M/s. Microsoft Corporation (India) Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 3723/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9083 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2005-2006
• Appeal Filed On: 08-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Revenue expenditure
• Section: 13; 22

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 3701 & 3723/DEL/2017 [ASSESSMENT YEARS: 2004-05 & 2005-06] M/S MICROSOFT CORPORATION (INDIA) PVT LTD VS. DY. C.I.T F-40, NDSE, PART 1 CIRCLE 6(1) NEW DELHI NEW DELHI PAN: AAACM 5586 C [APPELLANT] [RESPONDENT] DATE OF HEARING : 05.08.2020 DATE OF PRONOUNCEMENT : 07.08.2020 ASSESSEE BY : SHRI NAGESHWAR RAO, ADV REVENUE BY : SHRI SURENDRA PAL, CIT. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AG AINST THE ORDER OF THE CIT(A) - 44, NEW DELHI DATED 14.02.201 6 PERTAINING TO ASSESSMENT YEARS 2004-05 AND 2005-06. SINCE IN BOT H THESE APPEALS, 2 COMMON GROUNDS ARE INVOLVED, BOTH THESE APPEALS WER E HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SA KE OF CONVENIENCE AND BREVITY. 2. THE GRIEVANCE OF THE ASSESSEE IS TWO FOLD FIRS TLY, THE ASSESSEE IS AGGRIEVED BY THE TRANSFER PRICING ADJUSTMENT MADE I N THE MARKETING SUPPORT SERVICE SEGMENT AND SECONDLY, THE ASSESSEE IS AGGRIEVED BY ALLOWING OF DEPRECIATION @ 10% INSTEAD OF 15% AS CL AIMED BY THE ASSESSEE. 3. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF MIC ROSOFT CORPORATION, US. THE ASSESSEE CREATES AWARENESS OF MICROSOFT PRODUCTS IN INDIA IN GENERAL THROUGH SEMINARS, CONFERENCES, ADVERTISEMENT IN PUBLIC MEDIA, PROMOTIONAL CAMPAIGNS. FOR SUCH SERV ICES, THE ASSESSEE IS REMUNERATED BY ITS AES ON A COST PLUS BASIS. 4. INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES REPORTED IN FORM 3CEB ARE AS UNDER: 3 ASSESSMENT YEAR 2004-05 S.N S.NS.N S.N INTERNATIONAL TRANSACTION INTERNATIONAL TRANSACTION INTERNATIONAL TRANSACTION INTERNATIONAL TRANSACTION METHOD METHOD METHOD METHOD VALUE (IN RS.) VALUE (IN RS.) VALUE (IN RS.) VALUE (IN RS.) 1 PROVISION OF MARKETING SUPPORT SERVICES TNMM 164,86,44,780 2 SERVICE FEE RECEIVED FOR SOFTWARE CONSULTING SERVICES TNMM TNMM TNMM TNMM 8,78,47,564 3 ASSIGNMENT OF PERSONNEL TNMM TNMM TNMM TNMM 5,94,17,211 2005-06 S.N S.NS.N S.N INTERNATIONAL TRANSACTION INTERNATIONAL TRANSACTION INTERNATIONAL TRANSACTION INTERNATIONAL TRANSACTION METHOD METHOD METHOD METHOD VALUE (IN RS.) VALUE (IN RS.) VALUE (IN RS.) VALUE (IN RS.) 1 PROVISION OF MARKETING SUPPORT SERVICES TNMM 2,190,042,292/- 2 PROVISION OF MICROSOFT CONSULTING SOLUTIONS (MCS) TNMM 60,922,198/- 3 PROVISION OF PRODUCT SUPPORT SERVICES (PSS) TNMM 15,480,268/- 4 - PROVISION OF REGIONAL GUEST EMPLOYEE ('RGE) SERVICES TNMM 4 , 35 , 767,529 5 * ASSIGNMENT OF PERSONNEL TNMM 1,01,512,302 5. THERE ARE THREE SEGMENTS AS UNDER:- I) MICROSOFT SERVICES [MCS] II) PRODUCT SUPPORT SERVICES [PCS] III) SERVICE FEE CONSTITUTED OF MARKET SUPPORT SERVICES AND R&D SERVICES. 