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Charging of interest under section 234B and 234D and rate of depreciation differ asset to asset

Court : INCOME TAX APPELLATE TRIBUNAL


Brief : : The Ld. DRP and the Ld. AO (following the directions of the Ld. DRP), erred both on facts and in law in confirming the addition to the extent of Rs. 3,83,76,374/- to the income of the appellant out of the total addition of Rs.5,49,44,194/- as proposed by the Ld. TPO/A.O. in its draft assessment order u/s 143(3) read with section 144C by holding that its international transactions do not satisfy the arm’s length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO’s action – including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed and doing so has selected certain companies whose activities are in no way similar to appellant’s characterization (as business support Services/ Marketing Support Services Provider) by the Ld. TPO himself.”


Citation : Actis Advisers Pvt. Ltd. Mira The Corporate Suites, Block D, Ground Floor 1 & 2, Ishwar Nagar, New Delhi-110065. PAN/ GIR No. AAACC 5281 G ( Appellant ) Vs. Addl. Commissioner of Income-tax, Range-1, New Delhi. ( Respondent )


Judgment :


IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH “I” NEW DELHI

 

BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA

ITA No. 6390/Del/2012

Asstt. Yr: 2008-09

 

Actis Advisers Pvt. Ltd.

Mira The Corporate Suites,

Block D, Ground Floor 1 & 2,

Ishwar Nagar, New Delhi-110065.

PAN/ GIR No. AAACC 5281 G

( Appellant )

Vs.

 

Addl. Commissioner of

Income-tax, Range-1,

New Delhi.

 ( Respondent )

 

Appellant by : Shri Pawan Kumar CA

Shri Rohit Tiwari CA

Respondent by : Shri Peeyush Jain CIT(DR)

 

O R D E R

PER R.P. TOLANI, J.M:

 

This is assessee’s appeal against the assessment order dated 3-10- 2012, passed by the Add. Commissioner of Income-tax, Range-1, New Delhi u/s 143(3) read with section 144C(13) of the Income-tax Act, 1961 relevant to assessment year 2008-09.

 

2. Various grounds are raised, out of which assessee’s following grounds are pressed; rest of the grounds being not pressed are accordingly dismissed.

 

1. The Ld. DRP and the Ld. AO (following the directions of the Ld. DRP), erred both on facts and in law in confirming the addition to the extent of Rs. 3,83,76,374/- to the income of the appellant out of the total addition of Rs.5,49,44,194/- as proposed by the Ld. TPO/A.O. in its draft assessment order u/s 143(3) read with section 144C by holding that its international transactions do not satisfy the arm’s length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO’s

action – including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed and doing so has selected certain companies whose activities are in no way similar to appellant’s characterization (as business support Services/ Marketing Support Services Provider) by the Ld. TPO himself.”

 

2. The Ld. DRP and the Ld. AO erred in law in disallowing an amount of Rs. 7,00,000/- on account of club entrance charges.

 

3. The Ld. DRP and the Ld. AO erred in law in reducing depreciation allowance by Rs. 63,787/- during the year on items such as Docking stations and Rack 42u by holding that such items form part of ‘plant and machinery’ depreciable @ 15% and not ‘Computers’ which are depreciable @ 60%. The Ld. DRP and the Ld. AO erred in facts and in law by arbitrary disallowing the depreciation amounting to 45% of the opening written down value of the block computers without any basis and without appreciating that the depreciation claim of the appellant on computers has been duly accepted and allowed by his predecessors in earlier years.

4. That the Ld. AO erred on facts and in law in charging interest under section 234B and 234D of the Act.”

 

3. Brief facts are: Actis Advisers Private Limited, (‘AAPL’) was incorporated on March 26, 1998. During FY 2007-08, the Assessee was engaged in the provision of non binding financial advisory support services to its Group Companies i.e. Actis Capital LLP (now known as Actis LLP) and International Venture Capital Management Ltd., Mauritius (collectively referred to as Actis Group). In return for rendering these services, the Assessee was remunerated at a 10% cost plus mark up, which is claimed to be in accordance with the global transfer pricing policy of Actis Group.

