HUNTSMAN INTERNATIONAL (INDIA) P.LTD, MUMBAI V. ASST CIT 10(1)(1), MUMBAI

ITA 1099/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0353 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: F V IRANI
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Earning of tax free income; Additional evidence; Wholly owned subsidiary; Fair market value; Valuation report; Non passing of speaking order; Revenue expenditure
• Section: 92C; 143(3); 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.1099/MUM/2017 ASSESSMENT YEAR : 2012-13 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD., LIGHT HALL B-WING, SAKI VIHAR ROAD, ANDHERI (E), MUMBAI 400 072 PAN AAACH9149J VS. ACIT 10 (1)( 1 ) , MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI F V IRANI RESPONDENT BY : SHRI RIGNESH DAS DATE OF HEARING : 04 .0 9 .201 8 DATE OF PRONOUNCEMENT : 12 .0 9 .201 8 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 17.01.2017 PASSED U/S. 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2012-13, IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (1) (DRP), MUMBAI. 2. IN GROUND NO.1 WITH ITS SUB GROUNDS, THE ASSESSE E HAS CHALLENGED THE DISALLOWANCE OF CORPORATE SERVICE CHARGES PAID TO A SSOCIATED ENTERPRISES (AE) AMOUNTING TO ` 10,54,04,393/-. BRIEFLY, FACTS ARE THE ASSESSEE, AN INDIAN COMPANY, IS WHOLLY OWNED SUBSIDIARY OF HUNTSMAN INT ERNATIONAL LLC. THE ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 2 ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND TRADING OF CHEMICALS. FOR THE ASSESSMENT YEAR UNDER DISPUTE T HE ASSESSEE FILED ITS RETURN OF INCOME ON 30.11.2012, DECLARING LOSS OF ` 6,37,59,600/-. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICI NG THAT IN THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAD ENTERED INTO INTERNA TIONAL TRANSACTIONS WITH ITS AES MADE A REFERENCE TO THE TRANSFER PRICING OFFICE R (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TR ANSACTIONS. IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TPO CALLED FOR VARIOUS DOCUMENTS INCLUDING THE TRANSFER PRICING STUDY REPORT OF THE ASSESSEE IN SU PPORT OF THE BENCHMARKING OF THE INTERNATIONAL TRANSACTIONS MADE BY THE ASSES SEE. AFTER VERIFYING THE DOCUMENTS AVAILABLE BEFORE HIM, THE TPO FOUND THAT ASSESSEE HAS PAID SERVICE CHARGES AMOUNTING TO ` 3,91,19,615/- AND ` 7,13,84,778/- TOWARDS SERVICES AVAILED FROM THE AES IN TWO OF ITS MANUFAC TURING DIVISIONS. THE ASSESSING OFFICER ALSO NOTED THAT SUCH SERVICE CHAR GES WERE PAID FOR THE FIRST TIME IN A.Y. 2009-10 AND CONTINUED IN THE SUBSEQUEN T ASSESSMENT YEARS. AFTER VERIFYING THE TRANSFER PRICING STUDY REPORT T HE TPO FOUND THAT AS PER THE AGREEMENT DATED 1.07.2008 WITH THE HOLDING COMPANY, THE SERVICES AVAILED BY THE ASSESSEE FROM AES ARE RELATING TO VARIOUS SE CTORS INCLUDING LEGAL SERVICES, PURCHASE, TRANSPORTING AND LOGISTICS, TRA VEL CO-ORDINATION SERVICES, TREASURY AND CREDIT, PUBLIC RELATIONS, INTERNAL CON TROL AND INTERNAL AUDIT, COMPLIANCE AND ETHICS, TAX ADMINISTRATION SUPPORT S ERVICES, HUMAN RESOURCES SERVICES ETC. AFTER DELIBERATING UPON VARIOUS SERV ICES AVAILED BY THE ASSESSEE, ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 3 THE TPO ULTIMATELY CONCLUDED THAT THE ASSESSEE HAS TO PROVE THAT THE SERVICES WERE RENDERED AND RECEIVED BY THE ASSESSEE. FURTHE R, HE OBSERVED THAT QUANTIFICATION OF THE EXTENT OF SERVICES RECEIVED B Y THE ASSESSEE AND THE ACTUAL EXPENDITURE RELATING TO SUCH SERVICES COMMEN SURATE WITH BENEFIT HAS TO BE TESTED IN ARMS LENGTH CONDITIONS. ULTIMATEL Y, THE TPO CONCLUDED THAT THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THE PAY MENT MADE TOWARDS SERVICE CHARGES HAS RESULTED IN ANY TANGIBLE BENEFI T TO THE ASSESSEE. THEREFORE, ACCORDING TO HIM THE ALP OF THE PAYMENT MADE TOWARDS SERVICE CHARGES HAS TO BE TAKEN AS NIL. PROCEEDING FURTH ER AND REFERRING TO THE DECISION TAKEN BY HIM FOR A.Y. 2009-10, THE TPO OBS ERVED THAT BY APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD, THE ALP OF THE SERVICES ON MAN HOUR RATE BASIS IS TO BE COMPUTED AT ` 51,00,000/- AS AGAINST ` 11,05,04,393/- SHOWN BY THE ASSESSEE. THUS, HE MA DE AN ADJUSTMENT OF ` 10,54,04,393/-. IN TERMS WITH THE ADJUSTMENT MADE BY THE TPO, THE ASSESSING OFFICER ADDED THE TP ADJUSTMENT IN THE DR AFT ASSESSMENT ORDER. 3. BEING AGGRIEVED, THE ASSESSEE CHALLENGED THE ADD ITIONS MADE BY FILING OBJECTIONS BEFORE THE DRP. HOWEVER, THE LEARNED DR P FOLLOWING ITS OWN DECISION ON IDENTICAL ISSUE IN A.Y. 2011-12, REJECT ED THE OBJECTIONS RAISED BY THE ASSESSEE. 4. SHRI F V IRANI, LEARNED SENIOR COUNSEL, APPEARIN G FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ISSUE IN DISPUTE HAS BEEN DECIDED BY THE ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 4 TRIBUNAL IN FAVOUR OF THE ASSESSEE IN A.Y. 2011-12. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATIONS IN THE O RDER OF THE TRIBUNAL DATED 31.01.2017 IN ITA NO.5637/MUM/2015. THE LEARNED DR RELIED ON THE OBSERVATIONS OF THE TPO AND DRP. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN FROM THE FACTS EMANATING FROM RECORD, PAYMENT OF SERVICE CHARGES TO AES IS IN PURSUANCE TO AGREEMENT DATED 01.07.2008 AND IS CONTINUING FROM A.Y. 2009-10. THE TPO HIMSELF HAS STATED SUCH FACTS IN HIS ORDER FOR THE IMPUGNED ASSESSMENT YEAR. IN FACT, T HE LEARNED DRP UPHELD THE ADJUSTMENT MADE BY THE TPO SIMPLY RELYING UPON ITS OWN DECISION IN ASSESSEES CASE FOR A.Y. 2011-12. HOWEVER, THE TRI BUNAL WHILE DECIDING THE ASSESSEES APPEAL AGAINST SUCH ADDITION MADE ON ACC OUNT OF TP ADJUSTMENT IN A.Y. 2011-12 IN ITA NO. 5637/MUM/2015, DATED 31.01. 