2015 (11) TMI 1365 - AT - Income Tax

Transfer pricing adjustment - selection of comparable - Held that - Perusing the said para 10 of the DRP s order for the AY 2009-2010 find merit in the argument of the Ld Counsels for the assessee that the AO should consider the said comparable (Arraycom Ltd) without any adjustments. Accordingly, this part of the ground is allowed in favour of the assessee. We have perused the calculations furnished in Annexures 1A and 2A for the proposition that assessee is within the allowed margin of ( )/(-) 5% if the above issues are decided in assessee s favour. We have held that Arraycom Limited should be allowed as comparable without adjustments and the case of Shyam Telecom Limited should be considered in favour of the assessee, therefore, in principle, both the arguments of the assessee are approved for the reasons given in the above paragraphs of this order. However, the figures given by the assessee in the said Annexures 1A and 2A are required to be verified. For this purpose, we remand this issue to the file of the AO for verification considering the above discussion. Granting of the depreciation u/s 32 on the goodwill being an intangible asset - Held that - The additional ground is legal in nature and the same is required to be adjudicated as per the ratio of Supreme Court laid down in the case of Smifs Securities Limited 2012 (8) TMI 713 - SUPREME COURT (SC) wherein it was held that the Goodwill constitutes an asset under Explanation 3(b) to section 32(1) of the Act. - Decided in favour of the assessee. Depreciation in respect of the capitalized software expenditure - Held that - AO is directed to grant depreciation as per the relevant rules in respect of the software expenditure capitalized by the Revenue which is the subject matter of dispute raised in ground no.9. - Decided in favour of the assessee.

Summary

Issues:
1. Transfer pricing adjustments related to depreciation on commercial rights.
2. Consideration of comparables for benchmarking international transactions.
3. Granting depreciation on goodwill and capitalized software expenditure.

Analysis:
1. The appeal addressed various grounds related to transfer pricing adjustments concerning depreciation on commercial rights. The appellant argued that the depreciation on commercial rights should be excluded while computing the operating profit margin. The Tribunal dismissed some grounds as premature or not pressed. However, it focused on grounds related to the treatment of depreciation and comparables. The Tribunal allowed the appeal concerning the inclusion of Arraycom Ltd as a comparable without adjustments, following a consistent approach regarding depreciation.

2. The case involved benchmarking international transactions using the TNMM method and selecting comparables. The appellant contested the exclusion of certain comparables and argued for the inclusion of Shyam Telecom Ltd as a good comparable. The Tribunal reviewed the financial statements of Shyam Telecom Ltd and determined it was not a case of persistent losses, allowing its inclusion as a comparable. The Tribunal remanded the issue to verify the appellant's margin calculations.

3. The Corporate Issues raised in the appeal focused on granting depreciation on goodwill and capitalized software expenditure. The Tribunal referred to a Supreme Court judgment establishing goodwill as an intangible asset under section 32(1) of the Act. Accordingly, the Tribunal directed the AO to allow depreciation on goodwill. Additionally, the Tribunal allowed depreciation on the capitalized software expenditure, as per relevant rules, based on the arguments presented by the appellant. Consequently, the appeal was allowed in favor of the assessee.

This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal ITAT MUMBAI, providing a comprehensive overview of the legal arguments and decisions made in the case.