TaxTMI 
TaxTMI 
2019 (5) TMI 773
X X X X Extracts X X X X
X X X X Extracts X X X X
....ference to the individual grounds of appeal raised by the Assessee challenging various additions made to the total income declared by the Assessee in its return of income. The Assessee has also filed applications for admitting additional grounds of appeal vide application dated 14.1.2016 and another additional ground of appeal dated 22.11.2018 filed in the registry on 4.1.2019. 3. Before we deal with the grounds of appeal raised by the Assessee, we need to first consider the Assessee's application dated 22.11.2018 for admission of the following additional ground of appeal because it is a preliminary issue challenging the impugned order as one passed beyond the period of limitation and therefore non est in law:- "That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer is barred by limitation and therefore, is liable to be quashed." 4. The aforesaid additional ground of appeal raises a purely legal issue which does not require any fresh investigation into facts; facts already being on records. The aforesaid additional ground of appeal is therefore admitted for adjudicated on merits in view of the discretion conferr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2009 and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA- (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the words "thirty-three months" had been substituted: Provided also that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2009 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA- (i) is made before the 1st day of July, 2012, but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of July, 2012, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g any directions referred to in sub-section (5),- (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. Explanation.-For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod of limitation in the case of the Assessee would end on 31.3.2012 i.e., three years from the end of the relevant AY, which is AY 2008-09 in this case. The order of assessment has however been passed in this case only on 18.10.2012. 8. It is the plea of the Revenue that in the case of an eligible Assessee the procedure to be followed is first to pass a draft assessment order as per the provisions of Sec.144C(1) of the Act which has a nonobstante clause. The Assessee has a right to file objection to the draft assessment order or convey his acceptance to the proposals in the draft assessment order and the time limit for doing so is 30 days from the date of receipt of the draft assessment order. If the Assessee conveys his acceptance to the draft assessment order or does not file objections to the DRP within the time limit specified in Sec.144C(2), the AO has do pass final assessment order within one month from receipt of acceptance or expiry of period for filling objection to DRP and no such objection is filed (Sec.144C(3) of the Act). If objections are filed before DRP, the DRP shall issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-obstante clause in sub-sections (4) and (13) thereof. It was submitted that the non-obstante clause in Sec.144C(1) of the Act, is only with regard to the procedure to be followed in the case of eligible assessee requiring passing of a draft assessment order in case of an eligible assessee and should be read limited to the context, i.e., exception to the ordinary rule that there will be only one assessment order passed by the assessing officer on culmination of the assessment proceedings. 11. It was further submitted that the non-obstante clause in section 144C(4) of the Act curtailing the time limit to pass a final assessment order within one month, in case where the assessee does not make an application to the DRP, notwithstanding the time limit provided in section 153(1) of the Act is to curtail the limitation that would otherwise have been available to the assessing officer to pass the final assessment order. The time limit of one month in section 144C(4) cannot be read as additional time provided to the assessing officer, over and above limitation in section 153 of the Act to pass the final assessment order in the case of an eligible assessee. It was submitted that for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provisions of section 153 of the Act. While rejecting the assessee's contention that the limitation in section 153 referred to passing of draft assessment order, the Tribunal held that: (i) Section 144C gives a complete go bye to section 153; and (ii) The Act does not contemplate any limitation for passing of draft assessment order, which can be passed within a reasonable time. 14. Though arguments were advanced that the aforesaid decision does not lay down the correct law, we are of the view that a co-ordinate Bench decision is binding on us, and we find no reason for not following the same. We therefore reject the additional ground raised by the Assessee on the question of limitation. 15. We shall now take up the grounds of appeal raised by the Assessee. Gr.No.1 raised by the Assessee in the grounds of appeal reads as follows:- "1. The impugned order of the Assessing Officer passed consequent t the order of the Dispute Resolution Panel (for short DRP) is not sustainable in the eyes of law as the same is passed without considering the explanations of the appellant in proper prospective, the same is passed without proper application of mind."....
