ACIT, CHENNAI V. M/s. Redington India Ltd., CHENNAI

ITA 808/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4601 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Transfer pricing; International transaction; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 808/MDS/2011 (ASSESSMENT YEAR : 2005-06) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI - 600 034. (APPELLANT) V. M/S REDINGTON INDIA LTD., WESCARE TOWERS, 16, CENOTAPH ROAD, TEYNAMPET, CHENNAI - 600 018. PAN : AABCR 0347 P (RESPONDENT) APPELLANT BY : SH. S. DAS GUPTA, JCIT RESPONDENT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 28.08.2013 DATE OF PRONOUNCEMENT : 30.08.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, IT HAS RAISE D TWO EFFECTIVE GROUNDS. FIRST ONE ASSAILS THE DELETION OF A T.P. ADDITION OF ` 47,52,542/-. I.T.A. NO. 808/MDS/11 2 2. FACTS APROPOS ARE THAT ASSESSEE, A SUBSIDIARY OF REDINGTON MAURITIUS LIMITED, ENGAGED IN THE BUSINESS OF DISTR IBUTION OF INFORMATION TECHNOLOGY PRODUCTS IN INDIA, MIDDLE EA ST AND AFRICA, HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSM ENT YEAR DECLARING AN INCOME OF ` 28,39,41,122/-. SINCE VALUE OF INTERNATIONAL TRANSACTION EXCEEDED ` 5 CRORES, A REFERENCE WAS MADE TO TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA(1) OF INCO ME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ASSESSEE HAD, DURING THE REL EVANT PREVIOUS YEAR, PURCHASED SOFTWARE FROM ITS ASSOCIATE ENTERPRISE IN SINGAPORE AS WELL AS CERTAIN OTHER PARTIES. IN THE AUDIT REPORT IN F ORM NO.3CEB FILED BY THE ASSESSEE, IT WAS MENTIONED THAT COMPARABLE U NCONTROLLED PRICE (CUP) WAS CONSIDERED THE MOST APPROPRIATE MET HOD FOR BENCH MARKING THE INTERNATIONAL TRANSACTIONS. IT ALSO GA VE A LIST OF PURCHASES FROM ITS AE AT SINGAPORE. NEVERTHELESS, IN THE TRANSFER PRICING DOCUMENTS SUBMITTED BY THE ASSESSEE BEFORE THE TPO ON 30.3.2007, IT OPTED FOR TRANSACTION NET MARGIN METH OD (TNMM) AS MOST APPROPRIATE METHOD. AS PER THE ASSESSEE, COMP ARISONS ATTEMPTED UNDER THE CUP METHOD WAS WITH A LIST PRIC E GIVEN BY THE VENDORS WHICH WAS NOT AN INFORMATION IN PUBLIC DOMA IN. FURTHER, AS PER THE ASSESSEE, THERE WAS A SERIES OF PURCHASES F ROM THE AE ALL I.T.A. NO. 808/MDS/11 3 THROUGH THE YEAR. THEREFORE, AS PER THE ASSESSEE, TNMM COULD BE BETTER FOR MAKING AN ANALYSIS OF THE ARM'S LENGTH P RICE OF THE INTERNATIONAL TRANSACTION. HOWEVER, THE TPO REJECTE D THIS CONTENTION AND INSISTED WITH THE CUP METHOD, BASED ON THE DETA ILS FURNISHED BY THE ASSESSEE ALONG WITH ITS AUDIT REPORT IN FORM NO .3CEB. TPO FOUND THAT ASSESSEE HAD PAID EXCESS AMOUNT OF ` 47,52,542/- ON CERTAIN ITEMS PURCHASED FROM THE ASSOCIATE ENTERPRI SE, WHEN COMPARED WITH THE LIST PRICE. THOUGH THE SUBMISSIO N OF THE ASSESSEE WAS THAT THERE WERE CONTINUOUS TRANSACTIONS WITH AS SOCIATE ENTERPRISE ALL THROUGH THE YEAR AND FOR VARIOUS OTHER PURCHASE S, IT HAD PAID MUCH LESSER AMOUNT THAN