TP Adjustment Remanded, Depreciation Claim Allowed, Commission Provision Dismissed. Cross Appeals Partly Allowed

The Tribunal remanded the Transfer Pricing (TP) Adjustment issue for re-evaluation, allowed the depreciation claim on plant and machinery, and dismissed the grounds related to the provision for commission. The cross appeals and Cross Objection were partly allowed for statistical purposes.

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Issues Involved:
1. Transfer Pricing (TP) Adjustment
2. Disallowance of Depreciation on Plant & Machinery
3. Disallowance of Provision for Commission

Issue-wise Detailed Analysis:

1. Transfer Pricing (TP) Adjustment:
The case involves three appeals, including a Cross Objection by the assessee and two cross appeals for the AY 2009-2010, filed against the orders of the DRP/TPO/AO. The assessee, engaged in trading life-saving devices, filed a return declaring a loss of Rs. 2.59 Cr under normal provisions and book profits of Rs. 21.40 Cr under section 115JB. The AO noted many international transactions with Associated Enterprises (AEs). The assessee, a 100% subsidiary of Medtronic International Ltd, Hong Kong, which is a subsidiary of Medtronic USA, had booked significant AMP expenses. The TP study applied the TNMM method, determining the PLI (OP/OR) at 13.12%, benchmarking it at 5.37%, and concluding that transactions with AE were at Arm's Length Price (ALP). However, the TPO rejected the TP analysis and comparables, applying the "Bright Line Test" (BLT), and suggested an adjustment of Rs. 19.45 Cr. The DRP directed the AO to re-compute AMP expenses, considering only 50% of total personal and traveling costs, leading to an adjustment of Rs. 20.02 Cr.

The Tribunal considered the Delhi High Court's judgment in Sony Ericsson Mobile Communications India Pvt Ltd, which overruled the Special Bench decision in LG Electronics India Limited, rejecting BLT and endorsing a 'bundled approach'. The Tribunal remanded the issue to the AO/TPO to apply the principles laid down by the Delhi High Court, verifying figures and calculations but restricting the scope to benchmarking AMP transactions without re-examining other accepted transactions.

2. Disallowance of Depreciation on Plant & Machinery:
The assessee, engaged in manufacturing and trading life-saving devices until 2002, faced disallowance of depreciation on non-used plant and machinery. The AO denied depreciation, citing non-use since 2002, relying on Allied Photographics India Ltd vs. ITO and Gulati Saree Centre vs. ACIT. The DRP confirmed the disallowance. The assessee argued that once assets are part of the 'block of assets', they cannot be separated, citing section 2(11) and various judicial precedents. The Tribunal noted that the CIT(A) had allowed depreciation in AY 2007-2008, and the Revenue had not appealed against it. Emphasizing the principle of consistency, the Tribunal allowed the depreciation claim for AY 2009-2010.

3. Disallowance of Provision for Commission:
The assessee did not press grounds related to the disallowance of provision for commission amounting to Rs. 30,02,672, as the AO allowed the claim on payment/reversal basis. Consequently, the Tribunal dismissed these grounds as not pressed.

Conclusion:
The Tribunal remanded the TP adjustment issue for re-evaluation, allowed the depreciation claim on plant and machinery, and dismissed the grounds related to the provision for commission. The cross appeals and Cross Objection were partly allowed for statistical purposes.

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