AI Drafter 
TaxTMI 
TaxTMI 
2026 (1) TMI 1595
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....hree assessment years, for the sake of convenience, the appeals filed by the Revenue are being heard together and disposed of, by this consolidated order. 2. At the outset, we find that there is a delay of 2 days, 12 days and 16 days delay in filing the appeals by the Revenue in ITA.No.1682/Chny/2024, ITA.No. 1731/Chny/2024 and ITA No. 1763/Chny/2024 respectively. After hearing both the parties, we find that there is a reasonable cause for the revenue in not filing the appeals on or before the due date prescribed under the law and thus, in the interests of justice, we condone the delay in filing of appeals and admit the appeals filed by the revenue for adjudication. It is observed that there is also a delay of 87 days in the filing of the Cross-Objections by the assessee, for which the assessee has filed affidavit stating the reasons for delay. Upon due consideration of the submissions made by both the parties, and having regard to the facts and circumstances of the case, we are satisfied that the assessee was prevented by reasonable cause from filing the Cross-Objections within the time prescribed under the statute. Accordingly, in the interest of justice and equity, the delay ....
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.... 1. The order of Assessing Officer and/or the Transfer Pricing Officer (hereinafter referred to as the AO or the TPO) is contrary to law, facts and circumstances of the case. 2. TRANSFER PRICING ADJUSTMENT-General 2.1 The AO/TPO has erred in law and facts in making a downward adjustment of Rs. 3,71,56,870/- to the international transactions of the Appellant in the Project segment, u/s 92CA(3) read with section 92C(3) of the Income-tax Act, 1961 ('the Act'). 3 Rejection of Transfer pricing analysis undertaken by the Appellant 3.1 The TPO erred in rejecting the benchmarking analysis performed by the Appellant and incorrectly undertook a fresh benchmarking analysis. 3.2. The TPO has erred in rejecting the benchmarking analysis prepared by the Appellant without appreciating the fact that a detailed and careful comprehensive search process was performed by the Appellant with respect to the Project segment after considering the comparability criteria for the purposes of the Transfer Pricing documentation. 4. Appellant's comparable companies to be accepted 4.1 The TPO has erroneously rejected the comparable compani....
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.... owned subsidiaries have not earned any dividend income and these subsidiaries have since merged with the Company. Therefore, such strategic investments should be excluded while considering investments for computing disallowance under Rule 8D. 8.6 Without prejudice to the above, the All-erred in disallowing an amount of Rs. 31,35,846/- which is substantially higher than the actual exempt dividend income of Rs. 9,24,960. The AO failed to appreciate that section 14A prescribes disallowance for expenditure incurred against the income which is claimed as exempt. Hence, the disallowance under section 14A against exempt income cannot be higher than the exempt income itself. 9. Rejection of claim of Depreciation on tangible assets pursuant to the merger of FLSmidth Pfister India Limited into FLSmidth Private Limited during the year 9.1. The AO erred in denying, in limine, the claim of Depreciation on Intangible assets pursuant to the merger of FLSmidth Pfister India Limited ('FPIL") into FLSmidth Private Limited, merely because the said claim was not made in the income tax retum filed by the Appellant. Without prejudice to the above, the Appellant p....
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....O had chosen the comparable as it satisfies qualitative and quantitative filters applied by the TPO for the relevant AY? 3. Whether, under the facts and in the circumstances of the case and in law the CIT(A) erred in holding that the company Promac Engineering Industries Ltd., is engaged in manufacture of lifting and handling equipments, when the company Promac Engineering Industries Ltd., is in the business of engineering, manufacturing and supply of capital goods items on turnkey basis to cement and mineral industries? 4. Whether, under the facts and in the circumstances of the case and in law the CIT(A) erred in not appreciating the fact that the assessee is engaged in the business of manufacturing and supplying of equipment for cement plants, supervision of erection and commissioning of cement plants and also undertakes turn-key projects (including erection and commissioning) for minerals processing industries while the comparable company Promac Engineering Industries Ltd., is also in the business of engineering, manufacturing and supply of capital goods items on turnkey basis to cement and mineral industries? 5. Whether, under the facts and in the ci....
