MAT loss computation and depreciation carry-forward turn on statutory figures, while intra-group services need fresh transfer pricing review.

For MAT computation under section 115JB, carried-forward losses and unabsorbed depreciation were to be recomputed on the correct figures, and prior book adjustments against capital reserves did not reduce their availability; the revised figures were accepted. On transfer pricing for intra-group services, the arm's length price determination required fresh examination of the evidence and additional material, and the adjustment was remanded for reconsideration after hearing the assessee. On unabsorbed depreciation relating to periods before assessment year 2002-03, binding precedent was applied to hold that the amount could be carried forward and set off beyond the earlier eight-year limit, leaving the Revenue's objection rejected.

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Issues: (i) whether the book profit computation under section 115JB could be recomputed by applying the correct figures of unabsorbed depreciation and brought forward losses after ignoring prior book adjustments against capital reserves; (ii) whether the transfer pricing adjustment on intra-group services required fresh examination of the evidence and the arm's length price determination; and (iii) whether unabsorbed depreciation pertaining to assessment years prior to 2002-03 could be carried forward and set off beyond eight years.

Issue (i): whether the book profit computation under section 115JB could be recomputed by applying the correct figures of unabsorbed depreciation and brought forward losses after ignoring prior book adjustments against capital reserves.

Analysis: The dispute turned on whether notional book entries made pursuant to capital reduction and restructuring schemes could reduce the quantum of carried-forward losses and unabsorbed depreciation for MAT purposes. The issue was examined in the context of section 115JB and the treatment of accumulated losses as reflected in the books of account. The earlier adjustments against share capital and securities premium were treated as not affecting the availability of the relevant loss figures for MAT computation.

Conclusion: The issue was decided in favour of the assessee and the revised loss figures were accepted for MAT computation.

Issue (ii): whether the transfer pricing adjustment on intra-group services required fresh examination of the evidence and the arm's length price determination.

Analysis: The controversy concerned the determination of arm's length price for intra-group services under the transfer pricing provisions, including the approach adopted by the TPO in treating the services as nil valued and the sufficiency of evidence produced by the assessee. The earlier remand in the assessee's own case for a prior assessment year, together with the principle that necessity of the service and commercial benefit are not decisive tests by themselves, supported reconsideration of the matter on the evidence already filed and the additional evidence placed on record. The adjustment was therefore not sustained on the existing material and required fresh adjudication.

Conclusion: The issue was remanded to the TPO for fresh decision after examining the evidence and additional evidence, with opportunity of hearing to the assessee.

Issue (iii): whether unabsorbed depreciation pertaining to assessment years prior to 2002-03 could be carried forward and set off beyond eight years.

Analysis: The issue was governed by the amended section 32(2), as interpreted by binding precedents which held that unabsorbed depreciation available before the restriction period could be carried forward without being confined by the earlier eight-year limit. Applying that principle, the depreciation in question retained its eligibility for carry forward and set-off in subsequent years.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The cross appeals were disposed of by granting partial relief to the assessee, sustaining one matter in the assessee's favour, sending one transfer pricing issue back for fresh adjudication, and rejecting the Revenue's challenge on unabsorbed depreciation.

Ratio Decidendi: For MAT and depreciation computations, carried-forward losses and unabsorbed depreciation must be determined according to the governing statutory scheme and binding precedent, while transfer pricing adjustments cannot be sustained merely by questioning the necessity or benefit of intra-group services without proper examination of the evidence.

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