Appeal partly allowed for depreciation and expenses, transfer pricing issue remitted for fresh determination

The Tribunal partly allowed the appeal, providing relief to the assessee on several grounds, including depreciation on ITG Networking equipment, company-owned vehicles, and running and maintenance expenses. The Tribunal remitted the transfer pricing adjustment issue for fresh determination. The order was pronounced on 30.06.2015.

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Issues Involved:
1. Disallowance of depreciation on ITG Networking equipment.
2. Disallowance of depreciation on company-owned vehicles.
3. Disallowance of running and maintenance expenses of vehicles.
4. Non-compliance with DRP's direction regarding charging of interest u/s 234A.
5. Addition on account of transfer pricing adjustment.
6. Disallowance of prior period expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on ITG Networking Equipment:
The first issue concerns the disallowance of depreciation on ITG Networking equipment by reducing the rate from 60% to 25%. The Tribunal noted that the issue had been previously addressed in the assessee's favor for the assessment year 2006-07, where a higher rate of depreciation was accepted based on the Special Bench order in DCIT vs. Data Craft India Ltd. and the Delhi High Court's decision in CIT vs. BSES Yamuna Powers Ltd. No distinguishing features were presented for the current year, leading the Tribunal to decide this issue in favor of the assessee.

2. Disallowance of Depreciation on Company-Owned Vehicles:
The second issue pertains to the disallowance of depreciation on company-owned vehicles amounting to Rs. 1,85,45,102/-. The Tribunal found that the vehicles were provided to employees for their use, and the AO's disallowance was based on the personal use of these vehicles. Citing the Delhi Bench decision in DCIT vs. Haryana Oxygen Ltd. and the Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT, the Tribunal held that such use by employees cannot be considered non-business use. The Tribunal ordered the deletion of the disallowance.

3. Disallowance of Running and Maintenance Expenses of Vehicles:
The third issue involves the disallowance of Rs. 1,28,88,973/- towards running and maintenance expenses of vehicles. The AO disallowed 50% of these expenses for non-business purposes. The Tribunal found that the issue was covered by the same judgments as the depreciation issue and ordered the deletion of the addition.

4. Non-Compliance with DRP's Direction Regarding Charging of Interest u/s 234A:
The fourth issue is about the AO's non-compliance with the DRP's direction regarding the charging of interest u/s 234A. The DRP had directed the AO to verify the facts regarding the filing date of the return and take appropriate action. The Tribunal set aside the assessment order on this issue and directed the AO to comply with the DRP's direction, allowing the assessee a reasonable opportunity of hearing.

5. Addition on Account of Transfer Pricing Adjustment:
The fifth issue concerns the addition of Rs. 43,28,67,761/- on account of transfer pricing adjustment. The assessee, a subsidiary of MS Corp, reported international transactions, including 'Provision of marketing support services.' The TPO shortlisted six comparables, resulting in a proposed adjustment. The Tribunal examined the functional profile of the assessee and the comparables, directing the exclusion of four companies (TSR Darashaw, TCE Consulting Engineers Ltd., Vimta Labs Ltd., and WAPCOS) from the final set due to functional dissimilarity. The Tribunal set aside the impugned order and remitted the matter to the TPO/AO for fresh determination of the ALP, allowing a reasonable opportunity of being heard to the assessee.

6. Disallowance of Prior Period Expenses:
The sixth issue involves an additional ground raised by the assessee regarding the disallowance of Rs. 207,549 as prior period expenses. The Tribunal admitted this legal ground and directed the AO to decide the issue in conformity with the directions given for the assessment year 2006-07.

Conclusion:
The Tribunal partly allowed the appeal, providing relief to the assessee on several grounds, including depreciation on ITG Networking equipment, company-owned vehicles, and running and maintenance expenses, while remitting the transfer pricing adjustment issue for fresh determination. The order was pronounced in the open court on 30.06.2015.

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