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TMI Blog2021 (3) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 for Assessment Year 2012-13. 2. The grounds of appeal are as under:- 1. That the impugned order of assessment framed by the assessing officer ( AO ) in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as DRP ) under Section 143(3) read with Section 144C of the Income-tax Act, 1961 ( Act ), is bad in law, volatile of principles of natural justice and void ab- jnitio. 2. That the assessing officer erred on facts and in law in completing the assessment under section 143(3) read with section 144C of the Income-tax Act ( the Act ) at an income of ₹ 184,341,870 as against INR 72,692,430 returned income. 3. Transfer Pricing Issues: 3.1 That on the facts and circumstances of the case and in law, the AO / DRP /transfer pricing officer ( TPO ) have erred in disallowing payment of INR 90,936,248 by the Appellant to its associated enterprises on account of allocation of management and support charges incurred by the Appellant. 3.2 That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in holding the international transaction of allocation of management and IT support charges t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n comparable companies used by DRP with the ratio of operating expenses upon sales of the Appellant, without appreciating that such an approach is not stipulated under any methods prescribed under Chapter X read with the Rule 10 of the Rules there under to determine the ALP of the international transaction of management support and IT charges. 3.9 That on facts and circumstances of the case and in law, the directions passed by DRP and the subsequent orders passed by lower authorities are bad in law and void ab-initio as the DRP has enhanced the disallowance for management support and IT charges to 1NR 90,936,248 as against disallowance of INR 77,393,666 made by the TPO, without providing an opportunity of being heard, which is sine qua non as per section 144C(1 1) of the Act. 3.10 That on facts and circumstances of the case and in law, the directions are bad in law and void ab-initio as the DRP has erred in observing / directing that the management support and IT charges amounting to INR 90,936,248 are alternatively disallowable under section 37(1) of the Act, without passing a speaking order on the issue and providing an opportunity of being heard, which is sine qua non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 9,09,36,248/-. The assessment order was passed on 24/11/2016 thereby making an additions as per the directions given by the DRP and assessing the income at ₹ 18,43,41,870/-. 4. Being aggrieved by the assessment order, the assessee filed appeal before us. 5. The Ld. AR submitted that Ground No. 1 2 are general. The Ld. AR further submitted that in light of APA Ground No. 3, 3.1 to 3.1.1 are withdrawn as the same are academic. As regards Ground No. 4 4.1, the Ld. AR submitted that the issue is covered by the order of the Tribunal in ITA No. 2305/Del/2015 Assessment Year 2010-11 order dated 18/05/2020 which is followed in ITA No. 2242/del/2016 for Assessment Year 2011-12 order dated 28/10/2020. As related to Ground No. 4.2, the same is also covered by the said decision of the Tribunal. 6. The Ld. DR relied upon the order of the TPO and DRP and further submitted that goodwill is not inclusive and hence the adjustment and the additions made by the TPO/A.O are just and proper. 7. We have heard both the parties and perused the material available on record. Since, Ground No. 1 2 are general. The same are not adjudicated upon. As regards Ground No. 3, 3.1 to 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar nature' specified in section 32(1)(ii) and are accordingly eligible for depreciation under that section. 43. The relevant observation of the Hon ble High Court from para 12 to 15 are as under:- 12. In the present case, it is seen that the assessee vide slump sale agreement dated 30th June, 2004, acquired, as a going concern, the transmission and distribution business of the transferor Company w.e.f. 1 st April, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trademark of the transferor which was retained by the transferor, for lump sum consideration of ₹ 44.7 Crores. It is further seen that the book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance sheet of the transferor as on the date of transfer as ₹ 28.11 Crores. The said assets and liabilities were recorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of ₹ 16,58,76,000/- over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words business or commercial rights of similar nature have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of business or commercial rights cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees; and knowhow, are all assets, which are invaluable an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision include know-how, patent and copyrights ITA No.1976/Del/2006 etc., the unspecified intangible assets have been described with the expression 'or any other business or commercial rights of similar nature.' It is nobody's case that goodwill is a specified intangible asset. The assessee has sought to cover `goodwill' within the expression deployed to define unspecified intangible assets. Au contraire, the A.O. has canvassed a view that the expression used in the provision for defining unspecified intangible assets cannot embrace something which is inextricably linked with the business of the assessee. He bolstered his point of view by noting that the specified assets in the provision are such which are detachable from the business of the assessee and transferrable individually and separately. In this light, he held that the expression 'or any other business or commercial rights of similar nature' would include only such assets which are transferrable distinctly. Goodwill of a business, being, an intangible asset which cannot be transferred separately de hors the transfer of business, was, ergo, held to be not includible in the expression used in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firm belief that the depreciation on goodwill was not allowable as a deduction in light of the provisions of Explanation 3 to section 32(1) of the Act. 21. Before us, the ld. counsel for the assessee brought to our notice the decision of the co-ordinate bench in assessee s own case in ITA No. 2305/DEL/2015 for A.Y 2010-11 and pointed out that Tribunal has decided this issue in favour of the appellant. 22. Per contra, the ld. DR supported the findings of the DRP. 23. We find force in the contention of the ld. counsel for the assessee. We are of the considered opinion that this is not the initial year of claim of depreciation and in this year, the assessee has claimed depreciation on the written down value. We find that in the immediately preceding A.Y i.e. 2010- 11, this dispute has been settled by the co-ordinate bench in assessee s own case [supra]. 24. The relevant findings read as under: 40. We have considered the rival arguments made by both the sides, perused the orders of the AO/TPO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Company w.e.f. 1 st April, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trademark of the transferor which was retained by the transferor, for lump sum consideration of ₹ 44.7 Crores. It is further seen that the book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance sheet of the transferor as on the date of transfer as ₹ 28.11 Crores. The said assets and liabilities were recorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of ₹ 16,58,76,000/- over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle of business and commercial rights, clearly defined in the slump sale agreement, compendiously termed as goodwill in the books of accounts, which comprised, inter alia, the following:- (i) Business claims, (ii) Business information, (iii) Business records, (iv) Contracts, (v) Skilled employees, (vi) knowhow. It is also observed that the AO accepted the allocation of the slump consideration of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of business or commercial rights cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees; and knowhow, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assets. Au contraire, the A.O. has canvassed a view that the expression used in the provision for defining unspecified intangible assets cannot embrace something which is inextricably linked with the business of the assessee. He bolstered his point of view by noting that the specified assets in the provision are such which are detachable from the business of the assessee and transferrable individually and separately. In this light, he held that the expression 'or any other business or commercial rights of similar nature' would include only such assets which are transferrable distinctly. Goodwill of a business, being, an intangible asset which cannot be transferred separately de hors the transfer of business, was, ergo, held to be not includible in the expression used in the provision to explain the unspecified intangible assets. In our considered opinion, this issue is no more res integra in view of the judgment of the Hon'ble Summit court in CIT vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) in which it ITA No.1976/Del/2006 has been held: that goodwill will fall under the expression 'or any other business or commercial rights of similar nature' and, hen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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