2016 (5) TMI 262 - AT - Income Tax

Tribunal rules on transfer pricing, depreciation rates

The Tribunal partially allowed the assessee's appeal and dismissed the Revenue's appeal concerning transfer pricing adjustment of a corporate guarantee, ... Transfer pricing adjustment - arm's length price - guarantee commission fee - corporate guarantee versus bank guarantee - depreciation on computer peripherals and data cables - rate of depreciation 60% applicable to computersTransfer pricing adjustment - arm's length price - guarantee commission fee - corporate guarantee versus bank guarantee - Appropriate arm's length rate for guarantee commission fee on corporate guarantee issued by the assessee for its associated enterprise - HELD THAT: - The Tribunal examined the Transfer Pricing Officer's adoption of 3% (based on commercial bank guarantee rates) for the corporate guarantee issued by the assessee. Relying on the reasoning in Everest Kento Cylinders Ltd. as affirmed by the Bombay High Court, the Tribunal held that rates charged by commercial banks for bank guarantees are not comparable to corporate guarantees issued by a holding company for its step-down subsidiary. Consequently, the TPO's approach of relying on commercial bank guarantee rates was not justified. Having considered competing Tribunal decisions and the material on record, the Tribunal accepted the assessee's contention and directed adoption of 0.50% as the arm's length rate for guarantee commission fee and remitted computation to the Assessing Officer accordingly. [Paras 6]TPO's determination of 3% rejected; arm's length rate fixed at 0.50% and Assessing Officer directed to determine the addition accordingly.Depreciation on computer peripherals and data cables - rate of depreciation 60% applicable to computers - Allowability of depreciation on data cables and other computer peripherals at 60% instead of 15% - HELD THAT: - The parties agreed the issue is identical to that decided by the Tribunal in the assessee's own case for A.Y. 2007-08 by order dated 30/09/2015. Following that precedent, the Tribunal directed the Assessing Officer to allow depreciation at 60% for data cables and computer peripherals. [Paras 7]Depreciation on data cables and computer peripherals to be allowed at 60% in conformity with the Tribunal's earlier decision.Depreciation - Claim of depreciation on Jodhpur property - HELD THAT: - The parties accepted that the issue has been previously decided against the assessee for A.Y. 2007-08 by the Tribunal (order dated 30/09/2015) following earlier precedent. On that basis the Tribunal dismissed the assessee's ground seeking allowance of depreciation on the Jodhpur property. [Paras 8]Assessee's ground for depreciation on Jodhpur property dismissed.Final Conclusion: Assessee's appeal partly allowed: transfer pricing addition reduced by adopting 0.50% as arm's length guarantee commission and depreciation on computer peripherals/data cables allowed at 60%; claim for depreciation on Jodhpur property dismissed. Revenue's appeal concerning depreciation rates dismissed. Issues:1. Transfer pricing adjustment of corporate guarantee2. Disallowance of depreciation on data cables3. Disallowance of depreciation on Jodhpur property4. Depreciation rate on printers, scanners, switches, and routersTransfer Pricing Adjustment of Corporate Guarantee:The case involved cross-appeals by the assessee and Revenue against an order passed by the Ld. CIT(A)-15, Mumbai, regarding A.Y. 2008-09. The primary issue was the addition of Rs. 18,05,400 to the total income due to a transfer pricing adjustment related to a corporate guarantee provided by the assessee for a foreign subsidiary. The Transfer Pricing Officer determined this adjustment as the arm's length price. The assessee contested this adjustment on various grounds, including the nature of the transaction and the rate of guarantee commission. The Tribunal held that the 3% rate adopted by the authorities was not justified and directed the adoption of a 0.50% rate, citing precedents and the distinct nature of corporate guarantees. The Tribunal partially allowed the assessee's appeal on this issue.Disallowance of Depreciation on Data Cables:The second issue pertained to the disallowance of depreciation on data cables at a rate of 15% instead of the assessee's claim of 60%. The Tribunal referred to a precedent in the assessee's own case for the previous year and directed the Assessing Officer to allow depreciation at 60%. Consequently, the assessee succeeded on this ground.Disallowance of Depreciation on Jodhpur Property:The third ground involved the disallowance of depreciation on Jodhpur property amounting to Rs. 1,86,692. The Tribunal noted that a similar issue had been decided against the assessee in previous years, following earlier Tribunal decisions. As a result, the appeal on this ground was dismissed.Depreciation Rate on Printers, Scanners, Switches, and Routers:The final issue concerned the depreciation rate on printers, scanners, switches, and routers. The Revenue appealed the CIT(A)'s decision to allow depreciation at 60% instead of 15% allowed by the Assessing Officer. The Tribunal found this issue identical to a previous year's appeal, which was decided in favor of the assessee. Consequently, the Revenue's appeal on this ground was dismissed.In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal. The decision was based on detailed analysis of each issue, considering legal precedents and the specific facts of the case.