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2015 (12) TMI 1842 - AT - Income TaxTP Adjustment - disallowance of the corporate service charges - HELD THAT - It is seen from the DRP s order for A Y 2010-11 that observing that the facts of the matter are similar to those for A. Y. 2009-10 the DRP followed the same findings and decisions therein. In that view of the matter we follow the decision of the co-ordinate bench in the assessee s own case for A. Y. 2009-10 2015 (9) TMI 286 - ITAT MUMBAI and accordingly in the interest of equity and justice remit this matter of the computation of the ALP of the international transactions on account of the payment of corporate service charges by the assessee to its AE to the file of the DRP for fresh adjudication by way of a speaking and reasoned order after affording reasonable opportunity to the assessee of being heard. It is accordingly ordered. Consequently ground no. 1 is treated as allowed for statistical purposes. Disallowance of Depreciation on goodwill - assessee contends that the AO erred in not following the directions issued by the DRP to allow the assessee depreciation on goodwill u/s. 32(1)(ii) - HELD THAT - For A. Y. 2010-11 that the AO has not considered and allowed the assessee depreciation on goodwill of polymehtane business and textile effects business as directed by the DRP - We therefore direct the AO to follow the directions of the DRP and compute and allow the assessee depreciation on goodwill for A. Y. 2010-11. Depreciation on intangibles - HELD THAT - We find that the very same issue of allowability of the assesee s claim of depreciation on intangible assets viz. Material supply contracts brand usage and distribution networks was considered at length by a coordinate bench of this Tribunal in 2015 (9) TMI 286 - ITAT MUMBAI wherein it has been held that the assessee is entitled to claim depreciation on intangible assets. Decided in favour of the assessee. Disallowance u/s. 14A r.w.r. 8D - As contended that the authorities below ought to have taken into account that investments made were by way of strategic investments in its subsidiary concern out of interest free funds - HELD THAT - Following the aforesaid decisions in the cases of Holcim India (P) Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT and Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT we hold that since the assessee has not earned any exempt income in the year under consideration i. e. assessment year 2010-11 no disallowance u/s. 14A of the Act can be made and accordingly delete the disallowance made in this regard by the authorities below. Disallowance of Expenditure on payment basis u/s. 43B - not allowing deduction for payment it made in connection with liabilities of CIBA Speciality Ltd. taken over by way of slump sale - assessee submitted that the assessee had taken over the liabilities of CIBA Ltd. and that these being known liabilities of which the assessee had to bear the expenditure as per the agreement - HELD THAT - The recovery of the debt is a right transferred along with the numerous other rights comprising the subject of the transfer. If the law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account the same right should be recognised in the transferee. It is merely an incident flowing from the transfer of the business together with its assets and liabilities from the previous owner to the transferee. It is a right which should on a proper appreciation of all that is implied in the transfer of a business be regarded as belonging to the new owner - See T. Veerbhadra Rao case 1985 (7) TMI 2 - SUPREME COURT - Decided in favour of assessee.
Issues Involved:
1. Erroneous disallowance of the corporate service charges. 2. Disallowance of depreciation on goodwill. 3. Disallowance of depreciation on intangibles. 4. Disallowance under section 14A of the Act. 5. Disallowance of expenditure on payment basis under section 43B of the Act. 6. Disallowance of share issue expenditure. 7. Initiation of penalty proceedings under section 271(1)(c). Issue-wise Detailed Analysis: 1. Erroneous Disallowance of the Corporate Service Charges: The assessee reported international transactions and the Transfer Pricing Officer (TPO) adjusted the Arm's Length Price (ALP) for corporate service charges paid to its Associated Enterprise (AE). The Dispute Resolution Panel (DRP) upheld the TPO's adjustment, leading to an addition of Rs. 5,26,86,111/-. The Tribunal found that the DRP's order was non-speaking and lacked consideration of the evidence submitted by the assessee. Hence, the matter was remitted back to the DRP for fresh adjudication with a reasoned and speaking order, following the precedent set in the assessee's own case for the assessment year 2009-10. 2. Disallowance of Depreciation on Goodwill: The AO did not follow the DRP's directions to allow depreciation on goodwill under section 32(1)(ii). The Tribunal directed the AO to comply with the DRP's directions and allow the depreciation on goodwill for the assessment year 2010-11. 3. Disallowance of Depreciation on Intangibles: The AO/DRP disallowed depreciation on intangible assets like material supply contracts and distribution networks, claiming they were not akin to those referred in section 32(1)(ii). The Tribunal, following its earlier decisions in the assessee's cases for A.Ys. 2007-08 and 2009-10, held that these intangibles fall under the category of commercial rights mentioned in section 32, hence eligible for depreciation. The Tribunal allowed the assessee's claim for depreciation on these intangible assets. 4. Disallowance under Section 14A of the Act: The AO/DRP disallowed Rs. 47,24,097/- under section 14A read with Rule 8D. The Tribunal held that since the assessee did not earn or receive any exempt income during the year, no disallowance under section 14A could be made. This decision was based on precedents from the Delhi High Court in cases like Cheminvest Ltd. and Holcim India (P) Ltd. Consequently, the disallowance was deleted. 5. Disallowance of Expenditure on Payment Basis under Section 43B of the Act: The AO/DRP disallowed the deduction for payment made in connection with liabilities of CIBA Speciality Ltd. taken over by the assessee. The Tribunal, following its earlier decision in the assessee's case for A.Y. 2007-08 and the Supreme Court's ruling in T. Veerabhadra Rao, held that the assessee was legally bound to make these payments and allowed the deduction. 6. Disallowance of Share Issue Expenditure: The assessee did not press this ground during the hearing. Hence, it was rendered infructuous and dismissed. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The AO initiated penalty proceedings under section 271(1)(c). Since no penalty was levied, the Tribunal found this ground premature and dismissed it. Conclusion: The Tribunal partly allowed the appeal, remitting certain issues back to the DRP for fresh adjudication and allowing the assessee's claims on others. The decision emphasizes the need for reasoned orders and adherence to judicial precedents.
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