2017, HAS RESTORED THE ISSUE TO THE DRP FOR FRESH ADJUDICATION. THE RELEV ANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD ARE AS UNDER: 7. WE MAY NOW TAKE UP THE APPEAL OF THE ASSESSEE. THE FIRST ISSUE IN THIS APPEAL RELATES TO THE TRANSFER PRICIN G ADJUSTMENT OF RS.6,34,11,803/- MADE BY THE ASSESSING OFFICER IN R ESPECT OF THE INTERNATIONAL TRANSACTIONS ON ACCOUNT OF CORPORATE SERVICE CHARGES PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE. THE RELEVANT FACTS ARE THAT ASSESSEE HAD PAID CORPORATE SERVICES CHARG ES AMOUNTING TO RS.2,49,34,938/- AND RS.4,29,81,865/- TOWARDS SERVI CE CLAIMED TO HAVE BEEN UTILIZED FROM THE ASSOCIATED ENTERPRISE, M/S. HUNTSMAN INTERNATIONAL LLC IN THE POLYURETHANE AND TEXTILE E FFECTS DIVISIONS RESPECTIVELY. THE SAID PAYMENTS WERE MADE IN TERMS OF AN AGREEMENT DATED 01/07/2008 WITH HUNTSMAN INTERNATIO NAL LLC, ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 5 WHICH INVOLVED AVAILING OF SERVICES FROM THE ASSOCI ATED ENTERPRISE ON ACCOUNT OF LEGAL SERVICES, TREASURY AND CREDIT, PUR CHASING, TRANSPORTATION AND LOGISTICS, TRAVEL CO-ORDINATION SERVICES, INTERNAL AUDIT, HUMAN RESOURCES SERVICES, ETC. THE ASSESSEE HAD BENCHMARKED THE SAID PAYMENT OF CORPORATE SERVICE CHARGES BY USING TNM METHOD, WHEREAS THE TPO REQUIRED THE ASSE SSEE TO SHOW CAUSE AS TO WHY THE COMPARABLE UNCONTROLLED PRICE(C UP) METHOD SHOULD NOT BE APPLIED TO BENCHMARK SUCH INTERNATION AL TRANSACTIONS. AFTER CONSIDERING THE SUBMISSIONS AND EVIDENCES FUR NISHED BY THE ASSESSEE THE TPO DEDUCED MAN HOURS OF VARIOUS SERVI CES RENDERED BY THE ASSOCIATED ENTERPRISE AND DETERMINED RS.45.05 L ACS AS ARMS LENGTH PRICE OF SUCH TRANSACTIONS. AS A CONSEQUENC E THE BALANCE OF RS.6,34,11,803/- WAS DISALLOWED. THE DRP HAS ALSO AFFIRMED THE STAND OF THE TPO, AGAINST WHICH ASSESSEE IS IN FURT HER APPEAL BEFORE US. 7.1 AT THE TIME OF HEARING, IT WAS BROUGHT OUT THAT THE TRIBUNAL, IN ASSESSEES OWN CASE IN ITA NO.1539/MUM/2014 FOR ASSESSMENT YEAR 2009-10 VIDE ORDER DATED 31/08/2015 HAS REMIT TED THE MATTER BACK TO THE FILE OF DRP FOR RE-ADJUDICATION BY PASS ING A SPEAKING AND REASONED ORDER. THE OPERATING PORTION OF THE ORDER OF THE TRIBUNAL DATED 31/08/2015(SUPRA) IN THIS REGARD IS REPRODUCE D HEREAFTER:- 4.3. WE HAVE GONE THROUGH THE AVAILABLE MATERIAL. WE FIN D THAT WHILE FILING OBJECTION BEFORE THE DRP THE ASSESSEE HAD RA ISED VARIOUS ISSUES. THE ASSESSEE HAD REQUESTED THE DRP TO ADMIT ADDITIO NAL EVIDENCE AS PER PROVISIONS OF THE DRP RULES. BUT, THE DRP HAS N OT MENTION ANYTHING IN ITS ORDER ABOUT THE ISSUE RAISED BY THE ASSESSEE AND THE DOCUMENTS SUBMITTED. IN OUR OPINION, IT WAS DUTY OF THE DRP T O REJECT OR ACCEPT THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE ONCE S AME WERE FILED BEFORE IT. SECONDLY, THE GROUND OF APPEAL RELATING TO WAS NOT DECIDED. NON-ADJUDICATION OF A GROUND RAISED BY AN ASSESSEE IS MISCARRIAGE TO JUSTICE. WE WOULD LIKE TO REPRODUCE THE ORDER OF TH E DRP DEALING WITH TP ISSUE AND SAME READS AS UNDER: 5.2.1 THE APPLICANT HAS SUBMITTED BEFORE THE DRP TH AT THE ENTIRE PAYMENT OF CORPORATE EXPENSES OF RS.46,299, 732/- AS AN ADJUSTMENT U/S 92CA. WE HAVE CONSIDERED THE SUBMISS IONS FILED BY THE APPLICANT AND FOUND THAT THE ASSESSEE FAILED TO SUBMIT EVEN A SINGLE EVIDENCE TO PROVE THAT IT HAD RECEIVE D ANY SERVICES FROM ITS AE IN LIEU OF WHICH THE PAYMENT WAS MADE T O THE AE IN SPITE OF BEING GIVEN A NUMBER OF OPPORTUNITIES BY T HE TPO. THUS THE ARM'S LENGTH PRICE OF ALLOCATION OF CORPORATE EXPENSES PAID WAS RIGHTLY TREATED AS RS.NIL BY THE TPO DUE TO INA DEQUACY OF ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 6 THE ASSESSEE'S ARGUMENT AND THE ENTIRE PAYMENT OF A LLOCATION OF CORPORATE EXPENSES OF RS. 46,299,732 /- WAS TREATED AS AN ADJUSTMENT U/S 92CA.WE AGREE WITH THE ORDER OF THE TPO AND THE ADDITION PROPOSED ON THIS COUNT IN THE DRAFT OR DER. 5.2.2 THE ASSESSEE HAS SUBMITTED THAT TPO HAS REWOR KED THE MARGIN CALCULATION INCORRECTLY AS FOLLOWING ERRORS WERE FOUND IN THE CALCULATION SUBMITTED BY THE ASSESSEE: - IN CASE OF ALLIED RESINS, THE INCREASE IN CLOSING STOCK WAS NOT TAKEN INTO ACCOUNT WHILE WORKING OUT THE MARGIN - IN CAMPHOR AND JYOTI RESINS, INCREASE IN CLOSING STOCK WAS ADDED TO TURNOVER INSTEAD OF REDUCING IT FROM OPERA TING COST IF THE REVISED MARGINS ARE TAKEN INTO ACCOUNT, THE ARITHMETIC MEAN COMES TO 5.57% INSTEAD OF 5.78% AS CALCULATED BY THE TPO. ON THIS ISSUE WE DIRECT THE AO/TPO TO VERIFY THE CO MPUTATION OF THE OP/OR AND CORRECTLY COMPUTE THE ARITHMETIC MEAN AND ACCORDINGLY WORK OUT THE QUANTUM OF ADJUSTMENT. 5.2.3 THE ASSESSEE HAS SUBMITTED THAT THE TPO HAS E RRED IN REJECTING THE TP STUDY REPORT WITHOUT APPROPRIATE J USTIFICATIONS FOR DOING SO AND HAS ERRED IN USING ENTITY LEVEL FO R THE PURPOSES OF BENCH MARKING INTERNATIONAL TRANSACTIONS. IN THI S REGARD, WE FIND THAT THE TPO HAS CORRECTLY POINTED OUT THE INF IRMITIES IN THE TP STUDY REPORT BEFORE REJECTING IT AND WE ARE IN A GREEMENT WITH HIS VIEWS. THE TPO IN HIS ORDER HAS CLEARLY BR OUGHT OUT THE REASONS FOR MAKING THE ADJUSTMENT AT THE ENTITY LEV EL. THEREFORE, WE ARE IN AGREEMENT WITH THE TPO ON THIS ISSUE. 