Tribunal remits transfer pricing and inventory issues, rejects software expenditure disallowance.

The Tribunal allowed the appeal for statistical purposes, remitting specific issues back to the AO/TPO for further consideration. The Transfer Pricing Adjustment issue was remanded to determine the Arm's Length Price of royalty payments using the Transactional Net Margin Method. The Disallowance of Provision for Slow and Non-Moving Inventory was sent back for verification of the stock items. The Disallowance of Expenditure on Software and Depreciation on Assets Purchased on Slump Sale grounds were rejected as not pressed. The Tribunal directed the AO to provide any consequential relief under section 234D as per the law.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Disallowance of Expenditure on Software
3. Disallowance of Provision for Slow and Non-Moving Inventory
4. Disallowance of Depreciation on Assets Purchased on Slump Sale

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment:

The assessee company, engaged in the manufacture of automobile parts, entered into various international transactions with its associated enterprises (AEs). The transactions included the purchase of raw materials, payment of royalty, technical assistance fees, and other related expenses. The Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP). The TPO accepted the Transactional Net Margin Method (TNMM) for most transactions but used the Comparable Uncontrolled Price (CUP) method for royalty payments, ultimately determining the ALP for royalty payments at 'Nil'. The assessee argued that the royalty payments were interlinked with other transactions and should be aggregated under TNMM. The Tribunal found that the payment of royalty was independent and could be analyzed separately. It was held that TNMM was the most appropriate method for determining the ALP of royalty payments. The issue was remitted to the AO/TPO to determine the ALP of royalty by adopting TNMM after giving the assessee a fair opportunity of hearing.

2. Disallowance of Expenditure on Software:

The issue of disallowance of expenditure on software was not pressed by the assessee during the hearing. Consequently, this ground of appeal was rejected as not pressed.

3. Disallowance of Provision for Slow and Non-Moving Inventory:

The assessee made a provision for slow/non-moving items, arguing that these items were redundant due to the discontinuation of the 'Qualis' model. The AO disallowed the provision, stating that the phasing out of Qualis started in earlier assessment years and the treatment of stock as dead stock was premature. The Tribunal found that the inventory consisted of components used to manufacture spare parts for Qualis, which needed verification. The issue was remitted to the AO for de novo consideration to verify whether the items in stock were spare parts or components of spare parts. If not found to be spare parts, the provision should be allowed.

4. Disallowance of Depreciation on Assets Purchased on Slump Sale:

The assessee did not press the grounds against the disallowance of depreciation on assets purchased on slump sale. Consequently, this ground of appeal was rejected as not pressed.

Interest u/s 234D:

The Tribunal directed the AO to give consequential relief, if any, in accordance with the law.

Conclusion:

The appeal was treated as allowed for statistical purposes, with specific issues remitted back to the AO/TPO for further consideration and determination. The Tribunal pronounced the judgment in the open court on 22nd October 2014.

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