Tribunal remands corporate charges issue, allows intangible depreciation, and deletes disallowance.

The Tribunal partly allowed the appeal by the Indian subsidiary of Huntsman International LLC. It remanded the issue of disallowance of corporate service charges to the DRP for fresh adjudication, allowed the claim of depreciation on intangibles, and deleted the disallowance under Section 14A read with Rule 8D. The Tribunal referred to its prior decisions and emphasized the need for detailed reasoning in the fresh adjudication.

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Issues Involved:
1. Disallowance of corporate service charges paid to Associated Enterprises (AE).
2. Disallowance of depreciation on intangibles such as material supply contracts, distribution network, and brand usage.
3. Disallowance of expenditure under Section 14A read with Rule 8D.

Issue-wise Detailed Analysis:

1. Disallowance of Corporate Service Charges Paid to AE:
The assessee, an Indian subsidiary of Huntsman International LLC, challenged the disallowance of Rs. 10,54,04,393/- paid to its AE for corporate services. The TPO, after examining the transfer pricing study report, concluded that the assessee failed to demonstrate tangible benefits from the services received and determined the ALP of these services as 'Nil'. The TPO applied the Comparable Uncontrolled Price (CUP) method and computed the ALP at Rs. 51,00,000/-, resulting in an adjustment of Rs. 10,54,04,393/-. The DRP upheld this adjustment based on its prior decision for AY 2011-12. However, the Tribunal, referencing its order for AY 2011-12, remanded the issue back to the DRP for fresh adjudication, emphasizing the need for a detailed and reasoned order considering additional evidence submitted by the assessee.

2. Disallowance of Depreciation on Intangibles:
The assessee claimed depreciation on intangibles such as material supply contracts, distribution network, and brand usage. The Assessing Officer disallowed this claim based on his decision for AY 2007-08, which was upheld by the DRP despite the Tribunal's favorable ruling for the assessee in prior years. The Tribunal, referencing its earlier decisions, reiterated that the assessee's claim of depreciation on these intangibles was valid. The Tribunal noted that the intangibles acquired through slump sale were business/commercial rights eligible for depreciation under Section 32(1)(ii). Consequently, the Tribunal allowed the assessee's claim of depreciation.

3. Disallowance of Expenditure Under Section 14A read with Rule 8D:
The Assessing Officer disallowed Rs. 5,94,53,040/- under Section 14A read with Rule 8D, noting that the assessee had made investments in shares of its subsidiary but had not disallowed any expenditure. The assessee contended that it had not earned any exempt income in the relevant year, making the disallowance unwarranted. The Tribunal, referencing decisions from the Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT and the Hon'ble Bombay High Court in Principal CIT vs. Ballarpur Industries Ltd., agreed with the assessee. The Tribunal held that in the absence of exempt income, no disallowance under Section 14A read with Rule 8D could be made, and thus, deleted the disallowance.

Other Grounds:
Grounds 4 and 5 were not pressed by the assessee and were dismissed. Ground 6, being general in nature, did not require adjudication.

Conclusion:
The Tribunal partly allowed the assessee's appeal, remanding the issue of corporate service charges back to the DRP for fresh adjudication, allowing the claim of depreciation on intangibles, and deleting the disallowance under Section 14A read with Rule 8D. The order was pronounced on 12th September 2018.

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