The ACIT,Vapi Circle, Vapi V. Universal Comfort Products Pvt.Ltd., SILVASSA

ITA 917/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85875 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 29-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH; AJIT PAL SINGH DAIA TPO
• Keywords: Depreciation; Transfer pricing; International transaction; Competent authority; Revised return; Capital expenditure
• Section: 92C; 43B; 143(3); 115JB; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI MUKUL KR. SH R AWAT , JUDICIAL MEMBER AND SHR I ANIL CHATURVEDI , ACCOUNTANT MEMBER ASSISTANT COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI (APPELLANT) VS UNIVERSAL COMFORT PRODUCTS PVT. LTD., 277/4, SCHOOL FALIA, DEMANI ROAD, DADRA, SILVASSA (U.T. OF D.N.H) PAN: AAACU4770G (RES PONDENT) REVENUE BY : SHRI DINESH SINGH , SR. D . R. & SHRI AJIT PAL SINGH DAIA , TPO ASSESSEE BY: SHRI HARDIK VORA, A.R. DATE OF HEARING : 12 - 02 - 2 015 DATE OF PRONOUNCEMENT : 26 - 03 - 2 015 / ORDER P ER : MUKUL KR. SHRAWAT , JUDICIAL MEMBER : - FOR THE RESPECTIVE ASSESSMENT YEARS, LD. CIT(A), VALSAD HAS PASSED THE ORDERS DATED 10 - 12 - 2010 FOR A.Y. 2004 - 05, DATED 17 - 12 - 2010 FOR 2005 - 06 A ND DATED 23 - 12 - 2010 FOR A.Y. 2006 - 07. FOR THE SAKE OF CONVENIENCE AND BECAUSE SOME OF THE ISSUES ARE COMMON, THEREFORE, ALL THE THREE APPEALS ARE CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDER. I T A NO S . 917 TO 9 1 9 / A HD/20 11 A . Y. 200 4 - 05,05 - 06 & 2006 - 07 I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 2 A. ITA NO. 917/AHD/2011 FOR A.Y. 2004 - 05 GROUND NO. 1 & 1.1 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF DEPRECIATION TO RS. 7,78,835/ - AS AGAINST RS. 28,48,301/ - MADE BY THE AO, BASED ON THE ORDER PASSED ON BY THE TPO 1.1 THE LD. CIT(A) VALSAD HAS ERRED IN LAW AND ON FACTS IN ALL OWING THE DEPRECIATION ON THE WDV OF TECHNICAL SUPPORT SERVICE FEES PAID OF RS. 47,47,185/ - FROM A.Y. 2002 - 03 OVERLOOKING THE FACTS THAT THE TPO DETERMINED THE ARMS LENGTH PRICE AT NIL . 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDE R PASSED U/S. 143(3) DATED 22 - 12 - 2006 AND THE TPO ORDER DATED 30 TH NOVEMBER, 2006 WERE THAT THE ASSES SEE COMPANY IS A JOINT VENTURE BETWEEN VOLTAS LTD AND FEDDER S INTERNATIONAL AIR CONDITIONING PVT LTD. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF AIR CONDITIONERS. FOR THE YEAR UNDER CONSIDERATION A LOSS OF R S. 1,15,3 8,701/ - WAS DECLARED UNDER THE NORMAL PROVISIONS OF THE I.T. ACT B UT UNDER SECTION 115JB INCOME DECLARED AT RS. 56,10,754/ - . A REFERENCE WA S MADE U/S. 92CA(1) OF I.T. ACT TO THE TPO. THE TPO IN THE ORDER PASSED U/S. 92CA(3) DATED 30 TH NOVEMBER, 2006 HAS MENTIONED THAT THE ASSES SEE IS A 50/50 JOINT VENTURE, T HEREFORE, THERE WAS OVERASEAS AE RELATIONSHIP WITH FEDDERS INTERNATIONAL AIR CONDITIONING AND FEDDERS INTERNATIONAL INC , USA . I T WAS NOTED THAT A SUM OF RS . 