4 6. IN THE TP STUDY, MCS AND PCS SEGMENTS HAVE BEEN CLUBBED WITH MARKETING SUPPORT SERVICES AND BENCH MARKED. R & D SERVICES WERE SHOWN AS SEPARATE SEGMENT AND SEPARATELY BENCH MARK ED. SINCE MCS AND PCS SEGMENTS HAVE NO RPT, IT WAS NOT BENCH MARK ED AT ALL. IN THE R & D SEGMENT, SINCE THE ASSESSEE WAS AT ARMS LENGT H, NO SUCH ADJUSTMENT WAS MADE. IN THE MARKETING SUPPORT SERV ICES, ADJUSTMENTS HAVE BEEN MADE. 7. THE FINAL LIST OF COMPARABLE COMPANIES SELECTED BY THE TPO IS AS UNDER: 1. BESANT RAJ INTERNATIONAL LTD.FBR INTI) 2. ENGINEERS INDIA LIMITED.(EIL) 3. MAHINDRA ACRES CONSULTING ENGINEERS 4. PRIYA INTERNATIONAL LIMITED (PRIYA) 5. RITES LTD. 6. TCE CONSULTING ENGINEERS LTD.(TCE) 7. UJJWAL LIMITED (UJWAL) 8. WATER & POWER CONSULTANCY SERVICES LTD. 9. CRISIL 10. VIMTA LABS 11. KITCO 12. ICRA 5 8. THE ASSESSEE HAS OBJECTED FOR INCLUSION OF SIX C OMPARABLE COMPANIES, NAMELY, I) WAPCO LTD II) CRISIL LTD III) ICRA LTD IV) RITES LTD V) VIMTA LAB VI) ENGINEERS INDIA LTD 9. THE CONTENTION OF THE ASSESSEE IS THAT THESE SIX COMPARABLE COMPANIES ARE FUNCTIONALLY DISSIMILAR. IT HAS BEEN STRONGLY ARGUED THAT THESE COMPANIES HAVE BEEN EXCLUDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER AND SUBSEQUENT ASSESSMENT YEARS I.E . ASSESSMENT YEARS 2003-04, 2006-07 AND 2007-08. 10. BEFORE US, THE LD. DR HAS STRONGLY SUPPORTED TH E FINDINGS OF THE LD. CIT(A) AND THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2003-04, 2006-07 AND 2007-08. 6 11. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE OR DERS OF THE CO- ORDINATE BENCH. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 5980/DEL/2016 HAS CONSIDERED THE AFOREMENTIONED SIX COMPARABLE COMPANIES AND HAS EXCLUDED THE SAME. THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER: 20. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER'S OWN CASE FOR AY 2002-03 EXCLUDED CRISIL FROM THE FINAL SET O F COMPARABLES BY RETURNING FOLLOWING FINDINGS :- '23. IT IS BROUGHT TO OUR NOTICE BY THE LD. AR FOR THE TAXPAYER IN TABULATED FORM THAT CONTINUOUSLY IN AYS 2007-08 TO 2009- 10, CRISIL (ADVISORY AND INFORMATION SEGMENT) HAS B EEN REJECTED BY THE DRP AS A VALID COMPARABLE VIS--VIS THE TAXPAYER ON THE GROUND THAT, 'CRISIL IS ENGAGED IN PROVIDING NICHE ADVISORY SERVICES OF FINANCIAL MARKETS AND AS SUCH FINANCIALLY DIFFERENT.' 24. WHEN THE TAXPAYER IS PROVED TO HAVE PROVIDED SI MILAR MARKETING SUPPORT SERVICES TO ITS AE AS IT HAS PROV IDED IN AYS 2007- 08 TO 2009-10, NO COGENT REASON HAS BEEN BROU GHT ON RECORD BY THE TPO/CIT (A) TO DEPART FROM THE CONSIS TENT VIEW TAKEN IN THE SUCCEEDING YEARS. MOREOVER, THE C OMPANY 7 PROVIDING ADVISORY SERVICES CANNOT BE COMPARED WITH THE TAXPAYER WHO IS INTO PROVIDING ROUTINE MARKETING SU PPORT SERVICES TO ITS AES. 25. MOREOVER, AUDITED FINANCIAL OF CRISIL, AVAILABL E AT PAGE 426 OF THE PAPER BOOK (ANNUAL REPORT), SHOWS THAT 7 4% OF ITS INCOME IS FROM RATING SERVICES. RATING SERVICES HAV E BEEN EXPLAINED IN THE ANNUAL REPORT, AVAILABLE