GAP International Sourcing (India) P.Ltd vs ACIT (OSD) – Transfer Pricing and Depreciation Appeal

The case of GAP International Sourcing (India) Private Limited versus the Assistant Commissioner of Income Tax (OSD), Circle-10(1), New Delhi, revolves around complex issues of transfer pricing adjustments and claims of depreciation on routers, which culminated in a ruling partly in favor of the appellant. This document aims to unpack the intricacies of the case, shedding light on the legal arguments, evidence presented, and the rationale behind the tribunal’s decisions.

Introduction

The appeal by GAP International Sourcing (India) P.Ltd against the order of the Assistant Commissioner of Income Tax (OSD) Delhi for the assessment year 2017-18 presents a nuanced examination of transfer pricing regulations and depreciation claims on routers within the context of international transactions and income tax assessments in India.

The contention points at heart include the adjustments made to the international transactions between GAP International and its associated enterprises (AEs), manifesting in a transfer pricing adjustment of approximately Rs.8.24 crores. Additionally, the dispute extends to the classification and resultant depreciation rate applied to routers, with the assessing officer (AO) reclassifying them from computers to plant and machinery, significantly affecting depreciation claims.

Background of the Case

The appellant filed a return declaring a total income of Rs.25.07 crores for the assessment year 2017-18. The case was selected for scrutiny, leading to a draft assessment and subsequent adjustments following a reference to the Transfer Pricing Officer (TPO). The assessed income was adjusted to about Rs.33.33 crores, primarily due to transfer pricing adjustments and depreciation claims.

Transfer Pricing Dispute

The core of the transfer pricing dispute related to the provision of advisory and sourcing support services by GAP International to its AEs. The TPO’s adjustments rested on an alleged failure by the appellant to adhere to the arm’s length principle, which governs transactions between associated enterprises under Indian tax laws. The appellant contested these adjustments vehemently, arguing against the comparability analysis used and the rejection of its functional, asset, and risk (FAR) analysis.

Depreciation on Routers

Another point of contention was the claim of depreciation on routers at a rate of 60%, classifying them as part of computer and computer accessories. The AOs reclassification of routers as plant and machinery, thereby reducing the depreciation rate to 15%, was challenged as it posed a significant impact on the appellant’s taxable income.

Judgment and Implications

The tribunal’s decision to partly allow the appeal underscores the nuanced interpretations of tax laws relating to transfer pricing and asset classification. By directing a reevaluation of the depreciation on routers at the rate applicable to computers, the tribunal provided relief to the appellant while also reinforcing the significance of detailed documentation and robust FAR analysis in transfer pricing cases.

Conclusion

The GAP International Sourcing (India) P.Ltd vs. ACIT (OSD) case highlights the complexities surrounding transfer pricing disputes and the classification of assets for depreciation purposes. It serves as a crucial precedent for similar disputes, emphasizing the necessity for clear guidelines and thorough documentation in international transactions.

GAP International Sourcing (India) P.Ltd vs ACIT (OSD) – Transfer Pricing and Depreciation Appeal