Teradata India Pvt. Ltd., Gurgaon V. ACIT, Circle- 4(1), Gurgaon

ITA 8054/DEL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3176 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Assessment Year: 2014-2015
• Appeal Filed On: 18-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Application of stay; Corroborative evidences
• Section: 271(1)(c); 143(3); 92B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.8054/DEL/2018 ASSESSMENT YEAR: 2014-15 M/S. TERADATA INDIA PVT. LTD., 301-302, 3 RD FLOOR, TOWER-4A, S-BLOCK, DLF CORPORATE PARK, DLF CITY, PHASE-III, GURGAON, HARYANA VS. ACIT, CIRCLE-4(1), GURGAON PAN : AACCT6715A (APPELLANT) (RESPONDENT) AND S.A. NO.977/DEL/2018 [ARISING OUT OF ITA NO.8054/DEL/2018] ASSESSMENT YEAR: 2014-15 M/S. TERADATA INDIA PVT. LTD., 301-302, 3 RD FLOOR, TOWER-4A, S-BLOCK, DLF CORPORATE PARK, DLF CITY, PHASE-III, GURGAON, HARYANA VS. ACIT, CIRCLE-4(1), GURGAON PAN :AACCT6715A (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI NAGESHWAR RAO, ADV. DEPARTMENT BY SHRI H.K. CHOUDHARY, CIT(DR) ORDER PER O.P. KANT, A.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST FINAL ASSESSMENT ORDER DATED 29/10/2018 PASSED BY THE ASSISTANT DATE OF HEARING 06.02.2019 DATE OF PRONOUNCEMENT 25.02.2019 2 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 COMMISSIONER OF INCOME TAX, CIRCLE-4(1), GURGAON (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER) IN COMPLIANCE TO THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL (DRP) DATED 23/08/2018. THE GROUNDS RAISED IN THE APPEAL ARE REPRODUCED AS UNDER: 1. THAT ON FACTS AND IN LAW, THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX- TRANSFER PRICING OFFICER - 1 (3)(2), NEW DELHI (THE LEARNED TPO), THE DRAFT ASSESSMENT ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 4(1), GURGAON (LEARNED AO), THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, TRANSFER PRICING OFFICER - 1(3)(2), AND THE FINAL ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1), GURGAON PURSUANT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL - 1, NEW DELHI (HONBLE DRP), ARE BAD IN LAW AND VOID- AB-INITIO. 2. THE LEARNED AO FOLLOWING THE ORDER OF THE LEARNED TPO AND THE HONBLE DRP HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DETERMINING THE TOTAL INCOME OF THE APPELLANT AT RS. 31,54,03,810/- AS AGAINST THE RETURNED INCOME OF RS. 30,78,39,530/- AND THEREBY MADE AN UPWARD ADJUSTMENT OF RS.33,17,758/- ON ACCOUNT OF TRANSFER PRICING MATTER, DISALLOWED THE CLAIM OF STOCK WRITTEN-OFF AMOUNTING TO RS. 25,20,421, DISALLOWED EXCESS DEPRECIATION OF RS. 16,56,842/- CLAIMED AND DISALLOWED EXCESS FOREIGN EXCHANGE LOSS OF RS. 69,261 /- CLAIMED BY THE APPELLANT ON ACCOUNT OF CORPORATE TAX MATTERS. PART I- TRANSFER PRICING GROUNDS 3. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP/TPO/AO HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT BY CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE IMPUGNED TRANSACTIONS. 