9911796707
TMI Blog2019 (5) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the Assessee challenging various additions made to the total income declared by the Assessee in its return of income. The Assessee has also filed applications for admitting additional grounds of appeal vide application dated 14.1.2016 and another additional ground of appeal dated 22.11.2018 filed in the registry on 4.1.2019. 3. Before we deal with the grounds of appeal raised by the Assessee, we need to first consider the Assessee's application dated 22.11.2018 for admission of the following additional ground of appeal because it is a preliminary issue challenging the impugned order as one passed beyond the period of limitation and therefore non est in law:- "That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer is barred by limitation and therefore, is liable to be quashed." 4. The aforesaid additional ground of appeal raises a purely legal issue which does not require any fresh investigation into facts; facts already being on records. The aforesaid additional ground of appeal is therefore admitted for adjudicated on merits in view of the discretion conferred on the Tribunal under Rule 11 of the Income-tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 92CA- (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the words "thirty-three months" had been substituted: Provided also that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2009 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA- (i) is made before the 1st day of July, 2012, but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of July, 2012, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the words "three years" had been substituted. Reference to dispute resolution panel. 144C. (1) The Assessing Officer shall, notwithstanding anything to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. Explanation.-For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a nonobstante clause. The Assessee has a right to file objection to the draft assessment order or convey his acceptance to the proposals in the draft assessment order and the time limit for doing so is 30 days from the date of receipt of the draft assessment order. If the Assessee conveys his acceptance to the draft assessment order or does not file objections to the DRP within the time limit specified in Sec.144C(2), the AO has do pass final assessment order within one month from receipt of acceptance or expiry of period for filling objection to DRP and no such objection is filed (Sec.144C(3) of the Act). If objections are filed before DRP, the DRP shall issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment u/s. 144C(5). In terms of Sec.144C(12) directions u/s.144C(5) has to be issued on or before expiry of nine months from the end of the month in which the draft order is forwarded to the eligible assessee. Sec.144C(13) of the Act lays down the time limit for the AO to pass an order giving effect to the directions of the Tribunal and it reads thus:- "Upon receipt of the directions issued under sub-section (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of the assessment proceedings. 11. It was further submitted that the non-obstante clause in section 144C(4) of the Act curtailing the time limit to pass a final assessment order within one month, in case where the assessee does not make an application to the DRP, notwithstanding the time limit provided in section 153(1) of the Act is to curtail the limitation that would otherwise have been available to the assessing officer to pass the final assessment order. The time limit of one month in section 144C(4) cannot be read as additional time provided to the assessing officer, over and above limitation in section 153 of the Act to pass the final assessment order in the case of an eligible assessee. It was submitted that for the same reason, the time limit of one month in section 144C(13) to pass the assessment order pursuant to the directions of the DRP cannot be construed as additional time available to the assessing officer, over and above the normal limitation in section 153 of the Act to pass the assessment order. It was submitted that the nonobstante clause(s) in sections 144C(1)/144C(4) / 144C(13) have to be read in context, limited to the purpose for which the same are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he correct law, we are of the view that a co-ordinate Bench decision is binding on us, and we find no reason for not following the same. We therefore reject the additional ground raised by the Assessee on the question of limitation. 15. We shall now take up the grounds of appeal raised by the Assessee. Gr.No.1 raised by the Assessee in the grounds of appeal reads as follows:- "1. The impugned order of the Assessing Officer passed consequent t the order of the Dispute Resolution Panel (for short DRP) is not sustainable in the eyes of law as the same is passed without considering the explanations of the appellant in proper prospective, the same is passed without proper application of mind." This ground is general in nature and calls for no specific adjudication. 