BANC TEC INDIA PRIVATE LIMITED, NAVI MUMBAI V. ACIT, CIRCLE-15(1)(2), MUMBAI

ITA 2692/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8559 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: URVI MEH
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Scheme of amalgamation; Revised return; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 2692 / MUM . /2016 ( ASSESSMENT YEAR : 20 11 12 ) BANCTEC TPS INDIA PVT. LTD. T 341, TOWER NO.3, 4 TH FLOOR INTERNATIONAL INFOTECH PARK VASHI RAILWAY STATION COMPLEX VASHI, NAVI MUMBAI 400 705 PAN AAACT8971E . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 15(1)(2), MUMBAI . RESPONDENT REVENUE BY : SHRI ANAND MOHAN ASSESSEE BY : SHRI J.D. MISTRY A/W SHRI MADHUR AGARWAL AND MS. URVI MEHTA DATE OF HEARING 24.04.2019 DATE OF ORDER 12.07.2019 O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE FINAL ASSESSMENT ORDER DATED 29 TH JANUARY 2016 , PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 2 BANCTEC TPS INDIA PVT. LTD. 'THE ACT' ) FOR THE ASSESSMENT YEAR 2011 12, IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 1 (DRP), MUMBA I. 2 . G ROUNDS NO.1 TO 4 OF THE TRANSFER PRICING GROUNDS RELATE TO THE ADDITION MADE ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE OF INTER NATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISE (AE) TOWARDS PROVISION OF BUSINESS PROCESS OUTSOURCING (BPO) S ERVICES. 3 . BRIEF FACTS ARE, THE ASSESSEE , AN INDIAN COMPANY , IS ENGAGED IN THE BUSINESS OF PROVIDING BPO SERVICES IN THE NATURE OF E MAIL AND VOICE MANAGEMEN T, COLLECTION SERVICES TO ITS AE IN USA. THE ASSESSEE HITHERTO WAS EARLIER KNOWN AS TRACMAIL INDIA PVT. LTD. HOWEVER, AFTER ACQUISITION OF BANCTEC, USA, IN FINANCIAL YEAR 2014 15, THE ASSESSEE CHANGED ITSELF TO ITS PRESENT NAME. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PROVIDED BPO SERVICES TO ITS AE AND RECEIVED AN AMOUNT OF ` 50,90,05,930. IN ITS TRANSFER PRICING S TUDY REPORT, THE ASSESSEE BENCH MARK ED THE ARM'S LENGTH P RICE OF THE TRANSACTION WITH THE AE BY ADOPTING INTERNAL TRANSACTION AL NET MARGIN METHOD (INTERNAL TNMM) WITH OPERATING PROFIT / TOTAL COST AS THE PROFIT LEVEL INDICATOR (PLI). SINCE , THE MARGIN OF AE TRANSACTIONS WORKED OUT TO 10.36% AS AGAINST MARGIN OF NON A.E. TRANSACTIONS @ ( )4.09%, THE ASSESSEE CLAI MED THE TRANSACTIONS WITH ITS AE TO BE AT ARM'S LENGTH. THE TRANSFER PRICING OFFICER, HOWEVER, DID NOT ACCEPT THE 3 BANCTEC TPS INDIA PVT. LTD. TRANSFER PRICING ANALYSIS DONE BY THE ASSESSEE. HE REJECTED THE INTERNAL TNMM APPLIED BY THE ASSESSEE AND PROCEEDED TO BENCH MARK THE INTER NATIONAL TRANSACTION WITH THE AE BY APPLYING EXTERNAL TNMM. HAVING DONE SO, THE TRANSFER PRICING OFFICER SELECTED SIX COMPANIES AS COMPARABLES WITH ARITHMETIC MEAN OF 17.06%. APPLYING THE ARITHMETIC MEAN OF THE COMPARABLES TO THE TOTAL COST, THE TRANSFER PRICING OFFICER DETERMINED THE ARM'S LENGTH PRICE OF THE INTER NATIONAL TRANSACTION WITH THE AE AT ` 55,25,00,072. ACCORDINGLY, HE MADE AN ADJUSTMENT OF ` 3,16,12,419, TO THE ARM'S LENGTH PRICE OF THE INTER NATIONAL TRANSACTION WITH THE A E. THOUGH , IN THE GROUNDS RAISED THE ASSESSEE HAS CHALLENGED THE ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE ON VARIOUS GROUNDS, HOWEVER , AT THE TIME OF HEARING OF APPEAL, THE ONLY ISSUE ON WHICH BOTH THE PARTIES ADVANCE D THEIR ARGUMENT IS WITH REGARD TO SELECTION / REJECTION OF COMPARABLES. 