X X X X Extracts X X X X
X X X X Extracts X X X X
....therefore excluded the aforesaid sum from the export turnover without excluding them from the total turnover. As a result, the deduction claimed u/s.10A of the Act by the Assessee was allowed at a lesser sum than what was claimed by the Assessee. It was the plea of the Assessee in the appeal against the assessment order before the CIT(A) that at all times during the relevant previous year, it was engaged in development of computer software and not in rendering any technical services. Communication expenses were incurred not for export of computer software outside India and therefore the exclusion from export turnover as done by the AO was not correct. Without prejudice to its contention that the aforesaid sums should not be excluded from the export turnover while computing deduction u/s.10A of the Act, the Assessee has also made an alternate prayer that expenses that are reduced from the export turnover should also be reduced from the total turnover and in this regard has placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn) wherein it was held that while computing deduction u/s.10A of the Act expenses that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esaid telecommunication charges are incurred by the assessee for connectivity only within India and cannot by any stretch of imagination be attributable to delivery of software outside India. It was submitted that the Assessee did not incur any expenditure in foreign currency for providing technical services outside India so as to exclude it from the definition of export turnover. The learned DR relied on the order of the CIT(A). 20. We have considered the rival submissions. Taking into consideration the decision rendered by the Hon'ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that communication charges should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon'ble Karnataka High Court has been upheld by the Hon'ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 & Ors. dated 24.04.2018. In view of the acceptance of Gr.No.3, We are of the view that Gr.NO.2 that the expenditure in ques....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt of SAD refund had accrued to the appellant during the relevant assessment year. Aggrieved by the aforesaid observations of the AO in the final order of assessment, the Assessee has raised Gr.No.4 before the Tribunal. 25. We have heard the rival submissions. The Assessee is an importer of certain raw materials/components from outside India which are to be utilized in manufacturing of final products. The aforesaid import of raw material/components, is inter alia subject to, SAD, which is levied in lieu of value added tax on similar goods had the same been manufactured in India, under section 3(5) of the Customs Tariff Act, 1975. Pursuant thereto, upon export of finished product, the assessee was eligible to claim refund of SAD paid at the time of import of raw materials/components. Accordingly, in the books of accounts, the SAD amount is reduced from the cost of materials used in the export of finished products. Procedurally, upon export of the goods, a refund claim is required to be lodged with the customs authority for refund of SAD. The custom authorities, after verifying the claim on the basis of documents so furnished, pass an order for refund of the said amount. As pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ility would arise on the customs authorities to pass on the benefit of duty free imports to the assessee. It was, thus, held that until the goods were actually imported, the benefits would only be in the nature of hypothetical income which may or may not materialise and its money value, therefore, would not be income of the assessee. 26. It was submitted that the law is well settled that entries in the books of account are not determinative of the ambit of taxation. If an item of income / expenditure is taxable / deductible, the same has to be taken into account as per the provisions of the Act and not as per the book entries. Reference in this regard was made to the decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Company v. CIT 82 ITR 363(SC) laying down the aforesaid proposition. The learned DR reiterated the stand of the AO that when the Assessee has recognized accrual of income in the books of accounts, that by itself would be sufficient to bring to tax the same. 27. We have considered the rival submissions. We are of the view that in the light of the statutory provisions cited for getting an order of refund of SAD, the mere fact that it was