Voluntary Transfer Pricing adjustment of international transaction

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Voluntary Transfer Pricing adjustment of international transaction 


 Jabil Circuit India P.Ltd, Mumbai vs Asst Cit Cir 3(2)(1), Mumbai on 19 November, 2018

     IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI

     BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN, JM

       I.T.A. Nos.2200/Mum/2017 & 867/Mum/2018

  (Assessment Years: 2012-13 & 2013-14)

Jabil Circuit India Private Limited Asst. CIT, Circle 3(2)(1),

Arena House, Plot No. 103,            Room No. 608, 6th Floor,

Road No. 12, Opp. Tulip Telecom,         Vs.  Aaykar Bhavan, M. K. Road,

Marol, MIDC, Andheri (E),                     Mumbai-400 020

Mumbai-400 093

PAN/GIR No. AACCO 7114 K

    (Appellant)                :             (Respondent)

Appellant by      :Shri Porus Kaka/ Shri ManisKanth

Respondent by       :     Shri Jayant Kumar

           Date of Hearing           :     12.10.2018

           Date of Pronouncement            :     19.11.2018

    ORDER

Per Shamim Yahya, A. M.:

These are appeals by the assessee arising out of the separate orders of the Assessing Officer (A.O. for short) passed u/s. 143(3) r.w s.144C(1) r.w.s 92CA(3) of the Income Tax Act, 1961 (the Act for short), pursuant to the direction of Dispute Resolution Panel – I, Mumbai (‘DRP’ for short) and pertain to the assessment years (‘A.Y.’) 2012-13 and 2013-14.

  1. Since the issues are common and connected and the appeals were heard together these are being consolidated and disposed of together by this common order.
  2. The common issues raised in appeal read as under:
  3. Transfer pricing adjustment on account of corporate support services received from AE Jabil Circuit India Private Limited Erred in concluding that no direct evidence is produced to substantiate receipt of corporate support services from AE and also erred in applying CUP method for determining the ALP of the international transactions pertaining to payment of corporate support services to AE without identifying any comparable uncontrolled transaction.
  4. Transfer pricing adjustment on account of business support services from AE Erred in concluding that no direct evidence is produced to substantiate receipt of business development support services from AE and also erred in applying CUP method for determining the ALP of the international transactions pertaining to payment of business development support services to AE without identifying any comparable uncontrolled transaction.

Grounds of appeal in respect of Corporate tax adjustment

  1. Disallowance of expenses of Rs 3,14,07,000 pertaining to the Chennai unit of the appellant Erred in disallowing expenses of Rs 3,14,07,000 pertaining to the Appellant’s unit at Chennai on the grounds that the Appellant had leased out the factory building thus restricting its eligibility to claim any deduction apart from the deductions permissible under section 24 of the Act (despite the suo moto disallowance of expenses pertaining to the leased out portion amounting to Rs 1,39,92,000 made by the Appellant, out of the total expenses of Rs 4,53,99,000) and further that the unit had ceased operations, making any expenditure incurred in respect of the unit disallowable.
  2. Erroneous levy of interest under section 234B and 234C of the Act. Erred in levying interest under section 234B and 234C of the Act.
  3. Further, grounds raised for A.Y. 2012-13 read as under:
  4. Ad hoc disallowance of tax depreciation amounting Rs.2,71,85,103 pertaining to factory building located at Chennai unit Erred in computing the depreciation pertaining to the Chennai unit on an ad hoc basis and disallowing the same on the grounds that the Appellant had not undertaken business operations in such factory building during the year (thus disregarding the concept of block of assets) and that a part of such factory building had been leased out by the Appellant.
  5. Short-grant of tax credit available to the Appellant under section 115JAA of the Act Jabil Circuit India Private Limited Erred in denying the Appellant the correct amount of tax credit under section 115JAA of the Act, even after recomputing the tax credit in consonance with the assessed income of previous years.

Apropos the issue Nos. 1 & 2 – Transfer Pricing Adjustments:

  1. Since the facts are identical we are referring to facts and figures from AY 2012-13.
  2. Brief facts of the case are that JCIPL was incorporated on 27th August, 2002 as ‘PCB Contract Manufacturing Services (India) Private Limited’. The name of the company was subsequently changed to Jabil Circuit India Private Limited. JCIPL, a subsidiary of Jabil (Mauritius) Holding Limited, Mauritius, is engaged in assembling printed circuit boards for set top boxes.

The international transactions of the assessee for the said year are summarized as under:

   Nature of transaction                Amount

     1    Business Support services provided                                                99,06,519

     2    Information Technology Support Services provided by                 56,57,818 JCIPL

     3  Freight charges for Echostar related sale                                          19,68,55,321

     4    Import of Raw material                                                                    89,57,23,166

     5    Sale of raw material                                                                        30,73,57,978

     6    Sale of finished goods                                                                 14,91,73,43,099

     7    Irnport of capital goods                                                                     2,59,31,803

     8    Sale of Capital Goods                                                                         6,46,658

     9    Payment of rework charges                                                                 9,05,646

     10   Payment of prototype charges

     11   Business Development Support services                                       5,34,80,267

     12 Cost allocation to JCIPL – computer mainten                                  19,78,425

          charges

     13Cost allocation to JCIPL – Insurance cost                                            8,52,254

     14   Cost allocation to JCIPL – corporate support charges and design and development services  29,27,90,15   Reimbursement of expenses by JCIPL                7,13,71,710

Jabil Circuit India Private Limited

Recovery of expenses by JCIPL                                                                   2,23,56,875

Research of development cost                                                                      5,69,40,326

Recovery of inventory deposit                                                                       8,38,25,346

           Total                                                                                         16,94,69,23,713

  1. Out of the above international transactions, the Assessee has voluntarily offered following amount for disallowance in the return of income:-

      Sr. Particulars                                      Voluntarily offered

      Nofor disallowance (Rs.)