4 . AT THE OUTSET, SHRI J.D. MISTRY, THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE MAJOR DIS PUTE BETWEEN THE PARTIES IS WITH REGARD TO THREE COMPARABLES VIZ. ACCENTIA TECHNOLOGIES LTD., ACROPETEL TECHNOLOGIES LTD. AND CROSSDOMAIN SOLUTIONS LTD. HE SUBMITTED , IN VARIOUS DECISIONS IT HAS BEEN HELD THAT THESE COMPANIES ARE NOT COMPARABLE TO A BPO SE RVICE PROVIDER FOR VARIOUS REASONS. HE SUBMITTED , IF THESE THREE COMPARABLES ARE EXCLUDED, ASSESSEES MARGIN WOULD FALL WITHIN THE ARM'S LENGTH RANGE OF ARITHMETIC MEAN OF OTHER 4 BANCTEC TPS INDIA PVT. LTD. COMPARABLES, HENCE, ALL OTHER TRANSFER PRICING ISSUES RAISED BY THE ASSESSEE W OULD BECOME REDUNDANT. IN VIEW OF THE AFORESAID SUBMISSIONS OF THE LEARNED SR. COUNSEL, WE PROCEED TO DEAL WITH THE COMPARABLES SPECIFICALLY DISPUTED BEFORE US BY THE ASSESSEE. ACCENTIA TECHNOLOGIES LTD. 5 . OBJECTING TO THE SELECTION OF THIS COMPANY AS A COMPARABLE, THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT RENDERS KNOWLEDGE PROCESS OUTSOURCING ( KPO ) SERVICE IN THE HEALTHCARE SECTOR THROU GH SOFTWARE KNOWN AS SAAS MODEL. HE SUBMITTED , D URING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE, IT HAD ACQUIRED ANOTHER COMPANY VIZ. STRATEGIC TANGENT CORPORATION WHICH WAS A SOFTWARE DEVELOPMENT COMPANY HAVING EXPERTISE IN DEVELOPMENT OF SOFTWARE RELATED TO EMR AND SAAS. HE SUBM ITTED , BECAUSE OF SUCH ACQUISITION THE MARGIN OF THE COMPANY MUST HAVE BEEN A FFECTED . T HEREFORE, IT CANNOT BE USED FOR BENCHMARKING P URPOSE . IN SUPPORT OF SUCH CONTENTION, THE LEARNED SR. COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I ) BC MANAGEMENT SERVICES PVT. LTD. V/S DCIT, [2017] 89 TAXMANN.COM 346 (DEL. TRIB.); AND II ) PCIT V/S B.C. MANAGEMENT SERVICES PVT. LTD., ITA NO.1064/ 2017 & C.M. NO.43177/2017, DATED 28.11.2017 (DEL. HC); AND 5 BANCTEC TPS INDIA PVT. LTD. III ) APTARA TECHNOLOGIES PVT. LTD. V/S DCIT, ITA NO.291/PUN./2016, DATED 05.04.2018. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE DECISION OF THE DRP AND THE TRANSFER PRICING OFFICER. 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIO NS RELIED UPON. AS COULD BE SEEN, IN THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER THE ASSESSEE HAS STRENUOUSLY OBJECTED AGAINST SELECTION OF THIS COMPANY AS A COMPARABLE. FROM THE ANNUAL REPORT OF THE COMPANY AS WELL AS OTHER MATERIAL PLAC ED ON RECORD, IT IS NOTICED THAT THE BUSINESS MODEL OF THE COMPANY IS DIFFERENT FROM THE ASSESSEE AS IT PROVIDES SERVICES IN H EALTHCARE SECTOR WITH THE AID OF SOFTWARE WHICH IS IN THE NATURE OF KPO SERVICE. MOREOVER, DURING THE YEAR UNDER CONSIDERATION, TH IS COMPANY HAS ACQUIRED ANOTHER COMPANY VIZ. STRATEGIC TANG E NT CORPORATION WHICH WAS A SOFTWARE DEVELOPMENT COMPANY HAVING EXPERTISE IN DEVELOPING SOFTWARE RELATING TO EMR , SAAS. IT IS ALSO OBSERVED , DUE TO THE AFORESAID ACQUISITION THE REVENUE OF THE COMP ANY HAS SUBSTANTIALLY INCREASED WHICH CERTAINLY COULD HAVE