 

3.1. It is claimed that while operating as a contract service provider for Group Companies, and in being compensated on a cost plus revenue model basis, the assessee is completely shielded from risks such as cost variance/ cost escalation risk, rework/ correction risk, price risk and capacity utilization risk. The customers are Group Companies only and as they undertake all the marketing and business development functions overseas, with no involvement of the assessee, it is also claimed to be not exposed to other critical risks such as credit risk/ debt collection risk and market risk.

 

3.2. During the relevant FY, the assessee undertook the following international transactions with its Associated Enterprises (‘AEs’), which were duly reported in the Accountant’s Report (‘Form No 3CEB’) filed along with the assessee’s return of income:

 

S.No  Nature of Transactions                                          Value (Rs.)

1.        Provision of Advisory and Consultancy Services    383,783,645

2.         Reimbursement of expenses                                    76,449

 

The above transactions being closely interrelated, have been aggregated for the purpose of analysis from a Transfer Pricing perspective.

 

3.3. Assessee thus claims that it provides non binding financial advisory support services in the nature of research activity services to its AEs. As per the Advisory agreement dated May 05, 2005entered between Actis LLP and Actis India, the latter provides various services to its AEs which are mentioned in Schedule 1 of the said agreement are as under:

 

(i) Identify, create, evaluate, screen, review, conduct duediligence, carry out investment analysis and research, report on new opportunities for the possible investment by the funds managed by the AE, and advise on such particular factors relating thereto as Actis India considers relevant for consideration by the AE;

 

(ii) In its capacity as advisor, recommend for consideration by the AE from time to time, the purchase or sale of particular investments or proposed investments, and recommend to the AE from time to time regarding the amount and the terms for the proposed purchase/ sale;

 

(iii) Monitor and evaluate the progress of all investments and report on such progress to AE as Actis India may consider appropriate;

 

(iv) Advise in relation to any guarantees, indemnities, covenants, or undertakings in favour of third parties as may be given by the funds managed by the AE in connection with or for the purposes of the acquisitions, holding or disposal of any investment;

(v) Advise and report to the AE, on any rights exercisable in relation to any investment;

 

(vi) Provide such other services to the AE as may reasonably be required in order to preserve and promote the interests of the funds managed by the Group; and 

 

(vii) Advise on the negotiations of the terms of any purchase or sale of an investment or proposed investment.

 

3.4. The assessee submitted its TP study for the relevant year on the basis of detailed Function, Asset and Risk (‘FAR’) analysis and Economic analysis. While conducting the economic analysis, the Assessee applied the TNMM with Operating Profit (‘OP’)/ Total Cost (‘TC’) as the relevant Profit Level Indicator (‘PLI’) in accordance with the Indian Transfer Pricing legislation in order to confirm the arm’s length nature of its international transactions pertaining to the provision of back office financial advisory support services, the same is placed on the paper book.

 

3.5. At the time of preparation of the TP report for FY 2007-08, it is claimed that the assessee was unable to find Indian companies comparable to it while carrying out its search on Indian databases. However, the Assessee conducted a search for the global comparable companies from OneSource.com (Asia Pacific Database) and the same was included in the TP report for the year. The final comparable companies and the results considered in the TP report are as follows:

 

 

3.6. As against, the final comparables’ set adopted by the Ld. TPO in the TP Order is as under:

 

TP ORDER COMPARABLES

 

 

 

 

 

3.7. This resulted in final TP Adjustment by averaging the e mark-up on cost of 23.08% after adjusting for working capital difference, it was higher than the mark up on cost of 9.25%1 earned by the assessee during FY 2007- 08. Ignoring objections, the Ld. TPO proposed an adjustment of Rs. 54,944,194 to the income of the assessee on the basis whereof the draft assessment order u/s 144C(1) of the Act was issued by assessing officer.

