Facts of the Case

The petitioner, Fab India Overseas Private Limited, challenged the order dated 28.01.2021 passed by the Transfer Pricing Officer for Assessment Year 2011–12. The petitioner had acquired the trademark “FABINDIA” from its associated enterprise, Fabindia Inc., during Financial Year 2006–07 and had been claiming depreciation on the written down value of the trademark under Section 32 of the Income-tax Act, 1961.

For AY 2011–12, the Assessing Officer disallowed depreciation by relying on an earlier TPO order for AY 2007–08, wherein the arm’s length price of the trademark acquisition was determined at Nil. The petitioner’s appeal before the CIT(A) failed, and the matter ultimately reached the ITAT, which remanded the issue for fresh examination. Pursuant to the ITAT’s remand, the AO again made a reference to the TPO for AY 2011–12, resulting in the impugned order.

Issues Involved

Whether a reference to the Transfer Pricing Officer under Section 92CA can be made in a year where no international transaction was entered into, and whether the TPO can re-determine the arm’s length price of a trademark acquired in an earlier year for the purpose of disallowing depreciation in a subsequent assessment year.

Petitioner’s Arguments

The petitioner contended that the acquisition of the trademark was a one-time transaction completed in FY 2006–07 and no international transaction was entered into during FY 2010–11 relevant to AY 2011–12. It was argued that the reference made to the TPO for AY 2011–12 was without jurisdiction and contrary to Sections 92B and 92CA of the Act. The petitioner submitted that depreciation could not be denied by re-benchmarking a concluded transaction of an earlier year.

Respondent’s Arguments

The Revenue argued that the reference to the TPO was made pursuant to the ITAT’s remand order and with proper approvals. It was contended that the TPO was justified in examining the arm’s length price to ensure that depreciation was claimed on a valid and correctly valued intangible asset.

Court Order / Findings

The Delhi High Court held that an international transaction, within the meaning of Section 92B, must be entered into during the relevant previous year for a valid reference to the TPO. The Court observed that the acquisition of the trademark in FY 2006–07 was a singular transaction and could not be treated as an international transaction for AY 2011–12.

The Court found that the Revenue had misconstrued the ITAT’s remand order. The ITAT had directed the Assessing Officer to examine the admissibility and quantum of depreciation and had not directed a fresh transfer pricing reference for AY 2011–12. Since no international transaction occurred in the relevant year, the reference made to the TPO was fundamentally flawed and without jurisdiction.

Accordingly, the Court set aside the impugned order dated 28.01.2021 passed by the TPO. However, the Court declined to issue a direct mandamus to allow depreciation and held that the Assessing Officer must consider the petitioner’s claim for depreciation afresh in accordance with the ITAT’s directions and the present judgment.

Important Clarification

The Court clarified that transfer pricing provisions cannot be invoked in a year merely because depreciation is claimed on an asset acquired in an earlier year. Arm’s length price determination must relate to the year in which the international transaction is actually entered into.

Final Outcome

The writ petition was disposed of. The Delhi High Court set aside the order dated 28.01.2021 passed by the Transfer Pricing Officer as being without jurisdiction and directed the Assessing Officer to consider the petitioner’s claim for depreciation afresh in accordance with law and the directions of the ITAT. No order as to costs was passed.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769850614_FABINDIAOVERSEASPRIVATELIMITEDVsASSISTANTCOMMISSIONEROFINCOMETAXCIRCLE71NEWDELHIANR..pdf

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