ITAT allows assessee's appeal for re-examination of transfer pricing adjustments, dismisses department's appeal on depreciation.

The ITAT allowed the assessee's appeals for statistical purposes, directing a re-examination of the transfer pricing adjustments by the AO/TPO. The department's appeal regarding the disallowance of depreciation was dismissed, affirming the CIT (A)'s decision to allow the depreciation claim.

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Issues Involved:
1. Transfer pricing adjustment for interest on delayed payments from Associated Enterprises (AE).
2. Disallowance of depreciation on plant and machinery not used by the assessee company.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment for Interest on Delayed Payments from AE:

The assessee, engaged in trading personal care products, filed returns declaring losses and nil income for assessment years 2008-09, 2009-10, and 2010-11. The Assessing Officer (AO) made transfer pricing adjustments for non-charging of interest on delayed payments from AE. For the year 2008-09, the adjustment was Rs. 2,25,50,540/-, for 2009-10 it was Rs. 1,58,33,490/-, and for 2010-11 it was Rs. 1,59,24,926/-. The assessee contended that the transactions were at arm’s length and that the interest on overdue receivables should not be treated as a separate international transaction. They argued that the receivables were already factored into the working capital adjustments and cited various judicial precedents supporting their stance. The ITAT referred to the Delhi High Court judgment in Principal CIT vs. Kusum Health Care Pvt. Ltd., which emphasized that each case must be investigated individually to determine if the delayed receivables constitute an international transaction. The ITAT directed the AO/TPO to re-examine the issue, considering the impact of receivables on working capital and whether the arrangement benefits the AE.

2. Disallowance of Depreciation on Plant and Machinery:

For the assessment year 2010-11, the AO disallowed Rs. 5,31,53,415/- as depreciation on plant and machinery, claiming they were not used by the assessee but by M/s Rialto Enterprises Pvt. Ltd. The Commissioner of Income Tax (Appeals) [CIT (A)] allowed the depreciation, stating that the machinery was used for the business of the assessee, even if not directly by them. The ITAT upheld the CIT (A)'s decision, relying on the Supreme Court judgment in ICDS Ltd. vs. CIT, which clarified that assets need not be used by the assessee themselves but must be used for the business purpose. The ITAT confirmed that the assessee met the conditions under Section 32 of the Income Tax Act, 1961, as the machinery was owned and used for business purposes, even though it was operated by another entity under an agreement.

Final Judgment:

The ITAT allowed the assessee's appeals for statistical purposes, directing a re-examination of the transfer pricing adjustments by the AO/TPO. The department's appeal regarding the disallowance of depreciation was dismissed, affirming the CIT (A)'s decision to allow the depreciation claim. The order was pronounced on 23rd August 2018.

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