 

3.8. Assessee carried the matter before DRP which overruled the assessee’s objections and confirmed the TPO’s adjustments. Aggrieved, assessee is before us.

 

4. Ld. Counsel for the assessee contends that the entire controversy about transfer pricing adjustments can be resolved if the two comparables adopted by the TPO and approved by DRP viz. no. 9 Vapi Waste & Effluent Management Co. Ltd.; and no. 10 WAPCOS, as mentioned above, which are not appropriate comparables, are excluded. If these two comparables are excluded then transfer pricing results are acceptable to the assessee which by and large will meet with its transfer pricing report.

 

4.1. Assessee being a non risk bearing financial support service entity, should not be compared with these companies which are engaged in rendering marketing/ business support services. Alternatively, if the characterisation of AAPL is a accepted as a business/ market support services provider (as characterised by the TPO/ DRP in the order), even then based on the review of the activities of these two comparables added by the Ld. TPO i.e. Vapi Waste & Effluent Management Co. Limited and Water and Power Consultancy Services Limited (‘WAPCOS Limited’) cannot be compared. Details of Consultancy and Engineering projects segments as emerging from the annual reports of these companies, the activities performed by them cannot in any manner be considered similar to the activities performed by assessee as business/ market support services provided by it.

 

4.2. It is submitted that analysis of Vapi Waste & Effluent Mgmt. Co Limited (‘Vapi’) and WAPCOS (Segment) will make it evident that they operate in altogether very different lines of business (primarily activities including high end technical services, engineering services, infrastructure project engineering/ implementation, etc). They can in no way be considered similar to even the activities performed by a Business support services company or a marketing support services provider, which are briefly tabulated as under:

 

 

(i) Vapi Waste & Effluent Management Co. Limited: It is a functionally different comparable. The company deals in the infrastructure sector and is engaged in undertaking high end technical services and project implementation on varied nature of infrastructure projects. The company’s revenue streams include effluent treatment, common solid waste treatment and management, etc. This is evident from the annual report of the company for the FY 2007-08. The relevant extract of the annual report of the company is as under:

 

Operations: During the year under review your company has successfully continued with its activities of effluent treatment and common solid waste management Cluster projects: The Ministry of Commerce & Industries, Government of India, though Department of Industries Policy & Promotion (‘DIPP’) has approved the Vapi Chemical Cluster Project cost at Rs. 5431 crores under the Industrial Infrastructure Upgradation (IIUS)Scheme of 2003 and the government of India ha sanctioned a Grant in aid of Rs. 40.49 crores against this project. The Company, i.e. Vapi Waste & Effluent Management Co. Ltd., has been approved as the Special Purpose Vehicle (SPV) for the implementation of these projects. Thus, there is committed liability of Rs. 13.82 crores towards this project.

 

Road upgradation project: The Road Upgradation Project is one of the project components under Industrial Infrasture Upgradation (HUS) Scheme, which is undertaken by the Company on behalf of Notified Area Authority (NAA). Whatever, expenses incurred by the Company on Road Upgradation Project on and above Grant in aid received or to be received from Central Govt. would be recoverable from the Notified Area Authority from time to time. The company ahs already received the initial contribution of Rs. 180.00 lacs (previous year Rs. 180.00 lacs) from the Notified Area Authority.

 

4.3. Ignoring these glaring differences, TPO however, held that Vapi Waste and Effluent Management Company Limited is functionally comparable to the appellant. It is pleaded that the comparable is involved in peculiar type of consultancy regarding management of waste, environmental impact assessment, etc. The verticals of the proposed comparables are less important than the quantitative aspects, which is why there is a wide spread of comparables.

 

4.4. Before the Ld. DRP, it was lucidly explained that the functions performed by the appellant which pertain only to financial advisory support services are in the nature of research activity services to its AEs which cannot be compared with the activities performed by the Vapi which are totally uncomparable and unlike assessee the nature of high end technical and project implementation services.