IMPACTED THE PROFITABILITY. THE TRANSFER PRICING OFFICER HAS ALSO ACCEPTED THAT THE COMPANY HAS MADE ACQUISITION DURING THE YEAR UNDER CONSIDERATION. HOWEVER, HE HAS TRIED TO GET OVER SUCH FACT BY STATING THAT THE COMPANY ACQUIRED WAS IN THE SAME LINE OF BUSINESS. IN 6 BANCTEC TPS INDIA PVT. LTD. OUR VIEW, THE AFORESAID REASONING OF THE TRANSFER PRICING OFFICER IS UNACCEPTABLE. FOR THE VERY SAME REASON, THE TRIBUNAL, DELHI BENCH, IN B.C. MANAGEMENT SERVICE PVT. LTD. V/S DCIT, [2 017] 83 TAXMANN.COM 346 (DEL.), HAS HELD THAT THIS COMPANY CANNOT BE A COMPARABLE. THE AFORESAID DECISION OF THE TRIBUNAL WAS UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT WHILE DECIDING THE APPEAL FILED BY THE REVENUE. FURTHER, THE TRIBUNAL, PUNE BENCH, IN A P TARA TECHNOLOGIES PVT. LTD. (SUPRA), FOLLOWING THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN B.C. MANAGEMENT SERVICES PVT. LTD. (SUPRA) HAS HELD THAT THIS COMPANY CANNOT BE A COMPARABLE TO A BPO SERVICE PROVIDER. THE AFORESAID DECISIONS OF THE TRIBUN AL ARE FOR THE VERY SAME ASSESSMENT YEAR I.E., A.Y. 2011 12. THAT BEING THE CASE, RESPECTFULLY FOLLOWING THE DECISION S OF THE CO ORDINATE BENCH , AS REFERRED TO ABOVE, WE HOLD THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE. A CROPETEL TECHNOLOGIES LTD. 8 . OBJECTING TO THE SELECTION OF THIS COMPANY AS A COMPARABLE, THE LEARNED SR. COUNSEL SUBMITTED , THE COMPANY HAS VARIOUS SEGMENTS , WHEREAS , THE SEGMENTAL DETAILS IN RESPECT OF ALL THE SEGMENTS ARE NOT AVAILABLE. HE SUBMITTED , IN COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER , THOUGH , THE ASSESSEE HAS BROUGHT ALL THESE FACTS TO HIS NOTICE, HOWEVER, HE HAS NOT AT ALL CONSIDERED THE OBJECTIONS OF THE 7 BANCTEC TPS INDIA PVT. LTD. ASSESSEE OBJECTIVELY. HE SUBMITTED , THE COMPANY BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE CANNOT BE TREATED AS COMPARABLE. HE SUBMITTED , THE DRP HAS ALSO ACCEPTED IT AS A COMPARABLE SIMPLY FOLLOWING THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER. IN SUPPORT OF HIS CONTENTION, THE LEARNED SR. COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I ) DCIT V/S CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTATION PVT. LTD., [2018] 93 TAXMANN.COM 9 (BANG.) (TRIB.); II ) ACIT V/S FLEXTRONICS TECHNOLOGIES INDIA PVT. LTD., [2019] 101 TAXMANN.COM 348 (BANG.) (TRIB.); AND III ) DCIT V/S GOLDMAN SACHS SERVICES PVT. LTD., [2018 ] 99 TAXMANN.COM 123 (BANG.) (TRIB.). 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY REL YING UPON THE OBSERVATIONS OF THE DRP AND THE TRANSFER PRICING OFFICER SUBMITTED , THOUGH THE COMPANY MAY BE HAVING VARIOUS SEGMENTS, HOWEVER, THE TRANSFER PRICING OFFICER HAS CONSIDERED H EALTHCARE SERVICE SEGMENT WHICH IS COMPARABLE TO THE NATURE OF SERVICE PROVIDED BY THE ASSESSEE. THUS, HE SUBMITTED , THERE IS NO B AR IN INCLUDING THE COMPANY AS A COMPARABLE. 