4. THAT ON FACTS AND IN LAW, THE DRP/TPO/AO HAVE GROSSLY ERRED BY CHARGING INTEREST ON CREDIT PERIOD GRANTED BY THE COMPANY UNDER NORMAL TRADE PRACTICES BY: I. IDENTIFYING OUTSTANDING RECEIVABLES AS A SEPARATE INTERNATIONAL TRANSACTION; II. BY RE-CHARACTERIZING THE NATURE OF OUTSTANDING RECEIVABLES AS LOAN ADVANCED TO ASSOCIATED ENTITIES (AES); III. BY DETERMINING THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPRIATE METHOD WITHOUT PROVIDING ANY COMPARABLE UNCONTROLLED TRANSACTION(S) THEREBY COMPROMISING THE MOST FUNDAMENTAL RULES AND PROVISIONS LAID DOWN IN THE ACT 3 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 AND THE RULES TO DETERMINE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION; IV. BY APPLYING AN INTEREST RATE ON OUTSTANDING RECEIVABLES AT LIBOR PLUS 400 BASIS POINTS. V. BY IGNORING THE FACT THAT ACCOUNT RECEIVABLES ARISING FROM AN INTERNATIONAL TRANSACTION ARE CLOSELY LINKED TO THE MAIN TRANSACTION AND SHOULD BE BENCHMARKED, USING A COMBINED TRANSACTION APPROACH, BY MAKING A WORKING CAPITAL ADJUSTMENT. VI. BY DISREGARDING THE ORDER PASSED BY THE HONBLE ITAT IN APPELLANTS OWN CASE FOR AY 2012-13 AND AY 2013-14; VII. BY DISREGARDING THE FACT THAT THE HONBLE ITAT HAD PLACED RELIANCE ON THE ORDER PASSED IN CASE OF KUSUM HEALTH CARE PRIVATE LIMITED (ITA NO. 765/2016) BY THE HONBLE HIGH COURT OF DELHI 5. THAT, WITHOUT PREJUDICE TO THE ABOVE, ONCE WORKING CAPITAL ADJUSTMENT IS GRANTED NO SEPARATE ADJUSTMENT ON ACCOUNT OF OUTSTANDING RECEIVABLES IS MAINTAINABLE. PART II - CORPORATE TAX GROUNDS OF APPEAL 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/ AO ERRED IN DISALLOWING THE CLAIM OF STOCK WRITTEN-OFF AMOUNTING TO RS. 25,20,421 WITHOUT APPRECIATING THE FACT THAT THE SAME HAS BEEN INCURRED ON ACCOUNT OF OBSOLETE SPARE PARTS ACTUALLY WRITTEN-OFF AS PER THE ACCOUNTING POLICY REGULARLY FOLLOWED BY THE APPELLANT. 7 . WITHOUT PREJUDICE TO THE ABOVE, THE LD. DRP/AO FAILED TO APPRECIATE THAT THE APPELLANT OPERATES ON ASSURED MARGIN MODEL FOR ITS REVENUE FROM DISTRIBUTION ACTIVITIES AS A RESULT OF WHICH CORRESPONDING EQUAL SUBVENTION INCOME FOR RS. 25,20,421 DEBITED AS STOCK WRITTEN OFF HAS BEEN RECOGNIZED AND ACCORDINGLY OFFERED TO TAX BY THE APPELLANT. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO ERRED IN DISALLOWING A SUM OF RS. 16,56,842 AS EXCESS DEPRECIATION CLAIM ON FIXED ASSETS. PART III- CONSEQUENTIAL GROUNDS OF APPEAL 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 4 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 234A OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS A SUBSIDIARY OF TERADATA BELGIUM HOLDINGS LLC AND WAS INCORPORATED ON 22/05/2007. THE TERADATA GROUP PROVIDES DATA WAREHOUSING SOLUTIONS TO CUSTOMERS AROUND THE WORLD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS ENGAGED AS LOCAL SALES AND DISTRIBUTION AFFILIATE FOR THE INDIAN MARKET AND IT ALSO PERFORMED CERTAIN SUPPORT SERVICES FOR OTHER MEMBERS OF THE TERADATA GROUP. THE ASSESSEE FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 29/11/2014 DECLARING TOTAL INCOME OF RS.30,78,39,130/-. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES UNDER THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WERE ISSUED AND COMPLIED WITH. IN VIEW OF THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH ASSOCIATED ENTERPRISES (AES), THE ASSESSING OFFICER REFERRED THE MATTER OF DETERMINATION OF ARMS LENGTH PRICE OF THOSE TRANSACTIONS TO THE LD. TRANSFER PRICING OFFICER (TPO), WHO VIDE HIS ORDER DATED 31/10/2017 UNDER SECTION 92CA(3) OF THE ACT, PROPOSED AN UPWARD ADJUSTMENT OF RS.27,38,47,156/- TO