 

4.5. The Ld. DRP in its directions has neither given any comments against the contentions of the Appellant for excluding Vapi from the final comparable set nor given cogent reasons for holding it to be a fit comparable.

 

4.6. ‘Vapi’ is not only engaged in rendering consultancy services but deals in the infrastructure sector and is engaged in undertaking high end technical services and project implementation on varied nature of infrastructure projects and stands miles apart from assessee’s activities. In this behalf assessee placed reliance on the Delhi ITAT order in the case of Verizon India Private Limited, wherein the ITAT has specifically held that a company engaged in rendering engineering consultancy is exposed to higher risks because of its nature of business and cannot be compared with routine marketing support service, by following observations:

 

“We agree with the view of the First Appellate Authority that EIL, Rites, Wapsos and TCE are engineering companies and provide end-to-end solutions and whereas the appellant company provides marketing support services to the parent company, which is in the nature of support service and hence not functionally comparable. She rightly concluded that the risk profile is vastly different and hence on this count also they are not comparable.”

 

ii) WAPCOS

4.7. The Assessee submits that WAPCOS Limited is a “MINI RATNA” Public Sector Enterprise and is engaged in providing high end technical consultancy services mainly in the nature of the engineering services in the field of water resources, power and infrastructure sectors in India and Abroad.

 

4.8. The facts of foreign projects handled by the company clearly indicate that the company in involved in design, engineering kind of activities. These facts emerge from the public domain information i.e. website and annual report of the company for the FY 2007-08. It is claimed by this information that that the WAPCOS ensures quality and time bound services to the clients which is the very essence of WAPCOS operations. WAPCOS drives its strength from its human resources, which form the backbone of the organisation. The consultancy services are carried out in 3 main areas of Water Resources, Power and Infrastructure. WAPCOS' spectrum of servicescovers a wide range of activities that includes:

 

- Preliminary Investigations/Reconnaissance

- Feasibility Studies/Planning/Project Formulation

- Field Investigations and Testing

- Engineering Designs, Drawings and Tendering Process

- Contract Management and Construction Supervision

- Operation and Maintenance

- Institutional/Human Resources Development”

 

4.9. The Ld. TPO has held that WAPCOS Limited is functionally comparable to the appellant by following observations: “As stated in the show cause this is a support service provider and its services are similar to those provided by the assessee in terms of technical support, technical know-how valuations and assistants in development/ upgradation of potential supplier, advice on business procedures and practices advice on applicable laws and regulations, etc. The segmental data in respect of consultancy services will be used for the purpose of comparison”.

 

4.10. Before the Ld. DRP, the appellant reiterated the submissions taken before the Ld. TPO that the functions performed by the appellant pertaining to financial advisory support services are in the nature of research activity services to its AEs. Such services cannot be compared to the activities performed by the WAPCOS which are in the nature of high end technical consultancy services mainly in the nature of the engineering services.

 

4.11. Even going by the business support services provider characterization by the Ld. TPO in the order, the activities performed of WAPCOS cannot be in any way considered similar to the activities performed by assessee as a business support service provider.

 

4.12. The Ld. DRP in its directions with respect to WAPCOS (Segmental) also has not provided its comments on the contentions raised by the Appellant during the proceedings. On the contrary, the Ld. DRP has provided its comments against the contention of the Appellant which were not raised at any point of time during the course of the DRP proceedings. The relevant extract of the DRP order is provided below for ready reference:

 

“According to the Assessee “WAPCOS is a “Mini Ratna” public sector enterprise under the aegis of the Union Ministry of Water Resources. WAPCOS has been providing consultancy services in 4 centres i.e. water resources, power and infrastructure. Apart from India, the company is providing its consultancy services in 40 other countries.

