TaxTMI 
TaxTMI 
2023 (1) TMI 562
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....ures, presumptions and assumptions and without considering the papers and documents submitted as also submissions made during the course of assessment proceedings and the proceedings before the Hon'ble Dispute Resolution Panel. 1.2 Passing the impugned order which is illegal and bad in law and consequently, null and void. 2. Transfer Pricing Issues: On the facts and circumstances of the case and in law, the Learned Assessing Officer (AO) / Hon'ble Dispute Resolution Panel (DRP) / Transfer Pricing Officer (TPO)(as the case may be) erred in - 2.1 Not upholding the alternate objection of the appellant that the learned AO did not satisfy himself about the necessity and requirement of referring the matter for determination of arm's length price in respect of the international transaction between the appellant and the AES and hence, the reference by learned AO to the Learned TPO is illegal and bad in law; 2.2 Not upholding the objection of the appellant that the transfer pricing adjustment made under provisions of section 92CA of the Act cannot be tax as the same is not a "charging provision" under the Income-tax Act and there is n....
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....hat the services received are general in nature and further erred in concluding that no benefit has been received by the appellant even though various back up documents/emails evidencing the receipt of the technical consultancy services were submitted; 3. Depreciation of Rs. 5.19.87.305/- on intangible assets purchased from Merck Limited: In the facts and circumstances of the case and in law, the Hon'ble DRP/ the Learned AO erred. (i) in disallowing depreciation of Rs. 5,19,87,305/- in respect of intangible assets purchased by the appellant from Merck Limited for an aggregate value of Rs.65.50 Crores in the year ended 31 March, 2007, though the appellant contended that it is entitled to depreciation U/s. 32 of the Act in respect of all the items of Intangibles, for reasons that know-how, trade marks, brands and business or commercial rights of similar nature in that year had been acquired by the appellant for a valuable consideration and were used by it for the purpose of its business, based on the premises, conjectures and observations of the Hon‟ble DRP/ Learned AO as referred to in the assessment order for assessment year 2007-2008; ....
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....eneral in nature and therefore, same need no separate adjudication. 4. The issue arising in ground No. 2, raised in assessee's appeal, is pertaining to transfer pricing adjustment on account of technical know-how fees. 5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee was incorporated on 18/04/2005 as a subsidiary of M/s Merck Holding GmbH, Germany, which in turn is a wholly-owned subsidiary of M/s Merck KGaA, Germany. The assessee is engaged in trading and manufacturing of chemicals and related products extensively used in quality control, research and development, pathological laboratories, testing of water, food, beverages etc. For the year under consideration, assessee filed its return of income on 29/11/2011 declaring total income of Rs. 36,33,31,103. Thereafter, the assessee filed revised return of income on 28/03/2013 declaring total income of Rs. 34,84,38,680. During the year, assessee has made 'payment of technical consultancy fees' of Rs. 1,76,47,997, pursuant to consultancy agreement dated 25/04/2010 entered into between assessee and M/s Merck KGaA, Germany. The said fees was for three different segments 'Tradi....
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....er section 143 (3) r/w section 144C(1) of the Act and, inter-alia, incorporated the adjustment proposed by the TPO. 6. The assessee filed detailed objections before the learned Dispute Resolution Panel ('learned DRP‟) against the adjustment proposed by the TPO/AO. Vide directions dated 23/12/2015, issued under section 144C (5) of the Act, learned DRP rejected the objections filed by the assessee. However, the DRP granted partial relief to the assessee by directing to exclude the service tax competent of Rs. 16,47,997, from the amount of TPO's adjustment computed on this issue. The relevant findings of DRP are as under: "Findings 3.6 We have considered the order of the TPO and the submissions of the assessee. As agreement entered into with the AE for providing technical consultancy services, the ape of the services are as under: • Support of engineering of production and quality control with regard to technical and analytical background; • Selection of equipments and sourcing of supplies internationally; • Training to employees on engineering and scientific trends and international trends on finance and administration....
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....3.10 Further, it is pertinent to know that the assessee contended that the services specified in the agreement are required to be provided on a "as and when needed" basis implying that these services are provided only when specifically requested by the assessee though the AE is required to be in a standby mode for providing the services, in this context, it becomes Important to furnish evidence that the assessee had requested for specific services from time to time during the year in order to substantiate its claim. It is once again surprising to note that the assessee was unable to furnish any evidence regarding the request made by it for services made by it to the AE for specific services during the year though such a request would undoubtedly have been made in writing or through e-mails. 3.11 As observed above, the primary document presented to the TPO in support of the aforesaid international transaction is the agreement entered into by the assessee with its AE. However, the agreement alone, does not substantiate the actual rendering of such services by the AE to the assessee. Since the Issue in question impinges upon an intra-group service purportedly received by the ....
