TMI Blog2023 (1) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s appeal is allowed. Disallowance of depreciation on intangible assets - assessee is availing depreciation on intangibles at the rate of 25% on the various items appearing in the balance sheet in schedule of fixed assets of the assessee company - HELD THAT:- We find that the coordinate bench of the Tribunal in assessee s own case [ 2019 (11) TMI 705 - ITAT MUMBAI] remand this issue to the file of AO for de novo adjudication on similar lines as was directed in earlier assessment years. Denial of depreciation on goodwill arising from scheme of amalgamation - HELD THAT:- In the present case, the AO as well as learned DRP did not entertain the claim of the assessee in view of decision of Goetze (India) Ltd.[ 2006 (3) TMI 75 - SUPREME COURT] however, it is now well settled that there is no bar on the appellate authority to entertain a fresh claim of the assessee, if the relevant fact for deciding such issue are available on record. Further, it is pertinent to note that on one hand in the remand proceedings, the AO for the first time raised doubts about the valuation report, however, on the other hand AO has allowed depreciation on intangible assets @ 25%, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of referring the matter for determination of arm's length price in respect of the international transaction between the appellant and the AES and hence, the reference by learned AO to the Learned TPO is illegal and bad in law; 2.2 Not upholding the objection of the appellant that the transfer pricing adjustment made under provisions of section 92CA of the Act cannot be tax as the same is not a charging provision under the Income-tax Act and there is no corresponding provision to charge such adjustments as income of the appellant under Section 4 of the Act nor there is any provision for such income to be taxed under Section 5 of the Act. 2.3 Without prejudice to each of the above grounds, not upholding the appellant alternate grounds that the reference made by Learned AO to the Learned TPO in reference to the CBDT instruction no 10/2013 dated 05.08.13 as regards threshold limit of Rs. 15 crores for reference to him under administrative limits under said circular has no force of law and the reference made by following the said circular by the Ld. Assessing Officer was illegal and bad-in-law. 2.4 Not upholding the grounds of the appellant while making huge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems of Intangibles, for reasons that know-how, trade marks, brands and business or commercial rights of similar nature in that year had been acquired by the appellant for a valuable consideration and were used by it for the purpose of its business, based on the premises, conjectures and observations of the Hon‟ble DRP/ Learned AO as referred to in the assessment order for assessment year 2007-2008; (ii) stating that there were no assets purchased by the appellant from Merck Limited; (iii) following wrongful invocation of Explanation (3) to Section 43(1) of the Act as done by the Learned AO in the assessment year 2007-08 and disallowing depreciation of Rs. 5,19,87,305/- on the written down value of the same at the beginning of the year. 4. Depreciation on Goodwill arising from scheme of amalgamation with Bangalore Genei (India) Pvt. Ltd. Rs.5.49.87.789/ : (i) In the facts and circumstances of the case and in law, the Hon'ble DRP/the Learned AO erredin not allowing the claim for depreciation of Rs. 5,49,87,789/- representing depreciation on Goodwill arising from the scheme of amalgamation with Bangalore Genel (India) Pvt. Ltd., as claimed during the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, the assessee filed revised return of income on 28/03/2013 declaring total income of Rs. 34,84,38,680. During the year, assessee has made payment of technical consultancy fees of Rs. 1,76,47,997, pursuant to consultancy agreement dated 25/04/2010 entered into between assessee and M/s Merck KGaA, Germany. The said fees was for three different segments Trading of Pharmaceutical Segment , Trading of Chemicals Segment and Manufacturing of Chemicals Segment . The assessee benchmarked said transaction of payment of technical consultancy fees with its associated enterprise by applying Transactional Net Margin Method ( TNMM') as the most appropriate method. During the course of transfer pricing assessment proceedings, assessee was asked to submit the details of the services received under the aforesaid agreement. In reply, assessee submitted that agreement provides for a package of services by virtue of which all the services mentioned therein are available to the assessee on as and when needed basis, for which the option to the services lies with the assessee. The assessee further submitted that for availing the aforesaid services, assessee pays a fixed fee of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the services are as under: Support of engineering of production and quality control with regard to technical and analytical background; Selection of equipments and sourcing of supplies internationally; Training to employees on engineering and scientific trends and international trends on finance and administration as per Merck International Guidelines; Advising on new trends on Information Technology and its implementation; Assisting and advising in the launching of new products. 3.7 From the aforesaid list of technical services, which the assessee is entitled to receive from the AE, it cannot be ascertained as to which of these services are relatable to the trading segment of the business of the assessee. In fact, the nature of the services listed out in the agreement prima facie, gives an impression that they are more relevant to manufacturing and purchase of capital goods as well as information technology than to any trading activities of the assessee. Therefore, aggregating the expenses stated to have been incurred towards payment of technical and consultancy fees under the trading segment for benchmarking ALP does not appear to be logically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d international transaction is the agreement entered into by the assessee with its AE. However, the agreement alone, does not substantiate the actual rendering of such services by the AE to the assessee. Since the Issue in question impinges upon an intra-group service purportedly received by the assessee from the AE, it is absolutely necessary to first identify the existence of such services having been rendered by the AE to the assessee, before its ALP can be benchmarked. 