TMI Blog2016 (3) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... done by payment of the consideration as on the completion date specified in the agreement the assessee would be in possession of the duly executed instruments of transfer, assignment and Conveyances of the assets as specified in the agreement which are basically the intellectual property' rights and the fixed assets. This being so, as also the principles as laid down by the Hon'ble Supreme Court in the case of Mysore Minerals Ltd. [1999 (9) TMI 1 - SUPREME Court ] it would have to be held that the assessee was the owner of the property and the assessee having used the same in its business was entitled to depreciation on the same. - Decided in favour of assessee - ITA no. 5293/Del/2011, ITA no. 2922/Del/2011 - - - Dated:- 12-2-2016 - SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA: JUDICIAL MEMBER For The Assessee : Shri Vishal Kalra Adv. For The Revenue : Shri Ramesh Chandra Danday Sr. DR ORDER PER S.V. MEHROTRA, A.M: These are cross appeals, preferred by the assessee as well as the revenue against the order dated 29.3.2011 passed by the ld. CIT(A)-XX, New Delhi in appeal no. 111/2007-08, relating to A.Y. 2003-04. 2. Brief facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales 960586354 838784851 Accretion (Depletion) in inventories 31280270 35170191 Cost of material 674639391 471386713 Total cost 705919661 506556904 Percentage of cost upon sales 73.49 60.39 4. From the above details, the TPO noticed that after taking net effect of accretion of inventories during the year, the cost of material had increased from 60.39% to 73.49% sales of which was unusual in an industry like manufacturing/ trading of air-conditioners, particularly when other expenses remained comparable with last year. In the backdrop of this variation, ld. TPO examined the benchmarking analysis of assessee in regard to import of raw-material and noted that assessee had used cost plus method taking Associated enterprises (suppliers) as tested party. He noted that assessee had compared the mark up charged by respective AE s from assessee with mark up charged by similar companies operating in Asia pacifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee as calculated in para 5.0 above at ₹ 880,885,953 the assessee must earn profit @ 4.09%. Thus in arm s length circumstances the assessee company would have earned a profit f ₹ 3,60,28,644/- (i.e. 4.09% of 880,895,953) whereas as per para 5.0 above the assessee is making an operating loss of ₹ 10,52,40,274/-. In order to bring the assessee company to arm s length the price of international transactions is to be adjusted by ₹ 14,12,68,918/- (Total of ₹ 3,60,28,644 and 10,52,40,274). 8. AO passed the assessment order as per the TPO s observations. 9. Being aggrieved with the assessment order the assessee preferred appeal before the ld. CIT(A). Before ld. CIT(A) the assessee presented an alternative analysis vide submissions dated 11.3.2011 and 24.11.2011 and pointed out that gross level analysis should be carried out to justify the arm s length nature of international transactions. It was further submitted that bench marking analysis should be done based on the segmentation into manufacturing and trading functions and the gross margin of the respective segment be compared with the gross margin earned by the comparables selected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance made by the learned TPO leading to an addition of ₹ 141,268,918. 10. Ld. counsel submitted that no opportunity was provided to assessee to offer its comments on the selection of comparables by TPO. No objections were invited from assessee and this was specifically challenged before ld. CIT(A) vide ground no. 2.8 reproduced below: Without prejudice to Ground 1.1, on the facts and in the circumstances of the case, and in law, the learned AO (along with the learned TPO- under reference from the learned AO) erred in not giving the appellant sufficient opportunity to explain/ clarify/ further substantiate the losses at net level. 11. He submitted that matter is to be restored back to the file of ld. TPO. In support of this contention ld. counsel relied on the decision in the case of Metal Toys India Ltd. wherein in para 41 it has been observed as under: 41. Now coming to the argument of the learned Departmental Representative that once the /assessee itself has chosen TNMM as most appropriate method in TPR, then it cannot resort to change its method at an assessment or appellate stage. In our opinion, such a contention cannot be upheld because if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most appropriate method, because assessee failed to substantiate the cost incurred by AEs which was adopted as base for applying cost plus method. On this count we do not find any reason to interfere with the order of ld. CIT(A). However, under such circumstance alternate analysis submitted by assessee was required to be considered by referring the same to ld. TPO. In this regard we may refer to the decision of Hon ble Delhi High Court in the case of Moser Baer India Ltd. Vs. Addl. CIT 316 ITR 1 has observed as under: Authorities which have power to decide and whose decisions would prejudice a party, entailing civil consequences, would be required to accord oral hearing even where the statute is silent. The provisions of sub-section (3) of section 92CA cast a duty in no uncertain terms on the Transfer Pricing Officer to afford an opportunity of an oral hearing. The reasons for coming to such a conclusion, apart from the clear wording of sub-section (3) of section 92CA, is that, apart from the civil consequences that the determination of the arm's length price would have on the assessee, any adjustment by the Assessing Officer to the arm's length price determined by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f during the year and closing