AI Drafter 
TaxTMI 
TaxTMI 
2017 (8) TMI 225
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....s directed to give the economic adjustment on account of 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....
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.... by manipulating the transfer prices of its international related party transactions; 5.9 not appreciating that in the instant case the 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 lengt....
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....der based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the ALP, as is required under section 92CA(1) of the Act. 9. The 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 sect....
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....ircumstances of the case in not allowing deduction under section 10A/10B of the Act in respect of profit and gains of business and profession as computed by the Ld. AO and not following the directions issued by the Ld. DRP wherein the Ld. DRP has directed to compute deduction under 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 taxe....
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....general in nature while Ground Nos. 2, 3, 14, 14.1, 15, 16 & 20 were not pressed so these are dismissed as not pressed. 6. Vide Ground Nos. 5 to 5.10, the grievance of the assessee relates to the transfer pricing adjustment on account of difference in Arm's Length Price (ALP) of the international transaction relating to IT enabled services. 7. Facts related to 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 appropri....
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....P also held that turnover filter of Rs. 5 crores was rightly applied by the TPO instead of Rs. 1 crore used by the assessee because the company having smaller size tend to escape the eyes of the regulators and are managed personally by the promoters instead of being professionally managed and also the margin earned by the small turnover company fluctuate to extreme because 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 ....
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.... • E Gain Communication Pvt. Ltd. Vs ITO in ITA No. 1685/PN/2007 • Demag Cranes and Components Pvt. Ltd. Vs DCIT in ITA No.120/PN/2011 • Nokia India Pvt. Ltd. Vs ACIT in ITA No. 4559/Del/2011 • Emersons Process Management India Pvt. Ltd. Vs ACIT in ITA No. 8118/Mum/2010 • Pitney Bowes Software India Pvt. Ltd. Vs ITO in ITA No. 679/Del/2014 • Mercer Consulting India Pvt. Ltd. Vs DCIT in ITA No. 966/Del/2014 • Navisite India Pvt. Ltd. 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.....
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....d. v. ITO [2014] 49 taxmann.com 409/66 SOT 15 (URO) (Hyd.). Therefore, following the decision of the co-ordinate bench of this Tribunal in the case of Excellence Data Research (P.) Ltd. (supra) the AO/TPO is directed to exclude the Accentia Technologies Limited from the list of comparables on this ground. Further, this company also provides KPO services, LPO and DPO besides offering software services. Therefore as this enrolled in knowledge processing outsourcing it is functionally dissimilar to the assessee. Further, it does not contain segment wise functional results 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 a....
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....e of the assessee relates to the transfer pricing adjustment of Rs. 6,36,21,996/- on account of interest on delay in receipt of receivable from associated enterprises. 17. The facts related to this issue in brief are that during the year under consideration the assessee furnished invoice wise details of the remittances outstanding on AEs before the TPO vide submissions dated 22.08.2013. On perusal of the said details, the TPO observed that in certain cases, the remittances were received by the assessee after sometime lag than the period agreed between the parties (i.e. 90 days). The TPO re-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 intern....
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....associated enterprises were within the arm's length range or not. 12.2.2 With regard to the issue at (ii) above, in view of the provisions of Chapter X which specifically mandates the taxpayer as well as the TPO to carry out FAR analysis to determine the ALP of any international transaction. Since, the taxpayer in its TP documentation did not benchmark the arm's length price of the international transaction relating to interest chargeable on receivables from the AE separately by way of analysis of the functions, assets and risks, therefore TPO was well within his right to benchmark the same as "interest on receivable" is a separate international transaction 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 pos....
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....pplicable for the year under consideration, but the principle is justifiably applicable in the case of the taxpayer for the instant international transaction to be benchmarked Accordingly. The TPO/AO is accordingly directed to verify the amount of receivables. i) In case the aggregate amount of receivables from the AEs does not exceed Rs. 50 crores, apply Prime Lending Rate of SBI as on 30th June of relevant previous year plus 150 basis points. ii) In case the aggregate amount of receivables from the AEs exceeds Rs.50 crores, apply SBI Base rate as on 30th June of relevant previous year plus 300 basis points. The grounds of objection on this issue are disposed accordingly." Thereafter, 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 transact....