AT PAGE 4 11 OF THE PAPER BOOK, AS UNDER :- 'SOME LANDMARKS ACHIEVED BY THE RATINGS DIVISION IN 2001-02 ARE HIGHLIGHTED BELOW : GRADING OF HEALTHCARE INSTITUTIONS LAUNCHED WITH THE ANNOUNCEMENT OF GRADES ASSIGNED TO THREE HOSPITALS INTRODUCTION OF A NEW RATING SYMBOL (WITH 'R' SUBSC RIPT) TO INDICATE NON-CREDIT RISK FIRST RATED DEBT TRANSAC TION FOR AN ACQUISITION TWO NEW STATE GOVERNMENT RATINGS GO VERNMENT OF INDIA GUARANTEED DEBT RATINGS FIRST RATED TAKE -OUT CUM GUARANTEE FACILITY BY AN INFRASTRUCTURE DEVELOPMENT FINANCE INSTITUTION. CORPORATE SECTOR RATING SERVICES (CSRS) REVENUE GRO WTH IN CORPORATE SECTOR RATINGS WAS MAINLY DRIVEN BY REFIN ANCING OF DEBT DUE TO THE CONTINUOUS DROP IN INTEREST RATES. NEW OFFERINGS SUCH AS THE ADVANCE RATING SERVICES AND S TRUCTURED RATINGS HAVE GROWN SIGNIFICANTLY AND ACCOUNT FOR 30 % OF THE CSRS BILLINGS. THE 42 NEW COMPANIES RATED DURING 20 01-02 CONSTITUTED 30% OF CSRS INITIAL RATING FEES. THE CS RS HAS 8 ALSO MADE SIGNIFICANT PROGRESS IN GENERATING BUSINE SS FROM STANDARD AND POOR'S. ALTHOUGH THIS IS STILL A SMALL COMPONENT OF ITS REVENUES, THERE IS A SIGNIFICANT ORDER BOOK AS ON DATE AND CSRS EXPECTS TO DOUBLE ITS INTERNATIONAL REVENU ES IN THE CURRENT YEAR. GOVERNMENT'S DISINVESTMENT PROGRAMME AND A FURTHER ROUND OF REFINANCING BY STRONGER CORPORATE, ARE EXPECTED TO DRIVE CSRS REVENUES IN THE COMING YEAR. ' 26. FURTHERMORE, FROM THE FINANCIAL CONDITIONS EXPL AINED AT PAGE 423 OF THE ANNUAL REPORT, IT HAS COME ON RECOR D THAT HUGE INTANGIBLES HAVE BEEN EMPLOYED BY CRISIL IN OR DER TO ACHIEVE ITS TARGETS, WHICH MAKE IT INCOMPARABLE VIS --VIS THE TAXPAYER. CONSEQUENTLY, WE ORDER TO EXCLUDE CRISIL FROM THE FINAL SET OF COMPARABLES.' 21. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE DECISION RENDERED BY THE COORDINATE BENCH OF TH E TRIBUNAL IN TAXPAYER'S OWN CASE (SUPRA) IN THE SIMI LAR FACTS AND CIRCUMSTANCES WHEREIN THERE IS NO CHANGE IN THE BUSINESS MODEL AND TAXPAYER IS PROVIDING SERVICES UNDER THE SAME MASTER SERVICE AGREEMENT, CRISIL BEING OWNER OF HUG E INTANGIBLES HAVING BEEN EMPLOYED IN ORDER TO ACHIEV E ITS TARGET AND THAT IT IS A HIGH RISK PROFILE ENTITY CA NNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHO IS A NON-RISK BEARING ROUTINE MARKETING SERVICE PROVIDER TO ITS A E WORKING ON COST PLUS MARK UP BASIS, HENCE ORDERED TO BE EXC LUDED. ICRA LIMITED (ICRA) 9 22. THE TAXPAYER SOUGHT TO EXCLUDE ICRA ON THE GROU NDS INTER ALIA THAT IT IS PROVIDING RATING SERVICES, AD VISORY SERVICES AND INFORMATION SERVICES; THAT ICRA IS INTO PROVIDI NG PREMIUM ADVISORY SERVICES SEGMENT; AND THAT ICRA HAS BEEN E XCLUDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER 'S OWN CASE IN AY 2002-03 (SUPRA) ON GROUND OF FUNCTIONAL DISSIMILARITY. 