          Voluntary Transfer Pricing adjustment {in case

       1 of international transaction stated in S.No.24,16,381

          above table)

          Voluntary Transfer Pricing adjustment (in case

       2 of international transaction stated in 5. No. 77    27,32,688

          of above table)

          Voluntary Transfer Pricing adjustment (in case

       3 of international transaction stated in S.2,04,148

         (in case of above table)Voluntary Transfer Pricing adjustment of international transaction pertaining to

       4 reimbursement of travel costs stated in S.No. 75

Voluntary Transfer Pricing adjustment of international transaction pertainin5,69,40,326

reimbursement of travel costs stated in S.No. 75

                    Total              6,06,48,434

  1. Further out of the various International transactions of the Appellant, the Transfer Pricing Officer (TPO) and consequently the Assessing Officer (AO) have not accepted the arm’s length nature of the following international transactions:-

Sr. International transaction Value of international Total adjustment as No. transaction ‘ (INR) per TP order (INR)

  1. Corporate cost allocation 29,27,90,502 33,36,00,000
  2. Business development 5,34,80,267 support services Jabil Circuit India Private Limited
  3. Information 56,57,818 11,67,035 technology support services provided to Jabil US
  4. Business development 99,06,519 12,54,182 support services provided to Jabit US
  5. Sale of raw material to Jabit 17,90,467 1,79,047 US Total 36,36,25,573 33,62,00,264
  6. Further, the A.O. in the draft order, has made an addition of Rs.3,14,07,000/- and Rs.2,71,85,103/- on account of disallowance of expenses of Chennai SEZ Unit and disallowance of depreciation of Chennai SEZ Unit respectively.
  7. During the year under consideration, JCIPL was paid cost allocation charges amounting to Rs.29,27,90,502/- towards support services provided by its overseas Jabil Croup entities. The AE provides support function to the overall group and then allocate the same based on pre-determined allocation keys. JCIPL has paid cost allocation charges pertaining to intra group services received from following AEs;

               SrNo    Name of AE                                 Amount (INK)

               1       Jabil US                                   275,224,794

               2       Jabit Circuit Belgium N. V. – (Hassett)    14,092,480

               3       Jobit Circuit Inc. (JTS)                   313,618

               4       Jabil Circuit (Shanghai) Co. Ltd,          270,028

               5       Taiwan Green Point Enterprises Co., Ltd.   2,889,582

                       Jabil. Design Services Branch

                       Total                                      292,790,502

The support services provided by the AE to JCIPL mainly includes the following: • Information Technology Support services (mainly includes application development, help desk support, IT management, regional IT support, special projects and system maintenance) Jabil Circuit India Private Limited • Non IT Services (mainly includes Operations and logistics services like engineering support, facilities monitoring, logistics oversight and development, operations development and support, procurement and inventory control and quality assurance and Business support services like accounting & finance, human resources, investor relations, legal, risk management and tax)

  1. During the course of assessment proceedings, based on the request of the TPO details about the nature of services provided by overseas Jabil Group entities, cost allocation methodology adopted as well as evidence of receipt of services by JCIPL were submitted to the TPO.

However, in the TP order, the learned TPO rejected the ALP of cost allocated to JCIPL by stating that JCIPL failed to produce the supporting/evidence to substantiate that the services are rendered by the AE and the charge reflects the value/benefit of service received.

Further, the learned TPO and learned AO applied CUP method to benchmark the said transaction.

  1. Further during the year under consideration, JCIPL has received change of business development support charges amounting to Rs.5,34,80,267 with respect to Echostar, Ericcson, NCR, Schneider, Solaria, Thales, etc. (which included a mark up of INR 27,32,688) provided by overseas Jabil group entities. However, JCIPL has voluntarily offered to tax the mark up of Rs.27,32,688 inadvertently charged by group entities in relation to this transaction.

The entity wise details of the same are provided below:

Jabil Circuit India Private Limited Name of AE Amounnt (INR) Jabil US 7,125,731 Jabil Circuit Belgium N.V. (Hasselt) 4025,836 Jabil Circuit Inc. – US-St. Petersburg, FL 26,650,287 (Florida) Jabil Circuit Limited (Scotland – 11,449,419 Livingston & Ayr) Jabil Circuit (Singapore) Pte. Ltd. 1,504,342 Jabil Circuit China Ltd. 2,724,652 Total 53,480,267

  1. The TPO held that no direct evidence was produced to substantiate the claim. He also applied CUP to determine the ALP in this regard.
  2. The TPO’s conclusion in this regard is contained in para 18.7 of TPO order which reads as under:

18,7 In absence of all these details regarding the number of employees working with the AE, the salaries paid to these employees, the educational qualification of these employees, the number of hours dedicated by these employees towards the services rendered to the assessee, the undersigned is constrained to go by estimation to the best judgement, to quantify the value of the services if at all any, being rendered by the AE to the assessee. Without prejudice to the contention of the undersigned, that there is no evidence in substance, regarding the services being rendered by the AE to the assessee, as a matter of abundant precaution, the undersigned proceeds to make a reasonable estimate, of whatever little services that can be said to have been rendered in the facts and circumstances of this case. Having regard to the nature of services which are claimed to have been rendered in the instant case, the undersigned estimates the salary for such an employee at Rs,15 lakhs per month (in rupees terms). Taking the average working days per month at 22 and 8 working hours per day, the man hour rate for rendering of these services is arrived at Rs.8500/- per hour. To the best of my judgement, the number of man hours rendered by the employees towards rendering of these services to the assessee, is estimated as under:

  • IT Support Services -300 hours·Finance services — 400 hours · Other Intra Group Services for sales, marketing etc. -300 hours Thus, the total amount of man-hours of services rendered by the AE to the assessee is arrived at 1500 hours. Applying the man hour rate of Rs.8,500/- per Jabil Circuit India Private Limited hour, the arms length compensation of the services rendered by the AE to the assessee, applying the cup method, is arrived at Rs.1,27,50,000/-. Hence the arm’s length price for payment towards these services is treated as Rs.1,27,50,0007-by the TPO and an adjustment of Rs.33..36 crores(Rs34.63crore-Rs.l,27crore/-) is made to the international transactions on a/c of IT and other support services charges paid by the assessee to the AE. The total adjustment made to the international transaction of cost allocation charges is Rs 33.36 crores. Hence the arm’s length price for payment towards these services is treated as 1.27 crores by the TPO and an adjustment of Rs.33.36 crores is made to the international transactions on a/c of corporate cost allocation charges paid by the assessee to the AE. The total adjustment made to the informational transaction of cost allocation charges is Rs,33.36 crores/-
  1. Against the above order, the assessee filed objections before the learned dispute resolution panel.
  2. The dispute resolution panel referred to the additional evidences submitted by the assessee. The remand report obtained and the rejoinder filed by the assessee. The learned dispute resolution panel noted that assessee has claimed that it had received from its associated enterprise Rs.29.8 crores and Rs.5.35 crores for corporate support service expenses and business development support services respectively. The dispute resolution panel noted that assessee has not benchmarked this transaction separately under any of the methods prescribed under Rule 10 B of the Income Tax Act. That instead it had relied upon the OECD guidelines for ALP of the corporate cost allocation made by its associate enterprise and for business development support services. The dispute resolution panel noted that the transfer pricing officer has considered the facts of the case and requested the assessee to furnish evidence in support of rendition of services by the associated enterprise and availing of such services by the assessee. That the transfer pricing officer also noted that for payment of interest company services based on cost allocated by AE.