balance of advertisement and publicity expenditure was explained as under: Opening Balance 46074417 Add: Incurred during the eyar 52151834 Less: Written off during the eyar by debiting P L A/c. 222280060 Closing balance 75998191 19. It was pointed out that though the expenditure of ₹ 52151834 was incurred during FY 2002-03, but only an amount of ₹ 22228060 was debited to profit loss account in FY 2002-03. However, in the corporate tax return the entire amount of expenditure incurred during the FY 2002-03 amounting to ₹ 52151834 was claimed as revenue expenditure and the amount of ₹ 22228060 was added back. The assessee placed reliance on various decisions to submit that the entire amount was allowable as business expenditure: - Kedarnath Jute Mfg. Co. Ltd. Vs. CIT 82 ITR 363; - Amar Raja Batteries Ltd. Vs. ACIT 272 ITR 17 (AT)(Hyd-ITAT) - Hindustan Commercial Bank Ltd. v. Re. 21 ITR 353 (All) - National Industrial Corporation Ltd. 124 Taman 413 (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Keeping all these facts in view and following the decision of Hon'ble jurisdictional High Court, we allow the grounds of assessee's appeal and dismiss the revenue's ground no. 4. 24. Respectfully following the same this ground is dismissed. 25. Brief facts apropos ground nos. 2 3 are that assessee had claimed depreciation amounting to ₹ 41511312/- which included depreciation of ₹ 28,12,500/- on goodwill and ₹ 1,53,70,313/- on patent and trade marks @ 25%. AO had disallowed the assesse s claim in regard to depreciation on goodwill observing that the same was not covered under intangible assets under the Income-tax Rules. As regards depreciation on patent and trademarks, the AO denied the assessee s claim, inter alia, observing that patent, trade marks were required to be registered under the Trademarks Registration Act and only the company in whose name the same had been registered, was entitled to use the same. 26. Ld. CIT(A) noted that disallowance of depreciation of ₹ 28,12,500/- was in respect of written down value of the amount paid to Usha International Ltd. for acquiring the business and commercial rights sin AY 2001-02. She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exclusive business rights as defined in the agreement were represented as carrying on the business as successor to Usha International Ltd. which include all records of business including records of suppliers and customers; the benefit of the current orders; the benefit of all bids and proposals that have been made by Usha International Ltd. and all rights to Usha International Ltd. distribution network for the business excluding Usha International Ltd.'s company shop. The consideration for exclusive business rights was payable of Rs.l,73,00,000/-. For other business and commercial rights ₹ 27,00,000/- was paid. These amounts were capitalized as goodwill in books of accounts. These amounts were paid to Usha International Ltd. during the period relevant to assessment year 2001-02. These amounts were capitalized as Goodwill in the books of account. F or computing the taxable income, depreciation was claimed @ 250/0 as prescribed in schedule of depreciation rates in respect of the intangible assets. The depreciation in the year 2001-02 was claimed at ₹ 50,00,000/- and in assessment year 2002-03 at ₹ 37,50,000/-. For the assessment year 2001-02, the CIT (A) &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, the order of the CI'I' (A) may be upheld: 6. We have heard both sides and perused the material on record. Since the assessee has got the relief f from ITAT in the preceding year, on the same facts. The issue remains the same, therefore, respectfully following the decision of I'I'A'T, we dismiss this ground of revenue's appeal. 28. No change in facts, for the assessment year in question, have been brought to our notice. Therefore, respectfully following the earlier orders of the Tribunal in assessee s own case, we uphold the order of CIT(A). Ground is dismissed. 29. As regards depreciation on WDV of patent, trademark and intellectual property rights paid to Ciel Aircon Ltd. is concerned, ld. CIT(A) noted that assessee company vide business purchase agreement entered on 8.8.2000 purchased the manufacturing business of Siel Aircon Ltd. and the consideration for the Intellectual Property Rights, paid by the assessee was ₹ 109,300,000 to SAL. The assessee pointed out that as per provision of Trademark Act, 1999, a person is entitled to assign use of trademark. In this regard reference was made to sections 37 38 of the Trademar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness and there has been no claim against the assessee for the use of the said trademarks. In fact as per the agreement in clause 8.1 (a)(i) it has been specifically agreed that on completion duly executed instruments of transfer, assignment etc. as the assessee may reasonably be required to complete the transfer, assignment and conveyance of the asset in accordance with the provisions of this agreement shall be delivered to the assessee at a place nominated by the assessee. This clearly shows that once the completion of the agreement is done by payment of the consideration as on the completion date specified in the agreement the assessee would be in possession of the duly executed instruments of transfer, assignment and Conveyances of the assets as specified in the agreement which are basically the intellectual property' rights and the fixed assets. This being so, as also the principles as laid down by the Hon'ble Supreme Court in the case of Mysore Minerals Ltd. referred to supra and reaffirmed the decision of Dalmia cements it would have to be held that the assessee was the owner of the property and the assessee having used the same in its business was entitled to deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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