10 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. AS COULD BE SEEN , IN THE ORDER PASSED BY HIM THE TRANSFER PRICING 8 BANCTEC TPS INDIA PVT. LTD. OFFICER HIMSELF HAS STATED THAT THE COMPANY HAS THREE SEGMENTS NAMELY ; ENGINEERING, DESIGN SERVICE, INFORMATION TECHNOLOGY SERVICE SEGMENT AND HEALTHCARE SEGMENT. HOWEVER, HE HAS STATED THAT ONLY HEALTHCARE SERVICE SEGMENT WAS CONSIDERED BY HIM FOR COMPARABILITY ANALYSIS . B UT NOWHERE TH E TRANSFER PRICING OFFICER HAS DEALT WITH ASSESSEES CONTENTION WITH REGARD TO UNAVAILABILITY OF SEGMENTAL DETAILS RELATING TO EXPORT SALES, EMPLOYEE COST, ETC. FURTHER, HE HAS ALSO NOT DEALT WITH ASSESSEES OBJECTION THAT SUBSTANTIAL OPERATION OF SOFTWARE DEVELOPMENT ACTIVITIES WERE OUTSOURCED ON SUB CONTRACT BASIS .LEARNED DRP HAS ALSO NOT CONSIDERED THE OBJECTIONS OF THE ASSESSEE PROPERTY. IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATION PVT. LTD. (SUPRA) HAS EXCLUDED THIS COMPANY FROM BEING TREATED AS COMPARABLE SINCE SEGMENTAL INFORMATION TO APPLY CERTAIN FILTERS ARE NOT AVAILABLE. IDENTICAL VIEW HAS BEEN EXPRESSED BY THE TRIBUNAL IN OTHER DECISIONS CITED BY THE LEARNED SR. COUNSEL. SINCE , THE AFORESAID DECISION S OF THE TRIBUNAL ARE FOR THE VERY SAME ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THEM, WE EXCLUDE THIS COMPANY AS A COMPARABLE. CROSSDOMAIN SOLUTIONS LTD. 11 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THIS COMPANY CANNOT BE TREATED AS COMPARABLE AS THE FINANCIAL STATEMENT S FOR THE YEAR UNDER CONSIDERATION IS NOT AVAILABLE IN THE PUBLIC DOMAIN. 9 BANCTEC TPS INDIA PVT. LTD. HE SUBMITTED , THE ASSESSEE IS ALSO NOT AWARE OF THE NATURE OF INFORMATION RELATING TO THE COMPANY AVAILABLE WITH THE TRANSFER PRICING OFFICER AS NO DETAILS WERE PROVIDED TO THE ASSESSEE EI THER BY THE TRANSFER PRICING OFFICER OR BY THE DRP. HE SUBMITTED , FOR THIS REASON ALONE, THE COMPANY CANNOT BE TREATED AS COMPARABLE. FURTHER, HE SUBMITTED, THE COMPANY IS ALSO FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT PROVIDES RE ENGINEERING PAY ROLL SERVICE, DEVELOPMENT OF PRODUCT SUITS WHICH ARE IN THE NATURE OF KPO SERVICE. THUS, HE SUBMITTED , THE COMPANY CANNOT BE TREATED AS COMPARABLE. IN SUPPORT OF SUCH CONTE NTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) ACIT V/S MONSTER.COM INDIA PVT. LTD., ITA NO.1425/HYD./2015, ETC., ORDER DATED 30.08.2017; II ) BNY MELLON INTERNATIONAL OPERATIONS INDIA PVT. LTD. V/S DCIT, [2015] 55 TAXMANN.COM 386 (PUN.); AND III ) PCIT V/S BNY MELLON INTERNATIONAL OPERATIONS INDIA PVT. LTD., [2018] 93 TAXMANN.COM 363 (BOM.). 12 . THE LEARNED DEPARTMENTAL REPRESENTATIVE THOUGH AGREED THAT THE TRANSFER PRICING OFFICER HAS NOT DISCUSSED IN DETAIL THE FUNCTIONAL COMPARABILITY OF THE COMPANY, HOWEVER, H E SUBMITTED THAT THE COMPARABILITY OF THIS COMPANY MAY BE RESTORED TO THE TRANSFER PRICING OFFICER FOR CONSIDERING ASSESSEES CONTENTIONS. 13 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISI ONS RELIED UPON. 10 BANCTEC TPS INDIA PVT. LTD. ON A PERUSAL OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER, IT IS OBSERVED , WITHOUT DISCUSSING IN DETAIL FUNCTIONAL SIMILARITY OF THE COMPANY WITH THE ASSESSEE QUA THE OBJECTIONS RAISED, THE TRANSFER PRICING OFFICER HAS SIMPLY SELECT ED THIS COMPANY AS A COMPARABLE SIMPLY ON THE REASONING THAT IT WAS SELECTED AS A COMPARABLE IN ASSESSMENT YEAR 2008 09. NO MATERIAL HAS BEEN FURNISHED BEFORE US BY THE DEPARTMENT TO CONTROVERT THE CONTENTION OF THE ASSESSEE THAT