M/s Toyota Kirloskar Auto Parts Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-2 LTU , Bangalore

ITA 3377/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2550 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-02-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 21-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN BENGALURU
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Bad and doubtful debts; Valuation report; Capital Gains
• Section: 143(3); 10B; 144C; 13; 92CA; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT(TP)A NO.1915/BANG/2017 & IT(TP)A NO. 3377/BANG/2018 ASSESSMENT YEAR S : 2013 - 14 & 2014 - 15 TOYOTA KIRLOSKAR AUTO PARTS PVT. LTD., PLOT NO.21, BIDADI INDUSTRIAL AREA, BIDADI 562 109. RAMANAGARA DISTRICT. KARNATAKA. PAN: AABCT 5590Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, CIRCLE 1, BENGALURU. & THE ASSISTANT COMMISSIONER OF INCOME TAX, LTU, CIRCLE 2, BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 26 .0 2 .2020 DATE OF PRONOUNCEMENT : 18 .0 3 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT IT(TP)A NO.1915/BANG/2017 IS AN APPEAL BY THE ASS ESSEE AGAINST THE FINAL ORDER OF ASSESSMENT DATED 27.7.2017 PASSE D BY THE DCIT, LTU, CIRCLE 1, BENGALURU U/S. 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 [THE ACT] IN RELATION TO ASSESSMENT YEAR 2013-14. IT(T P)A NO. 3377/BANG/2018 IS ALSO AN APPEAL BY THE ASSESSEE AGAINST THE FINAL ORDER OF ASSESSMENT IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 2 OF 19 DATED 30.10.2018 OF THE ACIT, LTU, CIRCLE 2, BENGAL URU PASSED U/S. 143(3) R.W.S. 144C IN RELATION TO ASSESSMENT YEAR 2014-15. 2. ONE OF THE ISSUES THAT ARISE FOR CONSIDERATION IN THE APPEAL FOR AY 2013-14 AND THE ONLY ISSUE THAT ARISES FOR CONSIDER ATION IN AY 2014-15 ARE COMMON ISSUE WITH REFERENCE TO DETERMINATION OF ALP IN RESPECT OF AN INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATE ENTERPRISES (AE) U/S. 92 OF THE ACT. 3. AS FAR AS THE AFORESAID COMMON ISSUE IS CONCERNE D, THE FACTUAL DETAILS FOR AY 2013-14 ARE THAT THE ASSESSEE IS A C OMPANY ENGAGED IN THE MANUFACTURE OF AUTOMOTIVE FRONT AXLE, REAR AXLE AND PROPELLER SHAFT. THE ASSESSEE IS VENDOR TO TOYOTA KIRLOSKAR MOTORS LTD. FOR THEIR VEHICLES SOLD UNDER THE BRAND NAME QUALIS AND INNOVA FOR AXLE S AND PROPELLER SHAFTS. ONE OF THE INTERNATIONAL TRANSACTION BETWEEN THE AS SESSEE AND ITS AE VIZ., TOYOTA MOTOR CORPORATION, JAPAN [TMC], WAS PAYMENT OF ROYALTY UNDER AGREEMENT BETWEEN THE ASSESSEE AND TMC. TMC WAS TO PROVIDE TECHNICAL KNOW-HOW, WHICH INCLUDES PROCESS KNOW-HOW, DESIGNS & DRAWINGS TO MANUFACTURE R-150 AND C-550 TRANSMISSION UNITS AND AXLES & PROPELLERS, SHAFTS AND ENGINE ASSEMBLY. THERE WAS AN AGREEMENT DATED 19.12.2012 BETWEEN TMC AND ASSESSEE AND ALSO ANOTHER AGREEMENT DATED 27.4.2012 NAMED AS TECHNICAL ASSISTANCE AGREEMENT FOR AXLES A ND PROPELLER SHAFT FOR IMV. AS PER AGREEMENT, ASSESSEE WAS TO PAY TMC ROY ALTY FOR USING TECHNOLOGY OF WHICH TMC HAD A RIGHT TO PERMIT THE A SSESSEE TO USE THE TECHNOLOGY. A SUM OF RS.48.23 CRORES WAS PAID AS R OYALTY BY THE ASSESSEE IN AY 2013-14. 4. SINCE THE AFORESAID PAYMENT OF ROYALTY WAS AN IN TERNATIONAL TRANSACTION, INCOME ARISING FROM SUCH INTERNATIONAL TRANSACTION HAD TO BE DETERMINED HAVING REGARD TO THE ALP AS PRESCRIBED U /S. 92 OF THE ACT. THE ASSESSEE IN RESPECT OF ITS CLAIM THAT THE ROYALTY P AID WAS AT ARMS LENGTH IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 3 OF 19 FILED A TRANSFER PRICING (TP) ANALYSIS FOR WHICH IT HAD CHOSEN TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE ME THOD [MAM] FOR DETERMINING THE ALP. THE PLI CHOSEN FOR THE PURPOS E OF COMPARISON OF THE ASSESSEES PROFIT MARGIN WITH COMPARABLE COMPANIES WAS OP/OR (OPERATING REVENUE) WHICH WAS WORKED OUT AT 8.11% B Y THE ASSESSEE. 8 COMPARABLE COMPANIES WERE CHOSEN AND THE AVERAGE AR ITHMETIC MEAN PROFIT MARGIN OF THOSE 8 COMPANIES I.E., OP/OR WAS 6.49. THE ASSESSEE CLAIMED THAT INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH. SINCE THE TRANSACTION OF PAYMENT OF ROYALTY WAS CLOSELY LINKE D TO MANUFACTURING OPERATION, THE TRANSACTION OF ROYALTY WAS AGGREGATE D WITH OTHER TRANSACTION AND TNMM WAS APPLIED AS THE MOST APPROPRIATE METHOD . 