9911796707
TMI Blog2021 (11) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ('the Act'). Provision of business support services and marketing support services (adjustment of INR 8.99.71.009) 2. On the facts and in law, the Ld. TPO erred in not treating "amortization of goodwill and noncompete fees" as abnormal and non-recurring expenses ought to be excluded while computing the TNMM operating margin earned from provision of services to Associated Enterprises ("AEs), in contravention of provisions of Rule 10B of the Income tax Rules, 1962 (the "Rules"). In this regard, the Ld. TPO and Ld. DRP completely disregarded the facts that - 2.1 Such expenses were completely unrelated to the pricing of international transactions; 2.2 The comparable companies incurred no cost of such or similar nature; 2.3 Appropriate adjustment ought to have been provided under Rule 10B( 1 )(e) of the Rules; and 2.4 Reliance on the Safe Harbour Rules was neither appropriate nor correct. 3. On the facts and in law, Ld. TPO erred in aggregating the international transactions of provision of business support services and provision of marketing support services undertaken by the Appellant by following a combined transaction benchmarking approach and not appreciating that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of outstanding receivables, if any, is subsumed in the working capital adjustment granted to the assessee and no separate adjustment on account of outstanding receivables is called for. 8. On the facts and in law, the Ld. AO erred in not granting full credit of TDS available to the Appellant and further erred in levying interest under section 234B of the Act and arriving at an incorrect demand of INR 10,03,848 instead of refund of INR 17,92,400 due to the Appellant. 9. On the facts and in law, the Ld. AO erred in initiating penalty proceedings u/s 271(1)(c) of the Act." 3. Representatives of both the sides were heard at length. Case records carefully perused and with the assistance of the ld. counsel for the assessee, we have considered the relevant documentary evidences brought on record in the form of paper book, in light of Rule 18(6) of the ITAT Rules. 4. Briefly stated, the facts of the case are that the appellant company is a Danaher Group Company, set up in 2007 and is engaged in the business of trading of various medical instruments and products. The appellant company also renders business support services and marketing support services to its Associates Enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5432442 v. Import of consumables for resale 37352066 9. The results as submitted by the taxpayer are as under: Particulars Business Support Services Distribution & Marketing services Operating revenues 393,800,000 184,956,000 Operating costs 357,600,000 7 57,506,000 Operating profit 36,200,000 27,450,000 T OP/OC 10.12% TNMM 17.43 TNMM 10. On the basis of the aforesaid chart, the TPO observed that the assessee has considered business support services and distribution of marketing services as separate segments whereas the nature of services provided by the assessee under these two segments are of similar nature and, accordingly, held that these should be considered as a single segment. 11. The TPO further observed that the assessee has considered 'amortization of goodwill' as non-operating item. The TPO was of the firm belief that since depreciation of tangible assets is charged to the profit and therefore, amortization of goodwill should also be considered as part of operating cost like depreciation and recomputation of margin aggregating the two segments as under: Particulars Amount(in INR) Operating revenue 578,756,000 Operating costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered while determining the cost base of the assessee nor such expense influenced the profitability. The ld. counsel for the assessee further drew our attention to the transfer pricing assessment order of subsequent Assessment Years i.e. 2013-14 and 2014-15 and pointed out that in subsequent Assessment Years, neither the Assessing Officer has aggregated the segments nor has considered the amortization of goodwill and non-compete fees as operating expenses. 17. Per contra, the ld. DR was in full support of the findings of the TPO and the DRP and read the relevant findings of the DRP. 18. It is true that the appellant had acquired certain business operations from third party. As a result of this acquisition, the assessee recognized a part of the purchase price as goodwill and non-compete fees in its balance sheet and for computation of tested party margins, the assessee considered amortization of goodwill and noncompete fees as non-operating expenses as these did not pertain to the provision of services to the AEs. 19. It would be pertinent to refer to Rule 10B(1)(e) of the ITAT Rules which states as under: "(e) transactional net margin method, by which,- (i) the net pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 has held as under: "Assessee has challenged the findings returned by TPO/DRP treating amortization of goodwill as not extra ordinary in nature. It is the case of the assessee that goodwill is on account of acquisition of units through slump sale under Business Transfer Agreement and in these circumstances, amortization of goodwill is an extra-ordinary item and is not pertaining to the regular operation of the taxpayer, hence non-operating in nature. 16. Ld. AR for the assessee contended that ld. DRP in assessee's own case in AYs 2011-12 and 2012-13 and ld. TPO in AY 2013-14 ITA No.168/Del./2015 has already amortized goodwill as extra ordinary in nature by excluding the same by computing operating margin of the taxpayer and order thereof is available at pages 2681 to 2695, 2696 to 2713 and 2718 and 2764 of the paper book. It is also not in dispute that there is no change in the facts of AYs 2010-11, 2011-12, 2012-13 and 2013-14. Perusal of the order passed by ld. DRP available at page 2681 relevant portion at page 2691, shows that amortization of goodwill is an extra-ordinary item and is not pertaining to the regular operation of the assessee, and hence non-operating in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch analysers for the trading segment as arm's length, but surprisingly, determined the arm's length price of purchase of fixed assets at Nil. The Assessing Officer, while framing the final assessment order, even went ahead one step further and disallowed the claim of depreciation considering the arm's length price determined by the TPO as NIL. 30. The documents referred to by the ld. counsel for the assessee during the course of arguments were considered from which we find that the import of goods was substantiated by furnishing the custom documentation which includes sample invoices along with corresponding bill of entries. Interestingly, we find that the custom's duty paid and cost of transportation were considered as the arm's length price by the lower authorities for computing the allowable depreciation whereas the cost of equipment has been taken at NIL. 31. In our considered opinion, equipment would not have been imported at NIL price even in an independent scenario. Moreover, we do not find that the TPO has applied any method to benchmark the said transaction, which action of the TPO is in violation of Rule 10B of the Income Tax Rules. We find that while treating the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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