2018 (11) TMI 554 - AT - Income Tax

Tax Appeal: Transfer Pricing Adjustment Withdrawn, Depreciation Allowed on Market Research Expenses

The revenue's appeal against the deletion of a transfer pricing adjustment on intra-group services was treated as withdrawn after the assessee presented ... TPA - determining of the arms length price of the management services - Held that:- As perused the orders of the lower authorities and the APA, dated 07.05.2018. We find that the APA covers the year under consideration i.e previous year 2009-10 on the issue of determining of the arms length price of the management services availed by the assessee from its foreign AE during the year. As agreed upon amongst the authorised representatives of both the parties the present appeal of the revenue is treated as withdrawn, subject to verification of the facts on the part of the A.O. Depreciation on the market research expenses - Held that:- In the course of the proceedings before the DRP the assessee had sought depreciation on the written down value of the market research expenses. As submitted by the assessee before the DRP that in the immediately preceding year i.e A.Y 2009-10 depreciation was allowed on the amount of the market research expenses of ₹ 23,50,000/- by treating the same as a capital asset. We find that the DRP observed that the claim of the assessee that it was allowed depreciation on the market research expenses in A.Y 2009-10 was in order. As DRP had directed the A.O to grant depreciation to the assessee on the market research expenses, after making necessary verifications on facts. However, we find that the A.O while framing the assessment had omitted to give effect to the aforesaid direction of the DRP. We thus, in terms of our aforesaid observations restore the issue as regards grant of depreciation on the market research expenses to the file of the A.O, for giving effect to the direction of the DRP in the said context. - Decided in favour of assessee for statistical purposes. Issues:1. Transfer pricing adjustment on intra-group services2. Non-allowance of depreciation on market research expensesIssue 1: Transfer pricing adjustment on intra-group servicesThe appeal was filed by the revenue against the order passed by the Assessing Officer under Sec. 143(3) r.w.s 144C(13) of the Income-tax Act, 1961. The revenue contested the deletion of an adjustment of &8377; 5,49,05,677/- on account of intra-group services due to the lack of evidence provided by the assessee. The case involved the assessee company engaged in the grading of precious stones and the scrutiny assessment under Sec. 143(2) of the Act. The Transfer Pricing Officer (TPO) made an adjustment towards the Arms Length Price (ALP) of management services availed by the assessee from its foreign Associate Enterprise (AE). The Dispute Resolution Panel (DRP) directed the deletion of the Transfer Pricing adjustment, which was followed by the Assessing Officer. The revenue challenged this order, but the assessee pointed out an Advance Pricing Agreement (APA) with the CBDT, stating the payment for management services was within the agreed amount. The revenue's appeal was treated as withdrawn, subject to verification by the A.O.Issue 2: Non-allowance of depreciation on market research expensesThe assessee raised cross objections regarding the non-allowance of depreciation on market research expenses of &8377; 23,50,000/-. The Assessing Officer failed to comply with the directions of the DRP to allow depreciation on the capitalised value of market research expenses after necessary verifications. The DRP had directed the A.O to grant depreciation on the market research expenses based on the claim made by the assessee. However, the A.O did not give effect to this direction while framing the assessment. As a result, the issue of granting depreciation on market research expenses was restored to the file of the A.O to implement the DRP's direction. The cross-objection filed by the assessee was allowed for statistical purposes.In conclusion, the judgment addressed the issues of transfer pricing adjustment on intra-group services and the non-allowance of depreciation on market research expenses. The decision highlighted the importance of complying with the directions of the DRP and ensuring proper verification and implementation of adjustments as per the law and agreements in place.