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....." 7. In conformity, the AO, inter-alia, passed the final assessment order dated 25/01/2016. Being aggrieved, the assessee in appeal before us. 8. During the course of hearing, learned Authorised Representative ('learned AR') submitted that similar issue has been decided by coordinate bench of the Tribunal in assessee's own case in preceding assessment years. 9. On the other hand, learned Departmental Representative ('learned DR') vehemently relied upon the orders passed by the lower authorities. 10. We have considered the rival submissions and perused the material available on record. We find that the coordinate bench of the Tribunal in assessee's own case in M/s Merck Specialties Private Ltd vs DCIT, in ITA No. 1947/Mum./2014, for assessment year 2009-10, vide order dated 11/11/2019, directed deletion of similar addition by observing as under: "3.2 Upon due consideration, we find that similar issue is covered in assessee‟s favor by the order of Tribunal rendered in the case of its group concerns viz. Merck Limited for same AY, ITA No.1946/Mum/2014 order dated 31/03/2016 wherein the adjustment has been deleted on identical factual matrix by the coordinat....
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....le may seem to be so simplistic but it does hammer the massage, as we would like to, that not availing a particular service under a contract does not mean that no payments are required to be made for all the services bundled under the contract. The other thing is the benefit test. We do not think benefit test has too much relevance in the arm‟s length price ascertainment. When evaluating the ALP of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. In case TPO can demonstrate that the consideration for similar services, under the CUP method, is NIL, he can very well do so. That‟s not, however, his case. He only states that these services are not worth the amount paid by the assessee. Such band statements and sweeping generalizations cannot help the case of the revenue authorities. The assessee has benchmarked the transaction on TNMM basis, and unless the revenue authorities can demonstrate that some other method of ascertaining the arm‟s length price on the facts of this c....
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.... into with its AEs was payment of Rs 58,20,571 towards "management services‟. On an analysis of the details of the payments made under this head, the TPO was of the view that the benefit of some of the services availed under the head "management services‟ was not commensurate with the payments made for the same. He was also of the view that as against the use of TNMM by the assessee in benchmarking, the right course of action will be to follow CUP method because the value under CUP method will be best indicator of the value of these services. It was in this background that the TPO made certain adverse inferences against the assessee. The TPO was of the view that while the assessee has made a payment of Rs 20,35,907 towards financial management and reporting services, "but the services rendered are negligible compared to the cost incurred". The TPO was also of the view that "a minor clarification or seeking of certain guidance on verify basic issue does not call for a payment of Rs 20 lakhs. Therefore, the ALP of these services was taken as "NIL‟. He further noted that while the assessee has made a payment of Rs 1,23,476 towards human resources services, the assess....
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....t have any application. His perception that these services are worthless is of no relevance. It is not his job to decide whether a business enterprise should have incurred a particular expense or not. A business enterprise incurs the expenditure on the basis of what is commercially expedient and what is not commercially expedient. As held by Hon‟ble jurisdictional High Court in the case of CIT Vs EKL Appliances Limited (345 ITR 241), "Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same". 16. The very foundation of the action of the TPO is thus devoid of legally sustainable merits. There is no dispute that the impugned payments are made under an arrangement with the AE to provide certain services. It is not even the TPO‟s case that the payments for these services were not made for specific services under the contract but he is of the view that either the services were useless or there was no evidence of actual services having been rendered. As for the services being useless, as we have noted above, it is a call taken by the assessee whether the servic....
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....LP adjustment is contrary to the scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We, therefore, uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical services. The assessee gets the relief accordingly." Although the revenue contested this decision before Hon‟ble Bombay High Court vide ITA No. 272 of 2014 dated 08/08/2016 but the Hon‟ble court refused to admit substantial question of law. We find that the facts in the case of present assessee are pari-materia the same as in the case of its sister concern. Nothing on record would suggest that aforesaid ruling is not applicable to the facts of the present case. Therefore, respectfully, following the same, we delete the impugned additions. The grounds raised, in this respect, are allowed." 11. We further find that similar findings were also rendered by the coordinate bench of the Tribunal in assessee's own case in Merck Specialties Private Ltd vs DCIT, in ITA no.1761/Mum./2015, vide order dated 05/12/2019, for the assessment year 2010-11. The learned ....
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....ransferor company to the assessee. The assessee has, on its own volition, introduced these intangible assets in its books of accounts by placing reliance upon the report of a valuer whose services were commissioned by the assessee itself for the purpose. Moreover, the aforesaid valuer's report did not include 'Goodwill' in the list of Intangible assets valued by it. The same has been suo-moto created and a value has been assigned to it by the assessee in its schedule of Fixed assets for the purpose of claiming depreciation in the return of income. 5.7 The aforesaid facts clearly show that the subject intangible assets on which depreciation has been claimed by the assessee never existed in the books of accounts of the transferor company, nor do they find any mention in the business purchase agreement as assets which are transferred to the assessee. Under the scheme of Income Tax Act, depreciation u/s.32 of the Act is allowed to assets which are existing, owned and used for the business of the assessee. Under no situation, depreciation can be allowed on the assets which never existed and which have been created by way of self generation with the help of a valuati....
