TaxTMI 
TaxTMI 
2025 (5) TMI 785
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....reinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal under Section 253 of the Income-tax Act, 1961 ('Act') against the order passed by the Assessment Unit, National Faceless Assessment Centre ('AO') dated 18 June 2024 ('Final Assessment order") in pursuance of the directions issued by Dispute Resolution Panel-2 (DRP), Mumbai dated 3 May 2024 (DRP Directions") on the following grounds which are independent and without prejudice to each other. General Ground 1. On the facts and in the circumstances of the case and in law, the learned AO based on the directions of the Hon'ble DRP has erred in determining the total taxable income of the Appellant for Assessment Year ('AY") 2020-21 at Rs 332,27,26,586 instead of Rs 306,52,54,200 as returned by the Appellant for the subject AY under normal provisions of the Act. Final assessment order barred by limitation. 2. On the facts and in the circumstances of the case and in law, the final assessment order dated 18 June 2024 passed by the Assessing Officer, having been passed beyond the limitation provided in terms of section 144C read with 1....
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.... circumstances of the case and in law. a) the learned AO has erred in disallowing depreciation amounting to Rs 12,42,89,747 on intangible assets acquired by the Appellant. b) without prejudice to above, with respect to the depreciation amounting to Rs. 4,59,084 on intangible asset acquired from WNS UK, the learned AO has erred in law by not giving effect to the binding directions of the Hon'ble DRP and/or being contrary to the binding rulings of this Hon'ble Tribunal in the Appellant's own case; 10. On the fact and in circumstances of the case and in law, the learned AO/Hon'ble DRP has erred in disallowing deduction under Section 80G of the Act amounting to Rs 2,05,58,406 a) without appreciating the fact that the Appellant has suo moto disallowed the expenditure of Rs. 8.48,62,928 incurred on CSR activity under Section 37 of the Act. b) without appreciating the fact that the deductions claimed under Section 80G of the Act pertained to eligible payments specified under section 80G of the Act c) without appreciating the fact that there is no bar on the Appellant to claim deduction under Section 80G of the Act in re....
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....f the Act, the assessee filed objections before the Ld. DRP under section 144C(2).The Ld.DRP, vide its directions issued under section 144C(5) dated 03/05/2024, adjudicated the objections raised by the assessee and considered the findings of the TPO. Subsequently, based on the directions of the DRP, the Ld. AO passed the final assessment order under section 144C(13) of the Act. In the final assessment order, the Ld. AO made a transfer pricing adjustment under section 92CA amounting to Rs. 11,26,24,233/-. In addition, disallowances were made as follows: Disallowance under section 80G: Rs. 2,05,58,406/- Disallowance of depreciation on intangible assets: Rs. 12,42,89,747/- Being aggrieved by the final assessment order, the assessee has preferred an appeal before this Tribunal. 3. The Ld.AR argued and filed a paper book containing 392 pages which is kept on the record. The Ld.AR primarily argued the TP issue related to the jurisdiction of the Ld.AO in making addition by disobeying the direction of the DRP which contravening the provisions of section 144C(13) of the Act. In TP adjustment, the addition was made on two issues which are covered in ground nos 4 to 8. Th....
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.... this disallowance is merely consequential to the adjustment made by the TPO in AY 2011-12. In view of the aforesaid, the AO is directed to compute the depreciation in accordance with the relevant provision of the Act." 8.3.2. The panel notes that this disallowance is merely consequential to the adjustment made by the TPO in AY 2011-12. In view of the aforesaid, the AO is directed to compute the depreciation in accordance with the relevant provision of the Act." Considering the DRP's order, the Ld.AO passed the final order with following observation which is reproduced as below:- "Thus, the Ld. DRP has directed that the disallowance is consequential to the adjustment made by the TPO in AY 2011-12. The Hon'ble ITAT has passed an order dated 19.03.2020 for AY 2011-12 and AY 2012-13 and directed to AO to delete the adjustment to the value of the contract made by the learned TPO for AY 2011-12 and also consequent depreciation adjustment made by the learned TPO for AY 2012-13. In this regard it is stated that the Department has not accepted the Hon'ble ITAT's decision and has filed further appeal to Hon'ble High Court. These appeals are pending for a....
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.... compute the interest accordingly. The grounds of objection nos. 10, 11 and 12 are disposed off accordingly." 9.3.2. Further during the course of hearing, the applicant submitted that the adjustments made on account of valuation of shares and treatment of the excess as deemed loan and charging of interest thereof has been deleted for both the years A.Y 2016-17 and 2017-18 by the order of the ITAT dated 23/07/2023 for A.Y 2017-18 and 2018-19 and order dated 09/12/2022 for A.Y 2016-17. In view of the fact that the amounts have been deleted by the Hon'ble ITAT, adjustment in the current year on account of interest becomes consequential to the adjustment made by the TPO in AY 16-17 and 17-18. In view of the aforesaid, the AO is directed to give consequential effect to the aforesaid orders of Hon'ble ITAT. The ground of objection is disposed off accordingly." 6. However, the Ld.AO had rejected the observations of the Ld. DRP on the ground that the issue is now pending before the Hon'ble jurisdictional High Court. So, the L.AO rejected the direction of the DRP and made the addition of interest on deemed loan. Ground no. 3 : Contravention of section 144C(13) 7. T....
