2015 (7) TMI 1249 - AT - Income Tax

Depreciation on Goodwill - Held that - Following the above decision of the co-ordinate bench of this Tribunal in the assessee s own case for Assessment Year 2007-08 the issue should be remanded to the AO for consideration. We do so keeping in mind the objection raised by the DR regarding valuation of the goodwill its use etc. The AO shall examined the question of allowing depreciation on goodwill in the light of the material already available on record and such other material that the AO may require and such other material as the Assessee may rely upon to substantiate its claim for depreciation on goodwill. The AO will afford opportunity of being heard to the Assessee. For statistical purpose the additional ground is treated as allowed TPA - comparable selection - Held that - Assessee is into software development service thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparable. Liability in respect of the interest as charged u/s 234B and 234C - Held that - The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld by the Hon ble Apex Court in the case of Anjum H Ghaswala 2001 (10) TMI 4 - SUPREME Court . In this view of the matter we uphold the action of the Assessing Officer in charging the assessee the said interest.

Issues Involved:
1. Depreciation on Goodwill
2. Transfer Pricing Adjustments
3. Interest under Sections 234B and 234C
4. Penalty Proceedings under Section 271(1)(c)

Detailed Analysis:

Depreciation on Goodwill:
Issue: The assessee claimed depreciation on goodwill arising from the acquisition of the semiconductor business of Philips Electronics India Limited and Conexant Systems, Inc. The CIT(A) rejected this claim on the basis that it was not made before the AO.

Judgment: The Tribunal noted that the issue of depreciation on goodwill was previously remanded to the AO for fresh adjudication for Assessment Years 2007-08 and 2008-09. Following this precedent, the Tribunal remanded the matter back to the AO for examination and consideration in light of the directions issued in the earlier years. The Tribunal emphasized that the AO should consider all relevant materials and afford the assessee an opportunity to be heard.

Transfer Pricing Adjustments:
Issue: The assessee contested the inclusion and exclusion of certain comparables by the TPO and CIT(A) for determining the Arm's Length Price (ALP) of international transactions in software development services.

Judgment:
1. KALS Information Systems Ltd.: The Tribunal excluded this company from the list of comparables, citing its involvement in software product development and training services, which made it functionally different from the assessee, a software service provider.

2. Infosys Technologies Ltd.: The Tribunal excluded Infosys from the comparables due to its significant brand value, ownership of intangibles, and diversified activities, which rendered it functionally dissimilar to the assessee.

3. Tata Elxsi Ltd.: The Tribunal excluded Tata Elxsi, noting its engagement in product design and other diversified activities, which were not comparable to the assessee's software development services.

4. Bodhtree Consulting Ltd.: The Tribunal excluded Bodhtree Consulting, identifying it as primarily a software product company, not a software development service provider.

5. Persistent Systems Ltd.: The Tribunal excluded Persistent Systems due to its involvement in product development and product design services, which made it functionally different from the assessee.

Other Grounds: The Tribunal dismissed other grounds related to the use of current year data for transfer pricing documentation and the inclusion/exclusion of specific comparables as not requiring specific adjudication, given the focus on the comparability of individual companies.

Interest under Sections 234B and 234C:
Issue: The assessee contested the levy of interest under Sections 234B and 234C.

Judgment: The Tribunal upheld the levy of interest, stating it is consequential and mandatory as per the Supreme Court's decision in Anjum H Ghaswala. The AO was directed to recompute the interest while giving effect to the Tribunal's order.

Penalty Proceedings under Section 271(1)(c):
Issue: The assessee challenged the initiation of penalty proceedings under Section 271(1)(c).

Judgment: The Tribunal dismissed this ground as not maintainable, noting that no penalty had been levied, thus no cause of grievance existed for adjudication.

Conclusion:
The Tribunal partly allowed the assessee's appeal, remanding the issue of depreciation on goodwill back to the AO for fresh consideration and directing the exclusion of certain companies from the list of comparables for transfer pricing adjustments. The Tribunal upheld the levy of interest under Sections 234B and 234C and dismissed the ground related to penalty proceedings under Section 271(1)(c).

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