLY A LOSS MAKING COMPA NY DOES NOT HOLD I.T.A .NO.-2751/DEL/2013 PAGE 10 OF 16 GOOD IN THE FACE OF THE FINDING OF THE CIT(A). THE DATA PLACED ON RECORD BY THE ASSESSEE ASSAILS THE CONCLUSION AND T HIS FACT HAS BEEN ACCEPTED BY THE CIT(A). WE FURTHER FIND THAT IT REM AINS UNREBUTTED ON RECORD. IN THE AFORE-MENTIONED PECULIAR FACTUAL POSITION, WE FIND THAT THERE IS NO MERIT IN THE DEPARTMENTAL APPEAL. THE CONCLUSION DRAWN IS FOUND SUPPORTED BY THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CHRYS CAPITAL AND FINDING OURS ELVES IN AGREEMENT WITH THE REASONING AND THE FINDING OF THE CIT(A), GROUND NO.1 OF THE REVENUE IS DISMISSED. 9. THE FACTS RELATABLE TO GROUND NO.2 ARE FOUND DISCU SSED IN PAGES 3-5 OF PARA 4 OF THE ASSESSMENT ORDER. IN VI EW OF THE STAND TAKEN BY THE ASSESSEE QUA THE SAME REFERENCE THERET O IS NOT NECESSARY. 10. THE ISSUE HAS BEEN CONSIDERED BY THE CIT(A) AT PAG ES 19 TO 20 IN PARAS 21 TO PARA 21.4 AND AGAIN FOR SIMILAR REAS ON THERE IS NO NEED TO BRING OUT THE FACTS. 11. THE REASON FOR SO HOLDING IS THAT THE LD.AR SUBMITT ED THAT ACTUAL WARRANTY EXPENSES HAVE BEEN ALLOWED IN SUBSE QUENT YEARS AND THUS HE WOULD HAVE NO OBJECTION IF THE SAID GRO UND OF THE REVENUE IS ALLOWED. IN VIEW OF THE SAID STAND THE LD. SR. DR THOUGH PLACED RELIANCE ON THE ASSESSMENT ORDER HAD NOTHING FURTHER TO STATE. IN VIEW OF THE ABOVE, GROUND NO.2 OF THE RE VENUE IS ALLOWED. I.T.A .NO.-2751/DEL/2013 PAGE 11 OF 16 12. THE ISSUE ADDRESSED BY GROUND NO.3 IN THE DEPARTME NTAL APPEAL IS FOUND DISCUSSED AT PAGES 7 & 8 OF THE ASS ESSMENT ORDER WHERE THE AO HAS DISCUSSED THE SAME IN PARAS 7 & 7 .1. THE SAME IS REPRODUCED HEREUNDER FOR READY-REFERENCE:- 7. DISALLOWANCE OF EXCESS DEPRECIATION : ON PERUSAL OF DEPRECIATION CHART AS PER I. TAX ACT , IT IS NOTICED THAT THE ASSESSEE HAS PURCHASED ARC SYMMETRA UPS AN D SYMMETRA BATTERY MODULE ' ON VARIOUS DATES IN JULY 2004 FOR A TOTAL OF RS. 4,96,365/- AND CLAIMED DEPRECIATION ON THE SAME @ 60% AMOUNTING TO RS. 2,97,819/-UNDER THE HEAD 'COMP UTER' . FURTHER , THE ASSESSEE HAS PURCHASED ARC SYMMETRA U PS ON IN MARCH 2005 FOR A TOTAL OF RS. 1,24,000/- AND CLAIME D DEPRECIATION ON THE SAME @ 30% AMOUNTING TO RS. 37,200/- UNDER T HE HEAD 'COMPUTER' (BEING 50% OF NORMAL RATE OF DEPRECIATIO N OF 60% PERMISSIBLE ON COMPUTERS AS IT WAS USED FOR LESS TH AN 180 DAYS). ACCORDINGLY, DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF HIGHER R ATE OF DEPRECIATION ON THESE EQUIPMENTS , AS IT IS A PART OF THE BLOCK OF ASSET 'PLANT AND MACHINERY' AND NOT OF 'COMPUTER' A S PROVIDED IN SECTION 32 OF THE INCOME TAX ACT. 7.1. THE SUBMISSION OF THE ASSESSEE THAT UPS IS ALS O A PART OF COMPUTER WERE CONSIDERED BUT THE SAME WERE NOT FOUN D CONVINCING. THE ONLY FUNCTION OF THE UPS IS TO ENSU RE REGULAR SUPPLY OF POWER AND BY NO MEANS AS PER SECTION 32 O F THE I.TAX ACT 1961 IT CAN BE TERMED AS 'COMPUTERS INCLUDING C OMPUTER SOFTWARE' AND BE A PART OF THE BLOCK OF ASSET I.E. 