TaxTMI 
TaxTMI 
2023 (2) TMI 1421
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....l income of Rs. 21,89,91,210. The case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee. During the previous year relevant to the assessment year 2017-18, the relevant international transaction that took place between the Assessee and its AE was the provision of software distribution services (SDS), the revenue from which amounted to Rs. 10,45,82,209/-. On a reference being made by the AO, the TPO passed an order dated 20.12.2019 determining a TP adjustment of Rs. 69,54,717/-in respect of the SDS segment. The AO passed the draft assessment order in which the aforesaid TP adjustments were incorporated. Further, the Assessing Officer proposed a disallowance of the claim made by the Assessee of depreciation on goodwill, on the ground that the assets acquired from the selling entity did not include goodwill or even intangible assets as defined under Section 32(1)(ii) of the Act. Aggrieved, the Assessee filed its objections before the DRP which, vide its directions dated 24.03.2022 disposed of the objections by granting partial relief to the Assessee. 3. In line with the directions issued by the DRP, the Assessing Officer passed the impu....
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.... Pvt. Ltd. 22.00 Average 9.65 5.3. Accordingly the TPO arrived at the TP adjustment in the SDS segment as under - Taxpayers operating revenue 10,45,82,209/- Taxpayer operating cost 10,14,44,743/- Taxpayers operating profit 31,37,466/- Taxpayers PLI 3% Average Margin of comparable set 9.65% Profit as per Arm's Length Price 1,00,92,183/- Revised cost (ALP) 94,490,026/- Taxpayer's related party cost 10,14,44,743/- Excess cost being adjustment 69,54,717/- 5.4. Aggrieved the assessee filed its objections before the DRP. The DRP directed the TPO to recompute the margins of K7 Computing Private Ltd. and Sonata Information Technology Ltd., and rejected all the other contentions of the assessee. As per the directions of the DRP the TP adjustment was reworked to Rs. 38,80,000. Aggrieved the assessee is in appeal before the Tribunal. 5.5. Out of the grounds raised with regard to the impugned TP adjustment, the ld AR during the course of hearing presented arguments only with regard to the following - a. The DRP erred in upholding the action of the TPO in including K7 Computing Private Limited in the final list of ....
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....t of comaprables. Reliance in this regard is placed on the decision of the Mumbai Bench of this Hon'ble Tribunal in the case of Red Hat India (P.) Ltd. v. Additional/Joint/Deputy/Assistant Commissioner of Incometax/Income-tax Officer, National Faceless Assessment Centre, Delhi ([2022] 136 taxmann.com 52 (Mumbai - Trib.)). 7. The ld DR relied on the order of the lower authorities. 8. We heard the rival submissions and perused the material of record. As per the Annual report of K7 Computing Pvt., ltd., the company is engaged in the business of providing Anti-virus software solutions and the principal business activity of the company as per Annual return in MGT 9 is as extracted below:- Sl.N. Name and description of main products ITC Code of the service rendered % to total turnover of the Company 1. Consultancy services in Systems security including antivirus and other applications 99831315 100% 2. Design and development services of software including customized and packaged 99831413 8.1 It is also noticed from the Profit and Loss account of the company that the company is deriving income from sale of own software and also from software ....
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.... 8.3 The assessee vide Ground No.3.5 and 3.6 is seeking inclusion of Avance Technologies Ltd., Unisys Softwares& Holdings Inds. Ltd., P S I T Infrastructure & Services Ltd., JMD Ventures Ltd., Compuage Infocom Limited, Redington India Ltd., Dynacons Systems & Solutions Ltd. and Fourth Dimension Solutions Limited. 8.4 In this regard the ld AR submitted that that all the above companies are engaged primarily in trading of software and that they came to be rejected/ their rejection came to be upheld on the sole ground that the companies did not feature in the search matrix of the TPO. The ld AR also submitted that the TPO and the DRP have not explicitly disputed the functional comparability of these companies to the Assessee and the mere fact that a company was not part of the search matrix of the TPO cannot be a reason to exclude an otherwise comparable company. The ld AR placed reliance in this regard on the decision of coordinate bench of the Tribunal in the case of Prism Networks Pvt. Ltd. v. ACITin IT(TP)A No. 349/Bang/2021. 8.5 The ld DR submitted that the data based used by the assessee and the TPO are different. The ld DR therefore fairly conceded that if the only rea....
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..... ("Delcam")for purchase of business/undertaking by way of a slump sale for a lump sum consideration of Rs. 11,33,11,028/-. The book value of net liabilities transferred amounted to Rs. 5,58,25,006/-, resulting in a goodwill of Rs. 16,91,36,034/-. The Assessee claimed depreciation on the total acquired goodwill of Rs. 16,91,36,034/- at 25%, under Section 32(1)(ii) of the Act, which was Rs. 4,22,84,009/-. 10.1 The Assessing Officer disallowed the depreciation claimed by the Assessee on the grounds that - (i) the acquisition was not a slump sale as claimed by the Assessee but an asset transfer since Delcam's assets and liabilities are not transferred in its entirety (ii) the assessee has only taken over the shares of Delcam; (iii) No intangible assets/goodwill was transferred from the seller; and (iv) the valuation of goodwill has not been justified. 10.2 The Assessing Officer also claimed as per Finance Bill, 2021, goodwill is not a depreciable asset. 10.3 The DRP rejected the contentions of the Assessee and upheld the finding of the AO on the ground that land and building not having been transferred by Delcam, the sale was not a slump sa....
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....contracts, know how, skilled workforce, access to wider market etc. which was acquired as a part of the acquisition of business/ undertaking of Delcam, on payment of certain consideration. In this regard reliance is also placed on the decision of the jurisdictional High Court in the case of CIT vs. Manipal Universal Learning (P.) Ltd. [2013] 34 taxmann.com 9 (Karnataka HC). 10.7 The ld AR further submitted that the amendment brought in through the Finance Act, 2021, are prospective in nature and would not apply in the case of the Assessee for Assessment year 2017-18. The ld AR also submitted that the the DRP is not correct in holding that the decision in the case of Smiffs Securities was arrived at without considering the 6th proviso to section 32(1), section 49(1)(iii)(c), Explanation 7 to section 43(1) etc., since those provisions deal with a case where an asset is transferred by a predecessor to a successor and would not apply where goodwill arises for the first time on slump sale. Therefore, the ld AR prayed that the depreciation allowance as claimed by the Assessee ought to be allowed. 10.8 The ld DR relied on the order of the AO. The ld AR submitted that the assessee ha....
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....s or liabilities not constituting a business activity are excluded from undertaking / business. Therefore in assessee's case the transaction culminated between the assessee and Delcam cannot be held to be not a slump sale for the reason that entire assets and liabilities are not transferred. The next contention of the revenue is that there is specific intangible asset that is transferred as part of the agreement. We notice that the valuation report submitted by the assessee is rejected by the AO stating that the report has no merits. In this regard the ld AR submitted that the valuation of the business that is transferred as part of slump sale is carried out by the independent Chartered Account who has done the valuation using DCF method. The ld AR also submitted that Delcam has paid the capital gain arising out the slump sale on the consideration which is paid basis the said valuation. Therefore ld AR submitted that the revenue is not justified in rejecting the valuation report in total without any finding to the contrary. From the agreement, we notice that the local business of Delcam is purchased by the assessee as a going concern and the consideration paid basis the valuation r....
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....business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. 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.....