2013 (11) TMI 521 - AT - Income Tax

Tribunal decision: Adjustments deleted, disallowances upheld, donation deduction allowed.

Redington (India) Ltd. Versus Additional Commissioner of Income-tax, Company Range - V, Chennai

The Tribunal partly allowed the appeal, deleting adjustments and disallowances where appropriate. The adjustment to international transactions was deleted ... Adjustment of arm's length price - Uncontrolled transaction - Held that:- when the Associate Enterprise had sold the items to the assessee at the same price at which it had purchased it, there cannot be any arm's length price adjustment done, unless and until the original vendor was also an Associate Enterprise. Here, admittedly, M/s Intel Semiconductor Limited was not an Associate Enterprise of assessee or its Associate Enterprise in Singapore. Therefore, we cannot say that the price at which M/s Intel Semiconductor Limited sold to Redington Distribution Pvt. Ltd., Singapore, was not at arm's length price - when Redington Distribution Pvt. Ltd. sold the items to assessee at very same price at which it had purchased from M/s Intel Semiconductor Limited, there cannot be any question of under pricing or over pricing - adjustment carried out by the lower authorities, based on list price, on the purchase of 1250 Pentium IV processors from Associate Enterprise was not called for. Such adjustment, therefore, stands deleted - Decided in favour of assessee. Disallowance of depreciation - claim of 100% depreciation - Held that:- Nothing has been brought on record by the assessee to show that erection of office cabins, partitions, installation charges, flooring charges, waterproofing treatment, etc. were in the nature of pure temporary erections which alone qualified for 100% depreciation. In such circumstances, we are of the opinion that Assessing Officer was justified in making a disallowance to the extent of Rs. 1,06,25,793/-. No interference is required - Decided against assessee. Disallowance of royalty - Non-deduction of tax - Held that:- assessee was obliged to deduct tax at source at the time when credit was given to M/s Microsoft Corporation Inc. No doubt, Hon'ble Apex Court in the case of GE India Technology Centre (P.) Ltd. (2010 (9) TMI 7 - SUPREME COURT OF INDIA) has clearly held that a person is bound to deduct tax at source only when the sum paid is assessable to tax in India. Here, there is no dispute that the sum paid to M/s Microsoft Corporation Inc. was taxable in India. In such a situation, in our opinion, contention of the assessee that only the net amount actually paid could be considered for effecting deduction of tax at source, cannot be accepted. Assessee was obliged to deduct tax at source when credit entries were passed in its books based on invoices or demands raised by M/s Microsoft Corporation Inc. In our opinion, lower authorities were justified in applying Section 40(a)(i) of the Act, to the extent assessee failed to make such deduction. No interference is required - Decided against assessee. Issues Involved:1. Adjustment to international transactions.2. Disallowance of depreciation claim.3. Disallowance for non-deduction of tax on royalty payment.4. Disallowance for non-deduction of tax on payment to International Finance Corporation.5. Disallowance of claim under Section 80G.6. Credit for TDS not given.Detailed Analysis:1. Adjustment to International Transactions:The assessee contested an adjustment of Rs. 10,89,404/- made to certain international transactions. The assessee, engaged in distributing and servicing IT products, procured products from Redington Distribution Pvt. Ltd., Singapore, and sold them in India. The Transfer Pricing Officer (TPO) used the Comparable Uncontrolled Price (CUP) method to compare prices of items purchased and sold by the assessee. The TPO found that the price paid for 1250 Pentium IV processors was in excess of the list price and that an item sold to an Associate Enterprise was priced lower than to unrelated parties. The assessee argued that the list price was indicative and not in the public domain, preferring the Transaction Net Margin Method (TNMM). The TPO and Dispute Resolution Panel (DRP) did not accept this, leading to the adjustment. The Tribunal found that the price at which the Associate Enterprise sold to the assessee was the same as the price at which it bought from Intel Semiconductor Limited, hence no adjustment was warranted. The adjustment was deleted.2. Disallowance of Depreciation Claim:The assessee claimed 100% depreciation on expenses for office cabins, partitions, and other installations, considering them temporary structures. The Assessing Officer (AO) allowed only Rs. 8,61,265/- out of the total claim of Rs. 1,14,87,058/-, disallowing Rs. 1,06,25,793/-. The DRP upheld this disallowance, noting that only purely temporary erections like wooden structures qualify for 100% depreciation. The Tribunal agreed, stating that the assessee had categorized these expenses as capital outgo and had not shown them as revenue expenses. The disallowance was confirmed.3. Disallowance for Non-Deduction of Tax on Royalty Payment:The assessee paid royalty to Microsoft Corporation Inc. and deducted tax at source on the net amount after considering credit notes for returns. The AO disallowed Rs. 64,58,193/- for non-deduction of tax on the gross amount. The DRP upheld this, noting that the assessee did not produce ledger folios to substantiate its claim. The Tribunal agreed, stating that tax should be deducted at the time of credit or payment, whichever is earlier, and the gross amount billed by Microsoft Corporation Inc. was chargeable to tax. The disallowance was upheld.4. Disallowance for Non-Deduction of Tax on Payment to International Finance Corporation:The assessee made a provision for consultancy charges payable to IFC without deducting tax at source, arguing that IFC's income was not taxable in India. The AO disallowed Rs. 35 lakhs under Section 40(a)(i). The DRP confirmed this, but the Tribunal noted that the applicable law was the International Finance Corporation (Status, Immunities and Privileges) Act, 1958, which might exempt IFC's income from Indian tax. The issue was remitted back to the AO for fresh consideration.5. Disallowance of Claim under Section 80G:The assessee claimed a deduction for a donation of Rs. 5 lakhs to Vidya Mandir, which had approval under Section 80G. The lower authorities disallowed this claim. The Tribunal found that the donation was eligible for deduction and directed the AO to grant it.6. Credit for TDS Not Given:The assessee claimed that credit for TDS of Rs. 13,24,891/- was not given. Both parties agreed that this issue required a fresh look by the AO. The Tribunal remitted the issue back to the AO, directing that credit be given if the assessee could produce the TDS certificate and show that the income was included in the assessment year.Conclusion:The appeal was partly allowed, with adjustments and disallowances being deleted or remitted back for fresh consideration as appropriate.