TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1194
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....eal) "1. On the fact and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the ALP adjustment amounting to Rs. 2,19,74,033/- without appreciating the fact that the segmental account and the net segmental margins filed by the assessee are not reliable as the same is based on proportionate allocation of indirect expenses with the sales. 2. On the fact and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the ALP adjustment amounting to Rs. 2,19,74,033/- and holding that the benchmarking at entity level using TNMM by the TPO is not correct without appreciating the fact that all transactions are closely linked. 3. On the fact and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the ALP adjustment amounting to Rs. 2,19,74,033/- without appreciating the fact that different international transactions with the AE are closely linked and overlooked various judicial pronouncement. 4. On the fact and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of expenditure incurred on license fees/royalty holding it to be business expenditure without appreciating the fact that the a....
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....and papers as may be considered necessary either all or before the appeal hearing." CO No. 148/M/2015 (Assessee's): "1. The learned CIT(A) has erred in not adjudicating the ground preferred by the Respondent/Cross-Objector, that the learned TPO has legally erred by denying the Appellant Company an opportunity to justify its treatment of 'Foreign Exchange fluctuation loss' and 'Provision for Credit balances written back' for the purpose of determining the operating margin while applying Transactional Net Margin Method ('TNMM') at the entity level, for the reason that the said ground became academic in nature pursuant to the decision rendered by the learned CIT(A). 2. Without prejudice to any other ground/objection, on the facts and circumstances of the case, the learned CIT(A) has erred in not adjudicating the ground preferred by the Respondent/Cross-Objector that the learned TPO has factually and legally erred in not excluding 'Foreign exchange fluctuation loss' amounting to Rs. 9,58,104 while determining the operating margin for applying TNMM at the entity level, for the reason that the said ground became academic in nature pursuant to the....
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....ociate Enterprise (AE) as reported in form 3 CEB as under: SL. Nature of transaction F.Y. 2007-08 (Rs) Method Used 1 Purchase of Components & Spares 6,80,75,380 Resale Price Method 2 Payment of Design & Engineering Fees 1,86,83,436 Resale Price Method 3 Receipt of Commission 1,19,51,956 Transactional Net Margin Method 4 Receipt for Supervisory Assistance 51,85,376 Transactional Net Margin Method 5 Contribution to Common Costs 1,10,08,756 Not Applicable Total 11,49,04,904 3. In its return of income assessee company claimed a net loss of Rs. 23,32,26,686/-. The assessee company in order to benchmark its international transactions had adopted different methods to determine arms length price. However, the Transfer Pricing Officer (TPO) has taken the view that the transactions are inter related and the assessee company was called upon to show cause as to why the segmental profit and loss should not be rejected and Transactional Net Margin Method (TNMM) be applied at the entity level. The assessee company sought to justify that the working of profit earned from purchases made from AE and that from non AE are different as the OP/sales in case....
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....ssee company is computed at loss of 4.87% resulting into a difference of 11.49% and consequently the Ld. TPO proposed the adjustment on account of ALP at Rs. 2,19,74,033/-. 6. Pursuant to the TP adjustment made by the Ld. TPO, the AO made addition of Rs. 2,19,74,033/- to the total income of the assessee. The AO also disallowed the claim of depreciation of the assessee company to the tune of Rs. 5,19,11,719/- on opening WDV of intangible assets of Rs. 20,76,46,875/- by following A.Y. 2006-07. The AO also disallowed an amount of Rs. 1,13,20,000/- debited by the assessee as provision for warranty and liquidated damages on the ground that its very nature suggests that this is a contingent in nature hence not allowable. The AO also made disallowance on account of provision for contingency/owners contract to the tune of Rs. 1,26,96,905/- debited by the assessee in the P&L account again on the ground that this is contingent in nature hence not allowable. The AO also made disallowance of Rs. 95,67,696/- being the payment shown in the nature of license fee/royalty recorded in schedule 1 under the head operating expenses in P&L account. The AO also disallowed an amount of Rs. 22,06,711/- un....
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....-vis A.Y. 2008-09 are identical. This factual position has not been controverted by the Ld. D.R. who has otherwise relied upon the order passed by the Ld. CIT(A) to support his argument. 12. We have perused the order passed by the co-ordinate Bench of the Tribunal in assessee's own case for A.Y. 2007-08 (supra) which is on identical facts and CIT(A) after thrashing the facts in the light of the law laid down by Hon'ble Supreme Court in CIT vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) decided the issue in favour of assessee by returning following findings: "9. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee company is engaged in the business of Engineering, Procurement and Construction(EPC) of Food, Diary, Chemical and Pharma Plants. The assessee company was incorporated in the year 1992 as an joint venture with L&T Limited, India and Niro A/s, Denmark. However, in the year 2005, the JV was discontinued and the entire stake of L & T in the assessee company was taken over by Niro A/s, Denmark. Thereafter, name of the assessee company was changed and it became the wholly owned subsidi....
