2022 (1) TMI 1386 - AT - Income Tax

Tribunal rules in favor of taxpayer on transfer pricing, depreciation, and bad debts issues.

GBT India Pvt. Ltd. Versus National E-Assessment Centre, New Delhi

GBT India Pvt. Ltd. Versus National E-Assessment Centre, New Delhi - TMI Issues Involved:- Transfer pricing adjustment on account of Intra Group Services.- Disallowance of depreciation claimed on goodwill.- Disallowance of expenses in respect of bad debts written off.Issue-wise Detailed Analysis:1. Transfer Pricing Adjustment on Intra Group Services:The assessee challenged the transfer pricing adjustment of Rs. 24,33,04,705/- for availing Intra Group Services. The Tribunal had previously decided in favor of the assessee for AY 2015-16, noting that the TNMM (Transactional Net Margin Method) was accepted as the most appropriate method for benchmarking the international transactions. The TPO had applied the CUP (Comparable Uncontrolled Price) method to determine the arm's length price as NIL, arguing that the assessee failed to provide evidence of actual services received and the benefit derived from such services. However, the Tribunal held that the TPO erred in questioning the need and benefit derived from the services, emphasizing that the actual rendition of services was evidenced by emails and invoices. The Tribunal directed the deletion of the adjustment, as the TPO had accepted the fees received by the assessee for rendering similar services. The DRP (Dispute Resolution Panel) also acknowledged this and directed the AO to verify if any appeal was filed against the Tribunal's order for AY 2015-16. Since no appeal was filed, the addition was to be deleted.2. Disallowance of Depreciation on Goodwill:The assessee claimed depreciation of Rs. 8,20,48,398/- on goodwill recognized after acquiring the Corporate Travel division from AEIPL. The AO disallowed the depreciation, arguing that the goodwill was self-generated as both entities were under the same parent company. The Tribunal, referencing the Supreme Court's decision in the case of CIT v. Smifs Securities Ltd., held that goodwill acquired on amalgamation is a capital right eligible for depreciation under Section 32 of the Act. The DRP directed the AO to verify if any appeal was filed against the Tribunal's order for AY 2015-16 and exclude the addition if no appeal was preferred. Since no appeal was filed, the depreciation claim was to be allowed.3. Disallowance of Bad Debts Written Off:The assessee wrote off bad debts amounting to Rs. 22,96,719/-. The AO disallowed the claim, citing a lack of supporting evidence and questioning the reasonableness of the bad debts given it was the second year of operations. The Tribunal, in the previous year’s case, held that the assessee had acquired receivables as part of the business transfer and had written off irrecoverable debts in the books of account. It was established that the write-off was legitimate as per Section 36 of the Act. The DRP directed the AO to verify if any appeal was filed against the Tribunal’s order for AY 2015-16 and exclude the addition if no appeal was preferred. Since no appeal was filed, the bad debts were to be allowed.Conclusion:The Tribunal found that all issues were covered by its earlier decision for AY 2015-16, which was not appealed against by the Revenue. Consequently, the additions for transfer pricing adjustment, disallowance of depreciation on goodwill, and disallowance of bad debts were directed to be deleted. The appeal of the assessee was allowed, and the interest charges under Sections 234B and 234C were deemed consequential.