5.2.4 THE ASSESSEE HAS SUBMITTED THAT THE TPO IS EN TITLED ONLY TO DETERMINE ARMS LENGTH PRICE IN RELATION TO THE I NTERNATIONAL TRANSACTION THEREFORE, THE ADJUSTMENT, IF ANY, BASE D ON THE ARMS LENGTH OPERATING MARGIN SHOULD BE WORKED OUT ONLY I N RESPECT OF THE REVENUES IN THE AE SEGMENT. THE ASSESSEE HAS SU BMITTED THAT IF THIS IS DONE NO ADJUSTMENT WOULD BE NECESSA RY. ASSSESSEE STATES THAT TPO HAS ERRED IN TAKING THE PLI MARGIN ON THE ENTITY BASIS. WE FIND THAT THE ASSESSEE HAS NOT MAINTAI NED SEPARATE ACCOUNTS FOR THE AE AND NON-AE SEGMENTS. THE SEGMEN TS PREPARED JUST FOR THE REASON OF CALCULATION OF PLI ARE NOT ACCEPTABLE AS THE BASIS OF ALLOCATION OF EXPENSES A ND THE CORRECTNESS OF ALLOCATION ARE NOT VERIFIABLE. THERE FORE, THESE ARE NOT RELIABLE. IN THE ABSENCE OF THE SAME, AND CONSI DERING THE INTERLINKING BETWEEN AE AND NON-AE IMPORTS, IT IS N OT POSSIBLE TO PREPARE RELIABLE SEGMENT-WISE ACCOUNTS. FURTHER, IT IS NOTED THAT THE ASSESSEE ITSELF HAS BENCH -MARKED ITS INTERNATI ONAL TRANSACTIONS USING ENTITY-LEVEL OPERATING MARGIN AS THE PLI. THIS WOULD INDICATE THAT THOUGH MAKING THE CLAIM ASSESSE E ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 7 UNDERSTANDS THE IMPOSSIBILITY OF ITS APPLICATION. H OWEVER IN SO FAR AS THE ADJUSTMENT TO BE MADE WE FIND THAT THE J UDICIAL PRECEDENCE SUGGESTS THAT THE ADJUSTMENT SHOULD BE L IMITED TO THE AE TRANSACTIONS AND NOT ON THE ENTITY LEVEL TUR NOVER. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THEREFORE, WHI LE THE TPOS ACTION IS SUSTAINED, THE TPO SHOULD RECALCULATE THE PLI AND LIMIT THE ADJUSTMENT TO THE AE TRANSACTION. 5.2.5 THE APPLICANT HAS ALSO OBJECTED TO THE TPO/S ACTION OF CONSIDERING SINGLE YEAR DATA FOR THE COMPARABLE COM PANIES SELECTED BY HIM FOR THE YEAR ENDED 31ST MARCH 2009 AS AGAINST THREE YEAR DATA USED BY THE ASSESSEE. WE HAVE CONSI DERED THE ORDER OF THE TPO AND THE SUBMISSIONS FILED BY THE A PPLICANT AND FOUND THAT THE ACTION OF THE TPO IS AS PER THE PROV ISIONS OF RULE 10B(4) OF THE INCOME TAX RULES, 1962. THUS, WE CO NFIRM THE ACTION OF THE TPO IN THIS REGARD. 5.2.6 REGARDING CLAIM OF STANDARD DEDUCTION OF 5% F ROM THE ARM'S LENGTH PRICE, WE ARE UNABLE TO AGREE WITH THE ASSESSEE, IN VIEW OF THE AMENDMENTS CARRIED OUT IN SECTION 92C B Y THE FINANCE ACTS 2009 AND 2012. FURTHER, WITH DUE RESPE CTS TO THE HON'BLE ITAT, THERE HAVE BEEN SEVERAL DECISIONS REN DERED BY DIFFERENT BENCHES OF THE ITAT HOLDING THAT THE 5%) VARIATION IS NOT TO BE ALLOWED AS STANDARD DEDUCTION[E.G. DCI T VS ROCHE DIAGNOSTICS 19 TAXMANN.COM 192 (MUM) (2012)].THIS G ROUND OF OBJECTION TAKEN BY THE ASSESSEE IS ACCORDINGLY R EJECTED. 5.2.7IN VIEW OF THE ABOVE DISCUSSION WE CONFIRM THE ADJUSTMENT CARRIED OUT BY THE AO IN PURSUANCE OF THE ORDER OF THE TPO IN PRINCIPLE SUBJECT TO VERIFICATION OF THE COMPUTATIO NAL ERROR' AS CLAIMED BY THE APPLICANT. A GLANCE AT THE ORDER OF THE DRP SHOWS THAT THE ORD ER IS A NON SPEAKING ORDER AND IT HAS NOT GIVEN ANY REASONS FOR ARRIVING AT ITS CONCLUSION. IN PARA NO.5.2.1.THE DRP TALKS OF FAILURE OF THE ASSES SEE TO SUBMIT EVEN A SINGLE EVIDENCE TO PROVE THAT IT HAD RECEIVED ANY SERVICES FROM ITS AE IN LIEU OF WHICH THE PAYMENT WAS MADE TO THE AE IN SP ITE OF BEING GIVEN A NUMBER OF OPPORTUNITIES BY THE TPO. WE FIND THAT D RP HAS NOT MENTIONED ANYTHING ABOUT THE DOCUMENTS SUBMITTED BY THE ASSESSEE, AS STATED EARLIER. IN PARA 5.2.2 THE DRP HAS ISSUED DIRECTIONS BUT WE ARE NOT AWARE AS HOW FAR SAME WERE FOLLOWED BY THE OFFI CERS CONCERNED. THE ASSESSEE HAS SPECIFICALLY ALLEGED THAT THE DIRE CTIONS OF THE DRP WERE NOT CARRIED OUT. IN NEXT PARA I.E. PARA 5.2.3 THE DRP MENTIONS THAT THE TPO HAD RIGHTLY REJECTED THE TP STUDY BUT REASO NS HAVE NOT BEEN GIVEN FOR AGREEING WITH THE VIEWS OF THE TPO ESPECI ALLY WHEN THE ASSESSEE HAD MADE EXTENSIVE SUBMISSIONS STATING THA T AS HOW THE STAND TAKEN BY THE TPO WAS FLAWED. SIMILAR IS THE POSITIO N OF THE NEXT ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 8 PARAGRAPH. THE DRP HAS ENDORSED THE VIEWS OF THE TP O IN A VERY MECHANICAL WAY WITHOUT GIVING ANY REASONED FINDING ON THE ARGUMENTS TAKEN BY THE ASSESSEE. THEREFORE, IN THE INTEREST O F JUSTICE WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE DRP WH O WOULD ADJUDICATE THE ISSUES RAISED BY THE ASSESSEE IN GROUNDS NO.2 T O 5 OF BY PASSING A SPEAKING AND REASONED ORDER AND AFTER AFFORDING A R EASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ADDITIO NAL EVIDENCES PRODUCED BY THE ASSESSEE BEFORE THE DRP HAVE TO BE TAKEN IN TO CONSIDERATION DURING FRESH ADJUDICATION PROCEEDINGS . GROUNDS NO.2-5 ARE ALLOWED IN FAVOUR OF THE ASSESSEE IN PART. 7.2 SUBSEQUENTLY, IN ASSESSMENT YEAR 2010-11 ALSO T HE TRIBUNAL VIDE ORDER DATED 18/12/2015(SUPRA) HAS REMANDED THE MATTER BACK TO THE FILE OF DRP FOR FRESH ADJUDICATION FOLLOWING THE EARLIER PRECEDENT, IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2009- 10(SUPRA). IN THE INSTANT YEAR ALSO THE FACTS AS W ELL AS RIVAL STANDS ARE SIMILAR TO THOSE FOR THE EARLIER ASSESSMENT YEA RS AND, THEREFORE, FOLLOWING THE PRECEDENTS IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009-10 (SUPRA) AND ASSESSMENT YEAR 2010-11 (SUPRA), THE MATTER IS REMANDED BACK TO THE FILE OF DRP TO RE-AD JUDICATE THE ISSUE RELATING TO THE COMPUTATION OF ARMS LENGTH PRICE O F THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF CORPORATE SERVICE CHARGE S TO THE ASSOCIATED ENTERPRISE IN THE LIGHT OF THE EARLIER D IRECTIONS OF THE TRIBUNAL DATED 31/08/2015(SUPRA). NEEDLESS TO SAY, THE DRP SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEIN G HEARD BEFORE PASSING AN ORDER AFRESH AS PER LAW. THUS, IN SO FAR AS THE GROUND OF APPEAL NO.1 IS CONCERNED, THE SAME IS TREATED AS AL LOWED FOR STATISTICAL PURPOSES. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE D ECISION OF THE CO-ORDINATE BENCH AS REFERRED TO ABOVE, WE RESTORE THE ISSUE TO THE LEARNED DRP FOR FRESH ADJUDICATION KEEPING IN VIEW THE DIRECTIONS OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR. THUS, THESE GROUNDS ARE ALLOWED F OR STATISTICAL PURPOSES. 6. IN GROUND NO.2 WITH ITS SUB-GROUNDS, ASSESSEE HA S CHALLENGED DISALLOWANCE OF DEPRECIATION ON INTANGIBLES SUCH AS MATERIAL SUPPLY CONTRACTS, DISTRIBUTION NETWORK AND BRAND USAGE. BRIEFLY, FAC TS ARE DURING THE ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 9 ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE VERIFYING ASSESSEES CLAIM OF DEPRECIATION NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON MATERIAL SUPPLY CONTRACT AND DISTRIBUTION NETWORK A MOUNTING TO ` 70,47,949/- AND ` 2,18,37,964/- RESPECTIVELY. THEREFORE, HE CALLED UPON THE ASSESSEE TO JUSTIFY ITS CLAIM OF DEPRECIATION. THOUGH, THE ASSESSEE SUBMITTED ITS EXPLANATION JUSTIFYING ITS CLAIM OF D EPRECIATION, HOWEVER, THE ASSESSING OFFICER RELYING UPON HIS DECISION ON IDEN TICAL ISSUE IN ASSESSEES OWN CASE FOR A.Y. 2007-08, DISALLOWED ASSESSEES CL AIM OF DEPRECIATION. BEING AGGRIEVED OF SUCH DISALLOWANCES, ASSESSEE RAI SED OBJECTIONS BEFORE THE LEARNED DRP. HOWEVER, THE LEARNED DRP FOLLOWING HI S OWN ORDER ON IDENTICAL ISSUE IN ASSESSEES CASE FOR A.Y. 2011-12, UPHELD T HE DISALLOWANCE. THOUGH, THE LEARNED DRP WAS CONSCIOUS OF THE FACT THAT THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR HAS ALLOWED ASSESSEES CLAIM, HOWEV ER, SINCE THE DEPARTMENT HAS NO REMEDY OF APPEAL AGAINST THE ORDE R OF DRP, TO PROTECT THE INTEREST OF REVENUE, DRP REJECTED ASSESSEES CLAIM. 7. THE LEARNED AR, AT THE OUTSET, SUBMITTED THAT TH E ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEARS INCLUDING A.Y. 2011-12. THE LEARNE D DR RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND DRP. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. PERTINENTLY, ASSESSEES CLAIM OF DEPRECIATION ON IN TANGIBLES SUCH AS MATERIAL ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 10 SUPPLY CONTRACT, DISTRIBUTION NETWORK AND BRAND USA GE WAS CONTINUING FROM A.Y. 2007-08. THOUGH ASSESSEES CLAIM WAS REJECTED REPEATEDLY BY THE DEPARTMENT FROM A.YS 2007-08 TO 2011-12 HOWEVER, WH EN THE DISPUTE REACHED THE TRIBUNAL, THE ISSUE WAS DECIDED IN FAVO UR OF THE ASSESSEE. IN THE LATEST ORDER PASSED IN ASSESSEES OWN CASE FOR A.Y. 2011-12 IN ITA NO.5637/MUM/2015 DATED 31.01.2017, THE TRIBUNAL WHI LE REFERRING TO ITS EARLIER DECISION ON THE ISSUE HAS DECIDED AS UNDER: 5.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. BEFORE PROCEEDING FURTHER, WE MAY REPRODUCE HEREINAFTER T HE RELEVANT FINDINGS OF THE TRIBUNAL IN ITS ORDER DATED 31/8/20 15(SUPRA) FOR ASSESSMENT YEAR 2007-08, WHICH IS THE LEAD YEAR OF DISPUTE:- 2.2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF DEP RECIATION ON INTANGIBLES, AMOUNTING TO RS.13.73CRORES.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE-COMPANY HAD CLAIMED DEPRECIATION OF RS.12.07 CRORES UNDER THE HEAD DEPR ECIATION ON MATERIAL SUPPLY CONTRACT (MSC)AND ON DISTRIBUTION N ETWORK(DN)AND RS.6.25 CRORES UNDER THE HEAD BRAND USES EXPENSES ( BUE).HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE ABOVE REFERRE D CLAIM SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSEE IN ITS REPLY STATED THAT HUNTSMAN GROUP TOOK GLOBAL ACQUISITION OF THE TEXTI LE EFFECTS OF CIBA SPECIALITY CHEMICAL GROUP, THAT THE GROUP OPERATED IN INDIA THROUGH ITS INDIAN COMPANIES NAMELY CIBA SPECIALITY CHEMICALS ( I) LTD. CIBA-INDIA, AND DIAMOND DYE-CHEM LTD.(DDCL),THAT ASSESSEE ENTE RED INTO AN AGREEMENT WITH CIBA-INDIA AND DDCL FOR ACQUIRING TH E TEXTILE BUSINESS EFFECT ASSETS ON A SLUMP SALE BASIS, THAT THE ASSES SEE ALSO ENTERED INTO TOLL MANUFACTURING AGREEMENT(MATERIAL SUPPLY AGREEM ENT WITH CIBA- INDIA AND DDCL),THAT IT HAD RECORDED THE FIXED ASSE TS AND INTANGIBLE ASSETS AT FAIR VALUE AS DETERMINED BY AN INDEPENDEN T VALUER, THAT AS PER THE AGREEMENT IT WAS GRANTED NON EXCLUSIVE IRREVOCA BLE AND ROYALTY FEE LICENCE TO USE TRADEMARKS, DOMAIN NAME FOR A PERIOD OF 24 MONTHS, THAT BASED ON VALUATION REPORT OF INDEPENDENT VALUE R IT HAD VALUED THE AFORESAID RIGHT(TO USE BRANDS), AS REVENUE EXPENDIT URE, THAT THE PAYMENT MADE BY THE ASSESSEE WAS NOT FOR ACQUISITIO N OF BRAND NAME ITSELF, THAT IT DID NOT ACQUIRE OWNERSHIP OF CIBA B RAND, THAT IT DID NOT HAVE EXCLUSIVE RIGHT OVER THE USE OF BRANDS, THAT P AYMENT WAS MADE FOR USING THE BRAND FOR ONLY A SHORT PERIOD, THAT BENEF IT ACCRUING TO THE ASSESSEE FROM SUCH PAYMENT FOR USE OF BRAND WAS TR ANSIT IN NATURE, ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 11 THAT THE ASSESSEE DID NOT DERIVE ANY ENDURING BENE FIT OR ANY PERMANENT ADVANTAGE. THE ASSESSEE REFERRED TO THE CASE OF CIBA-INDIA LTD.(69 ITR 692), IAEC PUMPS LTD.(232 ITR 316).WITH OUT PREJUDICE TO THE ABOVE, IT WAS CONTENDED THAT IF THE PAYMENTS MADE F OR BRAND USE WAS TREATED AS CAPITAL ASSET THEN DEPRECIATION@25% AS P ER THE PROVISIONS OF SECTION 32(1)(II)OF THE ACT SHOULD BE ALLOWED. WITH REGARD TO MSC, IT WAS STATED THAT ON ACQUISITI ON OF TEXTILE EFFECT BUSINESS THE MANUFACTURING FACILITIES OF DDCL WERE NOT TRANSFERRED TO THE ASSESSEE, THAT IN ORDER TO PROTECT ITS BUSINESS INTEREST IT ENTERED INTO AN MSC WITH DDCL TO ENSURE CONSISTENCY IN QUALITY A ND QUANTITY OF THE TEXTILE CHEMICALS, THAT THE MSC WAS A BUSINESS/COMM ERCIAL RIGHT AND WAS SIMILAR TO KNOW HOW, PATENTS, COPY RIGHTS, TRAD E MARKS LICENCES AND FRANCHISEES, THAT THE AGREEMENT SECURED SUPPLY OF CERTAIN PRODUCTS FOR A PERIOD OF FIVE YEARS, THAT THE SUPPLY OF MINI MUM QUANTITY WAS TO BE AT COST OF MANUFACTURING, THAT OWING TO THE AGRE EMENT THE ASSESSEE DID NOT CARRY THE RISK ATTACHED WITH THE MANUFACTUR ING OF THE PRODUCTS, THAT IT WAS GRANTED DISCOUNTS SUCH AS VOLUME DISCOU NT OF 3% AND A FURTHER DISCOUNT OF 4.5% ON INVOICE VALUE IF THE PA YMENT WAS MADE WITHIN FIVE DAYS, THAT MSC WAS AN INTANGIBLE ASSET IN TERMS OF S.32(1)(II) AND WAS ELIGIBLE FOR DEPRECIATION @ 25%.THE ASSESSE E RELIED UPON THE CASES OF SKYLINE CATERERS LTD.