TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 562
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....ers 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 no corresponding provision to charge "such adjustments" as income of the appellant under Section 4 of ....
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....ails 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; (ii) stating that there were no assets purchased by the appellant from Merck Limited; (iii) following wrongful invocation of Explanation (3) to Section 43(1) of the Act as done by the Learned AO in....
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....rom 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 'Trading of Pharmaceutical Segment', 'Trading of Chemicals Segment' and 'Manufacturing of Chemicals Segment'. The assessee benchmarked said transaction of 'payment of technical consultancy fees' with its associated enterprise by applying Transactional Net Margin Method ('TNMM') as the most appropr....
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..../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 as per Merck International Guidelines; * Advising on new trends on Information Technology and its implementation; * Assisting and advising in the launching of new products. 3.7 From the aforesaid list of technical services, which the assessee is entitled to receive from the AE, it cannot be ascertained as to which of these services are ....
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....ce 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 assessee from the AE, it is absolutely necessary to first identify the existence of such services having been rendered by the AE to the assessee, before its ALP can be benchmarked. 3.12 It is also pertinent to observe that the very fact that the assessee terms the payment in pursuance of the agreement as a retainer fee is an attempt to justify the payment even in the absence of receipt of any serv....
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....ed 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 coordinate bench by observing as under: - "23. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 24. We find that there is a clear contradictions in the findings of the authorities below. On one hand, the stand of the authorities below is that no services are rendered, and, on the other hand, there are categorical findings that the services rend....
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....e 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 case will be more appropriate a method of ascertaining the arm‟s length price, the TNMM cannot be discarded. Dealing with almost a similar situation, as we are in seisin of, a coordinate bench of this Tribunal, in the case of AWB India Pvt Ltd VS DCIT [(2015) 152 ITD 570 (Del)], has observed as follows: 11. In ground nos. 5 to 9, which we will take up together, the assessee has raised the following grievances: 5. That, on the facts and circumstan....
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....ll 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 assessee has "not furnished any specific input on training and development of human resources and it is also noticed that these services are of routine nature and duplicate at best". Accordingly, the TPO also treated ALP of these services as "NIL‟. As regards the payment of Rs 96,355 towards "legal services‟, the TPO did take note of the services that the assessee was entitled to under these arrangements but as there is no evidence of any services having been actually rendered by the AE, the TPO c....
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.... 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 services are commercially expedient or not and all that the TPO can see is at what price similar services, whatever be the worth of such services, are actually rendered in the uncontrolled conditions. 17. As for the evidence for each of the service stated in the agreement, it is not even necessary that each of the service, which is specifically stated in the agreement, is rendered in every financial period. The actual use of services depends on whether or not use of such services was warranted by the business situations whereas paymen....
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....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 Departmental Representative could not show us any reason to deviate from the aforesaid orders and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate bench of the Tribunal for preceding assessment years. Thus, respectfully following the orders passed by the coordinate bench of the Tribunal in assessee's own case cited supra, we uphold the plea of the assessee and direct the AO/TPO to delete the transfer pricing adjustm....
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.... 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 valuation report. 5.8 Had the transferor company actually transferred some Intangibles to the assessee, there was no reason as to why the same could not have found specific mention in the agreement, even pending the determination of their fair market valuation subsequently. It therefore appears to us, the intangible assets were created afresh in the books of account of the assessee for a sum of Rs.65.50 Cr without any factual support or valid reasons. 5.9 The assessee's contention that consequent to its acquisition of a going concern, the sales and profit have Increased manifold which has been poss....
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....udicate 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, ground No. 3 raised in assessee's appeal is allowed for statistical purpose. 19. The issue arising in ground No. 4, raised in assessee's appeal, is pertaining to denial of depreciation on goodwill arising from scheme of amalgamation. 20. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the course of assessment proceedings, the assessee vide letter dated 10/03/2015 claimed depreciation on goodwill, which arose upon the scheme of amalgamation of Bangalore Genei (India) Private Ltd with the assessee. Assessee claimed that the said goodwill is allowable for depreciation. The AO vide draft assessment or....
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....ed 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 over on amalgamation. 6.7 We find that the decision of the AO not to accept the claim of the assessee for allowance of depreciation on goodwill on the ground that no such claim was made in the revised return filed by the assessee is in accordance with the ratio laid down by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. wherein it was held that the Assessing Officer has no power to entertain a claim for deduction otherwise than by filing a revised return. Hence, we confirm the decision of the AO not to accept the claim for allowance of depreciation on the goodwill. 6.8 However, we find that while computing the total income, the AO added back the depreci....
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.... 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 intangible assets were at Nil. Pursuant to the amalgamation, the tangible and intangible assets acquired from the amalgamating company were revalued in the books of the assessee and the excess cost of investment over net value of assets, amounting to Rs. 21,99,51,156, was debited to the goodwill account. Accordingly, assessee made a fresh claim for depreciation in respect of goodwill during the course of assessment proceedings. The AO denied the said claim of the assessee by placing reliance upon decision of Hon'ble Supreme Court in Goetze (India) Ltd. (supra). The learned DRP, inter-alia, upheld the conclusion of the AO. 25. As per the assessee, goodwill arose upon amalgamation representing t....
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....d 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 coordinate bench of the Tribunal in Altimetrik India (P) Ltd vs DCIT, [2022] 194 ITD 124 (Bangalore-Trib.) held that consideration paid by the amalgamated company over and above the net assets of the amalgamating company should be considered as goodwill arising on amalgamation. 29. Thus, once the AO has allowed the claim of depreciation on intangible assets acquired by the assessee upon amalgamation of subsidiary company, which were also revalued subsequent to the amalgamation, we are of the considered view that there is no basis to reject the claim of the assessee in respect of depreciation on goodwill. Particularly, when all the intangibles including the goodwill were nil in the books of the amalgamating subsidiary company f....