1,13,93,207/ - AS TECHNICAL SUPPORT FEE WAS PAID TO FEDDER S INTERNATIONAL INC. THE ASSE SSE E HAS FURNISHED AN EXPLANATION A S UNDER: - WRITE UP FOR TECHNICAL SUPPORT SERVICE FEE PROVIDED FOR A.Y. 04 - 05 (PREVIOUS YEAR 2003 - 04) UC PL HAS PROVIDED FOR TECHNICAL SUPPORT SERVICE FEES TO FEDDERS - USA FOR THE SERVICES THAT THEY HAVE BEEN PROVIDING TO UNIVERSAL COMFORTS PRODUCTS PVT. LTD (UCPL) AS PER JOINT VENTURE AGREEMENT. I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 3 HOWEVER PAYMENTS WERE TO BE MADE SUBJECT TO APPROVAL BY UCPL BO ARD OF DIRECTORS. EARLIER UCPL HAD FINAN CIAL YEAR FORM SEPTEMB ER TO A UGUST, UCPL CONTINUED WITH THE SAID FIN AN CIAL PERIOD FOR (A) OCT 01 - AUG 02 (B) SEPT 02 - AUG 03 AND PROVIDED IN BO OKS OF ACCOUNT $ 2,50,000/ - FOR EACH YEARS. DURING THE FINANCIAL YEAR 20 03 - 04, IT WAS DECIDED BY UCPL BOARD TO CHANGE FINANCIAL YEAR FROM SEPT - AUGUST TO APRIL - MARCH. IN VIEW OF THAT UCPL HAD 7 MONTHS SHORT PERIOD FIN AN CIAL YEAR FROM SEPT 03 TO MARCH 04. IN SAID SHORT PERIOD FIN ANCIAL YEAR, UCPL HAS PROVIDED IN BOOKS OF ACCOU NTS, TECHNICAL SUPPORT SERVICE FEES PAYABLE TO FEDDERS - USA FOR PROPORTIONATE 7 MONTHS I.E. FOR $ 1,45,833/ - . DURI NG THE FINANCIAL YEAR 04 - 05 UCPL HAS MA DE PAYMENT FOR TECHNICAL SUPPORT SERVICE FEES PAYABLE FOR FINANCIAL YEAR 02 - 03 (SEPT 02 - AUGUST 03 PERIO D) AFTER MAKING DEDUCTION THEREFROM FOR TDS AND R&D CESS. AT THE TIME OF MAKING PAYMENT WE HAVE APPROACHED RBI FOR GIVING APPROVAL OF SAID PAY M E N T BUT W E HAVE BEEN INFORMED THAT THE SAME IS NOT REQUIRED NOW AND IT IS PRE APPROVED. BANK ALSO MA DE SAID PAY MENT AFTER VERIFYING ALL CONCERNE D PAPERS ALONG WITH CA C ERTIFICATE PRODUCED BEFORE THEM (COPIES OF SUPPORTING PAPERS ARE ATTACHED HEREWITH). FURTHER DURING THE FINANCIAL YEAR 05 - 06 COMPANY S MANAGEMENT OPINED THAT ABOVE MENTIONED PROVISION FOR $ 1,45,833 / - MADE DURING THE FINANCIAL YEAR 03 - 04 IS NOW NO MORE PAYABLE AND IN VIEW OF THAT UCPL HAS REVERSED THE SAID PROVISION OF $ 1,45,833/ - IN THE FINANCIAL YEAR 05 - 06 AND SHOWN THE SAME AS INCOME DURING THE YEAR [EMPHASIS SUPPLIED] THE TPO WAS NOT CONVINCED AND HELD THAT T H E TECHNICAL SUPPORT FEES WAS NOT TO BE CONSIDERED AT ARMS LENGTH PRICE. ACCORDING LY , THE AO HAS HELD THAT SINCE THE ASSESSEE ITS ELF HAS REVERSED THE ENTRY IN T H E S UBSEQUENT YEAR AND DISCLOSED THE SAME AS INCOME, THEREFORE , THE CONSEQUEN TI AL EFFECT WAS THAT THE CLAIM AND DEPRECIATION WAS TO BE DISALLOWED. THE OBSERVATIONS OF THE AO AND THE IMPUGNED DISALLOWANCE OF DEPRECIATION WAS AS UNDER: - I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 4 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2004 - 05, A REFERENCE HAS BEEN MADE U/S. 92C A(1) OF THE INCOME TAX ACT TO THE TRANSFER PRICING OFFICER, MUMBAI AS REGARDS THE TRANSACTIONS SHOWN BY THE ASSESSEE IN THE 3CEB REPORT. THE OFFICER WHILE PASSING THE ORDER DATED 30 - 11 - 06 U/S. 92CA (3) HAS HELD THAT AN AMOUNT OF R S. 1,13,93,207/ - SHOWN BY THE ASSESSEE AS PAYABLE TO ITS JOINT VENTURE PARTNER FEDDERS INC FOR PROVID ING TECHNICAL SUPPORT SERVICES SHOULD BE DISALLOWED, A S THE TRANSACTIONS NON - EXISTENT . THE OFFICER FURTHER HELD THAT T H E ASSESSE E ITSELF HAS REVERSED THE ENTRY IN THE SUBSEQUENT YEAR AND HA S SHOWN THE SAME AS INCOME. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CAPITALIZED THE ABOVE AMOUNT AND CLAIMED DEPRECIA TION ON IT. SINCE THE PAYMENT TO FEDDERS INC HAS NEVER BEE N MADE, THE DEPRECIA TION CLAIMED ON IT BY THE ASSES SEE WILL BE WITHDRAWN AND ADDED BACK TO THE INCOME OF THE ASSESSEE. THEREFORE AN AMOUNT FOR R S. 28,48,301/ - [25% OF RS . 