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.... assessee with respect to Good Will that was never recorded in the books of the assessee as such. 11. The Ld. CIT(A) has failed to consider the relevance of findings of the Assessing Officer with respect to the pooling of Interest method followed in the assessee's case of merger, the result of which is that Good Will was never recorded in the books of the assessee as such. 12. The Ld. CIT(A) has failed to consider the fact that the claim of good will by the assessee is not justified in the light of the merging entity having business loss and also having already sold IPR. 13. The Ld. CIT(A) has failed to appreciate that the Assessee has failed to counter the Assessing officers's findings with respect to the value of investment in the shares of the said FPIL pre and post the merger. 14. The Ld. CIT(A) has failed to appreciate that the decision of the Hon'ble Supreme Court in the case of CIT Vs Smirfs Securities Limited (2012) has only held that goodwill is a depreciable asset and not about the value of asset or written down value that is to be considered for the purpose of allowing the depreciation. 15. The Ld. CITA) failed to ....
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.... range of industrial weighing equipment and batching systems. As summarized in Note 43B of the Audited Financial Statements of AY 2014-15 of the assessee, the Scheme of Amalgamation of FPIL with the assessee, with effect from 1 April 2013 (the Appointed Date) was approved by the Hon'ble High Court of Bombay on 27.06.2014. The parties to the Scheme of Amalgamation filed the certified copy of the said Amalgamation Order with the Registrar of Companies on 19.08.2014. Pursuant to the Hon'ble Bombay High Court Merger Order, the assets and liabilities of FPIL were transferred to the assessee as per the Scheme of Amalgamation. The Assessee took a stand that the Cost of investment in FPIL exceeding the Value of Net assets transferred from FPIL to the assessee in accordance with the Hon'ble Bombay High Court Merger Order, is in the nature of goodwill eligible for tax depreciation in the hands of the Assessee. Consequently, the assessee claimed tax depreciation at 25% on goodwill, arising on amalgamation of FPIL with the assessee. The AO disallowed the assessee's claim of depreciation on goodwill arising on amalgamation. The CIT(A) allowed the assessee's claim of deprecia....
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.... the same is in the nature of Goodwill, eligible for tax depreciation at 25% on intangible assets. 8. Further, ld.AR also contended that the excess consideration paid i.e. Cost of investment in shares of FPIL over the net asset value of FPIL taken over, has been accounted as Deficit on amalgamation and reduced from the General reserves of the assessee as per the mandate of the applicable Accounting Standards. Such details of consideration paid (Cost of investment), net assets taken over and deficit on amalgamation has been duly disclosed in Note 43B of the Audited Financial Statements of AY 2014-15. The goodwill was not recorded in the books of the assessee prior to the amalgamation since goodwill arises only on amalgamation of FPIL with the assessee. However, for income tax purposes, such excess consideration paid is nothing but goodwill arising on amalgamation of FPIL with the assessee. The ld.AR also emphasized that the treatment of such excess consideration under the Income-tax Act may be different from the treatment adopted in the financials. In other words, accounting treatment followed in the books of account need not be followed for tax deductions and tax claims as he....
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.... of goodwill as an intangible asset or the claim of depreciation on goodwill for tax purposes. 10. As far as the aspect of power of authorities to consider the claim of the assessee for depreciation on goodwill during appeal proceedings is concerned, the ld.AR placed reliance on the decision of the Hon'ble Apex Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 (SC) wherein the Supreme Court held that there is no bar to consider the claim of the assessee for additional depreciation, made otherwise than by a revised return of income, by the appellate authorities. 11. At the outset, as far as the aspect of power of authorities to consider the claim of the assessee directly during assessment/appellate proceedings without filing a revised return of income is concerned, such an issue is no longer res integra and is covered by the decision of the Hon'ble Apex Court in the case of Goetze (India) Ltd. (supra). In the case of Goetze (India) Ltd. (supra), the question was whether the assessee could make a claim for deduction other than by filing a revised return, in an appeal against the findings of the High Court to the effect that the Revenue authorities were ....
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....d from FPIL to the assessee amounted to Rs.20,64,25,682/- as disclosed in Note 43B of the Audited Financial Statements of AY 2014-15 of the assessee. 14. We are of the view that the consideration of Rs.66,22,76,582/- paid for investment in shares of FPIL over the Value of Net assets of Rs.20,64,25,682/- transferred from FPIL to the assessee, pursuant to the Order of the Hon'ble Bombay High Court, amounting to Rs.45,58,50,900/-, is in the nature of Goodwill and is eligible for tax depreciation on intangible assets. 15. Adverting to the finding of the AO that the goodwill cannot be self- generated and that the claim of the assessee is on account of self-generated goodwill is not correct. The AO has relied upon Explanation 7 to section 43(1) and Explanation 2(b) to section 43(6) of the Act to hold that since goodwill was never recorded in the books, the assessee was not eligible for depreciation. But in the case before us, the goodwill on which depreciation is claimed by the assessee is arising out of the amalgamation scheme, and is not the self- generated goodwill as alleged by the AO. We find force in the submissions of the ld.AR that Explanation 7 to section 43(1) and Exp....
