TaxTMI 
TaxTMI 
2025 (3) TMI 1457
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....in the business of software development and information support services. For the year under consideration, the assessee filed its return of income on 30/09/2009, declaring a total income of Rs.27,81,46,799/- after claiming deduction under section 10A of the Act. The assessee filed its revised return of income on 19/06/2010, declaring a total income of Rs.17,91,11,890/-. The return filed by the assessee was selected for scrutiny and statutory notices under sections 143(2) and 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer ("AO") under section 92CA(1) of the Act, the Transfer Pricing Officer ("TPO") proposed a total Transfer Pricing Adjustment of Rs.68,95,54,409/- vide order dated 21/01/2013, passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 25/03/2013, under section 143(3) r.w. section 144C(1) of the Act after making various additions/disallowances. While deciding the assessee's objections against the additions/disallowances made by the TPO/AO, the learned DRP vide its directions dated 12/12/2013, granted partial relief to the assessee. In conformity with the direction....
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.... the Appellant and application of inconsistent comparability criteria. [corresponding to original ground no. 4] 5. That the learned AO erred in not giving effect to the direction of the DRP that the working capital adjustment should be computed at actual figures without any cap, and thus, consequently () erroneously upheld the working capital adjusted mean mark-up on cost of the comparable companies as incorrectly computed in the TP order and (i) arbitrarily upheld the rejection of Thinksoft Global Services Ltd. and FCS Software Solutions Ltd by the TPO as comparables only for the reason that they were having a working capital impact of more than 4%. [corresponding to original ground no. 5l 6. That the learned AO erred in not giving effect to the direction of the DRP to look into the rectification petition filed by the Appellant under section 92CA(s) read with section 154 of the Act in relation to the arithmetical error in the computation of the arm's length price by the learned TPO. [corresponding to original ground no. 6] 7. The learned AO/DRP erred in law and on facts in ignoring the limited risk profile of Appellant as detailed in the TP ....
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.... fulfill the conditions for claiming deduction under section 10A(2) of the Act. (e) That the learned Assessing Officer failed to appreciate the fact that deduction under section 10A of the Act is undertaking specific and not assessee specific. (f) That the learned Assessing Officer erred in applying the provisions of sub-section 7A to section 10A of the Act in the Company's case. (g) That the learned Assessing Officer erred in holding that continuance of tax holiday under section 10A is only restricted to a case of amalgamation or a demerger. (h) That the learned Assessing Officer and the learned DRP erred in not relying on Circular No 1, dated January 17, 2013 which has clarified that slump sale would not result into any splitting or reconstruction of existing business and the claim for deduction under section 10A of the Act cannot be denied on a mere ground of change in ownership. [corresponding to original ground no. 9] 10 (a) That on the facts and circumstances of the case, the learned Assessing Officer and the learned DRP erred denying deduction under section 10A of the Act in respect of Titanium STPI Unit. (b)....
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....rred in denying the claim for depreciation on goodwill under section 32 of the Act in respect of undertaking acquired from Thomson Business Information India Private Limited (TBI) and RIPL. (b) That on the facts and circumstances of the case, the learned Assessing Officer and the learned DRP erred in denying the claim for depreciation on goodwill under section 32 of the Act in respect of undertaking acquired from Thomson Business Information India Private Limited (TBI) and RIPL. (c) That the learned Assessing Officer failed to appreciate that as the time limit for filing the revised return of income for AY 2009-10 had elapsed post the order of the Hon'ble Supreme Court in the case of CIT vs Smifs Securities Ltd (348 ITR 302)(SC), the claim was made during the course of assessment proceedings. [corresponding to original ground no. 12] 13. That the learned Assessing Officer has incorrectly considered advance tax as Rs. 97,000,000 instead of Rs. 97,700,000. [corresponding to original ground no. 13] 14. That the learned Assessing Officer erred in consequently levying interest under section 234B of the Act. [corresponding to original grou....