Broadly functionally similar being in services sector. According to the assessee economic factors pending a pay revision is effecting its results. We have examined the issue and find pay revision occurs in normal course and cannot be treated as an extraordinary circumstance affecting comparability analysis.

 

Hence in view of DRP it can be retained as a comparable.”

 

4.13. Assessee contends that its submissions before the Ld. TPO and DRP were unambiguous to the effect that WAPCOS cannot be functionally compared to a Company engaged in rendering business/ marketing support services since the revenue generated by them through the consultancy and engineering projects segment includes revenue from high end technical consultancy services mainly in the nature of the engineering services in the field of water resources, power and infrastructure sectors. Thus, the observations of DRP are clearly contrary to the record and on wrong assumption of assessee’s contentions. The ITAT Delhi order in the case of Verizon India Private Limited, wherein the ITAT has specifically held that WAPCOS is engaged in rendering engineering consultancy and is exposed to higher risks because of its nature of business. The relevant extract of the Tribunal judgment is given below for your ready reference:

 

“We agree with the view of the First Appellate Authority that EIL, Rites, Wapsos and TCE are engineering companies and provide end-to-end solutions and whereas the appellant company provides marketing support services to the parent company, which is in the nature of support service and hence not functionally comparable. She rightly concluded that the risk profile is vastly different and hence on this count also they are not comparable.”

 

4.14. TPO & DRP have incorrectly rejected the search strategy adopted by assessee in its Transfer Pricing documentation maintained as prescribed under section 92D of the Income Tax Act 1961 Act read with Rule 10D of the Income Tax Rules 1962. The fresh search conducted by TPO is in contravention of set parameters of comparability. The assessee relies on the order of Delhi Bench of the ITAT in the cases of M/s Mentor Graphics (Noida) Pvt. Ltd., ITA No. 1969/D/2006 (Mentor Ruling), wherein it is held that the TPO could have carried out a fresh search only if the comparables drawn by the taxpayer were insufficient or deficient in other respects.

 

4.15. It is pleaded that Rule 10C(2) of the Income-tax Rules, 1962 provides that in selecting the most appropriate method, the following factors shall be taken into account:

 

“the class or classes of associated enterprises entering into the transaction and the functions performed by them, taking into account assets employed or to be employed and risks assumed by such enterprises…”

 

4.16. The OECD Transfer Pricing Guidelines (‘Review of Chapters I-III of the Transfer Pricing Guidelines, July 22, 2010) also emphasize the importance of functional comparability as a factor for comparability analysis, paragraph 1.42 of the OECD Guidelines states:

 

“In transactions between two independent enterprises, compensation usually will reflect the functions that each enterprise performs (taking into account assets used and risks assumed). Therefore, in determining whether controlled and uncontrolled transactions or entities are comparable, a functional analysis is necessary.”

 

4.17. The Special Bench of the ITAT on the similar type of issue in the case of Aztec (I.T.A. No.584/Bangalore/2006) held as under:

 

“Before we go into each one of these methods, the fundamental requirement in any of the method selected, is the selection of “comparables”, for benchmarking international transactions. This selection of a comparable should be based on functional, asset, and risk analysis of both the parties and transactions.”

 

4.18. The ld. AR submitted that DRP with respect to WAPCOS (Segment) has not controverted its contentions raised during the course of the DRP proceedings.

 

4.19. The resultant arithmetic mean of the comparable companies (after excluding WAPCOS (Segmental) and Vapi comes to as under:

 

 

4.20. The results of the OP/TC margin of the comparable companies (after exclusion of the WAPCOS (Segment) and Vapi for being functionally different for the FY 2007-08 is 13.38% which falls within the +/- 5 percent range around the Appellant’s OP/ TC margin of 9.25% earned by the Appellant during the AY 2008-09. Thus, the international transactions of the Appellant during this year would come within the range of ALP.