(306 ITR-AT-369) KOTA K FOREX BROKERAGE LTD. AND COCA COLA BEVERAGE P LTD. ABOUT THE DN, IT WAS CONTENDED THAT OVER THE YEARS CIBA-INDIA AND DDCL HAD CREATED STRONG DISTRIBUTION NETWORK FOR SE LLING THEIR PRODUCTS, THAT THROUGH THE DN AGREEMENT THE ASSESSEE GOT ACC ESS TO THE BUYERS, THAT DN WAS AN INTANGIBLE ASSET AND WAS ELIGIBLE FO R DEPRECIATION U/S. 32(1)(II) OF THE ACT, THAT THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE USED IN SECTION 32 OF THE ACT HAD NOT BEEN DEFINED OR EXPLAINED IN THE ACT, THAT THE AGREEMENT WAS MADE FOR A PERIOD OF FIVE YEARS, THAT THE DISTRIBUTION N ETWORK DEVELOPED BY CIBA-INDIA WAS CRUCIAL TO ACHIEVE THE SALES TARGET. IT WAS FURTHER STATED THAT THE ASSESSEE HAD ACQUIRE D THE POLYURETHANE BUSINESS FROM ICI LTD. IN THE AY 2002-03 AS A GOING CONCERN IN ACCORDANCE WITH BUSINESS TRANSFER AGREEMENT (BTA),T HAT IT HAD ACQUIRED THE FIXED ASSETS, INTELLECTUAL PROPERTIES, INTANGIBLES AND THE NET CURRENT ASSETS, THAT THE ACTUAL COST OF THE FIX ED ASSETS FOR THE ASSESSEE WAS THE CONSIDERATION WHICH IT HAD PAID T O ICI LTD., THAT A SIMILAR DISALLOWANCE HAD BEEN MADE BY THE AO IN THE EARLIER A.Y.S, THAT THE TRIBUNAL HAD DELETED THE ADDITION FOR THE A.Y.S 2002-03, 2003-04 AND 2004-05.WITH REGARD TO TEXTILE EFFECT DIVISION (TED) IT WAS CONTENDED SIMILAR ARGUMENTS WERE MADE. THE ASSESSEE FURTHER STATED THAT WHEN UNIT WAS ACQUIRED AT SLUMP PRICE AS GOING CONCERN, NO SEPARATE PRICE WAS ASSIGNED TO EACH INDIVIDUAL ASSE T, THAT IT WAS NECESSARY FOR THE ASSESSEE TO CARRYOUT VALUATION OF EACH ASSET FOR WHICH ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 12 A CONSOLIDATED PRICE WAS PAID, THAT IT HAD OBTAINED THE VALUATION REPORT FOR ITS OWN SPECIFIC PURPOSE I.E. TO RECORD THE IND IVIDUAL VALUE OF THE ASSETS ACQUIRED ON PAYMENT OF SLUMP SALE CONSIDERAT ION, THAT IT WAS NOT A CASE OF REVALUATION OF THE ASSETS. THE ASSESSEE R EFERRED TO THE CASE OF ASHWIN VANASPATI (255 ITR 26) IN ITS SUPPORT. IN IT S SUPPORT THE ASSESSEE FURNISHED VALUATION REPORT DT.19.1.2007 PREPARED BY M.M. RAVJI & CO.CA. TO ENQUIRE INTO THE GENUINENESS OF THE CLAIM OF THE ASSESSEE, THE AO CALLED FOR INFORMATION FROM DDCL AND CIBA INDIA UND ER SEC.131 OF THE ACT. HE DIRECTED THEM TO FURNISH DETAILS OF WRITTEN DOWN VALUE (WDV)OF ALL THE BLOCKS OF ASSETS TRANSFERRED TO THE ASSESSE E AND ALSO A COPY OF THE REPORT PREPARED BY AN ACCOUNTANT IN ACCORDANCE WITH THE PROVISIONS OF SEC.50B OF THE ACT. ON PERUSAL OF THE SAME, HE F OUND THAT NO INTANGIBLE ASSETS WERE TRANSFERRED TO THE ASSESSEE ON ACCOUNT OF SLUMP SALE. THEREFORE, A SHOW CAUSE NOTICE WAS ISSUED ON 9.12.2012 TO THE ASSESSEE CALLING FOR EXPLANATION/JUSTIFICATION FOR CLAIM OF RS.18.42 CRORES (DEPRECIATION ON MSC RS.2.97 CRORES + DEPREC IATION OF DN RS.9.20 CRORES + BUE-RS.6.25 CRORES).ON 20.12.2010, THE ASSESSEE FILED ITS EXPLANATION IN THAT REGARD. AFTER CONSIDERING T HE SUBMISSION OF THE ASSESSEE, HE HELD THAT THE ASSESSEE HAD NOT INCURRE D ANY EXPENSE ON BRAND USE, THAT THE NOTIONAL VALUE ASCRIBED BY THE VALUER WAS ON THE BASIS OF FUTURE ESTIMATED SALES, THAT THERE WAS NO EXISTENCE OF ANY BRAND USES RIGHT AT THE TIME OF TRANSFER, THAT THE TRANSFEROR HAD ADMITTED THAT THE ASSET AS A BRAND USES WAS NOT IN EXISTENCE AT THE TIME OF TRANSFER, THAT THE CLAIM OF THE ASSESSEE TH AT AN AMOUNT OF RS.6.25 CRORES SHOULD BE ALLOWED AS REVENUE EXPENDI TURE WAS LEGALLY UNTENABLE, THAT THE ALTERNATIVE CLAIM OF THE ASSESS EE TO ALLOW DEPRECIATION U/S.32(1)(II) OF THE ACT WAS NOT ACCEP TABLE, THAT EVEN IF THERE WERE ASSET LIKE MSC,DN AND BRAND USES RIGHT A S AN INTANGIBLE ASSET THE ASSESSEE WAS NOT ELIGIBLE FOR CLAIM OF D EPRECIATION AS THE SAME WERE NOT AKIN TO THE ASSETS DEFINED IN THE PRO VISION LIKE KNOW- HOW, PATENTS, COPYRIGHTS ETC. FINALLY, HE REJECTED THE CLAIM OF DEPRECIATION ON MSC,DN AND RIGHT TO USE BRAND. 2.3. BEFORE US,THE AR CONTENDED THAT AS PER THE TOLL MAN UFACTURING AGREEMENT (TMA) THE ASSESSEE WAS TO GET THE THINGS MANUFACTURED FOR A PERIOD OF 5 YEARS AT NO PROFIT /LOSS BASIS, THAT THE INDEPENDENT VALUER HAD VALUED THE BENEFIT OCCURRING TO THE ASSESSEE, T HAT ALL THE THREE INTANGIBLES WERE ENTITLED FOR DEPRECIATION U/S.32(1 )OF THE ACT, THAT THERE WAS TRANSFER OF INTANGIBLES BY WAY OF SLUMP S ALE, THAT THE VALUERS REPORT WAS COMPLETE AND CONCLUSIVE IN ALL REGARD, T HAT IN ABSENCE OF ASSIGNMENT OF SOME VALUE TO THE INTANGIBLES IN THE BALANCE SHEET OF THE TRANSFERORS WAS NOT THE DECISIVE FACTOR .HE RELIED UPON THE CASES OF SMIFS SECURITIES LTD.(248 ITR 302), B.RAVINDRAN PIL LAI (332 ITR 531), AREVA T&D INDIA LTD.(345ITR 421),TECHNO SHARES AND STOCKS LTD.(327ITR 323),BIRLA GLOBAL ASSET FIN .CO .LTD.(221TAXMANN176 ), MANIPAL ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 13 UNIVERSAL LEARNING P.LTD. (359 ITR369),SKS MICRO FI NANCE LTD.(145ITD111), GURUJI ENTERTAINMENTS NETWORK LTD. (108TTJ 180),ONGC VIDESH LTD(37SOT97),WEIZMANN FOREX LTD.