2014 (6) TMI 469 - AT - Income Tax

Tribunal rules in favor of appellant, overturns TP adjustments and disallowances by AO

Yamaha Motor India Sales Pvt. Ltd. Versus ACIT Circle 18(1), New Delhi

The Tribunal allowed the appeal, ruling in favor of the appellant by deleting the Transfer Pricing (TP) adjustment and disallowances made by the Assessing ... Difference in ALP determination - Transfer pricing adjustment - Incentive expenditure offered as discount need to be excluded from TP adjustment - the AMP attributable expenditure which is the amount received from AE, YMC, Japan by way of reimbursement and allowed by the TPO - Expenditure incurred on dealers meet cannot be held as advertisement expenses. Selection of Comparables – Held that:- comparables of Scooters India Ltd., is to be excluded for bright line test as it deals in manufacturing of three wheelers only & not 2 wheelers – also, comparables - LML Ltd. and Kinetic Motor Co. Ltd. should not have been excluded as they operate in the same field of manufacturing 2 wheelers, as done by assessee - the entire TP adjustment will stand deleted. Depreciation on computer peripheral – Held that:- Following COMMISSIONER OF INCOME TAX Versus BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. [2010 (8) TMI 58 - DELHI HIGH COURT] - Computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system -- the computer accessories and peripherals cannot be used without the computer - they are the part of the computer system, they are entitled to depreciation at the higher rate of 60% - Decided in favour of Assessee. Issues Involved:1. Validity of the assessment order under section 143(3) read with section 144C of the Income-tax Act, 1961.2. Discrepancy in the assessed loss.3. Addition due to difference in arm's length price (ALP) determined by Transfer Pricing Officer (TPO).4. Disallowance of expenses incurred on scholarships.5. Disallowance of depreciation on projectors.Detailed Analysis:1. Validity of the Assessment Order:The appellant challenged the assessment order passed by the Assessing Officer (AO) under section 143(3) read with section 144C of the Income-tax Act, 1961, arguing that it was bad in law and on facts. However, the judgment does not provide a detailed discussion on this issue, implying that the primary focus was on the substantive grounds of appeal.2. Discrepancy in the Assessed Loss:The AO assessed the loss of the appellant at Rs. 108,32,69,967/- against the declared loss of Rs. 130,56,81,684/-. This discrepancy primarily arose due to the adjustments made by the TPO concerning the arm's length price of international transactions.3. Addition Due to Difference in Arm's Length Price:The main issue pertained to the addition of Rs. 22,23,28,349/- due to the adjustment of the arm's length price related to advertisement and publicity expenses.- TP Adjustment on Advertisement and Publicity Expenses: The TPO considered Rs. 99,54,13,999/- as the expenditure on advertisement and publicity for TP adjustment. The appellant argued that Rs. 34,43,94,922/- incurred on discounts and incentives should be excluded, as per the Special Bench judgment in the case of L.G. Electronics India Pvt. Ltd. The Tribunal agreed with the appellant, stating that such expenses should not be considered as advertisement and publicity expenses.- Bright Line Test: The TPO applied a bright line percentage of 2.89% based on comparables (Majestic Auto Ltd. and Scooters India Ltd.). The Tribunal found that Scooters India Ltd. was not an appropriate comparable as it dealt in three-wheelers, not two-wheelers. The Tribunal also noted that LML Ltd. and Kinetic Motor Co. Ltd. should not have been excluded as comparables.- Reimbursement from AE: After excluding the discount and incentive expenses, the adjusted expenditure was less than the reimbursement received from the associated enterprise, Yamaha Motor Co., Japan. Therefore, no TP adjustment was required.4. Disallowance of Scholarship Expenses:The AO disallowed Rs. 60,750/- incurred on scholarships for employees' children. The Tribunal noted that this issue was covered in favor of the appellant by a previous judgment of the ITAT in the appellant's own case for the assessment year 2001-02. Consequently, this ground was allowed.5. Disallowance of Depreciation on Projectors:The AO restricted the depreciation on projectors to 15% instead of 60%. The Tribunal referred to several judgments, including the Hon'ble Delhi High Court's decision in the case of BSES Rajdhani Powers Ltd., which allowed 60% depreciation on computer peripherals. Respectfully following these precedents, the Tribunal allowed the higher depreciation rate.Conclusion:The Tribunal allowed the appeal, deleting the TP adjustment and disallowances made by the AO. The appellant's grounds concerning TP adjustments, scholarship expenses, and depreciation on projectors were all upheld in favor of the appellant. The judgment emphasized the importance of appropriate comparables and the exclusion of non-advertisement expenses in TP adjustments.