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.... software development. The assessee is compensated on a total cost plus a markup basis for the services provided. During the year under consideration, the assessee entered into the following international transactions with its associated enterprises: - Sr. No Transaction Amount paid (Rs.) Amount received (Rs.) 1. Receipt for Software Development Service 155,23,19,423 2. Receipt for ITeS 377,22,52,411 3. Reimbursement of expenses 6,81,07,251 10. For benchmarking the international transaction of "Provision of Software Development Services", the assessee adopted the Transactional Net Margin Method ("TNMM") as the most appropriate method with the Profit Level Indicator ("PLI") of Operating Profit to Total Cost ("OP/TC"). By considering itself the tested party, the assessee identified 17 comparable companies with an adjusted average margin of 11%. As the assessee computed its own PLI at 14%, accordingly, it claimed that the international transaction of "Provision of Software Development Services" is at ALP. 11. During the transfer pricing assessment proceedings, the TPO by applying additional filters rejected 12 ....
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....'s length and the entire transfer pricing adjustment made in respect thereof will be deleted. Accordingly, in view of the submissions made by the learned AR, we have confined our findings in Ground No.8(i) only in respect of the aforesaid 4 comparable companies. Further, the other issues raised in Ground No.8(i) are treated as not pressed and are kept open for adjudication if they arise in the assessee's case in the future. 14. During the hearing, the learned Departmental Representative ("learned DR"), at the outset, submitted that the assessee is a software product company, and therefore, the companies selected by the TPO are comparable to the assessee, as the same are also software product companies. 15. Before adjudicating each comparable under challenge, it is necessary to decide whether the assessee is a software product company or provides contract software development services. In this regard, it is pertinent to note the functions performed by the assessee in relation to the international transaction of "Provision of Software Development Services", which are stated in the transfer pricing study as follows: - "2 Technology - Software development services ....
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.... certain quality tests as well. iv) Quality Assurance (QA) 4.3.68 The QA team performs isolated testing based on the defined parameters. These parameters would be based on criteria such as functionality, security and performance and conflict check. The parameters for the testing are defined during the requirement analysis stage during which the QA team starts building tests cases. 4.3.69 QA sign off is done to state that the test requirements are met. The development cycle comes to an end once the QA sign off is completed and the project moves into production. At this stage, Thomson Financial would approve the development and it is ready for release. b) Technical Support 4.3.70 Technical support involves providing technical infrastructure to all the departments, application supports, infrastructure, hardware and software support, database maintenance, etc. 4.3.71 The typical cycle of services provided by Thomson India includes input of data by analysts in the Data Repositories and transferring of the data through web related services to Group Companies, which are finally provided to the Global Customer's Segment Group for de....
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....s " 4.4.3 Thomson India does not undertake any Research and Development on its account that leads to the development of non routine intangibles. Thomson India uses the trademarks, process, the to the development of Know-how, technical data software, operating/ quality standards etc. developed owned by Thomson Reuters. 4.4.4 Thomson India has acquired goodwill resulting due to the transfer of the U enabled and software development business segments of Thomson Business India and acquisition of IT enabled services segment of RIPL, However, Thomson India does not any non-routine intangibles. Table 3: Intangible assets owned as on March 31, 2009 Type of Fixed Assets Gross Block (INR) Goodwill 492,445,108 Total 492,445,108 4.5 Risks Assumed 4.5.1 Market risk: Thomson India does not have any exposure to market risk as it renders services exclusively for Thomson Reuters and is compensated irrespective of the success or failure of its activity. 4.52 Product & Technology risk: Thomson India does not have ultimate customer interface and provides services to Thomson Reuters, hence does not bear any risk account of any liab....
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....e assessee submitted that the turnover of Infosys Ltd is 30 times the turnover of the assessee. Further, the assessee submitted that Infosys Ltd has earned brand-related profits and owns significant intangibles. The learned DRP vide its directions rejected the objections filed by the assessee on the basis that the turnover has no linkage with the margins of Infosys Ltd. Further, the learned DRP held that there is no basis in the argument that profits derived by Infosys Ltd predominantly pertain to the brand. Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 19. During the hearing, the learned AR submitted that the coordinate bench of the Tribunal in assessee's own case for the assessment year 2007-08 held Infosys Ltd to be not comparable to the assessee with respect to the software development segment. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities. 20. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Infosys Ltd for the financial year 2008-09, forming part of the paper book from pages 1116-1209, we ....
