GRINDWELL NORTON LTD, MUMBAI V. DCIT (OSD)-1, MUMBAI

ITA 3589/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1736 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 24-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AKRAM KHAN SHRI M V RAJGUNI
• Keywords: Depreciation; Transfer pricing; International transaction; Fair market value; Valuation report
• Section: 92B; 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI B. R. BASKARAN , AM AND SHRI AMARJIT SINGH , JM / I .T.A. NO. 3589 / M/ 20 1 6 ( / ASSESSMENT YEAR: 20 10 - 1 1 ) GRINDWELL NORTON LTD. KALYANIWALLA & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148 M.G. ROAD, FORT, MUMBAI - 400001. / VS. DCIT (OSD) - 1 ROOM NO.579, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AAACG 8752 B ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 01 .0 6 .201 8 / DATE OF PRONOUNCEMENT : . 3 0.08. 2 018 / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 29 . 0 2 .201 6 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 56 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 10 - 11 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. BO TH THE LOWER AUTHORITIES ERRED IN HOLDING THAT THE APPELLANT WAS NOT ENTITLED TO DEPRECIATION U/S 32 IN RESPECT OF THE FOLLOWING INTANGIBLE ASSETS: ASSESSEE BY: MR. AKRAM KHAN DEPARTMENT BY: SHRI M. V. RAJGUNI (SR. DR) ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 2 ASSETS DEPRECIATION (RS.) TRADEMARKS 21,51,032/ - TECHNICAL KNOWHOW 43,59,391/ - GOODWIL 53,71,805/ - MARKETING NETWORK 32,78,934/ - NON - COMPETE RIGHTS 49,65,586/ - TOTAL DEPRECIATION 2,01,26,748/ - BOTH THE LOWER AUTHORITIES ERRED IN RELYING ON THE CIT(A) ORDER FOR THE ASSESSMENT YEAR 2007 - O8, WHICH WERE ERRONEOUS AS THEY CONTAIN SEVERAL FINDING WHICH ARE IRRELEVANT OR INCORRECT FOR DISALLOWING DEPRECIATION U/S 32. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN HOLDING THAT DEPRECIATION IS ALLOWABLE ONLY ON THOSE INTANGIBLE ASSETS WHICH ARE PROTECTED RIGHTS. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN HOLDING THAT DEPRECIATION IS AVAILABLE UNDER SECTION 32 ONLY IN RESPECT OF A 'REGISTERED TRADE MARK' OR 'PATENTED KNOW HOW''. BOTH THE LOWER AUTHORITIES ERRED IN NOT FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V, SMIFS SECURITIES LTD. (348 1TR 302). HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO ALLOW DEPRECIATION UNDER SECTION 32 AMOUNTING TO RS.2,01.26,748/ - ON THE INTANGIBLE ASSETS REFERR ED TO ABOVE. WITHOUT PREJUDICE TO ALL THE FOREGOING GROUNDS, AND IN THE ALTERNATIVE, EVEN IF IT WERE TO BE HELD THAT THE APPELLANT DID NOT ACQUIRE ANY VALUABLE INTANGIBLE ASSET FROM ORIENT ABRASIVES LTD., THE AMOUNT OF RS.16.47,50,000/ - PAID BY THE APPELLA NT OVER AND ABOVE THE VALUE OF NET TANGIBLE ACQUIRED, IS AN INTANGIBLE ASSET IN THE NATURE OF GOODWILL AND DEPRECIATION IS ALLOWABLE ON THE SAME UNDER SECTION 32 OF THE INCOME - TAX ACT. THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN HOLDING THAT THE ARM' S LENGTH PRICE OF THE FINANCIAL GUARANTEE GIVEN BY ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 3 THE APPELLANT ON BEHALF OF IT ASSOCIATED ENTERPRISE, SAINT GOBAIN CERAMIC MATERIAL BHUTAN PVT. LTD., BHUTAN WAS 2% PER ANNUM AND THEREFORE ERRED IN PARTLY CONFIRMING THE TRANSFER PRICING ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER. THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN RELYING ON THE GUARANTEE COMMISSION RATE OF 2% PER ANNUM PRESCRIBED UNDER THE SAFE HARBOUR RULE 101D OF THE INCOME - TAX RULES, 1962, FOR BENCHMARKING THE TRANSACTION OF FINANCI AL GUARANTEE GIVEN BY THE APPELLANT ON BEHALF OF ITS ASSOCIATED