5. THE TPO, TO WHOM REFERENCE WAS MADE BY THE AO FO R DETERMINATION OF ALP, WAS OF THE VIEW THAT THE TECHNOLOGY PROVIDE D BY TMC WAS A START- UP TECHNOLOGY AND SINCE IT INCLUDED GENERIC TECHNOL OGY AND PROPRIETARY TECHNOLOGY, IT HAD TO BE REGARDED AS TECHNOLOGY FOR SETTING UP OF BUSINESS. HE WAS OF THE VIEW THAT ECONOMIC LIFE OF SUCH TECHN OLOGY WOULD BE JUST 4 OR 5 YEARS AND SINCE IN AY 2013-14, THE ASSESSEE HAS B EEN IN OPERATION FOR MORE THAN 5 YEARS, THERE WAS NO NECESSITY TO PAY RO YALTY OF 5% ON SALES. HE WAS OF THE VIEW THAT THE TNMM CANNOT BE THE MOST APPROPRIATE METHOD IN SUCH A SITUATION. THE TPO GAVE THE FOLLOWING RE ASONS FOR NOT ACCEPTING THE TNMM AS THE MAM:- 5.4 HOW TNMM CAN BE MISUSED TO JUSTIFY PROFIT SHIFTING? CONSIDER AN AUTO ANCILLARY COMPANY THAT PURCHASED TECHNOLOGIES AND MACHINERY FOR A NEW VEHICLE GEAR S YSTEM BACK IN 2003. IT MAKES BETTER PROFITS THAN MARKET AVERAG E. MARKET AVERAGE (WHAT WE CALL MEAN OP/OR) IS THE AVERAGE OF COMPANIES PERFORMING BETTER THAN AVERAGE AND WORSE THAN AVERA GE. NOW, THIS COMPANY PERFORMS BETTER THAN MARKET AVERAGE. IT GET S HEALTHY PROFITS AND PAYS HEALTHY TAXES TO INDIAN TREASURY. ONE FINE DAY, IN IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 4 OF 19 2012, IT DECIDES TO REDUCE ITS TAX BURDEN IN INDIA. SO IT STARTS AN AE IN CAYMAN ISLANDS AND PAYS ROYALTY TO THE AE. BY DOING THIS, IT REDUCES ITS PROFITS IN INDIA TO THE MARKET AVERA GE. AS A COVER, IT PREPARES DOCUMENTATION OR HOW THE AE GAVE THE TAXPA YER THE KNOWHOW OF A NEW TECHNIQUE TO WELD GEAR MACHINES. T HERE IS NO WAY OF BENCHMARKING SUCH UNPATENTED KNOWHOW (EVEN F OR PATENTS, A SURVEY SHOWS THAT 98% OF PATENTS CANNOT BE COMMERCIALLY HARNESSED). THE COMPANY PAYS LESS TAX IN INDIA, AND CAN JUSTIFY THE PROFIT SHIFTING BY SAYING THAT IT IS WITHIN TOLERANCE LIMIT OF TNMM MEAN MARGIN. 5.5. IN THIS SITUATION, TNMM ACTUALLY DEFEATS TH E VERY PURPOSE OF TRANSFER PRICING AS AN ANTI-ABUSE PROVISION. THE RE IS NO JUSTIFICATION FOR APPLICATION OF TNMM, BECAUSE THE SO-CALLED TECH SUPPLIED BY THE AE TO THIS HYPOTHETICAL COMPANY IS NOT 'START-UP TECH'. IT IS TECHNOLOGICAL UPDATE/UPGRADATION. THER E IS NO BENCHMARK OF SUCH TECHNOLOGY INTANGIBLE. AS SUCH, I NTANGIBLES CAN BE BENCHMARKED ONLY USING ANALYTICAL APPROACHES . TNMM IS VERY CRUDE, AND IT DEFINITELY DOES NOT GIVE ANY IND ICATION OF THE ARMS LENGTH NATURE OF ROYALTY TRANSACTIONS. 6. AFTER HAVING REJECTED TNMM, THE TPO PROCEEDED TO APPLY THE PROFIT SPLIT METHOD [PSM] AS THE MAM FOR THE FOLLOWING REA SONS:- 5.10. ECONOMIC FACTS OF THE CASE AND PSM AS MAM THE TP AUDITS IN THIS CASE FOR PAST 5-6 YEARS WERE STUDIED. THE ITAT DECISIONS WERE ALSO PERUSED. THE TPO MAKES THE FOLLOWING REMARKS ON FACTS OF THE CASE FOR FY 2012-13:- THE COMPANY HAS BEEN IN OPERATION SINCE 2003. ANY ' START-UP TECHNOLOGY THAT THE TAXPAYER WOULD HAVE GOT FROM THE AE HAVE ALREADY EXPIRED THEIR USEFUL ECONOMIC LIFE. START-UP TECHNOLOGY BEING VERY CRITICAL FOR THE ENT IRE OPERATION, MAKING A NET MARGIN LEVEL ANALYSIS UNDER TNMM STILL HAD MERITS IN INITIAL YEARS OF OPERATION. IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 5 OF 19 THE HON'BLE ITAT HAS STATED IN THIS CASE FOR AY 200 7-08 THAT TNMM SHOULD BE USED AS THE MOST APPROPRIATE METHOD. THIS WAS REITERATED FOR AY 2010-11 THE ECONOMIC FACTS ARE DIFFERENT FOR AY 2013-14. BY THIS TIME, THE USEFUL ECONOMIC LIFE OF BUNDLE OF TECHNOLOGIES TRANSFERRED FOR START-UP AND OPERATIONALIZING THE WHOLE BUSINESS HA S LAPSED. NOW ROYALTY IS BEING PAID FOR TECHNICAL UPGRADES AND KNOWHOW ON BETTER TECH. THE ALP OF SUCH TECHNOLOGY CANNOT BE A SSESSED ON NET MARGIN LEVEL ANALYSIS. TNMM DEFINITELY IS NOT A GOOD METHOD FOR BENCHMARKING TECHNOLOGY TRANSFER IN THE TAXPAYE R'S CASE FOR AY 2013-14. CUP CANNOT BE USED BECAUSE THE RELATIVE VALUE OF TH IS TECH VIZ-A- VIZ THE TECH IN OTHER AGREEMENTS CANNOT BE DETERMIN ED DUE TO LACK OF INFO ON TECHNICAL SPECIFICATIONS. PSM IS THE MOST APPROPRIATE METHOD IN THIS CASE. IN TERNATIONALLY, PSM IS USED AS THE MOST APPROPRIATE METHOD. 