1,13,93,207/ - ] IS ADDED BACK TO THE INCOME OF THE ASSESSEE. AS PER THE DIRECTION OF THE TRANSFER PRICING OFFICER, PENALTY PROCEEDINGS U/S. 271(1)(C) WILL BE INITIATED ON THIS POINT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LD. CIT(A) HAS DISCUSSED THIS ISSUE AT LENGTH AND THEREUPON CAME TO THE CONCLUSION THAT THE A PPELLANT HAD CLAIMED DEPRECIATION FOR THREE CONSECUTIVE YEARS. IN THIS REGARD , THE RELEVANT OBSERVATION OF LD. C IT(A) IS AS UNDER: - 5.3.3 AS POINTED BY THE LD. AR THE ISSUE OF DEPRECIATION WITH REGARDS TO TSS FEES PAID TO M/S. FEDDERS INTERNATIONAL AIR - C ONDITIONING PVT. LTD (FIAPL) AROUSED IN THE A.Y. 2002 - 03. HERE, IT IS IMPORTANT TO MENTION THAT THE EFFECTIVE DATE FOR THE PAYMENT (MEANS THE DATE OF APPROVAL OF THIS AGREEMENT BY THE COMPETENT AUTHORITY) OF TSS FEES AS PER THE AGREEMENT WAS 14 - 01 - 2002. THE PAYMENTS SCHEDULE AS PER THE AGREEMENT WAS, A. THE 1 ST INSTALLMENT OF US $ 90,000/ - SHALL BE PAID TO (FIAPL) ON SIGN OF THE AGREEMENT . B. THE 2 ND INSTALLMENT OF US $ 90,000/ - SHALL BE PAI D TO (FIAPL) WITHIN 180 DAYS AF TER THE 1 ST INSTALLMENT. C. THE 3 RD INSTALL MENT OF US $ 70,000/ - SHALL B E PAI D TO (FIAPL) WITHIN 12 MONTHS F R O M THE DATE OF RECEIPT OF THE 1 ST INSTALLMENT. I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 5 5.3.4 THE RBI (THE COMPETENT AUTHORITY) GAVE THE APPROVAL ON 14.01.2002 FOR THE PAYMENTS. THE APPELLANT PAID THE 1 ST INSTALLMENT OF US $ 1,04 ,167/ - (= RS. 47,47,185/ - ON JANUARY 2005 (F.Y. 2004 - 05) AFTER DEDUCTION OF TDS AND R& D CESS. THE APPELLANT MADE CLAIM OF DEPRECIATION IN THE A.YS. 2002 - 03, 2003 - 04, & 2004 - 05 O N THE BA S IS OF PROVISIONS MA DE IN THE BOOKS OF A/C. AND NOT ON ACTUAL PAYMENT OF TSS FEES. THOUGH THE APPELLANT HAD NOT PAID THE AMOUNT TO (FIAPL) AS PER THE AGREEMENT BETWEEN THE APPELLANT AND (FIAPL) DATED 05.10.2001, BUT CLAIMED DEPRECIATIONS ON RS. 60,79,943/ - . THE AO VIDE ORDER U/S. 154 DATED 18 . 01.2006 ALLOWED DEPRECIATION OF RS . 15,19,986/ - (BEING 25% OF R S. 60,79,943/ - / - ). DURING THE ASSESSMENT PROCEEDINGS FOR THE A.Y., 2003 - 04, THE APPELLANT FURNISHED THE REVISED DEPRECIATION COMPUTATION BEFORE THE AO AND WAS ACCEPTED BY AO WAS AS UNDER: TSS RELATING TO THE ASSESSMENT YEAR WDS AS ON APRIL 1, 2003 AMOUNT RS. DEPRECIATION FOR THE A.Y. 2004 - 05 (I.E. FY 2003 - 04) AMOUNT RS. 2002 - 03 3,419,968/ - 854,992/ - 2003 - 04 9,374,972/ - 2,343,743/ - 2004 - 05 11,393,287/ - 2,848,322/ - TOTAL DEPRECIATION CLAIMED ON TSS VIDE REVISED RETURN F OR AY 2004 - 05 6,047,057/ - 4. ON THE BASIS OF THE ABOVE DISCUSSION, LD. CIT(A) H AS NOTED THAT T H E FIRST INSTALLMENT WAS PAID IN THE MONTH OF JANUARY, 2005 AFTER THE DEDUCTION OF TDS. ACCORDING TO HIM , THE TPO HAD OVERLOOKED THE SAID ASPECT. HE HAS CONCL UDED THAT T H E ENTIRE AMOUNT WAS WRONGLY HELD AS NON EXISTENCE. THE CONCLUSION DRAWN WAS AS UNDER: - 5.3.5 ......................................................... .......... IN THE EARLIER PARAS I HAVE DECIDED THAT THE INITIAL YEAR FOR ALLOWING DEPRECIATION WAS A.Y. 200 - 03. THE AO HAD ACCEPTED THE TSS FEES PAID/PAYABLE WAS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATIONS FOR THE A.Y. 2002 - 03 & 2003 - 04. ACCORDINGLY THE APPELLANT HAD REVISED THE DEPRECIATION