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TMI Blog2012 (4) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... ion using comparable un-controlled price method (CUP). The TPO vide order dt. 27.10.2009 passed u/s 92CA(3) made the following adjustment to the arm's length price charged by Taj Sats to its AE (Singapore Airline) after comparing the average of prices per item of meal charged to other Airlines: Particulars Amount (in Rs) Economy class 167,968 Business class 60,266 Other services 232,157 Total Adjustment 460,391 2.2 Based on the TPO's order, the AO made an addition of Rs. 460,391 to the income of the assessee. The DRP confirmed the disallowance made by A.O. based on which the A.O. made adjustment of Rs. 460391/-. Aggrieved with such order of the A.O. the assessee is in appeal before us. 3. The ld. counsel for the assessee submitted that the contract with the Airline is for supply as well as service and the food supplied is a basket comprising of individual items rather than supply of items individually and hence entire transaction has to be viewed as a single transaction. He submitted that Rule 10(l)(d) of the I.T. Rules define transaction to include the closely linked transaction. The sale of Lime chutney, Raita, Malwami Murg etc. are closely linked together and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Further we find from the comparison of rate per passenger for individual airlines that the rate for the passenger rate for Singapore Airlines is the highest and the rate for Virgin Atlantic is the third highest. Therefore we find merit in the submission of the ld. counsel for the assessee that the transactions are at arm's length price. In this view of the matter we hold that the A.O. was not justified in making the adjustment of Rs. 460391/-u/s 92CA(3) of the Act. We therefore direct the A.O. to delete the addition. The ground raised by the assessee is accordingly allowed. 5. In grounds of appeal No. 2, the assessee has challenged the order of the A.O. in making addition of Rs. 205950/- u/s 14A of the I.T. Act. 5.1 Facts of the case in brief are that during the Financial Year ended 31 March 2006, the assessee company has earned dividend income of Rs. 0.49 crores from Tata Mutual Funds which it claimed as exempt from income-tax under section 10(35) of the Act. Based on the directions given by the DRP, the A.O. disallowed 10% of CFO's remuneration amounting to Rs. 205950/ u/s 14A of the I.T. Act. Aggrieved with such order of the A.O. the assessee is in appeal before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 4,968,000 from Tata Mutual Fund which is claimed as exempt u/s 10(35) of the Act. In absence of any expenses disallowed by the assessee for earning such tax free dividend income the A.O. disallowed an amount of Rs. 2,05,950/- being 10% of the salary of the CFO u/s 14A of the Act. It is the submission of the ld. counsel for the assessee that no disallowance should be made u/s 14A of the Act since no expenditure has been incurred in relation to earning of such dividend income. In his alternate contention the ld. counsel for the assessee submitted that some token disallowance may be made as against disallowance of salary of the CFO on percentage basis. Since the assessee has not allocated any expenditure for earning tax free dividend income and since the disallowance made by the A.O. on adhoc basis appears to be on higher side, therefore, in our opinion, a reasonable disallowance of Rs. 1,50,000/- under the facts and circumstances of the case will meet the ends of justice. We hold and direct accordingly. The ground raised by the assessee is accordingly partly allowed. 7. In grounds of appeal No.3 the assessee has challenged the order of the AO in not allowing the claim of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense to operate kitchen at Mumbai, Kolkota and New Delhi 0.1 VII Valuable workforce 2.6 VIII Goodwill 21.4 Total 71.0 Referring to provisions of section 32 it was submitted that various intangibles/rights enumerated above are intangible assets specifically covered u/s 32 of the I.T. Act. It was submitted that any other business or commercial rights of similar nature have also been covered within the ambit of section 32 although the same is not specifically defined in the Act or in the rules. 8.2 Referring to various decisions, it was submitted that the various intangibles/ rights enumerated above are intangible assets covered under the provisions of section 32 of the Act and the assessee is entitled to claim depreciation on the above. 8.3 However, the AO was not convinced with the explanation given by the assessee. He observed that the tax auditors in the tax audit report dated 28.10.2005 without any qualification has not considered depreciation on goodwill as allowable deduction. According to the AO when any business is taken over as a going concern, it includes taking over of all assets and liabilities including the various commercial rights and licenses. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itchen 1.3 TACL has 30 years (10 years extendable) right in leasehold land measuring 14440 sq.mt. located at Delhi International Airport. V Recipes 2.0 TACL has invested in R&D of In-house recipes developed over a period of 5 years). VI License 0.1 TACL has licenses to operate kitchen at Mumbai, Kolkata and New Delhi. VII Workforce 2.6 TACL has valuable work force at Mumbai, New Delhi and Kolkata which is valued as part of Goodwill. Total 49.6 8.5 According to the AO, the assessee had acquired the catering business of Indian Hotels Company Limited, a joint venture between Indian Hotels Company Ltd. and Singapore Air Terminus Services Limited vide business transfer agreement dated 25.09.2001. The contracts for acquiring the various assets were available to the assessee at the time of making original valuation, including that of goodwill. The said contracts were included in the original valuation. The assessee has valued various assets including goodwill which was valued at Rs. 73,74,49,345/- as on 01.04.2002. The assessee did not bring in any other assets in the value of Rs. 73.74 crores at the time of acquiring the business. The assessee did not bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Hon'ble Supreme Court in the case of Techno Shares & Stocks Ltd. v. CIT [2010] 327 ITR 323/193 Taxman 248 and various other decisions he submitted that depreciation is allowable on goodwill. Referring to a series of decisions as filed in the paper book, he submitted that goodwill is an inseparable part of the business and it goes along with the business. It cannot be sold without the business. So far as the other intangible assets described as goodwill are concerned, he submitted that these also fulfil all the conditions which are required to be satisfied in order to claim depreciation on intangible assets as provided u/s.32 of the I.T. Act. He accordingly submitted that consideration paid for availing the various rights to manage/run the Air Catering Unit is for acquisition of intangible assets covered u/s.32 of the I.T. Act and, therefore, the assessee is entitled to depreciation on these intangible assets as well. 9.2 The ld. DR, on the other hand, submitted that when the assessee acquired the business of IHCL as a going concern, it was a slump sale. He submitted that the Income Tax Act prohibits the assessee to apportion any specific value in case of a slump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets and the balance is goodwill. He again reiterated that the assessee is entitled to claim depreciation on these intangible assets as well as on goodwill. 9.4 We have considered the rival arguments made by both the sides, perused the orders of the AO and the DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Tribunal in the assessee's own case for the Assessment Year 2003-04 while setting aside the issue to the file of the A.O has observed as under :- "This evidence in our humble opinion goes into the root of the matter. From the assessment order it can be clearly seen that the assessing officer had noticed from the recitals in the business transfer agreement, that intellectual properties which are listed out in Article 1. Sub-clause (b) have been transferred along with other movable and immovable assets. Even article 2. Sub-clauses (b) and (e) mention a list of intangible assets, which have been aggregated and loosely termed as "goodwill" by the assessee in its books of account. Thus the fact that slump sale consists of many intangible assets along with goodwill is not in dispute. It is true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate that the information provided was materially mis-stated/incorrect or would not afford reasonable grounds upon which to base the report. We do not imply and it should not be construed that we have verified any of the information provided to us, or that our inquiries could have verified any matter, which a more extensive examination might disclose. We are not responsible for arithmetical accuracy/logical consistency of any financial model or business plan provided by the Company and used in our valuation analysis. The terms of our engagement were such that we were entitled to rely upon the information provided by the Company without detailed inquiry. Also, we have been given to understand by the Management that it has not omitted any relevant and material factors and that it has checked out relevance or materiality of any specific information to the present exercise with us in case of any doubt. Accordingly, we do not express any opinion or offer any form of assurance regarding its accuracy any completeness. Our conclusions are based on these assumptions, forecasts and other information given by/on behalf of the Company. The management of the Company has indicated to us tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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