Jabil Circuit India Private Limited Reliance has merely been placed on OECD guidelines. That these would be inappropriate and instead CUP method for the service would be appropriate. Thereafter the dispute admission panel referred to the finding of the transfer pricing officer and the case law relied upon by him. The dispute resolution panel observed that intercompany services agreement submitted by the assessee was very general/generic in nature and lacks any specific details pertaining to the services provided by any AE to the assessee. That even the parties to the agreement are not mentioned by the names. For that the agreement states that services are detailed more specifically in the addenda to the agreement. But it noted that in the addenda there is mere listing of nomenclature of different services and does not contain any specific details about any services. The dispute resolution panel went on to find errors in the drafting of the agreement. It noted that even the addendum has not been signed by any of the contracting parties. It noted that at the end of the addendum it has been mentioned that documentation and supporting records will be retained by the billing entity. That the supporting records will be made available to the fiscal authorities upon request. But it noted that assessee has failed to make these documentation available to the TPO. Therefore it held that the evidence submitted by the assessee is hardly of any evidentiary value in support of the services rendered by the assessee from its associated enterprises. It further noted that assessee has not furnished information regarding costs incurred by associated enterprise in providing the services. It noted that instead of submitting all the evidence for support of its claim for having availed the services, the assessee has contended that they are voluminous in nature and they are often captured internally on software is. It noted that assessee has submitted a Jabil Circuit India Private Limited CPA certificate. It noted that the said certificate furnished has no basis for determining the name and number of employees identified for rendering the service to Indian entity. That further the nature and details of the IT services claimed to have been rendered to the assessee have not been certified by the CPA. It noted that the assessee failed to identify the employees who were providing the services along with the qualification experience etc. It noted that the evidence furnished by the assessee before the panel in respect of cost allocation key are vague. It further noted that in respect of IT services claimed to have been rendered by the, associated enterprise and availed by the assessee no evidence for a specific IT services availed by the assessee has been produced. It proceeded to hold that it cannot be assumed that simple submissions of screenshots is sufficient to prove that the IT services rendered by associated enterprise to the assessee are at arm’s length. It noted that the assessee had not satisfactorily explained what the actual services received from the associated price.

  1. As regards the claim for corporate cost allocation in respect of non-IT services the DRP has rejected the assessee’s objection in this regard and upheld application of CUP method. The dispute resolution panel concluded that assessee has failed to demonstrate that it has received services or that the benefit from such services as claimed. It noted that the CPA certificate is not backed by any concrete evidence. It observed as under:

5.26 In relation to the IT services, detailed breaked up of expenses claimed by the AE for allocation purposes has not been produced. Therefore, it is not known whether the expense has been incurred by the AE or not or whether the expense incurred include certain capital expenses, etc. The appellant has also not furnished the details of the login hours of its employees recorded in the system of the AE to show that the system facilities have been used by the assessee. Even the payment Jabil Circuit India Private Limited made for each of the service including the IT service has not been provided separately. On the basis of evidence produced, we are of the view that the appellant would have received some services for which TPO has already allowed the deduction for 1500 hours at the rate of Rs.8,500 per hour. We are of the opinion that the number of hours of services and the per hour rate of the services estimated by the Transfer Pricing Officer are adequate considering the facts of the case.

  1. The dispute resolution panel further referred to certain case laws and concluded as under:

5.43 In view of the judicial precedents as well as the facts on record, we are of the view that the TPO has rightly applied CUP to determine the ALP of intra- group services. The panel is also of the view that the assessee has failed to demonstrate that it has received services or that it benefited from, such services as claimed. It has further failed to demonstrate the incurrence of cost by the AE as well as its allocation among the various group entities. We are of the view that the TPO has not questioned the commercial expediency of such transaction entered into by the assessee, rather, has only worked out the arms length price of the purported service. We are further of the view that no services are rendered nor received by the assessee and what is received (if at all) do not take character of chargeable service. The perusal of the e-mails and other contemporaneous record only goes to show that incidental and passive association benefits have been provided by the AE. !n this view of the matter, there could neither be any cost contribution or payment for such service to the AE. Further, as no expenditure would have been incurred, there is no necessity to apply a particular method to arrive at such conclusion. The TPO has been more than fair in granting the deduction on estimates based on the evidence produced. Therefore, the adjustment done by the TPO on this ground is upheld.

5.44 However, the TPO has concluded that the assessee would have received some services for which he has already allowed the deduction for 1500 hours at the rate of Rs, 8,500 per hour. We are of the opinion that the number of hours of services and the per hour rate of the services estimated by the TPO are adequate considering the facts of the case. Considering the facts in totality and the evidence produced, we are of the view that though the services as demonstrated are generally of the nature of share holders’ activity or stewardship services, the chargeable part of such services as worked out by the TPO for the 1500 hours at the rate of Rs,8,500 per hour is allowed. Accordingly, we uphold the TPO’s adjustment of Rs.33.36 crores (Rs,34.63 crores – Rs. 1.27 crores) made to the international transactions on account of corporate support services (cost allocation Jabil Circuit India Private Limited charges) and business development charges paid by the assessee to the AE. The objections are disposed of as above.

For the A.Y. 2013-14, the DRP followed the same for corporate support service and business development support service. However, for the estimation of I.T. cost. It accepted the assessee’s allocation key. It held as under:

5.10. However, we are not in agreement with the decision of DRP in the earlier year with reference to the estimation of IT costs. The assessee has made an elaborate submission with respect to the reason for payment IT services costs. It has claimed that the SAP licenses are acquired by the AE and the SAP infrastructure has been developed by the AE. Necessary agreements with SAP America Inc and other relevant software suppliers has been filed with the TPO, Although the TPO has made a general comment that the assessee itself has a robust IT infrastructure, he has not made any comments that the assessee is separately paying for the SAP infrastructure. Use of a SAP system is a industry standard and is used by most of the corporates. It is also an acknowledged fact that SAP is an expensive system to acquire and maintain and requires regular annual expenditure. The necessity of the system to the assessee’s business cannot be denied. Proof of necessary expenses, the third party costs and the bills raised by the AE, which have been charged at cost, have already been produced to the TPO. 5.11 It is also noticed that SAP system is not a call based system but it is a 24 hr online system accessible to the assessee at all times. Hence, the claim of the TPO that a few hundred hours are sufficient to meet the demands of service rendered by the AE with respect to the SAP system is not found to be correct. SAP system, if taken from a third party, would be required for all 364 days, 24 hours each day. Hence, the estimation done by the TPO with respect to the IT charges is not found in accordance with the demands of the system. Further, each SAP system is tailored to suit specific demands of clients. Such services are not openly available in the market and cannot be acquired at a short notice. Hence, the claim of the assessee that the services could only be obtained from a related party is also found tenable, 5.12. The assessee has submitted that the IT costs are allocated on the basis of number of users on the SAP system. In our view, this is a reasonable allocation key and should be accepted.