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....products Develops/owns proprietary products like Finacle, Infosys Actice Desk, Infosys iProwe, Infosys mConnect, Also, the company derives substantial portion of its proprietary products (including its flagship banking product suite 'Finacle') Onsite v. Offshore - As much as half of the software development services rendered by Infosys are onsite (i.e., services performed at the customer's location overseas). And offshore (50.20%) (Refer page 117 of the paper book) than half of its service, income from onsite services. The appellant provides only offshore services (i.e., remotely from India) Expenditure on Advertising/Sales promotion and brand building Rs. 61 crore Rs. Nil (as the 100% services are provide to AEs) Expenditure on Research & Development Rs. 102 crores Rs. Nil Other 100% offshore (from India)" 6. Learned counsel for the Revenue has submitted that the Tribunal after recording the aforesaid table has not affirmed or given any finding on the differences. This is partly correct as the Tribunal has stated that Infosys Technologies Ltd. should be excluded from the list of comparables for the reason....
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....year 2007-08 held Persistent Systems Ltd to be not comparable to the assessee with respect to the software development segment. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities and submitted that Persistent System Ltd was comparable selected by the assessee in its transfer pricing study report. 25. We have considered the submissions of both sides and perused the material available. From the perusal of the annual report of Persistent Systems Ltd for the financial year 2008-09, forming part of the paper book from pages 972-1081, we find that the company earns its revenue from the sale of software services and products. However, from the segmental information available on page 1041 of the paper book, we find that there are no segmental bifurcations of the revenue earned from the sale of software services and the sale of software products. Thus, in the absence of relevant segment information of Persistent System Ltd, which is comparable to the assessee's international transaction under consideration, we are of the considered view that Persistent System Ltd. cannot be considered for benchmarking the international transaction perta....
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....e with respect to the software development segment. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities. 29. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Tata Elexi Ltd for the financial year 2008-09, forming part of the paper book from pages 916-971, we find that under the Software Services Development segment, the company is engaged in Product Design Services under which it provides full-service software, hardware, system design and development programs. Further, the company is also engaged in Innovative Design and Engineering under which it provides end-to-end brand and product design services for FMCG, transportation, consumer electronics and appliances, digital user experience and medical devices. Apart from the above, the company also has a Visual Computing Lab Division. As per the Director's Report of the company, under the Software Development Services segment, the company has businesses such as Product Design Services (Design and Development of Hardware and Software), Innovation Design and Engineering (Mechanical Design with a focus o....
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....n for fluctuation in margins, the company cannot be excluded for comparability. The learned DRP vide its directions rejected the objections filed by the assessee. Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 31. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Bodhtree Consulting Ltd. for the financial year 2008-09, forming part of the paper book from pages 879-915, we find that the company has only one segment, namely software development, and being a software solutions company, it is engaged in end-to-end web solutions, off-shoring data management, data warehousing, software consultancy, design and development of solutions, using the latest technologies. Further, the company has declared the income under the head of export sales and domestic sales, apart from other income, which includes exchange fluctuation income, interest on bank fixed deposits, miscellaneous income, etc. Since this company is earning revenue from various streams, therefore, in the absence of relevant segmental information, this company cannot be said to be functionally compara....
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....d customers. Eg. Pricing feeds, exchange rates, etc. This activity involves very little or almost no value addition. The teams are divided into various Content Sets/sub-teams based on the kind of content/data to be collected by them such as Ownership, Research, Securities, Earnings and Quantitative, Entity management, Depository. The Appellant's role across all the teams is essentially collation and storing of data for the purpose of AE's databases and does not carry out any research of its own, rather it collects data from publicly available sources only. Few examples of the content sets/teams are given below: • Ownership Content: This team collects data from various sources and classifies it according to regulatory requirement. For example, abstracting data about Insider trading from Insider Forms filed with SEC, maintaining unique Personal Identification Number (PIDs) for insiders, processing mutual fund portfolios, collecting data from fund managers and brokers regarding financial position of funds and updating fund manager profiles to be populated in the databases owned by TR group. • Entity Management Content: This team maintains disclosure d....