(5 1SOT535), SARABHAI ZYDUS ANIMAL HEALTH LTD.(ITA /26/DEL./2005 ) AND DRILL BITS INTERNATIONAL PVT. LTD. (ITA/ 1361/ PUN/ 2010).HE R EFERRED TO PAGE NO.42, 309-311, OF THE PAPER BOOK. DEPARTMENTAL RE PRESENTATIVE (DR) ARGUED THAT THE TRANSACTION WAS A SLUMP PURCHASE, T HAT VALUATION OF EACH UNIT WAS NOT MADE, THAT BUSINESS AS A SINGLE U NIT WAS SOLD BY CIBA AND DYE CHEM, THAT BOTH THOSE ENTITIES HAD NOT MENT IONED ANYTHING ABOUT THE SO-CALLED INTANGIBLE ASSETS IN THEIR BALA NCE SHEETS, THAT ONLY GOOD WILL WAS TO BE VALUED, THAT THE VALUATION WAS BASED ON FUTURE PROJECTION AND NOT ON PRESENT BENEFITS, THAT VALUAT ION WAS NOT IMMEDIATELY ON ACQUIRING THE BUSINESS, THAT IN THE MSC NO INTANGIBLE ASSET WERE INVOLVED, THAT THERE WAS NO PLACE FOR SU CH VALUATION UNDER THE ACT. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. BEFORE PROCEEDING FURTHER, WE WOULD LIKE TO CONSIDER THE CASES DEALING WITH INTANGIBLE ASSETS AND GOODWILL. IN THE CASE OF SMIFS SECURITIES LTD.(SUPRA)THE HONBLE SUPREME COURT HAS HELD THAT PROVISIONS OF SEC. 31(2)ARE APPLICABLE TO GOODWILL. IT IS ALSO FOUND THAT BUSINESS RIGHTS, LIST OF CLIENTS, BRAND EQUITY, NON COMPETE FEE ETC. HAVE BEEN HELD TO BE INTANGIBLE ASSETS BY THE HONBLE CO URT/ITAT, WHILE DEALING WITH THE ISSUE OF DEPRECIATION. WE WOULD LI KE TO REPRODUCE THE RELEVANT PORTIONS OF THE JUDGMENTS DEALING WITH THE ISSUE. THE HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES (SUPR A)HAS HELD THAT A READING OF THE WORDS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 TO SECTION 32(1)IND ICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRETING THE EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B),THAT GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. IN THE MATTER OF RAVEENDRA PILLAI THE HONBLE KERAL A HIGH COURT(SUPRA)HAS DELIBERATED UPON THE FACTS OF THE C ASE AND ALLOWABILITY OF DEPRECIATION ON INTANGIBLE ASSETS. IN THAT MATTE R THE ASSESSEE HAD PURCHASED A HOSPITAL IN QUILON WITH ITS LAND, BUILD ING, EQUIPMENT, STAFF, NAME, TRADE MARK AND GOODWILL AS A GOING CONCERN UN DER TWO SEPARATE SALE DEEDS. UNDER THE SALE DEED, THE VALUE OF THE G OODWILL WHICH INCLUDED THE NAME OF THE HOSPITAL AND ITS LOGO AND TRADE MARK WAS RS.2 CRORES. THE ASSESSEE WAS ALLOWED DEPRECIATION ON TH E GOODWILL. HOWEVER, IN THE SCRUTINY ASSESSMENT, THE AO HELD TH AT GOODWILL WAS NOT COVERED BY SECTION 32(1)(II).THE APPEALS FILED BY T HE ASSESSEE BEFORE THE FAA) AND THE TRIBUNAL WERE UNSUCCESSFUL. THE HONBL E HIGH COURT DECIDED THE ISSUE AS FOLLOW: ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 14 IN FACT, WITHOUT RESORTING TO THE RESIDUARY ENTRY THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON THE NAME, TRADE M ARK AND LOGO UNDER THE SPECIFIC HEAD PROVIDED UNDER SECTION 32(1)(II) WHICH COVERS TRADE MARK AND FRANCHISE. ADMITTEDLY THE HOSPITAL WAS RUN IN THE SAME BUILDING, IN THE SAME TOWN, IN THE SAME NAME FOR SE VERAL YEARS PRIOR TO PURCHASE BY THE ASSESSEE. BY TRANSFERRING THE RIGHT TO USE THE NAME OF THE HOSPITAL ITSELF, THE PREVIOUS OWNER HAD TRANSFE RRED THE GOODWILL TO THE ASSESSEE AND THE BENEFIT DERIVED BY THE ASSESSE E WAS RETENTION OF CONTINUED TRUST OF THE PATIENTS WHO WERE PATIENTS O F THE PREVIOUS OWNERS. WHEN THE GOODWILL PAID WAS FOR ENSURING RET ENTION AND CONTINUED BUSINESS IN THE HOSPITAL, IT WAS FOR ACQU IRING A BUSINESS AND COMMERCIAL RIGHTS AND IT WAS COMPARABLE WITH TRADE MARK, FRANCHISE, COPYRIGHT ETC., REFERRED TO IN THE FIRST PART OF CL AUSE (II) OF SECTION 32(1) AND SO MUCH SO, GOODWILL WAS COVERED BY THE ABOVE P ROVISION OF THE ACT ENTITLING THE ASSESSEE FOR DEPRECIATIONGOODWILL I S NOT SPECIFICALLY MENTIONED IN SECTION 32(1)(II) OF THE INCOME-TAX AC T, 1961. DEPRECIATION IS ALLOWABLE NOT ONLY ON TANGIBLE ASSETS COVERED BY CLAUSE (I) OF SECTION 32(1), BUT ON THE INTANGIBLE ASSETS SPECIFICALLY EN UMERATED IN CLAUSE (II) AND SUCH OF THE OTHER BUSINESS OR COMMERCIAL RIGHTS SIMILAR TO THE ITEMS SPECIFICALLY COVERED THEREIN. THE HONBLE DELHI HIGH COURT IN THE MATTER OF AREV A T AND D INDIA LTD.(SUPRA)HAS DISCUSSED THE ISSUE OF DEPRECIATION TO BE GRANTED ON INTANGIBLE ASSETS. IT HAS ALSO DISCUSSED THE FACTS OF THE CASE. FOLLOWING ARE THE FINDING OF THE COURT: THE PRINCIPLE OF EJUSDEM GENERIS PROVIDES THAT WHER E THERE ARE GENERAL WORDS FOLLOWING PARTICULAR AND SPECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHALL BE CONFINED TO THINGS OF THE SAME KIND. FOR INTERPRETING THE EXPRESSION BUSINESS OR COMMERCIAL RIGHTS OF SIMILA R NATURE SPECIFIED IN SECTION 32(1)(II) OF THE ACT, SUCH RIGHTS NEED NOT ANSWER THE DESCRIPTION OF KNOW-HOW, PATENTS, TRADE MARKS, LICENCES OR FRA NCHISES BUT MUST BE OF SIMILAR NATURE AS THE SPECIFIED ASSETS. ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIBLE AS SETS REFERRED TO IN SECTION 32(1)(II) OF THE ACT PRECEDING THE TERM BU SINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, IT IS SEEN THAT THE INTA NGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANO THER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS BU SINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE HAVE BEEN ADDITIONALLY US ED, CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF THE SPECIFIED INTAN GIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH IT IS NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMST ANCES, THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS CANNOT BE RESTRICTE D ONLY TO THE SIX CATEGORIES OF ASSETS, VIZ., KNOW-HOW, PATENTS, TRAD E-MARKS, COPYRIGHTS, LICENCES OR FRANCHISES. THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS CAN BE OF THE SAME GENUS IN WHICH ALL THESE SIX ASS ETS FALL. ALL OF THEM ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 15 FALL IN THE GENUS OF INTANGIBLE ASSETS THAT FORM PA RT OF THE TOOL OF TRADE OF AN ASSESSEE FACILITATING SMOOTH CARRYING ON OF T HE BUSINESS. .IN THE CASE OF THE ASSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS, BUSINESS INFORMATION, BUSINESS RECORDS, CONTRACTS, SKILLED EMPLOYEES AND KNOW-HOW WERE ALL ASSETS, WHICH WERE INVALUABLE AND RESULTED IN CARRYING ON THE TRANSMISSION AND DISTRIBUTION BUSIN ESS BY THE ASSESSEE, WHICH WAS HITHERTO BEING CARRIED OUT BY THE TRANSFE ROR, WITHOUT ANY INTERRUPTION. THE INTANGIBLE ASSETS WERE, THEREFORE , COMPARABLE TO A LICENCE TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR. IN THE ABSENCE OF THE INTANGIBLE ASSETS, THE ASSESSEE WOULD HAVE HAD TO COMMENCE BUSINESS FROM SCRATCH AN D GO THROUGH THE GESTATION PERIOD WHEREAS BY ACQUIRING THE BUSIN ESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT AN UP AN D RUNNING BUSINESS. THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER THE SLUMP SALE AGREEMENT WERE IN THE NATURE OF BUSINESS OR COMMER CIAL RIGHTS OF SIMILAR NATURE SPECIFIED IN SECTION 32(1)(II) OF T HE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIATION UNDER THAT SE CTION.THE COMMERCIAL RIGHTS ACQUIRED TO SELL PRODUCTS UNDER T HE TRADE NAME AND THROUGH THE NETWORK CREATED BY THE SELLER FOR SALE IN INDIA WERE ENTITLED TO DEPRECIATION. IN THE CASE OF MANIPAL UNIVERSAL LEARNING PVT .LTD. (SUPRA)THE ASSESSEE HAD AGREED IN THE SALE AGREEMENT TO THE PRICE OF RS . 51.63 CRORES AS THE VALUE OF THE SMU AGENCY RIGHTS. ON THE VERY NEXT DA Y, IT REVALUED SUCH RIGHTS AT RS.98,73,25,000 AND CLAIMED DEPRECIATION ON THE REVALUED RIGHTS. THE ASSESSING AUTHORITY HELD THAT THE EXCES S CONSIDERATION PAID OVER THE VALUE OF THE NET ASSETS WAS IN THE NATURE OF GOODWILL PAID FOR THE FUTURE PROFITS OF THE BUSINESS. THEREFORE, HE A LLOWED DEPRECIATION ONLY ON THE VALUE MENTIONED IN THE AGREEMENT. THE F AA AFFIRMED THE ORDER OF THE AO. HOWEVER, THE TRIBUNAL ALLOWED DEPR ECIATION ON THE ENTIRE AMOUNT ARRIVED AT ON REVALUATION INCLUDING T HE VALUE OF GOODWILL. ON APPEAL TO THE HONBLE KARNATAKA HIGH COURT THE C OURT HELD THAT EXPLANATION 3 TO SECTION 32(1) OF THE ACT, DEFINED THE EXPRESSION ASSET TO INCLUDE INTANGIBLE ASSETS LIKE GOODWILL. GOODWIL L IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1)OF THE ACT, THAT D EPRECIATION WAS ALLOWABLE EVEN ON THE GOODWILL, THAT THAT THE ASSES SEE WOULD BE ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF AN AMO UNT OF RS.98,73,25,000(INCLUDING GOODWILL) AND NOT THE AMO UNT OF RS.51.63 CRORES AS REFLECTED IN THE SALE AGREEMENT FOR PURCH ASE OF THE DISTANCE LEARNING DIVISION .IN THE MATTERS OF SKS MICROSOFT FINANCE LTD.AND WEIAMANN FOREX LTD.(SUPRA)IT HAS BEEN HELD THAT ACQ UISITION OF CLIENT BASE/CUSTOMERS LIST FORMS PART OF INTANGIBLE ASSET S MENTIONED IN THE SECTION 32(1)OF THE ACT. 2.4.1. WE FIND THAT THE ASSESSEE HAD ACQUIRED TEXTILE EFFE CT(TE)BUSINESS FROM CIBA-INDIA AND DDCL AS A GOING CONCERN ON A LU MP SALE BASIS, THAT ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 16 MANUFACTURING FACILITIES OF BOTH THE ENTITIES WERE NOT TRANSFERRED AS PART OF SLUMP SALE, THAT AS A PART OF SLUMP SALE TH E ENTIRE DISTRIBUTION CHANNEL WAS HANDED OVER TO THE ASSESSEE INCLUDING THE CUSTOMER, DEALERS, MARKETING PEOPLE, MARKETING PLANS, LABORAT ORY, SUPPLY-CHAIN AND THE WAREHOUSES, THAT THE SERVICES OF TEXTILE EF FECTS EMPLOYEES WAS TRANSFERRED TO THE ASSESSEE, THAT IT HAD ENTERED IN TO AGREEMENT WITH CIBA-INDIA AND DDCL FOR MATERIAL SUPPLY AND FOR SUP PLY OF CHEMICAL PRODUCTS TO THE NEWLY ACQUIRED TE BUSINESS, THAT IT REGARDED THE FIXED ASSETS AND INTANGIBLE ASSETS OF ACQUIRED TE BUSINES S AT FAIR MARKET VALUE AS DETERMINED BY AN INDEPENDENT VALUER. IN CASE OF A SLUMP SALE, GENERALLY NO SEPARATE VALU E IS ASSIGNED TO EACH AND EVERY ASSET BY THE TRANSFEROR AND THE PARTY TAK ING OVER THE ASSETS ASSIGN SPECIFIC VALUES TO THE ACQUIRED ASSETS .IN T HE CASE BEFORE US, THE ASSESSEE HAD OBTAINED A VALUATION REPORT FROM AN EX PERT AND ON THE BASIS OF THAT REPORT HAD RECORDED THE VALUE OF THE TANGIBLE AND INTANGIBLE ASSETS IN THE BOOKS OF ACCOUNT. WE FIND THAT IN THE VALUATION REPORT THE VALUER HAD ASSIGNED VALUE TO MSC,DN AND BRAND USES, THAT THE AO/DRP HAS NOT BROUGHT ANYTHING ON RECORD TO DI SPROVE THE CORRECTNESS OF THE VALUER. AS FAR AS THE ENTRIES IN THE BALANCE SHEET OF CIBA-INDIA AND DDCL IS CONCERNED, N OUR OPINION SAM E ARE NOT DECISIVE FACTORS. WHAT HAS TO BE SEEN IN CASE OF A SLUMP SAL E IS THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT TO TH E ASSETS ACQUIRED AND AS TO WHETHER THE VALUATION IS BASED ON SOME SCIENT IFIC BASIS. THE ASSESSEE HAD ENTERED INTO AGREEMENTS FOR A PERIOD O F FIVE YEARS WITH CIBA INDIA AND DDCL AND BECAUSE OF THE AGREEMENTS T HE PRODUCTS MANUFACTURED BY BOTH THE ENTITIES WERE MADE AVAILAB LE AT COST TO THE ASSESSEE, THE ASSESSEE WAS GRANTED NON-EXCLUSIVE, I RREVOCABLE, ROYALTY FREE LICENSE TO USE TRADE-MARKS, DOMAIN NAMES FOR A PERIOD OF TWO YEARS. NOT ONLY THAT THE ASSESSEE GOT THE DISTRIBUT ION NETWORK. IN SHORT, THE ASSESSEE GOT VALUABLE BUSINESS/COMMERCIAL RIGHT S. THEREFORE, WE ARE OF THE OPINION THAT BY ENTERING INTO MCS AND GE TTING DISTRIBUTION NETWORK, THE ASSESSEE HAD ACQUIRED BUSINESS/COMMERC IAL RIGHTS THAT WERE OF THE SIMILAR NATURE AS MENTIONED IN SEC.32(1 )(II) OF THE ACT. SAME IS THE CASE ABOUT USE OF BRAND NAME. THE ASSESSEE H AD ASSIGNED VALUE TO VARIOUS ASSETS NAMELY FIXED ASSETS(RS.6.68 CRORE S), INTANGIBLE ASSETS(RS.54. 