5.13. In tight of the above discussion, we respectfully differ from the decision of the DRP in the preceding year. The TPO is directed to segregate the IT cost allocation from the total corporate allocation. The IT cost allocation is to be taken as arm’s length allocation and should be allowed as such. In respect of other cost allocations, the action of the TPO is sustained.

Jabil Circuit India Private Limited

  1. Against the above order the assessee is in appeal before us.
  2. We have heard both the counsel and perused the records. The ld. Counsel of the assessee made elaborate submissions. He referred to catena of case laws and also extensively referred to the voluminous paper book submitted in this regard. The ld. Counsel of the assessee submitted that as far as the allocation for IT services is concerned, in A.Y. 2013-14, the DRP has himself accepted the allocation. The ld. Counsel of the assessee further submitted that the TPO has adopted the contradictory approach. For the assessee’s share of receipt for group services, the TPO has increased the same as to what it should receive. On the other hand, as regards the assessee’s share of group expenses to be borne by the assessee, the TPO has reduced the same. The ld. Counsel of the assessee submitted that the method of allocation adopted by the assessee is reasonable and duly approved by the OECD guidelines which have been affirmed in many judgments of the ITAT. He submitted that cost allocation keys have been used are asset, revenue, number of employee, depending upon the nature. He submitted that 80% of the sale is to the US entity. He submitted that the services rendered cannot be disputed. He submitted that the global agreement is not India specific and the same methodology is applied worldwide. He submitted that the keys are global keys and not India specific. He submitted that that what the A.O. has done has no basis whatsoever. The ld. Counsel of the assessee submitted that what the A.O. is seeking is that he wants an original voucher of foreign expenses incurred by the various group entities in the foreign locations. He Jabil Circuit India Private Limited submitted that the cost allocation is duly supported by CPA certificate, which again is not India specific.
  3. Furthermore, the ld. Counsel of the assessee elaborately referred to the paper books for the evidences submitted before the TPO and Dispute Resolution Panel in support of intra group services as under:

Sr. No. Nature of Services Evidence submitted before the TPO/DRP 1 Common for all services a) Intercompany service agreement

  1. b) CPA certificate for basis and computation of costs
  2. c) Summary’ of stewardship costs
  3. d) List of employees providing services to JCIPL
  4. e) Extract of Jabil USTP report on basis of allocation keys for allocating the costs by JCIPL to the JABIL subsidiaries
  5. f) Description of responsibilities of various cost centres from where services are received

(i) IT support services a) Description of nature of services availed – extract of transfer pricing report of Jabil US, including details of various IT departments, specific services provided by them and no. of individuals in each department

  1. b) Reasons tor availing services
  2. c) Break-up of costs for SAP license charges and related support charges and list of SAP users
  3. d) Copies of global IT contracts with SAP and other IT service providers
  4. e) Email correspondence regarding the SAP support service received Non-IT corporate support Invoices for allocations received from Jabil US and Jabil Singapore services

(ii) Business support services a) Description of nature of services availed – extract of transfer pricing report of Jabil US, including details of various departments. specific services provided by them and no. of individuals in each departing

  1. b) Power point presentations i. Powerpoint presentation on lax package training dated 27th January 2 oil* ii. Learning process presentation :- A screenshot of the coaching material available for the employees of JCIPL at Jabil University – Learning management system provided by the SR iii. JABIL Legal presentation :- A presentation highlighting the various JMUL legal department responsibilities as a part of the employee training provided by the AE iv. Finance Business Partnering presentation :- A presentation highlighting the various JABIL legal responsibilities as a part ol the employee training provided by the AE Jabil Circuit India Private Limited v. A powerpoint presentation on learning & development (cost centre 133) providing description of the Bootcamp course administered to employees over period of 13 weeks with the objective of aligning the organizational strategy, people & performance.
  2. Powerpoint presentation demonstrating examples of market research & planning done (Cost centre 155) vii. Powerpoint presentation demonstrating Asia HR strategy (Cost centre

192) viii. Powerpoint presentation detailing JABIL group’s annual strategic plan & market research with respect to new business strategics (CC155) ix. Powerpoint presentation detailing finance transformation (CC 176) x. Powerpoint presentations for training on use of tools for forecasting, budgeting and pricing processes for the Company (CC 195)

  1. c) Email and other supporting documents correspondences evidencing support from AEs i. Email supporting & document on Due Diligence procedures ii Emails supporting in respect of Litigation/Claims Report iii. Emails supporting in respect of reporting deadlines for December close iv. Email supporting in respect of Q2 FY12 Audit Requiremetns, financial reporting schedule received from Anna Fletcher and Uer Guide to Jabil TM1- Quarterly Reporting.
  2. email correspondence regarding process of intercompany manual service charges vi. Email supporting establishing that the tam worked on making sure materials met environment standards such as paint products and performed awareness training (cost centre 154) vii. Supporting document providing a detail description of support provided to Pune during the credit period (cost centre 154) viiii. Travel details of employees on sample basis) of the AE from whom intra group services are sought by JCIPL ix. Supporting documents in respect of the confirmations for hotel booking & travel tickets x. Email correspondence on Forex rates to be used in Q2 FY12 Jabil TM1 Quarterly reporting and reporting on close of quarter xi. Email, powerpoint presentations and analysis in respect of SGA (Sales, General & Administration) costing, internal financials and projections. xii. Email communication in respect of quarterly questions for audit & SEC completion of regions xiii. Email communication for correspondence for actual & forecasted cash flow xv. Email correspondence in relation to Quarterly bid Review (QBR)
  3. d) Frequently asked questions on intercompany manual ser\lice charges early cut offs

(iii) Operations and logistics a) Description of nature of services availed -extract of transfer pricing report support services of Jabil US, including details of various departments, specific services provided by them and no. of individuals in each department