 

4.21. Ld. Counsel then adverted to the ITAT Delhi Bench ‘H’ order in the case of DCIT Vs. M/s MCI Corn India P. Ltd. (ITA no. 4187/Del/2010 & others), which is a consolidated order dated 30-8-2012, wherein on the aspect of functional comparability it has been held that engineering companies including WAPCOS who provide end to end engineering solutions cannot be compared with routine marketing support services entity by following observations:

 

“23. A perusal of the above demonstrates that the assessee has not conducted a proper T.P. study and has wrongly chosen these 4 comparables. When on facts, we are of the opinion that

the T.P. study wherein these 4 comparables taken were wrong as apparently there is no functional comparability, we cannot approve such T.P. study, even if the TPO has accepted it.

Wrong facts have to be corrected. There can be no estoppel in such factual situation. The Ld. CIT(A) has the power to accept fresh claim of the assessee. Marketing support services cannot be compared with turn key Engineering services. We agree with the view of the First Appellate Authority that EIL, Rites, Wapsos and TCE are engineering companies that provide end to end solutions and whereas the assessee company provides marketing support services to the parent company, which is in the nature of support service and hence not functionally comparable. She rightly concluded that the risk profit is vastly different and hence on this count also they are not comparable.”

 

4.22. The difference between capital finance/ market consultancy provider and independent high-tech engineering end to end solutions provider have been explained in detail before the TPO/DRP and in written submissions. In view of the above submissions and case laws it is pleaded that these two comparables deserves to be excluded from T.P. working.

 

4.23. Apropos addition on account of excess depreciation on computer peripherals – Rs. 258,110, ld. Counsel contends:

 

4.23.1. Assessee as earlier claimed depreciation on computer and peripherals @ 60%. Assessing officer however made disallowance of Rs. 258,110/- on 45% of the total opening written down value of the block of computers as on April 1, 2007 on the premise that the same contain items in nature of plant and machinery entitled for depreciation @ 15% only.

 

4.23.2. Further, DRP has reduced depreciation allowance by Rs. 63,787/- during the year on items such as Docking stations and Rack 42u by holding that such items form part of ’Plant and machinery’ depreciable @ 15% and not ‘Computers’ which are depreciable @ 60%. It is pleaded that depreciation on the same items has been allowed by the Ld. AO himself in the Assessment Year 2005-06 and 2006-07. 4.24. Apropos addition on account of club entrance fees – Rs. 700,000, ld.  Counsel contends:

 

4.24.1. Apropos the club entrance fees amounting to Rs. 700,000 in respect of entrance fee paid by the Appellant company to ‘The Belvedere Oberoi’, assessee claimed it as allowable expenditure. Assessing officer however held that membership was advantage of enduring nature and is an expenditure of capital nature. The AO/DRP has failed to appreciate the business expediency of the one time expenditure so incurred. The allowability of club entrance fee stands squarely covered by the recent Hon’ble Supreme Court decision in the case of CIT vs United Glass Mfg Co. Ltd (TS 798 SC 2012) and Delhi High Courts in the case of CIT vs. Samtel Color Ltd. (180 Taxman 82) ,CIT vs. Nestle India Ltd. (296 ITR 682)

 

5. Ld. CIT (DR) Shri Peeyush Jain apropos transfer pricing additions, contends that ITAT Delhi Bench ‘B’ in assessee’s own case for A.Y. 2006/07 & 2007-08 (ITA nos. 958/Del/12 & 5277/Del/2011) vide consolidated order dated 12-10-2012, on the aspect of ‘risks’ has observed that:

 

“There are large number of factors which effect the business such as function performed, assets employed and risk assumed The concept of risk in itself provides various types of risks. Learned TPO in his order on page no. 24 has considered 17 types of risks in a tabular form, namely, market risk, customer’s credit risk and foreign exchange risk. The assessee in its TP study report has also accepted that through it is a captive service provider and not exposed with various risks, but, it is not a totally risk free enterprises. The nature of risk in the case of assessee are different. We have made a analysis of the assessee’s TP study report a swell as the findings recorded by the learned TPO and the DRP. We have extracted the filters applied by the assessee for eliminating the non-comparable companies or adjusting their profit margin, the assessee has not  pplied the filter i.e. the companies who have incurred expenses of more than 5% of its sales on advertisement and marketing which required to be excluded. At this stage, in the absence of any finding, at the level of the TPO or of the learned DRP, it is difficult to verify the version put forth by the learned counsel for the assessee.”