CLAIM AS REQUIRED BY THE AO AND THERE WA S NO DISPUTE TO THAT EXTENT. NOW IT SHOULD BE DECIDED ON WHAT AMOUNT SHOULD BE DEPRECIATION BE ALLOWED? IN THE INTEREST OF JUSTICE AND TO AVOID COMPLICITY, I AM OF THE OPINION THAT WHATEVER I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 6 THE AMOUNT THE APPELLANT HAD PAID TO THE FEDDERS INC., DEPRECIAT ION MUST BE ALLOWED ON THAT AMOUNT. THE APPELLANT CANNOT AND SHOULD NOT ENJOY THE DEPRECIATION ON THE NON - EXISTENCE TRANSACTIONS I . E. O N UNPAID TSS FEES. IN OTHER WORDS, THE APPELLANT IS ENTITLED FOR THE DEPRECIATION ON THE PAYMENTS MADE OF US $ 1,04,167 / - (= RS. 47,47,185/ - ) ONLY. AS I HAVE SAID EARLIER, THE ISSUES REQUIRED TO B E DECIDED IN AN UNCOMPLICATED, FAIR, AND JUST MAN N ER. THE DEPARTMENT HAD ALREADY ACCEPTED THE REVISED DEPRECIATION CLAIMED BY THE APPELLANT FOR THE A.Y. 2002 - 03 & 2003 - 04. THUS , DEPRECIATION FOR THE A.Y. 2004 - 05 HAS TO BE COMPUTED ON THE W.D.V OF TSS FEES PAID OF RS. 47,47,185/ - BEING THE ACTUAL VALUE AND THE IN I TIAL PERIOD TO BE F R O M A.Y. 2002 - 03. THE AO IS DIRECTED TO RE - WORK THE DEPRECIATION ACCORDINGLY AND ALLOW THE ELIGIBL E DEPRECIATION TO THE APPELLANT. T H E SE GROUNDS OF APPEAL ARE ALLOWED PARTLY. 5 . FROM THE SIDE OF REVENUE, LD. DR, SHRI DINESH SINGH, APPEARED AND MENTIONED THAT A WRITTEN SUBMISSION IS FURNISHED BY THE TPO - I, AHMEDABAD, RELEVANT PORTION REPRODUCED BELOW : - 1.2 ON PERUSING OF THE ORDER OF THE HON BLE CIT(A) FOR A.Y . 2004 - 05, IT CAN BE SEEN THAT T H E HON BLE CIT(A) DID NOT AD DRESS THIS ISSUE PROPERLY (PARA 5.3.5 TO THE ORDER). IN THIS PARA, THE CIT(A) BIFURCATED THE WHOLE AMOUNT RS. 1,13,93,207/ - IN TWO PA RTS. THE PAYMENT AMOUNTING TO RS 47.47.185/ - (WHICH WAS PAID IN JANUARY, 2005), THE CIT(A) ALLOWED DEPRECIATION TO THE ASSESSEE AND ON THE REST OF THE AMOUNT (UNPAID TSS FEE), HE DISALLOWED THE ASSESSEE'S CLAIM FOR DEPRECIATION AS THE AMOUNT HAD BEEN REVE RSED IN SUBSEQUENT YEARS. NOW, IT IS BROUGHT TO THE KIND NOTICE OF YOUR HONOUR THAT THE TRANSFER PRICING ISSUE WAS NOT HANDLED BY THE CIT (A) AT ALL. THE CIT(A) TREATED ONLY THAT PART OF THE TECHNICAL SUPPORT SERVICES FEES (TSS FEES) WHICH WAS UNPAID AS L IABLE TO BE TREATED AT 'NIL'., WITHOUT APPRECIATING OR FINDING ANY FLAW IN THE TPO'S ORDER IN WHICH THE ENTIRE SUM OF TSS FEES AMOUNTING TO RS 1,13,93.207/ - WAS DETERMINED TO BE NON - EXISTENT ON THE BASIS THAT THE ASSESSEE FAILED TO JUSTIFY THE BASIS FOR TH E PAYMENT FOR TSS FEES FOR THE RELEVANT F.Y 2003 - 04. THE ASSESSEE FAILED TO REPLY WHETHER FEDDERS INTERNATIONAL INC.USA (THE AE), CHARGES SUCH FEE FROM OTHER ASSOCIATED ENTERPRISES. THE ASSESSEE FAILED TO FURNISH THE COSTS INCURRED BY FEDDER'S INTERNATIONA L INC.USA TOWARDS DEVELOPMENT OF SUCH KNOW - HOW AND HOW IT RECOVERED SUCH COSTS FROM THE PARTIES TO WHOM SUCH KNOW - HOW HAS BEEN PROVIDED. I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 7 THE HON'BLE CIT(A) ERRED WHILE DECIDING THE ISSUE BY NOT TAKING INTO COGNIZANCE THE CRUCIAL QUERIES RAISED BY THE TPO AS DISCUSSED ABOVE AND WHICH WERE NOT PROPERLY ANSWERED BY THE ASSESSEE. THE ONUS WAS ON THE ASSESSEE TO JUSTIFY THE PAYMENT THE ALP OF THE TSS FEE WAS DETERMINED AT RS. NIL BY THE TPO AND THE HON'BLE CIT(A) FAILED TO MAKE ANY COMMENT