7. THEREAFTER BY APPLICATION OF PSM, THE TPO CHOSE COMPARABLE COMPANIES WHICH ARE THE SAME COMPANIES THAT WAS CHO SEN BY THE ASSESSEE IN ITS TP REPORT AND ATTRIBUTED 50% OF THE PAYMENT AS PROFITS OF THE AE AND TO THE EXTENT OF 50%, THE TPO HELD THAT ROYALTY PAID WAS EXCESSIVE AND ADDED 50% OF ROYALTY PAID TO THE TOTA L INCOME OF THE ASSESSEE. THE FOLLOWING WERE THE RELEVANT CONCLUS IONS OF THE TPO IN THIS REGARD:- 6.1 RATIO OF PROFIT SPLIT CORNING BACK TO THE RESIDUAL PSM, THE RESIDUAL PROF ITS OF THE TAXPAYER HAVE BEEN DETERMINED AT 1.98% OF OPERATING REVENUE. THIS HAS TO BE SPLIT BETWEEN THE TAXPAYER AND AE. U SUALLY SUCH TYPICAL TRANSACTIONS ARE SO TYPICAL THAT MARKET COM PARABLES ON SPLIT ARE NOT AVAILABLE. HENCE, A SPLIT HAS TO BE D ONE ON THE BASIS OF FAR ANALYSIS AND RELATIVE WEIGHTAGES IN FAR. FRO M A DETAILED FAR ANALYSIS, THE TPO CONCLUDES THAT THE FAR OF THE AE ARE AS UNDER: IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 6 OF 19 1) FUNCTIONS A) CONDUCTS ALL R&D ACTIVITIES 2) ASSETS A) OWNS THE ASSET 3) RISKS A) TAKES ALL RESEARCH RISK, INCLUDING RISKS IN DEVE LOPMENT OF EARLY STAGE TECHNOLOGIES AND DISRUPTIVE TECHNOLOGIE S THE FAR OF TAXPAYER RELATIVE TO THE ROYALTY TRANSAC TION ARE AS UNDER (NOTE THAT THERE ARE MANY OTHER FUNCTIONS OF TAXPAYER IT CONDUCTS AS A FULL-FLEDGED ENTREPRENEUR, BUT THEY A RE NOT RELEVANT FOR A PROFIT SPLIT ANALYSIS): 1) FUNCTIONS A) MANUFACTURING AND SALES (THESE FUNCTIONS AND RET URNS FROM SAME ARE COVERED IN ROUTINE MARKET PROFITS, AND HEN CE DO NOT CARRY WEIGHT HERE). 2) ASSETS A) NONE 3) RISKS A) COMPLETE ENTREPRENEURIAL RISK 6.2. THE MOST CRITICAL FACTOR HERE IS THAT THE AE H AS GIVEN 'START UP TECH' AND 'MANUFACTURING KNOW HOW'. AFTER FEW YE ARS, THE START-UP TECH AND MANUFACTURING KNOWHOW WOULD HAVE REPLENISHED THEIR USEFUL ECONOMIC LIFE. THEN THE AE WOULD HAVE TO BE COMPENSATED FOR INCREMENTAL TECHNOLOGIES ONLY . WEIGHTAGE OF INCREMENTAL TECH IS LOW, BUT WEIGHTAGE OF MANUFA CTURING KNOWHOW (HOW TO START OPERATIONS, WHAT DO DO, HOW T O ESTABLISH THE PLANT), AND 'START-UP TECHNOLOGY' ARC HIGH. OWI NG TO THIS, THE TPO MAKES THE FOLLOWING WEIGHTAGE ASSIGNMENTS: TAXPAYER AE FUNCTIONS 0 1 ASSETS 0 1 RISKS 3 1 TOTAL 3 3 RATIO 50% 50% IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 7 OF 19 6.3. EBIT-R MARGIN OF TOYOTA KIRLOSKAR AUTO PARTS L TD: TOYOTA KIRLOSKAR AUTO REVENUE FROM OPERATIONS 11762450000 ADD: EXCHANGE GAIN 0 OPERATING REVENUES 11762450000 TOTAL COSTS 11422140000 LESS INTEREST COSTS 99810000 LESS ROYALTY 482390000 LESS PROVISION OF DOUBTFUL DEBTS 3280000 OPERATING COSTS (0C) 10836660000 EBIT-R 925790000 EB1T-R/SALES 7.87% 6.4 EBIT MARGIN OF COMPARABLES: BHARAT GEARS LTD 4.23% HINDUSTAN HARDY SPICER LTD 3.99% JMT AUTO LTD 6.75% TALBROS ENGINEERING LTD 6.14% RAUNAQ AUTOMOTIVE COMPONENTS LTD 7.17% RSB TRANSMISSION (I) LTD 6.50% RANE MADRAS LTD 6.44% MEAN 5.89% 6.5. MAKING A 50:50 SPLIT AFTER A PROPER FUNCTIONAL ANALYSIS OF RELATIVE CONTRIBUTION OF VALUE DRIVERS OF TAXPAYER AND AE TO THE TECHNOLOGY TRANSFERRED, THE COMPUTATION IS AS UNDER : ALP ROYALTY RATE 1.98% ON SALES 50:50 PROFIT SPLIT 0.991% OVER SALES ALP ROYALTY 116574865 ROYALTY PAID 482390000 DIFFERENCE TO BE ADJUSTED 365815135 THEREFORE, AN AMOUNT OF RS. 36,58,15,135/- IS TREAT ED AS ADJUSTMENT U/S 92CA IN RESPECT OF INTERNATIONAL TRANSACTION OF ROYALTY PAYMENT BY THE TAXPAYER TO ITS AE. IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 8 OF 19 8. AGGRIEVED BY THE AFORESAID ORDER OF THE TPO WHI CH WAS INCORPORATED IN THE DRAFT ORDER OF ASSESSMENT BY TH E AO, THE ASSESSEE PREFERRED OBJECTIONS BEFORE THE DISPUTES RESOLUTION PANEL (DRP). THE CONTENTION OF THE ASSESSEE BEFORE THE DRP WAS THAT THE MAM IN THE MATTER OF DETERMINATION OF ALP IN RESPECT OF PAYMENT OF RO YALTY HAS ALREADY BEEN SETTLED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A Y 2007-08 IN IT(TP)A NO.1356/BANG/2011, ORDER DATED 22.10.2014 AND THERE FORE THE APPROACH ADOPTED BY THE TPO WAS INCORRECT. IN THIS REGARD I T WAS POINTED OUT THAT THE IN THE INTERMITTENT ASSESSMENT YEARS I.E. PRIOR TO AY 2013-14, THE TPO ACCEPTED THE TNMM AS THE MAM AND HAS TAKEN A DIFFER ENT STAND ONLY IN AY 2013-14. IT WAS ALSO SUBMITTED THAT THE PSM IS NOT APPLICABLE BECAUSE FOR APPLICATION OF PSM AS THE MAM, THERE SHOULD BE CONT RIBUTION OF UNIQUE INTANGIBLE BY THE TAXPAYER