2015 (12) TMI 1673 - AT - Income Tax

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 ... TP adjustment of AMP expenditure - Held that:- Making adjustments to AMP expenses segregated from the ‘bundled transactions’ will only lead to the situation of making additions thereby increasing PLI unfairly. Regarding the fetters to the AO, we find that the assessee has considered the benchmarking of the AMP transactions in his TP studies. The TPO’s order is selfexplanatory regarding the rejection of the said comparables and thrusting of his five comparables. On these facts, we find that in the remanding proceedings, AO/TPO shall consider the same comparables when resorting to any search in this regard. The question of benchmarking other international transactions, which were accepted by the TPO and the AO should not arise in the remanding proceedings as they should not be given second chance merely because of the Hon’ble Delhi High Court judgment in the case of Sony Ericsson (2015 (3) TMI 580 - DELHI HIGH COURT ). However, TPO is free to re-use his data, which is already on record so far as benchmarking of the AMP transactions considering the rejection of the BLT, by the Delhi High Court. Further, TPO is directed to apply all the principles laid down by the Hon’ble Delhi High Court in the case of Maruti Suziki India Limited vs. CIT [2015 (12) TMI 634 - DELHI HIGH COURT] in the remand proceedings in the matters of the requirement of benchmarking the AMP transactions. Disallowance of depreciation on the plant & machinery and building - Held that:- The issue was decided by the CIT (A) in favour of the assessee for the AY 2007-2008 and the Revenue has not filed any appeal against the said decision of the CIT (A) before the Tribunal. It is not clear, whether the Ld DR is aware of the reasons for not the filing of the appeal before the Tribunal for the AY 2007-2008. Considering the same, we are of the opinion, when the plant and machinery relating to the manufacturing activity is one and the same. The Department is accepted to follow that the set ‘principle of consistency’ in matters relating to the claim of depreciation on the plant & machinery, which is the part of the ‘block of assets’ of plant & machinery. Therefore, after verifying the records pertaining to the assessment year prior to the AY 2009- 2010, thus we are of the opinion that is the same is allowed in earlier years. We order accordingly. Issues Involved:1. Transfer Pricing (TP) Adjustment2. Disallowance of Depreciation on Plant & Machinery3. Disallowance of Provision for CommissionIssue-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.