LISTED PRICE, THIS WAS NOT ACCEP TED BY THE TPO. ASSESSEES ARGUMENT WAS THAT SAVINGS EFFECTED ON AC COUNT OF PAYMENTS LESSER THAN THE LISTED PRICE CAME TO ` 2,80,98,702/-. IN OTHER WORDS, AS PER ASSESSEE, EVEN IF CUP METHOD WA S FOLLOWED, THE AGGREGATE OF THE TRANSACTIONS FOR WHOLE OF THE YEAR SHOULD BE CONSIDERED FOR A COMPARISON WITH LIST PRICE. IF SO CONSIDERED, AS PER ASSESSEE, IT HAD GENERATED A SURPLUS OF ` 2,33,46,160/- AND THEREFORE, THERE WAS NO QUESTION OF ANY ADJUSTMENT AT ALL. REJECTING ALL THESE CONTENTIONS, TPO RECOMMENDED AN ADDITION OF ` 47,52,542/- SUCH RECOMMENDATION WAS ACCEPTED BY THE ASSESSING O FFICER. I.T.A. NO. 808/MDS/11 4 3. AGAINST THE ADDITION MADE ON THE LINES MENTIONED ABOVE, ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS). THE SAME CONTENTIONS AS TAKEN BEFORE TPO, WERE REITERATED BE FORE CIT(APPEALS). IT WAS ALSO SUBMITTED THAT UNDER RUL E 10B(1)(A) OF INCOME-TAX RULES, 1962, PRICES ACTUALLY PAID AS CHA RGES FOR SERVICES RENDERED IN A COMPARABLE UNCONTROLLED TRANSACTION A LONE COULD BE CONSIDERED FOR A COMPARISON. AS PER ASSESSEE, LIST PRICES WERE NOT MARKET PRICES FOR CONCERNED PRODUCTS. HENCE, ACCOR DING TO IT, THIS COULD NOT BE CONSIDERED AS A REFERENCE POINT FOR MA KING A COMPARISON FOR ARRIVING AT ARM'S LENGTH PRICE. FUR THER, AS PER ASSESSEE, TNMM WAS SIMILAR TO CUP METHOD EXCEPT THA T TNMM COMPARED PROFITABILITY FOR ALL THE INTERNATIONAL TR ANSACTIONS OF AN YEAR WITH RESULTS OF COMPARABLE ENTITIES. 4. LD. CIT(APPEALS) WAS APPRECIATIVE OF THE CONTENT IONS OF THE ASSESSEE. ACCORDING TO HIM, ASSESSEE HAD PURCHASED SOFTWARE FROM BOTH ITS ASSOCIATE ENTERPRISE AT SINGAPORE AS WELL AS FROM UNCONNECTED PARTIES, AND HAD ALSO RECEIVED SUBSEQUE NT DISCOUNTS. HENCE, ACCORDING TO HIM, A ONE-TO-ONE COMPARISON OF TRANSACTIONS COULD NOT BE MADE. HE WAS ALSO APPRECIATIVE OF THE CONTENTION THAT I.T.A. NO. 808/MDS/11 5 DUE TO THE CONTINUING NATURE OF THE TRANSACTION WIT H ASSOCIATE ENTERPRISE, AGGREGATE ALONE COULD BE CONSIDERED FOR MAKING ANY ADJUSTMENT BASED ON ALP. RELYING ON RULE 10B(1)(A), LD. CIT(APPEALS) OPINED THAT PRICES CHARGED FOR SERVICE S IN A NUMBER OF COMPARABLE UNCONTROLLED TRANSACTION SHOULD HAVE BEE N TAKEN INTO ACCOUNT. FURTHER, ACCORDING TO HIM, TPO HAD IN THE PRECEDING ASSESSMENT YEAR 2003-04 ACCEPTED TNMM METHODOLOGY A DOPTED BY THE ASSESSEE FOR BENCH MARKING ITS INTERNATIONAL TR ANSACTIONS. LD. CIT(APPEALS) ALSO NOTED THAT COST OF SOFTWARE PURCH ASED FROM ASSOCIATE ENTERPRISE WAS LESS, WHEN COMPARED WITH T OTAL COST INCURRED ON SIMILAR TRANSACTIONS WITH UNCONNECTED T HIRD PARTIES. HE, THEREFORE, HELD THAT THERE WAS NO ADJUSTMENT REQUIR ED IN RESPECT OF INTERNATIONAL TRANSACTION ENTERED BY THE ASSESSEE W ITH ITS ASSOCIATE ENTERPRISE AT SINGAPORE. THE ADDITION OF ` 47,52,542/- WAS DELETED. 