FINANCIAL RESULTS OF THE C OMPANY FOR THE YEAR UNDER CONSIDERATION ARE NOT AVAILABLE IN PUBLIC DOMAIN. FURTHER, THE DEPARTMENT HAS FAILED TO SUBSTANTIATE THE NATURE OF INFORMATION GATHERED BY THE TRANSFER PRICING OFFICER TO CONSIDER THE COMPANY AS A COMPARABLE TO THE ASSESSEE . I F TH E FINANCIAL RESULTS OF THE COMPANY FOR THE IMPUGNED ASSESSMENT YEAR ARE NOT AVAILABLE , AS ALLEGED BY THE ASSESSEE, THE COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. MOREOVER, FROM THE DECISIONS RELIED UPON BY THE LEARNED SR. COUNSEL FOR THE ASSESSEE, IT IS NOTICED THAT THE COMPANY HAS BEEN EXCLUDED AS A COMPARABLE IN CASE OF A BPO SERVICE PROVIDER SINCE IT IS ENGAGED IN PROVIDING KPO SERVICE. IN VIEW OF THE AFORESAID, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE. ACCORDINGLY, TH E ASSESSING OFFICER IS DIRECTED TO DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WITH THE AE AFTER EXCLUDING THE AFORESAID THREE COMPANIES NAMELY ACCENTIA TECHNOLOGIES LTD., ACROPETEL TECHNOLOGIES LTD. AND CROSSDOMAIN 11 BANCTEC TPS INDIA PVT. LTD. SOLUTIONS LTD. FRO M THE LIST OF COMPARABLES. ACCORDINGLY, THESE GROUNDS ARE PARTLY ALLOWED. 14 . THE FIRST ISSUE ARISING OUT OF DIRECT TAX GROUNDS RELATES TO DISALLOWANCE OF DEPRECIATION OF ` 2,25,66,258, ON GOODWILL. 15 . BRIEF FACTS ARE, DURING THE FINANCIAL YEAR 2007 08, THE ASSESSEE , EARLIER KNOWN AS TRACMAIL INDIA PVT. LTD. ENTERED INTO A BUSINESS TRANSFER AGREEMENT ON 31 ST MARCH 2008, WITH TRACMAIL AR SERVICES PVT. LTD., TRANSFERRED ITS BUSINESS UNIT ON SLUMP SALE BASIS . H OWEVER, SINCE THE VALUE OF LIABILITY WAS MORE THAN T HE VALUE OF ASSETS TRANSFERRED, THE SALE CONSIDERATION WAS TAKEN AS NIL. THE NET OF EXCESS LIABILITY OVER ASSETS WAS RECORDED AS GOODWILL IN THE BOOKS OF ACCOUNT OF TRACMA IL AR SERVICES PVT. LTD. HOWEVER, IT DID NOT CLAIM ANY DEPRECIATION ON THE GOODWILL. INSOFAR AS THE ASSESSEE IS CONCERNED, THE RESULTANT GAIN FROM TRANSFER OF GOODWILL WAS OFFERED TO TAX AS CAPITAL GAIN IN THE ASSESSMENT YEAR 2009 10. HOWEVER, THE ASSESSING OFFICER ASSESSED THE GOODWILL AS CAPITAL GAIN IN THE ASSESSMENT YEAR 2008 09 ON SUB STANTIVE BASIS. SUBSEQUENTLY, BY VIRTUE OF A SCHEME OF AMALGAMATION APPROVED BY THE HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 28 TH JANUARY 2011, EFFECTIVE FROM FEBRUARY 2010, TRACMAIL AR SERVICES PVT. LTD. AND HOV ARM MANAGEMENT SERVICES PVT. LTD. MERGED WITH THE ASSESSEE COMPANY. AS A RESULT, THE GOOD WILL IN THE 12 BANCTEC TPS INDIA PVT. LTD. BOOKS OF TRACMAIL AR SERVICES PVT. LTD., WAS TRANSFERRED TO THE BOOKS OF ACCOUNT OF THE ASSESSEE ON ACCOUNT OF SUCH AMALGAMATION. IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE CLAIMED DEPRECIATION OF ` 2,25,66,258, ON THE OPENING WRITTEN DOWN VALUE OF GOODWILL AMOUNTING TO ` 9,02,65,033, APPEARING IN THE BOOKS OF THE ASSESSEE. THE ASSESSING OFFICER AFTER CALLING FOR NECESSARY DETAILS AND EXAMINING THEM WAS OF THE VIEW THAT THE ASSESSEE HAS ENTERED INTO A CIRCULAR TRANSACTION BY TRANSFERRING A PART OF ITS BUSINESS TO CREATE THE GOODWILL AND ACQUIRING THE SAME BUSINESS AGAIN TO CLAIM DEPRECIATION. THUS, OBSERVING THAT THE ASSESSEE HAS ADOPTED A COLOURABLE DEVICE TO CLAIM DEPRECIATION, THE ASSESSING OFFICER DISALLOWED IT . THOUGH , THE ASSESSEE OBJECTED THE AFORESAID DISALLOWANCE BEFORE THE DRP, HOWEVER, IT WAS UNSUCCESSFUL. 