2021 (2) TMI 1327 - AT - Income Tax

Tribunal allows assessee's appeal for statistical purposes, dismissing Revenue's appeal on depreciation & insurance expenses.

M/s. Gillette Diversified Operations, Addl. CIT, Spcl. Range-4 Versus. DCIT, Circle – 10 (1), Pvt. Ltd.,  M/s. Gillette Diversified Operations,

The Tribunal allowed the assessee's appeal for statistical purposes, directing the Assessing Officer to re-examine the transfer pricing adjustment in ... TP Adjustment - interest on overdue receivables at LIBOR +350 basic points - HELD THAT:- As decided in assesee own case [2018 (8) TMI 2105 - ITAT DELHI] submitted by the Ld. AR that the impact of the outstanding receivables has been factored in the working capital adjustment. This aspect also requires verification. We also note that the Ld. CIT (A) did not have the benefit of this judgment of the Hon’ble Delhi High Court when he passed the impugned order. On an overall view of the facts of the case and respectfully following the ratio of Kusum Health Care Pvt. Ltd [2017 (4) TMI 1254 - DELHI HIGH COURT] we restore this issue to the file of the AO/TPO for the purpose of re-examining and re-considering the issue. In the circumstances, where of the considered opinion that this issue needs to be considered by the learned Assessing Officer in the light of the submissions now made by the Ld. AR in consonance with the view that is to be taken on this aspect for the earlier assessment years also. Non-grant of depreciation on Plant & Machinery - HELD THAT:- There is no denial of the fact that there is no change in facts and circumstances as well as law on this issue from the earlier assessment years and the facts and circumstances remain the same, rule of consistency demands that similar relief as has been allowed to the assessee in A. Y. 2010-11[2018 (8) TMI 2105 - ITAT DELHI] by the Tribunal has to be followed and relief has to be granted to the assessee. Insurance expenses - AO does not dispute the fact of assessee incurring the same and also the fact that in the earlier years it was neither disputed nor disallowed. Since the asset belongs to the assessee, the assessee was justified in claiming the insurance expenses because assets being Plant & Machinery and Moulds and risks of losses, if any, against which insurances had been taken by the assessee is to the account of assessee. We are, therefore, of the considered opinion that the amount paid towards insurance expenses were legally and properly allowable to the assessee as having been incurred wholly and exclusively for the purpose of business of the assessee. Order of the Ld. CIT(A) is, accordingly, upheld and both the grounds of appeal of the Revenue are dismissed. Issues Involved:1. Transfer pricing adjustment on account of interest on overdue receivables.2. Disallowance of depreciation on plant and machinery.3. Disallowance of insurance expenses on plant and machinery.Detailed Analysis:1. Transfer Pricing Adjustment on Account of Interest on Overdue Receivables:The assessee challenged the adjustment made by the Transfer Pricing Officer (TPO) regarding interest on overdue receivables, which was calculated at LIBOR plus 350 basis points. The TPO had initially held all international transactions at arm's length price but made an adjustment of Rs. 80,60,718/- due to outstanding receivables from associated enterprises (AEs) beyond the standard credit period of 60 days. The adjustment was based on an interest rate of 12.6% derived from the base rate of the State Bank of India with additional basis points for creditworthiness and risk assessment.The Tribunal noted that this issue had been previously considered in the assessee's own case for earlier assessment years (AY 2008-09 to AY 2010-11 and AY 2011-12), where it was directed that if the margins under the Transactional Net Margin Method (TNMM) declared by the assessee and those of comparables accounted for working capital adjustment, no adjustment for delayed receivables should be made. This was in line with the judgment of the Hon'ble Delhi High Court in Principal CIT Vs. Kusum Health Care Pvt. Ltd., which emphasized that not all receivables constitute an international transaction and the impact on working capital must be studied.The Tribunal restored this issue to the file of the Assessing Officer (AO)/TPO to re-examine it in light of the judgment in Kusum Health Care Pvt. Ltd., ensuring that a proper inquiry is conducted to discern a pattern indicating that the arrangement benefits the AE. The AO/TPO was instructed to pass a speaking order after giving the assessee an opportunity to present relevant workings and computations.2. Disallowance of Depreciation on Plant and Machinery:The Revenue challenged the deletion of disallowance of depreciation amounting to Rs. 10,03,84,485/- on plant and machinery. The AO had disallowed depreciation on the grounds that the assets were used by M/s. Rialto Enterprises (P) Ltd. for manufacturing goods for the assessee, and not directly by the assessee. The AO relied on the decision in Karan Raghav Exports (P) Ltd. v. CIT, arguing that the assets were not used for the assessee's business purposes.The Tribunal, however, upheld the CIT(A)'s decision, which followed the earlier orders for AY 2010-11 and AY 2011-12, granting relief to the assessee based on the judgments of the Hon'ble Supreme Court in ICDS Ltd. v. CIT and CIT v. H. B. Leasing & Finance Ltd. The Tribunal concurred that the assets used by M/s. Rialto Enterprises (P) Ltd. for producing goods for the assessee's business were eligible for depreciation, as 'used for the purposes of business' includes enabling the owner to carry on the business and earn profits. The Tribunal dismissed the Revenue's appeal on this issue, noting that the Revenue had accepted the Tribunal's decision for AY 2010-11 without further appeal.3. Disallowance of Insurance Expenses on Plant and Machinery:The Revenue also challenged the deletion of disallowance of insurance expenses amounting to Rs. 8,80,972/- on the same assets. The AO had disallowed these expenses for the first time in this assessment year, arguing that the assets were not used for the assessee's business purposes.The Tribunal upheld the CIT(A)'s decision, which allowed the insurance expenses, noting that the assets were owned by the assessee and insured by it. The Tribunal observed that the AO had not disputed the incurrence of these expenses in earlier years, where they were consistently allowed. The Tribunal concluded that the insurance expenses were legally and properly allowable as they were incurred wholly and exclusively for the assessee's business. The Tribunal dismissed the Revenue's appeal on this issue as well.Conclusion:The appeal of the assessee was allowed for statistical purposes, directing the AO to re-examine the transfer pricing adjustment in light of previous judgments. The appeal of the Revenue was dismissed, upholding the CIT(A)'s decisions on the disallowance of depreciation and insurance expenses. The order was pronounced on 3rd February 2021.