3.12 It is also pertinent to observe that the very fact that the assessee terms the payment in pursuance of the agreement as a retainer fee is an attempt to justify the payment even in the absence of receipt of any service. In fact, the assessee has tacitly admitted the non receipt of services by advancing the argument that the AE continuously undertakes various activities and it is not practical to substantiate each and every service rendered. 2.13 Having regard to the facts of the case we concur with the TPO and hold that the assessee failed to substantiate the receipt of services as stipulated in the agreement barring the minor evidences furnished relating to an instruction manual and common accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar issue is covered in assessee‟s favor by the order of Tribunal rendered in the case of its group concerns viz. Merck Limited for same AY, ITA No.1946/Mum/2014 order dated 31/03/2016 wherein the adjustment has been deleted on identical factual matrix by the coordinate bench by observing as under: - 23. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 24. We find that there is a clear contradictions in the findings of the authorities below. On one hand, the stand of the authorities below is that no services are rendered, and, on the other hand, there are categorical findings that the services rendered are so general in nature that even an employee of the assessee could have rendered the same. In the event of no services actually having been rendered, there cannot be any occasion for the same services being rendered by a person without specialized knowledge. On one hand, it is held that arm‟s length price of these services is zero value, and, in the same breath, it is held that there would hardly be any substantial payment for these services. Clearly, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng generalizations cannot help the case of the revenue authorities. The assessee has benchmarked the transaction on TNMM basis, and unless the revenue authorities can demonstrate that some other method of ascertaining the arm‟s length price on the facts of this case will be more appropriate a method of ascertaining the arm‟s length price, the TNMM cannot be discarded. Dealing with almost a similar situation, as we are in seisin of, a coordinate bench of this Tribunal, in the case of AWB India Pvt Ltd VS DCIT [(2015) 152 ITD 570 (Del)], has observed as follows: 11. In ground nos. 5 to 9, which we will take up together, the assessee has raised the following grievances: 5. That, on the facts and circumstances of the case, the DRP and TPO/AO have failed to appreciate the business model and business realities of the appellant and role of its AE, while conducting the economic analysis, and concluding that no service is received or no benefit, and/or services received are duplicative in nature. 6. That, on the facts and circumstances of the case, the DRP and TPO/AO erred in presumptively holding that the revenue authorities are empowered to question the commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy basic issue does not call for a payment of Rs 20 lakhs. Therefore, the ALP of these services was taken as NIL‟. He further noted that while the assessee has made a payment of Rs 1,23,476 towards human resources services, the assessee has not furnished any specific input on training and development of human resources and it is also noticed that these services are of routine nature and duplicate at best . Accordingly, the TPO also treated ALP of these services as NIL‟. As regards the payment of Rs 96,355 towards legal services‟, the TPO did take note of the services that the assessee was entitled to under these arrangements but as there is no evidence of any services having been actually rendered by the AE, the TPO concluded that it does not have any value in an arm‟s length situation. The value of this service was also taken as NIL. The same was the case with respect to the payments for other services. Accordingly, no arm‟s length value was assigned to these services also. In respect of these cases TNMM was rejected and CUP was applied- though, even under CUP method, value assigned was nil as, in the opinion of the TPO, these services were worthl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that either the services were useless or there was no evidence of actual services having been rendered. As for the services being useless, as we have noted above, it is a call taken by the assessee whether the services are commercially expedient or not and all that the TPO can see is at what price similar services, whatever be the worth of such services, are actually rendered in the uncontrolled conditions. 17. As for the evidence for each of the service stated in the agreement, it is not even necessary that each of the service, which is specifically stated in the agreement, is rendered in every financial period. The actual use of services depends on whether or not use of such services was warranted by the business situations whereas payments under contracts are made for all such services as the user may require during the period covered. As long as agreement is not found to be a sham agreement, the value of the services covered under the agreement cannot be taken as nil‟ just because these services were not actually required by the assessee. In any case, having perused the material on record, we are satisfied that the services were actually rendered under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coordinate bench of the Tribunal in assessee s own case in Merck Specialties Private Ltd vs DCIT, in ITA no.1761/Mum./2015, vide order dated 05/12/2019, for the assessment year 2010 11. The learned Departmental Representative could not show us any reason to deviate from the aforesaid orders and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate bench of the Tribunal for preceding assessment years. Thus, respectfully following the orders passed by the coordinate bench of the Tribunal in assessee s own case cited supra, we uphold the plea of the assessee and direct the AO/TPO to delete the transfer pricing adjustment in respect of payment of technical consultancy fees. As a result, ground No. 2, raised in assessee s appeal is allowed. 