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.... the assessee against the selection of new filters as well as the companies included/excluded, the TPO, vide order passed under section 92CA(3) of the Act, arrived at a set of following 8 comparable companies for benchmarking the international transaction of "Provision of ITeS":- ITES FINAL COMPARABLES AY 09-10 Sl. No. Name of the Company Margin 1 Infosys B P O Ltd. 24.41% 2 Aditya Birla Minacs Worldwide Ltd. 23.86% 3 Microland Ltd. (both segments) 1.53 % 4 Allsec Technologies Ltd. -16.63% 5 Accentia Technologies Ltd. 46.40% 6 Informed Technologies India Ltd. 22.61% 7 Cosmic Global Ltd. 40.61% 8 Eclerx Services Ltd. 57.46% AVERAGE PLI 25.03% 37. Since the average OP/TC of the aforesaid comparable companies selected by the TPO was 25.03%, therefore the TPO by applying the arm's length margin and giving the benefit of working capital adjustment, inter-alia, proposed an upward adjustment of Rs.54,96,39,825/-, in respect of international transaction of "Provision of ITeS". 38. During the hearing, the learned AR sought the exclusion of four companies, i.e. ....
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....ket business of leading global banks. On the other hand, the functions performed by the assessee across various teams under the Content Operations have similar functions essentially involving content acquisition, i.e. sourcing and compilation of data, data cleansing and editorial, data storage and retrieval in the instructed form for use by the associated enterprises in its multiple products/services offerings. Thus, it is evident that the functions of the assessee are not as diverse and specialised in nature as performed by Eclerx Services Ltd. 41. As regards the contention of the TPO that once the company falls within the definition of ITeS, then there is no reason to exclude the same on the basis that they are the nature of KPO, we find that the Hon'ble Delhi High Court in Rampgreen Solutions Private Ltd v/s CIT, reported in [2015] 60 taxmann.com 355 (Delhi), observed as follows: - " 31. ..... ITeS encompasses a wide spectrum of services that use Information Technology based delivery. Such services could include rendering highly technical services by qualified technical personnel, involving advanced skills and knowledge, such as engineering, design and support. While....
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....on of this company as comparable. 44. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Cosmic Global Ltd for the financial year 2008-09, forming part of the paper book from pages 1310-1327, we find that the company has significant payment, i.e. Rs.3,00,25,326/-, towards translation charges, which constitutes 57.31% of the total operating expenditure of Rs. 5,24,15,463. Thus, the above payment signifies that the company has an outsourcing model which is different from that of the assessee. We find that the Hon'ble Jurisdictional High Court in PCIT v/s PTC Software India Private Limited, reported in (2019) 101 taxmann.com 117 (Bom.), for the assessment year 2009-10 upheld the exclusion of Cosmic Global Ltd., by observing as follows: - "(II) Cosmic Global Ltd., (i) The impugned order of the Tribunal records the fact that Cosmic Global Ltd., had outsourced its services to vendors just as M/s. Vishal Technologies Ltd., had done. In the above facts, the impugned order held that Cosmic Global Ltd., is not functionally comparable and, therefore, could not be included amongst the comp....
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....ined and owned by the associated enterprises. We find that for a similar reason, the Hon'ble Jurisdictional High Court upheld the exclusion of Accentia Technologies Ltd., vide its judgment in PTC Software India Private Limited (supra). Therefore, respectfully following the decision of the Hon'ble Jurisdictional High Court (cited supra), we direct the TPO/AO to exclude Accentia Technologies Ltd. while benchmarking the international transaction pertaining to "Provision of ITeS". (d) Infosys BPO Ltd. 48. The next comparable challenged by the assessee is Infosys BPO Ltd. This company was selected as a comparable by the assessee in its transfer pricing study report. During the transfer pricing assessment proceedings, the assessee sought exclusion of this company, inter-alia, on the basis that it is functionally not comparable and provides high-end integrated services. However, the TPO vide order passed under section 92CA(3) of the Act did not accept the submissions of the assessee and considered Infosys BPO Ltd. as comparable on the basis that it is functionally comparable and there is no linkage of turnover and margins. The learned DRP vide its directions rejected the objec....