THE VALUE OF INTERNATIONAL TRANSACTIONS DECLARED BY THE ASSESSEE AS UNDER: 5 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 S. NO. ADJUSTMENT ON ACCOUNT OF AMOUNT IN RS. 1. PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND PROVISION OF GCC 27,05,29,398/- 2. INTEREST ON RECEIVABLES 33,17,758/- TOTAL 27,38,47,156/ - 2.1 THE ASSESSING OFFICER INCLUDED THE ABOVE ADJUSTMENT IN THE DRAFT ASSESSMENT ORDER DATED 22/12/2017 ALONG WITH FOLLOWING CORPORATE ADDITIONS PROPOSED: 1. DISALLOWANCE OF STOCK WRITTEN OFF MOUNTING RS.25,24,421/- 2. DISALLOWANCE OF CLAIM OF EXCESS DEPRECIATION AMOUNTING TO RS.16, 56, 842/- 3. DISALLOWANCE OF EXCESS CLAIM OF FOREIGN EXCHANGE LOSS OF RS.69,261/- 2.2 AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER, THE ASSESSEE FILED OBJECTION BEFORE THE LD. DRP. AFTER CONSIDERING OBJECTIONS OF THE ASSESSEE, THE LD. DRP ISSUED DIRECTIONS TO THE ASSESSING OFFICER VIDE ORDER DATED 23.08.2018. 2.3 ON THE ISSUE OF THE TRANSFER PRICING ADJUSTMENT, THE LEARNED DRP ISSUED DIRECTION TO THE LD. TPO TO RE-COMPUTE THE TRANSFER PRICING ADJUSTMENT. THE LD. TPO AFTER COMPLYING THE DIRECTION OF THE LD. DRP REDUCED THE ADJUSTMENT OF RS.27,05,29,398/-ON ACCOUNT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES IN PROVISION OF GCC TO RS. NIL AND UPHELD ADJUSTMENT OF RS.33,17,758/-ON ACCOUNT OF INTEREST ON RECEIVABLES. THE OTHER CORPORATE DISALLOWANCE PROPOSED IN THE DRAFT ASSESSMENT ORDER BY THE ASSESSING OFFICER, WERE SUSTAINED BY THE LEARNED DRP. 2.4 COMPLYING THE DIRECTION OF THE LD. DRP DATED 23/08/2018, THE LEARNED ASSESSING OFFICER PASSED THE IMPUGNED ORDER UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT ON 29/10/2018 6 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 AND ASSESSED TOTAL INCOME AT RS.31,54,03,810/-. AGGRIEVED WITH THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. THE GROUNDS NO. 1 AND 2 OF THE APPEAL WERE CLAIMED TO BE GENERAL IN NATURE BY THE LD. COUNSEL OF THE ASSESSEE AND, THUS, WE ARE NOT REQUIRED TO ADJUDICATE UPON. 4. IN GROUNDS NO. 3 TO 5, THE ASSESSEE HAS CHALLENGED TRANSFER PRICING ADDITION ON ACCOUNT OF OUTSTANDING RECEIVABLES. THE LEARNED COUNSEL SUBMITTED THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2012-13 AND 2013-14 BY THE TRIBUNAL AND NO APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT AGAINST THE SAID DECISION OF THE TRIBUNAL. THE LEARNED COUNSEL SUBMITTED THAT THE TRIBUNAL HAS UPHELD THAT THERE IS NO REQUIREMENT OF SEPARATE ADJUSTMENT ON ACCOUNT OF OUTSTANDING RECEIVABLES WHEN WORKING CAPITAL ADJUSTMENT HAS BEEN CONSIDERED. 4.1 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT WORKING CAPITAL ADJUSTMENT ONLY TAKE CARE OF OUTSTANDING RECEIVABLES/PAYABLE AT THE OPENING AND CLOSING OF THE YEAR AND ANY ABNORMAL DELAY IN RECEIVING THE OUTSTANDING RECEIVABLES IS NOT TAKEN CARE OF BY THE WORKING CAPITAL ADJUSTMENT AND THEREFORE, HE SUBMITTED THAT THE FINDING OF THE LEARNER DRP ON THE ISSUE MIGHT BE UPHELD. 