16. Gr.No.2 & 3 raised by the Assessee in the grounds of appeal reads as follows:- "2. The assessing Officer as well as DRP grossly erred in ignoring the plea of the appellant with regard to the exclusion of tele-communication charges that the payments were made to the service provider for connectivity within India and therefore the expenditure was not attributable to the delivery of article or things incurred in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot for export of computer software outside India and therefore the exclusion from export turnover as done by the AO was not correct. Without prejudice to its contention that the aforesaid sums should not be excluded from the export turnover while computing deduction u/s.10A of the Act, the Assessee has also made an alternate prayer that expenses that are reduced from the export turnover should also be reduced from the total turnover and in this regard has placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn) wherein it was held that while computing deduction u/s.10A of the Act expenses that are reduced from the export turnover should also be reduced from the total turnover. The CIT(A) however upheld the order of the AO. 19. Aggrieved by the order of CIT(A), the Assessee has raised Gr.No.2 & 3 before the Tribunal. The learned counsel for the Assessee submitted that section 10A of the Act seeks to allow deduction in respect of the profit derived by an assessee from the export of articles or things or computer software etc. in accordance with conditions provided therein. For the purpose of working out the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that communication charges should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon'ble Karnataka High Court has been upheld by the Hon'ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 & Ors. dated 24.04.2018. In view of the acceptance of Gr.No.3, We are of the view that Gr.NO.2 that the expenditure in question ought not to be excluded from the Export Turnover is academic and therefore left open without any decision. 21. Ground No.4 raised by the Assessee reads as follows: "4. The Assessing Officer as well as DRP erred in making the addition of Special Additional Duty of Customs at 4% to the tune of Rs. 5,74,87,167/- without proper application of mind and without appreciating that the same had not accrued during the year to the appellant." 22. During the relevant assessment year 2008-09, the Assessee had shown as income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had the same been manufactured in India, under section 3(5) of the Customs Tariff Act, 1975. Pursuant thereto, upon export of finished product, the assessee was eligible to claim refund of SAD paid at the time of import of raw materials/components. Accordingly, in the books of accounts, the SAD amount is reduced from the cost of materials used in the export of finished products. Procedurally, upon export of the goods, a refund claim is required to be lodged with the customs authority for refund of SAD. The custom authorities, after verifying the claim on the basis of documents so furnished, pass an order for refund of the said amount. As per Sec.27 & 27A of the Customs Act, claim for refund of SAD is not automatic and is subject to the following conditions viz., (a) an application has to be made for claim of refund of excess customs duty paid under section 27(1) of the Customs Act; (b) such application has to be processed and an assessee will be entitled to refund only if an order is passed under section 27(2). Though the Assessee had lodged claim for refund with the custom authorities, the SAD refund was not sanctioned by the authorities. Therefore the Assessee had no right to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into account as per the provisions of the Act and not as per the book entries. Reference in this regard was made to the decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Company v. CIT 82 ITR 363(SC) laying down the aforesaid proposition. The learned DR reiterated the stand of the AO that when the Assessee has recognized accrual of income in the books of accounts, that by itself would be sufficient to bring to tax the same. 27. We have considered the rival submissions. We are of the view that in the light of the statutory provisions cited for getting an order of refund of SAD, the mere fact that it was recognized as income in the books of accounts by the Assessee would not be sufficient to bring the same to tax. The decisions cited by the learned counsel for the Assessee in this regard supports the plea that there would be no accrual of income unless the authorities concerned, pass an order sanction of refund and that the entries in the books of accounts by the Assessee are not conclusive in the matter of deciding the point of time at which income can be said to have accrued to an Assessee. Apart from that, we find that out of the total SAD refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to have treated the difference between, the value of tangible and intangible assets assigned as per the valuation report and the written down value of the assets in the books of IR as being Goodwill and allowed depreciation as per the provisions of the Act. 16. Without prejudice to Ground No.8, the AO/DRP ought to have held non-compete fee of Rs. 5,40,00,000 as being a depreciable asset and allowed depreciation as per the provisions of the Act. Raised as Additional