23. PERUSAL OF THE ANNUAL REPORT AVAILABLE UNDER TH E HEAD DIRECTOR'S REPORT AT PAGES 918, 923 & 924 SHOWS THA T ICRA IS INTO RATING SERVICES, ADVISORY SERVICES AND INFO RMATION SERVICES. FURTHERMORE, PERUSAL OF THE TP ORDER ITSE LF SHOWS THAT TPO HIMSELF ACKNOWLEDGED IN PARA 7.9 THAT ICRA IS INTO PROVIDING PREMIUM FINANCIAL ADVISORY SERVICES AS TH E RATE OF ITS EMPLOYEE COST IS EXTREMELY HIGH INDICATING THAT ITS PERSONNEL ARE KEY DRIVERS OF THESE BUSINESSES. MORE OVER, COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER'S OWN CASE FOR AYS 2002-03 AND 2007-08 (SUPRA) HAS EXCLUDED ICRA F ROM THE FINAL SET OF COMPARABLES. THE RELEVANT FINDINGS RETURNED IN AY 2002-03 (SUPRA) IS REPRODUCED FOR READY PERUS AL AS UNDER :- 'ICRA LIMITED (ICRA) 27. ............UNDISPUTEDLY, ICRA HAS BEEN REJECTE D AS A VALID COMPARABLE BY THE REVENUE ON THE OBJECTION OF FUNCT IONAL DISSIMILARITY RAISED BY THE TAXPAYER IN AYS 2006-07 TO 2009- 10 10, AS PER COMPILATION GIVEN BY THE TAXPAYER DURING THE COURSE OF ARGUMENTS AVAILABLE ON RECORD. 28. MOREOVER, PERUSAL OF THE ANNUAL REPORT, AVAILAB LE AT PAGES 547, 553 & 557 OF THE PAPER BOOK, SHOWS THAT THERE IS NO SEGMENTAL INFORMATION AVAILABLE AND KEEPING IN VIEW THE DIVERSIFIED FUNCTION PERFORMED BY ICRA, IT CANNOT B E TAKEN AT ENTITY LEVEL. MOREOVER, UNDER TNMM, THE TPO HAS A W IDE DISCRETION OF CHOOSING COMPARABLES AS THERE IS WIDE RANGE OF SUCH COMPARABLES AVAILABLE FOR BENCHMARKING THE INT ERNATIONAL TRANSACTIONS. 29. FURTHERMORE, ICRA HAS BEEN HELD TO BE INCOMPARA BLE VIS- - VIS THE TAXPAYER BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE TAXPAYER'S OWN CASE FOR AY 2007-08 (SUPRA) BY H OLDING THAT SINCE ICRA HAS BEEN PROVIDING ADVISORY SERVICE S, IT CAN BE A NO MATCH TO THE COMPANY PROVIDING ACTUAL MARKE TING SUPPORT SERVICES. SINCE THERE IS NO CHANGE IN THE P ROFILE OF THE TAXPAYER DURING THE YEAR UNDER ASSESSMENT AS IT HAS BEEN PROVIDING SIMILAR MARKETING SUPPORT SERVICES TO ITS AE, ICRA IS NOT A VALID COMPARABLE VIS--VIS TAXPAYER, HENCE ORDERED TO BE EXCLUDED.' 24. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRI BUNAL IN TAXPAYER'S OWN CASE FOR AYS 2002-03 AND 2007-08 (SU PRA), WE ARE OF THE CONSIDERED VIEW THAT ICRA IS NOT A SU ITABLE COMPARABLE VIS--VIS THE TAXPAYER ON GROUND OF FUNC TIONAL 11 DISSIMILARITY BUT BEING INTO PROVIDING ADVISORY SER VICES WHICH IS NO MATCH TO THE COMPANY PROVIDING ACTUAL MARKETI NG SUPPORT SERVICES, HENCE ORDERED TO EXCLUDE ICRA FROM THE FI NAL SET OF COMPARABLES. WATER AND POWER CONSULTANCY SERVICES (INDIA) LTD. (WAPCOS) 25. THE TAXPAYER SOUGH EXCLUSION OF WAPCOS ON THE G ROUNDS INTER ALIA THAT WAPCOS IS FUNCTIONALLY DISSIMILAR B EING INTO NON- COMPARABLE COMPANIES; THAT IT IS A 100% GOVERN MENT OWNED ENTITY AND THAT IT HAS BEEN ORDERED TO BE EXC LUDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER'S OWN CASE FOR AY 2002-03, 2007-08 AND 2008-09 (SUPRA). 