2014 (4) TMI 475 - AT - Income Tax

Transfer Pricing adjustments confirmed by DRP and the directions which are not complied TPO Held that - The TP adjustments made to assesses ALP is not justified - Assessee furnished its split financials along with AE - Whereas the appellant has earned profit in India its AE has continuously sustained losses - with no element of profit in the hands of the AE in all fairness there is no case of shifting of profits practicable or probable - AE is resident in USA which has a higher tax rate in India therefore there was little commercial prudence to shift profit out of India - The Far has not been properly evaluated by TPO and DRP - Proper justifications for applying TNMM method have not been assigned by lower authorities - No objective justifications are provided by lower authorities as to why and how PSM method applied by assessee in the above peculiarities of business was not an appropriate method Relying upon DCIT vs. Indo American Jewellery Ltd 2010 (5) TMI 530 - ITAT MUMBAI and CIT Vs. KRMTT Thiagaraja Chetty & Co. 1953 (10) TMI 7 - SUPREME Court the TP adjustments added to the income of the assessee are set aside Decided in favour of Assessee. Disallowance of depreciation on computer peripherals Held that - The decision in COMMISSIONER OF INCOME TAX Versus BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. 2010 (8) TMI 58 - DELHI HIGH COURT followed - the asseessee is eligible for depreciation @60% on the items Decided in favour of Assessee.

Summary

Issues Involved:
1. Transfer Pricing adjustments and corporate additions
2. Exclusion of other income for deduction u/s 10A
3. Disallowance of depreciation on computer peripherals
4. Interest under sections 234A, 234B, and 234C of the Income Tax Act

Transfer Pricing Adjustments and Corporate Additions:
The appellant, engaged in providing back office support services to a US-based company, appealed against the assessment order concerning Transfer Pricing (TP) adjustments and corporate additions. The appellant's business model involved providing services to its US parent company, and the issues raised included TP adjustments confirmed by the Dispute Resolution Panel (DRP), disallowance of depreciation, and interest under various sections of the Act. The appellant argued that the TP adjustments were unjustified due to lack of profit shifting, higher tax rates in the US, and improper evaluation of functions, assets, and risks. The Tribunal, citing relevant case law, ruled in favor of the appellant, deleting the TP adjustments.

Exclusion of Other Income for Deduction u/s 10A:
The appellant claimed exemption u/s 10A for profits earned from its two operating units. The Dispute Resolution Panel (DRP) had directed re-computation of Arm's Length Pricing (ALP) for certain additions. The appellant contended that any increase in profits, even if added, would be tax-neutral due to the exemption u/s 10A. The Tribunal found in favor of the appellant, treating the issue as consequential after deleting the TP adjustments.

Disallowance of Depreciation on Computer Peripherals:
Regarding the disallowance of depreciation on computer peripherals, the appellant argued that the UPS was essential for its IT-enabled services and should be depreciable at 60%, citing a Delhi High Court judgment. The Tribunal agreed with the appellant, allowing depreciation at the claimed rate for the computer peripherals.

Interest under Sections 234A, 234B, and 234C:
The appellant challenged the imposition of interest under section 234A, contending that the return was filed within the due date. The Tribunal found in favor of the appellant, deleting the interest under section 234A, with the remaining interest issues becoming consequential. The Tribunal allowed the appeal, pronouncing the order in favor of the appellant on 11-04-2014.