Related-party payment comparables, ready-for-use depreciation, and admitted expenditure disallowance shaped partial relief to the assessee.

ITAT Delhi held that disallowance under section 40A(2)(a) for payment to a sister concern towards email marketing was unsustainable because the comparison was not made with a materially similar service; the addition was deleted. It further held that depreciation and car loan interest could not be denied merely for non-use of vehicles during the year, since an asset kept ready for use remains eligible and the vehicles had business connection; those disallowances were deleted. However, disallowance of HR recruitment and placement expenditure and staff welfare expenses was sustained because the assessee had accepted the disallowance during assessment and the claim was not allowable on the admitted facts.

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Issues: (i) whether the disallowance made under section 40A(2)(a) of the Income-tax Act, 1961 for payment to a sister concern towards email marketing was sustainable; (ii) whether depreciation and interest on car loan could be denied on the ground of non-use of the vehicles during the year; (iii) whether the disallowance of HR recruitment and placement expenditure and staff welfare expenses was justified.

Issue (i): whether the disallowance made under section 40A(2)(a) of the Income-tax Act, 1961 for payment to a sister concern towards email marketing was sustainable.

Analysis: The comparison for testing excessiveness under section 40A(2)(a) must be made with a like service. The payment in question related to email marketing using database, server and technology of the related concern, whereas the Assessing Officer compared it with services based on a different pricing model and without a similar database. The comparative instances relied upon did not match the service actually availed, and the first appellate authority did not undertake an independent analysis.

Conclusion: The disallowance was unsustainable and the addition was deleted in favour of the assessee.

Issue (ii): whether depreciation and interest on car loan could be denied on the ground of non-use of the vehicles during the year.

Analysis: Depreciation is allowable where an asset is kept ready for use and actual user is not the sole test. The vehicles were not shown to lack business connection, and the same principle applied to the related interest claim on the car loan.

Conclusion: The disallowance of depreciation and car loan interest was deleted in favour of the assessee.

Issue (iii): whether the disallowance of HR recruitment and placement expenditure and staff welfare expenses was justified.

Analysis: The assessee had itself accepted the disallowance during the assessment proceedings, and the expenditure stood on facts admitted as not allowable in the circumstances.

Conclusion: The disallowance was sustained against the assessee.

Final Conclusion: The appeal succeeded on the principal transfer-pricing-like disallowance and on the depreciation and car loan interest claims, but failed on the miscellaneous expenditure disallowance, resulting in partial relief to the assessee.

Ratio Decidendi: For disallowance of related-party payments, the comparable service must be materially similar to the service actually rendered, and depreciation remains allowable when an asset is kept ready for use even if not actually used during the year.

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