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....nd reasoning of determination of income as directed by the ld. DRP. Hence we are in agreement with the ld. AR that once the basis of determination of total income itself is illegal due to violation of provisions of section 144C(10) and 144C(13) of the Act, the ultimate determination of total income in the final assessment order also becomes bad in law. Moreover, the ld. AO had not even bothered to rectify his order u/s 154 of the Act by conforming to the directions of ld. DRP which forms the basis of determination of total income. 15. In view of the aforesaid observations, we have no hesitation to hold that the final assessment order passed by the ld. AO, which is in appeal before us, is bad in law and accordingly the final assessment order framed is hereby quashed. In view of this decision, the other grounds raised by the assessee on merits, need not be gone into, and they are left open. 16. In the result, the appeal of the assessee is allowed." 8. We have heard the rival contention of both parties in the matter and perused the material on record. The undisputed facts on record, as brought out by the discussions above, is that the Ld. AO, as per law, was required to pa....
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....sues are bad in law. So, the Ground no. 3 of the assessee's appeal is allowed. So, in our considered view and following the orders of the co-ordinate benches, we find that the addition made on the TP issue by the Ld.AO by ignoring the direction of the Ld.DRP is in contravention of the provisions of section 144C(13) of the Act related to depreciation on business rights and adjustment on account of interest on deemed loan. Therefore, impugned additions on both the issues amount to Rs. 11,26,24,233/- are quashed. Accordingly, Ground nos.4 to 8 of assessee's appeal are allowed. Ground no. 9: Depreciation on intangible assets. 9. The assessee claimed depreciation on various intangible assets comprising commercial rights, customer relationships, and non-compete fees. During the relevant assessment year, although there were no fresh transactions pertaining to these intangible assets, depreciation was claimed on the opening written down value (WDV). The assessee claimed depreciation on goodwill amounting to Rs. 8,88,46,444/- acquired from Value Edge. In accordance with Section 32(1)(ii) of the Act, depreciation on trademarks and similar intangible assets is allowable, and no....
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....within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Applying the same ratio we hold that the depreciation claimed by the assessee on customer contracts acquired from WCIL, Value Edge and Denali are allowable. 18. With regard to the depreciation claimed on capitalization of non-compete fee, we notice that the Pune Bench of the Tribunal in the case of Serum Institute of India Ltd (supra) has held that - 13. Therefore, the limited disputed for adjudication before us relates to if the capital expenditure by way of 'non compete fee' in question is an 'intangible asset' and if the same is depreciable asset for the benefits u/s 32 of the Act. There is no dispute on the capital nature of the impugned 'non compete fee' in view of the reported judgment of the Supreme Court in case of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105, which is adopted in the judgment in the case of Hari Shankar Bhartia v. CIT [2011] 203 Taxman 6 (Mag.)/15 taxmann.com 113 (Cal.). In any case, both the parties accepted the fact that the said fee is capital in nature. On going through the facts, ....
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.... available to the assessee. This means, this right is subject to wear and tear by the passage of time, in the sense, that after the lapse of a definite period of five years, this asset will not be available to the assessee and, therefore, this asset must be held to be subject to depreciation. Assessee would be entitled to depreciation in respect of non-compete fee which is in the nature of intangible asset. 14. From the above, it is vivid that the, by payment of non-compete fee to another person to reduce the business or commercial competition for a period, the assessee acquires a right and it is a capital asset, which is a business or a commercial right as held by the above said decision of the Tribunal-Chennai Bench. Such rights are intangible ones, and they are covered by the provisions of clause (ii) of section 32(1) of the Act relating 'Depreciation'. The said provisions w e f 1.4.1999 read as follows. "32. (1) In respect of depreciation of- (i).... (ii) know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st Ap....
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....51/Mum/2012 CO 44/Mum/2013 19/02/2020 1259/Mum/2021 09/12/2022 2450 & 2451/Mum/2022 26/07/2023 In view of the consistent judicial findings of the ITAT, Mumbai in the assessee's own cases, we hold that the depreciation claimed on intangible assets, namely customer contracts, customer relationships, and non-compete fees, is allowable under Section 32(1)(ii) of the Act. The impugned disallowance sustained by the Assessing Officer is hereby deleted. Accordingly, Ground no. 9 of the assessee's appeal is allowed. Ground no. 10 : Deduction under section 80G of the Act, instead of CSR expenses. 15. The details of the claim under section 80G of the Act are as follows: - Sr. No. Particulars Amount (Rs.) Percentage of contribution eligible for deduction under section 80G of the Act Deduction amount under section 80G (Rs.) 1 PalaviI Education Trust 56,20,329 50 28,10,165 2 Pratham Info Tech Foundation 3,20,32,375 50 1,60,16,188 3 Seva Sahyog Foundation 30,31,323 50 15,15,662 4 Suprabhat Mahila Mandal 4,32,783 50 2,16,392 Total 4,11,16,810 2,05,58,407 During the ....
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....#39;income under the head business'. 13.1. So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'business income' under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, so as to say donations made by charitable trust registered under section 80G.Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction under section 80G i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh & Clean Ganga Fund. So, the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred two specific exceptions in section 80G, then it is the implied in....