ON THE ALP OF THE TSS FEE IN HIS ORDER. THE CIT (A) DECIDED THE ISSUE SIMPLY ON THE BASIS THAT SOME PART OF THE TSS FEE AMOUNTING TO RS 1,13,93,207/ - WAS PAID PRIOR TO THE TPO'S ORDER 1.3 FURTHER, THE LEARNED CIT(A) ERRED IN DECIDING TH E ISSUE RELYING ON THAT AO HAD ACCEPTED THE TSS FEES PAID /PAYABLE WAS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION FOR A Y 2002 - 03 AND 2003 - 04. ACCORDINGLY, THE APPELLANT HAD REVISED T HE DEPRECIATION CLAIM AS REQUIRED BY T HE AO AND THERE WAS NO DISPU TE TO THAT EXTENT. NOW IT SHOULD BE DECIDED O N WHAT AMOUNT SHOULD B E ON WHAT AMOUNT SHOULD THE DEPRECIATION B E ALLOWED?' (IN PARA 5.3.5 ON PAGE 14 OF THE CIT (A) ORDER) THE ABOVE BASIS OF THE LEARNED CIT (A) IS NOT ACCEPT ED SINCE THE TPO HAS ALSO EXAMINED THE TECHNICAL SUPPORT AGREEMENT DATED 05.10.20 01, IN ARTICLE 3 PROVIDES FOR THE CONSIDERATION TO BE PAID. THE TPO F OUND OUT THAT THIS IS A INITIAL SUM OF $ 2,50,000/ - BASED ON TOTAL OF 440 HOURS OF LABORATORY TIME PERFORMED DURING THE INITIAL YEAR OF THE AGREEMENT. THE ARTICLE DOES PROVIDE FOR REVIEW O N ANNUAL BASIS BUT THIS IS FOR THE DIFFERENCE IN INSTALLMENTS AND CANNOT BE IMPLIED THAT SUC H FEES WAS TO BE PAID EVERY YEAR. THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENT TO EVIDENCE THAT SUCH SERVICE REQUIRING THE PAYMENT WERE RENDERED IN THE YEAR UNDER RE FERENCE. THE LEARNED CIT (A) DID NOT MAKE ANY COMMENT ON THIS FINDING OF THE TPO. SINCE THIS Y EAR, THE ASSESSEE HAS NOT PROVIDED ANY DETAILS OF THE LABORATORY TIME PERFO RMED UNDER THE TECHNICAL SUPPORT SERVICES IT CANNOT BE CONCLUDED THAT THE PART PAYMENT (OUT OF RS 1,13 ,93,207/ - ) MADE WAS GENUINE. WITHOUT ANY BASIS OF MEASUREMENT OF RENDERING OF SERVICES, THE STAND TAKEN BY THE CIT ( A) CANNOT BE AC CEPTED AND IT IS REITERATED THAT ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE THAT THE TPO W AS RIGHT IN HOLDING ALP OF THE ENTIRE TECHNIC AL SUPPORT SERVICES FEE AT 'NIL . THEREFORE, THE AC TION OF AO WAS RIGHT IN WITHDRAWING THE CLAIM OF THE DEPRECIATION ON WDV OF THE ENTIRE TECHNICAL SUPPORT SERVICES FEES. I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 8 6 . ON THE OTHER HAND, FROM THE SIDE OF THE ASSESS EE, LD. A.R. SHRI HARDIK VORA , HAS INFORMED THAT FOR A.Y. 2002 - 03 AN ORDER U/S. 143(3) WAS PASSED BY THE AO DATED 24 - 03 - 2005, WHEREIN A QUERY WAS RAISED THAT WHY AN AMOUNT OF R S. 60,79,943/ - PAID TO FEDDERS INTERNATIONAL INC, USA SHOULD NOT BE CAPITALIZED. THE AS SESSEE S REPLY WAS THAT T H E IMPUGNED AMOUNT WAS PAID FOR TECHNICAL SUPPORT SERVICE SUCH AS DESIGN AND ENGINEERING SUPPORT, LABORATORY TESTING, PRODUCT DESIGNING, VALUE ENGINEERING EXPERTISEES , TRAINING OF EMPLOYEE ETC. T HE AO HAS HELD THAT THE EXP ENDITURE WAS PROVIDING ENDURING BENEFIT TO THE ASSESSEE. BY FOLLOWING TUTICOR I N ALK ALI CHEMICAL & FERTILIZERS LTD VS. CIT 227 I TR 173 (SC), H E HAS DISALLOWED THE EXPENDITURE AFTER HOLDING THAT THE SAME WAS A C APITAL EXPENDITURE IN NATURE. THEREAFTER A N ORDER U/S. 154 WAS PASSED FOR A.Y. 2002 - 03 DATED 18 - 01 - 2006 WHEREIN ON THE IMPUGNED AMOUNT OF RS. 16,73,943/ - (TECHNICAL SUPPORT SERVICE) DATED 24 - 03 - 2006 NO ADJUSTMENT OR DISALLOWANCE WAS MADE. THE AO HAS ALLOWED DEPRECIATION AT THE RATE OF 20%. FOR A. Y. 2003 - 