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.... ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld. The assessee was aggrieved by the inclusion of Accentia a Software Development Company. The Revenue is aggrieved by the exclusion of Accentia from the TP analysis. The DRP had directed its deletion. We observe that the ITAT has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concerned, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector. 14. In view of the above findings, this Court is of the opinion that no substantial question of law arises. The appeals are dismissed." 51. Further, as r....
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....ions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that the deduction under section 10A was claimed in respect of profits derived from the UB Plaza Unit for the first time by the assessee while filing its return of income for assessment year 2007-08, which was disallowed by the AO on the basis that the conditions as laid down in section 10A are not fulfilled by the assessee. Since the objections filed by the assessee against the aforesaid disallowance were also rejected by the learned DRP, the assessee filed the appeal before the Tribunal. We find that the coordinate bench of the Tribunal in assessee's own case in M/s. Thomson Reuter India Services Pvt. Ltd. v/s ADIT, in IT(TP)A No.1206/Bang/2011, for the assessment year 2007-08, vide order dated 06/04/2017 held that deduction under section 10A cannot be denied to the UB Plaza Unit, which is otherwise undisputedly an eligible unit merely on the basis that it was acquired by the assessee vide a slump sale. The coordinate bench further held that deduction under section 10A of the Act is undertaking/unit specified and therefore, an undertaking otherwise eligible....
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.... now settled-law that the provisions of an incentive provision have to be construed liberally and that, furthermore in cases where there is an ambiguity in the wording of a section, such a provision would have to be interpreted in such a manner so as to favour of the assessee. 19. Further, as far as section 10A (7A) is concerned that there is nothing in law to suggest that an undertaking which is sold on slump sale basis can be denied the benefit of deduction u/s 10A. In fact, the CBDT, having regard to the true purport and intention behind the said section, has vide its Circular No. 1/2013 dated 17.01.2013, categorically clarified that the claim of deduction under the section cannot be denied purely because of change in ownership due to a slump sale. The assessee placed reliance on the said CBDT Circular. Reliance is also placed on the decision of the Hon'ble High Court of Bombay in CIT v. Sonata Software Ltd., reported in [2012] 21 taxmann.com 23 (Bombay), as well as the decisions of this Hon'ble Tribunal in Woco Motherson Elastomer Ltd. v. DCIT, reported in [2013] 36 taxmann.com 534 (Delhi - Trib.), and ITO v. Veto Electropowers, reported in [2012] 20 taxmann.co....
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....um Unit, Bangalore. 59. We have considered the submissions of both sides and perused the material available on record. We find while deciding a similar issue in assessee's own case in M/s. Thomson International Services Pvt. Ltd. v/s DCIT, in IT(TP)A 1565/Bang/2012, for the assessment year 2008-09, vide order dated 28/09/2017, the coordinate bench of the Tribunal allowed the deduction claimed under section 10A in respect of the Titanium Unit on the basis that it is an extension of the UB Plaza Unit in respect of which deduction under section 10A was allowed by the coordinate bench of the Tribunal in the assessment year 2007-08. Accordingly, the coordinate bench allowed the deduction claimed by the assessee under section 10A of the Act in respect of the Titanium Unit, Bangalore. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as follows: - "6. Regarding ground no. 8 of assessee's appeal, it was submitted by Id. AR of assessee that the AO discussed this issue on page no. 8 of the assessment order. He pointed out that as per the AO, the Titanium Unit of the assessee company is extension of UB Plaza Unit and since deduction u/s.1....
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....s unit. Before us also, such asset schedule of the Titanium Unit has not been furnished. In the absence of that, we find no merit in the claim of the assessee that this is a separate independent unit. But the disallowance of the deduction u/s. 10A in the present year is not justified because as per the AO, this is an extension of UB Plaza Unit and it has been held by us and by the coordinate bench in Assessment Year 2007-08 that UB Plaza Unit is eligible for deduction u/s. 10A and therefore, Titanium Unit is also eligible for deduction u/s. 10A in the present year although the first year of such deduction for this unit should also be same as that of UB Plaza Unit. Accordingly, we hold that in the present year, deduction is allowable to assessee u/s. 10A for Titanium Unit also on this basis that this unit is expansion of UB Plaza Unit. Ground no. 8 is partly allowed." 60. During the hearing, the learned DR could not show any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Since the year under consideration is the second year of the claim of deduction under section 10A of the Act in respect of the Titanui....