Ground of Appeal No. 19, 21 to 23 :- 19. AO/DRP ought to have allowed the value assigned to license, permits, certification, accreditation etc., acquired from IR amounting to Rs. 70,00,000 (Rupees Seventy Lakhs) as revenue expenses and should the same be disallowed, the AO ought to provide depreciation on the same. 21. AO/DRP ought to have held goodwill of Rs. 43,40,89,871 as being a depreciable asset and allowed depreciation as per the provisions of the Act. 22. The Appellant also craves for leave to claim an amount of Rs. 13,87,00,000 as revenue expenditure paid towards the right to supply spare parts to customers of IR. Notwithstanding this argument, in case this amount is considered as a payment towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities in such sales. There is no dispute that the transfer of RDB by IRIL to the Assessee under the BTA is a slump sale. The Assessee is the transferee and taxation of Slum Sale in the hands of the Transferor (IRIL) is governed by Sec.50B of the Act. As far as Assessee is concerned, after the transfer, he has to record the individual items of assets that were transferred under the Slum Sale in his books of Accounts. Since at the time of purchase of business, no values were assigned for individual assets and liabilities forming part of the undertaking acquired by way of slump sale, post-acquisition of business, various assets and liabilities taken over were recognized and accounted for individually in the books of accounts of the purchaser i.e., the assessee for accounting and tax purposes on the basis of valuation report dated 28.03.2008 obtained from H.V Krishna Swamy (refer pages 286-296 of PB - Vol 1 / pages 2730 - 2740 of PB - Vol 4) and valuation report dated 5.08.2008 obtained from Bizworth for valuation of tangible and intangible assets respectively, as under (refer pages 324-371 of PB). Particulars Amount (Rs. in lacs) Remarks TANGIBLE ASSETS (A) Valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee was as follows: "Pursuant to a business agreement dated May 4, 2007 between Ingersoll-Rand (India)Ltd., (Ingersoll-Rand), the Company has during the year acquired the following Assets and Liabilities of the Road Machinery Division of Ingersoll-Rand. Fixed Assets (Note (a) below) 175,77,55,740 Current Assets Inventories 20,17,44,753 Sundry Debtors 19,83,27,779 Cash and Bank 1,66,03,937 217,44,32,209 Other current Assets Less: Current Liabilities & Provisions Liabilities 26,84,64,784 Provisions 2,18,57,296 9,03,22,080 Net Assets taken over from Ingersoll-Rand 188,41,10,129 The difference between the Purchase consideration of Rs. 231,82,00,000 and the value of the net assets of Rs. 188,41,10,129 taken over amounting to Rs. 43,40,89,871 has been accounted for as Goodwill. Note (a): These are based on an independent valuation and includes intangibles (comprising of Technical know how and Marketing rights) aggregating to Rs. 88,08,00,000." 33. Out of the aforesaid addition to fixed assets aggregating to Rs. 175,77,55,740, the Assessee claimed depreciation on the following va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mp sale of RDB was a sum of Rs. 231,82 lacs. After allocation of values for various Assets and intangibles there was a difference of Rs. 43,40,89,870/- which was treated as Goodwill. However, no depreciation was initially claimed in the return of income on goodwill aggregating to Rs. 43,40,89,870. The relief in respect of depreciation on Goodwill is sought by the Assessee in (Additional) Ground No.15 & 21 specifically. 39. Also, certain business and commercial rights related to spare parts supply rights and benefits amounting to Rs. 13,87,00,000 and sales promotion material aggregating to Rs. 15,00,000 were neither capitalised nor claimed as revenue expenditure. However, claim of depreciation was made before the assessing officer vide letter dated 15.10.2012 on the aforesaid amounts (refer pages 603-606 of PB-Vol 1 / pages 2817-2820 of PB - Vol 4). The non allowance of depreciation on commercial rights related to spare parts supply rights and benefits of Rs. 13,87,00,000/- is agitated in (Additional) Ground No.22. 40. In Ground No.23, the Assessee has sought to raise a plea that total consideration paid to IRIL towards acquisition of business should be allowed as revenue expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the values on the basis of valuer's report. Accordingly, the assessing officer disallowed the claim of depreciation to the extent of Rs. 18,19,73,312, as under Asset Cost as per Valuation report WDV as per IR as on 4.5.2007 Rate of depreciation Depreciation as per valued cost Depreciation as per adopted cost Difference Depreciation Buildings 8,76,60,000 3,34,24,359 10 87,66,000 33,42,435 54,23565 Furniture & fittings 2,03,74,000 1,12,98,402 10 20,37,400 11,29,840 9,07,560 Machinery & plant 11,58,00,000 5,40,10,049 15 1,73,70,000 81,01,507 92,68493 Vehicles 11,36,000 10,17,277 15 1,70,400 1,52,592 17,808 Computers and Software 1,55,90,000 92,05,190 60 93,54,000 55,23,114 38,30886 Intangible assets 65,01,00,000 0 25 16,25,25,000 0 162525000 Total 89,06,60,000 10,89,55,300 20,02,22,800 1,82,49,488 18,19,73,312 44. It can be seen from the aforesaid chart that the AO allowed depreciation as per the written down value as