2012 (6) TMI 449 - AT - Income Tax

Transfer pricing - Power of the TPO for suo-moto determination of ALP in respect of international transaction which were not referred to him by the AO - Held that - Finance Act, 2012 has amended the provisions of sec. 92CA retrospectively effective from 01.04.2002 to empower the TPO to determine the ALP of international transactions noticed by him in the course of proceedings before him, even if said transaction was not reported by the assessing officer. Appeal dismissed. Depreciation on Computer peripherals - 15% or 60% - Held that - Assessee will be eligible for depreciation @ 60% on UPS, WAN/LAN equipment, switches, network equipment etc. Expenditure incurred on issue of mobile handsets on FOC basis to dealers for various display and promotional purposes - revenue or capital expenditure - Held that - Since on identical issue the ITAT has set aside the matter to the file of the AO for AY 2006-07, we also set aside the issue for AY 2007-08 to the file of the AO. Transfer Pricing - benefit of working capital adjustment not allowed while computing ALP in respect of international transaction pertaining to the provisions of software development services to associated enterprises - Held that - Matter set aside to the file of the AO with the direction to examine the case of the assessee. Further, Since DRP has used information obtained u/s 133(6) against assessee without confronting it, in our considered opinion, the assessment order needs to be set aside to the file of AO who will refer the matter to D.R.P. for providing necessary opportunity of being heard. Advertisement, marketing and promotion expenditure - adjustment - assessee submitted that AMP expenditure incurred by the assessee does not represent international transactions between the two associated enterprises within the meaning of S92B r.w.s. 92F - Held that - There is no dispute about the fact that Finance Act, 2012 has proposed amendment in the provisions of sec. 92B by insertion of Explanation clarifying the term International transactions . Since both the parties agreed for setting aside the issue and decide the same in the light of the amended provisions of sec. 92B by the Finance Act, 2012, we set aside the matter to the file of the AO

Issues Involved:
1. Jurisdiction of the Transfer Pricing Officer (TPO)
2. Admissibility of additional evidence
3. Disallowance of marketing expenses on free-of-cost mobile handsets
4. Depreciation on computer peripherals
5. Disallowance of price protection expenses
6. Transfer Pricing Adjustments related to software development services
7. Working capital adjustment in Transfer Pricing
8. Transfer Pricing adjustment related to Advertisement, Marketing, and Promotion (AMP) expenses
9. Power of TPO to determine arm's length price of international transactions not referred by the AO

Detailed Analysis:

1. Jurisdiction of the Transfer Pricing Officer (TPO):
The assessee argued that the show cause notice issued by the TPO on October 12, 2010, was without jurisdiction as the reference from the AO was received only on October 8, 2010. The Tribunal admitted the additional ground raised by the assessee as it was a pure question of law going to the root of the matter.

2. Admissibility of Additional Evidence:
The assessee filed additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, regarding the Trade Protection Policy. The Tribunal admitted the additional evidence as it was necessary to decide the issue of price protection charges paid to other distributors, which was not supported by necessary evidence earlier.

3. Disallowance of Marketing Expenses on Free-of-Cost Mobile Handsets:
The AO disallowed the marketing expenses claimed for mobile handsets issued free of cost, treating them as assets on which depreciation could be claimed. The Tribunal noted that similar issues for earlier assessment years were remanded back to the AO for fresh consideration and directed the AO to decide the issue afresh for the current assessment year as well.

4. Depreciation on Computer Peripherals:
The AO allowed depreciation at 15% instead of 60%. The Tribunal, following its earlier decision for the assessment year 2006-07, directed the AO to allow depreciation at 60% on computer peripherals.

5. Disallowance of Price Protection Expenses:
The Tribunal, after admitting the additional evidence, set aside the issue to the file of the AO to examine the case in light of the additional evidence and decide on merits, providing the assessee a reasonable opportunity of being heard.

6. Transfer Pricing Adjustments Related to Software Development Services:
The assessee contended that the DRP used third-party information without disclosing it, violating principles of natural justice. The Tribunal set aside the assessment order to the AO for fresh adjudication after providing the assessee an opportunity to rebut the information.

7. Working Capital Adjustment in Transfer Pricing:
The DRP denied the working capital adjustment. The Tribunal, following its earlier decision for the assessment year 2006-07, directed the AO to grant the working capital adjustment and decide the issue afresh.

8. Transfer Pricing Adjustment Related to Advertisement, Marketing, and Promotion (AMP) Expenses:
The assessee argued that the DRP's order was non-speaking and failed to consider critical factors, including the global transfer pricing policy. The Tribunal noted the proposed amendment in Finance Bill 2012 regarding AMP expenses as international transactions and set aside the issue to the AO to decide in light of the amended provisions.

9. Power of TPO to Determine Arm's Length Price of International Transactions Not Referred by the AO:
The Tribunal noted the retrospective amendment by Finance Act, 2012, empowering the TPO to determine the arm's length price of noticed international transactions. Hence, this ground of appeal was dismissed as academic.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remanded back to the AO for fresh consideration and adjudication in light of additional evidence and amended provisions.

← Previous Next →