Depreciation adjustment in transfer pricing benchmarking can be made for the tested party when depreciation rates differ from comparables.

In transfer pricing benchmarking, where the assessee and comparables applied different depreciation rates, an adjustment is warranted to neutralise the effect of differing depreciation charges on margin comparison. Rule 10B(1) permits this adjustment to be made in the hands of the tested party and not only in the hands of the comparables. The Tribunal followed earlier decisions, upheld the Commissioner (Appeals)' approach, and rejected the Revenue's challenge.

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Issues: Whether depreciation adjustment was required to be granted in transfer pricing benchmarking where the rate of depreciation applicable to the assessee differed from that of the comparable companies, and whether such adjustment could be made in the hands of the tested party.

Analysis: The issue was governed by prior Tribunal decisions holding that where depreciation rates differ between the assessee and the comparables, an adjustment is warranted to neutralise the effect of the differing depreciation charge on margin comparison. It was further held that Rule 10B(1) permits such adjustment to be made in the hands of the tested party as well, and not only in the hands of the comparables. Since the Commissioner (Appeals) followed that approach, no infirmity was found in the impugned order.

Conclusion: Depreciation adjustment was rightly allowed and the Revenue's challenge was rejected.

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