ALSO. IN THIS REGARD, T HE SUBMISSIONS OF THE ASSESSEE WAS THAT PSM IS GENERALLY APPLIED IN CASES INVOLVING MULTIPLE TRANSACTIONS AMONGST ASSOCIATED ENTERPRISES (AES) W HICH ARE SO INTER- RELATED AND CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ON SEPARATE BASIS FOR THE PURPOSE OF DETERMINING ARM'S LENGTH PRICE OF ANY TRANSACTION. THE ASSESSEE RELIED ON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF GLOBAL ONE INDIA (P). LTD. V. ASSISSTANT COMMISSION ER OF INCOME-TAX, CIRCLE 12(1), NEW DELHI [2014] 44 TAXMA NN.COM 100 (TRIB.) ITAT WHEREIN IT WAS HELD THAT IN A CASE WHERE THE A SSESSEE GENERATES OUT OF OPERATIONS THAT ARE HIGHLY INTEGRATED, WHEN ONE TRANSACTION, REQUIRES DEPLOYMENT OF ASSETS AND FUNCTIONS OF DIFFERENT ENT ITIES, LOCATED IN DIFFERENT GEOGRAPHICAL LOCATION TO ULTIMATELY DELIVER SERVICE S AND WHEN SUCH COMBINED EFFORTS GENERATE REVENUES, THE MAM FOR DET ERMINING ARM'S LENGTH PRICE IS 'PROFIT SPLIT METHOD (PSM). REFERENCE WA S MADE TO RULE 10B(1)(D) OF THE INCOME TAX RULES, 1962 (RULES) WHI CH DESCRIBES 'PROFIT SPLIT METHOD (PSM) AS FOLLOWS: IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 9 OF 19 RULE 10B (1)(D) PRESCRIBES AS FOLLOWS: (I) THE COMBINED NET PROFIT OF THE ASSOCIATED ENTERPRIS ES ARISING FROM THE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMESTIC TRANSACTION] IN WHICH THEY ARE ENGAGED, IS DETERMINED; (II) THE RELATIVE CONTRIBUTION MADE BY EACH OF THE ASSOC IATED ENTERPRISES TO THE EARNING OF SUCH COMBINES NET PRO FIT, IS THEN EVALUATED ON THE BASIS OF THE FUNCTIONS PERFOR MED, ASSETS EMPLOYED OR TO BE EMPLOYED AND RISKS ASSUMED BY EACH ENTERPRISE AND ON THE BASIS OF RELIABLE EXTERN AL MARKET DATA WHICH INDICATES HAW SUCH CONTRIBUTION WOULD BE EVALUATED BY UNRELATED ENTERPRISES PERFORMING COMPA RABLE FUNCTIONS IN THE SIMILAR CIRCUMSTANCES; (III) THE COMBINED NET PROFIT IS THEN SPLIT AMONGST THE ENTERPRISES IN PROPORTION TO THEIR RELATIVE CONTRIB UTIONS, AS EVALUATED UNDER SUB-CLAUSE (II); (IV) THE PROFIT THUS APPORTIONED TO THE ASSESSEE IS TAKE N INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELAT ION TO THE INTERNATIONAL TRANSACTION: 9. IT WAS EMPHASISED THAT THIS METHOD MAY BE APPLIC ABLE IN CASE WHERE TRANSACTIONS INVOLVE TRANSFER OF UNIQUE, INTA NGIBLE OR ANY MULTIPLE INTERRELATED INTERNATIONAL TRANSACTIONS, WHICH CANN OT BE EVALUATED SEPARATELY FOR DETERMINING THE ALP OF ANY ONE TRANS ACTION. IT WAS HIGHLIGHTED THAT THE PROFIT SPLIT METHOD FIRST IDEN TIFIES THE PROFIT TO BE SPLIT FOR THE ASSOCIATED ENTERPRISE FROM THE CONTROLLED TRANS ACTIONS IN WHICH THE ASSOCIATED ENTERPRISES ARE ENGAGED. IT THEN SPLITS THOSE PROFITS BETWEEN THE ASSOCIATED ENTERPRISES ON AN ECONOMICALLY VALID BASIS THAT APPROXIMATES THE DIVISIONS OF PROFITS THAT WOULD HA VE BEEN ANTICIPATED AND REFLECTED IN AN AGREEMENT TRANSACTIONS OR A RESIDUA L PROFIT INTENDED TO REPRESENT THE PROFIT THAT CANNOT READILY BE ASSIGNE D TO ONE OF THE PARTIES, SUCH AS THE PROFIT ARISING FROM HIGH VALUE, SOMETIM ES UNIQUE, INTANGIBLES. THE CONTRIBUTION OF EACH ENTERPRISE IS BASED UPON A FUNCTIONAL ANALYSIS AND IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 10 OF 19 VALUED TO THE EXTENT POSSIBLE BY ANY AVAILABLE RELI ABLE EXTERNAL MARKET DATA THE FUNCTIONAL ANALYSIS IS AN ANALYSIS OF THE FUNCT IONS PERFORMED (TAKING INTO ACCOUNT ASSETS USED RISKS ASSUMED) BY EACH ENT ERPRISE. THE EXTERNAL MARKET CRITERIA MAY INCLUDE, FOR EXAMPLE, PROFIT SP LIT PERCENTAGES OR RETURNS OBSERVED AMONG INDEPENDENT ENTERPRISES WITH COMPARA BLE FUNCTIONS. IT WAS POINTED OUT THAT THE TRANSACTION IN THE CASE OF THE ASSESSEE HAS NO SUCH FEATURES WHERE UNIQUE INTANGIBLES OR ANY MULTI PLE INTERRELATED INTERNATIONAL TRANSACTIONS, WHICH CANNOT BE EVALUAT ED SEPARATELY FOR DETERMINING THE ALP ARE INVOLVED. REFERENCE WAS AL SO MADE TO THE OECD-TRANSFER PRICING GUIDELINE FOR MULTINATIONAL E NTERPRISES AND TAX ADMINISTRATION IN CHAPTER 2 ON TRANSFER PRICING MET HODS, AT PAGE 93, PARA C.1. 