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2018 (5) TMI 937 - AT - Income TaxDisallowance of depreciation (normal and additional) pertaining to colour solution machines - Held that - AO erred in stating that the colour solution machines installed in the dealer s premises is not in any way connected with the mother/main machines responsible for producing the paints and the colour solution machines are comparable to air conditioner etc. due to their nature of functioning and hence, need to be treated as furniture and fixture is erroneous and baseless as discussed by us above and for the sake of brevity is not repeated again. We also note that the AO in the earlier assessment year and in subsequent assessment year i. e. 2012-13 and 2013-14 has not disputed the allowability of normal and additional depreciation on colour solution machines for the assessment year prior to the subject assessment year and in subsequent assessment years (i. e. AYs 2012-13 and 2013-14) post issuance of direction by Ld. DRP in the subject assessment year. In the aforesaid facts and circumstances of the case, the AO ought to have been consistent in his approach and, therefore, for the reasons stated aforesaid, we do not find any reason to interfere in the order of the Ld. DRP and we confirm the same. This ground of appeal of revenue is dismissed. Disallowance of depreciation (normal and additional on certain assets - Held that - Remarks given that these are assets which were rightly claimed to be plant and machinery. The Ld. DRP has rightly excluded the aforesaid assets from the list of plant and machinery and reclassified it as furniture and fixture. We do not find any infirmity in the order of the Ld. DRP and, therefore, we confirm the finding of the Ld. DRP. This ground of appeal of revenue is also dismissed. Addition u/s. 14A - Held that - Admitted factual position that no loan funds were in the books of accounts of the company, there cannot be any question of payment of interest against the loan funds and consequently disallowance of interest expenses in terms of Rule 8D(2)(i) or (ii) of the Rules. Since there is no unallocable interest the DRP has rightly held that no interest expenses can be disallowed.
Issues Involved:
1. Whether the payment made by the assessee under the Service Level Agreement (SLA) with Akzo Nobel Paints Asia Pacific Pte Ltd. (ANPAP) is at Arm's Length as required under Section 92 of the Income-tax Act, 1961. 2. Determination of Arm's Length Price (ALP) for services rendered by Akzo Nobel Car Refinisher (Singapore) Pvt. Ltd. (ANCR). 3. Depreciation claim on slump sale treated as itemized sale. 4. Classification and depreciation of colour solution machines. 5. Disallowance of additional depreciation on certain assets. 6. Disallowance under Section 14A of the Income-tax Act. Detailed Analysis: 1. Arm's Length Payment under SLA with ANPAP: The assessee's appeal concerns whether the payment under the SLA with ANPAP is at Arm's Length as per Section 92 of the Act. The Tribunal noted that this issue was recurring and had been decided in favor of the assessee for AY 2009-10. The Tribunal referenced the OECD Guidelines and U.S. regulations, which define intra-group services and stewardship activities. The Tribunal concluded that the services provided by ANPAP were not stewardship services but essential for the assessee's operations, thus, the payment was at Arm's Length. Consequently, the addition made by the revenue authorities was directed to be deleted. 2. Determination of ALP for Services by ANCR: The TPO did not address this issue, claiming the assessee did not furnish the agreement with ANCR. The DRP observed that the nature of services provided by ANCR was strategic and operational, aiding corporate objectives. However, the TPO failed to determine the ALP as per Section 92C(1) of the Act. The Tribunal remanded the matter back to the TPO for fresh consideration, directing a detailed analysis similar to the agreement with ANPAP. 3. Depreciation Claim on Slump Sale: The AO recomputed depreciation based on the opening WDV of the block of assets, resulting in lower depreciation allowance. The DRP followed the Tribunal's decision in the assessee's favor for earlier years, directing the AO to allow the depreciation as claimed by the assessee. The Tribunal upheld the DRP's decision, confirming the allowance of depreciation. 4. Classification and Depreciation of Colour Solution Machines: The AO reclassified colour solution machines under furniture and fixture, disallowing normal and additional depreciation. The DRP, however, noted that these machines were integral to the assessee's business, aiding in the final product's preparation. The Tribunal upheld the DRP's decision, confirming that the colour solution machines should be classified under plant and machinery, allowing the depreciation claimed by the assessee. 5. Disallowance of Additional Depreciation on Certain Assets: The AO reclassified certain assets as furniture and fixture, resulting in lower depreciation. The DRP found that the AO did not provide an opportunity to the assessee before reclassification. The DRP reclassified only specific assets as furniture and fixture, allowing the rest as plant and machinery. The Tribunal confirmed the DRP's decision, dismissing the revenue's appeal on this ground. 6. Disallowance under Section 14A: The AO disallowed an amount under Section 14A, which the DRP deleted, relying on its earlier order for AY 2009-10. The Tribunal upheld the DRP's decision, noting that the assessee had no loan funds in its books, and thus, no interest expenses could be disallowed under Rule 8D(2)(i) or (ii). The Tribunal dismissed the revenue's appeal on this issue. Conclusion: The Tribunal allowed the assessee's appeal on the issues of Arm's Length payment under SLA with ANPAP and remanded the issue concerning ANCR for fresh consideration. The Tribunal dismissed the revenue's appeal on the issues of depreciation on slump sale, classification and depreciation of colour solution machines, additional depreciation on certain assets, and disallowance under Section 14A. The Tribunal's decisions were based on consistency with earlier rulings and adherence to legal principles.
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