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2014 (12) TMI 892 - AT - Income TaxTransfer pricing adjustment – Adjustment to the profitability on deprecation for “like to like” comparison of business model – Held that:- The assessee is engaged in the business of trading of diagnostic instruments and consumables manufactured by its associated enterprises - assessee entered into international transactions representing purchase of goods from the associated enterprises - the arm’s length price of the international transaction is to be benchmarked on Transaction Net Margin Method (TNMM) - To compute Transaction Net Margin Method of the assessee, data of M/s. Span Diagnostics Limited was found to be comparable by Transfer Pricing Officer. As per the Transfer Pricing Officer, the Transaction Net Margin Method of M/s. Span Diagnostics Limited works out to 9.22% whereas the Transaction Net Margin Method of the assessee in respect of aforesaid international transactions comes to 5.75%. The depreciation charged by the assessee in its books of accounts is on Written Down Value (WDV) method whereas the depreciation charged in the case of M/s. Span Diagnostics Limited is on Straight-line method, hence for comparing Transaction Net Margin Method of the two companies, adjustment in respect of depreciation is must – thus, the matter is to be remitted back to the Transfer Pricing Officer for proper verification of the claim of the assessee regarding huge difference in the amount of depreciation between the assessee company and the chosen comparable case and also the difference in the method of providing of depreciation in the two companies - if the methods of depreciation adopted by the two companies are different, then the net margins arrived at are not strictly comparable unless suitable adjustment is made in the amount of depreciation so as to adopt depreciation under the same method in the two cases – thus, the TPO is directed to take into consideration the difference in the method of providing depreciation in the case of the assessee and the chosen comparable case and if the methods are different, then to make suitable adjustment for the same as per law – Decided in favour of assessee. Claim of depreciation in respect of instruments placed at customers’ site and capitalized in the books of accounts disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that AO is right in its rim to examine the agreements entered between the assessee company and its customers for determining the nature of transaction - It is the primary duty of the assessee to furnish all such agreements if required by the Revenue - assessee has failed to do so in spite of the repeated requests made by the AO – thus, the matter is to be remitted back to the AO for examination of the agreements – Decided in favour of assessee. Claim of provision of sick leave u/s 43B disallowed – Held that:- The AO has made disallowance by invoking the provisions of clause (f) of Section 43B and the same was confirmed by CIT (A) also on the basis of Section 43B – as decided in Exide Industries Limited And Another Versus Union Of India And Others [2007 (6) TMI 175 - CALCUTTA High Court] wherein it was held that clause (f) of Section 43B is arbitrary, unconscionable and dehors of the Hon’ble Supreme Court decision, and therefore, not valid - clause (f) of Section 43B is not valid and, therefore, disallowance made by the AO on the basis of clause (f) of Section 43B cannot be sustained – the disallowance made is to be set aside – Decided in favour of assessee.
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