Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 30.08.2024 passed by the Income Tax Appellate Tribunal for Assessment Year 2010–11. The Tribunal had partly allowed the appeal of Sony India Private Limited and dismissed the Revenue’s appeal. The Revenue proposed three substantial questions of law relating to (i) allowability of depreciation on assets of the Dharuhera unit that were discarded during the year, (ii) deletion of a separate adjustment on account of Advertisement, Marketing and Promotion expenses, and (iii) rejection of benchmarking of AMP expenses using the Bright Line Test.

Issues Involved

Whether depreciation is allowable on assets forming part of a block of assets even if individual assets are discarded and no longer owned during the year, whether a separate AMP adjustment is permissible where distribution activity is already benchmarked, and whether AMP expenses can be benchmarked using the Bright Line Test.

Petitioner’s Arguments

The Revenue contended that depreciation could not be allowed on assets that were discarded and no longer owned by the assessee during the relevant year. It was further argued that AMP expenses constituted a separate international transaction warranting independent benchmarking using the Bright Line Test, and that the Tribunal erred in deleting the AMP adjustment and in directing partial benchmarking of reimbursements.

Respondent’s Arguments

The assessee did not appear. However, the Revenue fairly conceded during arguments that the AMP-related questions were covered against it by earlier judgments of the Delhi High Court in the assessee’s own case. With respect to depreciation, it was also acknowledged that the issue stood covered by binding precedents of the Delhi High Court.

Court Order / Findings

The Delhi High Court noted that substantial questions of law relating to AMP expenses were squarely covered by the Court’s earlier judgment in Pr. Commissioner of Income Tax-8 vs. Sony India Pvt. Ltd. (2023), wherein it was held that no separate AMP adjustment was warranted and that application of the Bright Line Test was legally impermissible. Consequently, questions relating to AMP adjustments were rejected.

On the issue of depreciation, the Court observed that the Tribunal had relied upon the Delhi High Court judgment in Sony India (P) Ltd. vs. Commissioner of Income Tax (2017), which in turn followed CIT vs. Ansal Properties & Infrastructure Ltd. and CIT vs. Oswal Agro Mills Ltd. The Court reiterated that under the “block of assets” concept, depreciation is allowable so long as the block continues to exist, irrespective of whether individual assets within the block are discarded or not used. The Revenue conceded that the issue was fully covered by these binding decisions.

The Court held that all three proposed substantial questions of law were covered by settled precedents and did not give rise to any question warranting consideration.

Important Clarification

The Court reaffirmed that under the block of assets regime, depreciation is not dependent on use or ownership of each individual asset, and that AMP adjustments based on the Bright Line Test are unsustainable in law. Judicial consistency mandates dismissal of appeals raising issues already settled by binding precedents.

Final Outcome

The appeal filed by the Revenue was dismissed. The order of the Income Tax Appellate Tribunal for Assessment Year 2010–11 was upheld in entirety. It was held that no substantial question of law arose for consideration, and the decision was rendered in favour of the assessee and against the Revenue.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769681052_THEPR.COMMISSIONEROFINCOMETAXCENTRAL1VsPVRLTD.pdf

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