Tribunal Adjusts Transfer Pricing, Allows Goodwill Depreciation, Orders Review of Additional Depreciation & Loss Set-Off.

The Tribunal partly allowed the appeal, directing the exclusion of certain comparables for Transfer Pricing adjustments and permitting depreciation on goodwill. It instructed the re-examination of the claim for additional depreciation and reconsideration of the set-off of brought forward losses. The levy of interest under section 234B was upheld, dismissing that ground.

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Issues Involved: Transfer Pricing adjustment, disallowance of depreciation on goodwill, non-admission of additional depreciation on goodwill, non-granting of set-off of brought forward losses, and levy of interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Transfer Pricing Adjustment:
The primary issue pertains to the inclusion of Genesys International Corporation Ltd. and Excel Infoways Limited in the final set of comparables for benchmarking international transactions. The assessee argued that Genesys is not functionally comparable due to its advanced mapping and geospatial services, which differ from the assessee's business process outsourcing services. The Tribunal, referencing its decision in ITA No.7519/Mum/2012 for the assessment year 2008-09, agreed that Genesys should be excluded due to functional disparity and no change in business nature. Similarly, Excel was excluded due to its highly fluctuating margins, as supported by precedents from the Pune Bench of the Tribunal in Emersion Climate Technologies vs. DCIT and Baxter India Pvt. Ltd vs. ACIT. Consequently, the grounds related to TP adjustment were partly allowed.

2. Disallowance of Depreciation on Goodwill:
The Tribunal considered the issue of depreciation on goodwill, referencing its decision in the assessee's case for the assessment year 2011-12 (ITA No.2692/Mum/2016). It concluded that the assessee is entitled to claim depreciation on goodwill, which arose from a slump sale and subsequent amalgamation approved by the High Court. The Tribunal directed the Assessing Officer to allow the claim of depreciation on goodwill, thus allowing ground No.9 of the appeal.

3. Non-Admission of Additional Depreciation on Goodwill:
The assessee's claim for additional depreciation on goodwill, not made in the return but during assessment proceedings, was initially rejected by the DRP. The Tribunal, referencing its prior decision for the assessment year 2011-12, held that such claims can be made during assessment proceedings as per the Jurisdictional High Court's ruling in Pruthvi Brokers and Shareholders Pvt. Ltd. The issue was restored to the Assessing Officer for examination on merits, allowing ground No.10 for statistical purposes.

4. Non-Granting of Set-Off of Brought Forward Losses:
The assessee's claim for set-off of brought forward business losses was not addressed by the authorities below. The Tribunal restored this issue to the Assessing Officer for reconsideration in accordance with the law, ensuring a reasonable opportunity for the assessee to be heard. Ground No.11 was allowed for statistical purposes.

5. Levy of Interest Under Section 234B:
The assessee challenged the levy of interest under section 234B. The Tribunal found no merit in this ground, stating that the charging of interest under section 234B is mandatory and consequential. Hence, ground No.12 was dismissed.

Conclusion:
The appeal was partly allowed, with specific directions to exclude certain comparables for TP adjustments, allow depreciation on goodwill, re-examine the claim for additional depreciation, and reconsider the set-off of brought forward losses. The levy of interest under section 234B was upheld.

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