2019 (9) TMI 1254 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Entity namely M/s Suashish Diamonds Ltd. has been excluded on account of RPT filter. However, keeping in view the submissions made by Ld. AR that this entity has not crossed RPT filter, we deem it fit to restore the matter back to the file of Ld. TPO / Ld. AO to consider the RPT computations as submitted by AR before us. If the said comparable do not cross RPT threshold as suggested by Ld. AR, the said entity shall be included in the final list of comparable. ALP has to be applied only in relation to international transactions and not in relation to assessee s entire sales / turnover. The bench, at para 11, has also enumerated the mode of computation of the tolerance range of 5%. Taking a consistent view, we direct the lower authorities to re-compute the TP adjustment, if any, in the light of findings of Tribunal in AY 2007-08. Expenditure on computer software - allowable revenue expenditure - HELD THAT - As decided in own case in AY 2007-08 insofar as the directions on account of AMC for maintenance of software given by the DRP is concerned, the same appears to be very reasonable and no interference is called for. However, with regard to other expenditure, the Assessing Officer is directed to verify this contention of the assessee, in the light of the decision of the Special bench of the Tribunal, Delhi rendered in Amway India Enterprises V/s DCIT 2008 (2) TMI 454 - ITAT DELHI-C . Depreciation on Sony Viao Laptop - HELD THAT - The assessee could not furnish any bill / voucher in support of the same and only filed credit card statement showing the payment of the same. Accordingly, depreciation of ₹ 0.54 Lacs claimed against the same was disallowed. DRP confirmed the same since the assessee failed to file requisite documentary evidences. We find that this ground would require no indulgence on our part since the assessee could not discharge the onus to substantiate the expenditure and secondly, this issue stood covered against the assessee by the order of Tribunal for AY 2007-08

Summary

Issues:
1. Adjustment of arms length pricing on entire turnover vs. international transactions
2. Application of safe harbor limits in computing arms length price
3. Exclusion of certain comparables in arms length price computation
4. Disallowance of expenditure on computer software
5. Disallowance of depreciation on laptop purchased

Issue 1: Adjustment of arms length pricing on entire turnover vs. international transactions
The appeal contested the final assessment order for AY 2008-09, focusing on the adjustment of arms length pricing. The Assessing Officer computed the adjustment on the entire turnover of the assessee, not just the international transactions with the Associate Enterprise. The Tribunal directed the lower authorities to re-compute the TP adjustment, emphasizing that the arms length price should only apply to international transactions, not the entire turnover, in line with a previous decision for AY 2007-08. The ground was allowed for statistical purposes.

Issue 2: Application of safe harbor limits in computing arms length price
The dispute also involved the computation of arms length price without properly applying the principles of safe harbor limits, specifically +/- 5% of the value of international transactions. The Tribunal directed the lower authorities to re-compute the TP adjustment in light of the Tribunal's findings for AY 2007-08. Both grounds related to this issue were allowed for statistical purposes.

Issue 3: Exclusion of certain comparables in arms length price computation
The exclusion of certain comparables, such as Suashish Diamonds Limited and Flawless Diamonds Limited, was contested. The Tribunal found that Suashish Diamonds Ltd. had been wrongly excluded based on Related Party Transactions (RPT) filter. The matter was restored back to the authorities for reconsideration, with the possibility of including Suashish Diamonds Ltd. in the final list of comparables. Ground No. 6 was partly allowed for statistical purposes.

Issue 4: Disallowance of expenditure on computer software
The dispute included the disallowance of expenditure on computer software by not correctly appreciating the nature of the payments. The Tribunal directed the Assessing Officer to verify the nature of the expenditure, allowing revenue expenditure for maintenance of software and treating the balance as capital expenditure. The issue was remitted back to the Assessing Officer for further adjudication, and the ground was allowed for statistical purposes.

Issue 5: Disallowance of depreciation on laptop purchased
The final issue concerned the disallowance of depreciation on a laptop purchased due to lack of supporting documents. The Tribunal upheld the disallowance, as the assessee failed to provide sufficient evidence. This issue was dismissed, as it was covered by a previous order for AY 2007-08.

In conclusion, the appeal was partly allowed for statistical purposes, with various grounds being allowed or dismissed based on the Tribunal's findings and directions for each issue raised in the appeal.