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2021 (3) TMI 683 - AT - Income TaxDepreciation on goodwill - HELD THAT - The issue is identical to that of earlier years and no distinguishing facts pointed out by the Revenue. DRP has not at all considered the aspect of depreciation on goodwill in correct context as there is a finding identical to that of earlier years, assessee entered into a world-wide multi-year outsourcing agreement with IBM India Pvt. Ltd., Network Solutions Pvt. Ltd. and IBM Daksh Business Process Services Pvt. Ltd. as well as Acquisition Agreement and this is not an initial year of claim of depreciation on goodwill. Hence, in light of the decision of the earlier years by the Tribunal the appeal of the assessee is allowed.
Issues Involved:
1. Validity of the assessment order. 2. Transfer Pricing Issues. 3. Corporate Tax Grounds. Detailed Analysis: 1. Validity of the Assessment Order: The assessee contended that the assessment order framed by the AO pursuant to the directions of the Dispute Resolution Panel (DRP) under Section 143(3) read with Section 144C of the Income-tax Act, 1961, was bad in law, violated principles of natural justice, and was void ab initio. However, these grounds were deemed general and not adjudicated upon by the Tribunal. 2. Transfer Pricing Issues: The core of the transfer pricing dispute revolved around the disallowance of payment by the assessee to its associated enterprises for management and support charges. The Tribunal noted that these grounds were withdrawn by the appellant as they were rendered academic in light of the Advance Pricing Agreement (APA). The specific issues under this category included: - The AO/DRP/TPO's error in disallowing the payment of INR 90,936,248 for management and support charges. - The determination that the international transaction was not at arm's length per sections 92C(1) and 92C(2) of the Act, read with Rule 10D of the Income-tax Rules, 1962. - The failure to appreciate the business model and functional, asset, and risk profile of the appellant. - The rejection of the appellant's economic analysis and transfer pricing documentation without proper reasons. - The use of the Comparable Uncontrolled Price (CUP) method to benchmark management support and IT charges, resulting in an arm's length price of 'Nil'. - The DRP's benchmarking approach using operating expenses upon sales ratios of unknown comparable companies. - The DRP's enhancement of disallowance without providing an opportunity for the appellant to be heard. - The alternative disallowance of management support and IT charges under section 37(1) of the Act without a speaking order. 3. Corporate Tax Grounds: The appellant's primary contention was the disallowance of depreciation on goodwill. The Tribunal referred to its previous decisions in the assessee's own case for AY 2010-11 and AY 2011-12, where it was held that the assessee was entitled to depreciation on goodwill. The Tribunal cited the Delhi High Court's decision in Areva T&D India Ltd. vs. DCIT, which recognized that intangible assets like business claims, business information, business records, contracts, employees, and know-how acquired under a slump sale agreement are eligible for depreciation under Section 32(1)(ii) of the Act. The Tribunal also referenced the Supreme Court's dismissal of the Revenue's SLP against this decision, affirming that goodwill qualifies for depreciation. The Tribunal further noted that the AO's reasons for disallowing depreciation on goodwill, such as the lack of acquisition of business during the year and the non-verifiability of the purchase price, were not tenable. The Tribunal emphasized that the assessee's acquisition of IBM's logistics business included valuable intangible assets that facilitated the continuation of the business without interruption, thus qualifying for depreciation. Conclusion: The Tribunal dismissed the grounds related to the validity of the assessment order as general and not adjudicated. The transfer pricing issues were withdrawn by the appellant. The Tribunal allowed the appeal on the corporate tax grounds, directing the AO to allow the claim of depreciation on goodwill, consistent with its earlier decisions and the Delhi High Court's ruling. The appeal was thus allowed in favor of the assessee.
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