Appeal partly allowed with economic adjustments permitted for benchmarking and goodwill depreciation upheld.

The appeal was partly allowed for statistical purposes, with the revenue's appeal dismissed. The Tribunal directed the Transfer Pricing Officer (TPO) to consider audited segmental profitability for benchmarking, allowed economic adjustments claimed by the assessee, permitted depreciation on goodwill, and upheld the deduction for capital expenditure on scientific research.

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Issues Involved:
1. Adoption of Transactional Net Margin Method (TNMM) and benchmarking of international transactions.
2. Rejection of segmental profitability by the Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP).
3. Economic adjustments claimed by the assessee.
4. Adjustment computation on the value of international transactions.
5. Claim of depreciation on goodwill arising from amalgamation.
6. Disallowance of expenditure under section 14A while computing book profits under section 115JB.
7. Deduction of capital expenditure on scientific research under section 35(1)(iv).

Detailed Analysis:

1. Adoption of Transactional Net Margin Method (TNMM) and Benchmarking of International Transactions:
The assessee adopted TNMM for benchmarking its international transactions, splitting them into manufacturing and R&D segments. The TPO, however, rejected this segmentation and conducted an entity-level benchmarking. The TPO identified 68 comparables and computed an OP/OI margin of 6.69%, leading to an adjustment of Rs. 4578.73 lacs. The DRP later accepted the audited segmental accounts and directed the TPO to benchmark the AE segment of each unit with the Non-AE segment, except for the Rasai unit.

2. Rejection of Segmental Profitability by TPO and DRP:
The TPO initially rejected the segmental profitability due to the lack of audit. However, the DRP accepted the audited segmental accounts submitted later. The DRP directed the TPO to use internal TNMM for benchmarking, but the TPO disagreed with the DRP's method of comparing AE segment margin of Rasai unit with total margin of other units, stating it was conceptually incorrect.

3. Economic Adjustments Claimed by the Assessee:
The assessee claimed economic adjustments for stock write-down, capacity underutilization, shutdown costs, abnormal forex loss, and professional charges for a new MD search. The TPO allowed some adjustments partially but rejected others. The Tribunal directed the TPO to allow these adjustments, stating they should be uniformly applied to both AE and Non-AE segments.

4. Adjustment Computation on the Value of International Transactions:
The Tribunal held that adjustments should be restricted to the value of international transactions, not the entire entity level, citing the Bombay High Court's decision in PCIT vs. Sandvik Asia Pvt. Ltd. The total value of international transactions for the Rasai unit was Rs. 65 crores, and adjustments should be computed accordingly.

5. Claim of Depreciation on Goodwill Arising from Amalgamation:
The assessee claimed depreciation on goodwill arising from an amalgamation, which was not initially claimed in the return of income. The Tribunal remanded the matter back to the AO for fresh adjudication, following its earlier decisions in the assessee's own case for previous years.

6. Disallowance of Expenditure under Section 14A While Computing Book Profits under Section 115JB:
The assessee raised additional grounds regarding the disallowance of expenditure under section 14A while computing book profits under section 115JB. However, during the hearing, the assessee did not press these grounds, and they were dismissed as not pressed.

7. Deduction of Capital Expenditure on Scientific Research under Section 35(1)(iv):
The assessee claimed a deduction for capital expenditure on scientific research, which was disallowed by the AO due to the lack of DSIR approval. The Tribunal held that DSIR approval is not a prerequisite for claiming deduction under section 35(1)(iv) and allowed the deduction, citing various judicial precedents.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, and the appeal of the revenue was dismissed. The Tribunal directed the TPO to consider the audited segmental profitability for benchmarking and allowed the economic adjustments claimed by the assessee. The Tribunal also allowed the claim for depreciation on goodwill and the deduction for capital expenditure on scientific research.

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