Facts of the Case

This case involves cross appeals filed by M/s Sony India Pvt. Ltd. (assessee) and the Income Tax Department (Revenue) concerning Assessment Years 2007–08 and 2008–09. The appeals arose from the order of the Income Tax Appellate Tribunal dated 07.06.2013.

The primary disputes revolved around:

  • Treatment of advertisement, marketing and sales promotion (AMP) expenditure under transfer pricing provisions.
  • Allowability of depreciation under Section 32 of the Income Tax Act, 1961 on certain assets.
  • Correct rate of depreciation on UPS, printers, and switches.

Issues Involved

  1. Whether AMP expenditure incurred by the assessee constitutes an international transaction liable for transfer pricing adjustment.
  2. Whether the assessee is entitled to depreciation under Section 32 on certain written down value assets (Daru Hera unit).
  3. Whether UPS, printers, and switches qualify for 60% depreciation as computer peripherals or only 15% at normal rates.

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

  • The AMP expenditure should not be treated as an international transaction, and hence no transfer pricing adjustment should be made.
  • The assessee relied on judicial precedents, particularly decisions favoring exclusion of AMP from transfer pricing adjustments.
  • It contended that depreciation under Section 32 on the concerned assets was rightly allowable.
  • It further argued that UPS and related equipment form part of computer systems, thus eligible for higher depreciation (60%).

Respondent’s Arguments (Revenue)

  • The Revenue argued that AMP expenditure should be considered an international transaction, justifying transfer pricing adjustment.
  • It submitted that the Tribunal’s order required reconsideration, and all legal pleas should remain open.
  • Regarding depreciation, the Revenue contended that:
    • The assessee was not entitled to depreciation on certain assets.
    • UPS and similar items should not be treated as computers, hence only normal depreciation (15%) should apply.

Court’s Findings / Order

  1. AMP Expenditure Issue
    • The Court set aside the Tribunal’s order and remitted the matter back in light of the ruling in Sony Ericsson Mobile Communication India Pvt. Ltd. v. CIT (2015).
    • The issue is to be reconsidered afresh by the Tribunal.
  2. Depreciation under Section 32 (Daru Hera Unit)
    • The issue was already settled in favour of the assessee in earlier judgments of the Court.
    • The Court held in favour of the assessee and against the Revenue.
  3. Depreciation on UPS, Printers, Switches
    • Relying on CIT vs BSES Yamuna Power Ltd. (2013), the Court held that such items qualify as computer peripherals.
    • Therefore, higher depreciation (60%) is allowable.
  4. Final Outcome
    • Appeals were disposed of.
    • Matters relating to AMP were remanded, while other issues were decided in favour of the assessee.

Important Clarifications

  • AMP expenditure requires analysis in light of Sony Ericsson ruling, and cannot automatically be treated as an international transaction.
  • Computer peripherals like UPS are eligible for higher depreciation, reaffirming settled jurisprudence.
  • Courts continue to follow precedent strictly in transfer pricing and depreciation matters.

Sections Involved

  • Section 32 – Depreciation
  • Section 92 / Transfer Pricing Provisions – International Transactions (AMP expenses context)

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

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.