  1. b) Email communications i. Email correspondence evidencing communication in relation to the solar business (Cost centre 2001) ii. Email correspondences evidencing assistance in global supply chain management (for Cost centre 2002) iii. Email correspondences depicting services in relation to global quality Jabil Circuit India Private Limited programs & quality personnel (Cost Centre 3106) iv. Email correspondences evidencing receipt of services in relation to SCM optimization (Cost Centre 3141) v.Email & powerpoint presentation in respect of global manufacturing services vi. Email communication bv Keith Cochran to co-ordinate for getting materials in support of Pune demand vii. Email communication by Keith Cochran to co-ordinate for production function
  2. c) PowerPoint and Other – approvals i.A presentation summarizing the scope of JABIL’s project timeline timeline for ramping up Punc’s manufacturing capabilities lo develop the RUG product for Ericsson and also showing Ericsson’s project team.

ii.An update related to Ericsson’s RUG project iii. Organization chart that outlines the team members that support the Echo Star account iv.Powerpoint presentation relating to solar operations, depicting assisting in global operations, and growth of the Solar business (Cost centre 2001) iv. Powerpoiut presentation detailing supplv chain logistics management (Cost centre 3148) v. Powerpoint presentation for training on manufacturing facilities & operation development (CQ-JM4) vi. Document providing a detailed description about quality support services provided to Pune (Cost center 3106)

(iv) Business development a) Description of nature of services availed – extract of transfer pricing report support services of Jabil US, including details of various departments, specific services provided by them and no. of individuals in each department

  1. b) Powerpoint pitch book to sell capabilities ot the manufacturing facilitv in India to Echo Star and other customers II Business Development support services (other) Email correspondences i. Internal email correspondences evidencing receipt of business support services from Aes ii. Internal email correspondences evidencing receipt of business development services from JABH, Circuit Limited (Scotland – I.ivingslou & Ayr) on sample basis iii. Internal email correspondences evidencing receipt of business development support services from AE, relating to support in bidding process, scorecard improvement, inventory management, etc. i. Internal Email correspondences evidencing receipt of business development support services from AE ii. Email communication by Keith Cochran in respect of providing business support – stating the contribution of Keith Cochran, Vice President, Global Business Unit, to the business of Pune location (Echostar business) Powerpoint presentations i. Powerpoint presentations with respect to Echostar and Ericsson business evidencing receipt of business support services from Aes ii. Powerpoint presentation for Scorecard improvement lorQ3 iii. Powerpoint presentation for .JABIL scorecard for Ericsson Jabil Circuit India Private Limited Copy of invoices i. Business development support services received Copy of inter- company invoices with .JAB 11, Circuit Inc- US-St Petersburg, FL (Florida) on sample basis.
  2. Business development support services received – Copy of inter-company invoices with JABIL, Circuit Limited (Scotland-Livingston & Ayr) on sample basis.

III Contract design & development services i. Copy of agreement for Sector strategic & R&D Investment ii. Design & R&D Approval form for sector specific charges to respective manufacturing locations iii. Invoices for allocations received from Jabil Belgium and Jabil Taiwan

  1. The ld. Counsel of the assessee further referred to following case laws for his proposition as under:

(I) Indirect charge method under OECD guidelines can be used to determine arm’s length price of intra-group services. N LC Nalco (India) Ltd (2016) 71 taxniann.com 57 (Kol Tribunal) (II) TPO is precluded from commenting upon the necessity of services and need to make payment for the same Dresser-Rand India (P.) Ltd. [2011] 13 taxniann.com 82 (Mum) Emerson Climate Technologies (India) Ltd [2018] 90 taxmann.com 125 (Pune Tribunal) Eaton Fluid Power Ltd. ITA 45/2013 (Pune Tribunal) Knorr-Bremse India [2015] 63 taxmann.com 186 (P&HC) McCann Erickson India (P.) Ltd [2012] 24 taxinann.com 21 (Delhi) (III) Avail of all or any of intra-group services sufficient Merck Ltd 389 ITR 70 (BOM HC) Merck Ltd [2016] 69 taxmann.com 45 (Mum ITAT) Dimension Data India (P.) Ltd [2017] 84 taxmami.com 318 (Mum ITAT) (IV) Evidences/ correspondences showing receipt of intra-group sen-ices sufficient and each activity may not be required to be shown by way of specific concrete evidences TNS India Pvt. Ltd. [TS-21-ITAT-2O14(HYD)-TP1 Dresser-Rand India (P.) Ltd. [2011] 13 taxmann.com 82 (Mum) Koch Chemicals Technology Group (India) Ltd [TS-467-ITAT- 2015(Mmn)-TP] AWB India ITA No. 4454/001/2011 (Delhi Tribunal) Bright Point India (P.) Ltd [2018] 89 taxmann.com 182 (Del ITAT) Jabil Circuit India Private Limited

  1. The ld. Counsel of the assessee further submitted that as percentage of global revenue and percentage of cost allocation and claimed that they are quite favourable. In this regard, he submitted the following letter:

           Particulars                              AY 2012-13 AY 2013-14

           Jabil India’s share in global revenue      2.30%      1.83%

           (as per Jabil US financials)

           Jubil India’s share in global revenue      2.27%      1.96%

           (as on March ending)

           Corporate cost allocation as a             1.59%      2.09%

           percentage to sales

           Business development support service       0.29%      0.43%

           cost allocation as a percentage to sales

  1. Per contra, the ld. Departmental Representative submitted that the use of allocation keys is not one of the prescribed methods under the Act. He submitted that necessary details were not provided by the assessee. He submitted that rendering of services is in fact disputed. He submitted that the assessee by not giving necessary evidence has violated of Rule 10D. He submitted that the assessee has not discharged its onus. He noted that the agreement itself mentions that evidence will be shown to the fiscal authorities. However, he submitted that the assessee has refused to provide the same. The ld. DR submitted that if there is shortcoming in the method of allocation by the TPO, the matter can be remitted for fresh consideration.
  2. In rejoinder, the ld. Counsel of the assessee submitted that the assessee has submitted over 1500 pages of evidence. He submitted that in such situation how it can be said that the assessee has not submitted necessary evidence. The ld. Counsel of the assessee vehemently objected on the DR’s plea to send the matter back. The ld. Counsel Jabil Circuit India Private Limited of the assessee submitted that the allocation keys are now part of IT rules under safe rules. He submitted that upto assessment year 2011-12, the allocation for business support services were duly accepted by the TPO and in A.Y. 2013-14, the allocation for IT services has also been accepted by the DRP.
  3. Upon careful consideration, we note that the issue in dispute is the allocation of intra group services to be borne by the assessee from its AE in 16 worldwide localities. The assessee’s allocation is based upon a global agreement between the AEs in this regard. Various allocation keys, i.e., asset, revenue, number of employee, depending upon the nature has been used. The allocation is supported by a CPA certificate. The Revenue’s grouse is that necessary evidence in this regard for the veracity of allocation and incurring of expenditure has not been submitted. That the CPA certificate is not credible in absence of supporting documents on the basis of which the said certificate was issued. That there are several errors in the global agreement. That the use of allocation keys is not permissible.

