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2023 (3) TMI 546 - AT - Income TaxTP Adjustment - selection of MAM - rejection of Transactional Net Margin Method (TNMM) as the most appropriate method - rejection of comparables selected while benchmarking the transaction relating to import of finished goods from the Associated Enterprises (AE) - Assessee is a subsidiary of Medtronic USA Inc., a USA based company - HELD THAT:- As in view of the decision of the Hon'ble Jurisdictional High Court in Audco India Ltd. [2019 (5) TMI 694 - BOMBAY HIGH COURT] the contention of the Revenue that Hon’ble DRP/ TPO having accepted RPM as the most appropriate method should have undertaken a fresh benchmarking under RPM cannot be accepted. In such circumstances, when no other method is applicable, as a method of last resort, TNMM has to be applied as most appropriate method. As further noticed, in subsequent assessment years, not only the Assessee has benchmarked the import of finished goods from the AE by applying TNMM, but the Transfer Pricing Officer has also accepted it as the most appropriate method. For the aforesaid reasons, we do not feel the necessity to restore the issue to the Assessing Officer/Transfer Pricing Officer for fresh adjudication. The Revenue has not been able to controvert the submissions of learned counsel for the Assessee nor any decision contrary to the decision of Tribunal in Appellant’s own case has been furnished by the Revenue. Thus, we find no reason to take a contrary view, hence, ground No. 4 to 7 of the appeal are allowed in similar terms TP adjustment on account of direct sales made by the AE to third parties in India - addition on account of commission on direct sales made by the AE to third customer in India was made on notional basis - HELD THAT:- For the earlier year of AY 2002-03 Tribunal restored the issue back to the Assessing Officer / Transfer Pricing Officer to verify whether there was any involvement of the Assessee in the direct sales made by the AE in India. Similar view was expressed by the Tribunal while deciding the issue in assessment years 2003–04, 2004–05 and 2007-08. Following the consistent view of the Tribunal cited supra, we restore the issue to the Assessing Officer for fresh adjudication in terms with the directions of the tribunal in the preceding assessment years as referred to above. Grounds are allowed for statistical purposes. Depreciation on plant and machinery and building - A.O while disallowing the assessee’s claim for depreciation had relied on the orders passed in earlier years - HELD THAT:- We are of the considered view, that pursuant to the introduction of the depreciation on the written down value of the “block of asset‟ by the Taxation Laws (amendment and miscellaneous provision) Act, 1986 w.e.f. 01.04.1988, depreciation is allowable on the WDV on the “block of assets‟ and not on the individual items of the assets included in such block. In fact, we find that the Tribunal had consistently in the case of the assessee for other years [2015 (12) TMI 1673 - ITAT MUMBAI] directed the A.O to allow depreciation on plant and machinery and building as claimed by the assessee. Allowable business expenses - Disallowance being expenditure incurred on gift articles -claim of the assessee that the expenditure incurred towards gift items given to the customers is wholly and exclusively for the purpose of assessee’s business - HELD THAT:- Notably, while deciding identical issue in assessment years 2003–04, 2004–05 and 2007-08 in the orders referred to above, the Co– ordinate Bench has held that the expenditure incurred on gift items being wholly and exclusively for the purpose of assessee’s business, is an allowable expenditure. Disallowance of expenditure incurred in respect of foreign trip of doctors - HELD THAT:- In accordance with the decision rendered in the case of Apex Laboratories Pvt. Ltd. .[2022 (2) TMI 1114 - SUPREME COURT] wherein disallowance was made for the expenditure and freebies incurred on or after 14 December 2009, the expenditure incurred on foreign trip of doctors for AY 2006-07 is allowable being incurred prior to 14 December 2009. Consequently, ground of the appeal is allowed. Disallowance of depreciation on goodwill - assessee claimed depreciation @ 25% on the written down value (WDV) of goodwill by treating it as an intangible asset - HELD THAT:- The issue relating to depreciation on goodwill by treating it as an intangible asset under section 32(1)(ii) of the Act is no more res integra in view of the decision of the Hon'ble Supreme Court in CIT v/s Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] as held that goodwill is in the nature of any other business or commercial right or similar in nature, hence, is to be treated as intangible asset. Thus we allow assessee’s claim of depreciation on goodwill. Ground raised is allowed. Disallowance of expenditure in respect of provision of expenses written back - HELD THAT:- Hon’ble Mumbai ITAT, in the Assessee’s own case for AY 2003-04 [2017 (6) TMI 334 - ITAT AHMEDABAD] has directed not to treat the reversal of provision as income in AY 2006-07. Notably, as Tribunal has directed to not the treat the same as income in AY 2006-07, we direct the AO to delete the addition made accordingly. This ground is allowed. Allowance of depreciation on non–compete fee - additional ground raised - HELD THAT:- Undisputedly, in the year of payment of non–compete fee i.e., A.Y. 2002–03, the assessee had claimed it as revenue expenditure. However, the Departmental Authorities as well as the Tribunal held that the expenditure incurred by the assessee is capital in nature. Of course, the Tribunal allowed depreciation on non– compete fee by treating it as an intangible asset. Notably, in subsequent assessment years i.e., 2003–04, 2004–05, 2008–09, 2011–12, 2012–13, 2013– 14 and 2014-15, the Tribunal has allowed assessee’s claim of depreciation on non–compete fee while entertaining additional ground raised by the assessee. Therefore, following the consistent view of the Tribunal AY 2008-09 [2018 (5) TMI 587 - ITAT MUMBAI] we direct the Assessing Officer to allow depreciation on the opening WDV of the non– compete fee. This ground is allowed. TP Adjustment - MAM selection - difference in price Transfer Pricing Officer charged by AEs to the assessee and third party distributors - whether TPO has accepted TNMM as the most appropriate method for majority of export of AE, erred in applying CUP method for some of the transactions as two methods cannot be applied for one class of transactions? - HELD THAT:- As it is a well settled principle of law by decisions of various Courts & Tribunal that most appropriate method should be selected to benchmark international transactions of the assessee with its AE based on nature of transaction. However, it is incorrect to adopt two methods for one class of transaction and benchmarking such transaction by cherry picking a portion of the transaction undertaken by the assessee with its AEs and this principle is supported by the decision of ITAT Pune bench of Amphenol Interconnect India Pvt Ltd [2018 (3) TMI 536 - BOMBAY HIGH COURT] upheld by the Hon’ble Bombay High Court. Accordingly, we agree with the Appellants contentions and the said ground is allowed in favour of the Appellant. Expenditure incurred on purchase of catalogues and brochures - Assessee had imported and purchased catalogues and brochures separately because the catalogues and brochures - HELD THAT:- The issue is covered by Tribunal’s order for AY 2004-05 [2017 (6) TMI 334 - ITAT AHMEDABAD] as find no merit for disallowance of expenditure incurred on purchase of catalogues and broachers, which were wholly and exclusively for the purpose of business. Accordingly, AO is directed to delete the same. Disallowance of expenditure incurred on software - HELD THAT:- Relying on the submissions made by the assessee and the decisions of ACIT vs Asahi India Safety glass [2005 (12) TMI 454 - ITAT DELHI], Empire Jute Co Ltd v CIT [1980 (5) TMI 1 - SUPREME COURT] and Alembic Chemical Works Co. Ltd. [1989 (3) TMI 5 - SUPREME COURT] we do not find any merit in disallowance of expenditure incurred on software which is lower in amount and for the business purpose of the assessee. Accordingly, AO is directed to delete the same. Disallowance of expenditure in respect of Earnest Money Deposit (‘EMD’) written off - HELD THAT:- Relying on the details submitted, arguments put forth by the Ld. AR for the assessee and the decisions relied upon by the assessee, we are of the considered view that the Earnest Money Deposit written off is revenue in nature and allowable as expenditure in the event of forfeiture. Accordingly, AO is directed to delete the addition made. Payment non-compete fee - HELD THAT:- As ITAT has alreadyallowed depreciation holding that IMPL has acquired intangible assets innature of any other business of commercial rights. We accordingly directthe AO to allow depreciation on the non-compete fee so incurred by the assessee.
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