2018 (2) TMI 2059 - AT - Income Tax

TP Adjustment - depreciation on fixed assets purchased from AE - HELD THAT - As relates to the depreciation on fixed assets the same is covered by the assessee s own order for Assessment Year 2009-10 to order deletion of addition made by disallowing or reducing the amount of depreciation on the assets purchased from AE. Addition of receivables - The issue covered in favour of the assessee by the decision of the Hon ble Delhi High Court in case of Kusum Health Care 2017 (4) TMI 1254 - DELHI HIGH COURT . Salary of employee and disallowance of TDS and sales promotion expenses the same need to be verified by the Assessing Officer as there is additional evidence filed by the Assessee at this stage. The said additional evidence needs to be taken into account while making observation by the Assessing Officer. Therefore, this issue is remanded back to the file of the Assessing Officer. Appeal of the assessee is partly allowed for statistical purpose.

Summary

Issues Involved:

1. Depreciation on fixed assets.
2. Receivables as an international transaction.
3. Salary of employees and disallowance of TDS.
4. Disallowance of sales promotion expenses.

Detailed Analysis:

1. Depreciation on Fixed Assets:

The Tribunal analyzed the issue of depreciation on fixed assets in light of the assessee's own order for Assessment Year 2009-10 and similar cases such as Ciena India Pvt. Ltd. and Mercer Consulting India Pvt. Ltd. The Tribunal noted that the assessee's business model involves compensation on a cost-plus basis, including depreciation. The Tribunal emphasized that the primary onus of proving that the international transaction is at arm's length price (ALP) is on the assessee. The TPO had computed the ALP of the international transaction at Nil due to the absence of specific details from the assessee. However, the Tribunal found that the TPO and the assessee both erred in their approach. The Tribunal concluded that the depreciation allowance and the resultant revenue from the AE should be considered jointly. Consequently, the Tribunal ordered for the deletion of the addition made by disallowing or reducing the amount of depreciation on the assets purchased from the AE.

2. Receivables as an International Transaction:

The Tribunal referred to the decision of the Hon'ble Delhi High Court in the case of Kusum Health Care, which held that the inclusion of 'receivables' in the Explanation to Section 92B does not automatically characterize every item of 'receivables' as an international transaction. The Court emphasized the need for a proper inquiry by the TPO to discern a pattern indicating that the receivables arrangement benefits the AE. The Tribunal found that the AO's focus on just one assessment year was insufficient to justify the conclusion that receivables beyond 180 days constitute an international transaction. The Tribunal upheld the ITAT's order, which did not find any substantial question of law for determination and dismissed the appeal.

3. Salary of Employees and Disallowance of TDS:

The Tribunal noted that the assessee had filed additional evidence regarding the salary of employees and disallowance of TDS. The Tribunal remanded this issue back to the Assessing Officer for verification, instructing that the additional evidence be taken into account while making observations. The Tribunal emphasized the need to follow the principles of natural justice and provide the assessee with an opportunity of hearing.

4. Disallowance of Sales Promotion Expenses:

Similar to the issue of salary of employees and disallowance of TDS, the Tribunal remanded the issue of disallowance of sales promotion expenses back to the Assessing Officer for verification in light of the additional evidence provided by the assessee. The Tribunal reiterated the importance of following the principles of natural justice.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes. The Tribunal ordered the deletion of the addition related to depreciation on fixed assets, upheld the decision regarding receivables as an international transaction, and remanded the issues of salary of employees, disallowance of TDS, and sales promotion expenses back to the Assessing Officer for further verification. The order was pronounced in the Open Court on 26th February 2018.