TaxTMI 
TaxTMI 
2026 (2) TMI 1302
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....RIBOR with different mark up and further addition of 100 points towards Forex Risk Adjustment, and by ignoring the fact that amount given to the subsidiary company are in the nature of advances/loans given by the assessee company, which needs to be equated with benchmarking methodology adopted for advancement of loan by one concern to another concern. 2) Whether on the facts and the circumstances of the case and in law, the Id. CIT (A) was justified in rejecting the external CUP method applied by the Ld. TPO to benchmark the interest rate on loans/advances given to its AEs by the assessee company and not appreciating the factors considered by the TPO such as credit quality of the borrower, geography of the transactions etc. in accordance with the judgment delivered in the case of Aithent Technologies (Pvt.) Ltd. 3) Whether on the facts and the circumstances of the case and in law, the Id.CIT(A) has erred in deleting the upward adjustment of Rs 3,77,22,240/- made towards notional interest on extra credit period on sales realization/receivables, and ignoring the fact that extra credit period on sales realization/receivables are in the nature of advances given by the....
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....essee company In these situations, by the amalgamation of M/s Intas Lifesciences Pvt. Ltd. with the assessee company, there is no gain of brand equity, unique clientele, unique niche market, customer relations etc as mentioned in the valuation report and thus, revaluation of intangibles is not appropriate to the facts of this particular case. 8) Whether on the facts and the circumstances of the case and in law, the id. CIT(A) has erred in ignoring the fact that, after amalgamation, the assessee company has shown the acquired assets at the same value as recorded in the books of M/s Intas Lifesciences Pvt. Ltd before amalgamation and balance between revalued equity shares and recorded value of assets of M/s Intas Lifesciences Pvt. Ltd has been shown on the asset side of the assessee company as "Goodwill" and on the liability side in "Reserve and Surplus" and this accounting treatment further strengthen the fact that, entire modus of valuation of intangibles is to create Goodwill in the books of accounts and consequently to claim depreciation on such Goodwill 9) Whether on the facts and the circumstances of the case and in law, the Id.CIT(A) has erred in ignoring the....
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....- on account of adjustment for allocation of common expenses while computing deduction/exemption u/s 80IC, 80IE and 10AA of the Act without appreciating that the common expenses needs to be allocated amongst units having deduction/exemption u/s 80IC, 80IE and 10AA of the Act. 14) Whether on the facts and the circumstances of the case and in law, the Id.CIT(A) has erred in deleting the disallowance of Rs. 94,26,38,250/- on account of weighted Deduction claim of the assessee u/s 35(2AB) in excess of that allowed by the DSIR in Form 3CL. 15) Whether on the facts and the circumstances of the case and in law, the ld CIT(A) has erred in deleting the disallowance of interest of Rs. 14,06,15,203/u/s.36(1)(iii) of the IT Act, without appreciating that there is no nexus between surplus fund available with the assessee with utilization for CWIP. 16) Whether on the facts and the circumstances of the case and in law, the Id.CIT(A) has erred in deleting the disallowance of Rs. 5,92,507/- made u/s. 14A r.w.r. 8D of the Income Tax Act without appreciating the finding of A.O. that, the assessee company has made huge investment in shares of subsidiaries and other companies....
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....he Revenue has also challenged the rejection of the external CUP method adopted by the TPO. 4.1 The Ld. AR submitted that the issue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for AY 2015-16 in ITA Nos. 222 & 281/Ahd/2021, which has been duly followed by the Ld. CIT(A) while granting relief. 4.2 We have carefully considered the rival submissions and perused the material available on record. We find that an identical issue arose in the assessee's own case for AY 2015-16, wherein the Tribunal, after detailed examination, held as under:- "Ground No. 1(i) - Transfer Pricing Adjustment on Interest on Advances to Associated Enterprises 5. The assessee had during the year under consideration advanced loans to its Associated Enterprises (AEs) in foreign currency aggregating Rs. 5,85,87,394/-. These advances were made to five AEs across different jurisdictions and were uniformly charged interest at the rate of 3.22%, determined on the basis of an internal CUP, i.e., a loan quotation obtained from Bank of Nova Scotia, Singapore at 6-month USD LIBOR + 2.60%. The assessee contended that th....