10. WITHOUT MEETING THE SPECIFIC OBJECTION OF THE A SSESSEE THAT IN THE INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS AE THERE WAS NO CONTRIBUTION OF UNIQUE INTANGIBLE BY THE ASSESSEE A ND THAT THERE WERE NOT MULTIPLE INTERRELATED TRANSACTIONS WHICH CANNOT BE SEPARATELY EVALUATED, THE DRP UPHELD THE APPLICATION OF RPM AS MAM BY OBSERVI NG AS FOLLOWS:- 2.11 THUS IN PSM, THE FIRST STEP IS TO IDENTIFY TH E COMBINED NET PROFIT OF THE ASSESSEE AND THE AE, ARISING FROM THE INTERNATIONAL TRANSACTIONS IN WHICH THEY ARE ENGAGED IN THE PRESE NT CASE IS THE ROYALTY PAYMENT RECEIVED BY THE AE. IN THE SECOND S TEP, THE RELATIVE CONTRIBUTION MADE BY EACH OF THE ENTITIES WHICH HAVE CONTRIBUTED TO THE EARNING OF SUCH COMBINED NET PRO FIT IS EVALUATED ON FAR ANALYSIS OF EACH ENTITY AND BASED ON THAT, IT IS SEEN HOW SUCH CONTRIBUTION SHOULD BE EVALUATED BY U NRELATED ENTERPRISE PERFORMING FUNCTIONS IN SIMILAR CIRCUMST ANCES. NEXT, THE COMBINED NET PROFIT IS SPLIT BETWEEN THE RELATE D ENTERPRISE IN PROPORTION TO THEIR RELATED CONTRIBUTION WHICH HAS BEEN EVALUATED AFTER CARRYING OUT FAR ANALYSIS. LASTLY, THE PROFIT WHICH HAS BEEN APPORTIONED TO THE ASSESSEE IS TAKEN INTO ACCOUNT T O ARRIVE AT ARM'S LENGTH PRICE ANALYSIS TO THE INTERNATIONAL TR ANSACTIONS. THE OBJECT OF DETAILED FUNCTIONAL ANALYSIS IN SUCH A ME THOD IS TO ASSESS IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 11 OF 19 THE RELATED CONTRIBUTION AND RISK TAKEN BY EACH PAR TY AND INCOME IS ASSIGNED ACCORDINGLY. IN THE CASE UNDER CONSIDER ATION, GIVEN THE COMPLEX AND INTER-RELATED FUNCTIONS, PSM WAS SE LECTED AS MOST APPROPRIATE METHOD (MAM) TO DETERMINE THE REAS ONABLE ALLOCATION OF PROFIT IN INDIA ARISING ON ACCOUNT OF INTERNATIONAL TRANSACTION. THE COMBINED NET PROFIT AMONGST THE ENTITITES HAVE BEEN APPORTIONED ON THE BASIS OF THEIR ROLE AND FUN CTIONS PERFORMED, RISKS ASSUMED AND ASSETS DEPLOYED. THUS APPROACH OF THE TPO IS FOUND TO BE APPROPRIATE. 11. THE DRP ALSO HELD THAT THE EARLIER ORDERS OF T RIBUNAL HOLDING TNMM AS MAM CANNOT BE APPLIED IN AY 2013-14 BECAUSE THE DECISION RENDERED BY THE ITAT WERE IN RELATION TO START UP STAGE AND THERE WAS USEFUL ECONOMIC LIFE OF THE TECHNOLOGY OBTAINED FROM THE A E AND THOSE CIRCUMSTANCES DO NOT EXIST IN AY 2013-14. 12. AGGRIEVED BY THE ORDER OF DRP WHICH WAS INCORPO RATED IN THE FAIR ASSESSMENT ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 13. THE SUBMISSIONS BEFORE US WERE ALMOST IDENTICAL TO THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE DRP. 14. THE LD. DR RELIED ON THE FINDINGS OF THE DRP. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE A RE OF THE VIEW THAT THE ISSUE WITH REGARD TO MOST APPROPRIATE METHOD IN THE CASE OF ASSESSEE HAD ALREADY BEEN SETTLED BY THE TRIBUNAL. THE TPO AS WELL AS THE DRP HAVE NOT FOLLOWED THE AFORESAID DECISION OF THE TRI BUNAL ON THE GROUND THAT ECONOMIC LIFE OF THE TECHNOLOGY HAD AN IMPACT ON TH E MAM AND THAT TECHNOLOGY IN QUESTION WAS TO BE USED BY START-UPS AND SINCE THE ASSESSEE WAS USING THE TECHNOLOGY FOR A FAIRLY LONG PERIOD O F MORE THAN 5 YEARS, IT WOULD NOT BE PROPER TO ADOPT THE TNMM AS THE MAM, A S THE ECONOMIC LIFE OF THE TECHNOLOGY WOULD NO LONGER EXIST. IN OUR VI EW, THERE IS NO BASIS FOR THE TPO AS WELL AS THE DRP TO COME TO A CONCLUSION THAT TECHNOLOGY IN IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 12 OF 19 QUESTION WAS TO BE USED BY A START-UP. THERE IS NO BASIS FOR THE TPO AND DRP TO COME TO A CONCLUSION THAT THE ASSESSEE IS A START UP IN MANUFACTURE OF VARIOUS PARTS FOR AUTOMOBILES. THE TECHNOLOGY IN QUESTION WAS THAT OF TMC JAPAN. THE TECHNOLOGY IS BEING USE D BY THE ASSESSEE EVEN TODAY. THERE IS NO BASIS FOR THE TPO/DRPS CO NCLUSION THAT THE USEFUL ECONOMIC LIFE OF THE TECHNOLOGY WOULD BE ONL Y 5 YEARS. IN ANY EVENT PASSAGE OF TIME CANNOT BE THE BASIS TO DISCARD TNMM WHICH IS ALREADY HELD BY THE TRIBUNAL AND UPHELD BY THE HONBLE HIGH COURT AS NO LONGER THE MAM BECAUSE THE CONDITIONS NECESSARY FOR PSM AS MAM ARE NOT MET IN THE CASE OF THE ASSESSEE. EVEN GOING BY RULE 10B(1 )(D), THERE SHOULD BE CONTRIBUTION BY EACH OF THE PARTIES TO A TRANSACTIO N FOR EARNING PROFITS FROM SALE OF GOODS OR PROVISION OF SERVICES. THEN THE C ONTRIBUTION OF EACH OF THE PARTIES IS IDENTIFIED AND THE PROFIT IS SPLIT BETWE EN THOSE PARTIES. IN THE CASE OF THE ASSESSEE THE TECHNOLOGY IS GIVEN BY TMC, JAP AN FOR WHICH ROYALTY IS PAID. THE USE OF THE TECHNOLOGY IN