04 AN ORDER U/S. 94CA(3) WAS PASSED BY THE TPO DATED 28 - 02 - 2006 WHEREIN AFTER CONSIDERING THE INTERNATIONAL TRANSACTION WITH AE NO ADJUSTMENT WAS SUGGESTED . I N CONSEQUENCE THEREUPON THE ASSESSMENT ORDER FOR A.Y. 2003 - 04 WAS PASSED BY THE AO U/S. 14 3(3) 7 . WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. THE FUNDAMENTAL ARGUMENT FROM THE ASSESSEE IS THAT ON THE SAME TERMS AND CONDITIONS THE REVENUE DEPARTMENT ITSEL F HAS GRANTED DEPRECIATION TO THE AS SESSEE FOR EARLIER TWO YEARS I.E. A.Y. 2002 - 03 AND 2 003 - 04 HENCE THERE WAS NO BASIS TO DEVIATE FROM THE PAST HISTORY FOR THE ASSESS MENT UNDER CONSIDERATION I.E. A. Y. 2004 - 05. THE NEXT ARGUMENT OF THE ASSESSEE WAS THAT THE AGREEMENT IN QUESTION WAS EFFECTIVE FOR FIVE YEARS , THEREFORE , IN A SITUATION WHEN TH E DEPRECATION WAS ALLOWED ON THE SAME TERMS AND CONDITIONS THEN THERE WAS I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 9 NO BASIS TO DEVIATE FROM THE DECISION ALREADY TAKEN ON SAME SET OF FACTS AND CIRCUMSTANCES . IT HAS ALSO BEEN POINTED OUT THAT THE AMOUNT IN QUESTION WAS PAID AFTER GETTING THE APPROV AL OF THE RBI (THE COMPETENT AUTHORITY). IT HAS FURTHER BEEN INFORMED THAT THE INSTALMENTS PAID WERE SUBJECT TO TDS AND THESE FACTS HAVE NOT BEEN DENIED BY THE REVENUE DEPARTMENT. MOREOVER, LATER ON THE CLAIM OF DEPRECIATION WAS ALSO REVISED AS FAR AS THE DECISION OF UC B INDIA PVT LTD VS. ACIT 121 ITD 131 (MUM) IS CONCERNED, THE SAME WAS ON DIFFERENT ISSUE AND NOT THE ISSUE RELATED TO THE ASSES S EE. IN THAT CASE , IT WAS NOTED THAT T H E CUP METHOD ADOPTED BY THE TPO SUFFERED FROM INFIRMITIES HENCE THE MATTER WAS REMANDED TO THE FILE OF TPO. HAVING PERUSED THIS PRECEDENT , WE ARE NOT IN AGREEMENT TO FOLLOW THE SAME BECAUSE THE FACTS OF THE APPEAL BEFORE US IS ENTIRELY DIFFERENT. WE HAVE NOTED THAT THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE EXPENDI TURE BEING CAPITALIZED AND THE REUPON THE DEPRECATION WAS ALLOWED IN THE PAST , THEREFORE , ON THE SAME LINES, ASSESSEE WAS HELD AS ENTITLED FOR THE DEPRECATION. THUS , UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED HEREINABOVE, WE ARE OF THE CONSID ERED OPINION THAT THERE WAS NO FALLACY IN THE DIRECTION OF LD. C IT(A) TO RE - COMPUTE THE DEPRECIATION AND ALLOW THE SAME AS PER LAW . SINCE PART RELIEF GRANTED BY LD. C IT(A) IS NOT DISTURBED HENCE THIS GROUND OF THE REVENUE IS HEREBY DISMI SSED. GROUND NO. 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 2,95,802/ - ON ACCOUNT OF BELATED PAYMENT OF PF IN RESPECT OF EMPLOYEES CONTRIBUTION, WITHOUT CONSIDERING THE FACT THAT ASSESSEE MADE SUCH PAYMENTS INTO THE GOVERNMENT ACCOUNT, BEYOND THE DUE DATE AS PRESCRIBED IN THE RELEVANT ACT. I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 10 8 . IT WAS NOTED BY THE AO THAT THERE WAS DELAY IN PAYMENT OF PROVIDENT FUND HENCE APPLYING THE PROVISIONS OF SECTION 43B , A DISALLOW ANCE OF RS. 2,95,802 / - WAS MADE. WHEN THE MATTER WAS CARRIED BEFORE THE F IRST A PPELLATE A UTHORITY, LD. CIT(A) HAS EXAMINED THE DUE DATES AND THE DATE ON WHICH THE PAYMENT WAS MADE AND THEN ARRIVED AT THE CONCLUSION THAT T HE PAYMENT WAS MADE AS PER THE EXTENDED GRACE PERIOD O F DUE DATE . BY FOLLOWING VINAY CEMENT 213 CTR 268 (SC) , THE DISALLOWANCE WAS REVERSED . 