2019 (12) TMI 1483 - AT - Income Tax

TP Adjustment - international transaction of AMP and adjustment on account of the same - HELD THAT - In the instant case, there is not an iota of material on the file apart from relying upon the fact that by incurring huge AMP expenses to the tune of 6.93%, taxpayer has enhanced brand value and created intangibles in favour of its AE, no cogent material is there to treat the incurring of AMP expenses as international transactions. TPO has also not returned the finding that how the benefit of AMP expenditure incurred by the taxpayer have benefited AE, no calculation has come on record, so in these circumstances when we discarded the BLT the entire case of ld. TPO/DRP fell flat. There is not an iota of material with ld. TPO to prove the existence of an international transactions involving AMP expenses by the taxpayer. TPO rather proceeded on the premise that the AMP expenditure incurred by the taxpayer were far excess of AMP expenses incurred by the comparables.PO has also applied the BLT which has been discarded by the Hon ble High Court in a number of judgments. Even otherwise, in the absence of any agreement, arrangement or understanding between the taxpayer and its AE, expressed or implied, that AMP spent of the taxpayer would also be beneficial to the AE or it would enhance the brand value of the AE in any manner, no international transaction can be inferred. Thus we are of the considered opinion that the ALP of an international transaction involving AMP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. At the same time, we cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon'ble Apex Court is modified or reversed by the Hon'ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon'ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee. Adjustment of depreciation on account of capital assets getting converted into stock-in-trade - HELD THAT - As relying on own case 2015 (3) TMI 932 - ITAT DELHI we are of the considered view that conversion of used asset into stock-in-trade and sold subsequently and surplus on the sale is brought to tax then there is no loss to the Revenue. Consequently, the addition made by the AO/DRP is ordered to be deleted. Depreciation on printers, routers, UPS SMF battery etc. - @ 60%O OR 15% depreciation by AO/DRP by treating the same as plant and machinery. - HELD THAT - Hon ble Delhi High Court in case of CIT vs. BSES Yamuna Power Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT affirmed the findings returned by the Tribunal that computer accessories and peripherals, such as, printers, scanners and server etc. are integral part of the computer system, hence entitled for depreciation @ 60% instead of 15% allowed by the DRP/AO. Consequently, following the decision rendered by the Hon ble Delhi High Court in case of CIT vs. BSES Yamuna Power Ltd. (supra), we are of the considered view that the taxpayer is entitled for depreciation @ 60% on computer accessories and peripherals. Disallowance on account of bad debts and advances written off - addition challenged on the ground that the entire evidence was there before the ld. DRP by way of additional evidence which was also given to AO during remand proceedings - HELD THAT - The issue is required to be remanded back to the ld. DRP to decide afresh after perusing the additional evidence brought on record by the taxpayer after providing opportunity of being heard to the taxpayer,

Issues Involved:
1. Validity of the order under section 143(3) read with section 144(C) of the Act.
2. Transfer Pricing Adjustments related to AMP expenses.
3. Disallowance of depreciation on capital assets converted into stock-in-trade.
4. Disallowance of depreciation on computer peripherals.
5. Disallowance of bad debts and advances written off.
6. Levy and withdrawal of interest under sections 234B and 244A.
7. Initiation of penalty proceedings under section 271(1)(C) of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Order:
- Grounds No.1 & 2: These grounds were not pressed by the taxpayer and thus require no findings.

2. Transfer Pricing Adjustments related to AMP expenses:
- Grounds No.3 to 25: The taxpayer incurred substantial AMP expenses, which the TPO considered as international transactions aimed at enhancing the value of the Xerox brand in India. The TPO used the Bright Line Test (BLT) to benchmark these expenses, leading to an adjustment of ?36,41,27,428.
- Key Findings:
- The TPO’s reliance on BLT was invalid as it has been discarded by the Delhi High Court in multiple judgments.
- The TPO failed to provide tangible evidence to prove that AMP expenses were international transactions benefiting the AE.
- The taxpayer's AMP expenses were for its own business growth in India, not for creating intangibles for the AE.
- The Delhi High Court has consistently held that mere use of a brand name or logo does not imply an international transaction.
- The Tribunal concluded that the adjustment made by the TPO/DRP/AO was not sustainable and ordered its deletion. However, the matter was restored to the AO to reconsider if the Supreme Court’s pending decisions alter the legal position.

3. Disallowance of Depreciation on Capital Assets Converted into Stock-in-Trade:
- Grounds No.26 & 27: The AO/DRP made an adjustment of ?24,94,155 based on AY 2007-08. The Tribunal noted that this issue had been decided in favor of the taxpayer in AY 2007-08 by both the Tribunal and the Delhi High Court. Following this precedent, the Tribunal ordered the deletion of the addition.

4. Disallowance of Depreciation on Computer Peripherals:
- Ground No.29: The AO/DRP allowed only 15% depreciation on computer peripherals, treating them as plant and machinery. The Tribunal, following the Delhi High Court’s decision in CIT vs. BSES Yamuna Power Ltd., held that computer peripherals are integral to the computer system and entitled to 60% depreciation. The AO was directed to adjust accordingly.

5. Disallowance of Bad Debts and Advances Written Off:
- Ground No.30: The taxpayer’s claim of ?56,03,670 for bad debts and advances written off was disallowed by the AO/DRP. The Tribunal remanded the issue back to the DRP to reconsider the additional evidence provided by the taxpayer.

6. Levy and Withdrawal of Interest Under Sections 234B and 244A:
- Ground No.31: This ground was consequential and required no specific findings.

7. Initiation of Penalty Proceedings Under Section 271(1)(C) of the Act:
- Ground No.32: This ground was deemed premature and required no specific findings.

Conclusion:
- The appeal was partly allowed for statistical purposes, with significant adjustments related to AMP expenses being deleted and other issues remanded or resolved in favor of the taxpayer. The Tribunal emphasized that any future Supreme Court decisions on the matter would be binding and could necessitate a fresh assessment.

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