 

5.1. Thus, the claim of the assessee that it carried no risk is not a correct argument. It is to be borne in mind that it carries elements of risk.

 

5.2. Coming to the issue of exclusion of these two comparables, ld. CIT (DR) relies on the following judgments:

 

(i) M/s Bayer Material Science P. Ltd. Vs. Addl. CIT – ITA no. 7977/Mum/2010 – order dated 16-12-2011.

 

(ii) ITA no. 7894/Mum/2010 – M/s Symantec Software Solutions Pvt. Ltd. Vs. ACIT – order dated 31-5-2011.

 

(iii) ITA no. 1082/Hyd/2010 – DCIT Vs. M/s Deloitte Consulting India Pvt. Ltd. – order dated 22-7-2011. for the proposition that the comparables cannot be excluded merely on the basis of turn over or some marginal difference of functionality. Determination of ALP is a work of estimate and the assessee is in marketing consultancy, so are the functions of Vapi and WAPCOS, which have been held as comparables on reasonable basis. Therefore, the TPO and DRP rightly applied these comparables.

 

5.3. Apropos corporate additions, reliance is placed on the orders of lower authorities.

 

6. We have heard rival contentions and perused the material available on record. Apropos assessee’s contention that assessee is in merely functional advisory consultancy service without any risk cannot be accepted as in preceding two years the ITAT has held that it is in marketing services which carry elements of risk and the assessee’s services are to be treated as marketing services.

 

6.1. Coming back to the issue of comparability the inclusion/ exclusion of Vapi and WAPCOS, the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) has held that companies like EIL, Rites, Wapsos and TCE are engineering companies and provide end to end solutions and therefore they cannot be compared with those assessee who were into providing marketing support services to the parent company. They were held to be functionally not comparable with thee engineering companies. The case of Vapi also falls on the same footing. Therefore, respectfully following the order of the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) and Estel in ITA no. 584/Banglore/06 we are of the view that Vapi and WAPCOS are functionally not comparable to the assessee. Therefore, they are to be excluded. The issue of turn over does not arise in this case. In view of these facts, the matter will go back to the file of AO /TPO who will determine the T.P. adjustments by excluding Vapi and WAPCOS comparables. This ground of the assessee is accordingly allowed.

 

6.2. Apropos corporate additions, - the issue about depreciation, it is now well settled that computers and peripherals are eligible for depreciation @ 60%. Besides assessee’s opening WDV cannot be disturbed. In view thereof, we direct the assessing officer to allow assessee the depreciation on the computers and peripherals @ 60% without disturbing the opening WDV.

 

6.3. Apropos club entrance fees, respectfully following the Hon’ble Supreme Court judgment in the case of United Glass Mfg. Co. Ltd. And Hon’ble Delhi High Court judgment in the case of Samtel Color Ltd. & Nestle India Ltd. (supra)this claim of the assessee is allowed.

 

6.4. Charging of interest u/s 234B & 234D are consequential.

 

7. In the result, assessee’s appeal is partly allowed.

 

Order pronounced in open court on 05-07- 2013.

 

Sd/- Sd/-

(SHAMIM YAHYA) (R.P. TOLANI)

ACCOUNTANT MEMBER JUDICIAL MEMBER

 

Dated: 5th July, 2013.

MP

 

Copy to:

1. Assessee

2. AO

3. CIT

4. CIT(A)

5. DR





Posted by : [Scorecard : 105387] Posted on 08 August 2013


Tags :- charging interest section 234b 234d rate depreciation differ asset asset
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