The solution found by the TPO to the above shortcoming is the rejection of the assessee’s allocation to be substituted by an absolutely whimsical and bizarre estimation that total 1500 man hours @ 8,500/- would only be permissible and that would be allocated as under:

IT support service – 300 hours Finance service – 400 hours Other intra group services for sales, marketing, etc .- 300 hours Jabil Circuit India Private Limited

  1. We find that the ld. Counsel of the assessee has referred to the voluminous paper book and the documents submitted before the authorities below. The summary of the same has also been reproduced in the above part containing the summary of the ld. Counsel of the assessee’s submission. We have reviewed the co-relation between the item of expenditure allocated and the supporting document mentioned in the paper book. In our considered opinion, the supporting evidence submitted by the assessee are reasonable and cogent. The adverse inference drawn by the authorities below that the submissions of the assessee has no evidentially value is totally misplaced and it is a result of non examination of evidences by the authorities below. In this regard, we draw support from the decision of the Hon’ble jurisdictional High Court in the case of Maersk Global Service Centre (in ITA No. 692 of 2012 vide order dated 22.08.2014). In this case, the Hon’ble jurisdictional High Court has expounded that in a situation where the details were very much before the TPO, the Hon’ble High Court held that the tribunal therefore, did not and rightly permitted the DR to argue the appeal contrary to the record. That the appeal therefore did not raise any substantive question of law and deserves to be dismissed. The ratio from the above said decision is applicable on the present case also. The necessary evidence has also been brought on record by the assessee. The authorities below have totally disregarded the same and made the allocation on the basis of a total bizarre and whimsical method. The bizarreness and whimsical nature of the allocation done by the TPO which has been supported by the DRP is not lost upon the ld. DR who has argued for a remand for proper appreciation by the TPO. In view of the aforesaid Jabil Circuit India Private Limited Hon’ble jurisdictional High Court decisions we are of the considered opinion that such an act of TPO and DRP cannot be set right by remitting the issue on this account.
  2. We note that it is the claim of the assessee that the assessee has intra group AEs spread around the length and breadth of the globe. It has been claimed that the intra group services have been allocated on the basis of global agreement among the AEs. Proper allocation keys have been used and that the methodology adopted has the mandate of guiding of the OECD. In this regard, we note that in the OECD guidelines in the Chapter VII relating to special consideration for intra group services has observed that mainly two issues were to be considered, one was whether intra group service have in fact been provided. The other issue is whether the intra group charge for such services for tax purpose should be in accordance with the arms length principle. The OECD guidelines interalia also provide that the allocation of the group cost might be based upon the turnover or staff employed or some other basis. It mentioned that whether the allocation method is appropriate may depend upon the nature and use of the services. A reading of this OECD guidelines makes it abundantly clear that contrary to the Revenue’s argument, the using of allocation keys for allocation of intra group services is not alien to international tax jurisprudence. Further, the allocation of concerned group expenses to different accounting units is a duly accepted accounting procedure. Furthermore, the assessee has used a CPA certificate for the allocation of intra group services from the AE. The authorities below have rejected the CPA certificate on the ground that underlying documents on the basis of which the CPA certificate has been issued has not been Jabil Circuit India Private Limited produced before them. In this regard, we note that the CPA certificate is quite specific and has been duly authenticated. We find that in Rule 10D, containing information and documents to be kept and maintained u/s.92D it has been duly mentioned that the information’s required under Rule 10D(2)(A) shall be supported by authentic documents which may include inter alia public accounts and the financial statements relating to the business of the associated enterprises. Hence, the evidence for international transaction can be duly supported by public accounts and financial statements relating to business affairs of the AE. With such mandate of law, in our considered opinion, the action of the authorities below in rejecting the CPA certificate is not sustainable. The various other proposition mentioned by the ld. Counsel of the assessee and case laws in support thereof as noted in para 22 hereinabove are germane and duly support the case of the assessee.
  3. We further note that as regards the estimation and allocation of IT cost is concerned, the same has been duly accepted for the Dispute Resolution Panel for A.Y. 2013-14 and the Revenue has accepted the same. In the background of the aforesaid discussion and precedent, we set aside the order of the authorities below and decide the issue in favour of the assessee. Hence, the transfer pricing adjustment stands deleted. Apropos ground no. 3 – Disallowance of expense & tax depreciation pertaining to Chennai Unit:
  4. Brief facts of the case are as under:

Jabil Circuit India Private Limited On this issue, the A.O. noted that the business in the Chennai unit of the assessee had been discontinued for many years and no business operations were carried on from there and part of the premises had been given on rent from which the assessee had disclosed income under the head “income from house property”. The assessee was asked to explain as to why the depreciation and expenses pertaining to the Chennai Unit should not be disallowed as the same had been let out and income from the same had been offered under the head income from house property. Further, the assessee was also asked to furnish the details of depreciation and expenses pertaining to the discontinued business of the Chennai unit. In response to the same, the assessee vide letter dated 04.03.2016, 15.03.2016 & 18.03.2016 submitted their explanation. The assessee relied upon the various judicial pronouncements including the decision of Hon’ble Supreme Court in the case Virmani Industries Pvt, Ltd. 216 ITR 607 and Hon’ble Bombay High Court in the case of Estate and Finance Ltd. 111 ITR 119 and other judgments and submitted that depreciation claimed is in respect of assets of the non-functional plant and the same is based on provisions of the Act, As regards the claim of expenditure on discontinued business of the Chennai unit, the assessee relied upon the decision of Hon’ble Supreme Court in the case of Produce Exchange Corporation (77 ITR 739). By relying upon the above judgement the assessee submitted that expenses incurred in connection with assets of discontinued segment of business which is part of overall business which is still continued should be allowed as business deduction, it was further submitted by the assessee that the concept of continuance of business needs to be seen with regard to business as a whole and not as individual plant pertaining to the same business.

