2023 (9) TMI 896 - HC - Income Tax

TP Adjustment - adjustment on account of purchase of intangibles - Tribunal stating that TPO has not rejected the valuation of assessee on the basis of any objective reasoning - HELD THAT - Among the various intangibles one head was trade-mark. The cost of acquiring the trade-mark was capitalized by the assessee and depreciation was claimed by computing taxable income. The value attributed to trade-mark was only Rs. 46.57 lacs approximately out of the total consideration of Rs. 28.51 Crores. The assessee has also submitted valuation reports of independent valuer. On the remaining intangibles assessee capitalized the same but did not claim any depreciation or claim it as any revenue expenditure. But notwithstanding that TPO has given an opinion that the weightage that the assessee gave to different territories for which the credit card business was acquired from the HSBC was not correct. Assessee had given higher weightage to India territory as credit card penetration was low in comparison to other countries which showed that there was more scope to increase the business in India. According to the TPO because the credit card business was much more advance in other countries a higher weightage should have been given to other countries than it was given to India. We wonder when did an AO become a businessman. How much to invest, what weightage is to be given etc., in our view, is a measure of commercial expediency. The expression commercial expediency, as held in S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals) and Another 2006 (12) TMI 82 - SUPREME COURT is an expression of wide import and include such expression as a prudent businessman incurred for the purpose of business and agreed with the view taken in Dalmia Cement (B) Ltd. 2001 (9) TMI 48 - DELHI HIGH COURT that the revenue cannot justifiably claim to put itself in the arm chair of the businessman or the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. No wrong in the conclusion arrived at by the ITAT.

Summary

Issues Involved:
The main issue in this case is whether the Income Tax Appellate Tribunal was justified in its decision regarding the rejection of the valuation of the assessee by the Transfer Pricing Officer (TPO).

Issue 1: Valuation of Intangibles and Arms Length Price Determination
During the assessment year 2007-08, the assessee acquired assets of credit card processing and merchant banking acquiring business from Hongkong and Shanghai Banking Corporation. The Assessing Officer referred the case to the Transfer Pricing Officer (TPO) for determining the Arms Length Price (ALP) as it was an international transaction. The TPO found that the consideration paid by the assessee was not at ALP and made adjustments. The TPO observed that the assessee had paid extra for the acquisition of intangibles, specifically stating that the ALP was lower than the consideration paid. The TPO's adjustment led to an increase in the assessee's income, which was upheld by the Commissioner of Income-tax (Appeals) and partially allowed by the Income-tax Appellate Tribunal (ITAT). The ITAT's decision was challenged in this appeal.

Issue 2: Treatment of Intangibles and Commercial Expediency
One of the intangibles acquired was a trade-mark, for which the value was only a fraction of the total consideration. The assessee capitalized the cost of acquiring the trade-mark and claimed depreciation. However, on other intangibles, the assessee did not claim depreciation or treat them as revenue expenditure. The TPO questioned the weightage given by the assessee to different territories in the acquisition of the credit card business. The TPO criticized the assessee for assigning higher weightage to India due to lower credit card penetration compared to other countries. The court questioned the TPO's interference in business decisions, emphasizing the principle of commercial expediency. Referring to previous judgments, the court highlighted that the income tax authorities should consider the actions of a prudent businessman and not impose their own views on business decisions. The court found no fault in the ITAT's conclusion and dismissed the appeal.

Separate Judgment by Judge:
No separate judgment was delivered by the judges in this case.