5. NOW BEFORE US, SHRI S. DAS GUPTA, APPEARING FOR THE REVENUE, STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMI TTED THAT SIMILAR ADDITIONS WERE MADE BY THE TPO IN ASSESSMENT YEAR 2 006-07 ALSO. ACCORDING TO HIM, THIS TRIBUNAL IN ASSESSEES APPEA L IN I.T.A. NO. 2164/MDS/2010, VIDE ITS ORDER DATED 2 ND MAY, 2013, HELD THAT CUP METHOD WAS APPROPRIATE IN ASSESSEES CASE AND LIST PRICE COULD BE I.T.A. NO. 808/MDS/11 6 CONSIDERED AS A REFERENCE POINT. ACCORDING TO HIM, THE ADDITION MADE IN THE SAID YEAR WAS DELETED ONLY FOR A REASON THAT PRICES AT WHICH ITEMS WERE SUPPLIED BY THE ASSOCIATE ENTERPRISE TO THE ASSESSEE, WERE THE SAME AT WHICH THE SAID ASSOCIATE ENTERPRIS E HAD, IN TURN, PURCHASED THEM FROM THIRD PARTIES. NEVERTHELESS, A CCORDING TO HIM, CIT(APPEALS) FELL IN ERROR IN HOLDING THAT CUP METH OD COULD NOT BE CONSIDERED FOR BENCH MARKING THE INTERNATIONAL TRAN SACTION. 6. PER CONTRA, SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE REVENUE, SUPPORTING THE ORDER OF CIT(APPEALS), SUBM ITTED THAT OVERALL TRANSACTIONS THAT ASSESSEE HAD WITH ASSOCIATE ENTER PRISE WOULD SHOW THAT IT HAD ENJOYED SUBSTANTIAL BENEFITS OVER THE L IST PRICE. THEREFORE, ACCORDING TO HIM, THERE WAS NO NECESSITY FOR ANY T. P. ADJUSTMENT. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT ADJUSTMENT CARRIED OUT BY THE TPO AND ACCEPTED BY THE A.O. ON THE PURCHASE EFFECTED BY TH E ASSESSEE FROM ITS ASSOCIATE ENTERPRISE AT SINGAPORE WERE BASED ON A LIST PRICE OF THE LATTER. ASSESSEE HAD IN ITS TRANSFER PRICING DOCUM ENTS OPTED TNMM, WHEREAS, IN THE AUDIT REPORT IN FORM NO.3CEB MENTIO NED CUP AS THE MOST APPROPRIATE METHOD. THE DISPUTE WHETHER T NMM OR CUP I.T.A. NO. 808/MDS/11 7 METHOD WAS MORE APPROPRIATE IN ASSESSEES CASE, WHE RE PURCHASES WERE EFFECTED FROM ITS ASSOCIATE ENTERPRISE AT SING APORE, HAD COME UP BEFORE THIS TRIBUNAL IN AN APPEAL FILED BY THE A SSESSEE FOR ASSESSMENT YEAR 2006-07. IT WAS HELD BY THIS TRIBU NAL AT PARA 11 AND 12 OF ITS ORDER AS UNDER:- 11. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT IN THE TRANS FER PRICING DOCUMENT SUBMITTED BY THE ASSESSEE BEFORE THE TPO, ASSESSEE ITSELF HAD CONSIDERED CUP METHOD TO BE THE APPROPRI ATE ONE. HOWEVER, IN THE AUDIT REPORT IN FORM NO.3CEB, IT WA S MENTIONED THAT TNMM WAS BEING FOLLOWED. REASON GIVEN BY THE ASSESSEE WAS THAT LIST PRICE, BASED ON WHICH CUP METHOD COUL D BE ADOPTED, WAS ONLY INDICATIVE AND WAS NOT IN PUBLIC DOMAIN. ASSESSEE ITSELF HAD SUBMITTED THE LIST PRICE OF VARIOUS ITEMS PURCH ASED BY IT, AS AVAILABLE IN THE WEBSITE OF M/S INTEL SEMICONDUCTOR LIMITED, AND THE TPO HAD GONE AHEAD WITH COMPARATIVE STUDY BASED ON SUCH LIST. SECTION 92C(1) REQUIRES DETERMINATION OF ARM 'S LENGTH PRICE BY FOLLOWING ONE OF THE MOST APPROPRIATE METHODS OU T OF THE SIX METHODS MENTIONED THEREIN. SIXTH METHOD IS ONE PRE SCRIBED BY THE BOARD AS MOST APPROPRIATE METHOD. SUB-CLAUSE ( 1) OF RULE 10C OF INCOME-TAX RULES, 1962 STATES THAT THE MOST APPROPRIATE METHOD SHALL BE ONE WHICH PROVIDES THE MOST