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....quired by the assessee during the year under consideration. The learned DRP, vide its directions, rejected the objections filed by the assessee. In conformity with the learned DRP's directions, the AO passed the impugned final assessment order denying the deduction claimed by the assessee under section 10A of the Act with respect to the RIPL Unit. Being aggrieved, the assessee is in appeal before us. 63. We find that while considering a similar issue pertaining to the claim of deduction under section 10A of the Act in respect of a unit acquired from RIPL, the coordinate bench of the Tribunal in assessee's own case in M/s. Thomson Reuters International Services Pvt. Ltd. v/s DCIT, in ITA No.2053/Mum/2016, for the assessment year 2011-12, vide order dated 03/08/2018, observed as follows: - "The AO also declined assessee's claim under Section 10A in respect unit acquired from Reuters India Pvt. Ltd. The order of the AO was confirmed by the CIT(A). Assessee is in further appeal before us. 10. We have considered the rival contention and four that during A.Y. 2009- 10 the assessee has taken over the business relating to IT enabled services from Reuters India Pvt. Ltd. (in....
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.... of asset was zero in the books of the amalgamating company, the actual cost would remain zero in the hand of the amalgamated company. 2. On the facts and circumstances of the case the Hon'ble Tribunal may kindly consider the case of United Breweries Ltd. ITA No. 722/Bang/2014, 801/Bang/2014 and 1065/Bang/2014, in the order dated 30.09.2016, Para- 11 onwards. The Hon'ble ITAT did consider the case of CIT V/S. Smiff Securities Ltd. and held that Hon'ble SC only ruled on the issue as to whether goodwill falls in the category of intangible assets or any other business or commercial rights of similar nature, but not whether depreciation is available on 'goodwill' in case of amalgamation." 67. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, the assessee made a fresh claim of deduction, i.e., depreciation on goodwill, in respect of the acquisition of the UB Plaza Unit during the financial year 2005-06, and in respect of the unit acquired from RIPL, during the financial year 2008-09, on the basis that the Hon'ble Supreme Court in CIT v/s Smifs Securities Ltd., reported in 340 ITR 30....
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....llowing depreciation under the Act. And, in the present case, it is merely a book entry made by the assessee under the head "goodwill" in their books of account. The AO further held that there was no cost of acquisition on account of goodwill, in as much as, in the business transfer agreement there was no mention of any value assigned to the goodwill. The AO also placed reliance upon the decision of the Hon'ble Supreme Court in Goetze India Limited v/s CIT, reported in 284 ITR 323, to support its conclusion that the assessee cannot make any claim of deduction by way of a letter without revising the return. Accordingly, the AO denied the claim of depreciation on goodwill under section 32 of the Act. 69. The learned DRP, vide its directions, rejected the objections filed by the assessee by placing reliance upon the decision of the Hon'ble Supreme Court in Goetze India Limited (supra). The AO, vide impugned final assessment order, reiterated the findings as rendered in the draft assessment order, and denied the depreciation claimed on goodwill by the assessee. Being aggrieved, the assessee is in appeal before us and the Revenue has raised the cross objections. 70. We have consid....
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....has placed on record before us the relevant extracts of notes to accounts, for the financial years 2005-06 and 2008-09, disclosing the details of goodwill. Apart from the above, the assessee has also placed on record the detailed calculation of depreciation amounting to Rs.12,01,92,672/- claimed in the assessment year 2009-10 in respect of goodwill arising on the purchase of business under the slump sale basis from Thomson Business Information India Private Limited and Reuters India Private Limited. We find that these details were also furnished during the assessment proceedings. However, the AO, vide draft assessment order, rejected the claim that the difference between the consideration paid and net assets acquired can be considered as goodwill, in the absence of a valuation report. As per the assessee, the Business Valuation Reports in respect of aforesaid two slump sale transactions were furnished doing the proceedings before the learned DRP. However, as is evident from the directions issued by the learned DRP, the assessee's objections were rejected at the very threshold by placing reliance upon the decision of the Hon'ble Supreme Court in Goetze India Limited (supra). Further....
