Eversendai Construction Pvt. Ltd Vs DCIT (ITAT Chennai)
ITAT Chennai held that UPS and Printers being part of a computer systems and hence eligible for higher depreciation at the rate 60%.
Facts- The assessee’ claim of depreciation @60% on UPS, printers and other accessories was rejected by the AP. AO restricted the depreciation on UPS, printers and other accessories to 15% which is applicable to normal block of plant and machinery.
Conclusion- We find that this issue is covered in favour of the assessee by the decision of ITAT in the case of Sundaram Asset Management Co. Ltd. v. DCIT, LTU, reported in [2013] 37 taxmann.com 278 (Chennai-Trib.), where it has been clearly held that UPS and Printers are part of a computer systems and eligible for higher depreciation of 60%. A similar view has been taken by the Mumbai Tribunal in the case of Macawber Engineering System (India) Pvt. Ltd. v. ACIT reported in [2013] 33 Taxmann.com 587. Therefore, we are of the considered view that the assessee is entitled for 60% depreciation on UPS and Printers and thus, we direct the AO to allow 60% of depreciation on UPS and Printers as claimed by the assessee.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against final Assessment Order passed by the AO u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961, dated 30.06.2017, in pursuant to directions of the Dispute Resolution Panel-2, Bengaluru, u/s.144C(5) of the Income Tax Act, 1961 dated 05.05.2017, and pertains to assessment year 2013-14.
2. The assessee has raised the following grounds of appeal:
1. The Final Assessment Order dated 30.06.2017 passed under Section 143(3) r. w.s. 144C (13) of the Income Tax Act, 1961 by the Deputy Commissioner of Income-tax, Corporate Circle 2(1), Chennai (‘the Assessing Officer’/’AO’) is erroneous and contrary to law, facts and circumstances of the case.
2. Transfer Pricing ground – upward adjustment to arm’s length price. General Ground
2.1 The directions of the Dispute Resolution Panel (DRP) and the consequential transfer pricing order and the final assessment order is erroneous in so far as determining and quantifying a upward adjustment of Rs. 85,15,716/- to the value of international transaction of income/ sales as declared by the appellant.
Rejection of comparable companies:
2.2 The AO/DRP has erred in confirming the action of the TPO in including ‘Shyama Power India Limited’ which is functionally not comparable to that of the Appellant.
2.3 The AO/DRP has erred in confirming the action of the TPO in including ‘Sunil Hitech Engineers Limited’ which is functionally not comparable to that of the Appellant.
2.4 The AO/DRP has erred in confirming the action of the TPO in including ‘Everest Infra Energy- Limited’ which is functionally not comparable to that of the Appellant.
2.5 Without prejudice to the ground 2.4 above, the AO/DRP has erred in confirming the action of the TPO by considering the finance charges incurred by ‘Everest Infra Energy Limited’ as non-operating in nature.
2.6 The AO/DRP has erred in confirming the action of the TPO in rejecting the comparable companies selected by the assesse in the transfer pricing report.
2.7 The AO/DRP erred in confirming the order of the TPO in conducting a fresh search and arbitrarily rejecting the search process adopted by the Appellant with respect to EPC segment.
Foreign exchange fluctuation:
2.8 The AO/DRP erred in confirming the order of the TPO in treating foreign exchange loss suffered by the Appellant as operating expense.
Working Capital Adjustment:
2.9 The AO/DRP erred in confirming the order of the TPO in not providing working capital adjustment while determining the net profit margins of the appellant.
2.10 The AO/DRP erred in confirming the order of the TPO in rejecting the working capital adjustment without appreciating the fact that the TPO failed to take cognizance of the detailed workings provided.
Capacity utilization adjustment:
2.11 The AO/DRP erred in rejecting the capacity utilization adjustment claimed by the Appellant while determining its net profit margins.
2.12 The AO/DRP erred in not appreciating the fact that the fixed cost to sales ratio of the Appellant is 26.62% as against 13.01% of the comparable companies selected in TP Order.
