Tribunal directs reassessment on transfer pricing and allows additional depreciation claim

The Tribunal partially allowed the appeal by directing the Assessing Officer to reassess the transfer pricing adjustment based on audited segmental profit and loss accounts and allowed the claim for additional depreciation on new plant and machinery. Other issues were dismissed as premature or academic.

---

---

Issues Involved:
1. Transfer pricing adjustment to the arm's length price of sale of raw materials and goods.
2. Disallowance of additional depreciation claimed under section 32(1)(iia).

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment to the Arm's Length Price of Sale of Raw Materials and Goods:

The assessee, a resident company engaged in manufacturing and sale of shaving products, conducted transactions with associated enterprises (AEs) and domestic sales. The Transfer Pricing Officer (TPO) rejected the segmental profit and loss account submitted by the assessee due to unaudited accounts and improper allocation of expenses. The TPO used the entity-level margin of 0.8% for benchmarking and introduced new comparables, resulting in a proposed adjustment of Rs. 89.32 crores. The Dispute Resolution Panel (DRP) upheld the TPO's adjustment, citing discrepancies in the segmental accounts and improper allocation of common expenses.

The assessee argued that there is no legal requirement for audited segmental accounts and provided allocation keys for expenses. The assessee's margin, even with the TPO's comparables, was within the arm's length range. The Tribunal previously rejected similar adjustments in the assessee's case for the Assessment Year 2012-13, directing the TPO to delete the adjustment based on the segmental P&L account.

The Tribunal in the current case noted that the assessee had furnished audited segmental P&L accounts and allocation keys, which were rejected by the DRP on unreasonable grounds. The Tribunal directed the Assessing Officer to compare the export segment of the assessee with the profit margin of the comparables selected by the TPO by applying any allocation key and determine the ALP accordingly.

2. Disallowance of Additional Depreciation Claimed Under Section 32(1)(iia):

The assessee claimed additional depreciation on new plant and machinery purchased and installed in the financial year 2011-12. Since the assets were used for less than 180 days, only 50% of the depreciation was allowed in Assessment Year 2012-13, and the balance was claimed in the subsequent year. The Assessing Officer disallowed the carry-forward claim, stating it must be allowed only in the year of purchase and use. The DRP upheld this decision.

The Tribunal referred to judicial precedents, including decisions from the Karnataka High Court and other ITAT rulings, which held that the balance unclaimed additional depreciation must be allowed in the succeeding assessment year. The Tribunal allowed the assessee's claim for additional depreciation, following the clarificatory amendment to section 32(1)(iia) by the Finance Act, 2015.

Conclusion:

The appeal was partly allowed. The Tribunal directed the Assessing Officer to re-evaluate the transfer pricing adjustment based on the segmental P&L accounts and allowed the claim for additional depreciation. Other grounds were dismissed as premature or academic.

---