appearing in the books of the transferor for all items of assets except intangible assets which was not recognised by the transferor in its books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year from the date of acquisition in India on road making machinery. The Copy of the said understanding was not furnished. (iv) the allocation of value for brand value was made only on the basis of statement of Assessee's sales and marketing team which was to the effect that the Assessee without the brand name of IR would not be able to penetrate the market for next three years. (v) The valuation of supplier database which was estimated at Rs. 3 lacs per vendor was not based on visit of the potential supplier, obtaining prototypes and samples and due diligence evaluation. Customer database cannot be regarded as a depreciable asset. 46. The DRP upheld the conclusions of the AO by observing at para 10.2 of its directions that the business transfer agreement did not give any break up of values of each item of asset and that the Assessee has failed to substantiate its case. 47. We have heard the rival submissions. Copy of the valuation report dated 28.3.2008 by H.V. Krishnaswamy for valuation of Plant & Machinery etc., is at pages 2730 to 2740 of paper book-4. Copy of the valuation report dated 5.8.2008 by Bizworth for valuation of intangibles is at pages- 2741 to 2788 of paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity who wanted to determine the 'actual cost' as required by Explanation 3 to section 43(1) to place some evidence on record. The ITO is required to determine actual cost to the assessee having regard to all the circumstances of the case and if in his opinion the written down value was the actual cost, he ought to have supported the same by placing sufficient evidence so as to dislodge the valuation report of the registered valuer. 48. Similarly in the case of Unimed Technologies Ltd. vs. DCIT 73 ITD 150 (Ahd.), it was held that Explanation 3 to section 43(1) of the Act could be invoked only if the Assessing Officer was of the view that fair market value of assets had been inflated to claim excess depreciation; where fair market value of asset had been certified by registered valuer and the assessing officer had not appointed his own valuer for valuation of disputed assets and had even not thought it necessary to examine the said valuer, there being no other evidence to show that the report was not reliable, the valuation report filed by the assessee could not be ignored. In South Asia Tyres Ltd. vs. DCIT: 107 TTJ 319 (Pune), similar proposition as laid down by the Ahmedabad ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s undisputed that but for invoking Explanation-3 to Sec.43(1) of the Act, there is no other basis for not allowing the claim for depreciation as made by the Assessee. On the facts of the case, we are convinced that the AO has not established the existence of facts to justify invoking Explanation-3 to Sec.43(1) of the Act and therefore, we hold that the depreciation on the cost of acquisition of various assets as claimed by the assessee in the return of income should be allowed. Thus Ground No.5 is allowed. 52. As far as Ground No.7 is concerned, the complaint of the Assessee is that it did not have opportunity of being heard on this issue. Neither before AO nor before DRP, the Assessee has provided details of the warranties which were claimed as revenue expenditure. In the statement of facts before DRP it is claimed that warranty claims were taken over from IRIL in the slum sale. The issue requires examination afresh by the AO and the order of DRP/AO is set aside, with liberty to Assessee to establish its claim with evidence. 53. As far as Gr.No.8 and (additional) Gr.No.16 are concerned, the facts are that the Assessee claimed deduction of Rs. 5,40,00,000 in the return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iliate, from conducting any business activities conducted by them as of the date of this agreement(other than the Business), including the business activities of all IR company stores retained by sellers (provided that any business activities conducted by such retained IR company stores shall always be conducted in accordance with the terms of the IRES Sales & Service Agreements ), and the business activities required of the sellers pursuant to the Closing Agreements and pursuant to this Agreement;(ii)Sellers, directly or through any Affiliate, from investing in or holding not more than 10% of the outstanding capital stock or other ownership interests of any person; (iii) the Sellers, directly or through any Affiliate, from hereafter acquiring and continuing to own and operate any entity which has operations that compete with the business if such operations account for no more than 25% of such acquired entity's consolidated revenues at the time of such acquisition; and (iv) the sellers, directly or through any Affiliate, from selling inventory or other Assets then owned by any seller." (emphasis supplied) 56. The aforesaid clause is applicable to the transfer of RDB business by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tangible right, which can be characterized as commercial rights and the Assessee should be allowed the benefit of depreciation on the value as estimated by the Assessee in its valuation report under section 32(1)(ii) of the Act, as laid down in several decisions which we will refer to while dealing with claim of depreciation on goodwill. We hold and direct accordingly and allow Gr.No.16 (Additional) and dismiss Gr.No.8 raised by the Assessee. 