Testing Equipment Not a Taxable Benefit u/s 28(iv): ITAT Deletes ₹7.73 Cr Addition Against AMD India [Read Order]

The Bangalore bench of Income Tax Appellate Tribunal (ITAT) has ruled that testing equipment received free of cost by AMD India Pvt. Ltd. from its Associated Enterprises (AEs) does not constitute a taxable benefit under Section 28(iv) of the Income Tax Act.

The Tribunal deleted the ₹7.73 crore addition made by the AO, holding that the assets were used solely for rendering services and did not confer any enduring benefit to the assessee.

AMD India, a captive software development service provider, received hardware and testing equipment from its AEs during AY 2013–14. The AO treated the value of these assets,₹7.73 crore, as a taxable benefit under Section 28(iv), arguing that the assessee derived a business advantage from their use.

The assessee contended that the equipment was provided on a returnable basis, solely for testing software compatibility. It had no ownership over the assets, and their use was incidental to the services rendered to the AE.

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The invoices accompanying the shipments indicated that the declared value was for customs purposes only.

On appeal, the CIT(A) partially accepted the assessee’s argument. Recognising AMD’s cost-plus model, the CIT(A) held that had the assessee purchased the equipment, it would have been reimbursed with a 12% markup. Accordingly, the CIT(A) restricted the addition to 12% of the asset value.

The Tribunal went further, fully deleting the addition. It held that Section 28(iv) applies only when a benefit or perquisite arises in the course of business and is convertible into money. In AMD’s case, the equipment was used strictly for testing purposes, under the AE’s instructions, and did not result in any independent commercial gain.

The two-member bench comprising Keshav Dubey (Judicial Member) and Waseem Ahamed (Accountant Member) cited its own precedents in Samsung R&D Institute India and Tesco Bengaluru, where similar additions were struck down.

It stated that mere access to equipment does not constitute a taxable benefit unless it results in an irretrievable advantage to the assessee.

The Tribunal also noted that many of the assets were either returned or destroyed after use, further negating any claim of enduring benefit. It rejected the AO’s presumption-based approach, stating that no concrete evidence was provided to show how AMD profited from the equipment.

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