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2024 (5) TMI 1473
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....22, 2021 and March 11, 2022 passed by the Learned Transfer Pricing Officer (hereinafter referred to as 'the Learned TPO') under section 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') and under section 92CA(3) read with section 144C(5) of the Act respectively, the final assessment order dated April 29, 2022 passed by the Learned Assessing Officer (hereinafter referred to as 'Learned AO' or 'Ld. AO') under section 143(3) read with section 144C and section 144C(5) of the Act and the Directions of the Hon'ble Dispute Resolution Panel (hereinafter referred to as 'Hon'ble DRP') dated February 18, 2022 for the said assessment year 2017-18 are contrary to the provisions of law and erroneous on the facts of the case and are liable to be set aside and/or quashed. Ground 2: That on the facts and in the circumstances of the case, the final assessment order dated April 29, 2022 passed by the Learned AO is invalid and bad in law since the Computation Sheet and the Notice of demand under section 156 of the Act have not been served upon the appellant. Ground 3: That on the facts and in the circumstances of the case, the final assessme....
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.... Ground 4(g): That the authorities below erred in proceeding on the basis as if the goodwill acquired by the appellant from Siemens Limited was the appellant's self-generated asset. Ground 5(a): That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in making an arithmetical error in computation of business income at Rs. 7,83,74,814/- instead of Rs. 5,43,83,696/- in the final assessment order dated April 29, 2022. Ground 5(b): That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in making an arithmetical error in computation of assessed income at Rs. 14,76,67,699/- instead of Rs. 6,92,92,885/- in the final assessment order dated April 29, 2022. Ground 6: That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in computing demand of Rs. 5,01,12,510/- in case of the appellant for the assessment year under consideration, as appearing on the income-tax portal. Ground 7: That further and in any event an....
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....ound 14(a): That the authorities below erred in selecting Power Mech Projects Ltd. as a comparable without appreciating that it is not functionally comparable to the appellant. Ground 14(b): That the purported findings of the authorities below that the appellant and Power Mech Projects Ltd. are carrying on the same functions even if they are in different sectors is wholly arbitrary, illegal, without any justification and/or basis and perverse. Ground 15(a): That the authorities below erred in making a transfer pricing adjustment of Rs. 36,30,977/- on account of intra-group services. Ground 15(b): That the purported finding of the authorities below that the authorized representative of the appellant did not object to the proposed reduction of the mark-up @ 3 percent for determining the arm's length price for the receipt of IT services is wholly arbitrary, erroneous, unreasonable and perverse. Ground 15(c): That the authorities below completely ignored the detailed submissions made by the appellant in this behalf duly supported by a robust economic analysis and the Report of an independent auditor. ....
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....r 2018-19 are wholly arbitrary, erroneous, unreasonable and perverse. Ground 4(c): That the authorities below erred in not considering the various submissions made by the appellant with respect to its claim of depreciation on the opening written down value (WDV) of goodwill, in spite of the request made by the appellant in this regard. Ground 4(d): That the authorities below failed to consider that the claim for depreciation on goodwill was allowed by the Learned AO in the scrutiny assessment for the assessment year 2015-16, relevant to the financial year 2014-15, being the year of acquisition, and the appellant was thereafter entitled to depreciation on the opening WDV in subsequent years. Ground 4(e): That further and in any event and without prejudice to the grounds taken hereinabove, the authorities below failed to appreciate that the said claim of depreciation on goodwill, being an intangible asset within the meaning of Explanation 3(b) to section 32(1) of the Act, is allowable in view of the decision of Hon'ble Supreme Court in the case of CIT, Kolkata v. Smifs Securities Limited, reported in (2012) 348 ITR 302 (SC). ....
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....d in not allowing credit for taxes deducted at source. Ground 9: That further and in any event and without prejudice to the grounds taken hereinabove, on the facts and in the circumstances of the case, the authorities below erred in not granting setoff of brought forward losses. Ground 10: That the authorities below erred in making transfer pricing adjustment of Rs. 3,51,93,955/- to the international transactions of the appellant with its Associated Enterprises relating to the purchase of raw materials and consumables/finished goods and sale of finished goods. Ground 11(a): That on the facts and in the circumstances of the case, the authorities below erred in rejecting the capacity utilisation adjustment of Rs. 6,31,47,981/- made for under-utilization of installed capacity while computing the margin of the appellant. Ground 11(b): That the purported findings of the authorities below that the idle capacity should not be considered to be an abnormal event requiring adjustment or that the claim of underutilization had not been explained with any reliable evidence or any supporting documents/data or any a....