RELIABL E MEASURE OF AN ARM'S LENGTH PRICE IN RELATION TO AN INTERNATION AL TRANSACTION. THE DOCUMENTS TO BE KEPT BY A PERSON, WHO HAD ENTER ED INTO INTERNATIONAL TRANSACTIONS, ARE GIVEN IN RULE 10D O F WHICH, SUB- CLAUSE (G) OF CLAUSE (1) SPEAKS ABOUT THE RECORD OF UNCONTROLLED TRANSACTIONS THAT ARE TO BE TAKEN INTO ACCOUNT FOR MAKING A COMPARABILITY STUDY. THE SAID CLAUSE IS REPRODUCED HEREUNDER:- (G) A RECORD OF UNCONTROLLED TRANSACTIONS TAKEN IN TO ACCOUNT FOR ANALYSING THEIR COMPARABILITY WITH THE INTERNAT IONAL TRANSACTIONS ENTERED INTO, INCLUDING A RECORD OF TH E NATURE, TERMS AND CONDITIONS RELATING TO ANY UNCONTROLLED TRANSAC TION WITH THIRD I.T.A. NO. 808/MDS/11 8 PARTIES WHICH MAY BE OF RELEVANCE TO THE PRICING OF THE INTERNATIONAL TRANSACTIONS THE DOCUMENTS WHICH CAN BE USED FOR SUPPORTING THE DATA IN THE RECORD MAINTAINED AS PER RULE 10D(1) IS MENTIONED I N SUB-RULE (3). THIS READS AS UNDER:- (3) THE INFORMATION SPECIFIED IN SUB-RULE (1) SHALL BE SUPPORTED BY AUTHENTIC DOCUMENTS, WHICH MAY INCLUDE THE FOLL OWING: (A) OFFICIAL PUBLICATIONS, REPORTS, STUDIES AND DATA B ASES FROM THE GOVERNMENT OF THE COUNTRY OF RESIDENCE OF THE ASSOCIATE ENTERPRISE, OR OF ANY OTHER COUNTRY; (B) REPORTS OF MARKET RESEARCH STUDIES CARRIED OUT AND TECHNICAL PUBLICATIONS BROUGHT OUT BY INSTITUTIONS OF NATIONAL OR INTERNATIONAL REPUTE; (C) PRICE PUBLICATIONS INCLUDING STOCK EXCHANGE AND COMMODITY MARKET QUOTATIONS; (D) PUBLISHED ACCOUNTS AND FINANCIAL STATEMENTS RELAT ING TO THE BUSINESS AFFAIRS OF THE ASSOCIATE ENTERPRISES; (E) AGREEMENTS AND CONTRACTS ENTERED INTO WITH ASSOCIATE ENTERPRISES IN RESPECT OF TRANSACTIONS SIMILAR TO THE INTERNATIONAL TRANSACTIONS; (F) LETTERS AND OTHER CORRESPONDENCE DOCUMENTING ANY TERMS NEGOTIATED BETWEEN THE ASSESSEE AND THE ASSOCIATE ENTERPRISE; (G) DOCUMENTS NORMALLY ISSUED IN CONNECTION WITH VARIOUS TRANSACTIONS UNDER THE ACCOUNTING PRACTICE S FOLLOWED. A READING OF THE ABOVE CLEARLY SHOWS THAT IT IS NOT ESSENTIAL THAT THE RECORD OF UNCONTROLLED TRANSACTIONS TO BE TAKEN INTO ACCOUNT FOR ANALYZING THE COMPARABILITY SHOULD ALWA YS BE SUPPORTED BY OFFICIAL PUBLICATIONS AND REPORTS. IT CAN INCLUDE EVEN DOCUMENTS NORMALLY ISSUED IN CONNECTION WITH T HE TRANSACTIONS UNDER THE ACCOUNTING PRACTICES FOLLOWE D. THEREFORE, CONTENTION OF THE ASSESSEE THAT THE LIST PRICE COULD I.T.A. NO. 808/MDS/11 9 NOT HAVE BEEN USED, FOR THE REASON THAT IT WAS NOT IN PUBLIC DOMAIN, CANNOT BE ACCEPTED. THE LIST PRICE WAS AVA ILABLE NOT ONLY TO ASSESSEE BUT ALL REGISTERED USERS OF THE WE BSITE OF M/S INTEL SEMICONDUCTOR LIMITED. IT WILL BE HARD TO BE LIEVE THAT M/S INTEL SEMICONDUCTOR LIMITED HAD DIFFERENT SET O F LIST PRICE FOR DIFFERENT USERS. HOWEVER, THE CONTENTION OF TH E ASSESSEE THAT SUCH LIST PRICE WAS ONLY INDICATIVE, IN OUR OP INION, CARRIES CONSIDERABLE STRENGTH. WE CANNOT SAY THAT M/S INTE L SEMICONDUCTOR LIMITED WOULD HAVE ENTERED