The Income Tax Appellate Tribunal (ITAT), New Delhi bench comprising of Shri R K Panda, AM and M S Astha Chandra, JM has held that unabsorbed depreciation can be set off against ‘income from other sources’
The assessee, Hewitt Associates (India) Private Limited, engaged in providing support services to its associated enterprises (“AEs”). The services are software development support services and Business Process Outsourcing (BPO) services. The assessee had entered into international transactions with its AEs in respect of provision of software development services and BPO/ITeS with its AEs. The TPO proposed an adjustment of Rs. 22,11,60,596/- in respect of BPO services/ ITeS segment and Rs. 19,08,53,709/- in respect of the software development support services segment totalling Rs. 41,20,14,305/-. The assessee entered into international transactions related to software support services of Rs. 2,16,32,36,787/-. The assessee used the transactional net margin method (“TNMM”) and Operating Profit/Total Cost or Net Cost Plus as the profit level indicator (“PLI”) and arrived at a set of 55 comparables with an average weighted average margin of 14.64% using multiple year data.
The appellant contended that unabsorbed depreciation against income from other sources amounting to Rs. 97,27,864/- as per the provisions of section 32(2) of the Act read with section 72 of the Act was restricted by the AO. The appellant submitted that while allowing the brought forward loss and unabsorbed depreciation AO failed to consider the provisions of section 32(2) which carve out the exception that unabsorbed depreciation from business can be set off against any other source of income in the absence of business income and can be carried forward indefinitely.
It was observed by the Tribunal that the unabsorbed depreciation would be set off with business income or under any other head of income including “income from other sources” and remanded the issue to the file of the AO to verify the claim of the assessee, further allowed the set-off of unabsorbed depreciation by law after giving reasonable opportunity of being heard to the assessee. The appeal filed by the assessee was allowed for statistical purposes.
Shri Atul Jain & Shri Arpan Khanna appeared on behalf of the assessee and Shri Surender Pal appeared on behalf of the revenue.
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