8.1 AFTER HEARING BOTH THE SIDES AND CONSIDERING THE DATES OF PAYMENT AS DISCUSSED BY THE LD. CIT(A) , WE HEREBY CONFIRM THE SAID FACTUAL FINDINGS AND UPH O LD THE DELETION. THIS GROUND OF THE REVENUE IS THEREFORE DISMISSED. B . ITA NO. 918/AHD/2011 FOR A.Y. 2005 - 06 GOUND NO.1 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF D EPRECIATION TO RS. 22,71,102 / - AS AGAINST RS. 45,35,278 / - MADE BY THE AO, BASED ON THE ORDER PASSED ON BY THE TPO. 1.1 THE LD. CIT(A) VALSAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DEPRECIATION ON THE WDV OF TECHNICAL SUPPORT SERVICE FEES PAID OF RS.47 ,47,185/ - FROM A.Y.2002 - 03 OVERLOOKING THE FACTS THAT THE TPO DETERMINED THE ARMS LENGTH PRICE AT NIL . 9. THIS ISSUE HAS BEEN DISMISSED ABOVE HENCE ON THE SAME LINES THIS GROUND OF THE REVENUE IS HEREBY DISMISSED. GROUND NO. 2 2. THE LD. CIT(A) VALSAD , WHILE DELETING THE ADDITION OF R S. 6,76, 757/ - MADE BY THE TPO, HAS ERRED IN LAW AND ON FACTS THAT THE TPO DID NOT DISCUSS THE MOST APPROPRIATE METHOD FOR DETERMINING I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 11 THE ARMS LENGTH PRICE (APL) AND IN THE ABSENCE OF THAT TH E CONTENTION RAISED BY THE APPE LLANT GAINS GROUND. 2.1 THE LD.CIT(A) OVERLOOKED THE FACTS THAT THE TPO SELECTED CUP AS THE MOST APPROPRIATE METHOD WHICH WAS ALREADY SELECTED BY THE ASSESSEE. SO THERE REMAINS NO CONTENTIONS ABOUT THE MOST APPROPRIATE METHOD. SECONDLY THE TPO DID NOT CONS IDER THE DOMESTIC TRANSACTION BECAUSE OF GEOGRAPHICAL AND VOLUME DIFFERENCES. 10. AS PER THE ASSESSMENT ORDER PASSED U/S.143(3) DATED 23.12.2008 AND U/S.92 CA(3) DATED 21.10.2008 IT WAS OBSERVED BY THE REVENUE DEPARTMENT THAT THE ASSESSEE HAS MADE INTER NATIONAL TRANSACTION OF PURCHASE OF AC UNITS AS AN INTERNATIONAL TRANSACTION FROM AE . I T WAS FOUND THAT A PRICE ON WHICH THE ASSESSEE HAD IMPORTED FROM NON AE PARTIES WAS AT RS.2056, HOWEVER, AS AGAINST THAT THE TPO HAS NOTED THAT THE AVERAGE PRICE FOR WH ICH THE AC COMPONENTS WERE PURCHASED FROM AE WERE AT RS.2,279.72/ - . THE TPO HAS THEREAFTER DIRECTED TO MAKE AN ADJUSTMENT AND FIX THE ARMS LENGTH PRICE IS AS UNDER: QUANTITY PURCHASE FROM AE 3025 TOTAL VALUE 68,96,157 AVG. PRICE FROM AE 2,280 AVG. PRICE FROM PURCHASE FROM NON - AE(IMPORT) 2,056 ALP OF TRANSACTION TAKING AVG. PURCHASE FROM NON - AE 62,19,400 ALP + 5% 65,30,370 ADJUSTMENT 6,76,757 10.1 AGAINST THE SAID ADJUSTMENT AN APPEAL WAS PREFERRED AND THE ASSESSEE HAS PLEADED TO APPLY CUP METHOD. A DETAILED NOTE WAS FURNISHED BY THE ASSESSEE AND MAINLY CONTESTED AS UNDER: '5.14 IN THE CASE OF THE APPELLANT, THE APPE LL ANT HAS ALREADY SUBMITTED THAT HE SHOULD BE GRANTED THE BENEFIT OF VARIATION OF 5% AS AVAILABLE AS PER THE PROVISIONS OF PROVISO TO S EC T ION 92C(2) OF THE ACT. HENCE, ARM'S LENGTH PRICE CAN BE RS.2.210 (I.E. ARITHMETICAL MEAN OF RS.2.364 AND RS.2.056) OR RS.2.321 (I.E. 5% HIGHER TO I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 12 ARITHMETICAL MEAN OF RS: 2210 PER UNIT). AS APPELLANT HAS ALREADY OPTED FOR THE OPTION AVAILABLE TO THE ASS ESSEE OF 5 % VARIATION AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT. T HE ARM S LENGTH PRICE AS PER THE PROVISIONS OF SECTION 92C(2) OF THE ACT SHOULD BE RS.2 . 321 AS AGAINST PRICE PAID TO ASSOCIATED ENTERPRISES OF RS. 2.280. 