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.... under consideration, the mark-up charged by the Associated Enterprise was approximately 1.15 per cent only and not 3 percent as arbitrarily and incorrectly assumed by the authorities below. Ground 16(d): That the authorities below completely ignored the detailed submissions made by the appellant in this behalf duly supported by a robust economic analysis. Ground 17: That on the facts and in the circumstances of the case, the Ld. AO grossly erred in initiating penalty under section 270A of the Act. Ground 18: That the appellant craves leave to add and / or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal." 3. In addition to the above grounds of appeal, the assessee has raised additional grounds of appeal for both the Assessment Years and has prayed that in view of the judgments of the Hon'ble Supreme Court in the case of NTPC Ltd. v. CIT reported in (1998) 229 ITR 383 (SC) and Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 (SC), the additional grounds may be admitted. In view of the settled judicial pronouncements, as the issues go to t....
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....ot appreciating that the company is providing engineering consulting services as against Engineering, Procurement and Construction ('EPC') services provided by the appellant and therefore cannot be considered as comparable in terms of Rule 10B (2) of the rules. 5. As the issues raised in both these appeals are identical, they were heard together and are being disposed off by way of this common order. 6. Facts in brief for Assessment Year 2017-18 are that the assessee a subsidiary of Primetals Technologies Germany GmbH is engaged in the business of industrial plant construction including but not limited to related engineering, manufacture and procurement of equipment and materials, supply and installation and start-up of plants and parts thereof, modernization, automation and revamp in relation to metallurgical plants. E-return for Assessment Year 2017-18 was furnished on 30/11/2017 declaring Nil income and current year's loss at Rs. 113,76,18,808/- under the normal provisions and book profit u/s 115JB of the Act at a loss of Rs. 7,22,03,084/-. Assessee subsequently revised the return on 13/09/2018 declaring loss of Rs. 113,97,95,930/-. Case selected for....
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.... where also the final assessment order was sent on 29/04/2022 and intimated to the assessee on 30/04/2022 and the intimation letter was bearing DIN No. ITBA/AST/S/91/2022-23/1042918622(1). So, it is an admitted fact that when the impugned order was delivered to the assessee on the e-portal, DIN was mentioned on the intimation letter which contained attachment of the final assessment order. Now, the plea of the ld. Counsel for the assessee is that the DIN was no mentioned in the body of the final assessment orders for both the years and, therefore, it is not in consonance with the Circular No. 19/2019 dated 14.08.2019 issued by the Central Board of Direct Taxes ("CBDT") wherein it has been categorically provided that no communication shall be issued by any Income-tax Authorities relating to assessment, appeals, orders, statutory or otherwise, etc., to the assessee or any other person, on or after 15/10/2019, unless a computer-generated DIN has been allotted and is duly quoted in the body of such communication. When the ld. Counsel for the assessee was confronted with the fact that when impugned order was communicated to the assessee on the e-portal along with attachment of....
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....ppeal, depreciation claimed on the written down value of the goodwill has been disallowed on the ground that the assessee had claimed double deduction in AY 2015-16 on account of impairment of goodwill i.e., by claiming deduction of impairment expense, and also claiming depreciation on goodwill. The ld. AO further observed that the goodwill is a self-generated asset based on the TPA report of the independent valuer wherein difference in the total consideration paid and consideration allocated towards net asset was given the label of goodwill. The ld. AO further observed that 6th proviso to section 32(1)(ii) of the Act is applicable and that the assessee, being amalgamated company/ successor, cannot claim or be allowed to claim depreciation on assets acquired in scheme of amalgamation/ succession, of an amount which is more than the depreciation that was allowable to the amalgamating company. Reliance was placed by the ld. AO on decision of the ITAT Bangalore Bench in the case of United Breweries Ltd vs ACIT 76 taxmann.com 103 (Bang Trib.). 13.2. Before us, the ld. Counsel for the assessee submitted that the claim of the assessee that residual paid to Siemens Ltd. over and above ....
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....aid expression which finds place in Explanation 3(b). In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 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 ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding................
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....w that the slump sale agreement was a colourable device, the agreement between the parties ought to be accepted in its totality and further, since the agreement itself did not provide for splitting up of the intangibles into separate components, recording the excess consideration paid over and above the value of net tangible assets as goodwill, was an acceptable accounting practice. Relying on the decision in the case of Smifs Securities (supra), it was held that the amount of lump sum consideration ascribed to goodwill was eligible for depreciation under section 32 of the Act. Relevant extracts of the decision are as under: "9. We have heard the learned counsel for the parties. 10. The issue whether depreciation is allowable on goodwill is no longer res integra. In Smifs Securities Ltd.(supra), the Supreme Court had answered the question "Whether goodwill is an asset within the meaning of section 32 of the Income-tax Act, 1961, and whether depreciation on 'goodwill' is allowable under the said section" in favour of the Assessee. 13. Goodwill is an intangible asset providing a competitive advantage to an entity. This includes a strong brand, reput....