16 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE DISALLOWANCE OF DEPRECIATION BY TERMING IT AS A COLOURABLE DEVICE IS WHOLLY UNACCEPTABLE AS THE INITIAL SLUMP SALE WAS THROUGH PROPER METHOD AND THE ASSESSEE HAS OFFERED THE CAPITAL GAIN ON GOODWILL WHICH HAS BEEN ASSESSED TO TAX AT THE HANDS OF THE ASSESSEE IN THE ASSESSMENT YEAR 2008 0 9. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2008 09. THE LEARNED SR. COUNSEL SUBMITTED , SUBSEQUENT AMALGAMATION BETW EEN THE ASSESSEE AND TRACMAIL AR SERVICES PVT. LTD. WAS A STRATEGIC DECISION 13 BANCTEC TPS INDIA PVT. LTD. TAKEN BY T HE MANAGEMENT OF THE COMPANY FOR EFFECTIVE MANAGEMENT OF BUSINESS TO REDUCE OPERATING COST, PERSONNEL COST, ETC. HE SUBMITTED , THE SCHEME OF AMALGAMATION WAS ALSO APPROVED BY THE HON'BLE JURISDICTIONAL HIGH COURT EFFECTIVE FROM FEBRUARY 2010. THUS, HE SUBM ITTED , WHEN THE EARLIER SALE OF ASSESSEES BUSINESS AND SUBSEQUENT AMALGAMATION ARE THROUGH PROPER LEGAL PROCEDURE AND ARE TRANSPARENT, THE DEPARTMENTAL AUTHORITIES CANNOT ACCUSE THE ASSESSEE OF ADOPTING COLOURABLE DEVICE. THE LEARNED SR. COUNSEL SUBMITTED , SALE AND PURCHASE OF GOODWILL HAVING BEEN REFLECTED IN THE RESPECTIVE BOOKS OF ACCOUNT OF BOTH THE COMPANIES AND THE ASSESSEE HAVING PAID TAX ON TRANSFER OF GOODWILL IN ASSESSMENT YEAR 2008 09, IT IS ENTITLED TO CLAIM DEPRECIATION ON GOODWILL WHICH GOT T RANSFERRED TO IT BY VIRTU E OF AMALGAMATION OF TRACMAIL AR SERVICES PVT. LTD. FURTHER, HE SUBMITTED , SINCE THE GOODWILL IS AN INTANGIBLE ASSET, ASSESSEES CLAIM OF DEPRECIATION HAS TO BE ALLOWED. FURTHER, HE SUBMITTED , INITIAL LY TRACMAIL AR SERVICES PVT. LT D. DID NOT CLAIM DEPRECIATION AS, AT THAT POINT OF TIME LEGAL POSITION RELATING TO ALLOWAB ILITY OF DEPRECIATION O N GOODWILL WAS STILL DOUBTFUL AND CONTROVERSIAL. THEREFORE, ONCE THERE WAS CLARITY ON THE ISSUE BY VIRTUE OF DECISION OF THE HON'BLE SUPREME CO URT IN CIT V/S SMIFS SECURITIES LTD., [2012] 348 ITR 302 (SC), THE ASSESSEE CLAIMED DEPRECIATION IN THE IMPUGNED ASSESSMENT YEAR. HE FURTHER SUBMITTED , THE OBSERVATION OF THE DRP THAT THE ASSESSEE 14 BANCTEC TPS INDIA PVT. LTD. CANNOT CLAIM DEPRECIATION ON THE ENTIRE AMOUNT OF GOODWILL IS ALSO IRRELEVANT CONSIDERING THE FACT THAT THE ASSESSEE HAS ACTUALLY CLAIMED DEPRECIATION ON THE OPENING WDV. THUS, HE SUBMITTED , ASSESSEES CLAIM SHOULD BE ALLOWED. 17 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , BOTH THE ASSESSING OFFICER AND THE DRP HAVE HELD THE CLAIM OF DEPRECIATION AS COLOURABLE DEVICE SINCE COMPLETE DETAILS RELATING TO SUCH CLAIM WERE NOT PRODUCED BEFORE THEM. THUS, HE SUBMITTED , ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL MAY BE RESTORED B ACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. 