Oaknet Healthcare Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-5(1)(2), Bangalore

ITA 2097/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5666 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 01-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR BENGALURU
• Assessee Lawyers: A SHANKAR
• Keywords: Depreciation; Transfer pricing; Cost of acquisition; Valuation report; Revenue expenditure
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.2097/BANG/2017 ASSESSMENT YEAR : 2013-14 OAKNET HEALTHCARE PVT. LTD., (FORMERLY KNOWN AS M/S. ADCOCK INGRAM HEALTHCARE PVT. LTD.), # 64, 3 RD CROSS, V.R. LAYOUT, RAMAMURTHY NAGAR MAIN ROAD, BENGALURU 560 043. PAN: AAJCA 7142F VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI A. SHANKAR, ADVOCATE REVENUE BY : SHRI SANJAY KUMAR, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 09.01.2018 DATE OF PRONOUNCEMENT : 19.01.2018 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE LEARNED ASSESSING OFFICER IN SO FAR AS IT IS AGAINST THE APPELLANT IS OPPOSED TO LAW, EQUITY, AN D WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE APPELLANT DENIES ITSELF TO BE LIABLE TO BE ASSESSED TO A TOTAL INCOME OF RS. 5,68,90,507/- AS AGAINST THE TO TAL INCOME ITA NO.2097/BANG/2017 PAGE 2 OF 9 RETURNED OF RS. (-) 54,96,67,319/- UNDER SECTION 14 3(3) R.W.S. 144C OF THE ACT UNDER THE FACTS AND CIRCUMSTANCES H OF THE CASE. 3. GROUNDS ON TRANSFER PRICING ISSUES : I. THE LEARNED ASSESSING OFFICER/TPO/DRP WERE NOT J USTIFIED IN CONFIRMING THE PRICING ADJUSTMENT OF RS. 41,49,488/ - ON THE FACTS AND CIRCUMSTANCE OF THE CASE. II. THE LEARNED ASSESSING OFFICER/TPO/DRP WERE NOT JUSTIFIED IN CONFIRMING THAT THE SERVICE OFFERED BY THE APPELLAN T WERE ITES SERVICES, AS AGAINST THE SERVICES RENDERED BY THE APPELLANT BEING BUSINESS SUPPORT SERVICES, ON THE F ACTS AND CIRCUMSTANCES OF THE CASE. III. THE LEARNED ASSESSING OFFICER/TPO/DRP WERE NOT JUSTIFIED, IN NOT REJECTING THE COMPARABLES SELECTED ON THE BA SIS OF HIGH TURNOVER ON THE FACTS AND CIRCUMSTANCES OF THE CASE . IV. THE LEARNED ASSESSING OFFICER/TPO/DRP WERE NOT JUSTIFIED IN NOT REJECTING THE COMPANIES SELECTED AS THE FUNCTIO NALITY OF THE COMPANIES WERE DIFFERENT FROM THE BUSINESS OF T HE APPELLANT, ON THE FACTS AND CIRCUMSTANCES OF THE CA SE. V. THE LEARNED ASSESSING OFFICER/TPO/DRP WERE NOT J USTIFIED IN RELYING ON DATA WHICH WAS NOT AVAILABLE DURING THE COURSE OF TP STUDY BY THE APPELLANT ON THE FACTS AND CIRCUMST ANCES OF THE CASE. VI. THE LEARNED ASSESSING OFFICER/TPO/DRP WERE NOT JUSTIFIED IN RESTRICTING THE COMPARISION TO THE IMPUGNED YEAR IN QUESTION, WHEN THERE WERE NO COMPARABLE CASES TO THE APPELLAN T ON THE FACTS AND CIRCUMSTANCES OF THE CASE. VII. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN MAK ING A TRANSFER PRICING ADJUSTMENT AS THEIR OWN SET OF COMPARABLES CONTAIN PROFIT MARGINS LESS THAN THE APPELLANT'S CASE AND C ONSEQUENTLY, FAILURE TO DEMONSTRATE THAT ADDITIONS MADE IN THESE TWO HANDS, WILL MAKE THE ENTIRE PROCEEDING DISCRIMINATORY AND VIOLATIVE OF ARTICLE 14 OF THE CONSTITUTION. ITA NO.2097/BANG/2017 PAGE 3 OF 9 THE REVENUE IS PUT TO STRICT NOTICE THAT THEY HAVE MADE ADJUSTMENT IN THOSE TWO CASES AND WITHOUT SUCH ADJU STMENT THE ADDITION MADE IN THE IMPUGNED ORDER IS LIABLE T O BE DELETED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. GROUNDS ON DEPRECIATION : I. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUST IFIED IN MAKING A DISALLOWANCE OF THE DEPRECIATION CLAIMED O N INTANGIBLES TO THE EXTENT OF RS.60,23,41,019/- AS B EING EXCESSIVE, ON THE FACTS AND CIRCUMSTANCES OF THE CA SE. II. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUS TIFIED IN MAKING A DISALLOWANCE OF RS.33,22,83,957/- IN RESPE CT OF CLAIM OF DEPRECIATION ON TRADEMARKS ACQUIRED AND UT ILISED FOR THE PURPOSE OF BUSINESS ON THE FACTS AND CIRCUM STANCES OF THE CASE. III. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUS TIFIED IN MAKING A DISALLOWANCE OF RS.13,01,30,063/- IN RESPE CT OF CLAIM OF DEPRECIATION ACQUIRED AND UTILISED FOR THE PURPOSE OF BUSINESS ON LOGO AND CORPORATE BRANDS ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. IV. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUST IFIED IN MAKING A DISALLOWANCE OF RS.6,27,50,000/- IN RESPEC T OF CLAIM OF DEPRECIATION ON GOODWILL ACQUIRED AND UTIL ISED FOR THE PURPOSE OF BUSINESS ON THE FACTS AND CIRCUMSTAN CES OF THE CASE. V. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUST IFIED IN MAKING A DISALLOWANCE OF RS.6,75,00,000/- IN RESPEC T OF CLAIM OF DEPRECIATION ON DISTRIBUTION CONTRACTS AND RELATIONSHIPS (FRANCHISEE) ACQUIRED AND UTILISED FO R THE PURPOSE OF BUSINESS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. VI. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUS TIFIED IN MAKING A DISALLOWANCE OF RS.12,50,000/- IN RESPECT OF CLAIM OF DEPRECIATION ON TECHNICAL ACQUIRED AND UTILISED FOR THE ITA NO.2097/BANG/2017 PAGE 4 OF 9 PURPOSE OF BUSINESS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. VII. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUS TIFIED IN MAKING A DISALLOWANCE OF RS.84,27,000/- IN RESPECT OF CLAIM OF DEPRECIATION ON NON COMPETE FEE WHICH WAS NECESS ARY FOR EFFECTIVELY ACQUIRING THE INTANGIBLE ASSETS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE LEARNED ASSESSING OFFICER/ DRP WERE NOT JUS TIFIED IN HOLDING THAT THE VALUATION OF THE INTANGIBLES WAS H IGHLY EXCESSIVE WHICH IS PURELY ON SURMISE AND SUSPICION AND DEVOID OF FACTUAL FOUNDATION ON THE FACTS AND CIRCUMSTANCES OF THE CA SE. 6. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUST IFIED IN HOLDING THAT THE ACQUISITION COST OF THE INTANGIBLE ASSETS WERE HIGHLY-EXCESSIVE AND CONSEQUENTLY DENIED TOTAL DEPR ECATION ON THE SAME ON THE FACTS AND CIRCUMSTANCES OF THE CASE . 7. WITHOUT PREJUDICE, THE ASSESSING OFFICER OUGHT TO HAVE ADOPTED THE PRINCIPLE OF VALUATION AS HE DEEMED FIT AND GRANTED DEPRECIATION ATLEAST TO THE SAID EXTENT AND THUS TH E NON GRANTING OF ANY DEPRECATION IS TOTALLY CONTRARY TO LAW AND THUS THE DISALLOWANCE OF DEPRECIATION IS HIGHLY EXCESSIVE AN D IS REQUIRED TO BE SUBSTANTIALLY REDUCED. 8. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUST IFIED IN IGNORING THE FACT THAT THE ASSETS ACQUIRED WERE PUR SUANT TO THE RECEIPT OF APPROVAL /CONSENT FROM THE REGULATORY AU THORITIES WHO HAVE VERIFIED AND VETTED THE TRANSACTION AND CONSEQ UENTLY PASSED A PERVERSE ORDER ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUSTI FIED IN LAW IN DENYING DEPRECIATION AT THE PRESCRIBED RATES IN RESPECT OF THE INTANGIBLES, WHICH WERE CAPITALISED ON THE PREM ISE THAT THE VALUATION OF THE SAME WERE HIGH, WHEN IT IS SETTLED LAW THAT DEPRECIATION CANNOT BE DENIED TO THE APPELLANT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.2097/BANG/2017 PAGE 5 OF 9 10. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUST IFIED IN LAW IN IGNORING THE FACT THAT THE APPELLANT HAS ACQ UIRED THE INTANGIBLES AFTER FOLLOWING THE WELL BUSINESS PRACT ICES AND UPON RECEIVING DUE SANCTION OF THE REGULATORY AUTHORITIE S IN THE REGULAR COURSE OF BUSINESS, ON THE FACTS AND CIRCUMSTANCES OF CASE. 11. THE LEARNED ASSESSING OFFICER/DRP WERE NOT JUST IFIED IN LAW AND FACTS, TO ARRIVE AT THE CONCLUSION THAT THE COST OF ACQUISITION OF THE ASSETS WERE EXCESSIVE, SINCE HE IS NOT AN AUTHORITY ON THE SUBJECT, ON THE FACTS AND CIRCUMST ANCES OF THE CASE. 12. THE LEARNED ASSESSING OFFICER AND DRP ERRED IN NOT APPRECIATING THAT THE ASSESSING OFFICER HIMSELF FOR THE SUBSEQUENT ASSESSMENT YEAR 2014-15 HAD GRANTED DEPRECIATION O N SEVERAL OF THE INTANGIBLE ASSETS AND THUS THE NON GRANTING OF THE SAME FOR THE IMPUGNED ASSESSMENT YEAR IS THUS PERVERSE AND CONTR ARY TO LAW ON THE FACTS AND CIRCUMSTANCE OF THE CASE. 13. WITHOUT PREJUDICE, THE LEARNED ASSESSING OFFIC ER OUGHT TO HAVE REFERRED THE MATTER TO THE VALUATION OFFICER U NDER SECTION 55A OF THE INCOME TAX ACT, 1961 IN ORDER TO OBTAIN A REPORT OR FROM AN EXTERNAL AGENCY QUALIFIED TO DO SO, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 14. WITHOUT PREJUDICE, IF IT WERE TO BE HELD THAT THE ASSETS ACQUIRED WERE NOT CAPITAL IN NATURE, THE SAME WERE TO BE ALLOWED AS A REVENUE EXPENDITURE ON THE FACTS AND CIRCUMSTA NCES OF THE CASE. 15. THE APPELLANT DENIES THE LIABILITY TO PAY INTE REST UNDER SECTION 234B AND 234D OF THE ACT IN VIEW OF THE FAC T THAT THERE IS NO LIABILITY TO ADDITIONAL TAX AS DETERMINED BY THE LEARNED ASSESSING OFFICER. WITHOUT PREJUDICE THE RATE, PERI OD AND ON WHAT QUANTUM THE INTEREST HAS BEEN LEVIED ARE NOT DISCER NABLE FROM THE ORDER AND HENCE DESERVES TO BE CANCELLED ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. 16. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIF Y, DELETE OR SUBSTITUTE ANY OR ALL OF THE GROUNDS AND TO FILE A PAPER BOOK AT THE TIME OF HEARING THE APPEAL. ITA NO.2097/BANG/2017 PAGE 6 OF 9 17. IN VIEW OF THE ABOVE AND OTHER GROUNDS THAT MA Y BE TAKEN AT THE TIME OF THE HEARING THE APPEAL, THE APPELLAN T PRAYS THAT THE APPEAL BE ALLOWED IN THE INTEREST OF JUSTICE AND EQ UITY. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION WITH REGARD TO DISALLOWANCE O N THE POINT OF DEPRECIATION WITH THE SUBMISSION THAT THE ASSESSEE HAS FURNISHED THE VALUATION REPORT BEFORE THE AO, BUT THE AO DID NOT TAKE THE SAME INT O ACCOUNT AND DISALLOWED DEPRECIATION, WHEREAS IN THE AY 2014-15 I.E., SUCCEEDING YEAR, THE AO HAS EXAMINED THE CLAIM OF DEPRECIATION AND A LLOWED THE DEPRECIATION AS PER LAW. SINCE THE AO HAS NOT APPL IED HIS MIND TO THE CLAIM OF DEPRECIATION, THE MATTER MAY BE RESTORED B ACK TO THE AO TO READJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE V ALUATION REPORT FURNISHED BY THE ASSESSEE AND ALSO IN THE LIGHT OF THE ASSESSMEN T ORDER FOR THE SUCCEEDING YEAR. 3. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY OPPO SED THE CONTENTIONS OF THE ASSESSEE WITH THE SUBMISSION THAT THE ASSESS EE HAS NOT FILED THE VALUATION REPORT BEFORE THE AO, THEREFORE THE AO HA S RIGHTLY DISALLOWED THE CLAIM. 4. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES, WE FIND THAT THE ASSESSEE COMPANY IS ENGAGED IN PROVID ING TRANSACTIONAL SUPPORT SERVICES TO ITS PARENT COMPANY. IN JANUARY , 2013 THE ASSESSEE HAS PURCHASED INTANGIBLE ASSETS LIKE TRADEMARKS, BR AND, GOODWILL, TECHNICAL ITA NO.2097/BANG/2017 PAGE 7 OF 9 KNOW-HOW, ETC. FROM COSME GROUP BASED IN GOA. WITH THE PURCHASE OF INTANGIBLE ASSETS, THE ASSESSEE HAS ENTERED INTO MA NUFACTURING, MARKETING AND DISTRIBUTION OF BRANDED PHARMACEUTICAL PRODUCTS IN INDIA AND SOME OTHER COUNTRIES. THE COST OF THE ASSETS ACQUIRED I N JANUARY, 2013 WAS AMOUNTING TO RS.481,87,28,153. ASSESSEE CLAIMED DE PRECIATION, BUT IT WAS NOT ALLOWED BY THE AO ON THE GROUND THAT VALUATION REPORT WAS NOT FURNISHED, WHEREAS THIS CLAIM OF DEPRECIATION WAS A LLOWED BY THE AO IN THE SUCCEEDING YEAR I.E., AY 2014-15. IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT ONCE THE AO HAS ALLOWED THE CLAIM IN THE SUCCEEDING YEAR, THE SAME SHOULD ALSO HAVE BEEN EXAMINED IN THE IMPUGNED ASSESSMENT YEAR. WE ACCORDINGLY SET ASIDE THE ORDER OF THE AO AND RE STORE THE MATTER TO THE AO TO EXAMINE THE CLAIM OF DEPRECIATION IN THE LIGH T OF VALUATION REPORT FURNISHED BY THE ASSESSEE, AFTER AFFORDING OPPORTUN ITY OF BEING HEARD TO IT. 5. WITH REGARD TO THE TP ISSUES, THE LD. COUNSEL FO R THE ASSESSEE HAS SOUGHT EXCLUSION OF 8 COMPARABLES ON THE GROUND OF TURNOVER FILTER AND FUNCTIONAL DISSIMILARITY. THE TURNOVER FILTER WAS NOT CONSIDERED TO BE A GOOD FILTER, IN THE LIGHT OF THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT VS. DCIT (2015) 56 TAXMANN. COM 417 (DEL). THE ISSUE OF FUNCTIONAL DISSIMILARITY WAS NOT PROPE RLY EXAMINED BY THE TPO. WE THEREFORE SET ASIDE THE ASSESSMENT ORDER AND RES TORE THE ISSUE TO THE AO/TPO TO RE-EXAMINE THE ISSUE IN THE LIGHT OF ASSE SSEES CONTENTIONS WITH RESPECT TO EXCLUSION OF 8 COMPARABLES VIZ., ACROPETAL TECHNOLOGIES LTD., MICRO ITA NO.2097/BANG/2017 PAGE 8 OF 9 GENETICS SYSTEMS LTD., HARTRON COMMUNICATIONS LTD. MICROLAND LTD., CAPGEMINI BUSINESS SERVICES (INDIA) PVT. LTD., TECH MAHINDRA LTD., E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. AND INFOSYS BPO LTD., IN ACCORDANCE WITH LAW. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JANUARY, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( SUNIL KUMAR YADA V) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 19 TH JANUARY, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITA NO.2097/BANG/2017 PAGE 9 OF 9 ITAT, BANGALORE.