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....moto disallowed the impairment expenses which, however, was not accepted by the ld. AO but the fact remains that in the revised return impairment expenses i.e., claim of taxes of goodwill expenses was disallowed and taxes were accordingly paid. 14(b). Now, so far as reference given by the ld. AO to the 6th proviso to Section 36(1)(ii) of the Act is concerned, first we will go through the said provision, which is reproduced below for ready reference:- "Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as i....
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....ntified in the regular books of accounts maintained in replacement cost method. Now, once we have agreed to this contention that the alleged asset acquired during the deal of amalgamation which took place during AY 2015-16, is goodwill, now comes the issue of allowance of depreciation for the year under consideration. 15. We note that the revenue authorities have not objected to the said claim of depreciation for the preceding two Assessment Years. It has been held consistently by the Hon'ble Courts that as per the Rule of consistency, when there is no change of facts, the assessee deserves to be allowed the benefit of depreciation on the written down value. The allowance or disallowance of depreciation during the year is not independent but dependent/consequential to the allowance or disallowance of claim of depreciation on the first year of capitalisation which in this case is AY 2015-16 being the first year when the depreciation on goodwill was allowed in scrutiny assessment u/s 143(3) of the Act. 16. Under the 'block of assets' concept, it is now settled law that once an asset enters into the block, it loses its independent identity. The Delhi High Court in the case of Bh....
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....lied to block of assets would mean the use of block of assets and not any specific building, machinery, plant or furniture in the said block of assets as individual assets have lost their identity after becoming inseparable part of the block of assets. That is the only manner in which various provisions can be harmonized. It was also argued by the revenue that if a particular asset is acquired after 30th September during the previous year and is put to use for a period of less than 180 days in the previous year, the deduction under sub-section (1) of section 32 is restricted to 50 per cent of amount admissible and, thus, the requirement of user of individual asset would remain intact. That would be the position in the first year when the particular asset is acquired. With the user, it would meet the requirement of section 32. In the subsequent years, it is the use of block of assets, which becomes the yardstick and not the individual asset already acquired in the earlier years, other than the previous year in which it is first brought into use." (emphasis supplied) 17. Similar view was taken by the Delhi High Court in the case of CIT vs Oswal Agro Mills Ltd 341....
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....es and peculiar to the Assessee's case gives rise to any substantial question of law.........." (emphasis supplied) 19. The Ahmedabad bench of the Tribunal in the case of Bodal Chemicals Ltd vs ACIT [2020] 180 ITD 313 (Ahd Trib.) held that the assessing officer cannot disallow the claim of deprecation on goodwill in the second year, when the same was not disputed by him in the first year. In the said case, under the scheme of amalgamation, the assessee treated excess consideration over net assets acquired by it from amalgamating company as goodwill in its books of accounts for the AY 2006-07 and claimed depreciation thereon, which was not disputed by the assessing officer. In the assessment order passed for AY 2007-08, the assessing officer disallowed the depreciation claimed by the assessee on the opening WDV of goodwill. The Tribunal, noting that AY 2007-08 is the second year of claim of deprecation on goodwill, allowed the same by holding as under: "9. We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case have been duly elaborated in the preceding paragraphs which are not in dispute. Ther....
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....ooks of Siemens Ltd., for the metal technology unit was approximately Rs. 300 Crores, the remaining consideration has to be treated as intangible asset including goodwill and that the assessee had rightly claimed depreciation in AY 2015-16 and 2016-17 at the prescribed rates and that the impugned depreciation allowance on the said goodwill has been rightly claimed in the written down value of the goodwill as on 01/04/2017 and as on 01/04/2018 and the said claim of the assessee is also allowable on the basis of rule of consistency since the revenue authorities have accepted the said claim of the depreciation of the goodwill in the preceding years. Thus, finding of the ld. CIT (A) is set aside and Ground No. 4(a) to 4(g) raised by the assessee for AY 2017-18 and 2018-19 are allowed. 21. Apropos Ground No. 5 for AY 2018-19 relating to disallowance of warranty, during the course of hearing the ld. Counsel for the assessee submitted that he is not pressing Ground No. 5 for AY 2018-19. Accordingly Ground No. 5 for AY 2018-19 is dismissed as not pressed. 22. The common Ground No. 5 for AY 2017-18 and Ground No. 6 for AY 2018-19, is against the erro....