MANUFACTURING A ND THE SALE OF THE PRODUCT SO MANUFACTURED CONTRIBUTE TO THE PROFIT OF THE ASSESSEE AND TMC, JAPAN HAS NOTHING TO DO WITH THAT. THERE IS THEREF ORE ABSENCE THE FIRST CONDITION FOR APPLICATION OF PSM AS MAM. AS SUBM ITTED BY THE ASSESSEE PSM IS USED AS MAM ONLY IN A CASE INVOLVING TRANSFE R OF UNIQUE INTANGIBLE OR IN MULTIPLE INTER-RELATED INTERNATIONAL TRANSACT IONS WHICH CANNOT BE VALUED SEPARATELY FOR DETERMINING THE ALP. THE OECD GUIDE LINES CITED ON BEHALF OF THE ASSESSEE CLEARLY SUPPORTS THE AFORESAID APPR OACH AND THE OECD GUIDELINES IN THIS REGARD READS AS FOLLOWS:- FURTHER RELIANCE IS ALSO PLACED ON OECD GUIDELINE S, WHICH CLEARLY LAY DOWN THE SITUATIONS IN WHICH THE PSM IS SELECTED AS AN APPROPRIATE METHOD FOR BENCHMARKING. THE RELEVANT E XTRACT FROM THE OECD GUIDELINES (PARA 2.109) IS AS BELOW: ' A TRANSACTIONAL PROFIT SPLIT METHOD MAY ALSO BE FOU ND TO BE THE MOST APPROPRIATE METHOD IN CASES WHERE BOTH PAR TIES TO A TRANSACTION MAKE UNIQUE AND VALUABLE CONTRIBUTIONS (E.G. IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 13 OF 19 CONTRIBUTE UNIQUE INTANGIBLES) TO THE TRANSACTION, BECAUSE IN SUCH A CASE INDEPENDENT PARTIES MIGHT WISH TO SHARE THE PROFITS OF THE TRANSACTION IN PROPORTION TO THEIR RESPECTIVE C ONTRIBUTIONS AND A TWO-SIDED METHOD MIGHT BE MORE APPROPRIATE IN THE SE CIRCUMSTANCES THAN A ONE-SIDED METHOD. IN ADDITION, IN THE PRESENCE OF UNIQUE AND VALUABLE CONTRIBUTIONS, RELI ABLE COMPARABLES INFORMATION MIGHT BE INSUFFICIENT TO AP PLY ANOTHER METHOD. ON THE OTHER HAND, A TRANSACTIONAL PROFIT S PLIT METHOD WOULD ORDINARILY NOT BE USED IN CASES WHERE ONE PAR TY TO THE TRANSACTION PERFORMS ONLY SIMPLE FUNCTIONS AND DOES NOT MAKE ANY SIGNIFICANT UNIQUE CONTRIBUTION (E.G. CONTRACT MANUFACTURING OR CONTRACT SERVICE ACTIVITIES IN RELEVANT CIRCUMST ANCES), AS IN SUCH CASES A TRANSACTIONAL PROFIT SPLIT METHOD TYPI CALLY WOULD NOT BE APPROPRIATE IN VIEW OF THE FUNCTIONAL ANALYSIS O F THAT PARTY'. 16. THE REVISED GUIDANCE (JUNE 2018) ON THE APPLICATION OF TRANSACTIONAL PSM , PROVIDED BY THE OECD STATE THE IMPORTANCE OF DELINEATING THE TRANSACTIONS IN DETERMINING WHETHER THE PSM IS APPLICABLE OR NOT. THE RELEVANT EXTRACT FROM THE OECD GUIDELIN ES IS PROVIDED BELOW: '2.125. THE ACCURATE DELINEATION OF THE ACTUAL TRAN SACTION WILL BE IMPORTANT IN DETERMINING WHETHER A TRANSACTIONAL PR OFIT SPLIT IS POTENTIALLY APPLICABLE. THIS PROCESS SHOULD HAVE RE GARD TO THE COMMERCIAL AND FINANCIAL RELATIONS BETWEEN THE ASSO CIATED ENTERPRISES, INCLUDING AN ANALYSIS OF WHAT EACH PAR TY TO THE TRANSACTION DOES, AND THE CONTEXT IN WHICH THE CONT ROLLED TRANSACTIONS TAKE PLACE. THAT IS, THE ACCURATE DELI NEATION OF A TRANSACTION REQUIRES A TWO-SIDED ANALYSIS (OR A MUL TI-SIDED ANALYSIS OF THE CONTRIBUTIONS OF MORE THAN TWO ASSO CIATED ENTERPRISES, WHERE NECESSARY) IRRESPECTIVE OF WHICH TRANSFER PRICING METHOD IS ULTIMATELY FOUND TO BE THE MOST A PPROPRIATE. 2.126. THE EXISTENCE OF UNIQUE AND VALUABLE CONTRIBUTIONS BY EACH PARTY TO THE CONTROLLED TRANSACTION IS PERHAPS THE CLEAREST INDICATOR THAT A TRANSACTIONAL PROFIT SPLI T MAY BE APPROPRIATE. THE CONTEXT OF THE TRANSACTION, INCLUDING THE INDUSTRY IN WHICH IT OCCURS AND THE FACTORS AFFECTI NG BUSINESS PERFORMANCE IN THAT SECTOR CAN BE PARTICULARLY RELE VANT TO EVALUATING THE CONTRIBUTIONS OF THE PARTIES AND WHE THER SUCH CONTRIBUTIONS ALE UNIQUE AND VALUABLE. DEPENDING ON THE FACTS OF IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 14 OF 19 THE CASE, OTHER INDICATORS THAT THE TRANSACTIONAL P ROFIT SPLIT MAY BE THE MOST APPROPRIATE METHOD COULD INCLUDE A HIGH LE VEL OF INTEGRATION IN THE BUSINESS OPERATIONS TO WHICH THE TRANSACTIONS RELATE AND /OR THE SHARED ASSUMPTION OF ECONOMICALL Y SIGNIFICANT RISKS (OR THE SEPARATE ASSUMPTION OF CLOSELY RELATE D ECONOMICALLY SIGNIFICANT RISKS) BY THE PARTIES TO THE TRANSACTIO NS. IT IS IMPORTANT TO NOTE THAT THE INDICATORS ARE NOT MUTUALLY EXCLUS IVE AND ON THE CONTRARY MAY OFTEN BE FOUND TOGETHER IN A SINGLE CA SE. 2.127. AT THE OTHER END OF THE, SPECTRUM, WHERE THE ACCURATE DELINEATION OF THE TRANSACTION DETERMINES THAT ONE PARTY TO THE TRANSACTION PERFORMS ONLY SIMPLE FUNCTIONS, DOES NO T