Tribunal directs fresh determination of ALP for AMP expenses, specific unit expenses for section 10A deduction, and upholds 60% depreciation claim on computer peripherals.

The Tribunal partly allowed the appeal by directing a fresh determination of the Arm's Length Price (ALP) for Advertising, Marketing, and Promotion (AMP) expenses, proper allocation of expenses for section 10A deduction, and allowed higher depreciation on computer peripherals as claimed by the assessee. The Transfer Pricing Officer's adjustment for AMP expenses was remanded for fresh determination following the High Court's guidance, and the allocation of expenses for section 10A deduction was to be based on specific unit expenses. Additionally, the Tribunal upheld the higher depreciation claim on computer peripherals at 60%.

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Issues Involved:
1. Transfer pricing adjustment towards Advertising, Marketing, and Promotion (AMP) expenses.
2. Reduction in the amount of deduction under section 10A of the Income-tax Act.
3. Allowing depreciation on computer peripherals at the correct rate.

Detailed Analysis:

1. Transfer Pricing Adjustment towards AMP Expenses:
The assessee, a wholly-owned subsidiary of a Japanese company, reported international transactions, which included AMP expenses. The Transfer Pricing Officer (TPO) proposed a transfer pricing adjustment of Rs. 1,79,94,337/- for AMP expenses, which was upheld by the Dispute Resolution Panel (DRP). The Special Bench in LG Electronics India Pvt. Ltd. Vs. ACIT held that AMP is an international transaction and the TPO has jurisdiction to compute its Arm's Length Price (ALP). The ALP should be determined using the Cost plus method, excluding selling expenses directly incurred in connection with sales. The Delhi High Court in Sony Ericson Mobile Communications India Pvt. Ltd. Vs. CIT upheld this view, stating that AMP expenses should be bundled with other distribution activities for determining ALP. If suitable comparables performing similar AMP functions are not available, the transactions should be segregated and processed separately. The Tribunal, following the High Court's judgment, set aside the TPO's order and remanded the matter for fresh determination of ALP, emphasizing the need to compare AMP functions performed by the assessee and comparables.

2. Reduction in Deduction under Section 10A:
The AO reduced the deduction under section 10A by apportioning total expenses between the Software Technology Park (STP) unit and non-STP unit based on turnover ratio. The assessee objected to this apportionment, arguing that specific expenses should be allocated directly to the respective units. The Tribunal agreed with the assessee, stating that STP-specific expenses should be directly allocated to the STP unit, and non-STP-specific expenses to the non-STP unit. Common expenses should be bifurcated based on turnover ratio. The matter was remitted back to the AO for fresh determination in line with these guidelines.

3. Depreciation on Computer Peripherals:
The assessee claimed depreciation on computer peripherals at 60%, which the AO restricted to 15%. The Tribunal referred to the jurisdictional High Court's judgment in CIT vs. BSES Yamuna Powers Ltd., which held that depreciation on computer peripherals should be allowed at 60%. Thus, the Tribunal allowed the assessee's claim for higher depreciation.

Conclusion:
The appeal was partly allowed. The Tribunal directed a fresh determination of AMP expenses' ALP, proper allocation of expenses for section 10A deduction, and allowed higher depreciation on computer peripherals as claimed by the assessee.

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