INTO SALE TRANSACTIONS WITH ITS CUSTOMERS AT THE VERY SAME PR ICE AS GIVEN IN THE LIST PRICE. PRICES ARE ALWAYS A MEASURE OF MARKET EXIGENCIES AND ECONOMIC RULES OF DEMAND AND SUPPLY. PRICES ARE NEGOTIATED BETWEEN PARTIES ACCORDING TO QUANTITY, V ALUE AND OTHER ASPECTS WHICH ARE DETERMINANT OF MARKET FORCE S. FOR MAKING A COMPARATIVE STUDY UNDER CUP METHOD ALSO, W HAT IS REQUIRED IS A COMPARISON WITH ACTUAL SALE AND PURCH ASE WITH UNASSOCIATED ENTERPRISE OR TRANSACTION BETWEEN UNAS SOCIATED ENTERPRISES. IT CANNOT SOLELY BE BASED ON LIST PRI CES, WHICH AT THE BEST CAN BE CONSIDERED ONLY AS A REFERENCE POIN T. 12. LEAVING ASIDE THE MERITS AND DEMERITS OF DIFFER ENT METHODS USED FOR ASCERTAINING THE ALP, IN THE GIVEN INSTANC E, WHAT WAS BOUGHT BY THE ASSESSEE WAS 1250 ITEMS OF PENTIUM IV PROCES SORS FROM ITS ASSOCIATE ENTERPRISE IN SINGAPORE. A LOOK AT THE I NVOICE RAISED BY M/S INTEL SEMICONDUCTOR LIMITED, ON THE SAID ASSOCIATE ENTERPRISE, CLEARLY SHOWS THAT THESE ITEMS THOUGH SOLD TO THE SINGAPORE ENTITY BUT, DIRECTLY SHIPPED TO THE ASSESSEE IN INDIA. THE INV OICE MENTIONS THE UNIT PRICE AS 144 US $. THE SAID INVOICE CLEARLY S HOWS THAT THE PRICE AT WHICH M/S INTEL SEMICONDUCTOR LIMITED SUPPLIED T O REDINGTON DISTRIBUTION PVT. LTD., SINGAPORE AND PRICE AT WHIC H THE LATTER SOLD TO THE ASSESSEE IN INDIA, WAS ONE AND THE SAME. WE AR E OF THE OPINION THAT WHEN THE ASSOCIATE ENTERPRISE HAD SOLD THE ITE MS TO THE ASSESSEE AT THE SAME PRICE AT WHICH IT HAD PURCHASE D IT, THERE CANNOT BE ANY ARM'S LENGTH PRICE ADJUSTMENT DONE, UNLESS A ND UNTIL THE ORIGINAL VENDOR WAS ALSO AN ASSOCIATE ENTERPRISE. HERE, ADMITTEDLY, M/S INTEL SEMICONDUCTOR LIMITED WAS NOT AN ASSOCIAT E ENTERPRISE OF ASSESSEE OR ITS ASSOCIATE ENTERPRISE IN SINGAPORE. THEREFORE, WE CANNOT SAY THAT THE PRICE AT WHICH M/S INTEL SEMICO NDUCTOR LIMITED I.T.A. NO. 808/MDS/11 10 SOLD TO REDINGTON DISTRIBUTION PVT. LTD., SINGAPORE , WAS NOT AT ARM'S LENGTH PRICE. IN OUR OPINION, WHEN REDINGTON DISTR IBUTION PVT. LTD. SOLD THE ITEMS TO ASSESSEE AT VERY SAME PRICE AT WHICH I T HAD PURCHASED FROM M/S INTEL SEMICONDUCTOR LIMITED, THERE CANNOT BE ANY QUESTION OF UNDER PRICING OR OVER PRICING. WE ARE, THEREFOR E, OF THE OPINION THAT THE ADJUSTMENT CARRIED OUT BY THE LOWER AUTHOR ITIES, BASED ON LIST PRICE, ON THE PURCHASE OF 1250 PENTIUM IV PROC ESSORS FROM ASSOCIATE ENTERPRISE WAS NOT CALLED FOR. SUCH ADJU STMENT, THEREFORE, STANDS DELETED. 8. THIS TRIBUNAL HAD GIVEN A CLEAR FINDING THAT CUP METHOD WAS APPROPRIATE IN ASSESSEES CASE FOR BENCH MARKING TH E INTERNATIONAL TRANSACTION, SINCE THE LIST PRICE AVAILABLE IN THE WEBSITE OF THE VENDOR COULD BE CONSIDERED RELIABLE. NEVERTHELESS, IT WAS ALSO HELD THAT LIST PRICES COULD NOT BE THE SOLE BASIS FOR SUCH BENCH M ARKING BUT ACTUAL UNCONTROLLED COMPARABLE TRANSACTIONS HAD TO BE IDEN TIFIED FOR A PROPER ANALYSIS. THE ADDITION MADE IN THE SAID YEAR WAS