Facts of the Case

The present matter involves cross appeals filed by M/s Sony India Pvt. Ltd. (Assessee) and the Revenue (Commissioner of Income Tax) before the Delhi High Court concerning Assessment Years 2007–08 and 2008–09. The appeals arose from an order of the Income Tax Appellate Tribunal dated 07.06.2013.

The dispute primarily revolved around:

  • Treatment of Advertisement, Marketing and Promotion (AMP) expenses as international transactions under transfer pricing provisions.
  • Eligibility of depreciation under Section 32 of the Income Tax Act, 1961 on certain assets.
  • Applicable rate of depreciation on UPS, printers, and switches.

Issues Involved

  1. Whether AMP expenditure incurred by the assessee constitutes an international transaction subject to transfer pricing adjustments.
  2. Whether the assessee is entitled to depreciation under Section 32 on the written down value of assets relating to the Daru Hera unit.
  3. Whether higher depreciation @60% is allowable on UPS, printers, and switches, treating them as part of computer systems.

Petitioner’s Arguments (Assessee: Sony India Pvt. Ltd.)

  • AMP expenses should not automatically be treated as an international transaction without proper benchmarking.
  • Depreciation under Section 32 should be allowed on the block of assets, including those relating to the Daru Hera unit.
  • UPS, printers, and switches form integral parts of computer systems and should be eligible for higher depreciation at 60%.
  • Relied on judicial precedents including rulings supporting depreciation claims and transfer pricing interpretations.

Respondent’s Arguments (Revenue)

  • AMP expenses incurred by the assessee benefit the associated enterprise and should be treated as international transactions, warranting transfer pricing adjustments.
  • The assessee was not entitled to depreciation on certain assets as claimed.
  • UPS and similar equipment should not be categorized as computers and should attract only 15% depreciation.
  • Sought to defend the Tribunal’s earlier findings and raise all relevant legal contentions upon remand.

Court’s Findings / Order

1. AMP Expenditure Issue

The Court set aside the Tribunal’s order on AMP expenditure and remitted the matter back for fresh adjudication in light of the decision in:

  • Sony Ericsson Mobile Communication India Pvt. Ltd. v. CIT (2015) 374 ITR 118 (Del)

The Tribunal was directed to reconsider the issue in accordance with the legal principles laid down in the above case.

2. Depreciation under Section 32 (Daru Hera Unit)

The Court held the issue in favour of the assessee, relying on its earlier judgment in:

  • Sony India Pvt. Ltd. v. CIT (ITA Nos. 13/2012 & 14/2012)

Thus, depreciation on the block of assets was allowed.

3. Depreciation on UPS, Printers & Switches

The Court decided this issue against the Revenue, relying on:

  • CIT v. BSES Yamuna Power Ltd. (2013) 358 ITR 47 (Del)

It was held that such devices are part of computer systems and eligible for 60% depreciation.

Important Clarifications

  • AMP expenses cannot be automatically treated as international transactions without applying judicially settled principles.
  • Depreciation under Section 32 applies to block of assets, not individual asset identity.
  • Peripheral devices like UPS and printers are considered part of computer systems for depreciation purposes.

Sections Involved

  • Section 32 of the Income Tax Act, 1961 – Depreciation
  • Transfer Pricing Provisions (Sections 92, 92B) – International Transactions

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8299-DB/SKN23072018ITA1482014_135326.pdf

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