18 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. INSOFAR AS THE FACTUAL POSITION RELATING TO THE AFORESAID ISSUE IS CONCERNED, THERE IS NO DISPUTE. EVEN THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAD TRANSFERRED ITS BUSINESS O N SLUMP SALE BASIS TO TRACMAIL A R SERVICES PVT. LTD. IN ASSESSMENT YEAR 2008 09 WHICH INCLUDED GOODWILL OF ` 11,51,01,122. THE AFORESAID GOODWILL WAS ALSO REFLECTED NOT ONLY IN THE RESPECTIVE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE TRANSFEREE COMPANY BUT ALSO APPEARS IN THE FINANCIAL STATEMENTS. IT IS ALSO A FACT THAT THE SUBSEQUENT AMALGAMATION BETW EEN THE ASS ESSEE AND TRACMAIL AR SERVICES PVT. LTD. WAS BY VIRTUE OF A SCHEME OF AMALGAMATION APPROVED BY THE HON'BLE JURISDICTIONAL 15 BANCTEC TPS INDIA PVT. LTD. HIGH COURT. THAT BEING THE CASE, IT CANNOT BE SAID THAT THE ASSESSEE HAS ENTERED INTO A CIRCULAR TRANSACTION OR ADOPTED A COLOURABLE D EVI C E FOR CLAIMING DEPRECIATION. MOREOVER, IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2009 10, THE ASSESSEE HAD OFFERED CAPITAL GAIN ON THE TRANSFER OF GOODWILL OF ` 11,51,01,122. HOWEVER, IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSME NT YEAR 2008 09, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE CAPITAL GAIN ON GOODWILL HAS TO BE ASSESSED IN ASSESSMENT YEAR 2008 09. ACCORDINGLY, HE PROCEEDED TO ASSESS THE AMOUNT OF ` 11,51,01,122, AS SHORT TERM CAPITAL GAIN IN ASSESSMENT YEAR 2008 09 . THUS, WHEN THE ASSESSEE HAS PAID CAPITAL GAIN TAX AT THE TIME OF TRANSFER OF GOODWILL AND THE DEPARTMENT HAS ACCEPTED IT, IT CANNOT BE SAID THAT THE ASSESSEE HAS ADOPTED A COLOURABLE DEVI C E . MOREOVER, THE SCHEME OF AMALGAMATION BETW EEN THE ASSESSEE AND TR ACMAIL AR SERVICES PVT. LTD., HAVING BEEN APPROVED BY THE HON'BLE JURISDICTIONAL HIGH COURT, NO DOUBT CAN BE RAISED WITH REGARD TO THE TRANSPARENCY OR GENUINENESS OF SUCH TRANSACTION. THUS, WHEN THE ASSESSEE BY VIRTUE OF SUCH AMALGAMATION HAS RECEIVED BACK THE GOODWILL IN ITS BOOK , DEPRECIATION HAS TO BE ALLOWED ON GOODWILL. AS REGARDS THE DOUBT RAISED BY LEARNED DRP THAT THE ASSESSEE CANNOT CLAIM DEPRECIATION ON THE ENTIRE AMOUNT OF GOODWILL, IT MUST BE OBSERVED THAT THE ASSESSEE HAS CLAIMED GOODWILL ON TH E OPENING WDV ONLY AND NOT ON THE ENTIRE AMOUNT. IT IS NOW FAIRLY 16 BANCTEC TPS INDIA PVT. LTD. WELL SETTLED THAT GOODWILL BEING AN INTANGIBLE ASSET , DEPRECIATION HAS TO BE ALLOWED. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER TO ALLOW ASSESSEES CLAIM OF DEPRECIATION OF ` 2,25,66,258, ON GOODWILL . GROUNDS ARE ALLOWED. 19 . IN GROUND NO.II, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF DEPRECIATION CLAIMED OF ` 11,13,78,623, ON ADDITIONAL GOODWILL OF ` 44,55,14,491, ARISING ON AMALGAMATION. 20 . FACTS RELATING TO THIS ISSUE, AS CULLE D OUT FROM RECORD ARE, IN COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FILED A REVISED COMPUTATION OF INCOME CLAIMING DEPRECIATION ON GOODWILL OF ` 44,55,14,491, ARISING AS A RESULT OF AMALGAMATION. WHILE THE ASSESSING OFFICER COMPLETELY IGNORED ASSESSEE S CLAIM, LEARNED DRP DISALLOWED THE CLAIM ON THE GROUND THAT ASSESSEE DID NOT MAKE THE CLAIM EITHER IN THE ORIGINAL RETURN OF INCOME OR IN A REVISED RETURN OF INCOME. WHILE DOING SO, LEARNED DRP REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN GOETZ IN DIA LTD. V/S CIT, [2006] 284 ITR 323 (SC). 