26. PERUSAL OF ANNUAL REPORT AT PAGES 628 TO 640 OF THE PAPER BOOK, SHOWS THAT WAPCOS IS INTO DISTINCT ACTIVITIES VIZ. COMMERCIAL AND INFORMATICS CENTRE FOR PROVIDING SER VICES IN PUBLISHING OF PUBLICITY MATERIAL, TECHNICAL BULLETI NS, STATUS REPORT, PROVIDING CONSULTANCY SERVICES IN THE MAJOR FIELD OF IRRIGATION, DRAINAGE, WATERSHED MANAGEMENT, ETC., I T IS ALSO PROVIDING SERVICES IN THE FIELD OF HYDRO-POWER, THE RMAL POWER, TRANSMISSION AND DISTRIBUTION ETC. AND IS INTO COND UCTING ENVIRONMENTAL STUDIES FOR MEGA PROJECTS IN HYDROPOW ER, WATER RESOURCES, PORTS AND HARBOURS, MINING, INDUSTRIAL S ECTOR ETC., PORTS AND HARBOURS DIVISION IS INVOLVED IN CARRYING OUT TECHNO- ECONOMIC FEASIBILITY STUDIES, PREPARATION OF PROJEC T REPORTS, DETAILED ENGINEERING PROJECT IMPLEMENTATION AND MON ITORING, IT 12 IS INTO PROVIDING PLANNING AND DESIGNING OF RURAL A ND URBAN WATER SUPPLY SCHEMES, SEWAGE TREATMENT AND DISPOSAL SCHEMES, LABORATORY TESTING, INSPECTION ETC. 27. COORDINATE BENCH OF THE TRIBUNAL EXCLUDED WAPCO S FROM THE FINAL SET OF COMPARABLES IN TAXPAYER'S OWN CASE FOR AY 2006- 07 BY RETURNING FOLLOWING FINDINGS :- '18.2. WE FIND THAT THIS COMPANY OPERATES IN TWO SE GMENTS, NAMELY, CONSULTANCY & ENGINEERING PROJECTS AND LUMP SUM TURNKEY PROJECTS. THIS COMPANY PROVIDES CONSULTANCY SERVICES, SUCH AS, PRE-FEASIBILITY REPORT OF HYDROELECTRIC PR OJECTS, FIELD INVESTIGATION DRILLING OF TUBE WELLS, ETC. FROM THE ABOVE DESCRIPTION OF THE NATURE OF ACTIVITIES PERFORMED B Y THIS COMPANY, IT CAN BE SEEN THAT THE SAME IS ENGAGED IN PROVIDING ENGINEERING AND CONSULTANCY SERVICES, WHICH CAN BE OF NO MATCH TO THE ASSESSEE'S MARKETING SUPPORT SERVICES. THIS COMPANY IS ALSO DIRECTED TO BE EXCLUDED FROM THE LI ST OF COMPARABLES.' 28. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE, WAPCOS IS INTO PROVIDING DISTINCT SERVICES AND IS A 100% GOVERNMENT OWNED COMPANY, BEING NOT DRIVING BY PROF IT MOTIVE AND FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER'S OWN CASE FOR AY 2006-07 (SUP RA), IT CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPA YER, HENCE ORDERED TO BE EXCLUDED. 13 RITES LTD. (RITES) 29. THE TAXPAYER SOUGHT EXCLUSION OF RITES ON GROUN DS INTER ALIA THAT IT IS FUNCTIONALLY DISSIMILAR AND THAT IT IS A GOVERNMENT OF INDIA UNDERTAKING UNDER THE AEGIS OF INDIAN RAILWAYS; THAT RITES HAS BEEN EXCLUDED BY THE DRP I N TAXPAYER'S OWN CASE FOR AY 2007-08 ON THE GROUND TH AT IT IS FUNCTIONALLY DIFFERENT BEING IN NICHE AREA OF ENGIN EERING CONSULTANCY. 30. RITES HAS BEEN EXCLUDED BY THE TRIBUNAL IN TAXP AYER'S OWN CASE FOR AY 2006-07 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- '16.2. WE FIND THAT THIS COMPANY IS PRIMARILY A CON SULTANCY ORGANIZATION RENDERING CONSULTANCY SERVICES IN ALL FACETS OF TRANSPORTATION. ITS MAJOR AREAS OF OPERATIONS ARE C ONSULTANCY SERVICES; EXPORT OF ROLLING STOCK, EQUIPMENTS AND S PARES; AND LEASING OF RAILWAY ROLLING STOCK AND EQUIPMENTS. IT CAN BE SEEN THAT THE FUNCTIONAL PROFILE OF THIS COMPANY IS NOWHERE NEAR THE ASSESSEE, WHICH IS SIMPLY PROVIDING MARKET ING SUPPORT SERVICES BY LARGELY CREATING CUSTOMER AWARENESS FOR THE MICROSOFT PRODUCTS IN INDIA. THIS COMPANY IS, THERE FORE, DIRECTED TO BE EXCLUDED.' 31. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE THAT RITES BEING INTO PROVIDING ENGINEERING AND CON SULTANCY SERVICES AND IS AN INTERNATIONAL RECOGNISED COMPANY ENGAGED IN 14 TRANSPORT INFRASTRUCTURE HAS BEEN EXCLUDED BY THE L D. DRP IN TAXPAYER'S OWN CASE FOR AY 2007-08 ON GROUND OF FUN CTIONAL DISSIMILARITY BEING IN NICHE AREA ENGINEERING CONSU LTANCY AND FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN AY 2006-07 IN TAXPAYER'S OWN CASE IS NO T A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHO IS A ROUTINE LOW END MARKETING SUPPORT SERVICES PROVIDER ON COST PLU S MARK UP BASIS, HENCE ORDERED TO BE EXCLUDED. VIMTA LABS LTD . (VIMTA) 32. THE TAXPAYER SOUGHT EXCLUSION OF VIMTA AS A COM PARABLE VIS- -VIS THE TAXPAYER ON GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DIFFERENT; THAT IT HAS HIGH PROPORTION OF PLANT AND MACHINERY APPLIED AND IT HAS SIGNIFICANT INTANGIBLE S; THAT IT IS A HIGH RISK BEARING ENTITY; THAT IT HAS BEEN ORDERE D TO BE EXCLUDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER'S OWN CASE FOR AY 2006-07 AND 2007-08 (SUP RA). 33. PERUSAL OF ANNUAL REPORT, AVAILABLE AT PAGE 517 OF THE PAPER BOOK, SHOWS THAT VIMTA IS ENGAGED IN CONTRACT RESEARCH (CLINICAL AND PRE-CLINICAL), CLINICAL SPECIALTY DIA GNOSTICS, ANALYTICAL TESTING OF WATER, FOOD, DRUGS, CHEMICALS , PETROLEUM PRODUCTS, MINERALS, METALS, ETC. AND ENVIRONMENTAL MONITORING AND IMPACT ASSESSMENT. PERUSAL OF SCHEDULE FORMING PART OF THE ACCOUNTS AT PAGE 527 OF THE PAPER BOOK SHOWS TH AT IT HAS DISPLAYED HIGH PROPORTION OF PLANT AND MACHINERY. 15 34. COORDINATE BENCH OF THE TRIBUNAL IN AY 2007-08 IN TAXPAYER'S OWN CASE EXCLUDED VIMTA IN TAXPAYER'S OW N CASE ON GROUND OF FUNCTIONAL DISSIMILARITY BY RETURNING FOL LOWING FINDINGS:- '22. WE DO NOT FIND ANY FORCE IN THE FUNCTIONAL COM PARABILITY OF THIS COMPANY WITH THE ASSESSEE. SPECTRUM OF THE SERVICES RENDERED BY THIS COMPANY COVERS ANALYTICAL FOOD AND DRUGS; CLINICAL REFERENCE LAB SERVICES TO ADDRESS THE SPEC IALTIES AND CENTRAL LAB SERVICES FOR CLINICAL TRIALS; CLINICAL TRIALS PHASE-I- IV AND BA/BE STUDIES; PRE-CLINICAL SAFETY ASSESSMEN TS; AND ENVIRONMENTAL ASSESSMENTS. A CURSORY LOOK AT TH E NATURE OF SERVICES PROVIDED BY THIS COMPANY DIVULGES THAT THE SAME IS FUNCTIONALLY DISSIMILAR FROM THE ASSESSEE. HOW A CO MPANY CONDUCTING CLINICAL TRIALS ON FOODS AND DRUGS CAN B E CONSIDERED AS COMPARABLE WITH THE ASSESSEE UNDERTAKING MARKETI NG SUPPORT SERVICES, IS ANYBODY'S GUESS. THIS COMPANY BEING IN THE NATURE OF BUSINESS TOTALLY ALIEN TO THAT OF THE ASSESSEE, CANNOT BE CONSIDERED AS A COMPARABLE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE F OR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. WE, THEREFOR E, DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES.' 35. IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE 16 TRIBUNAL (SUPRA), WE ORDER TO EXCLUDE VIMTA FROM TH E FINAL SET OF COMPARABLES ON GROUND OF FUNCTIONAL DISSIMILARIT Y VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 12. A PERUSAL OF THE ORDER OF THE LD. CIT(A) FOR AS SESSMENT YEAR 2004- 05 SHOWS THAT AT PARA 4.4. OF HIS ORDER, THE LD. CI T(A) HAS HELD WHILE PASSING THE APPELLATE ORDER IN THE APPELLANTS CASE FOR ASSESSMENT YEAR 2003-40 DATED 18.07.2016 IN APPEAL NO. 113/2003-04- CIT(A)-44, I HAVE HELD THAT THE APPELLANT IS PROVIDING HIGH END SERVI CES AND ACCORDINGLY THE SIX COMPANIES CANNOT BE EXCLUDED FROM THE FINAL LIST. THIS SHOWS THAT THE FIRST APPELLATE AUTHORITY HIMSELF HAS FOLL OWED THE ORDER OF THE ASSESSMENT YEAR 2003-04 ON FINDING PARITY IN THE FA CTS. 13. AS MENTIONED ELSEWHERE, THE TRIBUNAL IN ASSESSM ENT YEAR 2003- 04 HAS DIRECTED FOR EXCLUSION OF SIX COMPARABLE COM PANIES. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSE SSING OFFICER/TPO TO EXCLUDE THE SIX COMPARABLE COMPANIES MENTIONED H EREINABOVE. 14. ALL THE GROUNDS RELATING TO TP ADJUSTMENTS ARE ALLOWED. 17 15. COMING TO THE SECOND GRIEVANCE OF THE ASSESSEE WHICH RELATES TO THE CLAIM OF DEPRECIATION @ 15%, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH DETA ILS OF THE ADDITIONS TO FIXED ASSETS MADE DURING THE YEAR. 16. ON PERUSAL OF THE SAME, THE ASSESSING OFFICER F OUND THAT THE ASSESSEE HAS MADE ADDITION IN THE NATURE OF LEASE H OLD IMPROVEMENT TO ITS FIXED ASSETS AND HAS CLAIMED DEPRECIATION @ 15% UNDER THE BLOCK FURNITURE AND FIXTURES. 17. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF TH AT THE ASSESSEE HAS CLAIMED DEPRECIATION UNDER A WRONG BLOCK I.E. FURNI TURE AND FITTINGS @ 15% UNDER THE BLOCK FURNITURE AND FIXTURES WHEREAS IN VIEW OF EXPLANATION 1 TO SECTION 32, ANY CAPITAL EXPENDITUR E INCURRED BY THE ASSESSEE ON THE CONSTRUCTION OF ANY STRUCTURE OR BY WAY OF RENOVATION OR EXTENSION OR IMPROVEMENT TO THE BUILDING IN RESP ECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY FOR THE PURPOSES OF ITS BUSINESS, THEN PROVISION REGARDING DEPRECIATION SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE A SSESSEE. ACCORDINGLY DEPRECIATION @ 10% WAS ALLOWED. 18 18. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT (A), THE LD. CIT(A) HELD AS UNDER; ON THE SIMILAR ISSUES. I HAVE CONFIRMED THE ADDITI ON FOR A.Y. 2005-06. THE ADDITION IN ASSETS IS SIMILAR IN NATUR E AS DISCUSSED IN A.Y. 2005-06. THE RELEVANT PORTION OF APPEAL ORDER FOR A.Y. 2005-06 IS REPRODUCE AS UNDER:- I HAVE CONSIDERED THE FINDINGS OF THE AO, WRITTEN S UBMISSION AND THE ORAL ARGUMENTS OF THE LD AR CAREFULLY. I HA VE PERUSED THE ITEMS OF THE EXPENDITURE WHICH HAS BEEN REPRODU CED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND A LSO REPRODUCED EARLIER. MAJORITY OF THE EXPENDITURE ARE ON ACCOUNT OF CIVIL AND INTERIOR WORKS AMOUNTING RS 2. 