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....s, in accordance with law. The ld. D/R has raised no objection to this request of the ld. Counsel for the assessee. Accordingly, we direct the ld. AO to examine the said claim and if the assessee had made correct claim of set-off of brought forward losses, then the same be allowed in accordance with law. Ground No. 8 for AY 2017-18 and Ground No. 9 for AY 2018-19 are allowed for statistical purposes. 26. Now, the remaining effective grounds of appeal which remains to be adjudicated for both the impugned AYs relates to Transfer Pricing (TP) issues. For AY 2017-18 Ground Nos. 9 to 15(c) have been raised for AY 2018-19 and for AY 2018-19, Ground Nos. 10 to 16(d) have been raised. Assessee has also raised additional grounds for both the years which are confined to the selection of comparables. Ground No. 15(a) to 15(c) for AY 2017-18 and Ground Nos. 16(a) to 16(d) have been raised on this issue. The first TP issue is regarding the adjustment in respect of intra-group services. Common facts are that the assessee received IT services from Associate Enterprises (AEs). For providing services, AEs charged service free at cost + 3% basis. Though the ld. TPO h....
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....ds purchase of raw material, finished goods and export of finished goods, the final addition has been made on the basis of mean PLI and after calculating the mean PLI i.e., average OP/OC and OP/OR, the ld. TPO after considering the audit report filed with regard to the ALP calculation has selected the following comparable for AY 2017-18 and 2018-19:- AY 2017-18 S.no. Name of the company Average OP/OC Average OP/OR 1. Mc Nally Bharat Engineering Company Ltd. (1.89%) (1.93%) 2. Petron Engineering Construction Ltd.(seg) 4.28% 4.47% 3. Engineers India Ltd. 4.71% 4.95% 4. BGR Energy System Ltd. 9.23% 10.17% 5. Power Mech Projects Ltd. 14% 12.64% Mean PLI 6.07% 6.06% AY 2018-19 S. no. Name of the company Average OP/OC Average OP/OR 1. Tata Projects Ltd. 4.27% 4.13% 2. Raunaq E P C International Ltd. 5.20% 5.48% 3. Engineers India Ltd. 8.50% 9.29% 4. Power Mech Projects Ltd. 10.54% 9.53% Mean PLI 7.13% 7.11% 28. Since the additions have been made on the basis of mean PLI of the comparables, we will firs....
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.... the assessee company, we are inclined to hold that Power Mech Projects Ltd., cannot be considered as an appropriate comparable for the purpose of benchmarking the international transactions undertaken by the assessee company. Therefore, we direct the ld. AO to exclude Power Mech Projects Ltd., as a comparable for the purpose of calculating the mean PLI. Thus, Ground Nos. 14(a) & 14(b) for AY 2017-18 and Ground Nos. 15(a) to 15(b) for AY 2018-19 are allowed. 29. Now, we take up the additional grounds for both the impugned years. The ld. Counsel for the assessee has submitted that the ld. TPO erred in including Engineers India Ltd. and BGR Energy System Ltd. as comparables for AY 2017-18. Further it is contended that ld. TPO has erred in not including High Quality Steels Ltd., as comparable for AY 2018-19. Detailed written submissions have been filed in this regard and the said claim has been made through additional grounds of appeal. So far as the inclusion of Engineers India Ltd. is concerned, we on going through the details placed on record, notice that Engineers India Ltd., is a Government of India undertaking company and is controlled by Central Government and all ....
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..... AO to exclude Engineers India Ltd. and BGR Energy System Ltd. from the list of comparables for calculating the mean PLI and accordingly direct him to re-calculate the average OP/OC and average OP/OR and then decide in accordance with the law the adjustments, if any, to be made in the hands of the assessee. Thus, the additional ground nos. 1, 2 & 2.1. raised by the assessee for Assessment Year 2017-18 are allowed and consequentially the respective grounds raised for TP adjustment for purchase of raw material and finished goods are allowed for statistical purposes. 33. Through additional ground no. 3, assessee has claimed that the ld. TPO/Assessing Officer erred in rejecting High Quality Steels Ltd., without considering the functions carried out by High Quality Steels Ltd. and the nature of its business activities. 34. Now, so far as the activity carried out by High Quality Steels Ltd. and that of the assessee company is not in dispute and that both the revenue and the assessee have agreed that so far as the functional activity benchmark is concerned they both are doing similar kind of business. Now, the point of dispute is in respect of the turnover. The turnover of High Qua....