59. Additional Gr.No.15 & 21 are concerned, the same are in relation to Goodwill claimed by the Assessee as deductible revenue expenditure or in the alternative treat is as commercial right on which the Assessee should be allowed depreciation. 60. As we have already seen, during the relevant assessment year under consideration, the assessee had acquired the road machinery business of Ingersoll Rand on a "slump sale basis" for a consideration of Rs. 2,31,82,00,000. Further, post-acquisition, based on an independent valuation, the difference between the total consideration and the value allocated to tangible and intangible assets amounted to Rs. 43,40,89,871 which was accounted as an asset in the books of accounts for the financial year ended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) + (B) + (C) 2317.89 63. It was the plea of the Assessee that the excess of purchase consideration over the value assigned to tangible assets, was allocated to intangible assets to the extent of Rs. 88.08 crores and goodwill to the extent of Rs. 43.40 crores. Such portion of the purchase consideration (which is in excess of the value allocated to tangible assets acquired as part of the undertaking), represents consideration paid for acquisition of various intangible assets in the form of leases, licenses, customer/ supplier database, business contracts, patents, trademarks, etc. The same was reflected in the accounts as (a) intangible assets and (b)goodwill. Irrespective of the nomenclature placed thereupon, the amount is for acquisition of invaluable business and commercial rights, eligible for depreciation in terms of section 32(1)(ii) of the Act. 64. The learned counsel for the Assessee invited our attention to the decision of the Supreme Court in the case of CIT vs. Smiffs Securities Ltd.: 348 ITR 302 wherein the Supreme Court was concerned with claim of depreciation on goodwill made by the amalgamated company. The Supreme Court regarded goodwill/ reputational advantag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the various intangible assets acquired by the assessee, viz., business claims, business information, records, contracts, etc., were invaluable commercial rights, which were necessary to carry on the business acquired through slump sale. Accordingly, the High Court held that the same were in the nature of intangible assets eligible for depreciation under section 32(1)(ii) of the Act in the residual category of "business or commercial rights". The relevant observations of the High Court are as under:- "13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in Section 32(1)(ii) of the Act, it is seen that such rights need not answer the description of "knowhow, patents, trademarks, licenses or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(1)(ii) of the Act preceding the term " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of "business or commercial rights of similar nature" specified in Section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that Section..." (emphasis supplied) 66. Our attention was also drawn to a similar decision of Hon'ble Delhi High Court in the case of Triune Energy Services Private Limited vs. DCIT: 237 Taxman 230, wherein it was held that goodwill is an intangible asset providing a competitive advantage to an entity which includes a strong brand, reputation, a cohesive human resource, dealer network, customer base, etc.; the expression 'goodwill' subsumes within it a variety of intangible benefits that are acquired when a person acquires a business of another as a going concern. The Court further held that from an accounting perspective, it is well established that 'goodwill' is an intangible asset, which is required to be accounted for when a purchaser acquires a business as a going concern by paying more than the fair market value of the net tangible asset (i.e., assets less liabilities); the difference in the purchase consideration and the net value of assets and liabilities is attributable to the commercial benefit that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70. As far as (additional) Gr.No.22 is concerned, the assessee claimed deduction in respect of the amount of Rs. 13.87 crores allocated out of slump consideration towards the rights acquired for supply of spare parts to customers of Ingersoll Rand. The assessing officer disallowed the same on the basis that the same is in the nature of capital expenditure creating new source of income. It is alternatively submitted by the Assessee that in case the said amount is held to form part of the lump sum consideration towards acquisition of RDB undertaking, then, depreciation may be directed to be allowed thereon in terms of section 32(1)(ii) of the Act as elaborated supra. We are of the view that the alternative claim of the Assessee alone needs to be considered as the main claim for deduction has rightly been negative by the revenue authorities. On the alternative claim for depreciation on the value of right