2018 (1) TMI 1042 - AT - Income Tax

Disallowance of the depreciation claimed on intangibles being excessive - Held that - Assessee company is engaged in providing transactional support services to its parent company. In January, 2013 the assessee has purchased intangible assets like trademarks, brand, goodwill, technical know-how, etc. from Cosme group based in Goa. With the purchase of intangible assets, the assessee has entered into manufacturing, marketing and distribution of branded pharmaceutical products in India and some other countries. The cost of the assets acquired in January, 2013 was amounting to ₹ 481,87,28,153. Assessee claimed depreciation, but it was not allowed by the AO on the ground that valuation report was not furnished, whereas this claim of depreciation was allowed by the AO in the succeeding year i.e., AY 2014-15. We are of the view that once the AO has allowed the claim in the succeeding year, the same should also have been examined in the impugned assessment year. Set aside the order of the AO and restore the matter to the AO to examine the claim of depreciation in the light of valuation report furnished by the assessee, after affording opportunity of being heard to it. TPA - comparable selection criteria - assessee has sought exclusion of 8 comparables on the ground of turnover filter and functional dissimilarity - Held that - The issue of functional dissimilarity was not properly examined by the TPO.We therefore set aside the assessment order and restore the issue to the AO/TPO to re-examine the issue in the light of assessee s contentions with respect to exclusion of 8 comparables

Summary

Issues:
1. Transfer pricing issues
2. Depreciation disallowance
3. Valuation of intangibles
4. Interest under sections 234B and 234D

Transfer Pricing Issues:
The appeal was filed against the order of the CIT(Appeals) regarding transfer pricing issues. The appellant contested the pricing adjustment, classification of services, selection of comparables, reliance on unavailable data, and restriction of comparison to the impugned year. The tribunal found that the authorities were not justified in their actions and directed a re-examination of the issue by the AO/TPO.

Depreciation Disallowance:
The AO disallowed a significant amount claimed as depreciation on various intangible assets. The tribunal noted that the AO did not consider the valuation report submitted by the assessee and disallowed the claim. However, in the succeeding year, the AO allowed the depreciation claim. Consequently, the tribunal set aside the AO's order and instructed a fresh examination of the claim with the valuation report.

Valuation of Intangibles:
The assessee acquired intangible assets in January 2013, which were utilized for business purposes. The AO disallowed depreciation citing lack of valuation report, despite allowing it in the succeeding year. The tribunal held that since the claim was accepted in the following year, it should have been considered in the impugned assessment year. The matter was remanded to the AO for reevaluation based on the valuation report.

Interest under Sections 234B and 234D:
The appellant denied liability to pay interest under sections 234B and 234D, stating lack of additional tax liability as determined by the AO. The tribunal observed that the order did not specify the rate, period, or quantum of interest levied. The tribunal deemed the interest imposition unclear and directed for its cancellation.

The ITAT Bangalore allowed the appeal for statistical purposes, emphasizing the need for a fresh assessment of transfer pricing issues, depreciation claims, and valuation of intangibles. The judgment highlighted procedural irregularities and lack of proper consideration by the authorities, leading to the remand of these issues for re-examination.