2016 (8) TMI 811 - AT - Income Tax

TPA - MAM - Held that - We remand the issue of most appropriate method to be adopted for the determination of the transfer pricing adjustment and also the various adjustments to be made for determination of Arm s Length Price to the file of the Assessing Officer. Disallowance of additional claim of depreciation on goodwill - Held that - The goodwill amounting to 17975.03 lakhs arose as a result of merger and subsequently the amount was increased by 16.95 lakhs as additional purchase consideration was paid. The assessee has recognized such goodwill in its books of accounts with effect from 1.1.2007 and claimed depreciation on such enhanced goodwill. We find that the DRP has taken into consideration the fact that the assessee had not claimed depreciation on such goodwill while filing return of income from 2007-08 to 2011-12 but since the law is clear by virtue of the judgment of the Hon ble Supreme Court in the case of Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT DRP has directed the Assessing Officer to allow the same after verification of the claim of goodwill. This being a factual finding we do not see any reason to differ from the directions of the Dispute Resolution Panel. However it is seen that the Assessing Officer while giving effect to the directions of the DRP has not allowed the additional depreciation. In fact there is no discussion about the same in the assessment order. The Assessing Officer is therefore directed to give effect to the directions of the DRP. This ground of the assessee is accordingly treated as allowed. Claim of provision for site restoration fund - Held that - The issue involved in this ground not being before the authorities below needs verification as to facts. In view of the same we deem it fit and proper to admit the said ground of appeal and remand the matter to the file of the Assessing Officer for reconsideration in accordance with law and judicial precedents on the issue. This ground is also treated as allowed for statistical purposes. Claim of additional depreciation on the plant and machinery - Held that - Assessing Officer has allowed normal depreciation on the very same assets and has thus impliedly accepted that the said assets were acquired and put to use before the end of the relevant financial year. That being so the Assessing Officer cannot take a contrary view while considering the claim of additional depreciation. In view of the same we deem it fit and roper to remand this issue also to the file of the Assessing Officer to verify the records and if the depreciation is allowed under S.32 additional depreciation shall also be allowed on the same reasoning.

Issues Involved:
1. Transfer pricing adjustments and the "most appropriate method" for determining Arm's Length Price.
2. Disallowance of community development expenses, giveaways, and contributions to Zuari School.
3. Disallowance of additional claim of depreciation on goodwill.
4. Levy of interest under Section 234B.
5. Claim of balance 50% of additional depreciation under Section 32(1)(iia).
6. Disallowance of the claim of provision for site restoration fund.
7. Disallowance of additional depreciation on plant and machinery.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustments:
The assessee challenged the method adopted by the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP). The TPO used the Comparable Uncontrolled Price (CUP) method, while the assessee preferred the Transactional Net Margin Method (TNMM). The Tribunal found fault with the TPO's approach, noting that it was not fully justifiable and the methodology used was faulty. The Tribunal cited its previous order for the assessment year 2009-10, which had remanded the issue back to the TPO for reconsideration with specific directions. Consequently, the Tribunal remanded the issue back to the TPO for fresh analysis, directing the TPO to determine the most appropriate method and analyze the transactions accordingly.

2. Disallowance of Community Development Expenses, Giveaways, and Contributions to Zuari School:
The Tribunal addressed the disallowance of community development expenses, giveaways, and contributions to Zuari School. The Tribunal referenced its previous decision for the assessment year 2009-10, where similar disallowances were made. The Tribunal found that the expenses were incurred for corporate social responsibility and were necessary for business operations. The Tribunal remanded the issue of community development expenses back to the Assessing Officer (AO) for verification of vouchers. For giveaways, the Tribunal allowed the expenses except for an amount where details were not available. Contributions to Zuari School were allowed as they were for the benefit of employees and supported by proper documentation.

3. Disallowance of Additional Claim of Depreciation on Goodwill:
The assessee claimed depreciation on goodwill arising from the amalgamation with another company. The Dispute Resolution Panel (DRP) directed the AO to verify the claim in light of judicial precedents, including the Supreme Court judgment in Smif Securities Ltd. The Tribunal upheld the DRP's directions, finding them in accordance with the law. The AO was directed to give effect to the DRP's directions and allow the depreciation after verification.

4. Levy of Interest under Section 234B:
The Tribunal noted that the grounds related to the levy of interest under Section 234B were consequential. The AO was directed to provide relief to the assessee in accordance with the law.

5. Claim of Balance 50% of Additional Depreciation under Section 32(1)(iia):
The assessee claimed additional depreciation on new plant and machinery used for less than 180 days in the previous year. The Tribunal admitted the additional ground and remanded the issue to the AO for verification. The AO was directed to allow the additional depreciation if the assessee was eligible under the Finance Bill of 2015.

6. Disallowance of the Claim of Provision for Site Restoration Fund:
The assessee claimed that the provision for the site restoration fund was inadvertently added back in the computation of income. The Tribunal admitted the additional ground and remanded the issue to the AO for reconsideration, directing the AO to verify the facts and allow the claim if justified.

7. Disallowance of Additional Depreciation on Plant and Machinery:
The AO disallowed additional depreciation on assets acquired on 30th and 31st March, stating that they could not be put to use immediately. The Tribunal found that the AO had allowed regular depreciation on the same assets, implying they were put to use. The Tribunal remanded the issue back to the AO to verify the records and allow additional depreciation if regular depreciation was already granted.

Conclusion:
The appeal was partly allowed, with several issues remanded back to the AO or TPO for fresh consideration and verification. The Tribunal directed the AO and TPO to follow specific guidelines and judicial precedents in their reassessment. The judgment emphasized the need for proper verification and adherence to established legal principles in determining tax liabilities and allowable deductions.

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