Appeal partly allowed: Grounds 1 & 4 allowed, Ground 2 dismissed, Ground 3 allowed. Deletions made, issues remanded.

The appeal was partly allowed with Grounds No. 1 and 4 allowed, Ground No. 2 dismissed, and Ground No. 3 allowed, resulting in the deletion of certain disallowances and remanding issues for fresh consideration.

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Issues Involved:

1. Transfer Pricing adjustment related to Interest paid on Working Capital loan.
2. Transfer Pricing adjustment related to Interest received on fixed deposits.
3. Disallowance under Section 14A of the Act read with Rule 8D.
4. Depreciation on Computer peripherals restricted to 15% as against 60%.

Summary:

Ground No. 1: Transfer Pricing adjustment related to Interest paid to Standard Chartered Bank-India (SCB-India) on Working Capital loan obtained - Rs. 21,75,000

The Appellant contested the transfer pricing adjustment of INR 21,75,000/- for interest paid on a working capital loan from SCB India at 14.75%. The Appellant benchmarked this rate using internal comparables, but the TPO rejected these comparables and selected a transaction with Indian Farmers Fertilizers Co-op Limited (IFFCO) at 14% as the closest comparable. The Tribunal remanded the issue back to the Assessing Officer/TPO for fresh determination of the arm's length rate of interest, noting the lack of detailed economic/commercial factors provided by the Appellant. Ground No. 1 was allowed for statistical purposes.

Ground No. 2: Transfer pricing adjustment related to Interest received from SCB-India on fixed deposits placed - Rs. 8,150

The TPO initially made a transfer pricing adjustment of INR 52,548/- using the Punjab National Bank (PNB) interest rate card. The DRP reduced this adjustment to INR 8,150/-. The Appellant argued against using the PNB rate card, but the Tribunal found no supporting evidence for the Appellant's contention and upheld the DRP's decision. Ground No. 2 was dismissed.

Ground No. 3: Disallowance under Section 14A of the Act read with Rule 8D - Rs. 900,000

The Appellant challenged the disallowance of INR 9,00,000/- under Section 14A read with Rule 8D(2)(iii), arguing that no expenditure was incurred for earning exempt income. The Tribunal found that the Assessing Officer failed to record satisfaction before making the disallowance, as required by the Supreme Court judgments in Maxopp Investment Ltd. vs. CIT and Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT. Consequently, the disallowance of INR 9,00,000/- was deleted. Ground No. 3 was allowed.

Ground No. 4: Depreciation on Computer peripherals restricted to 15% as against 60%- Rs. 10,42,446

The Appellant claimed depreciation at 60% for computer peripherals, which the Assessing Officer restricted to 15%. The Tribunal referred to its previous decision for the Assessment Year 2007-08, which allowed 60% depreciation on computer peripherals, and thus, deleted the disallowance of INR 10,42,446/-. Ground No. 4 was allowed.

Conclusion:

The appeal was partly allowed with Grounds No. 1 and 4 allowed, Ground No. 2 dismissed, and Ground No. 3 allowed, resulting in the deletion of certain disallowances and remanding issues for fresh consideration. The order was pronounced on 23.06.2023.

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