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TMI Blog2018 (2) TMI 2059X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the DRP. The DRP 3. The Ld. AR submitted that as related to depreciation on fixed assets the same is covered by the assessee's own order for Assessment Year 2009-10 being ITA No. 2333/Del/2014 dated 22/12/2016. The Tribunal held as under:- "3.4. Having gone through the orders of the authorities below, we find that the common issue involved in the cross appeals before us related to transfer pricing adjustment on international transaction of purchase of fixed assets. The submission of the Id. AR remained that the issue is squarely covered in favour of the assesse in the above-cited decisions of Delhi Bench of the Tribunal in the cases of Ciena India Pvt. Ltd. (supra) and Mercer Consulting India Pvt. Ltd. (supra). Having gone through these decisions, we find that the Tribunal has dealt with an identical issue in the case of Ciena India Pvt. Ltd. (supra) vide para Nos. 15.1 to 15.6 which are being reproduced hereunder for a ready reference: "15.1. Ground nos. 5 and 8 are in respect of international transaction of 'Purchase of capital goods'. The factual matrix apropos this issue is that the assessee reported an international transaction of 'Purchase of fixed assets' with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red within the definition given in sub-section (1) of section 92B, which provides that "international transaction" means a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or ITA No.l453/Del/2014 27intangible property, or...............' Section 92(1) stipulates that: 'Any income arising from an international transaction shall be computed having regard to the arm's length price'. The manner of computation of arm's length price is set out in section 92C. Subsection (1) provides that the arm's length price in relation to an international transaction shall be determined by any of the methods given in the provision, being the most appropriate method, having regard to the nature of transaction or class of transaction etc. Amongst others, there is Comparable uncontrolled price (CUP) method and TNMM. The primary onus of proving that the international transaction is at ALP, is always on the assessee. 15.3. Reverting to the facts of the instant case, we find that the assessee applied TNMM as the most appropriate method for showing that this international transaction was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e between the transacted value and the ALP determined at Nil. 15.5. Ordinarily an international transaction of purchase of fixed assets by an assessee engaged in a manufacturing or trading business is required to be determined on CUP method, which is usually the most appropriate method in such circumstances. The TNMM on entity level ITA No. 1453/Del/2014 30 cannot be applied, because the transaction of purchase of fixed assets can have no relation with the transaction of purchase of raw material from AE or sales of goods to AEs. Rule 10A of the IT Rules, defines 'transaction' as including 'a number of closely linked transactions'. The Hon'ble Delhi High Court in its judgment of March, 2015 in Sony Ericsson Mobile Communications India Pvt. Ltd. has held that the related transactions should be considered jointly for determining their ALP. However, in order to consider more than one international transaction as one, it is sine qua non that such transactions must be closely and not remotely linked. Every transaction done by an enterprise is somehow or the other linked with the carrying on of the business. But in order to be eligible for processing two or more transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of claim of depreciation allowance and revenue of depreciation with mark-up have to be seen jointly. The TPO in the present case has simply reduced the amount of deprecation allowance to Nil without simultaneously considering the revenue side of this transaction. If we consider these closely linked transactions of deduction for depreciation allowance and revenue due to depreciation in unison, the position which follows is that no further addition can be made on account of transfer pricing ITA No. 1453/Del/2014 33 adjustment due to one-sided consideration of depreciation allowance at Nil. Rather, the determination of ALP of the international transaction of purchase of fixed assets, in the facts and circumstances of the instant case, is tax neutral. As such, we order for the deletion of addition made by disallowing or reducing the amount of depreciation on the assets purchased from AE. This ground is allowed." 3.5. Again an identical issue has been dealt with by the Tribunal in the case of Mercer Consulting India Pvt. Ltd. (supra), the relevant para No. 5 thereof is being reproduced below:- "5. As a corollary to the ALP of the intra group services received by the assessee bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price". What follows is thus that when, as a result of computation of income on the basis of arm's length price, the income of the assessee is lowered or the loss is increased, the provisions of computation of income on the basis of arm's length price do not come into play. Viewed in this perspective, when we examine the facts of the present case, we find that the determination of ALP of the intra group service at NIL value does lower the profits of the assessee inasmuch as the revenue of the assessee from the IT enabled services will reduce correspondingly, and infact 20% more than the adjustment- as a result of loss of mark up as well. The ALP adjustment of Rs. 8,40,95,610 by the revenue authorities is, therefore, essentially required to be coupled with reduction of 10,09,14,732. That would erode our tax base, rather than augmenting it. The computation of income from international transactions on the basis of arm's length price, in the given situation, would result in lowering the income of the assessee vis-a-vis the income "computed on the basis of entries made in the books of accounts in respect of the previous year in which the transactions were entered into". In the lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets. Considering that the tax payer is remunerated for depreciation and other costs incurred in provisions of TRS services on a cost plus basis, the above transaction pertaining to purchase of fixed assets was treated as "closely linked" to the transaction pertaining to provision of TRS services. Hence, the same was not evaluated separately from a transfer pricing prospective and was considered to be a part of the provision of TRS service transaction of BT India by adopting a combined transaction approach for the purpose of determining the arm's length price. The Rules also clarify that a "transaction" includes a number of closely linked transactions. Accordingly, the purchase of fixed assets transaction had been clubbed with the provision of TR Services and does not require a separate arm's length analysis. The Id. TPO did not agree and enhanced the. income of the taxpayer by Rs. 8,00,04,512/-. The Id. DRP after considering the objections of the assessee has given partial relief. In compliance the effect of the direction of the Id. DRP has been given by limiting the TP adjustment on account of purchase of fixed assets to depreciation debited to profit and loss account. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aracterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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