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2021 (11) TMI 238 - AT - Income TaxDepreciation on intangible assets - HELD THAT - As per our orders in the earlier assessment years 2010-11 2014-15 2021 (5) TMI 252 - ITAT PUNE AND 2012-13. 2021 (8) TMI 1243 - ITAT PUNE in respect of the assessee, the issue of depreciation on intangible assets is allowed for statistical purposes whereas the issue of depreciation on other assets is allowed. Thus, Ground Nos. 1 to 4 raised in appeal by the Revenue are partly allowed for statistical purposes. TP adjustment - method of benchmarking royalty payment merging with transactions of purchase of raw materials - HELD THAT - CIT(Appeals) has accepted the receipts of services and going through the various evidences placed before us annexed in the paper book, there is no dispute regarding such receipt of services. DR could not place any evidences contrary to these facts on record. That only for determination of arm's length price of the transaction payment of royalty has to be benchmarked separately and cannot be aggregated with the payment for purchase of raw materials. This exercise has to be done by the Assessing Officer/TPO. Ground are restored to the file of Assessing Officer/TPO for adjudication as per law and as per aforesaid observations.
Issues Involved:
1. Depreciation on intangible assets including goodwill, technical know-how, and non-compete fees. 2. Transfer Pricing (TP) adjustment and determination of Arm's Length Price (ALP) for CCR divisional cost and IT support expenses. 3. Payment of royalty and its benchmarking. 4. Adherence to principles of natural justice by the TPO. Detailed Analysis: 1. Depreciation on Intangible Assets: The primary issue involved the disallowance of depreciation on intangible assets such as goodwill, technical know-how, and non-compete fees. The Assessing Officer (AO) disallowed the depreciation citing reasons from earlier assessment years. The Ld. CIT(A) allowed the depreciation based on precedents set in the assessee’s own case for earlier years (2005-06, 2006-07, 2009-10, and 2003-04) by the Pune Bench of the Tribunal. The Tribunal, while dealing with the issue for assessment years 2010-11 and 2014-15, directed the AO to recompute the value of both tangible and intangible assets, allowing depreciation on the revised values. The Tribunal reiterated this approach for the current assessment year, restoring the issue to the AO for recomputation following the same directions. 2. Depreciation on Other Assets: The Tribunal also addressed the depreciation on other assets, following its earlier decisions in the assessee’s own case for assessment year 2012-13. The Tribunal allowed the depreciation on technical know-how and other assets, affirming the CIT(A)’s decision based on the precedent set for assessment year 2004-05. 3. Transfer Pricing Adjustment: The second major issue involved TP adjustments related to CCR divisional cost and IT support expenses. The Ld. CIT(A) quashed the TPO’s order on the grounds of non-adherence to the principles of natural justice, as no show cause notice was issued to the assessee. The Tribunal noted that the TPO disallowed the expenses due to insufficient documentary evidence. The Tribunal found that the Ld. CIT(A) accepted the services availed by the assessee but did not provide specific reasoning. The Tribunal restored the issue to the AO/TPO for fresh adjudication, emphasizing that the benchmarking of royalty payments should be done separately from the purchase of raw materials. 4. Payment of Royalty: The issue of royalty payment was also addressed. The TPO disallowed the payment due to lack of benchmarking and absence of an agreement. The Ld. CIT(A) accepted the assessee’s method of aggregating the royalty payment with other international transactions. However, the Tribunal agreed with the assessee’s counsel that the correct method is to benchmark the royalty payment separately. The Tribunal restored this issue to the AO/TPO for proper benchmarking. Adherence to Natural Justice: The Tribunal acknowledged the Ld. CIT(A)’s observation that the TPO failed to follow the principles of natural justice by not issuing a show cause notice. The Tribunal emphasized the need for proper opportunity of hearing and directed the AO/TPO to adhere to these principles in the fresh adjudication. Conclusion: The Tribunal partly allowed the Revenue’s appeal for statistical purposes, directing the AO/TPO to recompute the depreciation on intangible assets as per the Tribunal’s earlier directions and to re-adjudicate the TP adjustments and royalty payment issues following the proper benchmarking methods and principles of natural justice.
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