Transfer pricing and depreciation claims turned on comparables, put-to-use evidence, and business-purpose support; several disallowances fell.

Transfer pricing adjustment on interest receivables was found unsustainable because no interest was charged to AEs or non-AEs, comparable support for SBI short-term deposit rates was lacking, and the coordinate bench view for an earlier year supported consistency; the ALP adjustment was therefore deleted. Depreciation on the solar power plant was allowed because inspection, compliance steps, trial functioning and use during March 2014 showed the asset had been installed and put to use in the relevant year, despite pending final approval. Forward contract loss was accepted in principle but left for factual verification, while biomass plant cultivation expenses, lease expenses and depreciation were treated as allowable where approvals, records and project set-up materials supported business use.

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Issues: (i) whether the adjustment on interest on receivables under transfer pricing principles was sustainable; (ii) whether depreciation on the solar power plant was disallowable on the ground that the asset was not ready for use or put to use during the relevant year; (iii) whether the disallowance of forward contract loss was justified; and (iv) whether the disallowances relating to the biomass plant, namely cultivation expenses, lease expenses, and depreciation, were sustainable.

Issue (i): whether the adjustment on interest on receivables under transfer pricing principles was sustainable.

Analysis: The adjustment was examined in the light of the assessee having charged no interest on receivables from AEs and non-AEs, the absence of comparable support for adoption of SBI short-term deposit rates, and the binding force of the coordinate bench view already taken on the same kind of receivable adjustment for an earlier year. On that basis, the impugned ALP adjustment was found unsustainable both on consistency and on merits.

Conclusion: The adjustment on interest on receivables was deleted, in favour of the assessee.

Issue (ii): whether depreciation on the solar power plant was disallowable on the ground that the asset was not ready for use or put to use during the relevant year.

Analysis: The correspondence with the electrical authorities, the inspection on 29.03.2014, the compliance requirements, and the final approval on 11.04.2014 were considered. The Court found that the inspection could not be equated with mere regulatory formality; however, the record showed installation, trial functioning, compliance with the safety requirements, and use of the plant during March 2014. The claim that the plant had been installed and put to use in the relevant year was therefore accepted.

Conclusion: The depreciation disallowance on the solar power plant was deleted, in favour of the assessee.

Issue (iii): whether the disallowance of forward contract loss was justified.

Analysis: The assessee's accounting treatment of forward contracts, the nature of the loss, the treatment of gains and reversals in earlier and later years, and the fact that the matter was accepted in prior assessment years were considered. Since factual verification remained necessary, the claim was accepted in principle, but subject to verification by the Assessing Officer.

Conclusion: The forward contract loss claim was allowed for statistical purposes, subject to verification.

Issue (iv): whether the disallowances relating to the biomass plant, namely cultivation expenses, lease expenses, and depreciation, were sustainable.

Analysis: The approvals, permissions, plant set-up materials, lease documents, cultivation records, and depreciation details were considered together. The record supported the view that the biomass project had been set up and that the expenditure was incurred for the business purpose of the project. The plant and machinery were held to be entitled to depreciation as ready-to-use assets, and the related lease and cultivation expenses were also treated as allowable business expenditure.

Conclusion: The disallowances relating to the biomass plant were reversed, in favour of the assessee.

Final Conclusion: The appeal succeeded on the principal substantive issues, with one issue allowed only for statistical purposes, and the assessment was modified accordingly.

Ratio Decidendi: A depreciation claim is allowable where the asset is and put to use, including through trial functioning and compliance with mandatory regulatory requirements, and a transfer pricing adjustment or business disallowance cannot be sustained without reliable comparable support or factual basis.

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