4.2 WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE LEARNED DRP DIRECTED TO GIVE WORKING CAPITAL ADJUSTMENT AND RE-COMPUTE THE INTEREST CHARGEABLE ON OUTSTANDING NET RECEIVABLES BY APPLYING LIBOR + 400 BPS. WE ALSO NOTE THAT THE TRIBUNAL IN ITA NO. 87/DEL/2017 FOR ASSESSMENT YEAR 2012-13 IN CASE OF THE 7 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 ASSESSEE, FOLLOWING THE DECISION OF THE HONBLE JURISDICTION HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. KUSUM HEALTH CARE PVT. LTD. IN I.T.A. NO. 765/2016 VIDE JUDGMENT DATED 25TH APRIL, 2017, HELD THAT NO SEPARATE ADJUSTMENT ON ACCOUNT OF INTEREST RECEIVABLE IS REQUIRED WHEN WORKING CAPITAL ADJUSTMENT HAS ALREADY BEEN MADE TO THE MARGINS OF THE COMPARABLES WHILE COMPARING THE MARGIN OF THE ASSESSEE UNDER THE TNMM. THE RELEVANT FINDING OF THE TRIBUNAL IS REPRODUCED AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT CASE LAWS ALONG WITH ORDER OF TPO, DRP & A.O. IN RESPECT OF FIRST ISSUE THE LD. AR RELIED UPON THE ORDER OF JURISDICTIONAL HIGH COURT IN CASE OF KUSUM HEALTH CARE PVT. LTD. WHEREIN IT IS HELD AS UNDER:- 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SUBMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUNTS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CASE BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL OF THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, THERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF TIME TO DISCERN A PATTERN WHICH WOULD INDICATE THAT VIS-A-VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIS-A-VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE-CHARACTERIZED THE TRANSACTION. THIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LTD. (2012) 345ITR 241 (DELHI). 8 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 THE ISSUE IN THE PRESENT APPEAL IS ALSO IDENTICAL THEREFORE, SQUARELY COVERED BY THIS JUDGMENT IN FAVOUR OF THE ASSESSEE. THEREFORE, GROUND NO. 4 & 5 ARE ALLOWED. 4.3 IN ASSESSMENT YEAR 2013-14, IN ITA NO. 7885/DEL/2017, ALSO THE TRIBUNAL FOLLOWING THE DECISION, ALLOWED THE APPEAL OF THE ASSESSEE OBSERVING AS UNDER: 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT, DELHI BENCH IN THE CASE OF SAME ASSESSEE VIDE ORDER DATED 08TH AUGUST, 2017, IN WHICH THE TRIBUNAL FOLLOWING THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF KUSUM HEALTHCARE PVT. LTD., DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE DRP HAS ALSO ISSUED DIRECTION IN ITS ORDER THAT THIS ISSUE HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE. BUT, IT IS NOT CLEAR WHETHER ANY APPEAL HAS BEEN FILED/BEING FILED BY THE DEPARTMENT BEFORE THE HONBLE JURISDICTIONAL DELHI HIGH COURT. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, MADE A STATEMENT THAT THE DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE HONBLE JURISDICTIONAL DELHI HIGH COURT. IN THIS VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT, DELHI BENCH IN THE CASE OF THE SAME ASSESSEE FOR THE A.Y. 2012-2013 IN ITA.NO.87/DEL./2017 DATED 08TH AUGUST, 2017. EVEN IF AN APPEAL WOULD HAVE BEEN PENDING BEFORE THE HONBLE JURISDICTIONAL DELHI HIGH COURT, IS NOT A GROUND TO TAKE A CONTRARY VIEW AGAINST THE ASSESSEE UNLESS THE ORDER OF THE TRIBUNAL HAVE BEEN SET ASIDE OR STAYED BY THE HONBLE JURISDICTIONAL DELHI HIGH COURT. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. IN THE RESULT, GROUND NOS. 3 TO 6 OF THE ASSESSEE ARE ALLOWED. 