Jabil Circuit India Private Limited

  1. The A.O. considered the submissions of the assessee. He observed that apart from relying upon the judicial judgements regarding the claim of depreciation and expenses, the assessee had only furnished the details of expenses pertaining to the discontinued business. In respect of depreciation pertaining to the Chennai unit, the assessee had not furnished the quantum of depreciation claimed in spite of being specifically asked for the same vide order sheet hearing dated 09.03.2016. He noted that that the Chennai SEZ unit has discontinued operations since 01.04.2009 which implied that the said unit had been totally closed off and it could not be considered as a case of temporarily stopping of business.
  2. He also noted that the assessee had leased out certain portion of the Chennai SEZ unit as discussed above. The assessee has shown income from such leasing out as income from house property and claimed deduction u/s. 24. In respect of computation of income under the head income from house property, the only deduction available is u/s. 24 of Income Tax Act, 1961. Apart from the above expenditure no other expenses was to be allowed in respect of income from house property. The assessee had claimed total expenditure of Rs.4,53,99,000/- in respect of Chennai SEZ unit. Out of the above, the assessee has suo-motu disallowed expenses of Rs,1,39,92,000/- pertaining to repairs and maintenance. Thus, the assessee had claimed balance expenditure of Rs.3,14,07,000/- pertaining to discontinued business of Chennai unit, the income from which had been shown under the head income from house property. From the perusal of the details of expenditure furnished by the assessee, it was seen that it includes major expenses on Jabil Circuit India Private Limited account of exchange difference of Rs. 1,96,30,000/-, electricity of Rs.39,06,000/- and repairs & maintenance (others) of Rs.48,58,000/-. The A.O. observed that the business of SEZ unit is discontinued from 01.04.2009, hence, there was no justification or any justification furnished by the assessee for claiming exchange loss of Rs.1,96,30,000/-. Further, the other expenses claimed also were not allowable as the assessee had shown the income from the Chennai SE2 unit under the head income from house property. He was of the opinion that it was immaterial as to whether the entire unit was leased out or part of it was only leased out. When income from any capital asset had been offered under the head income from house property the expenses allowable will be those available under that head. In view of the above discussion the claim of the assessee for expenditure of Rs.3,14,07,000/- (4,53,99,000-1,39,92,000) was disallowed as expenditure not incurred for the purpose of the business and added back to the total income of the assessee in the draft assessment order.
  3. The assessee did not furnish the quantum of depreciation of Chennai SEZ unit, the income from which was shown under the head income from house property. From the perusal of the tax audit report it was seen by the A.O. that the assessee had claimed depreciation of Rs.8,15,88,309/- in respect of building @ 10%. As per the submission of the assessee, it has 3 units, i.e., Rajangaon DTA unit & EHTP unit and Chennai SEZ unit. In absence of any details furnished by the assessee in this regard, 1/3rd of the depreciation claimed on the building amounting to Rs.2,71,85,103/- was disallowed by the A.O. as the depreciation pertaining to the Chennai SEZ unit, the income of which had been offered Jabil Circuit India Private Limited under the head income from house property. The A.O., however, stated that on furnishing of detail with supporting documents regarding the depreciation pertaining to Chennai SEZ unit, the addition in this regard would be modified accordingly. It is against these two actions of the A.O. of (i) disallowing the depreciation and (ii) disallowing the expenditure, in respect of the Chennai unit that the assessee has filed the objection before DRP.
  4. As regards the issue of disallowance of expense of a Chennai unit, the DRP confirmed the action of the A.O. by observing as under:

12.9 We have considered the facts of the case and the submissions made by the assessee. As stated earlier, there is no dispute on the fact that no business operation have been/ are being carried out from the Chennai premises from the last many years. In fact, the assessee has also admitted to the fact that the activities of the Chennai Unit stand discontinued since 2009. Therefore, it is clear that this is also not a case of temporary discontinuance of business. Rather, the business has been completely stopped in this unit. The assessee has also not furnished any evidence before us to show that any sort of business operations are going on from this premises or that the premises are been maintained for any sort of business purpose, Under the circumstances, the assessee has not been able to furnish any satisfactory explanation before us as to how the expenses on account of electricity of Rs.39,06,000/-, repairs and maintenance of Rs.48,58,000/- etc., can be said to have been incurred wholly and exclusively for the purposes of the business carried on by the assessee. Once the disallowance has been made by the A.O., the onus is on the assessee to show that the expenses have been correctly claimed as per the provisions of the Act. The assessee has failed to do so before us. The details and nature of repairs and maintenance claimed as an expenditure has neither been explained nor have they been furnished before us.

12.10 As regards the claim of expenses on account of exchange difference, all that the assessee has submitted before us is that this is on account of restatement of noncapital creditors, it Is clear that this is only a notional loss and not a real loss incurred by the assessee. Therefore, the same cannot be allowed as a deduction. The assessee has also not furnished any details or documents in connection with this loss claimed by it so as to enable us to examine the genuineness of the same. Under the circumstances, the loss claimed by the assessee cannot be allowed as a deduction. In view of the aforesaid reasons, we uphold the action of the A.O. of Jabil Circuit India Private Limited disallowing the expenditure of Rs.3,14,07,000/- claimed by the assessee in respect of the Chennai unit.

  1. As regards, the issue of disallowance of deprecation, the DRP confirmed the action of the A.O. by holding as under:

8.6 We have considered the facts of the case and the submission made by the assessee. There is no dispute on the fact that no business operations have been/are being carried out from the Chennai premises from the last many years. In fact, the assessee has also admitted to the fact that the activities of the Chennai Unit stand discontinued since 2009. Therefore, it is clear that this is also not a case of temporary discontinuance of business. Rather, the business has been completely stopped in this unit. The assessee has also not furnished any evidence before us to show that any sort of business operations are going on from this premises or that the premises are been maintained for any sort of business purpose. There is also no dispute on the fact that the AO has sought to disallow the depreciation claimed by the assessee in respect of the fixed assets of the Chennai Unit. As per the provisions of the IT Act, 1961 for any asset to be eligible for the claim of deduction on account of depreciation:-

(a) it should be owned wholly or partly by the assessee and

(b) used for the purposes of business or profession. 8.7 Both the above conditions are required to be satisfied. However, in the present case it is an admitted position that the assets have not been used for the purposes of business of profession. Therefore, deduction on account of depreciation is clearly not allowable to the assessee. 8.8 The assessee has argued that the assets of the Chennai Unit are part of the block of assets and hence till the assets are discarded, sold etc., depreciation cannot be denied on these assets till the assets are part of the block of assets and till the block of assets get exhausted or its WDV becomes NIL. 8.9 We do not agree with the above argument of the assessee. As pointed out earlier, the depreciation is allowable under the IT Act only if the asset is used for the purposes of business of profession of the assessee. (n this case, since the asset has not been AO used, the deduction will not be available on such assets. A block of asset is a sum of individual assets. Therefore, while computing the depreciation, it is the bounded duty of the assessee not to claim depreciation on these individual assets not used for the purposes of its business and work out the depreciation only on the assets used for the purposes of its business. If the assessee arguments have to be accepted, it will lead to logical a result which does not have sanction under the Act. Suppose a block of asset consists of 10 different individual assets, each valued at Rs.10/-. The value of such block of assets would, therefore, be Rs.100/-. Now, if 9 out of these 10 individual assets are never used for the purpose of business and it computes the depreciation on all the 10 items, it would be claiming Jabil Circuit India Private Limited excess depreciation to the extent of 9 assets, when the same have never been used for the purposes of the business. This cannot be closely allowed. In view of the aforesaid reasons, no depreciation can be allowed to the assessee. 8.10 The assessee has placed reliance on some decisions to support its claim. however, find that these decisions are on absolutely different issues having no relevance to the facts of the assessee’s case. We, therefore, do not feel the necessity to discuss these cases here. Since the assessee has not furnished the details of the assets relating to the Chennai Unit and has also not given details of the depreciation claimed on these assets, we uphold the action of the AO of disallowing the depreciation in the manner computed by him.