'COMPUTER'. THEREFORE, THE RATE OF DEPRECIATION CHARGED @ 60% I S RESTRICTED TO 15% TREATING THE UPS AS NORMAL 'PLANT AND MACHINERY '. AS PER THE DETAILS FURNISHED BY THE ASSESSEE IN ITS DEPRECIATI ON CHART, IT HAS MADE AN ADDITION TO THE APE SYMMETRA UPS OF RS 1,24 ,000/- ON 24.03.2005. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION OF RS. 9,300/- @7 5% BEING PUT TO USE FOR LESS THAN 18 0 DAYS. SIMILARLY, THE CLAIM ON UPS AND SYMMETRA BATTERY MO DULE ADDED IN JULY 2004 IS ALLOWED @15% ON 4,96,365/- I.E RS. 74,455/- . HENCE THE EXCESS CLAIM OF DEPRECIATION AMOUNTING TO RS.2,51,264/- (RS.2,23,364/-+ RS.27,900/-) IS HEREB Y DISALLOWED U/S 32 OF THE I.TAX ACT AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. I AM SATISFIED THAT THE ASSESSEE COMPANY HAS FURNIS HED INACCURATE PARTICULARS OF ITS INCOME AND HAS SUPPRE SSED ITS INCOME ON THIS ISSUE, THEREFORE, PENALTY PROCEEDING S U/S 271(1)(C) OF I. TAX ACT HAVE BEEN INITIATED SEPARATELY. (ADDITION RS.2,51,264/- ) I.T.A .NO.-2751/DEL/2013 PAGE 12 OF 16 13. THE FACTS QUA THE ISSUE ARE NOT IN DISPUTE AND HAV E BEEN BROUGHT OUT IN THE IMPUGNED ORDER AS UNDER:- 26. APPELLANTS CASE DURING THE FINANCIAL YEAR RELEVANT TO SUBJECT ASSE SSMENT YEAR, THE APPELLANT CLAIMED DEPRECIATION OF INR 297 ,189 @ 60% ON THE OPENING BALANCE OF UPS OF INR 496,365 UN DER THE HEAD COMPUTER. THE APPELLANT HAD PURCHASED ANOTHER UPS IN MARCH 20 05 FOR INR 124,000 AND CLAIMED DEPRECIATION OF INR 37, 200 ON THE SAME @ 30 PER CENT UNDER THE HEAD COMPUTER SI NCE IT WAS PUT TO USE FOR LESS THAN 180 DAYS (I.E. 50% OF THE NORMAL RATE OF DEPRECIATION PERMISSIBLE ON COMPUTER S UNDER THE ACT). THE UPS HAS BEEN INSTALLED BY THE APPELLANT IN ITS SERVER ROOM AND FORMS AN INTEGRAL PART OF THE COMPUTER SYS TEM. ACCORDINGLY, THE APPELLANT CLAIMED DEPRECIATION ON THE SAME AT THE RATE OF 60 PER CENT (APPLICABLE TO COMPUTER S) IN ITS RETURN OF INCOME FOR SUBJECT ASSESSMENT YEAR. THE TERM 'COMPUTER SYSTEM HAS BEEN DEFINED UNDER EXPLANATION (A) TO SECTION 36L(1)(XI) OF THE ACT AS FOLLOWS: 'COMPUTER SYSTEM' MEANS A DEVICE OR COLLECTION OF D EVICES INCLUDING INPUT AND OUTPUT SUPPORT DEVICES AND EXCL UDING CALCULATORS WHICH ARE NOT PROGRAMMABLE AND CAPABLE OF BEING USED IN CONJUNCTION WITH EXTERNAL FILED, OR M ORE OF WHICH CONTAIN COMPUTER PROGRAMMES, ELECTRONIC INSTRUCTIONS, INPUT DATA AND OUTPUT DATA, THAT PERF ORMS FUNCTIONS INCLUDING, BUT NOT LIMITED TO, LOGIC, ARITHMETIC, DATA STORAGE AND RETRIEVAL CO MMUNICATION AND CONTROL. THE 'MERRIAM-WEBSTER' DICTIONARY DEFINES COMPUTER PERIPHERALS AS - 'A DEVICE CONNECTED TO A COMPUTER TO PROVIDE COMMUNICATION (AS INPUT AND OUTPUT) OR AUXILIARY FU NCTIONS (AS ADDITIONAL STORAGE) '. THE APPELLANT PLACED RELIANCE ON FOLLOWING CASE LAW S: CIT V. BSES RAJDHAM POWERS (DEL); ITO VS SAMIRAN MAJUMDAR (98 ITD 119) KOL; ACIT VS CONTINENTAL CARRIERS (P) LTD (ITA NO. 2137/DEL/2008) (1TAT, DELHI); MUMBAI DCIT VS DATACRAFT INDIA LTD (ITA NOS.7462 & 754/MUM/2007) (SPECIAL BENCH, ITAT, MUMBAI) 27.0 FINDING : IN VIEW OF JURISDICTIONAL HIGH COURT'S DECISION IN CASE OF C1T V. BSES RAJDHANI POWERS LIMITED, 1 HOLD THAT UPS, P RINTERS AND SCANNER FORM INTEGRAL PART OF COMPUTER SYSTEM A ND ACCORDINGLY ENTITLED TO DEPRECIATION @ 60% AS APPLI CABLE TO BLOCK OF COMPUTER. THE AO IS THEREFORE, DIRECTED TO ALLOW THE I.T.A .NO.-2751/DEL/2013 PAGE 13 OF 16 DEPRECIATION ON THESE ITEMS AT 60%. THIS GROUND OF APPEAL IS ALLOWED. 28.GROUND OF APPEAL NO. 7 IS REGARDING RECOGNITION OF REVENUE ON ACCOUNT OF AMC. 14. ON FACTS THERE IS NO DISPUTE. THE LD. SR.DR RELIE S ON THE ASSESSMENT ORDER AND THE LD. AR ON THE IMPUGNED ORD ER. A PERUSAL OF THE ORDER SHOWS THAT RELYING UPON THE DECISION O F THE DELHI HIGH COURT IN THE CASE OF CIT VS BSES RAJDHANI POWER LTD. , DEPRECIATION @ 60% FOR UPS, PRINTERS AND SCANNERS ON THE GROUND TH AT THEY FORMED INTEGRAL PART OF THE COMPUTER SYSTEM IS ALLOWED AND HELD TO BE APPLICABLE TO BLOCK OF COMPUTER. THE POSITION OF L AW IS WELL-SETTLED THEREON BY CONSISTENT ORDERS OF THE DELHI HIGH COUR T AND CO- ORDINATE BENCHES OF THE ITAT. IN THE ABSENCE OF AN Y ARGUMENTS TO THE CONTRARY BY THE REVENUE, GROUND NO.3 OF THE REV ENUE IS DISMISSED. 15. THE FACTS RELATABLE TO GROUND NO.4 ARE FOUND ADDRE SSED AT PAGES 8-12 OF THE ASSESSMENT ORDER AND THE ISSUE HA S BEEN CONSIDERED BY THE CIT(A) AT PAGES 23-29 VIDE PARAS 29-30.3 WHEREIN BEFORE THE START OF THE ARGUMENTS OF THE REVENUE, T HE LD. AR SUBMITTED THAT IN THE PECULIAR FACTS OF THE PRESENT CASE, HE IS UNDER INSTRUCTION TO SEEK A DIRECTION FROM THE BENCH THAT BY ALLOWING THE GROUND OF THE REVENUE, THE ISSUE MAY BE RESTORED TO THE AO DIRECTING HIM TO ALLOW NECESSARY RELIEF AS PERMISSI BLE ON FACTS AND LAW, KEEPING THE CONCEPT OF MATCHING PRINCIPLE IN M IND WHERE THE I.T.A .NO.-2751/DEL/2013 PAGE 14 OF 16 REVENUE IS RECOGNIZED AND THE NECESSARY EXPENSES TO THE EXTENT INCURRED DULY CERTIFIED BY THE AUDITORS SOUGHT TO B E PLACED ON RECORD BY WAY OF ADDITIONAL EVIDENCE MAY BE CONSIDERED AND VERIFIED AND IF SATISFIED ON FACTS MAY BE DIRECTED TO BE ALLOWED. 16. LD. SR. DR CONSIDERING THE FRESH EVIDENCES SOUGHT TO BE FILED BY THE ASSESSEE STATED THAT HE HAS NO OBJECTION IF THE SAME ARE TAKEN INTO CONSIDERATION HOWEVER THE IMPUGNED ORDER WAS A SSAILED ON THE GROUND THAT IT WAS PASSED BY THE CIT(A) WITHOUT TAK ING ANY EVIDENCES INTO CONSIDERATION. 17. THE LD. AR IN REPLY TOOK SERIOUS EXCEPTION TO THE S AID STAND AND REFERRING TO THE FINDING UNDER CHALLENGE IT WAS SUBMITTED THAT THE SAME WAS SUPPORTED BY FACTS. THE PRAYER WAS MA DE ONLY IN THE BACKGROUND THAT FURTHER FORTIFYING EVIDENCE IN SUPP ORT OF THE RELIEF GIVEN IS AVAILABLE ON RECORD. 