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.... other business or commercial rights of similar nature." 4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court order....
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....ing of the words "any other business or commercial rights of similar nature" in clause (b) of Explanation 3 indicates that goodwill would fall under the expression "any other business or commercial right of a similar nature". The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 11. In the circumstances, we are of the view that "goodwill" is an asset under Explanation 3(b) to section 32(1) of the Act.' 12. In the present case the 'Business Identification Schedule' appended to the Agreement specified the business of TPPL, which was sold to the Assessee. Apart from the tangible assets the said Schedule also included the following:-- "(3) TPPL Contracts: The benefits and liabilities of TPPL's ongoing contracts as well as any other letters of intent/contracts/orders related to the Business up to the 22nd September 2006 and any revenue to be still received on 22nd September 2006. The ongoing TPPL contracts are listed in Appendix 4 to this Schedule. A copy of each of the contracts listed in Appendix 4 as well as any other letters of intent/contracts/orders related the business upto 22n....
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....n different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in IRC v. Muller and Co.'s Margarine Limited [1901] AC 217 (HL) that although goodwill was easy to describe, it was nonetheless difficult to define. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its imp....
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....is in excess of the value of the net assets of the business taken over, the excess id termed as 'goodwill'. Goodwill arises from business connections, trade name or reputation of an enterprise or from other intangible benefits enjoyed by an enterprise." 18. It is also relevant to note that Smifs Securities Ltd. (supra) was a case where assets of company - YSN shares and Securities (P.) Ltd. were transferred to Smifs Securities Ltd. under a scheme of amalgamation. And, the excess consideration paid by the Assessee therein over the value of net assets of YSN Shares and Securities (P.) Ltd. acquired by the Assessee, was accounted as goodwill. 19. In view of the above, we are inclined to accept the contention advanced on behalf of the Assessee that the consideration paid by the Assessee in excess of its value of tangible assets was rightly classified as goodwill. 20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting up of the intangibles into separate components. I....
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.... case of CIT vs. Sumit Securities Ltd. (supra). Consequently, ground Nos. 1, 2, 3 & 4 raised by the assessee are allowed. Ground No. 5 14. This ground has not been pressed by the Ld. A.R. for the assessee during the course of argument, hence the same is dismissed. ITA No. 4155/M/2015 for A.Y. 2008-09 (Revenue's appeal) Ground Nos. 1, 2 & 3 & CO No. 148/M/2015 for A.Y. 2008-09 (Assessee's objections) Ground Nos. 1, 2, 3 & 4 15. Undisputedly, the assessee company has undertaken three international transactions with its AE viz. import related transactions, receipt of commission transaction and receipt of fee for supervising assistance transaction. The assessee company in order to benchmark these three international transactions adopted different methods in all the three transactions viz. for import related transactions it has applied resale price method, for receipt commission; it has applied segmental TNMM and for supervisor assistance it has applied segmental TNMM. 16. However, the Ld. TPO rejected the TP study undertaken by the assessee and proceeded to apply TNMM at the entity level which the assessee company has objected to. The Ld. TPO retained 12 comparables chos....
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....e of Rs. 95,67,696/- on account of license fee/royalty. In the P&L account in schedule No. 1 under the head "Operating expenses" the AO noticed that there is a payment shown in the nature of license fee/royalty. The AO disallowed the same by returning following findings: "(i) The company has failed to provide any justification of this expense and whether any income was generated during this year by the above mentioned project is not brought clearly by the assessee. Thus, this claim of expense goes against the very nature of matching principle of accountancy. (ii) The very heading of this expense suggests that it is in the nature of a one time payment in the nature of a non compete agreement. Even if assessee is claiming this expense, this expense is in the nature of a capital expense which cannot be allowed for the instant year as revenue expense." 22. On the other hand, the Ld. CIT(A) allowed the same by treating the same in the nature of territorial commission paid by the assessee irrespective of its numerical uses in the P&L account being the expenses wholly and exclusively incurred for the purpose of earning its business income from the execution of EPC project and thereby....