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.... transpired that the assessee claimed depreciation of Rs.924.21 Lacs, @25% on intangibles assets. Since similar depreciation claimed in AY 2007-08 & 2008-09 was disallowed in view of the fact that no assets were transferred and the assets were fictious assets, the said claim was disallowed by Ld.AO which was confirmed by Ld. DRP. Upon perusal of chart, we find that this issue would go back to the file of Ld.AO for re-adjudication de-novo on similar lines as directed by coordinate bench of this Tribunal in assessee‟s own case for AYs 2007-08 & 2008-09, ITA No. 3943-44/Mum/2013 order dated 25/01/2017. The Ld. AO is directed to re-adjudicate the same in the light of stand taken in AYs 2007-08 & 2008-09 pursuant to the aforesaid directions of the Tribunal. The ground stand allowed for statistical purposes." 18. In absence of any allegation of change in facts and law in the year under consideration, we see no reason to deviate from the early orders passed by the coordinate bench of the Tribunal in assessee's own case. Thus, respectfully following the judicial precedents in assessee's own case, we remand this issue to the file of AO for de novo adjudication. As a result....
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....s.11,06,10,358/- as against the depreciation claimed at Rs.9,61,06,233/- in the original return of income. The additional amount of depreciation claimed by the assessee in the revised return of Income amounted to Rs.1,45,01,125/-. During the assessment proceedings, it was explained by the assessee that this additional depreciation claimed in the revised return relates to the depreciation computed @ 25% on the intangibles of Rs.5,80,16,500/- acquired by the assessee company on amalgamation of BGIPL with the assessee with effect from 01.04.2010. After examining the claim of the assessee, the AO allowed the additional depreciation of Rs.1,45,04,125/- claimed in the revised return. 6.6 During the assessment proceedings, the assessee made a claim for the first time to allow depreciation of Rs.5,49,87,789/- computed @ 25% on "Goodwill of Rs.21,99,51,156/- acquired by the assessee company on account of amalgamation of BGIPL with the assessee with effect from 01.04.2010. It was explained that the goodwill represents the difference between the Investment made towards acquiring 100% equity in this company during the earlier F.Y. and the value of the net assets and liabilities taken ....
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....d was amalgamated with the assessee in terms of the Scheme of Amalgamation as approved by the Hon'ble jurisdictional High Court vide order dated 16/04/2010, as per provisions of section 391 to 394 and other applicable provisions of the Companies Act, 1965 from the appointed date i.e. 01/04/2010. In accordance with the said scheme, all assets and liabilities of the amalgamating subsidiary company were transferred to and invested with the assessee company with effect from 01/04/2010 and have been recorded at their fair values in accordance with the scheme. As per the assessee, while recording the assets and liabilities upon amalgamation, purchase method of accounting as per Accounting Standard-14 and generally accepted accounting principles in India was followed. While recording the accounting entries upon amalgamation, the inter-company balances were cancelled and the investments of the assessee in shares of the subsidiary company were also cancelled against the assets acquired upon amalgamation. From the perusal of financials of Bangalore Genei (India) Private Ltd, forming part of the paper book from page 102 - 151, we find that the value of fixed assets was at Rs. 3,02,41,601 and ....
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....s viz. intangibles acquired upon amalgamation of Bangalore Genei (India) Private Ltd with the assessee. The details of intangible assets are as under: (i) Trademark Rs. 1,07,74,700 (ii) Technical know-how Rs. 2,55,83,700 (iii) Brands Rs. 46,77,300 (iv) Customers data Rs. 1,70,25,800 27. As noted above, in the books of Bangalore Genei (India) Private Ltd, the intangible assets were at nil for the year ending 31/03/2010 and the aforesaid intangibles were acquired only upon amalgamation of subsidiary company with the assessee and thereafter same were revalued. We find that the AO vide final assessment order accepted the claim made by the assessee in its revised return of income and granted depreciation @25% on intangible assets. It is only in respect of depreciation claimed on goodwill, the AO did not grant the relief to the assessee. 28. We find that Hon'ble Delhi High Court in Triune Energy Services Private Limited vs DCIT: [2016] 237 Taxmann 230 (Delhi), by referring to Accounting Standard 10, held that consideration paid in excess of value of tangible assets is classifiable as goodwill eligible for depreciation. We further find that the co....