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of <h1>Tribunal limits disallowance under section 14A, remits depreciation and merger expenses issues for reconsideration.</h1> <h3>Merck Specialities Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle 7 (2) (1), Mumbai</h3> Merck Specialities Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle 7 (2) (1), Mumbai - TMI Issues Involved:1. Addition in respect of technical know-how fees.2. Disallowance of expenses related to exempt income under section 14A.3. Disallowance of depreciation on intangible assets.4. Non-granting of deduction under section 145A.5. Disallowance of merger expenses.Issue-wise Detailed Analysis:1. Addition in respect of technical know-how fees:The first issue concerns the addition of Rs. 1,26,84,500/- for technical know-how fees paid by the assessee to its AE, Merck KGAA. The assessee used the Transactional Net Margin Method (TNMM) to benchmark this transaction. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) rejected this method, concluding that the services provided were general in nature and did not benefit the assessee. The DRP directed the Transfer Pricing Officer (TPO) to adjust the amount to nil. The Tribunal, however, found that similar issues were previously decided in favor of the assessee by the ITAT in the case of Merck Limited for the same assessment year. The Tribunal held that the services were indeed rendered and the payment was justified. Therefore, the addition of Rs. 1,26,84,500/- was deleted.2. Disallowance of expenses related to exempt income under section 14A:The second issue involves the disallowance of Rs. 47,38,638/- under section 14A read with Rule 8D. The assessee argued that the disallowance should not exceed the exempt income earned, which was Rs. 86,979/-. The Tribunal agreed, citing the Delhi High Court's decision in Joint Investment Pvt. Ltd. vs. CIT, which states that disallowance should not exceed the exempt income. Consequently, the Tribunal directed the AO to restrict the disallowance to Rs. 86,979/-.3. Disallowance of depreciation on intangible assets:The third issue is the disallowance of depreciation amounting to Rs. 6,93,16,406/- on intangible assets purchased from Merck Limited. The Tribunal noted that this issue was previously remitted back to the DRP for fresh adjudication. The Tribunal directed the DRP to re-examine the matter, considering the valuation reports and the specifics of the intangible assets in question.4. Non-granting of deduction under section 145A:The fourth issue pertains to the non-granting of a deduction of Rs. 53,30,473/- under section 145A. The assessee did not press this ground, and the Tribunal dismissed it as not pressed.5. Disallowance of merger expenses:The fifth issue involves the disallowance of Rs. 3,20,840/- out of total merger expenses of Rs. 4,01,050/-. The Tribunal remitted this issue back to the AO/DRP for re-adjudication, as the AO had not gone into the details.Conclusion:The Tribunal allowed the appeal of the assessee partly, directing the deletion of the addition for technical know-how fees, restricting the disallowance under section 14A to the amount of exempt income, and remitting the issues concerning depreciation on intangible assets and merger expenses back to the AO/DRP for fresh consideration. The ground related to the deduction under section 145A was dismissed as not pressed.
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