12. The issue arising in ground No.3, raised in assessee s appeal, is pertaining to disallowance of depreciation on intangible assets. 13. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the course of assessment proceedings, it was obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of the assessee. Under no situation, depreciation can be allowed on the assets which never existed and which have been created by way of self generation with the help of a valuation report. 5.8 Had the transferor company actually transferred some Intangibles to the assessee, there was no reason as to why the same could not have found specific mention in the agreement, even pending the determination of their fair market valuation subsequently. It therefore appears to us, the intangible assets were created afresh in the books of account of the assessee for a sum of Rs.65.50 Cr without any factual support or valid reasons. 5.9 The assessee's contention that consequent to its acquisition of a going concern, the sales and profit have Increased manifold which has been possible due to the Intangibles acquired by it, does not appear to be a valid justification for creating intangible assets in the books. In fact, the sales and profit have naturally grown as the assessee has taken over a going concern, which did not require any gestation period to commence its business. It will be futile to argue that a going concern would automatically result into creation of a hos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s own case. Thus, respectfully following the judicial precedents in assessee s own case, we remand this issue to the file of AO for de novo adjudication. As a result, ground No. 3 raised in assessee s appeal is allowed for statistical purpose. 19. The issue arising in ground No. 4, raised in assessee s appeal, is pertaining to denial of depreciation on goodwill arising from scheme of amalgamation. 20. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the course of assessment proceedings, the assessee vide letter dated 10/03/2015 claimed depreciation on goodwill, which arose upon the scheme of amalgamation of Bangalore Genei (India) Private Ltd with the assessee. Assessee claimed that the said goodwill is allowable for depreciation. The AO vide draft assessment order rejected the claim of the assessee by placing reliance upon decision of Hon ble Supreme Court in Goetze (India) Ltd. vs CIT, 157 Taxman 1 (SC), as the said claim was not made either in the return of income or the revised return of income. Accordingly, the entire claim of assessee for depreciation on goodwill of Rs. 5,49,87,789 was rejected and added to the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce between the Investment made towards acquiring 100% equity in this company during the earlier F.Y. and the value of the net assets and liabilities taken over on amalgamation. 6.7 We find that the decision of the AO not to accept the claim of the assessee for allowance of depreciation on goodwill on the ground that no such claim was made in the revised return filed by the assessee is in accordance with the ratio laid down by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. wherein it was held that the Assessing Officer has no power to entertain a claim for deduction otherwise than by filing a revised return. Hence, we confirm the decision of the AO not to accept the claim for allowance of depreciation on the goodwill. 6.8 However, we find that while computing the total income, the AO added back the depreciation of Rs.5,49,87,789/- to the total income admitted by the assessee in the revised return. This constitutes a mistake apparent from record since the AO himself has given a fact finding that such depreciation was not claimed in the revised return. An amount which was not claimed in the return cannot be added back to the total income. The AO had only d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore Genei (India) Private Ltd, forming part of the paper book from page 102 151, we find that the value of fixed assets was at Rs. 3,02,41,601 and intangible assets were at Nil. Pursuant to the amalgamation, the tangible and intangible assets acquired from the amalgamating company were revalued in the books of the assessee and the excess cost of investment over net value of assets, amounting to Rs. 21,99,51,156, was debited to the goodwill account. Accordingly, assessee made a fresh claim for depreciation in respect of goodwill during the course of assessment proceedings. The AO denied the said claim of the assessee by placing reliance upon decision of Hon ble Supreme Court in Goetze (India) Ltd. (supra). The learned DRP, inter-alia, upheld the conclusion of the AO. 25. As per the assessee, goodwill arose upon amalgamation representing the excess consideration discharged by the assessee company over the net worth of the amalgamating company and thus the same is eligible for depreciation. Reliance has been placed on the addition of Hon ble Supreme Court in CIT v. Smifs Securities Ltd., 348 ITR 302 (SC). During the course of hearing, assessee placed on record audited accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f to the assessee. 28. We find that Hon ble Delhi High Court in Triune Energy Services Private Limited vs DCIT: [2016] 237 Taxmann 230 (Delhi), by referring to Accounting Standard 10, held that consideration paid in excess of value of tangible assets is classifiable as goodwill eligible for depreciation. We further find that the coordinate bench of the Tribunal in Altimetrik India (P) Ltd vs DCIT, [2022] 194 ITD 124 (Bangalore Trib.) held that consideration paid by the amalgamated company over and above the net assets of the amalgamating company should be considered as goodwill arising on amalgamation. 29. Thus, once the AO has allowed the claim of depreciation on intangible assets acquired by the assessee upon amalgamation of subsidiary company, which were also revalued subsequent to the amalgamation, we are of the considered view that there is no basis to reject the claim of the assessee in respect of depreciation on goodwill. Particularly, when all the intangibles including the goodwill were nil in the books of the amalgamating subsidiary company for the year ending 31/03/2010. During the course of hearing, learned DR placed reliance upon decision of Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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