r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee has filed an application seeking to raise additional grounds vide its letter dated 14.1.2016. Additional grounds No.15 & 16 and 19 to 23 raised therein are linked to the grounds of appeal (Gr.No.5, 7 to 8) already raised in the original grounds of appeal filed along with Form No.36B along with the appeal. The additional grounds raised therein are therefore admitted for adjudication. The additional grounds viz., ground Nos.15 & 16 and 19, 21 to 23, reads as follows: "Raised as Additional Ground of appeal No.15 & 16 15. Without prejudice to the Ground No.5, the AO/DRP ought to have treated the difference between, the value of tangible and intangible assets assigned as per the valuation report and the written down value of the assets in the books of IR as being Goodwill and allowed depreciation as per the provisions of the Act. 16. Without prejudice to Ground No.8, the AO/DRP ought to have held non-compete fee of Rs. 5,40,00,000 as being a depreciable asset and allowed depreciation as per the provisions of the Act. Raised as Additional Ground of Appeal No. 19, 21 to 23 :- 19. AO/DRP ought to have allowed the value assigned to license,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p sum consideration represents the undivided sales consideration, with no independent values being assigned to various components of the RDB. However after the conclusion of transfer of the RDB, the Assessee has in its books of accounts recorded the break-up/bifurcation of various assets and liabilities acquired and the same is explained in Note No.18 of Schedule 18 to the note to the Accounts (at Page 2662 of Paper Book Vol.-4). 31. As per section 2(42C) of the Act, Slump Sale means, the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. There is no dispute that the transfer of RDB by IRIL to the Assessee under the BTA is a slump sale. The Assessee is the transferee and taxation of Slum Sale in the hands of the Transferor (IRIL) is governed by Sec.50B of the Act. As far as Assessee is concerned, after the transfer, he has to record the individual items of assets that were transferred under the Slum Sale in his books of Accounts. Since at the time of purchase of business, no values were assigned for individual assets and liabilities forming part of the und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ernate claim of depreciation Total (C) 8,808.00 Total (A +B + C) 17,581.10 Add : Other current assets (Net) 1,260.00 Total 18,841.10 Add: Goodwill 4,340.90 Depreciation claim made before AO vide letter dated 15.10.2012 (also refer Addl. ground 21 of the present appeal) Total Consideration 23,182.00 32. Accordingly, the cost of acquisition of individual assets, forming part of RDB undertaking acquired by way of slump sale from Ingersoll Rand India Limited ('IRIL'), for claim of depreciation in the hands of the Assessee was recorded at the aforesaid values and was determined by independent valuers. Note 18 to the Notes on Accounts as appearing in the financial statements of the Assessee was as follows: "Pursuant to a business agreement dated May 4, 2007 between Ingersoll-Rand (India)Ltd., (Ingersoll-Rand), the Company has during the year acquired the following Assets and Liabilities of the Road Machinery Division of Ingersoll-Rand. Fixed Assets (Note (a) below) 175,77,55,740 Current Assets Inventories 20,17,44,753 Sundry Debtor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m for deduction as revenue expenditure is made in Gr.No.7 and for depreciation is made in (Additional) Gr.No.23 which is a general ground for allowance of depreciation on the entire consideration paid for business transfer of RDB. 36. The following were claimed as revenue expenditure in the revised return of income:- Non-competition agreement 540.00 Licenses 70.00 Warranties 101.00 TOTAL 711.00 37. In Gr.No.8 the Assessee has sought deduction of Non-compete fee as revenue expenditure. With prejudice to the aforesaid claim, in (additional) ground No.16 & 19 the payment for non-competition agreement and Licenses is claimed as commercial rights/intangibles on which the Assessee is entitled to claim depreciation as intangible assets viz., commercial rights on which the Assessee is entitled to claim depreciation. 38. The Total consideration payable to IRIL for slump sale of RDB was a sum of Rs. 231,82 lacs. After allocation of values for various Assets and intangibles there was a difference of Rs. 43,40,89,870/- which was treated as Goodwill. However, no depreciation was initially claimed in the return of income on goodwill aggregating to Rs. 43,40,89,87....
X X X X Extracts X X X X
X X X X Extracts X X X X
....... Explanation 3.-Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the 3[Assessing] Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the Assessing Officer may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case." 43. The assessing officer invoked Explanation 3 to section 43(1) of the Act held that depreciation would be admissible only with reference to the WDV of the assets (as appearing in the books of IRIL on basis of Form 3CEA report) forming part of the business purchased by the appellant and not with reference to the values on the basis of valuer's report. Accordingly, the assessing officer disallowed the claim of depreciation to the extent of Rs. 18,19,73,312, as under Asset Cost as per Valuation report WDV as per IR as on 4.5.2007 Rate of depreciati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... independent valuers is required to be considered as actual cost / written down value for claiming depreciation under section 32 of the Act, in the hands of the transferee. 45. The AO rejected the claim of the Assessee for the reasons given in Para 5.7.5 & 5.7.6 of the Draft Assessment order dt.26.12.2011. The reasons in short was that (i) the valuers did not do an independent valuation but relied on the information provided by the Assessee and its employees; (ii) Design & Drawings which were valued at Rs. 32,78,00,000/- was on the basis of estimate by the Assessee that the designs would have further useful life of 7 years after acquisition by the Assessee; (iii) The Assessee had claimed before the AO that there was an world wide acquisition of Ingersoll Rand Road Development Business or Road Machinery Division by the parent company of the Assessee and in terms of understanding between the parties on such acquisition that the brand name of Ingersoll Rand (IR) would be used for a period of one year from the date of acquisition in India on road making machinery. The Copy of the said understanding was not furnished. (iv) the allocation of value for brand value was made only on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... question was a slump sale, does not empower the assessing officer to tinker with the split up of the lump-sum consideration over various tangible and intangible assets, on the basis of values determined by an independent valuer on a rational and scientific basis. The mischief of Explanation 3 to section 43(1) of the Act can be invoked only if the assessing officer is, based on the material on record, satisfied, that the main purpose of transfer of assets (previously used for purposes of business) is reduction of tax liability by claiming depreciation with reference to enhanced cost. The satisfaction to be recorded by the assessing officer is not based on his ipse dixit but on an objective evaluation of material placed / to be brought on record. The Hon'ble Gujarat High Court in the case of Ashwin Vanaspati Industries 255 ITR 26 (Gujarat) wherein the Court held that where the assessee makes a claim for depreciation on enhanced cost, which is actual cost in its hands, it was necessary for the authority who wanted to determine the 'actual cost' as required by Explanation 3 to section 43(1) to place some evidence on record. The ITO is required to determine actual cost to the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rand cannot be disputed. So also, the license to use the brand name IR by the Assessee stands established by the license agreement between the parent company of the Assessee and Ingersoll Rand. Thus, the acquisition of these rights under the global takeover of RDB by Volvo entities worldwide cannot be disputed. 51. In the light of the global acquisition of RDB by Volvo group entities worldwide, there is no basis for the AO to invoke Explanation-3 to Sec.43(1) that is motive for valuation of depreciable assets at higher value is to get benefit of higher depreciation and avoid tax. The fair market value of the assets on which depreciation has been claimed by the Assessee, as on the date of transfer, has not been disputed by the revenue authorities on germane grounds. The reasons given by the AO for invoking Explanation-3 to Sec.43(1) in our view are very vague. The valuation report is given by experts in the respective fields. Their conclusions cannot be brushed aside on mere surmises and conjectures. It is undisputed that but for invoking Explanation-3 to Sec.43(1) of the Act, there is no other basis for not allowing the claim for depreciation as made by the Assessee. On the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of itself and the other buyers named therein) which was also referred to during the course of the assessment proceedings. The said agreement is equally applicable to the appellant and Ingersoll Rand (India) Ltd. As per section 5.12 of the said agreement pertaining to Non-Competition; Solicitation (refer internal page 59 of the Global Business Transfer Agreement placed on record vide application for additional evidence dated 24.7.2015) it is provided as follows:- "Section 5.12 Non-Competition; solicitation Restrictions on competing Activities following closing: Each of the sellers agrees that from the closing until the fifth anniversary of the closing, they will not, and they will ensure that each of the Sellers Affiliates (other than the sold Companies ) will not directly or indirectly engage or invest in any business in competition with the business as conducted immediately prior to the closing. Notwithstanding the foregoing, this section 5.12(a) shall not prohibit (i) the Sellers, directly or through any Affiliate, from conducting any business activities conducted by them as of the date of this agreement(other than the Business), including the business ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x that the Assessee might earn. To our mind the basis of valuation appears to be reasonable and no reasons for not accepting this method of valuation has been cited by the revenue authorities. 58. Several decisions were cited before us by the learned counsel for the Assessee for the proposition that fee paid under agreement for not competing with the business. Those are all cases where there was specific agreement not to compete and the consideration was fixed as per the terms of the agreement. In the present case however, there exists no such agreement. Since the transfer of business was on a slump sale basis, the transferee has split the lump sum consideration as attributable to several tangible and intangible assets acquired consequent to slum sale. The consideration paid for acquiring business is sought to be characterized as revenue expenditure, which does not appear to be appropriate. Nevertheless, the intangible benefit to the Assessee as a result of existence of agreement not to compete with business of the Assessee can be said to be an intangible right, which can be characterized as commercial rights and the Assessee should be allowed the benefit of depreciation on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purpose of the proceedings are for proper determination of tax liability in accordance with law. 62. Pursuant to the valuation of tangibles and intangibles undertaken by the Assessee, the purchase consideration was allocated over tangible and intangible assets on the basis of valuation report dated 28.03.2008 obtained from H.V Krishna Swamy (refer pages 286-296 of PB - Vol 1 / pages 2730 - 2740 of PB - Vol 4) and valuation report dated 5.08.2008 obtained from Bizworth as under (refer pages 324-371 of PB - Vol 1 / pages 2741-2788 of PB - Vol 4): Assets Value (Rs. in millions) Tangible assets Land and Building 724 Plant & Machinery 153 Net Current assets 126 Total (A) 1003 Intangible assets 880 Design & Drawing 327.8 Marketing intangibles 222.3 Order backlog 40.0 Spare parts supply rights & benefits 138.7 Supplier database 60.0 Software acquired 19.4 Sales promotion material 1.5 Non-competition agreement 54.0 Licenses 7.0 Warranties 10.4 Total (B) 880.80 Goodwill 434.09 Total (C) 434.09 Total (A) + (B) + (C) 2317.89 63. It was the plea of the As....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 28.11 crores and the balance amount of Rs. 16.58 crores was claimed as paid for acquisition of various business and commercial rights, viz., business claims, business information, business records, contracts and know how, etc., categorized under the separate head viz., "goodwill" in the books of account of the assessee. In the return of income the assessee claimed depreciation under section 32(1)(ii) of the Act with respect to the aforesaid various intangible assets aggregating to Rs. 16.58 crores acquired through slump sale and categorized under the head "goodwill". The assessing officer, CIT(A) and Tribunal disallowed the aforesaid claim of depreciation on intangible assets/goodwill. On further appeal, the High Court allowed the appeal of the assessee, holding that nature of intangible assets in the residual category of "business or commercial rights" could not be restricted to the preceding six category of assets which are of distinct kind and nature. The High Court observed that all the intangible assets fall in the same genus of assets forming part of tool of trade, facilitating smooth carrying of business. The High Court further held that the various intangible assets acq....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period 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 & Stocks 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 com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No.19 raised by the Assessee is concerned, the facts are the assessing officer made disallowance of the value assigned to license, permits, certification, accreditation etc. acquired from IR amounting to Rs. 70,00,000 (Rupees seventy lakhs) as revenue expenses allegedly on the ground that the same being a payment made to take over a business creates a new source of income and is to be regarded as capital expenditure of enduring benefit. The claim of the Assessee before us is that if the aforesaid payment is held to be capital in nature, then, depreciation may be directed to be allowed in terms of section 32(1)(ii) of the Act. The details of the licenses and permits and certifications are set out in paragraphs 18.1 to 18.10 at pages 2783 to 2785 of paper-4 which is part of the valuation of intangibles report of Bizworth. The basis of valuation is set out in para-18.8 to 18.10 of this report and in our view, it is in fact an intangible acquired by the Assessee and the basis of estimation of its value is reasonable and acceptable. We therefore direct that depreciation be allowed on this intangible treating it as commercial right u/s.32 of the Act. Gr.No.19 is thus allowed. 70. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deduction towards obsolescence of inventory without appreciating the plea as also documents filed in support of the appellant's claim. Raised as Additional Ground No.20: 20. AO/DRP erred in denying deduction of Rs. 36,34,779 being the amount utilized from the provision for warranty taken over from IR as a revenue expenditure. (As far as Gr.No.20 is concerned, the Assessee has filed a letter dt.30.4.2019 requesting for modification of the figure of utilized sum from the provision of warranty from Rs. 36,34,779 to Rs. 96,30,413/- (which is the correct figure). The error is purely typographical error and the request for modification is accepted). 73. The facts with regard to the aforesaid grounds of appeal are that the Assessee acquired RDB from IRIL by way of a slump sale. All assets and liabilities of the RDB was acquired by the Assessee. The following liabilities also became the liability of the Assessee:- (a) Provision for inventory obsolescence Rs. 3,79,30,783 (refer page 240 of PB- Vol 1 / 2707 of PB-Vol 4) (b) Provision for warranty Rs. 1,16,44,629 (refer page 271 of PB - Vol 1 / 2715 of PB - Vol 4) Total Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d expenses, and (ii) that provision for inventory obsolescence had not been taken over by the appellant during the relevant year. It is the plea of the Assessee before us that the aforesaid action of the assessing officer in disallowing the aforesaid expenses is unlawful and calls for being deleted. 76. To adjudicate the aforesaid issues, it is necessary to look at the various terms of the BTA by which the Assessee took over the business of RMD. clauses (vi) and (x) of Schedule 2 of BTA (refer page 133 of PBVol 1 / page 2705 of PB - Vol 4 ) provides for take-over by the Assessee all the liabilities arising to customers of RDB, based on express and implied warranties and all liabilities arising out of the acquired business. In view of the aforesaid, the aforesaid provisions were also acquired as part of slump purchase from IRIL. The Assessee provides for warranty in the books of account. The amounts actually paid against warranty claims are adjusted against the provision created and outstanding in the books. However, for tax purposes, the Assessee has consistently added back the provision for warranty debited to profit and loss account and claimed deduction for actual warranty cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ering design services to its Associated Enterprise (AE). These grounds read as follows:- "9. The Assessing officer grossly erred in making a Transfer Pricing adjustment of Rs. 1,82,98,434/- in relation to software development services alleging shortfall of the price received. 10. The DRP grossly erred in sustaining transfer pricing adjustment made by the Assessing officer without considering any plea of the appellant and not even referring to the orders of the TPO filed by the appellant before relating to the earlier assessment years and therefore the order as passed by the DRP is without application of mind. Additional Ground of Appeal No.17 17. The DRP has erred in confirming the addition made by the AO/ TPO to the Arm's Length Price received in respect of the transaction relating to services to its Associated Enterprises by rejecting the comparables adopted by it alleging the same to be functionally different from its business. Additional Ground of Appeal No.18 18. Without prejudice to the additional ground No. 17 above, the learned TPO erred in not selecting comparables that are functionally comparable to the Appellant which....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen the average operating profit margin of the Assessee would be within the (+) (-) 5% range of the operating profit margin of the Assessee and therefore in terms of Sec.92C(2) proviso to the Act, no adjustment or addition on account of determination of ALP can be made. 85. Exclusion of Coral Hubs Ltd. (earlier known as Vishal Information Technologies Ltd.): This company is listed at Sl.No.6 of the list of comparable companies chosen by the TPO. As far as this company is concerned, it is seen that this company was earlier known as Vishal Information Technologies Ltd. The objection of the Assessee for including this company as a comparable company was that the activities of the company is not only functionally different, but the business model of the company is also different as it sub-contracts majority of its ITES works to third party vendors and has also made significant payments to those vendors. The payments made to vendors towards the data entry charges also supports the fact that the company outsources its works. In the circumstances, it cannot be taken as a comparable to the ITES functions performed by the assessee. Since this company is acting as agent only by outsourcin....