of supply of spare parts to customers of IR is concerned, we have considered the submission of the Assessee. The valuation report of Bizworth explains the method of valuation in paragraph 11 of its report. It is explained that on acquisition of IRIL's RDB several equipments already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, the assessee had paid/discharged liability against the aforesaid provisions, to the extent of Rs. 1,32,65,192 (Rs. 36,34,779 + Rs. 96,30,413) and claimed deduction thereof in the return of income (refer page 93 of PB - Vol 1 / page 2665 of PB - Vol 4). The details of utilization of aforesaid provisions by appellant during the year are as under:- (a) Provision for inventory obsolescence - Rs. 36,34,779 (Refer to Schedule 7 - Inventories in financial statements - page 10 of PB-Vol 1 / 2647 of PB-Vol 4) Particulars Taken over from IR Other than IR Total Opening balance (Pg 2647 of PB-Vol 4) - 6,61,58,750 6,61,58,750 Taken over from IR(Pg 2707 of PB-Vol 4) 3,79,30,783 - 3,79,30,783 Provision made during the year Utilized/reversed Provision disallowed in ROI (Pg 2707 of PB Vol 4) 2,22,18,585 (36,34,779) 1,85,83,806 5,71,57,535 7,57,41,341 Amount written back (Pg 2707 of PB-Vol 4) (1,68,25,737) (1,68,25,737) Closing balance (Pg 2647 of PB-Vol 4) 5,65,14,589 10,64,90,548 16,30,05,137 (b) Provision for warranty - Rs. 96,30,413 (Refer Note 16 of Notes to accounts to financial statements - page 25 of PB- Vol 1 / 2662, 2665 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17,40,99,834 and claimed deduction for the actual warranty claims paid out during the relevant previous year to the extent of Rs. 7,76,58,408. The assessing officer accepted the method followed by the assessee of adding back provision for warranty and claiming deduction for actual warranty claims, except to the extent of warranty claim actually paid in respect of RDB business acquired from Ingersoll Rand. The amount of Rs. 96,30,413, being actual payment of warranty claims in respect of the outstanding warranty for products sold by Ingersoll Rand prior to the slump sale, the assessee was bound to honour the same. In that view of the matter, the said amount has to be allowed deduction in the hands of the assessee as expenses incurred wholly and exclusively for the purpose of the business. 77. As far as deduction of Rs. 36,34,779 against provision for obsolete inventory, it is the plea of the Assessee that the said sum represents write back of provision to the credit of the profit and loss account. Since no deduction was claimed in respect of provision for obsolescence by the assessee or Ingersoll Rand, the write back was regarded as not constituting income of the appellant under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id transaction of providing captive engineering design services by the Assessee to its AE was an international transaction and income from such international transaction has to be determined keeping in mind the Arm's Length Price as is required under the provisions of Sec.92 of the Act. It is also not in dispute that the Transaction Net Margin Method (TNMM) was chosen as the Most Appropriate Method (MAM) for the purpose of determination of ALP. The Profit Level Indicator (PLI) chosen for the purpose of comparison was operating profit of the Assessee and the comparables. The Assessee had chosen a set of 6 comparable companies whose average operating profit was 13.83%. The operative profit earned by the Assessee was 14.74% and therefore the Assessee claimed that the price received in the international transaction was at Arm's Length. 82. The Transfer Pricing Officer (TPO) to whom the AO referred the question of determining ALP of the international transaction in terms of Sec.92CA of the Act, treated the services rendered by the Assessee as akin to Information Technology Enabled Services (ITES) and chose a set of 20 comparable companies and the arithmetic mean of the operating profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is company outsources major portion of its activities, in the following decisions and it was held that this company is not comparable with a company providing ITES to its AE such as the Assessee: (i) The Hon'ble Delhi High Court in the case of Rampgreen Solutions P. Ltd 377 ITR 533 (Del) held that this company was outsourcing its activity of providing ITES to its AE and this would have a bearing on its profitability and therefore this company cannot be compared with a company providing ITES to its AE on its own. (ii) In the case of Pr. CIT vs New River Software Services Pvt Ltd (ITA No 924/2016) the Hon'ble Delhi High Court, relying on the decision in the case of Rampgreen Solutions (supra) rejected this company as comparable. (Page 1889 of CL PB 1) (iii) In the case of Symphony Marketing Solutions India Pvt Ltd (IT (TP) A No1316/Bang/2012) for assessment year 2008-09, the Hon'ble Bangalore Bench of the Tribunal rejected this company as a comparable on the basis that this company was outsourcing most of its work. (iv) In the case of DCIT vs Novo Nordisk India Pvt Ltd (IT (TP) A No 1222/Bang/2013) for assessment year 2008-09, the Hon'ble Bangalore Bench of the Tribunal rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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