Appeal partly allowed with directions for re-adjudication emphasizing legal precedents and natural justice

The appeal was partly allowed for statistical purposes, with specific directions given for re-adjudication on certain issues. The Tribunal emphasized adherence to legal precedents and principles of natural justice in its decision pronounced on March 2, 2022.

---

---

Issues Involved:
1. General objection to the order.
2. Disallowance of depreciation on plant and machinery.
3. Restriction of transfer pricing adjustment to international transactions.
4. Transfer pricing adjustment in the manufacturing segment.
5. Determination of arm's length price of intra-group service fee.
6. Rejection of multiple year data of comparable companies.
7. Application of +/- 3% range for transfer pricing adjustment.
8. Levying of interest under Sections 234A and 234B.
9. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. General Objection:
The appellant's general objection to the order was noted but not adjudicated as it was deemed general in nature and not requiring specific adjudication.

2. Disallowance of Depreciation on Plant and Machinery:
The appellant contended that the AO, following the DRP's directions, erroneously disallowed depreciation of Rs. 1,75,34,827 on plant and machinery installed at customer premises. The appellant argued that the machinery was used for its business, referencing the Supreme Court ruling in ICDS Ltd. vs. CIT, which supports depreciation claims even if assets are used by lessees. The AO disallowed the claim citing consistency with previous years' decisions. The DRP upheld this disallowance. However, the Tribunal noted that in the appellant's own case for AY 2012-13, a similar issue was decided in favor of the appellant by the Kolkata Bench of the Tribunal, which allowed the depreciation claim. Respectfully following this precedent, the Tribunal allowed the appellant's claim for depreciation.

3. Restriction of Transfer Pricing Adjustment:
The appellant argued that transfer pricing adjustments should be restricted to the value of international transactions only. This issue was previously settled in favor of the appellant by the Supreme Court in CIT Vs. Hindustan Unilever Ltd. and the Bombay High Court in CIT Vs. Firestone International P. Ltd., which held that benchmarking should apply only to associated enterprises' transactions. The Tribunal directed the AO to restrict the transfer pricing adjustment accordingly.

4. Transfer Pricing Adjustment in the Manufacturing Segment:
The appellant challenged the erroneous computation of transfer pricing adjustment of Rs. 14,22,50,192 in the manufacturing segment, particularly disputing the selection of comparable companies. The DRP rejected the appellant's request for applying a forex earnings to sales filter. The Tribunal, however, found merit in applying some export to sales filter due to differences in profit from export and domestic sales. The Tribunal ordered a filter of 25% export sales to segment sales and remitted the matter to the AO/TPO for re-adjudication with this filter.

5. Determination of Arm's Length Price of Intra-Group Service Fee:
The appellant contested the determination of the arm's length price of intra-group service fee as NIL. The TPO and DRP held that the appellant failed to prove tangible benefits from the services received and that the documentation was generic. The Tribunal, referencing previous decisions including the appellant's own case for AY 2003-04 and AY 2004-05, held that the TPO's determination of NIL value without applying any prescribed methods was unsustainable. The Tribunal allowed the appellant's claim, noting that the appellant had provided substantial evidence of services received and benefits derived.

6. Rejection of Multiple Year Data:
The appellant's ground regarding the use of multiple year data was dismissed, following the precedent set in the appellant's own case for AY 2012-13, where the Tribunal had rejected this ground.

7. Application of +/- 3% Range:
The appellant requested the benefit of a +/- 3% range while calculating transfer pricing adjustments. This ground was also dismissed, following the Tribunal's decision in the appellant's case for AY 2012-13.

8. Levying of Interest:
The appellant contested the levy of interest under Sections 234A and 234B due to unanticipated transfer pricing adjustments. The Tribunal remanded this issue to the AO/TPO for verification and re-adjudication as per law, complying with principles of natural justice.

9. Initiation of Penalty Proceedings:
The appellant's ground regarding the initiation of penalty proceedings under Section 271(1)(c) was deemed premature and dismissed.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions given for re-adjudication on certain issues. The Tribunal's decision emphasized adherence to legal precedents and principles of natural justice. The order was pronounced on March 2, 2022.

---