D ELETED FOR THE REASON THAT THE PRICES CHARGED BY THE ASSOCIATE ENT ERPRISE FOR THE ITEMS, WHICH WERE SUPPLIED TO THE ASSESSEE, COMPARE D WELL WITH THE PRICES THEY HAD PAID FOR PURCHASING SUCH ITEMS. IN THE LIGHT OF THE ABOVE REASONING, FOR THE IMPUGNED ASSESSMENT YEAR A LSO, WE HOLD THAT THE CUP WAS THE MOST APPROPRIATE METHOD FOR BE NCH MARKING THE INTERNATIONAL TRANSACTION. HOWEVER, IN THE INSTANT YEAR ALSO, WE ARE OF THE OPINION THAT A DEEPER ANALYSIS IS REQUIRED SO A S TO FIND THE PRICES AT WHICH ASSOCIATE ENTERPRISE HAD ACQUIRED THE ITEM S FROM OPEN I.T.A. NO. 808/MDS/11 11 MARKET. IN OTHER WORDS, A COMPARISON HAS TO BE DON E BASED ON SIMILAR TRANSACTIONS ENTERED EITHER BY THE ASSESSEE OR BY THE AE WITH THIRD PARTIES OR OTHER SIMILARLY PLACED ENTITIES FO R ACQUIRING THE SAME ITEMS. WHILE MAKING SUCH ANALYSIS, IT IS ALSO REQU IRED TO LOOK INTO THE CLAIM OF THE ASSESSEE THAT ON MANY OF THE ITEMS SUP PLIED BY THE SAME ASSOCIATE ENTERPRISE TO ASSESSEE IT WAS AT A PRICE ADVANTAGE, SINCE PROCUREMENTS WERE AT PRICES LOWER THAN THE LIST PRI CES. TO CONSIDER ALL THESE ASPECTS, WE ARE OF THE OPINION THAT THE M ATTER REQUIRES A FRESH VISIT BY THE ASSESSING OFFICER/TPO. THEREFOR E, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE REG ARDING T.P. ADJUSTMENT ON PURCHASES EFFECTED BY THE ASSESSEE FR OM ITS ASSOCIATE ENTERPRISE AT SINGAPORE, BACK TO THE FILE OF THE A. O. FOR CONSIDERATION AFRESH AFTER GETTING NECESSARY INPUTS FROM THE TPO. 9. GROUND NO.2 OF THE REVENUE IS ALLOWED FOR STATIS TICAL PURPOSES. 10. ONLY OTHER GROUND TAKEN BY THE REVENUE IS ON TH E DELETION OF AN ADDITION MADE BY THE ASSESSING OFFICER DISALLOWI NG 100% DEPRECIATION CLAIMED BY THE ASSESSEE ON INTERIOR DE CORATION. 11. FACTS APROPOS ARE THAT ASSESSEE HAD, DURING THE RELEVANT PREVIOUS YEAR, CLAIMED DEPRECIATION AT 100% ON WHAT IT CALLED I.T.A. NO. 808/MDS/11 12 BUILDINGS - TEMPORARY STRUCTURE OF ` 1,10,04,073/-. ADDITION FOR THE YEAR CAME TO ` 98,22,017/-. ASSESSING OFFICER, AFTER VERIFICATIO N OF THE BOOKS OF ACCOUNTS AND VOUCHERS, CAME TO A CONCL USION THAT OUT OF THE SAID AMOUNT, ONLY ` 1,77,047/- WAS ALLOWABLE. AS PER THE A.O., THE BALANCE SPENDINGS WERE FOR PLANT AND MACHINERY AND FURNITURE & FITTINGS, ON WHICH NORMAL DEPRECIATION ALONE COULD BE ALLOWED. THOUGH ASSESSEE ARGUED THAT THESE EXPENDITURES WERE IN THE NATURE OF FALSE CEILING, PARTITION, ELECTRICAL WORK, PAINT ING, FLOORING, ETC IN ITS PREMISES, THIS WAS NOT ACCEPTED BY THE ASSESSING OF FICER. ASSESSING OFFICER, RELYING ON EXPLANATION 1 TO SECTION 32 OF THE ACT, HELD THAT CAPITAL EXPENDITURE INCURRED IN A BUILDING NOT OWNE D BY THE ASSESSEE, HAD TO BE CAPITALIZED AND NORMAL DEPRECIATION ALONE COULD BE ALLOWED. SHE, THEREFORE, DISALLOWED THE CLAIM OF 1 00% DEPRECIATION. 