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TMI Blog2021 (11) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, if the customer is not willing to buy the analysers, such instruments were installed at the customer s premises and the consumables required by the customer in using these instruments were provided by the assessee. We find that the cost of such analysers imported from the AEs, were capitalized in the books of accounts of the assessee and its related operating cost, i.e. depreciation, has been charged to the profit and loss account while computing the profitability of the trading segment. We find that the assessee has used TNMM analysis to bench mark arm s length nature of international transaction of purchase of medical equipment. TPO has accepted the purchase price of such 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. The documents referred to by assessee during the course of arguments were considered from which we find that the import of goods was substantiated by furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 92CA(3) of the Income-tax Act, 1961 ( 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignificant payables towards its AEs on which the Appellant has not paid any interest to its AEs 7.4 That the issue 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings, the TPO issued a show cause notice, inter alia, asking the assessee to explain the following: Sl. No. Type of international transaction Method selected Total value of transaction [Rs.] MAM PLI i. Trading of medical equipments/consumables for sale Transactional Net Margin Method Operating profit/Operating Revenue (OP/OR 97049053 ii. Import of medical equipments capitalized OP/OR 20550167 iii. Provision of business and technical support services Operating profit/Operating cost OP/OC 396362471 iv. Receipt of distribution and marketing services OP/OC 145432442 v. Import of consumables for resale 37352066 9. The resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.25 V. In-house Productions Ltd. -5.59 vi. India Tourism Dev Corporation Ltd. -4.51 vii. Indus Technical Financial Consultants Ltd. 4.82 viii. Inmacs Management Services Ltd 31.63 ix. Overseas Manpower Corporation Ltd -19.77 Mean 3.63% 13. After analysing the comparables, the TPO finally came to select the following set of comparables to determine the ALP: Sl. No. Company Long Name OP/OC 1. APITCO Ltd 20.46% 2. Axis Integrated Systems Ltd 25.80% 3. BVG India Ltd 24.46% 4. Cameo Corporate Services Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 profit margin realized by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base 20. It can be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, 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 nature. So, in these circumstances, we direct the TPO to verify the facts and treat the amortization of the goodwill as non-operating expenditure in order to compute the operating margin of the assessee. So, ground no.7 is determined in favour of the assessee. 23. Further, we find that in subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 purchase of capital goods as NIL, the TPO failed to provide any comparable data which would have suggested that the arm s length price for the purchase of capital goods can be NIL. In our understanding, no third party would have sold such goods free of cost. In our consid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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