2019 (10) TMI 1589 - AT - Income Tax

ITAT Delhi deletes transfer pricing adjustment on inter-company receivables, allows 60% depreciation on computer peripherals

M/s. McKinsey Knowledge Centre India Pvt. Ltd. Versus DCIT, Circle 6 (1), New Delhi.

ITAT Delhi allowed the taxpayer's appeal on both issues. The Tribunal deleted the transfer pricing adjustment for notional interest on inter-company ... TP Adjustment - Notional Interest on Inter-Company Receivables arising from provision of IT support services by the Appellant to its associated enterprises (' AEs') - HELD THAT:- Undisputedly, there is no change in the business model of the taxpayer and services have been rendered by the taxpayer to its AE during the year under assessment as per the same service agreement of the taxpayer. Perusal of the order passed by the coordinate Bench of the Tribunal in taxpayer’s own case for AY 2014-15 [2019 (9) TMI 1599 - ITAT DELHI] shows that the issue as to making transfer pricing adjustment on account of outstanding receivables arising out of international transactions qua research and information and ITSS has been squarely dealt with and decided in favour of the assessee. During the year under assessment, as perused the balance sheet of the taxpayer, which shows that no funds have been borrowed by the taxpayer to carry out its business activities nor there was any such requirement. Moreover, the taxpayer is a captive service provider having no loan requirement nor paid any interest. So, following the decision rendered by the coordinate Bench of the Tribunal in taxpayer’s own case for AY 2014-15 (supra), addition made/confirmed by TPO/AO/CIT (A) on account of transfer pricing adjustment qua interest on receivables is not sustainable, hence ordered to be deleted. Reducing the claim of depreciation on cable cubbies and wireless access points by applying the depreciation rate of 15% as applicable to plant and machinery - HELD THAT:- As perused the order passed by the ld. DRP for AY 2009-10 [2017 (9) TMI 178 - ITAT DELHI] wherein the similar depreciation claimed by the taxpayer has been allowed by providing depreciation @ 60% on the computer peripherals by following the decision rendered in case cited as CIT vs. BSES Rajdhani Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] Even otherwise, when we perused the list of computer peripherals provided by the taxpayer to AO/CIT (A), the taxpayer has not purchased any cable cubbies as mentioned by the AO. We are of the considered view that the taxpayer is entitled for depreciation @ 60% of computer peripherals. Consequently, the AO is directed to allow the same after due verification. Issues Involved:1. Transfer Pricing Adjustment on Account of Notional Interest on Inter-Company Receivables.2. Depreciation Rate on Cable Cubbies and Wireless Access Points.Detailed Analysis:1. Transfer Pricing Adjustment on Account of Notional Interest on Inter-Company Receivables:The taxpayer, M/s. McKinsey Knowledge Centre India Pvt. Ltd., challenged the addition of INR 362,547 to its total income due to notional interest on inter-company receivables. The taxpayer contended that the TPO, AO, and CIT(A) erred in not accepting the economic analysis undertaken by the taxpayer and in holding that the inter-company receivables arising from the provision of IT support services constituted an international transaction, thereby benchmarking the same using the Comparable Uncontrolled Price (CUP) method.The Tribunal noted that the issue had already been decided in favor of the taxpayer in its own case for AY 2014-15. The Tribunal cited the case of Pegasystems Worldwide India (P) Ltd Vs ACIT, where it was held that for a debt-free company, there is no requirement for making transfer pricing adjustments on account of interest on outstanding receivables. The Tribunal observed that the taxpayer had not borrowed any funds for its business activities and was a captive service provider with no loan requirements or interest payments.The Tribunal concluded that the addition made by the TPO/AO/CIT(A) on account of transfer pricing adjustment for interest on receivables was not sustainable and ordered its deletion.2. Depreciation Rate on Cable Cubbies and Wireless Access Points:The taxpayer also challenged the reduction in the claim of depreciation on cable cubbies and wireless access points by applying a depreciation rate of 15% instead of 60%. The taxpayer argued that these assets should be classified as computer accessories/peripherals and thus qualify for a higher depreciation rate.The Tribunal noted that the DRP had already given similar relief to the taxpayer in AY 2009-10 by allowing a depreciation rate of 60% on computer peripherals, following the decision of the Hon’ble Delhi High Court in CIT vs. BSES Rajdhani Powers Ltd. The Tribunal found that the taxpayer had not purchased any cable cubbies as mentioned by the AO and concluded that the taxpayer was entitled to a depreciation rate of 60% on computer peripherals.The Tribunal directed the AO to allow the depreciation claim after due verification.Conclusion:The appeal filed by the taxpayer was allowed, with the Tribunal ordering the deletion of the transfer pricing adjustment on account of notional interest on inter-company receivables and directing the AO to apply a 60% depreciation rate on computer peripherals after verification.