Free Equipment from Group Companies Taxable as Perquisite u/s 28(iv): ITAT Upholds PCIT's Revision u/s 263, Directs AO to Verify Returnable Basis [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the free of cost equipment of ₹42.89 crore received from group companies was potentially taxable as a perquisite under section 28(iv) of the Income Tax Act, 1961. It upheld the order by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961,

The assessee-appellant, LSI India Research & Development Pvt. Ltd. had received certain capital assets of ₹42,89,70,248 on a free of cost/loan basis from its holding/subsidiary companies. According to the PCIT, these assets represented income within the meaning of section 28(iv) of the Act.

The assessee submitted that the equipment was acquired for the limited purpose of testing software development, which was received on a returnable basis and was meant for the benefit of recipients/customers. Therefore, such equipment could not be treated as a benefit or perquisite under section 28(iv).

The PCIT observed that the submission did not clarify the usable period of such assets or when they were returned or disposed of. It was held that if the assets were used for more than one financial year, they should be treated as capital assets, and the provision of such assets could be considered a taxable benefit or perquisite under section 28(iv).

The assessee before the tribunal relied on the decision in ACIT v. Sony India Software Center Pvt. Ltd. (2024) and reiterated that section 28(iv) could not apply where the equipment was received on a returnable basis.

The department argued that the assessee had produced no evidence that the assets were received on a returnable basis, and the Sony India case did not apply.

The Tribunal noted that the main issue was whether the equipment was received on a returnable basis. The PCIT had found the assessment erroneous for lack of enquiry and also not directed an automatic addition of ₹42.89 crore, but had left the decision to the AO after verification.

The Tribunal Bench comprising Waseem Ahmed (Accountant Member) and Keshav Dubey (Judicial Member) held that there was no infirmity in the PCIT’s direction under section 263. It also observed that if the equipment was indeed on a returnable basis, the AO should decide the matter afresh in the light of the Sony India Software Center ruling.

The assessee was represented by Tanmayee Rajkumar, while Shivanand Kalakeri represented the Revenue.

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