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....s JCIT in ITA No. 6570/Mum/2012 • Micro Inks Ltd. Vs ACIT in ITA No. 1668/Ahd/2006 • ACIT Vs Information Systems Resources Pvt. Ltd. in ITA No. 7757/Mum/2012 20. It was further submitted that no separate adjustment on account of interest was to be made in case where the entity level margin of the assessee was found to be higher than the comparable companies. It was also submitted that even if the delay in receipt of receivable was considered in the nature of unsecured loan, the interest shall be charged @ 1.28% calculated on the basis of average of month end LIBOR. The reliance was placed on the following case laws: • DCIT Vs Cotton Naturals (I) Pvt. Ltd. in ITA No. 233 of 2014 • Bharti Airtel Ltd. Vs ACIT in ITA No. 5816/Del/2012 • Siva Industries and Holdings Ltd. Vs ACIT in ITA No. 2148/Mds/.... • Tata Autocomp Systems Ltd. Vs ACIT in 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 ....
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.... that nomenclature "license" in respect of computer software acquired during the year indicates that the software has been acquired for a specified period of time. Therefore, the depreciation ought to have been allowed @ 60% under the head computer including computer software, as per the provisions contained in Rule 5 of the Income Tax Rules, 1962 effective from 01.04.2003. The reliance was placed on the following case laws: • Amway Enterprises Vs DCIT (2008) 111 ITD 112 • ACIT Vs Globe Capital Market Ltd. in ITA No. 2926/Del/2012 25. The ld. DRP after considering the submissions of the assessee observed that the rate of depreciation of computer including computer software is 60% but the rate of depreciation on intangible assets covering the license is 25%. It has further been observed that the assessee had acquired license on Voice Recording Software. Therefore, the allowable rate of depreciation is 25% only. 26. Now the assessee is in appeal. The ld. Counsel for the assessee submitted 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....
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....the onus was on the revenue to bring on record, the nexus between the expenses and the exempt income. The reliance was placed on the following case laws: • CIT Vs Walfort Share & Stock Brokers 326 ITR 1 (SC) • Maxopp Investment Ltd. Vs CIT 347 ITR 272 (Del.) • Minda Investments Ltd. Vs DCIT 138 TTJ 240 (Del. Trib.) • Bunge Agribusiness India P. Ltd. Vs DCIT 132 ITD 549 (Del. Trib.) • Maruti Udyog Ltd. Vs DCIT 92 ITD 119 (Del. Trib.) 32. It was further submitted that the artificial/ad-hoc disallowance u/s 14A of the Act is not permissible without any cogent basis and material on record. The reliance was placed on the following case laws: • Godrej & Boyce Mfg. Co. Ltd., Mumbai Vs DCIT 328 ITR 81 (Bom.) • Chemical & Metallurgical Design Co. Ltd. in ITA No. 803/2008 (Del.) • CIT Vs Ms. Sushma Kapoor 319 ITR 299 (Del) • CIT Vs Metalman Auto P. Ltd. 336 ITR 434 (P&H) • CIT Vs Reliance Industries Ltd. 339 ITR 632 (Bom) • CIT Vs Torrent Power Ltd. 363 ITR 474 (Guj.) • Maxpax Investment Ltd. Vs ACIT 104 TTJ 881 (Del. Trib.) â....
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.... • ACIT Vs M/s Spray Engineering Devices Ltd. in ITA No. 646/Chd/2009 • .M. Financial Ltd. Vs ACIT in ITA No. 4521/Mum/2012 (Mum. Trib.) 35. It was further contended that the AO while computing the book profits u/s 115JB of the Act had made the adjustment of Rs. 16,90,576/- computed u/s 14A of the Act. It was further submitted that as per Clause (f) of Explanation-1 to Section 115JB of the Act, the net profit as shown in the profit and loss account is required to be increased by the following amounts: "I. relatable to income exempt under section 10 or section 11 or section 12; II. provided any such amount is debited to the profit and loss account during the relevant previous year." 36. The reliance was placed on the following case laws: • . CIT Vs Bhushan Steel Ltd. in ITA No. 593/2015, order dated 29.09.2015 by the Hon'ble Delhi H.C. • Quippo Telecom Infrastructure Ltd. Vs ACIT in ITA No. 4931/Del/2010 37. In his rival submissions the ld. CIT DR supported the orders of the authorities below. 38. We have considered the submissions of both the parties and carefully gone through the material available on ....
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....e in brief are that the assessee during the year under consideration had paid Rs. 30,505/- on account of rent to Mr. Subroto Mujumdar on 30.06.2009 and deducted TDS of Rs. 5,844/- which was deposited in the Government Treasury on 30.07.2010 before the due date of filing the return. The AO, however, considered the amount of Rs. 30,505/- being the amount of TDS deducted and arrived at the figure of Rs. 2,69,241/- as rent payment made by the assessee. The said amount was added in the hands of the assessee u/s 69C of the Act considering the same as unexplained expenditure. 43. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the impugned amount was wrongly interpreted by the AO/DRP as the assessee was unable to provide any details of such transaction which was not available in the individual transaction system. It was further submitted that during the course of TDS proceeding initiated u/s 201(1)/201(1A) of the Act, the said transaction was explained and clarified in detail during the said proceedings. Therefore, the addition made by the AO was not justified and deserves to be deleted. 44. In his rival submissions the ld. CIT DR supported the orders ....
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....therson Innovative Engineering Ltd. (2014) 150 ITD 195 (Delhi) and some other decisions to bring home his point of view of not carrying out any adjustment on account of difference in depreciation. 5.13. There can be no dispute on the principle that calculation of 'Operating profit' as envisaged under Rule 10B(1)(e) embraces cumulative effect of all the items of income and expenses which are of operating nature. Ordinarily, there can be no question of considering each item of such operating expenses or income in isolation de hors the other expenses to claim adjustment on the ground of such expenditure or income of the assessee on the higher side seen individually or as a percentage of other operating expense/incomes in comparison with its comparables. The reason is obvious that when we consider the operating profit margin, the effect of all the individual higher or lower items of expenses or incomes gets submerged in the overall operating profit margin, ruling out the need for any adjustment on one-to-one comparison. One company may have taken a building on rent for carrying on its business, in which case, it will pay rent which will find its place in the operating costs. F....
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....hat the ratio of its depreciation to total expenses is more or less in comparison with comparables. It is so for the reason that such higher percentage of depreciation to total expenses is marginalized by the lower percentage of repairs and other incidental costs of the assets and vice versa. 5.14. However, the position may be a little different when there is a difference in the rates of depreciation charged by two companies on similar category of assets. One company may adopt the policy of charging depreciation on its assets in conformity with the rates prescribed in Schedule XIV of the Companies Act and other company may adopt a policy of charging depreciation at the higher rates or lower than those prescribed under Schedule XIV. This can be demonstrated with the help of an example. Other things being equal, if the operating profit of company A, after claiming depreciation of Rs.10 on the value of asset worth Rs.50 with rate of depreciation 20%, is Rs.100, the operating profit of company B with everything same including the value of assets at Rs.50, but with rate of depreciation 30%, will be Rs.95. It shows that the comparability is jeopardized due to higher rate of depr....
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....pled with the lower repair cost etc., and vice versa. That is how, it held that : 'there can be no justification in applying the filter of rejecting the companies with depreciation higher or lower than a particular percentage of total costs.'. It is, thus, overt that these two cases relied by the ld. DR, in fact, support the case of the assessee rather than the Revenue. 5.17. Another case relied by the ld. DR in 24/7 Customer Com Pvt. Ltd. VS. DCIT 2012-TII-143- ITAT-BANG-TP, again does not take us any further. In that case, the assessee raised an additional ground for suitable adjustment towards higher rate of depreciation charged by the assesee vis-a-vis its comparables. It is patent from the penultimate para of this order that the tribunal eventually remitted the issue of depreciation, as raised through the additional ground, to the file of the AO/TPO for a fresh consideration and decision. So, this order also does not support the case of the Revenue. The last case relied by the ld. DR is Lason India Pvt. Ltd. VS. ACIT 2012-TII-47-ITAT-MAD-TP. The assessee in that case provided depreciation on assets under SLM at the rates higher than those provided in Schedule XIV, whe....
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....ed by the assessee vis-avis its comparables. This contention in our considered opinion, is not tenable. It has been noticed above that Rule 10B(1)(e)(iii) contemplates the making of adjustment to the net profit margin of the comparables determined under sub-clause (ii) to Rule 10B(1)(e). Even Rule 10B(3) also requires the making of adjustment in the hands of comparables to eliminate the material effects of differences. Thus, the adjustment can be made only in the hands of the comparables' operating profit margin and not to that of the assessee. 5.20. The ld. DR pleaded for not allowing any adjustment on this score by arguing that the difference in the rates of depreciation by the assessee and comparables does not affect the computation of the net operating profit margin on a long term basis. He stated that the higher rates of depreciation would no doubt lower the profit in the earlier years, but such reduction of profits would be set off with the higher amount of profit due to lower amount of depreciation in the later years, thereby, nullifying the effect of such higher rate of depreciation over the life time of an asset. Asserting on this argument, the ld. DR stated that ....
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....n similar asset under SLM at the rate of 16.21% by impliedly considering its useful life a little over six years. He explained that the comparable company providing depreciation at 16.66% on SLM would continue to hold assets in 4th, 5th and 6th year as well and the amount of depreciation in these three years will also be at 16.21% despite the fact that this particular asset has exhausted its useful life after three years as has been done by the assessee. This proposition, in the opinion of the ld. DR, warranted reduction in the amount of depreciation of comparables companies to the extent of 16.21% of the value of such asset from 4th to 6th years. It was thus pleaded that if some adjustment is to be allowed in favour of the assessee in line with the above arguments of the ld. AR, then a simultaneous negative adjustment on account of the above factor should also be directed. 5.22.2. This contention advanced on behalf of the Revenue can be properly appreciated if one understands the striking dissimilarities between the scheme of charging depreciation under the Incometax Act, 1961 and the Companies Act, 1956. The concept of block of assets exists under the Act by which all the assets ....
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....sal of the above provisions deciphers that the individual assets on their purchase merge with other assets of that block, thereby losing their separate identity. Depreciation is provided on the basis of the written down value of such block and not the w.d.v. of such individual assets. Even the event of their transfer also does not lead to automatic charging of capital gains, unless the case falls under either of two clauses of section 50. Assessee gets depreciation on the w.d.v. of such assets, which stand merged with the w.d.v. of the block, even after their transfer, of course subject to the provisions of section 50 and other relevant sections. 5.22.3. Now let us examine the position under the Indian Companies Act, 1956. Section 349 deals with the determination of net profits. Sub-section (1) provides that in computing the net profits of a company in any financial year, : '(a) credit shall be given for the sums specified in sub-section (2) and credit shall not be given for those specified in subsection (3); and (b) the sums specified in subsection (4) shall be deducted, and those specified in sub-section (5) shall not be deducted.'. Clause (k) of sub-section (4) states t....
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.... If an asset is sold or discarded before providing full depreciation on it, then the excess of the w.d.v. of such asset over its sale price/scrap value, to the extent provided, shall be written off in the financial year in which the asset is sold or discarded. In the converse situation, where the amount for which any fixed asset is sold exceeds the written-down value thereof referred to in section 350, then credit shall be given for so much of the excess, to the extent provided, as is not higher than the difference between the original cost of that fixed asset and its w.d.v. in the year of its sale. These two situations can be demonstrated with the help of a simple example. If asset A with original cost of Rs. 100 having w.d.v. of Rs.40 is sold for Rs.50, then the profit of Rs.10 is to be credited to the Profit and Loss account for the year of sale of such asset. If asset A with original cost of Rs. 100 having w.d.v. of Rs.40 is sold for Rs.30, then the loss of Rs.10 is to be debited to the Profit and Loss account for the year of sale/scrapping of such asset. 5.22.5. On a comparative study of the scheme for charging depreciation and treatment of profit/loss on the sale of ....
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....s would cease to appear in the Schedule of fixed assets of the comparable company at the end of fourth, fifth and sixth years respectively, As such, no value of such assets will be available for depreciation in the next year(s). 5.23. Turning to the facts of the instant case, we find that the method of charging depreciation, both by the assessee and its comparables, is by and large the same that is SLM. The assessee is seeking adjustment only due to higher rates of depreciation charged by it under SLM with the lower rates of depreciation charged by four comparable companies, other than Mapro Industries Ltd. and Karvy Consultants Ltd. In view of above discussion, we hold that the operating profit margins of these four comparable companies should be recomputed by the TPO/AO in line with the rates of depreciation charged by the assessee under SLM. To put it simply, the amount of depreciation of the four comparable companies on their assets shall also be recomputed under the SLM alone as per the rates at which the assessee has provided depreciation. In doing so, if the comparable companies have charged depreciation at a lower rate in comparison with the assessee, then suitable....
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....TA No. 1969/Del/2006 • E Gain Communication Pvt. Ltd. Vs ITO in ITA No. 1685/PN/2007 • Demag Cranes and Components Pvt. Ltd. Vs DCIT in ITA No. 120/PN/2011 • Nokia India Pvt. Ltd. Vs ACIT in ITA No. 4559/Del/2011 • Emersons Process Management India Pvt. Ltd. Vs ACIT in ITA No. 8118/Mum/2010 • Pitney Bowes Software India Pvt. Ltd. Vs ITO in ITA No. 679/Del/2014 • Mercer Consulting India Pvt. Ltd. Vs DCIT in ITA No. 966/Del/2014 • Navisite India Pvt. Ltd. Vs ITO in ITA No. 5329/Del/2012 55. In his rival submissions the ld. CIT DR although supported the order of the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 56. After considering the submissions of both the parties and the material on record, it is noticed that a similar issue has been adjudicated by the ITAT Delhi Bench 'I', New Delhi in the case of Equant Solutions India (P.) Ltd. Vs DCIT, Circle-3, Gurgaon reported at (2016) 66 Taxmann.com 192 wherein it has been held as under: "27. Regarding the ground of working capital adjustment, Ld. AR contended that the assessee should have b....
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.... to establish that the said receipt was inextricably linked to the business activities of the assessee. Accordingly, claim of deduction u/s 10A/10B of the Act was reduced by Rs. 8.11.956/- by the AO. The assessee raised the objection before the DRP and stated that the income earned from sale of scrap inextricably linked to the business activities of the assessee and it was part of core business operation. The reliance was placed on the decision of the ITAT Bangalore Bench in the case of Wipro Ltd. reported at 5 SOT 805. 60. The ld. DRP after considering the submissions of the assessee directed the AO to allow the claim of the assessee by observing in para 15.4 of the order dated 23.09.2014 passed u/s 144C(5) of the Act which read as under: "15.4 The Panel has examined the matter. It is seen that the taxpayer is engaged in providing back office IT enabled services to its associated enterprises. As against the gross revenue of Rs.525,69,76,764/-, the scrap income is only Rs.8,11,956/-. The scrap receipts of Rs.8,11,956/- are pertaining to the 10A/10B units. Thus, the receipts of scrap are quite nominal. There has been a judicial consensus that in case scrap is generated d....
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....f forging was "manufacturing" within the ambit of section 80-IB. It was immaterial that the assessee was doing the job of forging also for customers and was charging them on job work basis or on the basis of labour charges. It would still be qualified as carrying on eligible business under section 80-IB. The activities of the assessee were in giving heat treatment for which it had earned labour charges and job work charges. It could thus be said that the assessee had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. These receipts could not be said to be independent income of the manufacturing activities of the undertaking of the assessee and thus could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction under section 80-IB. These were gains derived from the industrial undertaking and so entitled for the purpose of computing deduction under section 80-IB. There could not be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturin....
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....tion on the goodwill. The reliance was placed on the following case laws: • CIT Vs Star Resorts P. Ltd. 335 ITR 587 (P&H) • Chowgule & Co. Vs ACIT (2011) 137 TTJ 596 (Panaji ITAT) 67. Being aggrieved the assessee raised objection before the ld. DRP and submitted as under: "That applying the principle of ejusdem generis and considering the use of words 'similar nature', depreciation under section 32(1) of the Act would be admissible on other intangible assets also, which fall within the genus or are in the nature of the six specified intangible assets but do not necessarily answer the description of the aforesaid six assets. Goodwill will fall within the ambit of 'any other business or commercial right of similar nature' as provided in Section 32(1)(ii) of the Act and hence depreciation on the same shall be eligible at the rate applicable to other intangible assets specified therein. The assessee has also placed reliance on various judicial precedents." 68. The ld. DRP after considering the submissions of the assessee directed the AO to allow the depreciation on the goodwill by observing in paras 16.4.1 to 16.4.5 of the order dated 23.09.2014....
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....s. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature', it is seen that the aforesaid intangible assets are not of the same kind and are dearly distinct from one another The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but a/so to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate, in the circumstances, the "nature of 'business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of "business or commercial rights" can be of the same genus in which ail the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstanc....
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....k value of the net tangible assets in the balance-sheet on the date of transfer at Rs, 38 lakhs. The balance part i.e. Rs. 62 lakhs over and above the book value of the net tangible assets was allocated in the balance-sheet as 'goodwill', which comprised of Patents, trademarks or copyrights, privileges and interest of the vendor company in any inventions and employees- in the return of income filed for the assessment year 2005-06, the assessee claimed depreciation on 'goodwill'. Hon'ble ITAT after relying upon the decision of Hon'ble Supreme Court in CIT vs. Smifs Securities Limited 348 ITR 302 and decisions of Delhi High Court in Areva T&D India Limited (supra) and CIT vs. Jai Parabolic Springs Limited 306 ITR 42 held under: "7.16 In the light of the Hon'ble Supreme Court and the Hon'ble High Court of Delhi's order and in the aforesaid facts and circumstances of the case, we find that since the assessee purchased the business lock stock & barrel and has shown the value of the goodwill right from the acquisition onwards i.e. from the year 2000 onwards in the balance sheet and book of account and since there was no objection from....
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...., Moreover, Delhi High Court in the case of CIT vs. Hindustan Coca Cola Beverages P. Limited [2011] 198 taxmann 104 had held that: "payment on account of goodwill is similar to assets like patents, copyrights, trademarks, licenses referred to in the definition of the block of assets in the senses that the function of all these assets is to restrict their misuse and to earn maximum profits in the business. The function of goodwill acquired by the assessee also is same in view of the fact that it maximizes the profits of the company, Therefore, the taxpayer's goodwill being a valuable commercial asset similar to other intangibles specified in the definition of block of assets is eligible to depreciation." 16.4.5 In the light of the above, the Panel holds that the reasoning of the AO for disallowance of depreciation on this account is not on sound footing and therefore, he is directed to allow depreciation on the differential amount under consideration." 69. Now the department is in appeal. The ld. DR strongly supported the order of the AO and reiterated the observations made by him. 70. In his rival submissions the ld. Counsel for the assessee reiterated t....