Tax Appeal Allowed on Transfer Pricing & Depreciation, Exclusion of Comparables for Oracle Support

The Tribunal allowed the appeal of the assessee concerning transfer pricing adjustments and additional depreciation. The ground related to leave encashment was dismissed as not pressed. The Tribunal directed the exclusion of certain comparables for Oracle support services and allowed the adjustment after reevaluation. The order was pronounced on June 6, 2018.

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Issues Involved:
1. Transfer pricing adjustment on account of payment of fees for advisory and other services.
2. Determination of arm's length price for Oracle support services.
3. Disallowance of provision for privileged leave encashment and sick leave encashment.
4. Disallowance of balance additional depreciation claimed under section 32(1)(iia) of the Act.

Detailed Analysis:

1. Transfer Pricing Adjustment on Account of Payment of Fees for Advisory and Other Services:
The primary issue raised by the assessee was the transfer pricing adjustment of Rs. 9,57,57,501/- related to the payment of fees for advisory and other services to associated enterprises (AEs). The Transfer Pricing Officer (TPO) had determined the arm's length price (ALP) of these services as 'Nil', rejecting the Transactional Net Margin Method (TNMM) applied by the assessee and instead using the Comparable Uncontrolled Price (CUP) method. The Tribunal referred to its earlier decisions in the assessee's own cases for previous assessment years, where it had held that TNMM was the most appropriate method for benchmarking such transactions. The Tribunal directed the Assessing Officer (AO)/TPO to verify the margins of the comparables selected by the assessee and ensure they fall within the permissible range. Thus, the adjustment was deleted, and the ground was allowed.

2. Determination of Arm's Length Price for Oracle Support Services:
The second issue pertained to the transfer pricing adjustment of Rs. 44,57,685/- for Oracle support services provided to AEs. The TPO had rejected the comparables selected by the assessee and made an adjustment based on a new set of comparables. The Dispute Resolution Panel (DRP) modified the TPO's filters and included additional comparables, leading to an enhanced adjustment. The Tribunal observed that one of the comparables, Excel Infoways Ltd., showed fluctuating margins and was excluded in previous years. Following the same reasoning, the Tribunal directed the exclusion of Excel Infoways Ltd. from the final set of comparables and instructed the AO to recompute the ALP after providing a reasonable opportunity of hearing to the assessee. Thus, this ground was also allowed.

3. Disallowance of Provision for Privileged Leave Encashment and Sick Leave Encashment:
The assessee did not press this ground during the hearing, and hence, it was dismissed as not pressed.

4. Disallowance of Balance Additional Depreciation Claimed under Section 32(1)(iia) of the Act:
The final issue involved the disallowance of balance additional depreciation of Rs. 21,56,824/- on assets added to the block of Plant and Machinery during the financial year 2011-12. The assessee had claimed 50% of the additional depreciation in the subsequent year (2013-14) as the assets were used for less than six months in the initial year. The Tribunal referred to the Karnataka High Court's decision in CIT Vs. Rittal India (P.) Ltd., which held that the balance additional depreciation could be claimed in the subsequent year. Following this precedent, the Tribunal allowed the assessee's claim for additional depreciation.

Conclusion:
The appeal of the assessee was allowed on the grounds of transfer pricing adjustments and additional depreciation, while the ground related to leave encashment was dismissed as not pressed. The stay application filed by the assessee was dismissed as infructuous. The order was pronounced on June 6, 2018.

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