Use of multiple year data:
2.13 The AO/ DRP has erred in law and in facts by confirming the order of the TPO in rejecting the application of multiple year data for the purpose of benchmarking the international transactions entered during the year by the Appellant.
2.14 The AO/DRP erred in appreciating the fact that in an EPC industry the life of the projects would typically be more than a year and hence considering only single year data would resort to distorted results and thereby erred in rejecting the use of multiple year data.
2.15. The AO/DRP failed to appreciate the fact that the current year data would not be available in the public domain to calculate the margins of the comparable companies at the time of preparation of transfer pricing documentation.
Application of Turnover Filter:
2.16 The AO/DRP erred in confirming the order of the TPO in not applying appropriate turnover filters while conducting search for comparable companies.
3. Corporate Tax Grounds
Disallowance u/s.40(a) – Reimbursement of expenses:
3.1 The DRP erred in law and facts of the case in making a suo-moto enhancement of income amounting to Rs.29,05,634/- on account of non-deduction of TDS for reimbursement of expenses paid by the Appellant to its associated enterprises.
3.2 The DRP grossly erred in issuing directions for enhancement without issuing show cause notice to the Appellant.
3.3 The AO/DRP erred in law and facts of the case by concluding that the reimbursement of expenses paid were in the nature of Fees for Technical Services.
3.4 The AO/DRP ought to have appreciated that the reimbursements were on cost to cost basis i.e. without any mark-up and as such there is no income of non-resident AE, which is chargeable to tax in India warranting TDS.
Restriction on claim of depreciation on UPS:
3.5 The AO/DRP erred in restricting the claim of depreciation on UPS.
3.6 The AO/DRP ought to have appreciated the fact the UPS is an integral part of the computer and as such it is eligible for higher rate of depreciation at the rate of 60%.
4. The Appellant craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.
4. The brief facts of the case are that the assessee company M/s. Eversendai Construction Private Limited (in short “M/s.ECPL”) was incorporated in 2009. The company is a subsidiary of Eversendai Constructions (s) Pte Ltd, Singapore. The Global Ultimate parent company is Eversendai Corporation, Berhad, Malaysia. The company is engaged in the business of engineering, design, detailing, steel fabrication, development of residential buildings and commercial complexes. The international transactions entered into by M/s. ECPL were segregated into two segments, i.e. Engineering, Procurement & Construction (in short “EPC”) Services segment and Engineering & Design Services (in short “EDS”) segment for transfer pricing purposes. Transactional Net Margin Method (in short “TNMM”) was considered as the most appropriate method and the transactions were aggregated segment-wise and concluded to be at arm’s length. Operating margin on Operating cost was selected as the Profit Level Indicator (“PLI”) for both the segments. During the course of assessment proceedings, to ascertain ALP of international transaction of the assessee with its AEs, a reference u/s.92CA of the Act, was made to the TPO.
4. During the course of TP proceedings, the TPO noticed that the assessee has adopted TNMM as most appropriate method on both segments i.e. EPC & EDS. The TPO has accepted international transaction with AE to EDS segment at ALP. However, in respect of EPC segment, the TPO has conducted fresh TP study and has rejected three comparable selected by the assessee viz., (i) M/s. TRF Ltd. (ii) M/s. Isgec Covema Ltd. & (iii) M/s. High Quality Steel Ltd., and further included three more comparable companies like (i) M/s. Petron Engineering Construction Ltd., (ii) M/s. Shyama Power India Ltd., & (iii) M/s. Sunil Hitech Engineers Ltd., and worked out average PLI of 13.82% and then, compared with PLI of the assessee at 8.96% and suggested TP adjustment of Rs.85,15,716/- to international transaction of the assessee with its AEs. The relevant findings of the TPO are as under:
3. Background of the Company:
Eversendai Construction Private Limited (ECPL) was incorporated on 14 August 2009 in Chennai to carry on the business of engineering, design, detailing, steel fabrication, development of residential buildings and commercial complexes.
4. Associated Enterprises & International transactions:
The assessee company has various international transactions during the FY 2012-1 3 with its AE as detailed below:
