Transfer pricing adjustment must be limited to AE transactions, and printers qualify for higher computer-rate depreciation.

Transfer pricing adjustment must be confined to the international transactions with associated enterprises and cannot be applied to an assessee's entire entity turnover, because arm's length analysis addresses income from AE transactions only. Printers were treated as computer peripherals forming part of the computer system, so the higher 60% depreciation rate applicable to computers was allowed. The note therefore reflects two accepted principles: AE-specific computation for transfer pricing and computer-rate depreciation for printers used as peripherals.

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Issues: (i) Whether the transfer pricing adjustment could be made at entity level or had to be restricted to the international transactions with associated enterprises only; (ii) Whether printers were eligible for depreciation at 60% as computer peripherals.

Issue (i): Whether the transfer pricing adjustment could be made at entity level or had to be restricted to the international transactions with associated enterprises only.

Analysis: The adjustment under the transfer pricing provisions is intended to determine the income arising from an international transaction. The comparable margin therefore has to be applied to the transactions with associated enterprises and not to the assessee's entire entity turnover, which would also include non-associated enterprise transactions. The binding jurisdictional precedent supported restriction of the adjustment to AE transactions only.

Conclusion: The adjustment was required to be confined to the international transactions with associated enterprises only, and not made on an entity-level basis, in favour of the assessee.

Issue (ii): Whether printers were eligible for depreciation at 60% as computer peripherals.

Analysis: Printers were treated as computer peripherals forming part of the computer system and not as independent office equipment. The assessee's own earlier assessment order had allowed depreciation at the higher rate, and no basis was found to depart from that view for the year under consideration.

Conclusion: Depreciation at 60% on printers was allowable, in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantive issues considered and the transfer pricing matter was to be recomputed in accordance with the restriction to AE transactions, while the depreciation claim on printers was accepted.

Ratio Decidendi: For transfer pricing purposes, the arm's length adjustment must be confined to the international transactions with associated enterprises and cannot be applied to the assessee's entire entity turnover; printers used as computer peripherals qualify for the higher depreciation rate applicable to computers.

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