18. WE HAVE HEARD THE RIVAL SUBMISSION AND GONE THROUGH THE MATERIAL ON RECORD. WE FIND THAT THOUGH IN TERMS O F THE ADDITIONAL EVIDENCE SOUGHT TO BE PLACED ON RECORD WHICH HAS NO T BEEN OBJECTED TO BY THE REVENUE THE ISSUE NEEDS TO BE RESTORED. HOWEVER, WE FIND ON A READING OF THE ORDER UNDER CHALLENGE THAT THE DEPARTMENTAL STAND THAT THE IMPUGNED ORDER HAS BEEN PASSED DEHORS FACTS IS NOT CORRECT. IT IS SEEN THAT THE CONCLUSION IS DRAWN B Y THE CIT(A) ON FACTS WHERE THE CONTRACT ENTERED INTO BY THE ASSESS EE WITH BSNL FOR I.T.A .NO.-2751/DEL/2013 PAGE 15 OF 16 PROVISION OF TELECOMMUNICATION NETWORK INSTALLATION SERVICES WAS TAKEN INTO CONSIDERATION. THE FACT THAT PAYMENTS W ERE MADE OVER FOR A PERIOD OF 4-5 YEARS ON THE BASIS OF PERCENTAGE CO MPLETION METHOD HAS ALSO BEEN CONSIDERED. IT IS SEEN THAT THE REVE NUE WAS RECOGNIZED BY DIVIDING COST OF SALES BY TOTAL ESTIM ATED PROJECT COST AND MULTIPLYING IT BY TOTAL ESTIMATED REVENUE. THE SAID POSITION WAS TAKEN BY THE ASSESSEE ON THE REASONING THAT IN THE FIRST THREE YEARS SINCE THE PROCESS OF TELE-COMMUNICATION NETWORKS IN STALLATION SERVICES WAS STILL UNDER PROGRESS. THE AMC REVENUE AND THE EXPENSES WERE CLAIMED IN 2008-09 ASSESSMENT YEAR. THE CIT(A) IN THE YEAR UNDER CONSIDERATION TOOK NOTE OF THE FACT THAT THE AO IN 2008-09 ASSESSMENT YEAR DID NOT ALLOW THE ENTIRE CO RRESPONDING COST OF RS. 66.45 CRORES AND ALLOWED THE EXPENSES ONLY T O THE EXTENT OF RS.44.36 CRORES. WHEREAS THE AO DISALLOWED THE 2/3 EXPENSES HOLDING THAT IT PERTAINS TO 2005-06 AND 2006-07 ASS ESSMENT YEARS ON ACCOUNT OF THIS FINDING OF THE AO IN 2008-09 ASS ESSMENT YEAR WHICH FINDING IS SOUGHT TO BE READ INTO IN THE YEAR UNDER CONSIDERATION. THE CIT(A) ON THESE FACTS CONCLUDED THAT KEEPING THE MATCHING PRINCIPLE OF THE ACCOUNTING SYSTEM IN MIND , THE AO WAS DIRECTED TO GIVE NECESSARY RELIEF. IT IS SEEN THAT ON A READING OF THE FINDING UNDER CHALLENGE BY NO STRETCH IMAGINATION, IT LEADS TO THE CONCLUSION THE CIT(A) HAS ARRIVED AT A FINDING DEHORS FACTS. THUS, WE I.T.A .NO.-2751/DEL/2013 PAGE 16 OF 16 FIND THAT THE ARGUMENTS OF THE LD. SR. DR HAVE NO F ORCE. HOWEVER, REVERTING TO THE PRAYER OF THE ASSESSEE FOR ADMISSI ON OF ADDITIONAL EVIDENCE WHICH WAS NOT OBJECTED TO BY THE LD. SR. DR WE FIND THAT ALLOWING THE ADMISSION OF THE SAME AND ACCEPTING TH E ASSESSEES STAND WHERE IT IS STATED THAT THE ASSESSEE WOULD HA VE NO OBJECTION IF ALLOWING THE DEPARTMENTAL GROUND, THE ISSUE IS REST ORED BACK TO THE FILE OF THE AO DIRECTING THAT CONSIDERING THE FRESH EVIDENCES AND DIRECT NECESSARY RELIEF IN ACCORDANCE WITH LAW MAY BE GRANTED IN TERMS OF THE MATCHING PRINCIPLE CONCEPT, IF SUPPORT ED BY FACTS. ORDERED ACCORDINGLY. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 11 TH OF JANUARY, 2016. SD/- SD/- (O.P.KANT) (DIVA SINGH) ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED: 11/01/2016 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI