TaxTMI 
TaxTMI 
2017 (8) TMI 225
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....accelerated depreciation charged by the Appellant in its books of account, as compared to the depreciation rates prescribed under Schedule XIV of the Companies Act, 1956 and also erred in not following the guidance by DRP with respect to the treatment of provision for doubtful debts as operating or non-operating in nature. 3. The Ld. AO/ Ld. TPO erred in not providing appropriate adjustment on account of differences in working capital. 4. The Ld. AO/ Ld. TPO erred in not applying appropriate interest rate as directed by the Ld. DRP on the outstanding receivables and thus, not following the directions issued by the Ld. DRP. 5. The Ld. DRP erred in confirming the Ld. AO/ Ld. TPO's approach of determining the arm's length price ("ALP") of the international transactions pertaining to provision of Information Technology ("IT") enabled services. In doing so, the Ld. AO/ Ld. TPO has grossly erred in: 5.1 disregarding the ALP as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") as well as fresh search and in particular modifying/ rejecting the filter....
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....he collective addition made by Ld. TPO (Rs. 85.75 crores) and profits already booked by the Appellant (Rs. 66.49 crores) and another group entity viz. Inductis (India) Private Limited (Rs. 19.80 crores) are in effect more than profits earned by entire Exl Group on a worldwide basis; 5.10 following a contradictory approach, in principle, in considering provisions for expenses/write back as non-operating in nature by placing reliance on Safe Harbour Rules issued vide CBDT Notification No. S.O. 2810 while on the other hand completely ignoring the mark-up percentage prescribed by aforesaid notification (which mentions that the prescribed rate is more than the ALP) for low end captive IT enabled service providers and adjusting the arm's length price of the Appellant at much higher percentage. 6. Without prejudice to the ground no. 4, the Ld. DRP erred in confirming the Ld. AO/ Ld. TPO's order which provides that the alleged international transactions pertaining to outstanding receivables do not satisfy the arm's length principle envisaged under the Act. In doing so, the Ld. AO/Ld. TPO has grossly erred in: 6.1 re-characterizing the outstanding related party receivabl....
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....e Ld. TPO/ AO erred in enhancing the income of the Appellant by Rs. 85,75,75,003 holding that the international transactions do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case. 10. The Ld. AO has grossly erred on facts and in law by disregarding judicial pronouncements in India in undertaking the TP adjustment. 11. The Ld. AO / Ld. DRP has erred in law and on the facts and circumstances of the case by disallowing differential depreciation of Rs. 7,00,527 on Voice Recording Software License stating that depreciation on such software license was to be claimed @ 25% as against 60% claimed by the Appellant. 12. The Ld. AO / Ld. DRP erred in law and on the facts and circumstances of the case by making a disallowance of notional expenditure of Rs. 16,90,576 per provisions of section 14A of the Act read with rule 8D of the Rules. The Ld. AO has erred in: 12.1 The Ld. AO also erred in law and on the facts and circumstances of the case in making addition of notional expenditure of Rs. 16,90,576 per provisions ....
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....der section 10A/10B of the Act with reference to the income computed by the Ld. AO under the head 'profits and gains of business and profession' and not the profit as computed by the Appellant. 16. The Ld. AO erred in law and on the facts and circumstances of the case in not allowing set-off of business loss of Rs. 5,04,30,717 pertaining to units other than those claiming deduction under section 1OA of the Act despite the fact that the said business loss is mentioned in the computation of income in the assessment order. 17. The Ld. AO has erred in not allowing deduction under section 80G of the Act amounting to Rs. 104,000 as per the return of income, while passing the assessment order. 18. The Ld. AO erred in law and on the facts and circumstances of the case in not allowing credit of the taxes paid by the Appellant for the year under consideration while computing the taxes payable in pursuance to the assessed income. 19. The Ld. AO erred in law and on the facts and circumstance of the case by directing to levy the interest under section 234B, 234C and 234D of the Act. 20. The Ld. AO erred in law and on the facts and circumstance of the case by initiating pe....
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.... this issue in brief are that the assessee filed the return of income declaring Nil income under normal provisions and a book profit of Rs. 46,96,22,122/- on 15.10.2010. The assessee filed a revised e-return on 09.02.2012 under MAT provisions declaring the same income as was filed on 15.10.2010. Later on, the case was selected for scrutiny. Since, the international transactions with associated enterprises (A.E.) exceeded Rs. 15 crores, the AO referred the case to the Transfer Pricing Officer (TPO) for computation of ALP u/s 92CA of the Act. 8. The assessee is wholly owned subsidiary of Exl Holdings and was engaged in business of rendering of transaction processing services and internet & voice based customer care services for its worldwide clients. The assessee furnished TP study and selected TNMM as the most appropriate method to benchmark its international transaction, namely, Information Technology enabled (ITes) services. In respect of the said services, the assessee selected 8 comparables whose average margin was 11.79% as against assessee's margin of 14.47% and since the margin of comparable companies falls +/- 5% range, therefore, the transaction was considered to be at arm....
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....use of the narrow base. The DRP was of the view that the TPO was justified in rejecting the companies having diminishing revenue/persistent losses and the negative net worth and observed that this filter was perfectly valid because no company would like to sustain losses or having diminishing revenue beyond reasonable period and that a company whose performance is extremely divergent from the normal industry trend cannot be considered as suitable comparable. The ld. DRP also upheld the view of the TPO in rejecting the companies having Related Party Transaction (RPT) of 25% and more and showing service income less than 75% of the total income from ITES services. The ld. DRP upheld the action of the TPO in rejecting the following companies and observed as under: S.No. Name of the company Observation of DRP 1. Aditya Birla Minacs Worldwide This company is having significant RPT (33.53%) and it also fails the export sales filter (71.57%). Hence, not a suitable comparable. 2. CG-Vak Software and Exports Ltd. This Panel observed from the P & L A/c of the comparable that the cost of services "Domestic" has been debited as Rs. 3.24 Crores which works out to 56.44% of total revenue....
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....td. Vs ITO in ITA No. 5329/Del/2012 * Maral Overseas Ltd. Vs ACIT 136 ITD 177 * Riviera Home Furnishings Vs ACIT 237 Taxman 520 * CIT Vs Punjab Stainless Steel Industries 364 ITR 144 (SC) * CIT Vs Sadhu Forging Ltd. 336 ITR 444 (Del.) 11. In his rival submissions the ld. DR supported the orders of the authorities below and further submitted that if as a result of merger/demerger the resultant/remaining company becomes functionally different only then that company may be excluded as a comparable. The reliance was placed on the decision of the ITAT Mumbai Bench in the case of m/s Wills Processing Services (India) Pvt. Ltd. Vs DCIT reported at 30 ITR (Trib.) 39 (Mum.) and Vodaphone India Services Pvt. Ltd. reported at 146 ITD 78 (Mum.). It was further submitted that the assessee itself did not take merger and acquisition as filter, now selectively applying this filter, the whole search process becomes vitiated and biased in favour of the assessee because the other comparables might have been having the intangible. 12. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admi....
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.... and in absence of such segmental information, it cannot be used for comparing the PLI of the assessee. It is also noted that it is also having significant amount of brands, intellectual property rights and goodwill as compared to the assessee. Therefore, in view of the above reasons this company is required to be excluded. Further relying on the decision of Jurisdictional High Court in case of Rampgreen Solutions (P.) Ltd. v. CIT [2015] 377 ITR 533/234 Taxman 573/60 taxmann.com 355 (Delhi) wherein it is held that KPO are ITeS where the service providers have to employ advanced level of skills and knowledge. This is absent in this case of assessee which is low end ITES service provider such as which enables network management and other back office support services performed by assessee which primarily include remote monitoring and maintenance of Equant global network platforms and services, coordination, remote configuration, and implementation of quality customer networking solutions. Therefore this comparable is ordered for its exclusion accordingly." 14. Since the facts in the assessee's case are similar to the facts involved in the aforesaid referred to case of M/s Equant Solu....