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....ngible asset and is eligible for depreciation for the amalgamations/mergers prior to AY 2021-22. 16. Further, the Ld. DR also submitted that depreciation on goodwill is not allowable in cases of accounting done under pooling of interest method. In this context, we find that so far as accounting for amalgamation by way of pooling of interest method is concerned, the Pune Bench of the ITAT in the case of Cosmos Co-op Bank Ltd. (supra) held that amalgamation in question not by way of purchase but is an amalgamation by pooling of interest method, is no ground to deny the claim of the assessee. The relevant extract of the Pune Tribunal decision is reproduced below: "The other objection of the CIT(A) to the effect that the amalgamation in question is not by way of purchase but is an amalgamation by merger, in our view, is no ground to deny the claim of the assessee, which is otherwise well-founded. Therefore, having regard to the aforesaid discussion, in our view, on facts and in law, the assessee is entitled for depreciation on the impugned sum for acquisition of business of commercial rights contemplated in section 32(1) (ii) of the Act. Thus, on the Ground of Appeal No.3, ....
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.... of the Income Tax Act, 1961 [`Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3 .-- For the purposes of this sub-section, the expressions `assets' and 'block of assets' shall mean -- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know- how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other 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). In the circumstances, we are of the view that `Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act....
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.... Company had adopted a different method of Fair Market Value of assets, both on the same date of 01.04.2016. Further, the Assessing Officer has brought out various defects in the DCF method followed by the Company to arrive at the intrinsic value of shares as on 31.03.2016. Therefore, the Tribunal in that case, held that since the assessee-company is unable to explain as to how a company can be valued on the very same day for different purposes, in their considered view, the argument of the Company that DCF method is the recognized method for the purpose of valuation of shares and the Company had acquired shares as per DCF method is devoid of merits and cannot be accepted. On the contrary, in the case of the assessee, the assessee had not followed two different methods of valuation and deficit on Amalgamation is recorded in Note 43B of the Audited Financial Statements of AY 2014-15 of the assessee. Therefore, the decision in the case of Invesco (India) Private Limited is distinguishable on facts and is not applicable to the case before us. 20. Further, the following decisions relied upon by the ld.AR also hold that goodwill is an intangible asset and tax depreciation on goodwill....
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....mparable. It was argued that the company is engaged in providing end-to-end turnkey solutions across diverse sectors including power, steel, coal and mining, ports, aluminum, water, oil and gas, as well as large-scale infrastructure projects such as buildings and townships, high-rise constructions, roads, metro, railways, etc. The assessee further submitted that McNally Bharat enjoys significant market presence and is largely insulated from market risks, as its operations are predominantly aligned with government-backed infrastructure projects. In light of these facts, it was contended that McNally Bharat Engineering Co. Ltd., being functionally dissimilar and risk-profile-wise incomparable with the assessee, was rightly excluded from the final set of comparables. International Combustions (I) Ltd .: 28. The Ld. DR relied upon the relied upon the order of the TPO, which rejected International Combustions (I) Ltd. by stating that the comparable is not functionally similar to that of the Assessee. 29. The Ld.AR argued that the assessee had chosen the comparable company for the reason that it was also in the manufacturing industry specially feeders, bulk material handling equ....
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....xtracted hereunder: 1. Incorrect consideration of the Arm's length Price of Business Support Services fee with respect to Legal and Controlling & Accounting services as 'NIL' 1.1 The AO/CIT(A) erred in confirming the action of the TPO in holding the arm's length price of the Business support service fees paid to the AE as 'Nil' without appreciating the fact that the payment for such services has been made on defined and generally accepted parameters and allocation keys. 1.2 The AO / TPO/ CIT(A) has erred in disallowing an ad hoc proportion of payments attributable for certain category of services, which is based on mere surmise and conjecture. 1.3 The AO/ TPO/ CIT(A) erred in law by accepting five out of seven components of the Business Support Service fee to be at arm's length and by disallowing the remaining two components of the Business Support Fee without appreciating the fact that disallowing only a part of the transaction is not valid under law. 1.4 The AO/ TPO/ CIT(A) having accepted the payment for part of the Business Support Service fee at a mark-up of 5 per cent to be at arm's length basis, has erred in....
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....htly classified the expenses and identified that the arm's length price for the Legal, Controlling and accounting expenses is NIL. 39. The Ld.AR for the assessee invited our attention to the fact that the assessee had entered into a Business Support Services Agreement with its Associated Enterprise ("AE") for the receipt of various business support services, pursuant to which the assessee agreed to remunerate its AE on a cost-plus markup of 5%. The agreement encompassed a bouquet of services. It was contended that the TPO has examined and accepted payments in respect of all other services rendered under the said agreement, but has selectively disallowed payments in relation to services in the nature of Legal, Controlling, and Accounting. 40. It was further submitted that the markup of 5% is uniformly applied to these services as well, in line with the terms of the service agreement and the group-wide cost allocation mechanism applicable across all group entities. The Ld.AR of the assessee has further highlighted that the TPO was satisfied with the evidence furnished for all other services, he has, without any cogent basis, disallowed only the Legal, Controlling, and Accou....
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....of management fees. Consequently, all the grounds of appeal raised by the assessee on this issue are allowed." 42. The Ld.AR placed reliance on the decision of the Chennai Bench of the Tribunal in M/s. Haworth India Pvt Ltd Vs. DCIT, Chennai (IT(TP)A No.23/Chny/2024) for AY 2020-21 wherein the Hon'ble Chennai Tribunal had held that: "We have noted the facts of the present case are akin to those available in judicial precedence discussed herein above. Thus, as the assessee's core business activity and sale is inextricably linked/dependent on the Global Account Management service from its AEs, the payment of these charges cannot be segregated and benchmarked separately. The judicial precedence discussed hereinabove also support this line of thinking. Accordingly, in respectful compliance to the same, we hold that the Assessee has rightly aggregated and benchmarked this transaction under TNMM. Accordingly, we hold that the TPO having accepted the overall TNMM analysis, was not right in excluding Global Account Management charges for separate benchmarking analysis. Accordingly, we set aside the order of lower authorities and direct the Ld.AO to delete the impugned a....
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....sed by the assessee vide cross objection to the department appeal on the issue is therefore allowed. 46. In the result the Cross objection filed by the assessee is allowed. ITA No .: 1763/CHNY/2024 - A.Y.2017-18 47. On the issue of allowability of depreciation on goodwill arising on amalgamation of FPIL with the assessee, we find that the facts of the case are identical to the earlier AY 2014-15, except that in the earlier AY 2014-15 the claim for tax depreciation on goodwill was made during assessment proceedings whereas in the subject AY 2017-18, the claim for tax depreciation on goodwill was made in the original return of income. In view of our decision on the same facts for AY 2014-15 and respectfully following the above precedents relied upon by the assessee on the issue, we are inclined to dismiss the grounds of appeal nos. 10 to 16 filed by the Revenue. Transfer Pricing issues: 48. The Ld. DR and Ld.AR contented as below in relation to exclusion/inclusion of comparable company: Promac engineering Industries Ltd (Promac) 49. The ld. DR relied upon the findings of the TPO and contended that Promac performs functions similar to those of the assessee. 50.....
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....ac Engineering Co. Ltd. be excluded from the final set of comparables. 54. As regards the comparable company, Eimco Elecon Ltd., we observe that the Ld. CIT(A) has held the said company it is observed that Eimco Elecon (India) Ltd. caters to Government companies/ projects which makes the company to operate under a profit making environment and further the company undertakes significant research and development activities. 55. In the absence of any material placed on record to controvert such finding, we concur with the view taken by the Ld.CIT(A) and accordingly direct that Eimco Elecon Ltd. be excluded in the final list of comparable companies. Aqua Pumps Infra Venture Ltd. 56. The Ld. DR has objected to the inclusion of Aqua Pumps Infra Venture Ltd. as a comparable on the ground that the said company is not functionally similar to the assessee, as it is engaged in construction activities relating to infrastructure projects in other fields. 57. Per contra, the Ld.AR submitted that the company was selected as a comparable since it is engaged in providing EPC services for infrastructure projects and that the nature of activities as well as the risk profile are compara....