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....f Co-ordinate Bench in assessee's own case for the A.Y. 2013-14 (ITA No. 400/Ahd/2028). The AR took us through the operative part of the said decision. The Departmental Representative (DR) relied on the order of lower authorities. 8. We have carefully considered the rival submissions, the findings of the lower authorities, and the material placed on record. It is pertinent to note that the issue involved stands squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee's own case for Assessment Year 2013-14, in ITA No. 400/Ahd/2018, order dated 31.10.2023. In the said decision, after considering similar facts and identical contentions, the Bench held that the internal CUP adopted by the assessee, based on the quotation received from Bank of Nova Scotia, Singapore, constituted a valid and authentic comparable. The Bench observed that the quotation, although not a public domain publication, was obtained from an internationally reputed financial institution and there was no material brought on record by the Revenue to doubt its authenticity. The Bench further held that merely because the quotation was not a public domain document, it could ....
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.... by the Ld. CIT(A) while granting relief. 5.2 We have carefully considered the rival submissions and perused the material available on record. We find that an identical issue arose in the assessee's own case for AY 2015-16, wherein the Tribunal, after detailed examination, held as under:- "14. The issue relates to the transfer pricing adjustment made by the TPO and confirmed by the CIT(A) by imputing notional interest on receivables outstanding from AEs beyond a credit period of 180 days, resulting in an upward adjustment of Rs. 14,64,47,827/-. It is not disputed that the assessee had benchmarked its international transactions of export of finished goods to AEs under the TNMM, and that working capital adjustment had been undertaken while computing the Profit Level Indicator (PLI). The assessee contended that the receivables are incidental and intrinsically linked to the primary international transaction of sale of goods. The assessee also stated that the working capital adjustment duly captures the impact of credit terms, and therefore, a separate adjustment on outstanding receivables would lead to double taxation and the assessee maintained a uniform policy of not char....
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....ce of any material change either in facts or in law, we find no infirmity in the order of the Ld. CIT(A) in deleting the upward adjustment made on account of notional interest on outstanding receivables. Accordingly, Ground Nos. 3 & 4 raised by the Revenue are dismissed. Ground No.5. 6. General Ground. No specific adjudication required. Ground Nos. 6 & 12 -Depreciation on Goodwill arising pursuant to Amalgamation 7. These grounds relate to the deletion of addition made by the Assessing Officer on account of depreciation claimed on goodwill arising pursuant to a scheme of amalgamation, along with allied objections raised by the Revenue regarding valuation, accounting treatment, allocation to eligible units, and applicability of various statutory provisions. 7.1 We find that the issues raised by way of above grounds are the identical issue arose in the assessee's own case for AY 2015-16, wherein the Tribunal, after detailed examination, held as under:- "45. We have carefully considered the rival submissions, perused the orders of the lower authorities, the scheme of amalgamation sanctioned by the Hon'ble Gujarat High Court, and the judicial precedents relie....
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....picion regarding the valuation was unsubstantiated as no reference was made to the Departmental Valuation Officer and the valuation was supported by a report from a professional valuer. Relying on the decision of the Co-ordinate Bench of the Tribunal in Urmin Marketing Pvt. Ltd.(ITA 1806/Ahd/2019), the CIT(A) found that similar contentions had been rejected in earlier proceedings involving comparable facts. 48. We are in agreement with the view taken by the Ld. CIT(A). Once the scheme of amalgamation has been sanctioned by the Hon'ble High Court, and no objection has been raised by the Department at the appropriate stage, the consequential accounting recognition of goodwill in the books of the amalgamated company cannot be brushed aside as a colourable device. The consideration paid by way of share allotment constitutes valid consideration for the purpose of recognising goodwill. The Hon'ble Delhi High Court in CIT v. Mira Exim Ltd. [(2013) 359 ITR 70] has affirmed that share allotment as consideration constitutes "payment" in kind and satisfies the requirement for depreciation claim under section 32. 49. As regards the DR's reliance on the fact that ILPL had no i....
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.... mergers where 100% shareholding may vest with the amalgamated company, the legal form and accounting consequences must be respected. 50. Coming to the assessee's contention regarding the allocation of goodwill to the tax-exempt units in Sikkim and Dehradun, we find that the issue was duly considered by the CIT(A) in para 5.10 of the appellate order. As per the assessee's accounting treatment, the total goodwill of Rs. 911.70 crore was allocated as follows: * Rs. 301.14 crore to the Dehradun Unit, which was eligible for deduction under section 80-IC (30% deduction), and * Rs. 601.56 crore to the Sikkim Unit, which was eligible for deduction under section 80-IE (100% deduction). 51. The assessee contended that even if depreciation on such goodwill were to be disallowed, the disallowance would correspondingly enhance the profit of the eligible units, thereby increasing the quantum of deduction under Chapter VI-A, in view of CBDT Circular No. 37/2016 dated 02.11.2016. The CIT(A) accepted this contention in principle, holding that any disallowance of depreciation on goodwill relating to the Sikkim unit would automatically result in an equivalent incr....
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....lated below: Particulars Amount (INR million) Enterprise value of Intas Lifesciences Pvt. Ltd. (ILPL) 9,656 Book value of tangible assets and net working capital taken over (539) - Book value of fixed assets (463) - Book value of current assets and advances (10,218) - Book value of cash and bank balances - 654 - Book value of current liabilities - 9,488 - Identifiable intangibles and goodwill Nil Residual amount treated as goodwill 9,117 53. The estimated goodwill of Rs. 9,117 million arises as the residual value representing excess consideration paid over the net book value of identifiable assets and liabilities acquired. This goodwill is accounted for in the books under the purchase method of accounting as per Accounting Standard-14 (AS-14) and is stated to represent future economic benefits arising from the amalgamation. 54. While it is an undisputed fact that Intas Lifesciences Pvt. Ltd. (ILPL), the amalgamating company, did not maintain an independent customer base and that its revenues were almost exclusively derived from transactions with the assessee-company, such a factual matrix, by itself, does not i....
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.... also note that both the AO and the DR have attempted to distinguish the assessee's case from the facts of Smifs Securities Ltd. on the premise that ILPL lacked independent clients, the goodwill was created within the same group, and there was no real transfer of business value. However, such a distinction, in our considered view, does not undermine the binding nature of the ratio laid down by the Hon'ble Supreme Court in Smifs Securities Ltd. (supra), wherein it was categorically held that goodwill arising out of amalgamation is a depreciable intangible asset under Explanation 3(b) to section 32(1). The test laid down is whether goodwill is acquired at a cost and recorded in the books pursuant to a valid transaction; it is not contingent on the nature of clientele or independence of operations of the amalgamating entity. The CIT(A), in our view, has correctly rejected the distinction made by the AO and upheld the allowability of depreciation on goodwill, following binding judicial precedents. We endorse this conclusion. 56. We have also noted the reliance placed by the Ld. AR on the decision of the Co-ordinate Bench in the case of Suzlon Energy Ltd. vs. DCIT, ITA Nos. 198....
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.... first appellate authority. 58. We shall now proceed to deal with the revised grounds raised by the Revenue in light of our detailed analysis above: Revised Ground No. 1: 59 The Revenue contends that depreciation on goodwill is not allowable as there was no goodwill recorded in the books of the amalgamating company and the same was created only in the books of the amalgamated company. We find this contention devoid of merit. As held by the Hon'ble Supreme Court in Smifs Securities Ltd. [(2012) 348 ITR 302 (SC)], goodwill arising as a balancing figure from excess consideration over net asset value is a depreciable intangible asset under section 32(1)(ii), irrespective of its prior existence in the books of the amalgamating company. The CIT(A) has correctly appreciated this legal position, and we find no infirmity in his conclusion. Revised Ground No. 2: 60. The Department argues that goodwill is a self-acquired asset with nil cost in the hands of the amalgamated company, and hence the WDV should be taken as nil under Explanation 2 to section 43(6). This contention ignores the fact that in the present case, goodwill was acquired a....
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....hat pooling of interest was applied or that the accounting treatment was incorrect. Revised Ground No. 6: 64. The Revenue contends that the goodwill was created merely by netting the consideration against net assets without identifying specific assets or rights. This argument is also misplaced. The Hon'ble Supreme Court in Smifs Securities Ltd. held that even unidentified commercial rights can constitute goodwill eligible for depreciation. In the present case, the goodwill represents the expected future economic benefits arising from business consolidation, synergy, and operational continuity - all recognized aspects of goodwill under law. Revised Ground No. 7: 65. The Department seeks to apply Explanation 7 to section 43(1), sixth proviso to section 32(1), section 49(1)(iii)(e), and Explanation 2 to section 43(6), asserting that the cost or WDV in the hands of the amalgamating company should be taken as nil. We find that these provisions apply to tangible assets transferred in amalgamation, not to newly recognised intangible assets like goodwill which arises as a balancing figure under a recognised accounting method. The CIT(A) has dealt with th....
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....uting Deduction under Sections 80-IC, 80-IE & 10AA 8. This ground relates to deletion of addition made by the Assessing Officer on account of allocation of common/indirect expenses to the eligible units while computing deduction under sections 80-IC, 80-IE and 10AA of the Act. 8.1 The Ld. AR submitted that the issue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench in assessee's own case for AY 2015-16 in ITA Nos. 222 & 281/Ahd/2021, which has been followed by the Ld. CIT(A). 8.2 We have considered the rival submissions and perused the material on record. We find that in the immediately preceding assessment year, the Tribunal examined an identical issue and held as under:- "71. We have carefully considered the rival submissions and perused the material available on record, including the assessment order, the detailed written submissions of the assessee, and the findings of the learned CIT(A). The assessee, during the course of assessment as well as appellate proceedings, contended that the said undertakings maintain separate books of account, and unit-wise Profit and Loss Accounts are independently prepared and audited. It was ....
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....e the assessee had claimed deduction in excess of its entitlement under the provisions of section 80IC, 80IE, or 10AA by reason of not allocating common costs. 74. In our considered view, while computing the profits eligible for deduction under sections 80IC, 80IE, and 10AA of the Act, it is essential to confine the computation to those expenses which have a direct and proximate nexus with the operations of the eligible undertaking. Any attempt to allocate general or common expenses that are not specifically relatable to the activities of such undertaking would distort the true profits derived therefrom. The principle that governs such computation is one of factual linkage, and unless the expense can be clearly identified as incurred for the functioning of the eligible unit, it cannot be brought into the computation for the purposes of determining the deduction under the said provisions. 75. In view of the above discussion, we find no infirmity in the conclusion of the learned CIT(A) in deleting the disallowance of Rs. 10,19,24,003/- on account of allocation of common expenses to the Dehradun, Sikkim, and SEZ units. The accounting treatment adopted by the assessee....
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....Co-ordinate Bench in assessee's own case for AY 2015-16 in ITA Nos. 222 & 281/Ahd/2021, which has been followed by the Ld. CIT(A). 10.2 We have considered the rival submissions and perused the material on record. We find that in the preceding assessment year, the Tribunal examined an identical disallowance made on proportionate basis without establishing any direct nexus between borrowed funds and CWIP. The Tribunal noted that the assessee had substantial own interest-free funds far in excess of the amount invested in CWIP. Relying on the judgment of the Hon'ble Supreme Court in Reliance Industries Ltd., it was held that where sufficient own funds are available, a presumption arises that investments are made out of such interest-free funds, and in the absence of contrary material, no disallowance under section 36(1)(iii) is warranted. 10.3 In the year under consideration also, the Revenue has not brought any material to establish a nexus between borrowed funds and CWIP, nor demonstrated any change in facts. The Ld. CIT(A), following earlier appellate orders in assessee's own case, deleted the disallowance. 10.4 Respectfully following the decision of the Co-ordinate Bench i....
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.... 94. In the instant case, the learned CIT(A) has correctly appreciated this principle and deleted the disallowance under section 14A in its entirety. This conclusion is also supported by the fact that no fresh investments were made during the year and the assessee had substantial interest-free own funds available, far in excess of the amount of investments. The ratio of interest free funds to total investment stood at 7.62 times as on 31 March 2015 and 4.94 times as on 31 March 2014. 95. The learned Departmental Representative has relied on the order of the AO, whereas the Authorised Representative has drawn our attention to the decision of the Co-ordinate Bench in assessee's own case for A.Y. 201314 in ITA No. 704/Ahd/2018, where, under similar facts, the Co-ordinate Bench held that in the absence of exempt income and in the presence of old investments funded out of interest-free funds, no disallowance under Rule 8D(2)(ii) was warranted. Respectfully following the binding jurisdictional High Court judgment and the decision of the Co-ordinate Bench in assessee's own case, we find no reason to interfere with the CIT(A)'s decision in deleting the disallowance made ....
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....perused the material on record. In the preceding year, the Tribunal observed as under:- "102. We have carefully considered the rival contentions advanced during the hearing, perused the assessment order, the impugned order of the CIT(A), and the material placed on record. We have also duly taken note of the judicial authorities cited before us by the parties. The Assessing Officer, in the assessment order dated 19.12.2018, disallowed commission expenditure of Rs. 23,71,88,037/- paid by the assessee to various non-resident commission agents on the ground that no tax was deducted at source under section 195 of the Act. The AO held that in view of section 5(2)(b) read with section 9(1)(i) of the Act, the income in the hands of such agents was deemed to accrue or arise in India, particularly since the execution of export contracts and the accrual of right to commission occurred in India. The AO thus concluded that the assessee was liable to deduct TDS and, having failed to do so, was liable for disallowance under section 40(a)(i) of the Act. The AO placed reliance on the decision of the AAR in the case of Rajiv Malhotra (284 ITR 564) and that of SKF Boilers & Driers (P.) Ltd. ....