TaxTMI 
TaxTMI 
2017 (1) TMI 1615
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....9; AO') incorporating the directions of the Dispute Resolution Panel ('DRP') for the aforesaid assessment year on the following grounds: Ground No. 1: Erroneous disallowance of the corporate service charges 1.1 The learned AOIDRP erred in upholding the Transfer Pricing Officer's ('TPO') contention for the disallowance of corporate service charges paid by the Appellant to its AEs amounting to Rs. 63,411,803/- by failing to appreciate and consider the facts of the case, including the submissions made by the Appellant and the evidences produced. 1.2 The AO/ TPOIDRP failed to appreciate the method followed by the appellant to benchmark: the international transaction in relation to receipt of corporate services. 1.3 The learned AO/TPO/DRP erred in computing the Arm's Length Price ('ALP') of the corporate services as Rs. 4,505,000/- merely based on estimation by applying adhoc number of hours for each sub-category of services and then applying estimated hourly rate of Rs. 8,500/-. 1.4 The DRP in upholding the actions of the AO/TPO, erred in holding that the appellant failed to produce evidence to prove receipt of service....
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....preciation unless it partakes the nature of "Know-how, patents, copyrights, trademarks, licenses, franchieses.........." iii. "On the facts and in the circumstances of the case and in law the Hon.ble DRP exceeded the jurisdiction conferred on it u/s 144C (subsection 1 & 8 thereof) which mandate it to adjudicate only with reference to any variations from the returned income in the draft order which is prejudicial to the interest of the assesse and, therefore, could not have adjudicated in respect of claim for depreciation on Goodwill and deduction u/s 43B made during the assessment proceedings and not in the return of income. " IV. "On the facts and in the circumstances of the case and in law, and without prejudice to the preceding grounds, the Hon'ble DRP ought to have adjudicated on matters not included in the draft order only after giving an opportunity of being heard to the assessing officer when such adjudication was prejudicial to the interest of revenue. " v. "On the facts and in the circumstances of the case and in law, and without prejudice to the preceding grounds, the Hon'ble DRP erred in directing the Assessing Officer to allow the depr....
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....t year of 2007-08 assessee had acquired 'Textile Effects' business from Ciba Speciality Limited and Diamond Dychem Limited for a lumpsum consideration. The lumpsum consideration paid for the acquisition of business included consideration for tangible as well as intangible assets including the Distribution Network and Material supply contract. In respect of Distribution Network and Material supply contract, assessee claimed depreciation considering it as 'intangible assets' in terms of section 32(1)(ii) of the Act for the first time in assessment year 2007-08. In assessment year 2007-08, the Assessing Officer denied such claim of the assessee and following the same in the present year also the Assessing Officer proposed denial of depreciation in the draft assessment order passed under section 143(3) r.w.s. 144C(1) of the Act. The DRP, however, directed the Assessing Officer to allow depreciation noting that for assessment year 2007-08, the Tribunal in assessee's own case vide ITA No.3916/Mum/2014 dated 31/08/2015 has allowed the claim of the assessee . Before us, the Revenue is in appeal against such direction of the DRP. 5.1 Before us, the Ld. CIT-DR has not disputed the fact po....
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....td.(DDCL),that assessee entered into an agreement with CIBAIndia and DDCL for acquiring the textile business effect assets on a slump sale basis, that the assessee also entered into toll manufacturing agreement(material supply agreement with CIBAIndia and DDCL),that it had recorded the fixed assets and intangible assets at fair value as determined by an independent valuer,that as per the agreement it was granted non exclusive irrevocable and royalty fee licence to use trademarks,domain name for a period of 24 months,that based on valuation report of independent valuer it had valued the aforesaid right(to use brands), as revenue expenditure,that the payment made by the assessee was not for acquisition of brand name itself,that it did not acquire ownership of CIBA brand,that it did not have exclusive right over the use of brands,that payment was made for using the brand for only a short period, that benefit accruing to the assessee from such payment for use of brand was transit in nature, that the assessee did not derive any enduring benefit or any permanent advantage.The assessee referred to the case of CIBA-India Ltd.(69 ITR 692), IAEC Pumps Ltd.(232 ITR 316).Without prejudice to t....
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....or the A.Y.s 2002-03, 2003-04 and 2004-05.With regard to Textile effect division (TED) it was contended similar arguments were made. The assessee further stated that when unit was acquired at slump price as going concern, no separate price was assigned to each individual asset, that it was necessary for the assessee to carryout valuation of each asset for which a consolidated price was paid, that it had obtained the valuation report for its own specific purpose i.e. to record the individual value of the assets acquired on payment of slump sale consi-deration,that it was not a case of revaluation of the assets.The assessee referred to the case of Ashwin Vanaspati (255 ITR 26) in its support. In its support the assessee furnished valuation report dt.19.1.2007 prepared by M.M. Ravji & Co.CA. To enquire into the genuineness of the claim of the assessee,the AO called for information from DDCL and CIBA India under sec.131 of the Act.He directed them to furnish details of written down value (WDV)of all the blocks of assets transferred to the assessee and also a copy of the report prepared by an accountant in accordance with the provisions of sec.50B of the Act. On perusal of the ....
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....6/Del./2005) and Drill Bits International Pvt. Ltd. (ITA/ 1361/ Pun/ 2010).He referred to page No.42, 309-311, of the paper book.Departmental Representative (DR) argued that the transaction was a slump purchase,that valuation of each unit was not made,that business as a single unit was sold by CIBA and Dye Chem,that both those entities had not mentioned anything about the so-called intangible assets in their balance sheets,that only good will was to be valued,that the valuation was based on future projection and not on present benefits,that valuation was not immediately on acquiring the business,that in the MSC no intangible asset were involved,that there was no place for such valuation under the Act. 2.4.We have heard the rival submissions and perused the material before us.Before proceeding further,we would like to consider the cases dealing with intangible assets and Goodwill.In the case of Smifs Securities Ltd.(supra)the Hon'ble Supreme Court has held that provisions of sec. 31(2)are applicable to goodwill.It is also found that business rights,list of clients,brand equity, non compete fee etc. have been held to be intangible assets by the Hon'ble Court/ITAT,while deali....
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......Goodwill is not specifically mentioned in section 32(1)(ii) of the Income-tax Act, 1961. Depreciation is allowable not only on tangible assets covered by clause (i) of section 32(1), but on the intangible assets specifically enumerated in clause (ii) and such of the other business or commercial rights similar to the items specifically covered therein." The Hon'ble Delhi High Court in the matter of Areva T and D India Ltd.(supra)has discussed the issue of depreciation to be granted on intangible assets.It has also discussed the facts of the case.Following are the finding of the court: The principle of ejusdem generis provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind. For interpreting the expression "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act, such rights need not answer the description of "know-how, patents, trade marks, licences or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) ....
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.... the SMU agency rights. On the very next day,it revalued such rights at Rs. 98,73,25,000 and claimed depreciation on the revalued rights.The assessing authority held that the excess consideration paid over the value of the net assets was in the nature of goodwill paid for the future profits of the business. Therefore, he allowed depreciation only on the value mentioned in the agreement.The FAA affirmed the order of the AO.However,theTribunal allowed depreciation on the entire amount arrived at on revalua -tion including the value of goodwill.On appeal to the Hon'ble Karnataka High Court the court held that Explanation 3 to section 32(1) of the Act,defined the expression "asset" to include intangible assets like goodwill.Goodwill is an asset under Explanation 3(b) to section 32(1)of the Act,that depreciation was allowable even on the goodwill,that that the assessee would be entitled to claim depreciation in respect of an amount of Rs. 98,73,25,000(including goodwill) and not the amount of Rs. 51.63 crores as reflected in the sale agreement for purchase of the distance learning division.In the matters of SKS Microsoft finance Ltd.and Weiamann Forex Ltd.(supra)it has been held that ac....
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.... had acquired business/commercial rights that were of the similar nature as mentioned in sec.32(1)(ii) of the Act. Same is the case about use of brand name.The assessee had assigned value to various assets namely Fixed assets(Rs.6.68 crores), Intangible assets(Rs.54. 94 crores),Goodwill(41.87crores).We are of the opinion that by relying upon the valuation report of an expert the assessee had not contravened any of the provisions of the Act. We have already held that business right,distribution network and brand usage fall in the same category of commercial rights mentioned in Section 32 of the Act.Therefore,we hold that assessee was entitled to claim depreciation on the intangible assets. Here,we would like to refer to the case of KEC International [(2010)- TIOL 478-ITAT-Mum].In that matter,the Tribunal has observed that in case of a slump sale the value adopted by the assessee on the basis of valuation report can be considered for depreciation purpose.The Hon'ble Gujarat High Court in the case of Aswin Vanaspati Industries Ltd.(255ITR26)has approved the principle of valuation of acquired asset by a valuer and held that in absence of adequate material on record in form of departmen....
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....assessee and similar position prevailed in assessment year 2009-10, wherein the Tribunal allowed the claim vide order dated 31/08/2015(supra). On this basis, the DRP noticed that in view of the precedents 'goodwill' forms part of the block of assets of the assessee from assessment year 2006-07 onwards and, therefore, the depreciation on goodwill was to be allowed in the instant assessment year also. 6.2 Before us, it is not disputed by the Ld. CIT-DR that the precedents noted by the DRP continue to hold the field and have not been altered by any higher authority. As a consequence, we, therefore, affirm the direction of the DRP, which is in line with the decision of the Tribunal in assessee's own case for the earlier assessment years. As a consequence, we find no merit in the said Ground raised by the Revenue. 6.3 In the Grounds of appeal raised by the Revenue a reference has also been made to the direction of the DRP to allow assessee's claim for deduction under section 43B of the Act with regard to certain liabilities pertaining to the Textile effects division taken over from CIBA Speciality Ltd. 6.4 In this context, the DRP noted that on acquisition of the Textile effect....
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.... made in terms of an agreement dated 01/07/2008 with Huntsman International LLC, which involved availing of services from the associated enterprise on account of legal services, treasury and credit, purchasing, transportation and logistics, travel co-ordination services, internal audit, human resources services, etc. The assessee had benchmarked the said payment of corporate service charges by using TNM method, whereas the TPO required the assessee to show cause as to why the Comparable Uncontrolled Price(CUP) method should not be applied to benchmark such international transactions. After considering the submissions and evidences furnished by the assessee the TPO deduced man hours of various services rendered by the associated enterprise and determined Rs. 45.05 lacs as arm's length price of such transactions. As a consequence the balance of Rs. 6,34,11,803/- was disallowed. The DRP has also affirmed the stand of the TPO, against which assessee is in further appeal before us. 7.1 At the time of hearing, it was brought out that the Tribunal, in assessee's own case in ITA No.1539/Mum/2014 for assessment year 2009-10 vide order dated 31/08/2015 has remitted the matter back to the ....
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....he Arithmetic Mean and accordingly work out the quantum of adjustment. 5.2.3 The assessee has submitted that the TPO has erred in rejecting the TP Study report without appropriate justifications for doing so and has erred in using entity level for the purposes of bench marking international transactions.In this regard,we find that the TPO has correctly pointed out the infirmities in the TP Study report before rejecting it and we are in agreement with his views.The TPO in his order has clearly brought out the reasons for making the adjustment at the entity level. Therefore, we are in agreement with the TPO on this issue. 5.2.4 The assessee has submitted that the TPO is entitled only to determine arms length price in relation to the international transaction therefore,the adjustment,if any,based on the arms length operating margin should be worked out only in respect of the revenues in the AE segment.The assessee has submitted that if this is done no adjustment would be necessary.Asssessee states that TPO has erred in taking the PLI margin on the entity basis.We find that the assessee has not maintained separate accounts for the AE and non-AE segments.The segments p....
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....P talks of failure of the assessee to submit 'even a single evidence' to prove that it had received any services from its AE in lieu of which the payment was made to the AE 'in spite of being given a number of opportunities by the TPO'.We find that DRP has not mentioned anything about the documents submitted by the assessee,as stated earlier.In para 5.2.2 the DRP has issued directions but we are not aware as how far same were followed by the officers concerned.The assessee has specifically alleged that the directions of the DRP were not carried out.In next para i.e.para 5.2.3 the DRP mentions that the TPO had rightly rejected the TP Study but reasons have not been given for agreeing with the views of the TPO especially when the assessee had made extensive submissions stating that as how the stand taken by the TPO was flawed.Similar is the position of the next paragraph.The DRP has endorsed the views of the TPO in a very mechanical way without giving any reasoned finding on the arguments taken by the assessee. Therefore,in the interest of justice we are remitting back the matter to the file of the DRP who would adjudicate the issues raised by the assessee in grounds no.2 to 5 of by ....
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....ess Rs. 3,85,14,551) on intangible assets, inadvertently not granted by the learned AO, be directed to be allowed as deduction in the captioned Assessment Year." 8.1 At the time of hearing Ld. Representative for the assessee pointed out that the Additional Ground of appeal is nothing but the issue already raised in the Ground of appeal No.2 raised in the Memo of appeal, but it is being raised as abundant caution to clarify the matter. 8.2 At this stage, it would be relevant to recapitulate that at the time of acquisition of the Textile effects business from CIBA Speciality Ltd. and Diamond Dyechem Ltd. for a lumpsum consideration, assessee had claimed depreciation in relation to the value of intangibles acquired, namely, distribution net-work and material contract, 'goodwill' and the value of the brands. It was pointed out that so far as the cost relating to the acquisition of brand was concerned, an alternate claim was put up that it may be allowed as revenue expenditure because the same involved use of brand for limited period of two years. The Ld. Representative for the assessee explained that in assessment year 2007-08, the Tribunal allowed the claim of assessee for depre....
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....n this context, the following discussion in the order of the Tribunal dated 18/12/2015 has been adverted to:- 7.3.1 We have heard the rival contentions and perused and carefully considered the material on record including the judicial decisions cited. The assessee's submission that it has not earned received any exempt dividend income during the year under consideration is not controverted. That the assessee has made investments in its subsidiaries is in the form of strategic investments is also not disputed. The contention of the assessee is that since it has not earned any exempt dividend income during the year, disallowance under section 14A cannot be made. In this regard, the assessee had placed reliance on the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd.(supra). 7.3.2 In this decision, the Hon'ble Delhi High Court referred and followed to its own decision in the case of Holcim India (P) Ltd.(supra) for assessment year 2008- 09, wherein the similar question arose, viz. Whether the Tribunal was justified in deleting the disallowance u/s.14A of the Act, when no exempt income was earned, received or receivable by the assessee in the relevan....