21 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE DEPARTMENTAL AUTHORITIES ARE TOTALLY WRONG IN DISALLOWING ASSESSEES CLAIM ON THE GROUND THAT IT WAS NOT CLAIMED IN THE RETURN OF INCOME. HE SUBMITTED , EVEN IF A DEDUCTION IS NOT CLAIMED IN RETURN OF INCOME , 17 BANCTEC TPS INDIA PVT. LTD. THE ASSESSEE CAN CLAIM IT SUBSEQUENTLY EITHER BEFORE THE ASSESSING OFFICER OR EVEN BEFORE THE APPELLATE AUTHORITY. IN THIS CONTEXT, HE RELIED UPON THE FOLLOWING DECISIONS: I ) CIT V/S PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD., [2012] 349 ITR 336 (BOM.); AND II ) FRANKLIN TEMPLETON ASSET MANAGEMENT INDIA PVT. LTD. V/S ACIT, ITA NO.4068/MUM./2011 22 . FURTHER, HE SUBMITTED , THE ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL ARISING OUT OF AMALGAMATION WAS ALLOWED BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2013 14. IN THIS REGARD, HE FURNISHED A COPY OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2013 14. 23 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED DRP. 24 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO TAKEN NOTE OF THE DECISIONS CITED BEFORE US. AS DISCUSSED EARLIER, AFORESAID DEDUCTION WAS CLAIMED BY THE ASSESSEE IN COURSE OF ASSESSMENT PROCEEDINGS THROUGH A REVISED STATEMENT OF INCOME. WHILE THE ASSESSING OFFICER HAS NOT EXPRESSED ANY VIEW ON SUCH CLAIM, LEARNED DRP HAS REJECTED IT SOLELY ON THE GROUND THAT ASSESSEE HAD NOT CLAIMED IT EITHER IN THE RETURN OF INCOME OR BY FILIN G A 18 BANCTEC TPS INDIA PVT. LTD. REVISED RETURN OF INCOME. IN OUR VIEW, THE AFORESAID REASONING OF LEARNED DRP IS CONTRARY TO THE SETTLED LEGAL POSITION. IN CASE OF PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD. (SUPRA), THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT EVEN IF THE ASSE SSEE HAS FAILED TO CLAIM A DEDUCTION EITHER IN THE RETURN OF INCOME OR BY FILING REVISED RETURN OF INCOME, THE ASSESSEE CAN MAKE SUCH CLAIM SUBSEQUENTLY. EVEN IN CASE OF GOETZ INDIA LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS HELD THAT THERE IS NO RESTRICT ION ON THE APPELLATE AUTHORITIES IN ENTERTAINING A FRESH CLAIM OF DEDUCTION MADE BY THE ASSESSEE. THEREFORE, KEEPING IN VIEW THE RATIO LAID DOWN IN THE AFORESAID DECISIONS, THE DECI SION OF LEARNED DRP IN RE JECTING ASSESSEES CLAIM IS UNSUSTAINABLE, HENCE, DESERVES TO BE SET ASIDE. HOWEVER , SINCE THE DEPARTMENTAL AUTHORITIES HAVE NOT EXAMINED ASSESSEES CLAIM , BOTH FACTUALLY AND LEGALLY, WE ARE INCLINED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR EXAMINING ASSESSEES CLAIM ON ITS OWN MERIT. WHILE DOING SO, THE ASSESSING OFFICER IS ALSO DIRECTED TO TAKE NOTE OF THE FACT WHETHER SUCH CLAIM WAS ALLOWED IN ANY OTHER ASSESSMENT YEAR. HE SHOULD ALSO KEEP IN VIEW THE DECISIONS TO BE CITED BY THE ASSESSEE ON THE ISSUE. NEEDLESS TO MENTION, BEFORE DECIDING THE I SSUE THE ASSESSING OFFICER MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 19 BANCTEC TPS INDIA PVT. LTD. 25 . GROUNDS NO.IV AND V, ARE NOT PRESSED, HENCE, DISMISSED. 26 . GROUNDS NO.VI AND VII, BEING CONSEQUENTIAL IN NATURE D O NOT REQUIRE ADJUDICATION. 27 . IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 12.07.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 12.07.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI