2026 (1) TMI 804 - AT - Income Tax

India Business Segment spin-off: transfer pricing adjustments deleted, comparable selection refined, goodwill depreciation and bad debt deductions allowed

Dispute concerns transfer pricing, depreciation on goodwill from a slump sale, and allowability of bad debts in relation to an India Business Segment ... TP Adjustment - TPO had accepted the benchmarking of 'India Business Segment under TNMM - issue of availing transition support services - cost benefit test for determination of rendition of services - HELD THAT:- As these services were required because of the corporate spinoff of the India Business Segment of AMEX which was acquired by the appellant assessee. Since certain expertise supporting the travel business shifted out of AMEX and other remained therein, AMEX and GBT BV entered into a master TSA transition services agreement wherein AMEX agreed to provide certain transition services to GBT BV, and correspondingly, agreed to received certain services from GBT BV to ensure that continuity of business is maintained even after the spin-off . Further, the nature of transition support was also evident from the evidence submitted which showed that the support was provided to the employees for migration from AMEX domain to the GBT domain - these transition services had nothing to do with the other two business segments of the appellant assessee, i.e., Business Support Services Segment and the Services Hub Segment which were started in 2015 and 2016 respectively while the transition support services agreement was entered into in the year 2014 itself for the India Business Segment (Global Business Travel) which was acquired from AEIPL by way of slump sale. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this issue is squarely covered by the decision of the Tribunal in the appellant assessee’s own case [2020 (2) TMI 156 - ITAT DELHI]. We therefore, delete the Transfer pricing adjustment - Decided in favour of assessee. Transfer Pricing Adjustment for provision of operational & business support services - comparable selection - HELD THAT:- Infosys BPM Ltd be excluded from final list of comparable as it incurred significant costs (Rs. 165 crores) on technical subcontractors which indicated that it had a different business model. Interactive Manpower Solutions Ltd be excluded from final list of comparable as it is engaged in recruitment of manpower services and derived entire revenue from the said activity whereas the appellant assessee had a very different business model whereby it paid royalty and marketing commission of 2% sales to its AE. Karvy Data Management Services Ltd. should be excluded from the list of final comparables because it was functionally different as it was engaged in providing diversified business activities such as transaction processing, system integration which included sale of products and data management services. Cosmic Global Ltd. is not a consistent loss making company and it is functionally similar that is why the Ld. TPO has included it in preceding years as suitable comparable. We therefore, in view of the above mentioned distinguishable facts hold that the Ld. AO/TPO is not justified in excluding Cosmic Global Ltd. from the final set of comparables. Silgate Solutions Ltd - We set aside the finding on this comparable; i.e. Silgate Solutions Ltd. and remit this comparable to the file of Ld. AO/TPO with direction to carry out a comparative analysis of the functional profile of Silgate Solutions Ltd. vis-à-vis the appellant assessee and decide it a fresh. BNR Udyog (business support segment) - We find force in the argument of both parties as there is no identifiable allocation of employee cost to the business support segment of BNR Udyog. Therefore, without offering any comment on the merit of this comparable, we set aside the finding on this comparable; i.e. BNR Udyog (business support segment) and remit this comparable to the file of Ld. AO/TPO with direction to examine the employee cost factor of BNR Udyog (business support segment) vis-à-vis the appellant assessee and decide it a fresh Depreciation on goodwill u/s 32(1) - goodwill arising on slump sale - DR submitted that the appellant assessee and the seller ‘AEIPL’ were related parties and hence, slump sale was chosen as a method of business transfer instead of demerger to overcome the tax burden. Hence, the business transfer between related parties, no goodwill could come into the picture as both parties had the same brand name which continued even after the transfer - HELD THAT - The issue of depreciation had already been allowed by the Tribunal in the preceding three years. The argument of the Ld. CIT-DR that the valuation report did not mention goodwill had been dealt by the Tribunal in AY 2015-16. The valuation done by KPMG was for only of the GBT business division as on the date of acquisition and the goodwill was created and recognized in the books of accounts for the first time post transfer of business. Further, the entire arguments of the Ld. CIT-DR had been dealt by the tribunal while allowing depreciation on goodwill in AY 2015-16.We find merit in submissions/contentions/arguments of the Ld. Counsel that this issue is squarely covered by the decision of the coordinate bench in the appellant assessee’s own case in AY 2015-16 [2020 (2) TMI 156 - ITAT DELHI] Disallowance of claim of bad debts written off u/s 36(1)(vii) - as submitted that the claim of the requirements of section 36(1)(vii) of the Act stood fulfilled since the entire amount representing provision made during the year was added back to the computation of income and offered to tax and the amount representing opening balance of provision made for doubtful debts was also added back to the computation and offered to tax in earlier years - HELD THAT:- As in the present case, the financials of the appellant assessee established that these were debts on the revenue account and in relation to the business operations of the appellant assessee as the Ld. AO neither doubted the nature of the provisions for bad/doubtful debts written off nor was any doubt casted upon the appellant assessee’s books of accounts during assessment. As neither the appellant assessee had recovered such bad debts nor an allegation suggesting the same had been made by the Ld. AO. - As relying on TRF Ltd. [2010 (2) TMI 211 - SUPREME COURT] we are of the considered opinion that the bad debts written off is allowable under the Act. Issues: (i) Whether the transfer pricing adjustment of INR 73,454,905 qua transition support services was sustainable; (ii) Whether the transfer pricing adjustment of INR 32,536,272 for provision of operational and business support services based on the final set of comparables was sustainable; (iii) Whether depreciation claimed on goodwill arising from slump sale (INR 46,152,224) was allowable; (iv) Whether deduction for bad debts written off (INR 15,912,680) was allowable.Issue (i): Whether the transfer pricing adjustment of INR 73,454,905 for transition support services should be upheld.Analysis: The Tribunal examined the nature of transition services, the Master Transition Services Agreement, evidence of rendition (emails, invoices), the benchmarking approach adopted by the TPO versus the appellant's TNMM aggregation for the India Business Segment, and relevant coordinate-bench decisions in the appellant's own case and Delhi High Court precedents addressing application of costbenefit tests and aggregation under section 92(3).Conclusion: The Tribunal deleted the transfer pricing adjustment of INR 73,454,905 and directed the AO/TPO to grant consequential relief; the conclusion is in favour of the assessee.Issue (ii): Whether the transfer pricing adjustment of INR 32,536,272 for operational and business support services based on the comparables selected by the AO/TPO should be sustained.Analysis: The Tribunal reviewed each contested comparable (Infosys BPM Ltd., Interactive Manpower Solutions Ltd., Karvy Data Management Services Ltd., Cosmic Global Ltd., Silgate Solutions Ltd., and BNR Udyog business-support segment), applied functional and financial comparability tests including entity/segment level filters and precedent on comparability (including Rampgreen and Agnity line of cases), and examined earlier years' consistency where applicable.Conclusion: The Tribunal directed exclusion of Infosys BPM Ltd., Interactive Manpower Solutions Ltd., and Karvy Data Management Services Ltd. from the final set of comparables; directed inclusion of Cosmic Global Ltd.; and set aside the findings on Silgate Solutions Ltd. and BNR Udyog (business support segment) and remitted those comparables to the AO/TPO for fresh comparative analysis. The directions effectuate relief for the assessee on the comparable selection issue.Issue (iii): Whether depreciation on goodwill arising from the slump sale is allowable.Analysis: The Tribunal considered the characterization of excess consideration as goodwill in the slump sale, Explanation 3(b) to section 32(1), prior Tribunal decisions in the appellant's own case for earlier years, valuation evidence, and contrary authorities relied upon by Revenue concerning related-party transfers and amalgamations.Conclusion: Following the coordinate-bench precedent in the appellant's own case, the Tribunal allowed depreciation on goodwill (INR 46,152,224) and granted consequential relief to the assessee.Issue (iv): Whether the claim for deduction of bad debts written off is allowable under section 36(1)(vii) read with section 36(2).Analysis: The Tribunal examined whether statutory conditions for write-off were satisfied, prior judicial authorities (including TRF Ltd.), the assessee's books and earlier additions of provisions to taxable income, and distinctions from cited adverse precedents relied upon by Revenue.Conclusion: The Tribunal held the bad debts written off (INR 15,912,680) to be allowable and deleted the addition; conclusion is in favour of the assessee.Final Conclusion: The appeal is allowed in favour of the assessee by deleting the transfer pricing adjustment of INR 73,454,905, directing modifications and fresh examination of certain comparables (exclusions and inclusions as directed) affecting the INR 32,536,272 adjustment, allowing depreciation on goodwill, and allowing the bad debts deduction; consequential relief to be given by the AO/TPO.Ratio Decidendi: Where identical transfer pricing or corporate-tax issues have been conclusively decided by a coordinate bench in the appellant's own earlier proceedings, the Tribunal follows that coordinate-bench precedent and applies standard comparability and statutory tests (functional analysis, financial filters, rendition and benefit tests, and applicable provisions of the Income-tax Act and Rules) to permit or reject adjustments.