12. ASSESSEES APPEAL ON THIS ISSUE BEFORE CIT (APP EALS) WAS SUCCESSFUL. ACCORDING TO THE LEARNED CIT (APPEALS ), SCRUTINY OF VOUCHERS AND BILLS, SHOWED THAT CLASSIFICATION ATTE MPTED BY THE ASSESSING OFFICER, WAS NOT ENTIRELY CORRECT. LEAR NED CIT (APPEALS) WAS OF THE OPINION THAT EXPENSES IN THE NATURE OF F ALSE CEILING, PARTITION, ELECTRIC WORK, PAINTING, FLOORING, ETC. COULD NOT BE CONSIDERED AS CAPITAL OUTGO. PLACING RELIANCE ON THE DECISI ON OF HON'BLE I.T.A. NO. 808/MDS/11 13 JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. OOT Y DASAPRAKASH (237 ITR 902) AND CIT V. HARI VIGNESH MOTORS (P) LTD. (2 82 ITR 33), LD. CIT(APPEALS) HELD THAT THE CLAIM WAS TO BE ALLOWED FULLY. HE DELETED THE DISALLOWANCE. 13. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT THE EXPENDITURE WAS IN CURRED ON A LEASED PREMISES. ACCORDING TO HIM, WHEN EXPENDITUR E WAS INCURRED IN THE LEASED PREMISES, EXPLANATION 1 TO SECTION 32 OF THE ACT APPLIED. LEARNED D.R. ALSO SUBMITTED THAT THE CIT( APPEALS) HAD NOT PROPERLY CATEGORIZED THE EXPENDITURE BEFORE ALLOWIN G THE CLAIM OF THE ASSESSEE. 14. PER CONTRA, LEARNED A.R., SUPPORTING THE ORDER OF CIT(APPEALS), SUBMITTED THAT OUT OF THE TOTAL EXPENDITURE OF ` 98,22,017/- CLAIMED, ` 62,42,028/- WAS ON REPAIRS AND MAINTENANCE. ACCORD ING TO HIM, PLANT AND MACHINERY ACQUIRED WAS ONLY FOR ` 62,278/- AND FURNITURE & FITTINGS COST CAME TO ` 33,23,511/-. PLACING RELIANCE ON THE ORDER DATED 24.9.2009 OF THIS TRIBUNAL IN I.T.A. NOS. 54, 545/MDS/2009, 2088, 2104 TO 2106/MDS/2008 AND 1547 TO 1549/MDS/20 09, LEARNED A.R. SUBMITTED THAT SIMILAR CLAIM WAS ALLOWED IN TH E EARLIER YEARS. I.T.A. NO. 808/MDS/11 14 THEREFORE, ACCORDING TO HIM, THE CIT(APPEALS) WAS J USTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. SIMILAR CLAIM ON REPAIRS AND RENOVATION HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2 006-07 IN I.T.A. NO. 2164/MDS/2010, WHERE ALSO AN ARGUMENT WAS TAKEN BY THE LEARNED A.R. THAT THIS ISSUE STOOD COVERED IN ASSES SEE'S FAVOUR, BY VIRTUE OF TRIBUNAL DECISIONS FOR ASSESSMENT YEARS 1 999-2000, 2000- 01, 2001-02 AND 2002-03 IN I.T.A. NOS. 1557, 1588 A ND 1633 & 1705/MDS/2011. THIS TRIBUNAL, VIDE ITS ORDER DATED 2 ND MAY, 2013 IN I.T.A. NO. 2164/MDS/2010 HAD HELD AS UNDER AT PARA 19:- 19. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. RATE AT WHICH THE DEPRECIATION COULD BE CLAIMED ON BUILDING, AS APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR, IS GIVEN IN NEW APPENDIX 1 OF INCOME-TAX RULES, 1962. 100% DEPRECIATION IS AVAILABLE ONLY TO PURELY TEMPORARY ERECTIONS SUC H AS WOODEN STRUCTURES, VIDE ENTRY NUMBER (4) UNDER THE CAPTIO N BUILDING. THEREFORE, UNLESS AND UNTIL AN ASSESSEE CAN SHOW TH AT EXPENDITURE INCURRED WAS ON PURELY TEMPORARY ERECTI ON SUCH AS A WOODEN STRUCTURE, IT WILL NOT BE ELIGIBLE FOR DEPRE CIATION RATE OF 100%. IT IS TO BE NOTED THAT ASSESSEE HAD ITSELF N EVER CLAIMED IT AS A REVENUE EXPENDITURE IN ITS PROFIT & LOSS ACCOU NT. IT HAD CATEGORIZED SUCH EXPENDITURE INCURRED AS A CAPITAL OUTGO AND THEN CLAIMED