26 CRORES PAID TO M/S M. S. DECORATORS PVT. LTD. SIMILARLY FO R INTERIOR DESIGNING RS 49.8 LACS HAS PAID AND OTHER MAIN EXPE NDITURE ARE RETABLE TO ELECTRIC FITTING AND AIR-CONDITIONIN G WORK AMOUNTING TO RS APPROXIMATELY 2.15 CRORES, THE REST IS ARCHITECT FEE AMOUNTING TO RS 35.78 LACS AND SLIDIN G PORTION 11.98 LACS. FROM PATTERN OF EXPENDITURE WHICH IS CL EAR THAT THERE IS IMPROVEMENT OF CIVIL SUPPLY IN THE EXPENDI NG/ALTERING THE BUILDING BY A CIVIL WORK, INTERIOR DESIGN COUPL ED WITH ELECTRIC FITTING AND AIR-CONDITIONING WORK. PATTERN OF EXPENDITURE REVEALS THAT THOUGH THERE IS LEASE HOLD ASSETS THERE IS IMPROVEMENT IN THE EXPENDING BUILDING WHIC H IS OF ENDURING LIFE. THEREFORE, I CONFIRMED THE DECISION OF THE 19 ASSESSING OFFICER TO ALL DEPRECIATION @ 10% TREATIN G THEM AS PART OF BUILDING IN RESPECT OF FURNITURE AND FIXTUR E. I HAVE CONSIDERED THE RELIANCE OF LD AR ON THE DECI SION OF JURISDICTION HIGH COURT IN THE CASE OF INSTALLMENT SUPPLY PVT. LTD. CITED SUPRA WHERE WHICH HAS BEEN HELD THE CUST OMER ON LEASE HOLD AS REVENUE EXPENDITURE. I HAVE PERUSED T HE ORDER THE EXPENDITURE AND QUESTION WAS MADE FOR RS. 5000 WAS IN THE ORDER OF THOUSAND HERE THE EXPENDITURE IS CRORE S OF RUPEES WHERE THE HEAD OF EXPENDITURE IS APPARENTLY FOR CIVIL WORK. THEREFORE THE SAID DECISION WILL NOT APPLY TO THE FACTS OF THE CASE. IN MY VIEW THE EXPENDITURE SHOWS THAT THERE IS ADDITION OF CIVIL WORK, SUCH ADDITION OF CIVIL WORK EVEN ON LONG LEASE IS TO BE TREATED A BUILDING FOR PROVIDING DEP RECIATION. HENCE, ACTION OF THE ASSESSING OFFICER IS CONFIRMED . ACCORDINGLY THESE GROUNDS OF APPEAL ARE DISMISSED. 19. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT EXPENDITURE INCURRED BY THE ASSESSEE ARE TOWAR DS FURNITURE AND FIXTURES AND, THEREFORE, RATE OF DEPRECIATION APPLI ED FOR BLOCK OF FURNITURE AND FIXTURES SHOULD BE ALLOWED. 20. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF T HE FIRST APPELLATE AUTHORITY. 20 21. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. UNDISPUTEDLY, EXPENDITURE ON ACC OUNT OF CIVIL AND INTERIOR WORKS AND PAYMENT HAS BEEN MADE ONLY TO ON E M/S DECORATOR PVT LTD. CONSIDERING THE NATURE OF EXPENDITURE, IT CAN BE SAFELY CONCLUDED THAT THE ENTIRE EXPENDITURE HAS BEEN MADE FOR IMPROVEMENT OF CIVIL SUPPLY ALTERING BUILDING BY CIVIL WORK. I N OUR CONSIDERED OPINION, SUCH CIVIL WORK DEFINITELY GIVES A BENEFIT OF ENDURING NATURE. THEREFORE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). THIS GRIEVANCE IS ACCORDINGLY DISMISSE D. 22. BEFORE CLOSING, THERE WAS A PRAYER FOR ALLOWING BENEFIT OF WORKING CAPITAL ADJUSTMENT. WE FIND THAT IN THE EARLIER YE AR AND SUBSEQUENT YEAR, THE TPO HIMSELF HAS GIVEN BENEFIT OF WORKING CAPITAL ADJUSTMENT. THEREFORE, IN THE SAME LINE, WE DIRECT THE ASSESSIN G OFFICER/TPO TO ALLOW WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE. 21 23. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE IN ITA NOS. 3701 AND 3723/DEL/2017 ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 07.08 .2020. SD/- SD/- [SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07 TH AUGUST, 2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR 22 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER