AI Drafter 
TaxTMI 
TaxTMI 
2020 (3) TMI 416
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....n claim of Rs. 76,63,80,975/- disallowed by the AO." 3. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the foreign exchange gain of capital nature is not to be reduced from the WDV of the capital asset notwithstanding the applicability of section 43A of the IT Act." 4. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO be restored. 3. Grounds of appeal raised by the assessee read as under : "On the facts and in the circumstances of the case and in law, the learned CIT(A)/Assessing officer has: Transfer pricing grounds 1. Erred in upholding the arm's length price determination of the learned Transfer pricing officer ('TPO') in relation to the international transaction of payment Central Service Charges of Rs. 3,87,44,898/- to Rs. 84,79,431/-, thus making an adjustment of Rs. 3,02,65,467/-; 2. Erred in not accepting the economic analysis undertaken by the Appellant which was in accordance with the provisions of the Act read with the Rules for establishing the arm's length price of the internationa....
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....40 TNMM 4) Sale of Goods 2,573,613 TNMM 5) Import of Diagnostic equipments 197,689,297 TNMM 6) Export of Diagnostic equipments 2,819,969 TNMM 7) Central Service Charges - cost allocation 38,744,898 TNMM 8) Provision of Business/ market support services 110,376,221 TNMM 9) Reimbursement of expenses (Receipts) 7,990,110 CUP 10) Reimbursement of expenses (Payments) 32,124,472 CUP Central Service Charges - Cost Allocation Rs. 38,744,898/-: 5. During the year the assessee has made payment of Rs. 38,744,898/- to Abbott GmbH& Co. KG (AE) as the assessee had entered into service center agreement dated 09.11.2005 (supplementary agreement to the main agreement dated 01.12,1988) with the AE. It was submitted vide letter dated 19.01.2015 that during the year, the assessee has been allocated the following sums relating to 'Payment for Central Service Charges' viz.:- Nature of the Service Amount in Euro Amount in Indian Rupees Marketing and Strategic Sales Support 376,667 22,910,414 Personnel Support 11,551 702,549 Training arid Product Support 121,071 7,364,05....
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....Rs. 8,479,431 /- and therefore adjustment of Rs. 30,265,467 /- to the total income of the assessee is proposed." 7. Upon assessee's appeal learned CIT(A) confirmed the TPO's action. He held as under :- As per the TPO during the year the appellant has allocated following sums relating to "payment for Central Service charge" Nature of the service Amount in Euro Amount in Rs. Marketing and strategic sales support 376,667 22,910,414 Personnel Support 11,551 702,549 Training and product support 121,071 7,364,053 Accounting finance and MIS support 127,711 7,776,882 Total 637,000 38,744,898 The assessee had submitted that payment of central service charges have been benchmarked by TNMM by comparing the operating results of assessee's distribution segments with functionally uncontrolled transactions. The TPO was of the view that the act does not say that TNMM is to be applied at the enterprise level and once TNMM is applied, all the international transaction are at arm's length. So just because TNMM is applied at the enterprise level, it does not automatically follow that each class of transaction i....
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....he arm's length nature of payment made towards central services charges (personnel support and Accounting, finance and MIS Support) consider at Rs. 84,79,431/- and therefore adjustment of Rs. 30,265,467/- to the total income of the appellant is confirmed. 8. Against this order the assessee is in appeal before us. 9. We have heard both the counsel and perused the records. Learned Counsel submitted that identical transfer pricing adjustment was also done in earlier years. He submitted that the matter has travelled to the ITAT in ITA No. 535, & 7595/Mum/2012, 1320/Mum/2014 & 1797/Mum/2015 vide common order dated 30.1.2019 and the ITAT had deleted the transfer pricing adjustment. 10. Per contra, learned Departmental Representative did not dispute the above proposition. 12. Upon careful consideration, we find that the identical issue was considered by the ITAT in assessee's own case in earlier year referred above. The conclusion of the Tribunal is gainfully referred as under :- 14. We have heard the rival submissions. At the outset, we find that the assessee pursuant to the Service Centre Agreement had shared the cost towards Central Services Charges in respect ....
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.... Instruments 'function, how is the preventive maintenance done, how the instruments is installed at customer location, what are the precautions taken for installation etc. and other finer points of the instruments are explained in details. This training is of immense help when the instrument is launched in India. 3.2.3. Accounting Finance and MIS support services: ITS (Instrument tracking system), SEAS (Service Equipment Accounting System), DFAIFLEX are few package installed in AHPL. which are being maintained by Abbott GmbH, Germany. ITS system is used to track Instrument location in India whereas SEAS is used to calculate service equipment amortization and DFAIFLEX is used to generate reports by PGN for analysis, control and If necessary take corrective action. It is also a planning tool used to forecast and is also used for MIS. India also uses ADOC (order entry) and FMS (margin tracking) systems. 3.2.4. Personnel Support Services: HR functioning in Germany comes up with Incentive scheme for sales manager and then they also approve the same." 15. The ld.TPO determined the arm's length price of sales and marketing support services to the tune of....
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....d on the latest techniques and practices in marketing, the focus and emphasis is on delivering quality products to customers and regular services to them in terms of medical, product literature. Apart from this, marketing support services rendered by AEs also includes scientific promotion of the products through participation in medical meetings, both in India and abroad. Obviously, the AEs at global level had to incur expenses for rendering these services, which are meant for all participating countries across the globe. Hence, those costs ought to be shared by all the participating companies. It is not disputed that the total cost incurred by the group and the cost allocation made to assessee-company under each head was duly certified by an independent Accountant, who was appointed for this specific purpose in accordance with the conditions laid out in the Service Centre Agreement. When such costs that had been allocated to the assessee-company had been absorbed by making the payment to AEs for the services rendered by AEs (which is not disputed by the Revenue before us), then the action of the lower authorities in determining the arm's length price of such services at Rs.Nil....
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.... which the shared costs were reimbursed to AEs. 12. Thereafter the Tribunal referred to the decision of the ITAT in the case of Firmenich Aromatics India Pvt. Ltd. Vs. ACIT (ITA no. 2590/Mum/2017 for A.Y. 2012-13 vide order dated 23.4.2018) and the ITAT order in the case of Dresser Rand India Pvt. Ltd. (53 SOT 173). The Tribunal further concluded as under :- 21. In view of the above, we hold that the lower authorities were not justified in determining the arm's length price in respect of marketing expenses at Rs. Nil as against the claim of Rs. 79,04,690. 22. With regard to the remaining expenses like - (i) Personnel Expenses 8,000 Euros (ii) Training Expenses 48,000 Euros (iii) Account and Miscellaneous 51,000 Euros. The ld.TPO had made adhoc disallowance of 25% and held that 75% of the said expenditure were at arm's length price. We hold that there is no basis for the ld.TPO to arrive at this conclusion when the entire cost allocation sheet duly certified by an independent Accountant was very much placed before him for his examination. In any case, the ld.TPO cannot make any adhoc disallowance while determining the ....
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....e and MAM support 2008-2009 ALP at NIL 2009-2010 ALP at NIL 2010-2011 ALP was determined at Rs. 25 lakhs on adhoc basis 25. Our findings given in assessment year 2007-2008 would hold good for other assessment years also, which are in appeal before us. Accordingly, the grounds raised by the assessee with regard to Transfer Pricing Adjustment in respect of these Central Services Charges are allowed for all the assessment years. 13. We find that since in assessee's own case for earlier years identical transfer pricing adjustment has been deleted by the ITAT. It is not the case that the facts in the present year are different. It is also not the case that Hon'ble Jurisdictional High Court has reversed the decision of the ITAT. Hence, following the precedent as above, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 14. In the result, assessee's appeal is allowed. Revenue's appeal : Apropos issue of depreciation of non-compete fees. 15. The Assessing Officer in this case it is noted that the assessee has claimed depreciation @ 25% of n....
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....llowing assessee's appeal by observing as under :- "During the course of appellate proceedings the appellant submitted that it had entered into a Business Transfer Agreement (BTA) dated May 21, 2010 with Piramal Healthcare Ltd (Piramal) in order to acquire Piramal's Base Domestic Formulations business on a slump sale basis. It was further submitted that in this case the seller i.e. Piramal has agreed not to engage in competing activities for a period of eight years in India or other emerging markets, to ensure that the Appellant can operate the acquired business smoothly, without the threat of any direct or indirect competitions from the seller. The appellant further contended that section 32(1)(ii) specifically mentions certain types of intangible assets( namely Knowhow, patents, copyrights, trademarks, license and franchises) it also has a residuary clause covering " any other business or commercial rights of similar nature" so according to appellant ron compete fees falls under the residuary clause Reliance was placed on following case laws 1. CIT vs. Ingersoll Rand International India Ltd (2014) 227 Taxman 176 (Karnataka High Court) 2. Pe....
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..... 19. Against this order revenue is in appeal before us. We have heard both the Counsel and perused the records. We find that the issue in dispute is the depreciation/amortisation of the non-compete fee paid. The assessing officer has relied upon honourable Delhi High Court decision in the case of Sharp business system (supra) and disallowed the claim of the depreciation on the ground that the non-compete fee paid was in capital field. 20. As against the above we note that learned CIT(A)has relied upon case laws from honourable Karnataka High Court and honourable Madras High Court as under :- 1. CIT vs Ingersoll rand international ( 227 Taxmann176) Karnataka HC 2. Pentasoft technologies vs DCIT (222 Taxman 209) Madras HC 21. In these case laws depreciation/amortisation of the non-compete fee was held to be allowable on the ground that as held by honourable Madras High Court it strengthens the transfer of IPR and as held by honourable Karnataka High Court it fell into the realm of definition under section 32. No decision from honourable jurisdictional High Court has been cited before us. In this view of the matter honourable Apex Court decision in the case....
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....ctuation will be a capital receipt or loss. Accordingly, the notional gain on reinstatement of the liability to the extent Rs. 306,55,23,898/- is capital in nature, is not taxable. With regard to why the foreign exchange gain on re-instatement of 'deferred purchase consideration payable' should not be reduced from capital cost of asset is concerned, the assessee stated that adjustment vis-a-vis foreign exchange gain/(loss) is governed by the provisions of section 43A. For section 43A to be applicable the assessee should acquire the asset from a country outside India. This essential condition is not met in this case as the acquisition of 'base domestic formulation business' by slump sale, is a domestic transaction involving acquisition of assets in India. Therefore provisions of section 43A will not be applicable." 23. However, the Assessing Officer was not satisfied. He referred to the provisions of section 43A. He noted that the assessee has acquired base domestic formulation business. He referred to the business transfer agreement entered following some important definition as under :- "Business" means the business of researching, developing, ....
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....ion of any of the foregoing; "Registrations" means the authorizations, approvals, licenses, permits, certificates, or exemptions issued by a Governmental Authority in India, Sri Lanka or Nepal (including: product certifications and rectifications; manufacturing approvals, authorizations and licenses; pricing and reimbursement approvals; and labeling approvals) held by Seller or its. Affiliates immediately prior to the Closing that are required for the research, development, formulation, manufacture, sale, marketing, distribution, importation or exportation of the products of the Business in India, Sri Lanka and Nepal. 24. Thereafter the Assessing Officer referred to certain portion of the agreement as under :- Article 2 deals with Agreement to Sell and Purchase in which Section 2.1 defines the term "Transferred Assets". As per clause (d) to the same it is stated: (d) the Contracts, Registrations, Intellectual Property rights and all other assets, rights and properties which Seller acquired from Hoechst Marion Roussel Limited related to the research, development, formulation, manufacture, sale, marketing and distribution of Haemaccel solely within India....
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....losing Date and ending on the eight (8th) anniversary of the Closing Date (or, if not enforceable for such period in any country under the Competition/Investment Laws of such country, for such shorter period as shall be enforceable of such country) (the "Restricted Period"), neither Promoter Group nor Seller shall, and Promoter Group and Seller shall cause their respective Affiliates (and their respective successors and assigns (whether by operation of law or otherwise)), other than, except as otherwise expressly provided below in Section 10.6(b), a Competing Acquiring Person, not to, directly or indirectly: (i) engage in any business that conducts any Purchaser Competing Activities in India and/or any Emerging Market; or (ii) own an interest in manage, operate, join, control, lend money or render financial or other assistance to or participate in, as a partner, stockholder, co-venturer, consultant, or otherwise, any Person that is engaged in the business of conducting any Purchaser Competing Activities in India and/or any Emerging Market; ..." 25. Referring to the above the Assessing Officer held as under :- "8.5. From the reading of above definitions and sections, it ....
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....t the capital assets acquired by the assessee inside India. During the course of appellate proceedings the appellant submitted that the AO has adjusted (redirect) the foreign exchange gain of Rs. 306,55,23,898/- from', the cost of asset and has added back Rs. 76,63,80,975/- to the taxable income of the appellant being the alleged excess depreciation (at 25%) claimed by the appellant or the unadjusted cost of assets: For applicability of section 43A the following conditions should be satisfied a. The assets was acquired by the assessee in any previous year from a country outside India. In the case of appellant it is seen that the first condition is not fulfilled as the appellant is a tax resident of India and had acquired the business in slump sale basis from personnel which is also an Indian company. Hence in the light of above discussions the ground of appeal is allowed. However the AO is directed to verify whether the asset is a trading asset or a capital asset." 27. Against the above order Revenue is in appeal before us. We have heard both the counsel and perused the records. We find that as per section 43A relevant provision read as un....
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.... the case may be, deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment." 28. From the above we note that the above provision is special provision consequential to change in rate of exchange of currency. Learned CIT(A) has only referred to aspect that under section 43A its applicability depend upon the satisfaction of the criteria that the asset was acquired by the assessee from a country outside India. Hence, learned CIT(A) held that since this criteria is not fulfilled as person from whom business is acquired is also an Indian company hence, he has held that section 43A is not at all applicable. In this regard we note that learned CIT(A) in his adjudication has not considered the finding of the Assessing Officer that the asset involved in slump sale included areas of Nepal, Sri Lanka and other. In this view of the matter learned CIT(A)'s finding is no....