  1. Against the above order, the assessee is in appeal before us.
  2. We have heard both the counsel and perused the records. In this regard, the ld. Counsel of the assessee has made the following proposition along with the case laws:

(I) Expenses pertaining to any unit, even if closed, forming part of the same business, control and management cannot be disallowed Veecumsees vs C1T (SC) [220 ITR 185] Indo Rama Synthetics (I) Ltd (228 CTR 278) (Del HC) CIT vs. D.C.M Ltd (Delhi HC) [320 ITR 307] CIT vs. Tata Chemicals Ltd (Bombav HC) [256 ITR 395] Bansidhar Pvt Ltd vs. CIT (Guj HC) [127 ITR 65] CIT vs. K. Ravindranath Nair (SC) [247 ITR 178] (II) Once an individual asset forms part of the block, it losses its separate identity, and therefore depreciation cannot be disallowed CIT vs. G R Shipping Limited (Bombay HC) (2009) ACIT vs. S.K Patel Family Trust (251 CTR 427) (Gujarat HC) CIT vs. Sonal Gum Industries ( 322 ITR 542) (Gujarat HC) Unitex Products Ltd vs ITO (22 SOT 429) (Mumbai ITAT) E-City Entertainment India (P) Ltd vs. Addl CIT (24 ITR 73) (Mumbai Tribunal) DCIT vs. Finolex Cables Ltd {114 TTJ 785) (Pune ITAT) Cellica Developers (P) Ltd vs. DCIT (63 SOT 255) (Kolkata ITAT) Coromandal Bio Tech Industries (I) Ltd vs. DCIT (51 SOT 333) (Hyderabad ITAT) Natco Exports 86 ITD 445 (Hyderabad ITAT) Jabil Circuit India Private Limited

  1. Per contra, the ld. Departmental Representative relied upon the orders of the authorities below.
  2. The ld. Counsel of the assessee also submitted before us a letter addressed to The Development Commissioner, MEPZ SEZ, Tambaram, Chennai regarding the present position of the Chennai unit. The said letter reads as under:

Sub: Request for extension of LOP No. 8/4/2 0067 NOKIA SEZ dated 21.7.2006 as amended by Letter dated 20.6.2007.

We had been issued above-mentioned Letter of Permission for setting up a SEZ Unit in Nokia Telecom SEZ in Sriperumbudur, Tamil Nadu. The unit commenced production on 27.06.2007, as has been communicated to you vide our letter No. GMM/JCIPL/ OCMEPZ/ 030/07 -08 dated 11.07.2007.

However, due to a global economic slowdown, the unit was unable to get sufficient manufacturing orders compelling the unit to cease operations from 1st April 2009. We had informed your office of this development and also sought permission to debond the unit vide our Letter dated 26th March 2009 (copy enclosed). Subsequently, we have been disposing off the capital goods imported by us for our initial projects as and when we are able to find a buyer for the same.

However, in the meanwhile, we have also been looking for fresh business opportunities to uitilize the plant constructed by us with a view to revive operations, so that the infrastructural asset in the form of a state-of-the art- manufacturing plant. Our efforts over the years have been met with positive results and global customers have shown keen interest in awarding us business, which we can cater to in the facility set up by us.

In view of these developments, we would request you to kindly extend the existing LOP for a further period of five years from 2012-13 to 2016-17. We enclose the Foreign Exchange Balance Sheet for the further 5-year period as required by you. We also enclose copies of all the past year’s Annual Performance Reports duly certified by Chartered accountant for your ready reference. We request you to kindly extend the LOP for the further period of 5-years to enable us to revive operations and serve our customers. We thank you for your understanding and cooperation in this regard.

Jabil Circuit India Private Limited

  1. Upon careful consideration, we note that the authorities below are quite correct in holding that it is undisputed fact that no business operation have been/are being carried out from the Chennai premises for the last many years. The DRP has noted that the assessee has admitted to the fact that the activities of the Chennai unit stand discontinued since 2009. Furthermorae, from the letter to The Development Commissioner, Chennai produced before us by the ld. Counsel of the assessee, it is further fortified that the operation of the business unit has not only been discontinued; rather, the assessee is in the process of disposing of the capital goods imported by them for the initial period.

The assessee is leasing out part of premises and offering the income therefrom as income from house property. The assessee itself has disallowed expenses of Rs.1,39,92,000/- pertaining to repair and maintenance and claims the balance expenditure of Rs.3,14,07,000/-.

Hence, we find ourselves in agreement with the finding of the DRP that this is a clear case that it is not a temporary discontinuation of the business, rather, the business has been completely stopped at this unit. In these circumstances, when there is a complete stoppage of the business and the assessee is offering income from leasing from the unit as income from house property, there is no question of allowance of expenses or depreciation in this regard. In our considered opinion, the orders of the authorities below do not have any infirmity in this regard.

  1. As regards the case laws referred by the ld. Counsel of the assessee, we find that the authorities below have rightly distinguished the same as not applicable on the facts of Jabil Circuit India Private Limited the case, where there is a complete stoppage of business, the assessee is offering income from the unit as income from house property itself disallowing part of expenditure not furnishing details of depreciation expenditure and accepting that it is disposing of the capital goods imported by them. Hence, it is not a case of closure of a unit simpliciter, rather, a change in the nature of the income from business to house property for the unit. Similarly, it is not just a case of part of machinery in a block, rather, closer of the whole unit and discontinuation of the operation of the unit as income generating unit. Hence, the case laws referred by the ld. Counsel of the assessee are not applicable. Accordingly, this order of the A.O. is affirmed.
  2. In the result, these appeals of the assessee are partly allowed.
 

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