2020 (8) TMI 50 - AT - Income Tax

Tribunal Partially Allows Appeal, Directs APA Approach for Transfer Pricing

Metal One Corporation India Pvt. Ltd. Versus The DCIT, Circle-16 (2), New Delhi

The appeal was partly allowed. The Tribunal directed the Assessing Officer and Transfer Pricing Officer to follow the Advance Pricing Agreement approach ... TP Adjustment - comparable selection - benefit of APA proceedings - HELD THAT:- We find that the additional ground of appeal raised by the assessee is to be admitted being a legal issue. Various Benches of the Tribunal have held that the conclusion reached in APA proceedings deserves to be applied in case facts and circumstances, FAR are similar to the subsequent years. Similar view has been applied in the case of Pune Bench of the Tribunal in M/S. Honeywell Automation India Ltd. vs ACIT [2018 (11) TMI 264 - ITAT PUNE] Once the APA has been concluded in the hands of the assessee then the same approach/basis is to be adopted for instant Assessment Year. Accordingly, the Assessing Officer/TPO is directed to follow the approach/basis of APA applied for the subsequent year to the instant Assessment Year. Disallowance of depreciation on Goodwill claimed by the assessee pursuant to the Business Transfer Agreement - HELD THAT:- The present Assessment Year being the year in which agreement was entered into i.e. dated 20.06.2008, it is considered fit to remit this issue of determining resultant amount of goodwill on which depreciation is allowable in the hands of the assessee, consequent to the terms and conditions of the Business Transfer Agreement, back to the file of AO. AO is directed to verify the claim of the assessee after allowing reasonable opportunity of hearing. The assessee is also directed to produce all the facts before the Assessing Officer, who shall decide the same in accordance with law. Disallowance of Mark to Market foreign exchange loss - HELD THAT:- We reverse the orders of Assessing Officer and direct the Assessing Officer to delete the disallowance made on account of mark to market foreign exchange loss. Disallowance of subscription charges - HELD THAT:- Amount was treated as donation by Assessing Officer and disallowed u/s 37(1) of the Act and the final assessment order was passed. We find no merit in the plea of the assessee where the amount is paid as donation to society. The assessee has enclosed the receipt and at best the assessee is entitled to claim deduction u/s 80G of the Act. The Assessing Officer may verify the same and allow the claim in accordance with law. Issues Involved:1. Transfer Pricing Adjustment2. Depreciation on Goodwill3. Disallowance of Mark-to-Market Foreign Exchange Loss4. Disallowance of Subscription ChargesDetailed Analysis:1. Transfer Pricing Adjustment:The primary issue raised by the assessee concerns the transfer pricing adjustment made in the provision of sales support services to Associated Enterprises (AEs). The assessee contested the inclusion of certain companies as comparables, arguing that they were not functionally comparable. The assessee also raised an additional ground, suggesting that the approach and conclusions from subsequent Advance Pricing Agreement (APA) proceedings should be applied to the year under appeal, as the Functional, Asset, and Risk (FAR) analysis was consistent.The Tribunal admitted the additional ground, referencing precedents where conclusions from APA proceedings were applied to similar facts and circumstances in subsequent years. Consequently, the Tribunal directed the Assessing Officer (AO) and Transfer Pricing Officer (TPO) to follow the APA approach for the instant assessment year. Given this direction, there was no need to adjudicate the issue on merit.2. Depreciation on Goodwill:The assessee claimed depreciation on goodwill arising from a Business Transfer Agreement, which was initially rejected by the AO based on the Supreme Court decision in Goetze (India) Ltd. The Tribunal noted that even if a claim is not made in the original or revised return, it can still be allowed if raised during assessment proceedings, as supported by various High Court rulings.The Tribunal remitted the issue back to the AO for verification of the factual aspects and determination of the resultant amount of goodwill on which depreciation is allowable. The AO was instructed to verify the claim after allowing reasonable opportunity for hearing, and the assessee was directed to produce all relevant facts.3. Disallowance of Mark-to-Market Foreign Exchange Loss:The AO disallowed the mark-to-market foreign exchange loss, treating it as notional and speculative. The Tribunal, referencing the Delhi High Court decision in CIT vs Industrial Finance Corporation of India Ltd. and the Bombay High Court decision in Pr.CIT vs International Gold Company Ltd., held that such losses are allowable. Consequently, the Tribunal directed the AO to delete the disallowance made on account of mark-to-market foreign exchange loss.4. Disallowance of Subscription Charges:The AO disallowed the subscription charges, treating them as a donation and thus not allowable under section 37(1) of the Act. The Tribunal found no merit in the assessee's plea, as the amount was indeed a donation. However, the Tribunal noted that the assessee might be entitled to claim a deduction under section 80G of the Act, subject to verification by the AO.Conclusion:The appeal was partly allowed. The Tribunal provided specific directions for the AO and TPO regarding the transfer pricing adjustment, remitted the issue of depreciation on goodwill for further verification, directed the deletion of the disallowance of mark-to-market foreign exchange loss, and allowed the AO to verify and allow the subscription charges claim under section 80G if applicable.