Tax Tribunal Adjusts Software Depreciation to 60%, Deletes Certain Disallowances, and Remits Transfer Pricing for Review.

M/s. Michelin India Pvt. Ltd. (Formerly known as Michelin India Tyres P. Ltd.) Versus DCIT Circle-6 (1), New Delhi And (Vice-Versa) And M/s. Michelin India P. Ltd. Versus ACIT, Range-6, New Delhi

M/s. Michelin India Pvt. Ltd. (Formerly known as Michelin India Tyres P. Ltd.) Versus DCIT Circle-6 (1), New Delhi And (Vice-Versa) And M/s. Michelin ... Issues Involved:
1. Disallowance of Management Fee
2. Set-off of Brought Forward Losses
3. Disallowance of Advertisement and Publicity Expenses
4. Disallowance of Impairment of Stock
5. Depreciation Rate on Computer Software
6. Adjustment of Freight Expenses
7. Transfer Pricing Adjustments

Detailed Analysis:

1. Disallowance of Management Fee:
The taxpayer challenged the disallowance of management fees for AY 2009-10 and 2010-11. The Tribunal referenced its decision in the taxpayer's case for AY 2008-09, where it was established that the taxpayer had availed support services from its AE and was entitled to claim the expenditure. The Tribunal held that the AO/CIT(A) was not empowered to question the necessity of these services. Consequently, the grounds raised by the taxpayer for AY 2009-10 and 2010-11 were allowed, and the disallowance was deleted.

2. Set-off of Brought Forward Losses:
The AO/CIT(A) disallowed the set-off of brought forward losses for AY 2005-06 and 2006-07, ignoring that the matter was pending before the Tribunal. The Tribunal remitted the issue back to the AO to verify the facts and grant the set-off if admissible.

3. Disallowance of Advertisement and Publicity Expenses:
The Tribunal referenced its decision in the taxpayer's case for AY 2008-09, where it was held that AMP expenses were revenue in nature and necessary for the taxpayer's business. The AO's disallowance of 50% of the AMP expenses as capital expenditure was deemed arbitrary and beyond comprehension. The Tribunal upheld the CIT(A)'s deletion of the disallowance for AY 2009-10 and 2010-11.

4. Disallowance of Impairment of Stock:
The AO disallowed the provision for impairment of stock, considering it an unascertained liability. The Tribunal referenced its decision in the taxpayer's case for AY 2008-09, which upheld the CIT(A)'s deletion of a similar disallowance. The Tribunal found no merit in the AO's disallowance, as the taxpayer followed AS-2 for valuing stock. The disallowance for AY 2009-10 and 2010-11 was dismissed.

5. Depreciation Rate on Computer Software:
The taxpayer challenged the depreciation rate of 25% on computer software, claiming it should be 60%. The Tribunal agreed, stating that the license fee for Oracle software should be clubbed with computer and software, and depreciation should be allowed at 60%. The AO was directed to grant the appropriate depreciation.

6. Adjustment of Freight Expenses:
The taxpayer claimed that outward freight in India should not be considered for adjustment. The Tribunal directed the AO/TPO to verify if the freight expenses were related to the import of finished goods for resale. If the expenses were for outward freight in India, they should not be considered for adjustment.

7. Transfer Pricing Adjustments:
The Tribunal allowed the taxpayer's applications to admit additional evidence and raise an additional ground for AY 2009-10. The RPM analysis was necessary for adjudicating the issue. The Tribunal remitted the matter back to the TPO to decide afresh, following the order passed by the CIT(A) for AY 2010-11 and the decision of the Delhi High Court in the case of Sony Ericsson Mobile Pvt. Ltd.

For AY 2010-11, the Tribunal upheld the CIT(A)'s application of RPM as the most appropriate method for computing the arm's length price of AMP expenditure. The Tribunal rejected the revenue's challenge to the rejection of the Brightline Test (BLT), citing multiple judgments that BLT has no statutory mandate for benchmarking AMP expenses.

Conclusion:
The Tribunal partly allowed the taxpayer's appeals for AY 2009-10 and 2010-11 for statistical purposes and dismissed the revenue's appeals for both years. The Tribunal directed the AO/TPO to verify specific facts and recompute adjustments as necessary. The Tribunal's decisions were based on consistency with previous rulings and adherence to judicial precedents.