4.4 IN VIEW OF THE ABOVE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEARS 2012-13 AND 2013-14, WE SET ASIDE THE FINDING OF THE LEARNED DRP COMPLIED BY THE ASSESSING OFFICER IN THE IMPUGNED ORDER AND DELETE THE ADJUSTMENT ON ACCOUNT OF THE INTEREST RECEIVABLES. IN THE RESULT, THE GROUNDS NO. 3 TO 5 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 5. IN GROUNDS NO. 6 AND 7, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF RS.25,20,421/- TOWARDS STOCK WRITTEN OFF. 9 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 5.1 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE CLAIMED THAT CERTAIN INVENTORY OF SPARE PARTS CONSISTING OF HARD DISK, NETWORK ADAPTERS, MOTHERBOARD, POWER SUPPLY AND OTHER HARDWARE STORAGE DEVICES WERE RENDERED OBSOLETE AND THUS, IT WAS WRITTEN OFF FOLLOWING THE ACCOUNTING STANDARD -2 (AS-2) FOR VALUATION OF INVENTORY. THE ASSESSING OFFICER DISALLOWED THE CLAIM IN RESPECT OF OBSOLETE INVENTORY ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH ANY REPORT FROM ANY ENGINEER, PRODUCTION HEAD OR CERTIFICATE FROM THE THIRD PARTY THAT SAID INVENTORY HAS BECOME OBSOLETE. ON THIS ISSUE, THE LEARNED DRP FOUND THAT NO SUCH REPORT FROM THE ENGINEER OR PRODUCTION HEAD OR THIRD-PARTY CERTIFICATE WAS PRODUCED BEFORE THE LEARNER DRP, THUS THE ASSESSING OFFICER WAS DIRECTED TO VERIFY THE SUBMISSION OF THE ASSESSEE AND BRING OUT THE FACTS PROPERLY AND PASSED A SPEAKING ORDER ON THE ISSUE. THE DIRECTION OF THE LEARNED DRP HAVE BEEN REPRODUCED ON PAGE 37 OF THE IMPUGNED ORDER. FOR READY REFERENCE, THE SAID DIRECTION IS REPRODUCED AS UNDER: 2.8.2 THE AO HAS DISALLOWED THE SAID CLAIM WITH THE OBSERVATIONS THAT ASSESSEE HAD CLAIMED THE EXPENDITURE IN RESPECT OF OBSOLETE INVENTORY. HOWEVER, THE ASSESSEE APART FROM FURNISHING THE LEDGER ACCOUNT COULD NOT BE ABLE TO FURNISH THE REPORT OF ANY ENGINEER, PRODUCTION HEAD, CERTIFICATE OF THIRD PARTY WHICH SUGGESTS THAT THE INVENTORY HAD BECOME OBSOLETE. FURTHER, NO LIST OF THE STOCK THAT IS WRITTEN OFF SUBMITTED BY THE ASSESSEE NEITHER ANY EVIDENCE WAS PRODUCED BY THE ASSESSEE TO SUBSTANTIATE THAT THE STOCK WRITTEN OFF WAS GENUINE OR TO SUBSTANTIATE THE FACT THAT THE SPARE PARTS WRITTEN OFF WERE IN FACT OBSOLETE. IT IS PERTINENT TO NOTE HERE THAT AN ADDITION ON SIMILAR FACTS WAS MADE IN THE EARLIER ASSESSMENT YEAR. IN VIEW OF THE ABOVE AND IN ABSENCE OF SUPPORTING EVIDENCE IT COULD NOT BE ASCERTAINED THAT THE CLAIM MADE BY THE ASSESSEE FOR WRITE OFF OF OBSOLETE STOCK IS GENUINE THEREFORE, THE CLAIM OF THE ASSESSEE HAS BEEN REJECTED U/S 36 OF THE ACT. 2.8.3 ON SIMILAR ISSUE, UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE DRP, IN THE CASE OF THE ASSESSEE FOR AY 2013-14, OBSERVED THAT THE 10 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 AO HAS NOT BROUGHT IN ANY EVIDENCE TO SHOW THAT THE AMOUNT WRITTEN OFF HAS BEEN CLAIMED WRONGLY OR IS BOGUS AND DIRECTED THE AO VERIFY THE SUBMISSIONS OF ASSESSEE, BRING OUT THE FACTS PROPERLY & PASS A SPEAKING ORDER ON THIS ISSUE. SINCE NO FACTS, AS MENTIONED BY THE AO HAS BEEN FILED BEFORE US, THE AO IS DIRECTED THE AO VERIFY THE SUBMISSIONS OF ASSESSEE, BRING OUT THE FACTS PROPERLY & PASS A SPEAKING ORDER IN THIS YEAR AS WELL. 5.2 IDENTICAL ISSUE CAME BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2013-14, IN ITA NO. 7885/DEL/2017. THE TRIBUNAL DISMISSED THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD OBSERVING AS UNDER: 16. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSION OF LEARNED COUNSEL FOR THE ASSESSEE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE ASSESSEE- COMPANY DID NOT FILE ANY EVIDENCE IN SUPPORT OF ITS CLAIM EXCEPT FILING COPY OF THE LEDGER ACCOUNT. ASSESSEE- COMPANY DID NOT SUBMIT ANY REPORT OF ENGINEER OR PRODUCTION HEAD TO VERIFY THAT ACTUALLY THE INVENTORY HAS BECOME OBSOLETE. MERE FILING OF THE LEDGER ACCOUNT IS NOT SUFFICIENT TO SUPPORT THE CLAIM OF THE ASSESSEE-COMPANY THAT THE STOCK HAS BECOME OBSOLETE. MERELY REFERRING TO ACCOUNTING STANDARD WOULD NOT SUPPORT THE CLAIM OF THE ASSESSEE-COMPANY THAT IN FACT THE STOCK OF THE ASSESSEE-COMPANY HAS BECOME OBSOLETE. IN THE ABSENCE OF ANY EVIDENCE IN SUPPORT OF THE CLAIM OF THE ASSESSEE- COMPANY, NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE DRP HAS GIVEN ONE MORE CHANCE TO THE ASSESSEE-COMPANY TO GET THE CLAIM VERIFIED BEFORE A.O. HOWEVER, THE ASSESSEE-COMPANY DID NOT AVAIL THE OPPORTUNITY AND DID NOT PRODUCE ANY RELEVANT OR COGENT EVIDENCE BEFORE A.O. TO SUBSTANTIATE THE CLAIM OF OBSOLETE STOCK. NO INTERFERENCE IS CALLED FOR IN THE MATTER. GROUND NO.8 OF APPEAL OF ASSESSEE-COMPANY IS DISMISSED. 5.3 WE FIND THAT IN THE YEAR UNDER CONSIDERATION ALSO THE OPPORTUNITY WAS GRANTED BY THE LEARNED DRP BUT HAS NOT BEEN AVAILED BY THE ASSESSEE COMPANY AND NO RELEVANT EVIDENCES OF HAVING INVENTORY RENDERED OBSOLETE WERE PRODUCED BEFORE THE ASSESSING OFFICER. THE RELEVANT FINDING OF THE ASSESSING OFFICER IN PARA 10 OF THE IMPUGNED ORDER IS REPRODUCED AS UNDER: 10. AS PER THE DRP DIRECTIONS FOR GROUND NO, 15 FOR DISALLOWANCE OF STOCK WRITTEN OFF. THE ASSESSEE IN ITS SUBMISSION DATED 25.09.2018, STATED THAT: 11 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 1.6 FURTHER, WE WOULD LIKE TO HIGHLIGHT THAT IN THE INSTANT CASE PROVISION FOR OBSOLESCENCE OF INVENTORY IS ITSELF DISALLOWED BY THE ASSESSEE ON VOLUNTARY BASIS. THE AMOUNT IN QUESTION IS ACTUAL WRITE OFF OF SPARE PARTS WHICH WERE FOUND OBSOLETE BY THE ASSESSEE DURING THE COURSE OF STOCK VERIFICATION. 1.7 IT HAS BEEN OBSERVED BY THE AUDITORS THAT THE ASSESSEE IS MAINTAINING PROPER RECORDS OF INVENTORY AND THERE IS NO MATERIAL DISCREPANCY IN THE SAME. ATTENTION IN THIS REGARD IS DRAWN TO THE PARA (IT) ON PAGE 3 OF THE AUDIT REPORT FILED WITH YOUR GOODSELF FOR THE CAPTIONED AY. RELEVANT EXTRACT FROM THE AUDIT REPORT HAS BEEN ATTACHED AS ANNEXURE 3 FOR YOUR QUICK REFERENCE. 1.8 FURTHER AS DIRECTED BY THE HONBLE DRP, A CONFIRMATION LETTER FROM THE MANAGEMENT OF THE ASSESSEE REGARDING WRITE OFF OF OBSOLETE STOCK OF SPARE PARTS WAS SUBMITTED WITH THE HONBLE DRP VIA LETTER DATED 13.06.2018. COPY OF THE SAME WAS ALSO SUBMITTED WITH YOUR OFFICE. HOWEVER, FOR YOUR EASY REFERENCE, THE SAME IS ATTACHED AS ANNEXURE 4 FOR YOUR REFERENCE. THE ABOVE REPLY HAS BEEN CONSIDERED BY ME AND NOT FOUND TENABLE. AS PER THE ASSESSEE, THE ONLY PROOF FOR OBSOLESCENCE OF THE SPARE PART WAS CONFIRMATION BY MANAGEMENT AND AUDITORS REPORT. HOWEVER, THE CASE WAS DISCUSSED WITH THE AR AND AR WAS ASKED TO PRODUCE DOCUMENTARY EVIDENCE TO SUPPORT THE OBSOLESCENCE OF THE STOCK BY THE THIRD PARTY, AUTHORIZED OR HAVING TECHNICAL KNOWLEDGE TO CERTIFY THE SAME. THE INDEPENDENT AUDITOR IS NOT AN EXPERT IN CERTIFYING THE OBSOLESCENCE OF INVENTORY, HIS ROLE IS ONLY TO VERIFY WHAT