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2015 (3) TMI 111 - AT - Income TaxTransfer pricing adjustment - computation of ALP - DRP considering Interest Receivable from AE Company at 28, 627, 089/- instead of 29, 182, 060/- (as per 3CEB) - Held that - Where the assessee had entered into a transaction with its associated enterprises in foreign currency and the transactions were international transactions then the same had to be looked into by applying commercial principle in regard to international transactions. In the facts of present case the assessee had borrowed the loan from Citi Bank and advanced the same on LIBOR rates to its associated enterprises then the said transaction with its associated enterprises is within arm s length price. The TPO / AO thus directed to re-compute the arm s length price of the international transactions. Another aspect to be kept in mind is the plea of the assessee with regard to the interest receivable. The assessee had also raised the issue that the TPO had adopted the interest receivable from associated enterprise company at 2, 86, 27, 089/- instead of 2, 91, 82, 060/- which is disclosed in the audit report in Form No.3CEB. The Assessing Officer is also directed to verify the claim of the assessee in this regard and compute the arm s length price of the international transactions. Reasonable opportunity of being heard shall be afforded to the assessee by the Assessing Officer / Transfer Pricing Officer. - Decided in favour of assessee for statistical purposes. Disallowance of additional depreciation under section 32(1)(ii)(a) - Held that - Racks cannot be considered as part of block of Plant 16.01 lakhs and 20.78 lakhs. Keeping in mind the nature of asset and functional test we find no merit in the order of Assessing Officer in this regard and direct the Assessing Officer to consider the same within block of Plant & Machinery and allow the depreciation and additional depreciation on the same. Depreciation on Air-conditioner which is Plant & Machinery on which the depreciation at higher rate is allowable. However no additional depreciation on the same is allowable since the same cannot part take the machinery used for manufacturing activities. Further TV Music System is an electronic item on which higher rate of depreciation is allowable. However no additional depreciation is allowable on such TV Music System. The Industrial Fan being utilized as part of the manufacturing activity was entitled to the claim of higher depreciation and also additional depreciation on Plant & Machinery. Depreciation on Water Cooler Dispenser Refrigerator Handicam Projector and Scanner are all electronic items and are to be considered under the said head. However the assessee is not entitled to claim of additional depreciation as the same were not part and parcel of manufacturing activity carried on by the assessee. Depreciation on UPS Inverter Attendance Card Reader EPBX System and Energy Saver which are electronic items but are not part and parcel of Plant & Machinery utilized for manufacturing activity. The assessee was not entitled to the claim of additional depreciation on the same. - Decided partly in favour of assessee. Discount on pre-payment of Sales Tax Deferral liability - treating Discount as remission / cessation of liability chargeable to tax under section 41(1) of the Act - Held that - As reying on Sulzer India Ltd. Vs. JCIT 2010 (11) TMI 728 - ITAT MUMBAI the deffered sales tax liability i.e. the difference between the payments of the net present value against future liability credited by the assessee under the capital reserve account in its books of account was a capital receipt and the same could not be termed as remission / cessation of liability consequently no addition could be made under the provisions of section 41(1) of the Act. Reversing the order of authorities below we allow the claim of the assessee. - Decided in favour of assessee. Re-calculation of book profit under section 115JB - whether AO can consider the disallowance under section 14A of the Act and add the same to the profits of the business in order to compute the book profits under section 115JB of the Act - Held that - Direct the Assessing Officer to exclude the disallowance made under section 14A of the Act while computing the book profits u/s 115JB of the Act. Accordingly we direct the Assessing Officer to re-compute the book profits under section 115JB of the Act. - Decided in favour of assessee.
Issues Involved:
1. Arm's Length Price (ALP) of Interest Receivable from Associated Enterprise (AE). 2. Disallowance of Additional Depreciation under Section 32(1)(iia). 3. Treatment of Discount on Pre-payment of Sales Tax Deferral Liability. 4. Recalculation of Book Profit under Section 115JB. Issue-wise Detailed Analysis: 1. Arm's Length Price (ALP) of Interest Receivable from AE: The primary issue was whether the interest rate of 4.75% charged by the assessee on loans to its AE was at arm's length. The TPO argued for using the Indian BPLR rate of 12.25%, resulting in an adjustment of Rs. 4,41,74,661/-. The assessee contended that the loans were benchmarked using the Comparable Uncontrolled Price (CUP) method, based on LIBOR+ rates, as the loans were in foreign currency. The Tribunal held that international transactions should be benchmarked using international rates, not domestic rates. The assessee's use of LIBOR+ rates was found appropriate, and the adjustment by the TPO was dismissed. 2. Disallowance of Additional Depreciation under Section 32(1)(iia): The assessee claimed additional depreciation on several items classified under Plant & Machinery. The Assessing Officer (AO) reclassified these items under Furniture & Fixtures, disallowing additional depreciation. The Tribunal reviewed each item: - Racks: Classified as Furniture & Fixtures, no additional depreciation allowed. - Trolley: Classified as Plant & Machinery, additional depreciation allowed. - Air Conditioner, TV Music System, Industrial Fan: Higher depreciation allowed but no additional depreciation. - Water Cooler, Dispenser, Refrigerator, Handicam, Projector, Scanner: Classified as electronic items, higher depreciation allowed but no additional depreciation. - UPS, Inverter, Attendance Card Reader, EPBX System, Energy Saver: Classified as electronic items, no additional depreciation allowed. 3. Treatment of Discount on Pre-payment of Sales Tax Deferral Liability: The issue was whether the surplus from pre-payment of sales tax deferral liability was taxable under Section 41(1). The AO treated it as remission/cessation of liability. The Tribunal referred to the Special Bench decision in Sulzer India Ltd., holding that the surplus was a capital receipt and not taxable under Section 41(1). The addition made by the AO was reversed. 4. Recalculation of Book Profit under Section 115JB: The issue was whether disallowances under Section 14A should be added back to book profits under Section 115JB. The Tribunal, referencing the decision in Nahar Industrial Enterprises Ltd., held that disallowances under Section 14A should not be added back while computing book profits under Section 115JB. The AO was directed to exclude such disallowances. Conclusion: The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the issues of ALP of interest receivable, treatment of sales tax deferral liability, and recalculation of book profits. However, the Tribunal upheld the AO's reclassification of certain items for additional depreciation.
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