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2019 (3) TMI 2080 - AT - Income TaxTP Adjustment at entity level - as argued TPO should have restricted the adjustment only in respect of international transactions with the AE entered into by the Appellant - HELD THAT - We find that the issue under dispute is squarely covered in assessee s own case for the Asst Year 2013-14 2019 (1) TMI 2063 - ITAT MUMBAI wherein it was held that TP adjustment shall be restricted to international transactions with AE only. Thus we direct the ld TPO to recomputed the ALP of the international transactions of the assessee by considering only the transactions with AE. Depreciation on printers at 15% v/s 60% - We find that the lower authorities had denied depreciation at the rate of 60% based on action taken in Asst Year 2011-12. But we find from the aforesaid CITA order for Asst Year 2011-12 in assessee s case that the depreciation on printers was granted at 60%. There is no reason to take a divergent stand during this year - we direct the ld AO to grant depreciation at the rate of 60% on printers for the Asst Year 2012-13. The Ground No. 9 raised by the assessee is allowed.
ISSUES PRESENTED and CONSIDERED
The primary issues presented and considered in this judgment are: 1. Whether the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) erred in making a transfer pricing adjustment at the entity level rather than restricting it to international transactions with Associated Enterprises (AEs). 2. Whether the DRP was justified in upholding the action of the Assessing Officer (AO) in allowing depreciation on printers at 15% as opposed to 60% claimed by the assessee. 3. The initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. ISSUE-WISE DETAILED ANALYSIS 1. Transfer Pricing Adjustment Relevant Legal Framework and Precedents: The core legal question revolves around whether transfer pricing adjustments should be made at the entity level or should be limited to transactions with AEs. The Tribunal referred to the principles outlined in Chapter X of the Income Tax Act, which deals with transfer pricing regulations. The precedents considered include the judgments of the Bombay High Court in the cases of CIT vs. Tara Jewels Exports Private Limited and CIT vs. Hindustan Unilever Ltd, which support the view that adjustments should be restricted to international transactions with AEs. Court's Interpretation and Reasoning: The Tribunal emphasized that the objective of computing the Arm's Length Price (ALP) is to determine the income arising from international transactions with AEs. Therefore, any adjustment should be limited to these transactions and not extend to the entity level. Key Evidence and Findings: The Tribunal noted that the DRP had upheld the TPO's adjustment at the entity level based on the pending Special Leave Petition (SLP) before the Supreme Court in a related case. However, the Tribunal found that the SLP was not relevant to the impugned issue as it pertained to a different matter. Application of Law to Facts: The Tribunal applied the legal principles from the aforementioned precedents to the facts of the case, concluding that the adjustment should be restricted to AE transactions. Treatment of Competing Arguments: The Tribunal considered the DRP's reliance on the pending SLP and found it unconvincing since the SLP did not address the issue of entity-level adjustments. Conclusions: The Tribunal directed the TPO to recompute the ALP by considering only the transactions with AEs, thereby allowing the assessee's appeal on this ground. 2. Depreciation on Printers Relevant Legal Framework and Precedents: The legal question here is the applicable rate of depreciation on printers. The assessee claimed 60% depreciation, arguing that printers are computer peripherals. The Tribunal referred to its earlier decision in Hapag Lloyd India P Ltd, which supported the higher depreciation rate. Court's Interpretation and Reasoning: The Tribunal found that the lower authorities had denied the 60% depreciation based on the preceding year's assessment. However, the Tribunal noted that the CIT(A) had allowed 60% depreciation for the same year. Key Evidence and Findings: The Tribunal considered the CIT(A)'s order for the assessment year 2011-12, which granted 60% depreciation on printers, and found no reason to deviate from this precedent. Application of Law to Facts: The Tribunal applied the precedent to the current assessment year, directing the AO to allow 60% depreciation on printers. Treatment of Competing Arguments: The Tribunal did not find any compelling arguments from the Revenue to justify the lower depreciation rate. Conclusions: The Tribunal allowed the assessee's appeal on this ground, directing the AO to grant 60% depreciation on printers. 3. Penalty Proceedings under Section 271(1)(c) Relevant Legal Framework: Section 271(1)(c) of the Income Tax Act deals with penalties for concealment of income or furnishing inaccurate particulars of income. Conclusions: The Tribunal deemed the adjudication of this issue premature at this stage and allowed the ground raised by the assessee. SIGNIFICANT HOLDINGS Core Principles Established: The Tribunal reiterated the principle that transfer pricing adjustments should be restricted to international transactions with AEs and not be made at the entity level. It also upheld the view that printers are entitled to a higher depreciation rate as computer peripherals. Final Determinations on Each Issue: The Tribunal allowed the appeal for statistical purposes, directing the TPO to restrict transfer pricing adjustments to AE transactions and the AO to allow 60% depreciation on printers. The issue of penalty proceedings was deemed premature.
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