9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (7) TMI 1644 - AT - Income TaxTP Adjustment - comparable selection - Functional similarity - HELD THAT - Accentia Technologies Ltd. - From the annual report of the company as well as other material placed on record, it is noticed that the business model of the company is different from the assessee as it provides services in healthcare sector with the aid of software which is in the nature of KPO service. Moreover, during the year under consideration, this company has acquired another company which was a software development company having expertise in developing software relating to EMR, SaaS. It is also observed, due to the aforesaid acquisition the revenue of the company has substantially increased which certainly could have impacted the profitability. TPO has also accepted that the company has made acquisition during the year under consideration. However, he has tried to get over such fact by stating that the company acquired was in the same line of business. In our view, the aforesaid reasoning of the Transfer Pricing Officer is unacceptable. Thus this company cannot be a comparable to a BPO service provider. See B.C. MANAGEMENT SERVICES PVT. LTD. 2017 (12) TMI 255 - DELHI HIGH COURT Acropetel Technologies Ltd. - Transfer Pricing Officer himself has stated that the company has three segments namely; engineering, design service, information technology service segment and healthcare segment. However, he has stated that only healthcare service segment was considered by him for comparability analysis. But nowhere the Transfer Pricing Officer has dealt with assessee s contention with regard to unavailability of segmental details relating to export sales, employee cost, etc. Further, he has also not dealt with assessee s objection that substantial operation of software development activities were outsourced on sub contract basis Learned DRP has also not considered the objections of the assessee property. As decided in CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATION PVT. LTD. 2018 (4) TMI 567 - ITAT BANGALORE this company from being treated as comparable since segmental information to apply certain filters are not available. Thus we exclude this company as a comparable. Crossdomain Solutions Ltd - Department has failed to substantiate the nature of information gathered by the Transfer Pricing Officer to consider the company as a comparable to the assessee. If the financial results of the company for the impugned assessment year are not available, as alleged by the assessee, the company cannot be considered as a comparable. Moreover, from the decisions relied upon by the learned Sr. Counsel for the assessee, it is noticed that the company has been excluded as a comparable in case of a BPO service provider since it is engaged in providing KPO service. In view of the aforesaid, we hold that this company cannot be treated as comparable to the assessee. Accordingly, the Assessing Officer is directed to determine the arm's length price of the international transaction with the AE after excluding the aforesaid three companies namely Accentia Technologies Ltd., Acropetel Technologies Ltd. and Crossdomain Solutions Ltd. from the list of comparables. Disallowance of depreciation on goodwill - HELD THAT - When the assessee has paid capital gain tax at the time of transfer of goodwill and the Department has accepted it, it cannot be said that the assessee has adopted a colourable device. Moreover, the scheme of amalgamation between the assessee and Tracmail AR Services Pvt. Ltd., having been approved by the Hon'ble Jurisdictional High Court, no doubt can be raised with regard to the transparency or genuineness of such transaction. Thus, when the assessee by virtue of such amalgamation has received back the goodwill in its book, depreciation has to be allowed on goodwill. As regards the doubt raised by learned DRP that the assessee cannot claim depreciation on the entire amount of goodwill, it must be observed that the assessee has claimed goodwill on the opening WDV only and not on the entire amount. It is now fairly well settled that goodwill being an intangible asset, depreciation has to be allowed. Depreciation on additional goodwill arising on amalgamation - HELD THAT - In case of Pruthvi Brokers and Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT has held that even if the assessee has failed to claim a deduction either in the return of income or by filing revised return of income, the assessee can make such claim subsequently. Even in case of Goetz India Ltd. 2006 (3) TMI 75 - SUPREME COURT has held that there is no restriction on the appellate authorities in entertaining a fresh claim of deduction made by the assessee. Therefore, keeping in view the ratio laid down in the aforesaid decisions, the decision of learned DRP in rejecting assessee s claim is unsustainable, hence, deserves to be set aside. However, since the Departmental Authorities have not examined assessee s claim, both factually and legally, we are inclined to restore the issue to the Assessing Officer for examining assessee s claim on its own merit. While doing so, the Assessing Officer is also directed to take note of the fact whether such claim was allowed in any other assessment year. Ground is allowed for statistical purposes.
Issues Involved:
1. Adjustment to the arm's length price of international transactions with the Associated Enterprise (AE) for Business Process Outsourcing (BPO) services. 2. Disallowance of depreciation on goodwill amounting to ?2,25,66,258. 3. Disallowance of depreciation on additional goodwill of ?44,55,14,491 arising from amalgamation. Issue-wise Detailed Analysis: 1. Adjustment to the Arm's Length Price of International Transactions with AE for BPO Services: The assessee, an Indian company engaged in BPO services, challenged the adjustment made by the Transfer Pricing Officer (TPO) to the arm's length price of its transactions with its AE in the USA. The TPO rejected the internal Transactional Net Margin Method (TNMM) used by the assessee and applied an external TNMM, selecting six comparables with an arithmetic mean of 17.06%, resulting in an adjustment of ?3,16,12,419. The primary dispute was the selection/rejection of three comparables: Accentia Technologies Ltd., Acropetel Technologies Ltd., and Crossdomain Solutions Ltd. - Accentia Technologies Ltd.: The assessee argued that this company is functionally different as it provides Knowledge Process Outsourcing (KPO) services in the healthcare sector using a SaaS model and had acquired another company, affecting its margins. The Tribunal agreed, citing previous decisions that excluded this company from being comparable to a BPO service provider. - Acropetel Technologies Ltd.: The assessee contended that this company has multiple segments, and segmental details are not available. The Tribunal noted that the TPO did not address the unavailability of segmental details and excluded this company from the list of comparables, following previous Tribunal decisions. - Crossdomain Solutions Ltd.: The assessee claimed that financial statements for the relevant year were not publicly available and that the company is functionally different. The Tribunal found that the TPO did not provide sufficient details to justify its inclusion and excluded it from the comparables list. The Tribunal directed the Assessing Officer to determine the arm's length price after excluding these three companies. 2. Disallowance of Depreciation on Goodwill Amounting to ?2,25,66,258: The assessee claimed depreciation on goodwill arising from a business transfer agreement and subsequent amalgamation approved by the High Court. The Assessing Officer disallowed the claim, terming it a colourable device. The Tribunal found that the initial slump sale and subsequent amalgamation were legitimate transactions, and the assessee had offered capital gain on the transfer of goodwill, which was accepted by the Department. The Tribunal held that depreciation on goodwill, being an intangible asset, must be allowed and directed the Assessing Officer to allow the claim. 3. Disallowance of Depreciation on Additional Goodwill of ?44,55,14,491 Arising from Amalgamation: The assessee claimed depreciation on additional goodwill through a revised computation of income during assessment proceedings. The DRP disallowed the claim, citing the Supreme Court decision in Goetz India Ltd. v/s CIT, stating it was not claimed in the return of income. The Tribunal noted that the legal position allows for such claims to be made subsequently, even if not in the original return. The Tribunal set aside the DRP's decision and remanded the issue to the Assessing Officer for re-examination, directing to consider whether such a claim was allowed in other assessment years and to provide the assessee a reasonable opportunity to be heard. Conclusion: The Tribunal partly allowed the appeal, directing the Assessing Officer to re-determine the arm's length price excluding certain comparables, allow depreciation on goodwill, and re-examine the claim for depreciation on additional goodwill. Grounds IV and V were dismissed as not pressed, and Grounds VI and VII were deemed consequential and did not require adjudication.
|