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....ties Ltd. (supra). 16. From the perusal of the decision in Smifs Securities Ltd. (supra), we find that the following question, inter-alia, came up for consideration before the Hon'ble Supreme Court: - "Question No.[b]: "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?" 17. While answering the question in favour of the assessee, the Hon'ble Supreme Court in Smifs Securities Ltd. (supra), observed as follows: - "2 . It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote hereinbelow Explanation 3 to Sect....
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....der Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. 8. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee." 18. Thus, from the perusal of the aforesaid findings of the Hon'ble Supreme Court, we find that in the facts of Smifs Securities Ltd. (supra), the excess consideration paid by the taxpayer over the value of net assets acquired of the amalgamating company was considered as goodwill arising on account of amalgamation. It is further evident that the AO in the aforesaid decision concluded that no amount was actually paid on account of goodwill. However, in further appeal, the learned CIT(A) concluded that the difference between the cost of an asset and the amount paid constituted goodwill and the taxpayer in the process of amalgamation has acquired a capital right in the form of goodwill because of which the market worth of the taxpayer stood increased. It is evident from the perusal of the aforesaid decision that the aforesaid finding of the learned CIT(A) was upheld by the Tribunal and in further appeal, the Revenue res....
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....rcise as at 31/03/2015, i.e. the valuation date. As noted in the foregoing paragraphs, Accounting Standard-14 further requires that any excess of the amount of the consideration over the value of net assets of the amalgamating company acquired by the amalgamated company should be recognised in the amalgamated company's financial statements as goodwill on amalgamation. Therefore, even though there is no intangible asset under the head "goodwill" in the books of the amalgamating company on the date of acquisition by the assessee and the goodwill was not already recorded in the books of the amalgamating company which was valued by the independent merchant banker, it is pertinent to note that the value of the goodwill arose in light of the principles of Accounting Standard-14 followed by the assessee to account for the amalgamation in its accounts. Further, it is reiterated that in the Scheme of Amalgamation, approved by the Hon'ble High Court, both parties agreed that any excess of the fair value of shares issued by the assessee company as consideration over the value of net assets of the amalgamating company shall represent goodwill and be treated as such in the assessee'....
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..... v. Deputy Commissioner of Income Tax, Circle 12(2), Bengaluru [2020] 121 taxmann.com 237/277 Taxman 22 (Karnataka) held that fifth proviso (now sixth proviso) to section 32(1)(ii) of the Act restricts aggregate deduction by the predecessor and successor and if in a particular year there is no aggregate deduction, the provisions of the proviso shall not be applicable. It was further held that until and unless it is the case of aggregate deduction, the proviso has no role to play. Thus, adverting to the facts of the instant case, since the amalgamating company did not have any goodwill recorded in its books of accounts or as part of a block of depreciable assets, prior to amalgamation, therefore the question of claim of depreciation on goodwill by the amalgamating company does not arise in the instant case. Accordingly, we are of the considered view that the provisions of the sixth proviso to section 32(1) of the Act are not applicable to the facts of the present case since the goodwill did not exist in the books of the amalgamating company but has arisen in the process of amalgamation. 23. Further, the Revenue has placed reliance upon the provisions of Explanation 7 to se....
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....nd Explanation 2(b) to section 43(6) of the Act have no applicability to the facts of the present case. 25. As regards the reliance placed by the Revenue on the provisions of section 49(1)(iii)(e) and section 55(2)(a)(ii) of the Act, it is pertinent to note that these provisions form part of the Chapter dealing with "Capital Gains" and section 47 of the Act specifically excludes transfer of capital assets, pursuant to a scheme of amalgamation, from the purview of section 45 of the Act. Therefore, we are of the view that these provisions have no relevance to the facts of the present case. 26. The Revenue, vide its written submissions, has relied upon certain judicial pronouncements, which have been dealt with hereunder: - a) We find that the decision in Borkar Packaging (P.) Ltd. v. Assistant Commissioner of Income-tax [2010] [2010] 131 TTJ 99 (Panaji), was rendered by the coordinate bench of the Tribunal prior to the decision of the Hon'ble Supreme Court in Smifs Securities Ltd. (supra), and therefore the same is no longer a good law. b) From the perusal of the paragraph of the decision of the coordinate bench of the Tribunal in ACIT v. Pfize....