INVENTORY IS REMAINING WITH THE ASSESSEE AND WHAT HAS BEEN DECLARED OBSOLETE BY THE ASSESSEE. SIMILARLY, MANAGEMENT CONFIRMATION CAN ALSO NOT BE TAKEN TO BE CONCLUSIVE PROOF OF THE OBSOLESCENCE OF THE INVENTORY. THE AR ON NEXT HEARING I.E. ON 26.10.2018 COULD NOT PROVIDE ANY SUCH PROOF BY A TECHNICAL EXPERT. HENCE, ON PERUSAL OF THE SUBMISSIONS, THE EXPLANATION OFFERED BY THE AR OF THE ASSESSEE, IN THE OPINION OF THE ASSESSING OFFICER, IS NOT SATISFACTORY. HENCE, AN ADDITION U/S 36 OF THE ACT AMOUNTING TO RS. 25,20,421/- IS MADE TO THE RETURNED INCOME OF THE ASSESSEE. 5.4 AS THE ASSESSEE FAILED TO PRODUCE ANY CERTIFICATE FROM THE EXPERT THIRD-PARTY, RESPECTFULLY FOLLOWING THE FINDING OF THE TRIBUNAL (SUPRA), WE REJECT THE CONTENTION OF THE ASSESSEE AND DISMISS THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN THIS REGARD. 6. IN GROUND NO. 8, THE ASSESSEE HAS RAISED THE ISSUE OF DISALLOWANCE OF RS.16,56,842/-AS EXCESS DEPRECIATION CLAIMED ON 12 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 FIXED ASSETS ACQUIRED BY THE ASSESSEE FROM NCR CORPORATION INDIA PRIVATE LIMITED. 6.1 THE LEARNED COUNSEL SUBMITTED THAT IDENTICAL ISSUE OF EXCESS DEPRECIATION CLAIMED ON FIXED ASSETS ACQUIRED FROM M/S. NCR CORPORATION INDIA PRIVATE LIMITED HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFYING THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. HE, ACCORDINGLY, SUBMITTED THAT ISSUE IN DISPUTE IN THE YEAR UNDER CONSIDERATION MIGHT ALSO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 6.2 THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED DRP. 6.3 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED DRP REJECTED THE CLAIM OF THE DEPRECIATION FOLLOWING THE DIRECTION OF THE DRP IN PRECEDING ASSESSMENT YEARS. THE FINDING OF THE LEARNED DRP IS REPRODUCED AS UNDER: 2.9.1 THE ISSUE OF DISALLOWANCE OF DEPRECIATION ON THE FIXED ASSETS ACQUIRED BY THE ASSESSEE FROM NCR CORPORATION IN FY 2007-08 IS A LEGACY ISSUE WHICH HAS BEEN DEALT WITH IN EARLIER ASSESSMENT YEARS (2009-10, 2010-11, 2011-12, 2012-13 AND 2013-14) ALSO AND THE OBJECTIONS OF THE ASSESSEE WERE DISMISSED. THE FACTS OF THE MATTER BEING SAME IN THIS YEAR AS WELL, FOLLOWING THE DRP DIRECTIONS OF EARLIER YEARS THE ACTION OF THE AO IS UPHELD. THE OBJECTION IS ACCORDINGLY REJECTED. 6.4 THE TRIBUNAL IN ITA NO. 7885/DEL/2017 FOR ASSESSMENT YEAR 2013-14 HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER OBSERVING AS UNDER: 19.1. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT, DELHI BENCH FOR A.Y. 2012-2013 IN ITA.NO.87/DEL./2017 DATED 08TH AUGUST, 2017, IN WHICH IN PARA-10, THE TRIBUNAL RESTORED THE MATTER TO THE FILE 13 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 OF THE A.O. TO VERIFY THE CLAIM OF ASSESSEE- COMPANY AS PER LAW. THE FINDINGS OF THE TRIBUNAL ARE REPRODUCED AS UNDER: 10. AS RELATES TO GROUND NO. 14 & 15, SIMILAR ISSUE WAS RAISED IN AY 2008-2009 WHICH WAS REMANDED BACK, TO THE ASSESSING OFFICER TO VERIFY THE CLAIM OF DEPRECIATION BY THE TRIBUNAL VIDE ORDER DATED 01.08.2016 IN ITA NO. 791/DEL/2013. THE EXTRACT OF THE SAID ORDER IS AS FOLLOWS:- '11.4. THE LD.AR SUBMITTED THAT THE ID.AO ON ONE HAND ACCEPTED THE DIFFERENCE IN TLTE LIABILITY BUT HE SUBMITTED THAT THE DIFFERENTIAL AMOUNT BETWEEN TLTE PURCHASE CONSIDERATION AND THE VALUE AS PER THE VALUATION CERTIFICATE DID NOT ACCELERATE THE DIFFERENCE IN THE FIXED ASSETS. HE SUBMITTED THAT THE DIFFERENTIAL AMOUNT BETWEEN THE PURCHASE CONSIDERATION AND THE VALUE OF ASSETS AS PER THE VALUATION CERTIFICATE HAS TO BE TRANSFERRED TO CAPITAL RESERVE AS IT REPRESENTS THE ACTUAL COST OF ASSETS TO THE ASSESSEE AND THE DEPRECIATION SHOULD BE FULLY ALLOWED ON THE SAME. 11.5. ON THE CONTRARY THE ID.AR RELIED UPON THE ORDERS PASSED BY THE AUTHORITIES BELOW. 