2013 (7) TMI 1200 - AT - Income Tax

Summary

Issues Involved:
1. Upward revision of Arm's Length Price (ALP) for international transactions.
2. Disallowance of depreciation on opening Written Down Value (WDV).
3. Disallowance of Employee Stock Option Plan (ESOP) expenses.

Summary:

1. Upward Revision of ALP:

The primary issue in assessment years 2008-09 and 2007-08 was the upward revision of ALP by Rs. 9,06,35,400/- and Rs. 1,00,76,210/- respectively. The assessee-company, engaged in the manufacture and selling of bulk drugs, had international transactions of sales to Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) rejected the Resale Price Method (RPM) adopted by the assessee and instead used the Comparable Uncontrolled Price (CUP) method, resulting in the upward adjustment. The Dispute Resolution Panel (DRP) and CIT(A) upheld the TPO's decision. The Tribunal found that both RPM and CUP methods were not applicable due to differences in geographical and volume factors. Therefore, the issue was remanded back to the TPO to determine fresh ALP considering similar transactions and commodities sold in the USA by other enterprises.

2. Disallowance of Depreciation on Opening WDV:

The assessee's claim for depreciation on opening WDV aggregating to Rs. 3,97,21,857/- was disallowed based on earlier assessment years' proceedings. The DRP confirmed the disallowance. The Tribunal noted that the CIT(A) had allowed depreciation on verified bills in assessment year 2005-06 and remanded the matter back to the Assessing Officer to adjudicate the issue afresh in line with the CIT(A)'s order for assessment year 2005-06.

3. Disallowance of ESOP Expenses:

The assessee claimed Rs. 14,91,000/- towards ESOP expenses, which was disallowed by the Assessing Officer and confirmed by the DRP as capital in nature. The Tribunal relied on the decision of the Hon'ble Madras High Court in CIT vs PVP Ventures Ltd., which allowed ESOP expenses as revenue expenditure. Consequently, the Tribunal directed the Assessing Officer to allow the ESOP expenses claimed by the assessee.

Conclusion:

In conclusion, the Tribunal remanded the issue of ALP determination back to the TPO for fresh consideration, directed the Assessing Officer to re-adjudicate the depreciation issue, and allowed the ESOP expenses claim. The appeals of the assessee were allowed for statistical purposes.