ASSUME ECONOMICALLY SIGNIFICANT RISKS IN RELATION TO THE T RANSACTION AND DOES NOT OTHERWISE MAKE ANY CONTRIBUTION WHICH IS U NIQUE AND VALUABLE .. ' '2.147. UNDER THE TRANSACTIONAL PROFIT SPLIT METHOD , THE RELEVANT PROFITS ARE TO BE SPLIT BETWEEN THE ASSOCIATED ENTE RPRISES ON AN ECONOMICALLY VALID BASIS THAT APPROXIMATES THE DIVI SI6N OF PROFITS THAT WOULD HAVE BEEN ANTICIPATED AND REFLECTED IN A N AGREEMENT MADE AT ARM'S LENGTH. IN GENERAL, THE DETERMINATION OF THE RELEVANT PROFITS TO BE SPLIT AND OF THE PROFIT SPLITTING FAC TORS SHOULD: BE CONSISTENT WITH THE FUNCTIONAL ANALYSIS OF THE C ONTROLLED TRANSACTION UNDER REVIEW, AND IN PARTICULAR REFLECT THE ASSUMPTION OF THE ECONOMICALLY SIGNIFICANT RISKS BY THE PARTIE S, AND BE CAPABLE OF BEING MEASURED IN A RELIABLE MANNER. ' 17. IT IS CLEAR FROM THE ABOVE OECD GUIDELINES THA T IN 'ORDER TO DETERMINE THE PROFITS TO BE SPLIT, THE CRUX IS TO U NDERSTAND THE FUNCTIONAL PROFILE OF THE ENTITIES UNDER CONSIDERATION. ALTHOU GH THE COMPARABILITY ANALYSIS IS AT THE 'HEART OF THE APPLICATION OF THE ARM'S LENGTH PRINCIPLE', LIKEWISE, A FUNCTIONAL ANALYSIS HAS ALWAYS BEEN A C ORNERSTONE OF THE COMPARABILITY ANALYSIS. IN THE PRESENT CASE THE AS SESSEE LEVERAGES ON THE USE OF TECHNOLOGY FROM THE AE AND DOES NOT CONTRIBU TE ANY UNIQUE INTANGIBLES TO THE TRANSACTION. IT MAY BE TRUE THA T THE ASSESSEE AGGREGATED PAYMENT OF ROYALTY WITH THE TRANSACTION OF MANUFACT URING AS IT WAS CLOSELY IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 15 OF 19 LINKED AND ADOPTED TNMM BUT THAT DOES NOT MEAN THAT THE TRANSACTIONS ARE SO INTERRELATED THAT THEY CANNOT BE EVALUATED SEPAR ATELY FOR APPLYING PSM. FURTHER, THE ASSESSEE DOES NOT MAKE ANY UNIQUE CONT RIBUTION TO THE TRANSACTION, HENCE PSM IN THIS CASE CANNOT BE APPLI ED. 18. THEREFORE, WE ARE OF THE VIEW THAT TNMM IS THE MOST APPROPRIATE METHOD IN THE CASE OF ASSESSEE. THE DECISION OF TH E TRIBUNAL IN THE EARLIER AY 2008-09 HAS ALSO BEEN UPHELD BY THE HONBLE HIGH COURT OF KARNATAKA IN ITA NO.104/2015, JUDGMENT DATED 16.7.2018, WHICH WAS AN APPEAL OF THE REVENUE AGAINST THE ORDER OF TRIBUNAL FOR AY 2008-0 9. THE TRIBUNAL HAS UPHELD TNMM AS MAM FROM AY 2007-08 TO 2011-12. IN THOSE AYS THE DISPUTE WAS WHETHER TNMM OR CUP WAS THE MAM. IT IS FOR THE FIRST TIME IN AY 2013-14 THAT THE REVENUE HAS SOUGHT TO APPLY PSM AS MAM. IN THE GIVEN FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW T HAT TNM METHOD IS THE MOST APPROPRIATE METHOD AND THE AO IS DIRECTED TO A PPLY THE SAID METHOD IN DETERMINING THE ALP, AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS OF APPEAL OF THE ASSESSEE AR E TREATED AS ALLOWED. 19. THE FACTS IN AY 2014-15 ARE IDENTICAL AND THE R EASONING GIVEN IN AY 2013-14 WILL EQUALLY APPLY TO THE AY 2014-15 ALSO A ND THE TPO IS DIRECTED TO COMPUTE THE ALP FOR AY 2014-15 BY APPLYING TNMM AS THE MAM , AFTER AFFORDING DUE OPPORTUNITY TO THE ASSESSEE. 20. THE OTHER ISSUES WITH REGARD TO THE OBJECTIONS REGARDING THE MANNER IN WHICH ALP WAS DETERMINED BY APPLYING PSM AS THE MAM DOES NOT REQUIRE ANY ADJUDICATION BECAUSE OF THE CONCLUSION THAT TNMM IS THE MAM. 21. AS FAR AS AY 2013-14 IS CONCERNED, GROUND NO.12 RAISED BY THE ASSESSEE NEEDS TO BE ADJUDICATED AND THE SAME IS AS FOLLOWS:- IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 16 OF 19 II. CORPORATE TAX 12. DISALLOWANCE OF DEPRECIATION ON ASSETS PURCHASE D BY WAY OF SLUMP SALE I. THE LEARNED AO ERRED IN CONCLUDING THAT THE APPE LLANT HAS CLAIMED EXCESS CONSEQUENTIAL DEPRECIATION ON ASSETS PURCHASED BY WAY OF SLUMP SALE DURING THE FINANCIAL YEAR 2002-03 , AMOUNTING TO RS. 9,762,694. II. THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT V ALUE AS PER THE VALUATION REPORT HAS TO BE CONSIDERED FOR C APITALIZING THE ASSETS WHICH ARE PURCHASED ON A SLUMP SALE. III. THE LEARNED AO ERRED IN CONCLUDING THAT THE AS SESSEE HAS INFLATED THE VALUE OF ASSETS FOR THE PURPOSE OF CLA IMING DEPRECIATION. 