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....e-characterized the delay in receipt of receivable as unsecured loans advanced to the AE and sought to impute notional interest on the delay in receipt of receivable @ 14.75%, on the basis of average base rate of SBI at 11.75% plus a markup of 300 basis points. The AO accordingly proposed the impugned adjustment in the draft assessment order. The assessee raised the objections before the DRP and submitted as under: *"working capital adjustment takes into account the impact of outstanding receivables on the profitability. *Re-characterization of the Assessee's alleged international transaction of outstanding receivables is not warranted and it should not be viewed on standalone basis as an independent transaction, disregarding the business/ commercial arrangement of the Assessee. *That they are not charging interest on overdue balances which is outstanding to non AEs. *under the Indian transfer pricing regulations, benchmarking of an international transaction has to be carried out against uncontrolled comparable transactions and carrying out the benchmarking with the Prime Lending Rate of a bank is not permissible as the same does not amount to application of CUP or a....
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....n under section 92B(1). In coming to this conclusion this DRP draw strength from the decision of the Hon'ble ITAT in the case of Star India Pvt. Ltd. Vs ACIT (2008-TIOL-426-ITAT-MUM) and UCB India Pvt. Ltd. (317 ITR 292 (AT) (Mumbai) and catena of other cases wherein it has been held that each transaction needs to be separately benchmarked. The clubbing of the transactions is allowed only as an exception and not as a rule. Section 92B(1) is also clear in this regard. The clubbing of transaction is possible only when the underlying international transactions are homogenous in nature. In the case of the taxpayer, the international transaction relating to interest chargeable on receivables was not considered separately by the taxpayer. Section 92C(1) allows the determination of The arm's length price in relation to an international transaction by any of the six methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons. When a 'class of transaction' is considered, then, while creating such class of transaction it is necessary to club similar tran....
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....following the direction of the ld. DRP, the AO made the impugned adjustment. 19. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that even if it is assumed that the aforesaid transaction of delay in receipt of receivable was as a debit balance in the hands of the AE till the time, it has been actually remitted to the assessee and for which the AE would have paid interest, it was a continuing debit balance and was not an international transaction per se. It was further submitted that as per the provisions contained in Section 92B of the Act, the essential requirement for a transaction to be covered within the ambit of Section 92B of the Act was that it should be between two or more AEs either of whom is a non-residence and as per the provisions contained in Clause (v) of Section 92F of the Act, the term "transaction" includes an arrangement, understanding or action. Therefore, from the co-joint reading of provisions contained in Section 92B and 92F of the Act, it could be inferred that Transfer Pricing regulation would be applicable to any transaction being arrangement, understanding or action in concert, inter alia, in the nature of purchase, sale or leas....
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.... ITA No. 7354/Mum/2011 * Four Soft Ltd. Vs DCIT 142 TTJ 358 (Hyd.) * DCIT Vs Tech Mahindra Ltd. 46 SOT 141 (Mum) * Tricom India Ltd. Vs ITO in ITA No. 322/Mum/2014 * Aurionpro Solutions Ltd. in ITA No. 7872/Mum./2011 * Hinduja Global Solutions Ltd. Vs ACIT in ITA No. 254/Mum/2013 * Advanta India Ltd. Vs ACIT in ITA No. 1643/Ban/12 21. In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the transactions of the nature of deferred payment or receivable or any other debit etc. is covered as international transaction vide explanation (i)(c) introduced by the Finance Act, 2012 in Section 92B of the Act with retrospective effect from 01.04.2002. Therefore, interest charged/not charged on outstanding receivables is an international transaction. The reliance was placed on the judgment of the Hon'ble Bombay High Court in the case of CIT-2, Pune Vs Patni Computers System Pvt. Ltd. reported at 215 Taxman 108 (Mum.). The reliance was also placed on the following decision of the ITAT Bangalore: * Logix Micro Systems Ltd. Vs ACIT (2011) 8 ITR (Trib.) 525 (Bang.) 22. We have considered the submissions of both....
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....ed that this issue is covered in assessee's favour in the case of HCL Comnet Systems and Services Ltd. Vs CIT in ITA No. 5906/Del/2010. It was further stated that as per the settled position in law, when a hardware or software is used alongwith computer notwithstanding that such software may be acquired/purchased independent of the computer, such hardware or software is termed as "computer" and is eligible for depreciation, at the rate of depreciation applicable to computer i.e. 60%. The reliance was placed on the following case laws: * CIT Vs Birlasoft Ltd. in ITA No. 1284/2011 (Delhi) * CIT Vs BSES Yamuna Powers Ltd. 358 ITR 47 (Del) * CIT Vs Citicorp Maruti Financle Ltd. in ITA 1712 & 1714/2010 (Del) * CIT Vs Orient Ceramics and Inds Ltd. 200 Taxman 64 (Del) * CIT Vs BSES Rajdhani Powers Ltd. in ITA No. 1266/2010 (Del) 27. In his rival submissions the ld. CIT DR strongly supported the orders of the authorities below. 28. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that a similar issue has been adjudicated by the Jurisdictional High Court in the case of CIT Vs BSES Yamuna Po....
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....369 (Del.) * Maruti Udyog Ltd. Vs DCIT 92 ITD 119 (Del.) * Wimco Seedlings Ltd. Vs DCIT 107 ITD 267 (Del.) (tm) * DLF Ltd. Vs CIT 27 SOT 22 (Del.) * ACIT Vs Jindal Saw Pipes Ltd. 118 TTJ 228 (Del.) * Impulse ((India) (P) Ltd. Vs ACIT 22 SOT 368 (Del.) * ACIT Vs Champion Commercial Co. Ltd. in ITA No. 644/Kol./2012 * CIT Pilani Investment & Industries Corp. Ltd. in ITA No. 653/Kol./2012 * CIT Vs Gujarat Power Corporation Ltd. in ITA No. 1587/2009 * .D. Metsteel (P) Ltd. Vs ACIT (2011) 47 SOT 62 (Mum.) (Trib.) * ACIT Vs Punjab State Coop. & Mktg. (Chd. Trib.) * CIT Vs Adarsh Kumar Goel (2011) 199 Taxmann 149 (P&H) (Mag.) * ACIT Vs SIL Investment Ld. 148 TTJ 213 (Del.) 33. It was also submitted that no disallowance on account of administrative and other expenses can be made as these are fixed in nature and does not, in any way, relate to or vary with the investments made for earning exempt income and that for the purpose of computing disallowance, only investments which actually yielded exempt income during the year should have been taken into consideration as against total investments appearing in the balance sheet for the relevant year. The relia....
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....ercial expediency. We, therefore, in the absence of the clear fact on record, deem it appropriate to set aside this issue back to the file of the AO/TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 39. As regards to the issue relating to the adjustment of the amount computed u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 while computing the book profits u/s 115JB of the Act is concerned. It is noticed that this issue has been decided by the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Bhushan Steel Ltd. in ITA No. 593/2015 vide order dated 29.09.2015 (supra) wherein their lordships observed in para 7 as under: "7. Question No. 6 concerns deletion of addition of Rs.89,00,000/- made by the AO for computation of the income for the purposes of Minimum Alternate Tax ('MAT') under Section 115JB of the Act. This pertained to the expenditure incurred for earning exempt income under Section 14A read with Rule 8D. The ITAT has rightly held that this being in the nature of disallowance, and with Explanation 115JB not specifically mentioning Section 14A of the Act, the addition of....
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....ring the course of proceedings u/s 201(1)/201(1A) of the Act, the transaction was fully explained and clarified in detail. We, therefore, deem it appropriate to set aside this issue back to the file of the AO for verification and adjudication afresh. 46. The next issue vide Ground No. 17 & 18 relates to the deduction u/s 80G of the Act and not allowing credit of the taxes paid for the year under consideration while computing the taxes payable in pursuance to the assessed income. 47. After considering the rival submissions, these issues are also restored to the file of the AO for verification and adjudication on the basis o the material available on the record. 48. As regards to the Ground No. 19 relating to charging of interest u/s 234B, 234C and 234D, it was the common contention of both the parties that it is consequential in nature. We order accordingly. ITA No.615/Del/2015 for the assessment year 2010-11 49. First issue vide Ground No. 1 in this appeal relates to the comparability adjustment on account of accelerated depreciation. 50. As regards to this issue, the ld. Counsel for the assessee at the very outset stated that it is covered in assessee's own case vide order ....
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....ation on such premises will also form part of its operating cost. When we consider the operating profit of the first enterprise which is paying rent and then compare it with the second enterprise which is not paying any rent but is claiming depreciation on its own premises, the overall effect of rent in one case gets counterbalanced with depreciation on premises of the other. Similar is the position of a company having purchased new assets charging higher amount of depreciation allowance in its books of accounts vis-a-vis another comparable company using old assets with lower amount of depreciation. No adjustment on account of difference in the amounts of depreciation of two companies is called for when the operating profits are determined because in the case of a company having purchased new asset, there will be lower repair cost and vice versa. The effect of all the individual items of operating expenses and incomes culminates into the operating profit margin. That is why, the legislature has provided for comparing the ratio of 'operating profit margin' to a similar base of the assessee with that of its comparables, thereby dispensing with the need for making any adjustment on ac....
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....parability. It is this difference in the amounts of depreciation due to different rates of depreciation and not due to different quantums of depreciation simiplicitor, which calls for bringing both the companies at par. 5.15. At this juncture, we will consider the ratio of the decisions relied by the ld. DR to bolster his submission for not granting any adjustment on account of difference in the rates of depreciation on similar assets. In Sumi Motherson (supra), the assessee requested for suitable reduction towards higher depreciation charged by it, thereby boosting its percentage of depreciation to sales at a much higher level than that of comparables. Rejecting this contention, the tribunal held that it is not allowed to compare each and every item of the operating cost incurred by the assessee with similar cost in the case of comparables to ask for any adjustment. It is the overall effect of all such individual items descending into operating profit, which is considered for benchmarking the assessee's international transaction and if the amount of depreciation is distinctly compared with comparables, leaving aside other related and consequential items, such as repair costs et....
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....e the method of charging depreciation was different and further the assessee sought adjustment from its profits, which is not permissible as will be seen infra. The ld. AR also candidly admitted that his point was limited to the adjustment due to difference in the rates of depreciation from SLM of the assessee to SLM of the comparables and not otherwise as is the position in Lason India Pvt. Ltd. (supra). 5.18. The sum and substance of the above cases is that neither any adjustment can be made for a simplicitor higher/lower amount of depreciation in itself or as a percentage of the total operating expenses nor an otherwise comparable company ceases to be comparable because of the above factors. However, an adjustment is called for when there is a difference in the rates of depreciation on similar types of assets under similar method of charging depreciation. At the cost of repetition, we want to accentuate the line of distinction between two cases, viz., first in which the amount of depreciation is more due to higher value of the assets employed by one company and second, in which the amount of depreciation is more not due to higher value of the assets employed by one company bu....
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....lidated manner. Unlike the hitherto determination of undisclosed income for the block period as provided under Chapter XIV-B of the Act, as opposed to year-to-year basis, there is no such provision for determining the ALP of an international transaction for more than one year by considering a few years as one unit during which an asset is put to use. Not only is this exercise impermissible under the law, but is also impractical of application. Various assets will have varying useful life spans due to different rates of depreciation and their useful life will not terminate at one common point of time, so as to facilitate the making of adjustment at such point of time. Be that as it may, since the legislature requires determination of ALP of an international transaction on yearly basis, what we need to do is to find out the effect of depreciation on year to year basis and not on a consolidated basis extending to the life time of such assets. 5.22.1. The ld. DR made still another contention opposing the assessee's stand. It was argued that re-calculating the operating profits of the comparable companies by providing depreciation on SLM in the hands of comparables at the higher rate....
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.... is prescribed'. Under the scheme of block of assets, depreciation is charged on the total written down value of such block as appearing at the end of the year at the prescribed rates. There is no provision for charging depreciation on individual assets. Similarly, there is no mandate for computing capital gain at the time of transfer of such individual assets, unless the block of assets ceases to exist as such. Capital gains are computed u/s 50 of the Act under two prescribed situations by considering the block of assets in entirety de hors the event of sale of individual asset. First is the situation under which the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acqu....
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....er and at the end of each subsequent financial year, at the rate specified in Schedule XIV.' Clause (d) of sub-section (3) states that in making the computation aforesaid, no credit shall be given for 'profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets:' At this stage, it is relevant to note the prescription of the proviso to this clause which stipulates that : 'where the amount for which any fixed asset is sold exceeds the written-down value thereof referred to in section 350, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written down value.' Clause (d) of sub-section (5) further provides that in making the computation aforesaid, no deduction shall be allowed for loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess referred to in the proviso to section 350 of the wr....
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....f each asset in excess of its w.d.v. under the Act. It is done only for the block of assets in the manner given and to the extent enshrined in section 50. On the other hand, the Companies Act mandates claiming deduction for loss or crediting gain on the sale of each asset separately to its Profit and Loss account, which is not in excess of difference between the original cost and the w.d.v. of such asset. 5.22.6. With the above legal position at hand, let us evaluate the contention of the ld. DR that the comparables companies' depreciation for the current year would also include depreciation in respect of the assets which have seen the end of their useful life but still continue to form part of the schedule of fixed assets because of providing depreciation at lower rates on such assets in comparison with the assessee. This contention of the ld. DR, though appears attractive at the first blush, but loses its shine on an in-depth analysis. It is severely simple that if an asset has reached the milestone of the end of its useful life, then it would be either sold or discarded. Ordinarily, no company would continue to hold obsolete assets. Once an asset is sold after its useful life....
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....ich it provided depreciation on written down value basis. The TPO should see if he can correctly deduce the amount of depreciation, on the basis of data available, for the year on 'Computers' also under SLM. If due to one reason or the other, such precise calculation is not possible, then no adjustment should be carried out in the calculation of the operating profits of this company, even on other items of assets. Ordinarily, we would have ordered for the exclusion of this company from the list of comparables in the event of no possibility of computing depreciation on computers under the SLM by converting it from w.d.v. method, because of this being a material factor and not quantifiable. But since neither the assessee nor the Revenue seek the exclusion of this company from the list of comparables, we cannot suo motu order so. We, therefore, sum up our conclusion on this aspect of the matter by holding that if the assessee as well as the comparable companies are using the SLM and there is a difference in the rates of depreciation charged by them, then there is a need to make suitable adjustment to the profits of the comparables." 52. Therefore, in view of the similarity in the fac....
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....cision of ITAT in IT and ITEs segment granting working capital adjustments. He submitted that AO has denied the same on the principles visualized by him at para no nine of his order. 29. We find that the assessee made detailed submissions before the lower authorities on this issue, which we do not extract for the sake of brevity. Suffice to say that the contentions raised by the assessee have not been dealt with by the TPO as well as the DRP properly and assessee to needs to be provided one more opportunity in the interest of justice for proving its case for working capital adjustments. The propositions of law laid down by the Tribunals on the issue of working capital adjustment in ITes and IT segment deserves to be considered by TPO. Thus, it would be appropriate to set aside the matter to the file of the Assessing Officer/T.P.O. for fresh adjudication, in accordance with law on the issue of claim of the assessee on working capital adjustments." 57. So, respectfully following the aforesaid referred to order, this issue is set aside to the file of the AO/TPO for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assess....
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.... deduction under the respective sections. The AO is therefore, directed to allow the relief to the taxpayer on this account." 61. Now the department is in appeal. The ld. CIT DR reiterated the observations made by the AO. 62. In his rival submissions the ld. Counsel for the assessee referred to page no. 409 of the assessee's paper book which is the copy of the computation of the income in the assessment order dated 28.11.2014 and submitted that the sale of scrap was included in the business income which was accepted by the AO while working our total taxable income. It was further submitted that when it was considered as business income, the ld. DRP was fully justified in directing the AO to allow the deduction u/s 10A/10B of the Act. It was further submitted that the income from sale of scrap was inextricably linked to and had a first degree nexus with the profit and gain of the eligible undertaking and is eligible for deduction u/s 10A/10B of the Act. The reliance was placed on the following case laws: * Maral Overseas Ltd. Vs ACIT 136 ITD 177 (Trib.) * Riviera Home Furnishings Vs ACIT 237 Taxman 520 (Del.) * CIT Vs Punjab Stainless Steel Industries 364 ITR 144 (SC) *....
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....ctions of the ld. DRP on this issue and as such do not see any merit in the appeal of the department on this issue. 65. The next issue vide Ground No. 4 relates to the direction of the DRP to delete the disallowance proposed by the AO on account of depreciation on goodwill. 66. The facts related to this issue in brief are that however, the assessee entered into an Asset Purchase Agreement with American Express India P. Ltd. to acquire the Global Travel Service Centre as a going concern for a lump sum consideration which was allocated to identifiable assets and liabilities based on their book value and the difference between purchase price (after working capital adjustments) and net value of acquired assets has been recognized as "goodwill" amounting to Rs. 76,97,89,365/- and depreciation amounting to Rs. 9,62,23,671/- was claimed. The AO during the course of assessment proceedings observed that the assessee has not been able to establish that it has acquired any goodwill and the specific amount was paid for the same. He further observed that the tangible assets were transferred by physically handing over the assets and allowing the use of the said assets independently and to the ....
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.... goodwill of Rs.769 million. Under these facts, the issue for consideration is if the assessee is entitled for depreciation on this balance sum of Rs.769 million and if so, for what classification and rate? 16.4.2 The Panel therefore, perused the decision of Delhi High Court in the case of Areva T&D India Limited vs. DCIT [2012] 20 taxmann.com 29 (Delhi). The facts of the said case where that a business was acquired by the assessee company on slump sale basis for a total consideration of Rs.44.70 crore Out of it, tangible asset were transfer for net value of Rs.28.11 crores and the balance amount of Rs. 16.59 crores was claimed by the assessee for acquisition of various business and commercial rights characterized as 'goodwill'. Such business and commercial rise comprised of business claims, business records, business information's, contracts, skilled employees, know-how etc. The assessee claimed depreciation on such intangible assets u/s 32(1)(ii). The ITAT decided the matter in favour of the assessee and thereafter assessee either department approached the high court. Under these facts, Hon'ble High Court held that as under: "13. In the present case, applying....
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....whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares & Stokes Ltd. (supra) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "license" or "akin to a license" which is one of the items falling in Section 32(1) (ii) of the Act. 14. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in Section«32(1)(ii) of the Act were accordingly eligible for depreciation under that Section." In the case of Cyber India Online Limited vs. ACIT [2014] 42 taxmann.com 108 (Delhi) the facts before the Hon'ble ITAT were that the assessee-company was engaged in the business of online and other electronic media and other business Another company by name 'C' was also carrying on thebusiness among other business of online and other elec....
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....reciation has been claimed on the differential amount between the consideration paid and allocable to the tangible assets. Hon'ble Delhi Court in the case of Areva T&D has put this differential amount towards intangible assets of the nature of 'business or commercial rights of similar nature' specified in section 32(1 )(ii) of the Act. In the instant case, the assessee has clearly mentioned that such business or commercial rights inter-alia, includes intellectual property rights (comprising of a patent for 'method and system for improve travel transaction billing and reconciling', contracts related to business, business authorizations (comprising of STPI Licenses, product bonded warehouse licenses, licenses to import and store petroleum etc), softwares (MS Office Pro, individual license etc), facility lease agreement, process knowledge know-how, 900 trained workforce, all goodwill of GTSC business etc The AO has not contradicted the above or found anything which is incorrect on this account Moreover, it is seen that GTSC business has increase the turnover of the assessee substantially in the subsequent years. While the total GTSC turnover was only Rs.80,62 milli....