94 CRORES),GOODWILL(41.87CRORES).WE A RE OF THE OPINION THAT BY RELYING UPON THE VALUATION REPORT OF AN EXP ERT THE ASSESSEE HAD NOT CONTRAVENED ANY OF THE PROVISIONS OF THE ACT. W E HAVE ALREADY HELD THAT BUSINESS RIGHT, DISTRIBUTION NETWORK AND BRAND USAGE FALL IN THE SAME CATEGORY OF COMMERCIAL RIGHTS MENTIONED IN SEC TION 32 OF THE ACT. THEREFORE, WE HOLD THAT ASSESSEE WAS ENTITLED TO CL AIM DEPRECIATION ON THE INTANGIBLE ASSETS. HERE,WE WOULD LIKE TO REFER TO THE CASE OF KEC INTE RNATIONAL [(2010)- TIOL 478-ITAT-MUM].IN THAT MATTER, HE TRIBUNAL HAS OBSERVED THAT IN CASE OF A SLUMP SALE THE VALUE ADOPTED BY THE ASSES SEE ON THE BASIS OF ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 17 VALUATION REPORT CAN BE CONSIDERED FOR DEPRECIATION PURPOSE. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ASWIN VAN ASPATI INDUSTRIES LTD.(255ITR26)HAS APPROVED THE PRINCIPLE OF VALUATI ON OF ACQUIRED ASSET BY A VALUER AND HELD THAT IN ABSENCE OF ADEQUATE MA TERIAL ON RECORD IN FORM OF DEPARTMENTAL VALUATION REPORT AND THE OPINI ON OF THE TECHNICAL EXPERTS COULD NOT BE IGNORED.IN LIGHT OF THE ABOVE DISCUSSION, GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 5.4 THE AFORESAID FINDING OF THE TRIBUNAL CLEARLY B RINGS OUT THAT THE DISTRIBUTION NETWORK RIGHTS ACQUIRED BY THE ASS ESSEE HAVE BEEN FOUND TO BE IN THE NATURE OF BUSINESS OR COMMERCIA L RIGHTS FOR THE PURPOSES OF SECTION 32(1)(II) OF THE ACT. ALTHOUGH THE LD. CIT-DR HAS CANVASSED THAT THE SAID FINDING IS ERRONEOUS, SO HO WEVER, NO SPECIFIC ERROR HAS BEEN SOUGHT TO BE MADE OUT. IN FACT, WE FIND THAT SIMILAR ARGUMENTS WERE SET-UP BY THE REVENUE BEFORE THE TRI BUNAL EVEN WHEN THE MATTER CAME UP IN RELATION TO ASSESSMENT Y EAR 2010-11, AS SUCH A PLEA HAS BEEN SPECIFICALLY NOTE BY THE TRIBU NAL IN PARA 6.2 OF ITS ORDER DATED 10/12/2015(SUPRA). AFTER HAVING CO NSIDERED THE SAID ARGUMENTS, THE TRIBUNAL FOLLOWED THE EARLIER DECISI ON OF THE CO- ORDINATE BENCH OF THE TRIBUNAL DATED 31/08/2015(SUP RA) AND HELD THAT THE IMPUGNED ASSETS FALL WITHIN THE CATEGORY O F BUSINESS OR COMMERCIAL RIGHTS MENTIONED IN SECTION 32(1)(II) O F THE ACT. IN OUR CONSIDERED OPINION, IN VIEW OF THE AFORESAID PRECED ENTS, WE FIND NO MERIT IN THE PLEA OF THE LD. CIT-DR, WHICH WOULD RE QUIRE US TO DEPART FROM THE AFORE-STATED PRECEDENTS. THEREFORE, ON TH IS ASPECT THE REVENUE HAS TO FAIL. RESPECTFULLY FOLLOWING THE AFORESAID VIEW OF THE CO -ORDINATE BENCH IN ASSESSEES OWN CASE, WE ALLOW ASSESSEES CLAIM OF D EPRECIATION. THIS GROUND IS ALLOWED. 9. IN GROUND NO.3, ASSESSEE HAS CHALLENGED DISALLOW ANCE OF EXPENDITURE U/S. 14A READ WITH RULE 8D AMOUNTING TO ` 5,94,53,040/-. BRIEFLY, FACTS ARE DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER NOTICING THAT ASSESSEE HAS MADE INVESTMENT IN SHARES OF ITS SUBSI DIARY WHICH WOULD GIVE ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 18 RISE TO EXEMPT INCOME, WHEREAS, IT HAS NOT DISALLOW ED ANY EXPENDITURE U/S. 14A READ WITH RULE 8D, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY SUCH DISALLOWANCE SHOULD NOT BE MADE. THOUGH, THE ASSE SSEE OBJECTED TO THE PROPOSED DISALLOWANCE BY STATING THAT IN THE RELEVA NT PREVIOUS YEAR IT HAS NOT EARNED ANY EXEMPT INCOME TO REQUIRE DISALLOWANCE U/ S. 14A READ WITH RULE 8D, HOWEVER, THE ASSESSING OFFICER REJECTED THE SUB MISSIONS OF THE ASSESSEE AND PROCEEDED TO WORK OUT THE DISALLOWANCE UNDER RU LE 8D AND QUANTIFIED SUCH DISALLOWANCE AT ` 5,94,53,040/-. THOUGH, THE ASSESSEE OBJECTED TO S UCH DISALLOWANCE BEFORE THE DRP, IT WAS UNSUCCESSFUL. 10. THE LEARNED AR REITERATING THE STAND TAKEN BEFO RE THE DEPARTMENTAL AUTHORITIES SUBMITTED THAT IN THE RELEVANT PREVIOUS YEAR ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, HENCE, QUESTION OF DISALL OWANCE U/S. 14A READ WITH RULE 8D DOES NOT ARISE. IN SUPPORT OF SUCH CO NTENTION, HE RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CHEMINVEST LTD. VS. CIT 376 TR 33 AND THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF PRINCIPAL CIT VS. BALLARPUR INDUSTRIES LTD. IN INCO ME TAX APPEAL NO.51 OF 2016 DATED 13.10.2016. THE LEARNED DR RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND DRP. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED MATERIAL ON RECORD. THE FACT THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME BY WAY OF DIVIDEND OR OTHERWISE IN THE RELEVANT PREVIO US YEAR HAS NOT BEEN ITA NO.1099/MUM/2017 HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LTD. 19 CONTROVERTED EITHER BY THE ASSESSING OFFICER OR BY THE DRP. THEREFORE, IN THE ABSENCE OF ANY EXEMPT INCOME EARNED IN THE RELEVANT PREVIOUS YEAR, NO DISALLOWANCE U/S. 14A READ WITH RULE 8D COULD HAVE BEEN MADE. THUS, IN VIEW OF THE RATIO LAID DOWN IN THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE DELETE THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER U/S. 14A READ WITH RULE 8D. THIS GROUND IS ALLOWED. 12. GROUND NOS.4 & 5 ARE NOT PRESSED, HENCE ARE DIS MISSED. 13. GROUND NO.6 BEING GENERAL IN NATURE IS NOT REQU IRED TO BE ADJUDICATED. 14. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 2 TH SEPTEMBER 2018. SD/- SD/- (MANOJ KUMAR AGGARWAL) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 12 TH SEPTEMBER, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI