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2015 (11) TMI 16 - AT - Income TaxDisallowance of 50% of purchase value of second hand machineries - Transfer pricing adjustment - Held that:- When the Transfer Pricing Officer has failed to refer the valuation to the DVO and on the contrary has proceeded to quantify the value of the machineries at 50% by adopting a method which is not in conformity with the statutory provisions, in our view, the matter cannot be restored back to him again for giving him a second innings. Considering the fact that 50% disallowance made out of the purchase value of machineries is without any basis and in violation of statutory provision, we are inclined to delete the addition made on account of adjustment made by the Transfer Pricing Officer by disallowing 50% of purchase value of second hand machineries. - Decided in favour of assessee. Cost sharing arrangement towards information technology, commercial, finance, legal and administrative support - Transfer Pricing determined the arm’s length price of the cost sharing arrangement at “NIL” on the basis of certain general and sweeping observation - Held that:- Determination of arm’s length price at “NIL” without following the method prescribed under the statute is legally unsustainable. The DRP, in our view, has also upheld the determination of arm’s length price at “NIL” in a mechanical manner without proper application of mind. It is pertinent to mention here that in the immediately succeeding year i.e., assessment year 2007–08, the Transfer Pricing Officer, while considering the issue relating to determination of arm’s length price of similar cost sharing arrangement and I.T. support, has disallowed 20% of the total cost incurred by the assessee. This itself shows that the Transfer Pricing Officer accepts the fact that the A.E. has provided certain services to the assessee and the assessee has availed such services. In view of the aforesaid, we hold that the determination of arm’s length price of the cost sharing arrangement and I.T. support cannot be taken as “NIL” and the cost incurred by the assessee on actual basis deserves to be allowed. We order accordingly. - Decided in favour of assessee. Disallowance of depreciation on goodwill - Held that:- In view of the observations of the Co–ordinate Bench of the Tribunal in assessee’s own case for the preceding assessment year, on materially identical facts, we have no hesitation in allowing assessee’s claim of depreciation on goodwill. Insofar as the learned Departmental Representative’s contention that goodwill having not been specifically included in Explanation 3(b) to section 32 of the Act, depreciation is not allowable, we have to observe, the issue is no more res integra in view of the Hon’ble Supreme Court’s decision in SMIFS Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT), wherein in no uncertain terms it has been held that goodwill being in the nature of any other business or commercial rights is an intangible asset under Explanation 3(b) to section 32(1) of the Act.- Decided in favour of assessee. Enhancing the value of closing stock of raw material by the amount of unutilized CENVAT credit - Held that:- If any adjustment is required to be made in terms with section 145A, effect to the same should be given irrespective of any consequences on the computation of income for tax purposes. The Court held for giving effect to section 145A of the Act, if there is change in the closing stock of the relevant previous year, then there must necessarily be a corresponding adjustment made in the opening stock as on the beginning of the relevant previous year. The aforesaid view was accepted in the case of CIT v/s Mahalaxmi Glass Works Pvt. Ltd., [2009 (4) TMI 182 - BOMBAY HIGH COURT]. In the present case, since the assessee has not made any adjustment to the opening stock by including the CENVAT credit, there is no need to make adjustment to the closing stock only by including the unutilised CENVAT credit. On the flip side, if adjustment is made to the closing stock, then corresponding adjustment has to be made to the opening stock of raw material for the next year. In either case, it will be revenue neutral. Hence, in our view, the adjustment made by the Assessing Officer and confirmed by the learned CIT(A) is not sustainable. Accordingly, we delete the same - Decided in favour of assessee.
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