Assessment orders valid without DIN in body text when included in e-portal attachment communication

The ITAT Kolkata upheld the validity of assessment orders despite missing DIN numbers in the order body, as the DIN was properly included in the e-portal communication attachment. The tribunal allowed depreciation claims on goodwill arising from business acquisition, following SC precedent in Smifs Securities. Transfer pricing adjustments for intra-group services were deleted as they fell within the 3% tolerance limit. The tribunal directed exclusion of Power Mech Projects Ltd., Engineers India Ltd., and BGR Energy System Ltd. as comparables due to different business models and government ownership, while rejecting High Quality Steels Ltd. due to significant turnover differences.

---

---

Issues Involved:

1. Validity of the assessment orders due to lack of Document Identification Number (DIN).
2. Disallowance of depreciation on goodwill.
3. Arithmetical errors in computation of business and assessed income.
4. Incorrect computation of tax demand.
5. Non-credit of taxes deducted at source.
6. Non-allowance of setoff of brought forward losses.
7. Transfer pricing adjustments related to intra-group services and international transactions.
8. Inclusion and exclusion of comparables for transfer pricing analysis.

Detailed Analysis:

1. Validity of Assessment Orders (DIN Issue):

The assessee challenged the validity of the assessment orders for not containing a DIN. However, it was noted that the orders were communicated with a covering letter containing the DIN, which complies with CBDT Circular No. 19/2019. The assessee's counsel, upon confrontation, chose not to press this ground. Hence, the challenge to the validity of the orders on this ground was dismissed.

2. Disallowance of Depreciation on Goodwill:

The assessee claimed depreciation on goodwill, which was disallowed by the AO on the grounds of double deduction in a prior year and misclassification as a self-generated asset. The Tribunal referred to the Supreme Court decision in CIT v. Smifs Securities Ltd., which allows depreciation on goodwill as an intangible asset. The Tribunal found that the goodwill was a result of a slump sale agreement and had been consistently allowed in prior years. Therefore, the disallowance for the current years was set aside, and the depreciation claim was allowed based on the principle of consistency.

3. Arithmetical Errors in Income Computation:

The assessee pointed out errors in the computation of business and assessed income. The Tribunal directed the AO to recompute the income correctly, allowing these grounds for statistical purposes.

4. Incorrect Computation of Tax Demand:

The assessee claimed errors in the computation of tax demand. The Tribunal directed the AO to recompute the demand correctly, allowing these grounds for statistical purposes.

5. Non-Credit of Taxes Deducted at Source:

The AO failed to allow full credit for TDS. The Tribunal directed the AO to allow the correct credit for TDS in accordance with the law, allowing these grounds for statistical purposes.

6. Non-Allowance of Setoff of Brought Forward Losses:

The AO did not allow the setoff of brought forward losses. The Tribunal directed the AO to examine and allow the setoff of losses as claimed, allowing these grounds for statistical purposes.

7. Transfer Pricing Adjustments:

- Intra-Group Services: The AO made adjustments for intra-group services by reducing the markup on third-party costs. The Tribunal found that the adjustment fell within the permissible range under Section 92C(2) and deleted the adjustment.

- International Transactions: The Tribunal addressed the selection of comparables for benchmarking international transactions. It directed the exclusion of Power Mech Projects Ltd. and Engineers India Ltd. as comparables due to functional dissimilarities and government ownership, respectively. It also upheld the rejection of High Quality Steels Ltd. as a comparable due to significant turnover differences.

8. Inclusion and Exclusion of Comparables:

The Tribunal directed the AO to exclude Engineers India Ltd. and BGR Energy System Ltd. for AY 2017-18 and Engineers India Ltd. for AY 2018-19 from the list of comparables. The Tribunal upheld the exclusion of High Quality Steels Ltd. for both years due to turnover discrepancies. The AO was instructed to recalculate the mean PLI and make adjustments accordingly.

Conclusion:

The appeals for both assessment years were partly allowed for statistical purposes, with directions for recomputation and adjustments as per the Tribunal's findings.

---