GE India Industrial Pvt. Ltd. Vs DCIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal partly allowed the assessee’s lead appeal for AY 2007-08 and the connected appeal for AY 2008-09. The principal transfer-pricing controversy concerned the lower authorities’ application of a 50% turnover filter for selecting comparables across the assessee’s lighting, power controls and wind divisions. The Tribunal considered the DRP’s reasoning that turnover similarity and economies of scale improved comparability, but relied upon the principles discussed in Chryscapital Investment Advisors (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax concerning functional comparability, differences between enterprises and the possibility of reasonably accurate adjustments under Rule 10B and section 92C.
The Tribunal rejected the Revenue’s support for the 50% or lower turnover filter and directed the TPO to undertake a fresh arm’s length price computation. It further accepted the assessee’s contention that transfer-pricing adjustments should be confined to international transactions with Associated Enterprises, relying upon Commissioner of Income Tax v. Keihin Panalfa Ltd. The Tribunal also directed exclusion of amortisation of goodwill, bad debts and legal expenses from the ALP computation. On other grounds, warranty and replacement expenses were deleted following the assessee’s success on the same issue in AY 2011-12; the disallowance relating to unforeseeable losses was restored for factual verification; bad-debt disallowance of Rs.2,31,09,143/- was deleted; expenditure on business rights of Rs.11,16,49,202/- was allowed in light of Taparia Tools Ltd. v. JCIT; and the claim relating to doubtful loans and advances was accepted in principle subject to verification. Claims concerning write-back of customs duty and leave encashment were restored for factual verification, while depreciation at 60% on software expenditure was allowed. For AY 2008-09, the Tribunal dealt only with specified grounds remaining unadjudicated in the second round, allowing the warranty claim, directing that transfer-pricing adjustments be confined to AE transactions, and restoring the working-capital adjustment issue to the TPO for verification. The twin appeals were accordingly partly allowed.