22. THE ASSESSEE ACQUIRED THE AUTO COMPONENT BUSINE SS OF KIRLOSKAR SYSTEMS LIMITED ('KSL'), AS A GOING CONCERN ON A SL UMP SALE BASIS IN JUNE 2002, AS PER THE BUSINESS PURCHASE AGREEMENT DATED JUNE 26, 2002 FOR A CONSIDERATION OF RS. 1,349 MILLION. THE ACQUISITON INCLUDED ALL ASSETS RELATING TO THE AUTO COMPONENTS BUSINESS COMPRISING PROPERTY, PLANT AND MACHINERY, OTHER FIXTURES, BOOK DEBTS AND INTANGIBL E ASSETS. IN ORDER TO GIVE EFFECT TO PURCHASE IN THE BOOKS OF ACCOUNT, TH E ASSESSEE OBTAINED VALUATION REPORTS FOR THE PURPOSE OF DETERMINING VA LUE OF ASSETS ACQUIRED. TANGIBLE FIXED ASSETS INCLUDE LAND, FACTORY BUILDIN GS, PLANT AND MACHINERY, COMPUTERS, FURNITURE AND FIXTURES, OFFIC E EQUIPMENT. INTANGILBE ASSETS INCLUDE ALL BENEFIT OF SUBSISTING CONTRACTS AGREEMENTS, LICENSES, PERMITS, APPROVALS, CERTIFICATES, RENEWALS ISSUED BY THE GOVERNMENT, EMPLOYEES, COMPUTER APPLICATIONS, PROGRAMS INCLUDIN G OPERATING SOFTWARE, NETWORK SOFTWARE, FIRMWARE, MIDDLEWARE, SYSTEMS DOC UMENTATION, RIGHT TO USE TRADENAME OF KIRLOSKAR, COST INFORMATION, PRICI NG DATA, SUPPLIER RECORDS, CUSTOMER AND VENDOR DATA, PRODUCT LITERATURE, ARTWO RK, DESIGN, DEVELOPMENT IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 17 OF 19 AND MANUFACTURING FILES, VENDOR AND CUSTOMER DRAWIN GS, FORMULATIONS, SPECIFICATIONS, SURVEYS AND REPORTS. 23. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT THE SALE TRANSACTION BY KSL TO THE ASSESSEE HAS BEEN ACCEPTED AS SLUMP SALE IN THE HANDS OF KSL BY THE RESPECTIVE AO. KSL HAS OFFERED TO TAX INCOME FROM SUCH TRANSACTION AS INCOME FROM CAPITAL GAINS DURING THE ASSESSMENT YEAR 2003-04 AND COPY OF THE ORDER OF THIS TRIBUNAL IS FURNISHED. I T WAS FURTHER SUBMITTED THAT DEPRECIATION IS ADMISSIBLE ONLY ON ACTUAL COST. FOR THIS PURPOSE, IDENTIFICATION OF ACTUAL COST IN RESPECT OF DIFFERE NT ASSETS COMPRISED IN THE BUSINESS TAKEN OVER BY WAY OF SLUMP SALE IS REQUIRE D TO BE DONE ON A REASONABLE BASIS BY SPREADING OVER THE NET CONSIDER ATION AS BETWEEN DIFFERENT ASSETS. REFERENCE TO ACCOUNTING STANDARD 10 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WAS MAD E WHEREIN IT HAS BEEN STATED THAT WHERE SEVERAL ASSETS ARE PURCHASED FOR A CONSOLIDATED PRICE, THE CONSIDERATION SHOULD BE APPORTIONED TO VARIOUS ASSETS ON A FAIR BASIS AS DETERMINED BY THE COMPETENT VALUERS. ACCORDINGLY, T HE ASSESSEE HAS CONSIDERED VALUE OF ASSETS PURCHASED ON SLUMP SALE, BASED ON THE VALUATION DONE BY THE COMPETENT VALUER AND CLAIMED DEPRECIATION ON SUCH VALUE. SINCE IN AY 2002-03 IT WAS HELD THAT THE SA LE WAS NOT A SLUMP SALE, THE DEPRECIATION AS CLAIMED BY THE ASSESSEE WAS NOT ALLOWED. HOWEVER, IN AY 2002-03, THE ITAT IN THE ASSESSEES OWN CASE IN ITS ORDER DATED MAY 5, 2017 HAS HELD THAT THE ASPECT OF VALUATION WAS NOT EXAMINED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ACC ORDINGLY, REMANDED THE ISSUE OF VALUATION TO THE FILE OF THE LEARNED A O FOR FRESH VERIFICATION. THE AO HAS PASSED AN ORDER GIVING EFFECT TO THE ORDER O F THE ITAT ALLOWING THE CLAIM OF DEPRECIATION OF ASSETS ACQUIRED FROM KSL O N THE BASIS OF VALUATION REPORT OF THE ASSESSEE. IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 18 OF 19 24. AS FAR AS AY 2013-14 IS CONCERNED, IN THE FINAL ASSESSMENT ORDER DATED JULY 7, 2017 PASSED FOR AY 2013-14, THE AO D ISALLOWED EXCESS DEPRECIATION OF RS. 9,762,694, BEING THE DIFFERENCE BETWEEN DEPRECIATION ON VALUE OF ASSETS AS PER VALUATION REPORT AND DEPR ECIATION ON WDV IN THE HANDS OF KSL. THIS IS BECAUSE THE ISSUE OF DEPRECI ATION HAD NOT ATTAINED FINALITY IN AY 2003-04 THE YEAR OF SLUMP SALE. NOW THAT THE ISSUE HAS BEEN RESOLVED, THE DRP HAS ALREADY GIVEN A DIRECTION ON THIS ISSUE BY HOLDING THAT THE ISSUE IS CONSEQUENTIAL TO THE ORDER FOR AY 2003-04 AND THE AO IS DIRECTED TO GIVE CONSEQUENTIAL EFFECT BASED ON THE DECISION RENDERED IN AY 2003-04. NOW THAT THE TRIBUNAL IN AY 2003-04 HAS A LREADY APPROVED THE VALUE AT WHICH THE ASSETS WERE CAPITALIZED IN THE B OOKS OF ACCOUNT, THE DEPRECIATION AS CLAIMED BY THE ASSESSEE HAS TO BE A LLOWED. 25. IN VIEW OF THE ABOVE, THE ADDITION MADE IN THE PRESENT ASSESSMENT YEAR CANNOT BE SUSTAINED AND ACCORDINGLY THE SAME I S DIRECTED TO BE DELETED. 26. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF MARCH, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 18 TH MARCH, 2020. / DESAI S MURTHY / IT(TP)A NOS.1915/BANG/2017 & 3377/BANG/2018 PAGE 19 OF 19 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.