5.15 IN VIEW OF ABOVE, AS TH E PRICES PAID TO ASSOCIATED ENTERPRISES OF RS. 2.280 PER UNIT BEING LESS THAN ARM'S LENGTH PRICE DETERMINED AS PER THE PROVISIONS OF SECTION 92C(2) OF THE ACT. NO ADJUSTMENT SHOULD BE MADE BY THE LEARNED TPO AND CONSEQUENTLY THE LEARNED AO. HENCE, THE APPE LLANT REQUESTS Y OUR HONOUR TO KINDLY DELETE THE A DDITION MADE ON THIS GROUND. 10.2 HOWEVER, LEARNED CIT(A) HAS DECIDED THIS ISSUE IN A CRYPTIC MANNER AS UNDER: 5.20 DECISION : I CAREFULLY CONSIDERED THE FINDING OF THE AO/TPO AND THE SUBMISSIONS M ADE BY THE ID. AR. THERE IS A FORCE IN THE ARGUMENTS OF THE ID.AR. THE AO/TPO'S MADE A SIMPLE CALCULATION ON THE DATA AVAILABLE WITH HIM AND COME TO THE CONCLUSION THAT THERE WAS A NEED FOR UPWARD ADJUSTMENT OF PRICES. IN THE ORDER IT WAS NOT DISCUSSE D WHICH WAS THE MOST APPROPRIATE METHOD FOR DETERMINING ALP. IN THE ABSENCE OF THAT, THE CONTENTION RAISED BY THE APPELLANT GAINS GROUND. IN VIEW OF THIS I DIRECT THE AO TO DELETE THE ADDITION MADE IN THIS GROUND OF APPEAL. THIS GROUND IS ALLOWED. 11. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE OPINION THAT THE CERTAIN POINTS WERE NOT DEALT WITH BY LEARNED CIT(A). IF THE ASSESSEE IS INSISTING UPON CUP METHOD THEN THE PROCEDURE PRESCRIBED TO VERIFY THE CORRECTNESS OF THAT METHOD WAS REQ UIRED TO BE FOLLOWED BY LEARNED CIT(A). THE COMPARABLE INSTANCES HAVE NOT BEEN DISCUSSED SO AS TO ARRIVE AT THE CORRECT ARMS LENGTH PRICE . I T IS ALSO NOT ON RECORD THAT WHETHER THE UNITS WHICH WERE PURCHASED FROM NON AE WERE IDENTICAL WITH THE UNITS PURCHA SED FROM AE. SINCE, THE ORDER OF LEARNED CIT(A) IS SILENT ON THOSE POINTS AND THE PROCEDURE AS PRESCRIBED UNDER RULE 10B(1)(A) HAS NOT BEEN DISCUSSED; THEREFORE, WE DEEM IT PROPER TO RESTORE THIS ISSUE BACK I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 13 TO HIM TO BE DECIDED NEEDLESS TO SAY AFTER PROVID ING ADEQUATE OPPORTUNITY OF HEARING TO BOTH THE SIDES. 12. IN THE RESULT, THIS GROUND OF THE REVENUE MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSE ONLY. THIS APPEAL IS PARTLY ALLOWED. C. ITA NO. 91 9 /AHD/2011 FOR A.Y. 2006 - 07 GROUND NO. 1. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF DEPRECIATION TO RS. 17,03,327/ - AS AGAINST RS. 21,27,596/ - MADE BY THE AO, BASED ON THE ORDER PASSED ON BY THE TPO. 1 3 . THE AO HAS PASSED AN ORDER U/S. 143(3) DATED 24/12/2009 AND DISALLOWED THE IMPUGNED EXCESS CLAIM OF DEPRECIATION. THE FIRST APPELLATE AUTHORITY HAS FOLLOWED THE PAST HISTORY AND DELETED THE ADDITION. 1 4 WE HAVE ALREADY TAKEN A VIEW (SUPRA) HENCE IN THE LIKE MANN ER, THIS GROUND OF THE REVENUE IS HEREBY DISMISSED. 1 5 . IN THE RESULT, THE A PPEALS OF THE R EVENUE , FOR A.Y.2004 - 05 IS DISMISSED, FOR 2005 - 06 IS PARTLY ALLOWED AND 2006 - 07 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONED HEREINABOVE AT CAPTION PAGE SD/ - SD/ - ( ANIL CHATURVEDI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEM BER JUDICIAL MEMBER AHMEDABAD : DATED 26 /03 /2015 AK I.T.A NOS. 917 TO 919/AHD/2011 A.Y. 2004 - 5,05 - 06 & 2006 - 07 PAGE NO ACIT VS. UNIVERSAL COMFORT PRODUCTS PVT LTD 14 / COPY OF ORDER FORWARDED TO: - 1 . ASSESSEE 2 . REVENUE 3 . CONCERNED CIT 4 . CIT (A) 5 . DR, ITAT, AHMEDABAD 6 . GUARD FILE. BY ORDER/ , / ,