DEPRECIATION OF 100%. ASSESSEE ITSELF HAVING TREATED IT AS AN ASSET IN ITS BOOKS UNDER THE HEAD BUILDING / TEMPORARY STRUCTURE, IT CANNOT TURN BACK TO SAY TH AT THESE WERE I.T.A. NO. 808/MDS/11 15 ONLY REVENUE OUTGO. HAD IT BEEN IN THE NATURE OF RE VENUE OUTGO, THE ITEM WOULD HAVE BEEN ENTERED IN THE PROFIT & LO SS ACCOUNT AS AN EXPENSE. ONCE ASSESSEE CLAIMS 100% DEPRECIATION , IT IS NECESSARY FOR IT TO SHOW THAT THE CLAIM IS PURELY O N A TEMPORARY ERECTION. EARLIER ORDER OF THE TRIBUNAL DID DIRECT THE ASSESSING OFFICER TO MAKE AN ANALYSIS AS TO WHETHER THE EXPEN DITURE COULD BE ALLOWED AS REVENUE OUTGO. HOWEVER, SUCH ANALYSI S HAS ALREADY BEEN DONE BY THE ASSESSING OFFICER FOR THE IMPUGNED ASSESSMENT YEAR. OUT OF THE TOTAL CLAIM, A SUM OF ` 8,61,265/- WAS ALLOWED CONSIDERING IT TO TEMPORARY ERECTION. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT ERECTION OF OFFICE CABINS, PARTITIONS, INSTALLATION CHARGES, FL OORING CHARGES, WATERPROOFING TREATMENT, ETC. WERE IN THE NATURE OF PURE TEMPORARY ERECTIONS WHICH ALONE QUALIFIED FOR 100% DEPRECIATION. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT A SSESSING OFFICER WAS JUSTIFIED IN MAKING A DISALLOWANCE TO T HE EXTENT OF ` 1,06,25,793/-. NO INTERFERENCE IS REQUIRED. 16. IT IS CLEAR FROM THE ABOVE ORDER OF THE TRIBUNA L THAT FOR ASSESSMENT YEAR 2006-07, ASSESSING OFFICER HAD MAD E AN ANALYSIS, AS PER THE EARLIER DIRECTIONS OF THE TRIBUNAL AND T HEREAFTER CAME TO A CONCLUSION THAT DISALLOWANCE WAS WARRANTED UNDER TH E FACTS AND CIRCUMSTANCES FOR THAT YEAR. AS AGAINST THIS, FOR THE IMPUGNED ASSESSMENT YEAR, WE FIND THAT DETAILS OF THE CLAIM ARE NOT AVAILABLE. THOUGH THE ASSESSING OFFICER HAS HELD THAT BUT FOR A SUM OF ` 1,77,047/-, BALANCE OF THE CLAIM COULD NOT BE CATEG ORIZED AS TEMPORARY STRUCTURES, HE HAS NOT GIVEN A BREAK-UP O R NATURE OF THE CLAIM. NOR HAS HE GIVEN ANY REASON AS TO HOW HE AR RIVED AT SUCH A CONCLUSION. LD. CIT(APPEALS) HAS, ON THE OTHER HAN D, GIVEN A FINDING I.T.A. NO. 808/MDS/11 16 THAT THE EXPENDITURE INCURRED WERE FOR TEMPORARY ST RUCTURES. CONTRARY TO THIS, LEARNED A.R. HIMSELF HAS SUBMITTED BEFORE US THAT REPAIRS AND MAINTENANCE INCLUDED IN THE TOTAL COST, CAME TO ` 62,42,028/- ONLY. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THI S ISSUE ALSO REQUIRES A FRESH LOOK BY THE A.O. WE, THEREFORE, S ET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING CLAIM OF EXPENDITURE ON TEMPORARY STRUCTURES, BACK TO THE FI LE OF THE A.O. FOR CONSIDERATION AFRESH, IN ACCORDANCE WITH LAW. 17. IN THE RESULT, GROUND NO.3 OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. 18. TO SUMMARIZE THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE COURT ON FRIDAY, THE 30 TH OF AUGUST, 2013, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH AUGUST, 2013. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V, CHENNAI-34 / CIT, CHENNAI-III, CHENNAI/D.R./GUARD FILE