11.6. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE ARGUMENTS ADVANCED BY BOTH THE PARTIES. IT IS SEEN THAT TIRE LD. AO HAD TAKEN DIFFERENT FIGURES FOR CALCULATING THE VALUE OF FIXED ASSETS. WE ACCORDINGLY SET ASIDE THE ISSUE TO THE LD. AO TO VERIFY THE CLAIM OF THE ASSESSEE AS PER LAW.' THUS ON SIMILAR LINE IN THE PRESENT ASSESSMENT YEAR ALSO THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE AS PER LAW. THEREFORE, GROUND NO. 14 & 15 ARE PARTLY ALLOWED AS THE MATTER IS REMANDED BACK TO THE ASSESSING OFFICER TO VERIFY THE SAID CLAIM. 20. AFTER CONSIDERING THE RIVAL CONTENTIONS AND IN THE LIGHT OF THE ORDER OF THE TRIBUNAL DATED 08TH AUGUST, 2017, WE BY RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL DATED 08TH AUGUST, 2017 (SUPRA), DIRECT THE A.O. TO VERIFY THE CLAIM OF THE ASSESSEE-COMPANY AS PER LAW AND PASS CONSEQUENTIAL ORDER. GROUND NO.9 OF APPEAL OF ASSESSEE-COMPANY IS ALLOWED FOR STATISTICAL PURPOSES. 6.5 THE ISSUE IN DISPUTE BEING IDENTICAL TO THE ISSUE DECIDED BY THE TRIBUNAL (SUPRA), RESPECTFULLY FOLLOWING THE SAME, THE ISSUE OF EXCESS DEPRECIATION CLAIMED IS RESTORED TO THE FILE OF THE LD. ASSESSING OFFICER FOR VERIFICATION AND DECIDE IN VIEW OF THE 14 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 DIRECTION OF THE TRIBUNAL (SUPRA). THE GROUND OF THE APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. THE GROUNDS NO. 9 AND 10 OF THE APPEAL, BEING CONSEQUENTIAL, WERE NOT REQUIRED TO ADJUDICATE UPON. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. AS WE HAVE ALREADY ADJUDICATED THE APPEAL FILED BY THE ASSESSEE, THE STAY APPLICATION NO. 977/DEL/2018 SEEKING STAY ON THE RECOVERY OF THE DEMAND IN RELATION TO THE APPEAL FILED, HAS RENDERED INFRUCTUOUS AND, THUS, DISMISSED ACCORDINGLY. ORDER IS PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY, 2019. SD/- SD/- [ AMIT SHUKLA ] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25 TH FEBRUARY, 2019. RK/-[D.T.D.S] COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 15 ITA NO.8054/DEL/2018 & S.A. NO. 977/DEL/2018 SL. NO. PARTICULARS DATE 1. DATE OF DICTATION (DICTATION THROUGH DRAGON SOFTWARE) 14.02.2019 2. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFORE THE DICTATING MEMBER: 14.02.2019 3. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFORE THE OTHER MEMBER: 4. DATE ON WHICH THE APPROVED DRAFT OF ORDER COMES TO THE SR. PS/PS: 5. DATE OF WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT: 6. DATE ON WHICH THE FINAL ORDER RECEIVED AFTER HAVING BEEN SINGED/PRONOUNCED BY THE MEMBERS: 7. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT: 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9. DATE ON WHICH FILES GOES TO THE HEAD CLERK: 10. DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 11. DATE OF DISPATCH OF ORDER: