TaxTMI 
TaxTMI 
2018 (9) TMI 1706
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..... 2012, declaring loss of Rs. 6, 37, 59, 600/-. During the assessment proceedings the Assessing Officer noticing that in the relevant previous year the assessee had entered into international transactions with its AEs made a reference to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) of the international transactions. In the course of proceedings before him, the TPO called for various documents including the Transfer Pricing study report of the assessee in support of the benchmarking of the international transactions made by the assessee. After verifying the documents available before him, the TPO found that assessee has paid service charges amounting to Rs. 3, 91, 19, 615/- and Rs. 7, 13, 84, 778/- towards services availed from the AEs in two of its manufacturing divisions. The Assessing Officer also noted that such service charges were paid for the first time in A. Y. 2009-10 and continued in the subsequent assessment years. After verifying the transfer pricing study report the TPO found that as per the agreement dated 1. 07. 2008 with the holding company, the services availed by the assessee from AEs are relating to various sectors including leg....
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....ct, the learned DRP upheld the adjustment made by the TPO simply relying upon its own decision in assessee's case for A. Y. 2011-12. However, the Tribunal while deciding the assessee's appeal against such addition made on account of TP adjustment in A. Y. 2011-12 in ITA No. 5637/Mum/2015, dated 31. 01. 2017, has restored the issue to the DRP for fresh adjudication. The relevant observations of the Tribunal in this regard are as under: "7. We may now take up the appeal of the assessee. The first issue in this appeal relates to the transfer pricing adjustment of Rs. 6, 34, 11, 803/- made by the Assessing Officer in respect of the international transactions on account of corporate service charges paid by the assessee to its associated enterprise. The relevant facts are that assessee had paid corporate services charges amounting to Rs. 2, 49, 34, 938/- and Rs. 4, 29, 81, 865/- towards service claimed to have been utilized from the associated enterprise, M/s. Huntsman International LLC in the Polyurethane and Textile effects divisions respectively. The said payments were made in terms of an agreement dated 01/07/2008 with Huntsman International LLC, which involved availing of s....
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.... was made to the AE in spite of being given a number of opportunities by the TPO. Thus the arm's length price of allocation of corporate expenses paid was rightly treated as Rs. Nil by the TPO due to inadequacy of the assessee's argument and the entire payment of allocation of corporate expenses of Rs. 46, 299, 732 /- was treated as an adjustment U/s 92CA. We agree with the order of the TPO and the addition proposed on this count in the draft order. 5.2.2 The assessee has submitted that TPO has reworked the margin calculation incorrectly as following errors were found in the calculation submitted by the assessee: - In case of Allied Resins, the increase in closing stock was not taken into account while working out the Margin - In Camphor and Jyoti Resins, increase in closing stock was added to turnover instead of reducing it from operating cost If the revised margins are taken into account, the arithmetic mean comes to 5. 57% instead of 5. 78% as calculated by the TPO. On this issue we direct the AO/TPO to verify the computation of the OP/OR and correctly compute the Arithmetic Mean and accordingly work out the quantum of adjustment. ....
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.... the applicant and found that the action of the TPO is as per the provisions of Rule 10B(4) of the Income Tax Rules, 1962. Thus, we confirm the action of the TPO in this regard. 5.2. 6 Regarding claim of standard deduction of 5% from the arm's length price, we are unable to agree with the assessee, in view of the amendments carried out in section 92C by the Finance Acts 2009 and 2012. Further, with due respects to the Hon'ble ITAT, there have been several decisions rendered by different benches of the ITAT holding that the +/- 5%) variation is not to be allowed as standard deduction[e. g. DCIT Vs Roche Diagnostics 19 Taxmann. com 192 (Mum) (2012)]. This ground of objection taken by the assessee is accordingly rejected. 5.2.7 In view of the above discussion we confirm the adjustment carried out by the AO in pursuance of the order of the TPO in principle subject to verification of the computational error' as claimed by the applicant. " A glance at the order of the DRP shows that the order is a non speaking order and it has not given any reasons for arriving at its conclusion. In para no. 5. 2. 1. the DRP talks of failure of the assessee to submi....
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....being heard before passing an order afresh as per law. Thus, in so far as the Ground of appeal No. 1 is concerned, the same is treated as allowed for statistical purposes. " Facts being identical, respectfully following the decision of the Co-ordinate Bench as referred to above, we restore the issue to the learned DRP for fresh adjudication keeping in view the directions of the Tribunal in the preceding assessment year. Thus, these grounds are allowed for statistical purposes. 6. In ground no. 2 with its sub-grounds, assessee has challenged disallowance of depreciation on intangibles such as material supply contracts, distribution network and brand usage. Briefly, facts are during the assessment proceedings, the Assessing Officer while verifying assessee's claim of depreciation noticed that the assessee has claimed depreciation on material supply contract and distribution network amounting to Rs. 70, 47, 949/- and Rs. 2, 18, 37, 964/- respectively. Therefore, he called upon the assessee to justify its claim of depreciation. Though, the assessee submitted its explanation justifying its claim of depreciation, however, the Assessing Officer relying upon his decision on identical....
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....p, that the group operated in India through its Indian companies namely CIBA Speciality Chemicals (I) Ltd. CIBA-India, and Diamond Dye-chem Ltd. (DDCL), that assessee entered into an agreement with CIBA-India 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 ....
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.... for the assessee was the consideration which it had paid to ICI Ltd. , that a similar disallowance had been made by the AO in the earlier A. Y. s, that the Tribunal had deleted the addition for 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 consideration, 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 writte....
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.... . Co . Ltd. (221Taxmann176), Manipal Universal learning P. Ltd. (359 ITR369), SKS Micro Finance Ltd. (145ITD111), Guruji Entertainments Network Ltd. (108TTJ 180), ONGC Videsh Ltd(37SOT97), Weizmann Forex Ltd. (51SOT535), Sarabhai Zydus Animal Health Ltd. (ITA /26/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....
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....it was for acquiring a business and commercial rights and it was comparable with trade mark, franchise, copyright etc. , referred to in the first part of clause (ii) of section 32(1) and so much so, goodwill was covered by the above provision of the Act entitling the assessee for depreciation......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 ....
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....ights of similar nature" specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that section. ...the commercial rights acquired to sell products under the trade name and through the network created by the seller for sale in India were entitled to depreciation. In the case of Manipal Universal Learning Pvt . Ltd. (supra)the assessee had agreed in the sale agreement to the price of Rs. 51. 63 crores as the value of 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, the Tribunal allowed depreciation on the entire amount arrived at on revaluation 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 goodw....
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.... with CIBA India and DDCL and because of the agreements the products manufactured by both the entities were made available at cost to the assessee, the assessee was granted non-exclusive, irrevocable, royalty free license to use trade-marks, domain names for a period of two years. Not only that the assessee got the distribution network. In short, the assessee got valuable business/commercial rights. Therefore, we are of the opinion that by entering into MCS and getting distribution network, the assessee 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 in....