2023 (1) TMI 562 - AT - Income Tax

Tribunal decision on transfer pricing adjustments, depreciation on goodwill, penalty proceedings, and interest calculations.

M/s. Merck Specialities Pvt. Ltd. Versus Dy. Commissioner of Income Tax Circle–7 (2) (1), Mumbai

M/s. Merck Specialities Pvt. Ltd. Versus Dy. Commissioner of Income Tax Circle–7 (2) (1), Mumbai - TMI Issues Involved:1. General Grounds of Appeal2. Transfer Pricing Issues3. Depreciation on Intangible Assets4. Depreciation on Goodwill from Amalgamation5. Interest under Section 234A6. Interest under Section 234B7. Interest under Section 234C8. Initiation of Penalty Proceedings under Section 271(1)(c)Detailed Analysis:1. General Grounds of Appeal:The assessee raised general grounds contesting the overall assessment order. The tribunal found these grounds to be general in nature and did not require separate adjudication.2. Transfer Pricing Issues:The primary issue under this head was the addition of Rs. 1,52,47,997 on account of technical consultancy fees paid to the associated enterprise (AE). The assessee used the Transactional Net Margin Method (TNMM) to benchmark the transaction. The Transfer Pricing Officer (TPO) disagreed, claiming no services were rendered and thus no benefit was derived. The TPO estimated the arm's length price (ALP) for these services at Rs. 24 lakh.The Dispute Resolution Panel (DRP) upheld the TPO's findings but directed the exclusion of the service tax component from the adjustment. The tribunal referred to its earlier decisions in the assessee's own case and similar cases, noting contradictions in the lower authorities' findings. It concluded that the assessee had reasonably established the receipt of services and the payment was for a package of services, not on an ala carte basis. The tribunal directed the deletion of the transfer pricing adjustment, following its earlier decisions.3. Depreciation on Intangible Assets:The issue involved the disallowance of Rs. 5,19,87,305 claimed as depreciation on intangible assets purchased from Merck Limited. The AO and DRP disallowed the depreciation, stating no actual assets were transferred and the assets were fictitious.The tribunal noted that similar issues in earlier years were remanded to the AO for de novo adjudication. It followed the same approach, remanding the issue to the AO for fresh adjudication based on the directions given in earlier years.4. Depreciation on Goodwill from Amalgamation:The assessee claimed depreciation on goodwill arising from the amalgamation of Bangalore Genei (India) Pvt. Ltd. with the assessee. The AO rejected the claim citing the Supreme Court decision in Goetze (India) Ltd., as the claim was not made in the original or revised return.The DRP upheld the AO's decision but noted a mistake in adding back the depreciation amount to the total income. The tribunal found that the goodwill arose from the excess consideration paid over the net assets acquired upon amalgamation, which is eligible for depreciation. It referred to various judicial precedents supporting the claim and directed the AO to grant depreciation on goodwill.5. Interest under Section 234A:The tribunal remanded the issue of charging interest under Section 234A to the AO for de novo adjudication after examining whether the return of income was filed within the prescribed time.6. Interest under Section 234B:The tribunal noted that the issue of interest under Section 234B is consequential and allowed it for statistical purposes.7. Interest under Section 234C:Similar to Section 234B, the tribunal treated the issue of interest under Section 234C as consequential and allowed it for statistical purposes.8. Initiation of Penalty Proceedings under Section 271(1)(c):The tribunal found the issue of initiating penalty proceedings to be premature and dismissed it.Conclusion:The appeal by the assessee was partly allowed for statistical purposes, with directions for de novo adjudication on certain issues and deletion of the transfer pricing adjustment.