2020 (7) TMI 367 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - Assessee company is providing customized business process outsourcing services which include voice based inbound phone support, e-mail support, on line chat and back office processing to Tracmail group of companies (Associated Enterprises) - direct the TPO/Assessing Officer to exclude Genesys from the final list of comparables as functionally dissimilar with that of assessee. Exclusion of Excel from the final list of comparables on the ground that the company is having fluctuating margins - A company having super normal profits or highly unstable margins should not be idly considered as good comparable. Thus, in view of the decision of Baxter India 2017 (8) TMI 1557 - ITAT DELHI we find merit in the contentions of the assessee and direct the Assessing Officer to exclude Excel from the list of comparables. Depreciation on goodwill - HELD THAT - ln assessee s own case 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. In view of the aforesaid, we direct the Assessing Officer to allow assessee s claim of depreciation on goodwill. Claim of additional depreciation on goodwill subsequent to amalgamation - In the light of decision of the Co-ordinate Bench in assessee s own case on same set of facts, we restore this issue back to the file of Assessing Officer with similar directions Non-granting of set off of brought forward business losses - HELD THAT - As assessee has prayed for restoration of this issue with a direction to Assessing Officer to allow assessee s claim. The issue is restored back to Assessing Officer for reconsideration in accordance with law. Assessing Officer shall grant reasonable opportunity of hearing to the assessee in accordance with law.

Summary

Issues Involved: Transfer Pricing adjustment, disallowance of depreciation on goodwill, non-admission of additional depreciation on goodwill, non-granting of set-off of brought forward losses, and levy of interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Transfer Pricing Adjustment:
The primary issue pertains to the inclusion of Genesys International Corporation Ltd. and Excel Infoways Limited in the final set of comparables for benchmarking international transactions. The assessee argued that Genesys is not functionally comparable due to its advanced mapping and geospatial services, which differ from the assessee's business process outsourcing services. The Tribunal, referencing its decision in ITA No.7519/Mum/2012 for the assessment year 2008-09, agreed that Genesys should be excluded due to functional disparity and no change in business nature. Similarly, Excel was excluded due to its highly fluctuating margins, as supported by precedents from the Pune Bench of the Tribunal in Emersion Climate Technologies vs. DCIT and Baxter India Pvt. Ltd vs. ACIT. Consequently, the grounds related to TP adjustment were partly allowed.

2. Disallowance of Depreciation on Goodwill:
The Tribunal considered the issue of depreciation on goodwill, referencing its decision in the assessee's case for the assessment year 2011-12 (ITA No.2692/Mum/2016). It concluded that the assessee is entitled to claim depreciation on goodwill, which arose from a slump sale and subsequent amalgamation approved by the High Court. The Tribunal directed the Assessing Officer to allow the claim of depreciation on goodwill, thus allowing ground No.9 of the appeal.

3. Non-Admission of Additional Depreciation on Goodwill:
The assessee's claim for additional depreciation on goodwill, not made in the return but during assessment proceedings, was initially rejected by the DRP. The Tribunal, referencing its prior decision for the assessment year 2011-12, held that such claims can be made during assessment proceedings as per the Jurisdictional High Court's ruling in Pruthvi Brokers and Shareholders Pvt. Ltd. The issue was restored to the Assessing Officer for examination on merits, allowing ground No.10 for statistical purposes.

4. Non-Granting of Set-Off of Brought Forward Losses:
The assessee's claim for set-off of brought forward business losses was not addressed by the authorities below. The Tribunal restored this issue to the Assessing Officer for reconsideration in accordance with the law, ensuring a reasonable opportunity for the assessee to be heard. Ground No.11 was allowed for statistical purposes.

5. Levy of Interest Under Section 234B:
The assessee challenged the levy of interest under section 234B. The Tribunal found no merit in this ground, stating that the charging of interest under section 234B is mandatory and consequential. Hence, ground No.12 was dismissed.

Conclusion:
The appeal was partly allowed, with specific directions to exclude certain comparables for TP adjustments, allow depreciation on goodwill, re-examine the claim for additional depreciation, and reconsider the set-off of brought forward losses. The levy of interest under section 234B was upheld.