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.... Thus, we are of the considered view that the reliance placed on the aforesaid decision is misplaced. 27. Further, the reference in the impugned order to the amendment made vide Finance Act, 2021 is also of no help to the Revenue as the said amendment in relation to the allowance of depreciation on goodwill is effective from 01/04/2021 and would accordingly apply to the assessment year 2021-22 and subsequent assessment years. This aspect is evident from page 71 of the Memorandum Explaining the Provisions in the Finance Bill, 2021. Even the decision of the coordinate bench of the Tribunal in I & B Seeds (P.) Ltd. v. Deputy Commissioner of Income-tax [2022] 142 taxmann.com 274 (Bangalore - Trib.) held that amendment in section 32(1) by Finance Act, 2021 to the effect that no depreciation was allowable on goodwill would take effect from 01/04/2021 and would be applicable from assessment year 2021- 22 and subsequent years. 28. Therefore, in view of the facts and circumstances of the present case, legal position and judicial pronouncements as noted above, we are of the considered view that the assessee is entitled to claim depreciation on goodwill arising on acco....
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.... raised in assessee's appeal, pertains to an error in considering the amount of advance tax paid by the assessee. 76. Having considered the submission of both sides, we restore this issue to the file of the Jurisdictional AO to consider the correct amount of advance tax paid by the assessee, after necessary verification of the record. As a result, Ground No.13, raised in assessee's appeal, is allowed for statistical purposes. 77. Grounds No.14 and 15, raised in assessee's appeal, pertain to the levy of interest under sections 234B and 234D of the Act, which are consequential in nature. Therefore, the same needs no separate adjudication. 78. In the result, the appeal by the assessee is partly allowed for statistical purposes. IT (TP) A No. 231/Bang./2014 Revenue's Appeal - A.Y. 2009-10 79. In this appeal, the Revenue has raised the following grounds: - "1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in directing the AO to exclude the reimbursement of specific expenditure both from the export turnov....
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.... 83. The issue arising in Ground No.4, raised in Revenue's appeal, pertains to the deletion of disallowance on software items under section 40(a)(ia) of the Act. 84. The brief facts of the case pertaining to this issue, as emanating from the record, are: Upon perusal of the details furnished by the assessee, during the assessment proceedings, it was noticed that the assessee has claimed depreciation @60%/30% depending upon the number of days of usage, which amounted to Rs. 1,27,90,656. Accordingly, the assessee was asked to show cause why the depreciation be not disallowed by invoking the provisions of section 40(a)(ia) of the Act. The AO, vide draft assessment order, disagreed with the submissions of the assessee and held that the depreciation claimed by the assessee on computer software is considered for disallowance for nondeduction of TDS on payment made towards such purchases. Since the assessee failed to deduct tax at source as required under section 194J of the Act, the AO disallowed the depreciation under section 40(a)(ia) of the Act. The learned DRP, vide its directions, held that section 40(a)(ia) of the Act is not applicable for disallowing the depreciation claimed....
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....hose claim is for depreciation, which is not in the nature of expenditure but an allowance. The depreciation is not an outgoing expenditure and therefore, provisions of Section 40(a)(1) and (ia) of the Act are not applicable. In the absence of any requirement of law for making deduction of tax out of expenditure, which has been capitalized and no amount was claimed as revenue expenditure, no disallowance under section 40(a)(i) and (ia) of the Act would be made. It is also pertinent to note that depreciation is a statutory deduction available to the assessee on asset, which is wholly or partly owned by the assessee and used for business or profession. The depreciation is an allowance and not an expenditure, loss or trading liability. The Commissioner of Income Tax (Appeals) has held that the payment has been made by the assessee for an outright purchase of Intellectual Property Rights and not towards royalty and therefore, the provision of section 40(a)(ia) of the Act is not attracted in respect of a claim for depreciation. The aforesaid finding has rightly been affirmed by the tribunal. The findings recorded by the Commissioner of Income Tax (Appeals) as well as the tribunal cannot....