Assessee wins transfer pricing appeal on receivables adjustment but loses stock write-off claim

ITAT Delhi ruled on three transfer pricing and tax issues. Regarding TP adjustment on outstanding receivables, the Tribunal followed precedent from Kusum Health Care case and deleted the interest receivables adjustment where working capital adjustment was already made under TNMM, allowing assessee's appeal. For stock write-off disallowance, the Tribunal rejected assessee's contention as no expert third-party certificate was produced to prove inventory obsolescence, dismissing this ground. On excess depreciation claimed on fixed assets from NCR Corporation, the matter was restored to Assessing Officer for verification following previous Tribunal direction, allowing the ground for statistical purposes.

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Issues Involved:
1. Validity of the assessment orders.
2. Transfer pricing adjustments.
3. Disallowance of "Stock written-off".
4. Disallowance of excess depreciation.
5. Initiation of penalty under section 271(1)(c).
6. Charging of interest under section 234A.

Detailed Analysis:

1. Validity of the Assessment Orders:
The appellant contended that the orders passed by the Deputy Commissioner of Income Tax-Transfer Pricing Officer (TPO), the Assistant Commissioner of Income Tax (AO), and the Dispute Resolution Panel (DRP) were "bad in law and void-ab-initio". However, grounds No. 1 and 2 were deemed general in nature and were not adjudicated upon.

2. Transfer Pricing Adjustments:
The appellant challenged the transfer pricing addition of Rs. 33,17,758/- on account of outstanding receivables. The Tribunal noted that in previous assessment years (2012-13 and 2013-14), it was held that no separate adjustment on account of interest receivable is required when working capital adjustment has already been made. The Tribunal cited the case of Principal Commissioner of Income Tax Vs. Kusum Health Care Pvt. Ltd., emphasizing that the TPO must conduct a proper inquiry to discern a pattern indicating an international transaction. Consequently, the Tribunal set aside the DRP’s findings and deleted the adjustment on account of interest receivables.

3. Disallowance of "Stock Written-off":
The appellant claimed a write-off of Rs. 25,20,421/- for obsolete inventory. The AO disallowed the claim due to the lack of supporting evidence such as reports from engineers or third-party certificates. The DRP directed the AO to verify the submission and pass a speaking order. The Tribunal upheld the AO’s disallowance, noting that the appellant failed to produce any expert third-party certification to substantiate the obsolescence of the inventory.

4. Disallowance of Excess Depreciation:
The appellant challenged the disallowance of Rs. 16,56,842/- as excess depreciation claimed on fixed assets acquired from NCR Corporation India Private Limited. The Tribunal observed that in previous years, similar issues were remanded to the AO for verification. Following the same approach, the Tribunal restored the issue to the AO for verification and directed the AO to pass a consequential order in accordance with the law.

5. Initiation of Penalty under Section 271(1)(c):
The Tribunal did not specifically address the issue of penalty initiation under section 271(1)(c), as it was consequential to the main issues adjudicated.

6. Charging of Interest under Section 234A:
Similarly, the issue of charging interest under section 234A was not specifically adjudicated, as it was consequential to the main issues.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal providing specific directions for verification and re-assessment of certain claims by the AO. The stay application seeking a stay on the recovery of the demand was dismissed as infructuous following the adjudication of the appeal. The order was pronounced in the open court on 25th February 2019.

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