Tribunal allows appeal in transfer pricing case, directs deletion of adjustments.

The Tribunal allowed the appellant's appeal in a transfer pricing case, directing the deletion of adjustments amounting to Rs. 33,10,68,560/- made on account of Transfer Pricing (TP) issues. The Tribunal found no merit in the adjustments, citing judicial precedents and documentary evidence provided by the appellant. Additionally, the Tribunal directed the Assessing Officer to allow the claim of depreciation on goodwill and bad debts disallowed on corporate issues. The appeal was allowed, and the order was pronounced on 31.01.2020.

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Issues Involved:
1. Additions made on account of Transfer Pricing (TP) issues.
2. Additions made on corporate issues.

Detailed Analysis:

1. Additions Made on Account of Transfer Pricing (TP) Issues:

The appellant, a wholly-owned subsidiary of GBT III BV, Netherlands, engaged in the travel services business, had several international transactions with its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) proposed additions based on the Comparable Uncontrolled Price (CUP) method, questioning the arm's length price (ALP) of services availed by the appellant from its AEs. The TPO argued that the appellant failed to provide evidence of actual services received and deemed the transactions as profit-shifting mechanisms. The TPO's adjustments included:

(a) Provision of operational and business support services amounting to Rs. 34,55,989/- by including/excluding certain comparable companies.
(b) Disallowance of availing forward TSA and Regional Headquarter Services amounting to Rs. 33,10,68,560/-.

The appellant contended that the TPO and the Dispute Resolution Panel (DRP) erred by applying the CUP method selectively while accepting the Transactional Net Margin Method (TNMM) for other transactions. The appellant argued that the payments for availing TSA and RHQ services form the cost base, ensuring a 3% assured margin as per the global transfer pricing policy. The appellant provided documentary evidence, including emails and invoices, to demonstrate the actual rendition of services.

The Tribunal referred to the Delhi High Court's judgment in Magneti Marelli Powertrain India Pvt Ltd, which held that when intra-group services are linked to the main business activity, they should be benchmarked using TNMM. The Tribunal noted that the TPO had accepted the fees received by the appellant for rendering services but disallowed the payments under the same agreement, leading to inconsistent treatment. The Tribunal also cited the Delhi High Court's decision in EKL Appliances, which emphasized that the TPO does not have the authority to adjudicate the necessity or benefit of the expenditure incurred by the assessee.

Based on the judicial precedents and the documentary evidence provided, the Tribunal found no merit in the TP adjustment of Rs. 33,10,68,560/- and directed the Assessing Officer/TPO to delete the same. The grounds relating to TP adjustments were allowed.

2. Additions Made on Corporate Issues:

a. Disallowance of Depreciation on Goodwill:

The appellant acquired the Corporate Travel Division of AMEX through a slump sale, paying Rs. 45,48,85,303/-. The differential amount over the net assets was accounted as goodwill, and depreciation was claimed. The Assessing Officer disallowed the claim, arguing that the valuation reports did not separately mention goodwill. The Tribunal noted that the appellant paid consideration over the fair value of the assets, representing payment towards goodwill. The Tribunal referred to the Supreme Court's decision in Smifs Securities Ltd, which held that goodwill acquired on amalgamation is a capital right eligible for depreciation under Section 32 of the Act. The Tribunal directed the Assessing Officer to allow the claim of depreciation.

b. Disallowance of Bad Debts:

The appellant wrote off Rs. 2,25,26,524/- as bad debts, which were part of the receivables acquired from AMEX. The Assessing Officer disallowed the claim, questioning the credibility of the entities involved. The Tribunal emphasized that to claim bad debts, the assessee only needs to write off the debts in the books of account. The Tribunal found that the appellant had successfully discharged its onus and fulfilled the conditions under Section 36 of the Act. The Tribunal directed the Assessing Officer to allow the claim of bad debts.

Other grounds raised by the appellant were consequential in nature.

In conclusion, the appeal of the assessee was allowed, and the order was pronounced in the open court on 31.01.2020.

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