ENTERPRISE. THE TRANSFER PRICING OFFICER / COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN REJECTING THE APPELLANT'S CONTENTION THAT GIVING OF FINANCIAL GUARANTEE ON BEHALF OF AN ASSOCIATED ENTE RPRISE/SUBSIDIARY WAS NOT AN INTERNATIONAL TRANSACTION U/S 92B OF THE INCOME - TAX ACT. THE TRANSFER PRICING OFFICER/COMMISSIONER OF INCOME - TAX (A) OUGHT TO HAVE APPRECIATED THAT GIVING OF FINANCIAL GUARANTEE BY THE APPELLANT ON BEHALF OF ITS SUBSIDIARY WA S A SHAREHOLDER ACTIVITY FOR WHICH NO CHARGE IS REQUIRED. THE TRANSFER PRICING OFFICER/CIT(A) ERRED IN LAW AND IN FACTS IN REJECTING THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT IN RESPECT OF THE GUARANTEE COMMISSION. 3 . THE BRIEF FACTS OF THE CASE ARE THAT T HE AO HAS DETERMINED THE TOTAL INCOME OF THE APPELLANT TO THE TUNE OF RS.98,98,50,280/ - AS AGAINST RS.96,87,58,762/ - RETURNED BY THE APPELLANT BY DISALLOWING DEPRECIATION OF RS.2,01,26,748/ - ON INTANGIBLE ASSETS AND INTEREST OF RS.1,15,177/ - U/S 14A R.W. RULE 8D OF THE ACT. FURTHER, A TRANSFER PRICING ADJUSTMENT OF RS.8,49,589/ - IN RESPECT OF CORPORATE GUARANTEE GIVEN BY THE APPELLANT ON BEHALF OF ITS AE M/S. SAINT GOBAIN CERAMIC MATERIAL BHUTAN PVT. LTD., BHUTAN. THE ASSESSEE WAS NOT SATISFI ED. THEREFORE, FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 4 CONFIRMED THE DISALLOWANCE OF DEPRECIATION OF RS. 2,01,26,748/ - AND ALSO CONFIRMED THE TRANSFER PRICING ADJUSTMENT OF RS.8,49,589/ - IN RESPECT OF CORPORATE GUARANTEE GIVEN BY THE APPELLANT ON B EHALF OF ITS AE M/S.SAINT GOBAIN CERAMIC M ATERIAL BHUTAN PVT. LTD., BHUTAN. AGGRIEVED BY SAID ORDER , THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. ISSUE NO. 1 & 7 : - 4 . UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF DISALLOWANCE ON DEPRECIATION OF RS. 2,01,26,748/ - ON INTANGIBLE ASSETS. THE ASSESSEE HAS CLAIMED THE DEPRECIATION U/S 32 OF THE ACT IN RESPECT OF THE FOLLOWING INTANGIBLE ASSETS.: - ASSETS DEPRECIATION (RS.) TRADEMARKS 21,51,032/ - TECHNICAL KNOWHOW 43,59,391/ - GOODWIL L 5 3,71,805/ - MARKETING NETWORK 32,78,934/ - NON - COMPETE RIGHTS 49,65,586/ - TOTAL DEPRECIATION 2,01,26,748/ - 5. AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE HONBLE ITAT IN THE ASSESSEES OWN CASE BEARING NO. ITA. NOS. 528/M/ 2012 & 5800/M/2013 FOR THE A.Y. 2007 - 08 & 2008 - 09 RESPECTIVELY HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 5 THEREFORE IN THE SAID CIRCUMSTANCES THE CLAIM OF THE ASSESSEE IS LIABLE TO BE ALLOWED . COPY OF ORDER IN ITA NOS.528/M/2012 & 5800/M/2013 F OR THE A.Y.2007 - 08 & 2008 - 09 IS ON THE FILE AND ON APPRAISAL OF THE SAID ORDER WE FIND THAT THE SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THE CLAIM OF THE DEPRECIATION ON INTANGIBLE ASSETS HAS BEEN ALLOWED. BEFORE GOING FURTHER WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE HONBLE ITAT IN THIS REGARD ON RECORD.: - 5.7. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AND JUDGMENTS RELIED UPON BEFORE US. THE SOLITARY ISSUE INVOLVED HERE IS ABOUT THE ALLOWABILITY OF THE DEPREC IATION ON THE AMOUNT OF INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE AS PART OF DEAL OF ACQUISITION OF GRINDING WHEEL BUSINESS OF OAL 20 GRINDWELL NORTON LTD. IN TERMS OF THE BUSINESS TRANSFER AGREEMENT DATED 18.04.2006 ENTERED BY THE ASSESSEE WITH THE SAID COMPANY. IT IS NOTED BY US THAT FROM THE PERUSAL OF THE BUSINESS AGREEMENT ENCLOSED AT PAPER BOOK NO. 27 TO 87 THAT ASSESSEE ACQUIRED GRINDING WHEEL BUSINESS OF OAL ALONG WITH ITS TANGIBLE AND INTANGIBLE ASSETS INCLUDING GOODWILL, INTELLECTUAL PROPERTY RIG HTS E.G. PATENTS, COPYRIGHTS, PAST AND PRESENT R & D WORKS, BRANDS, TRADEMARK, SERVICE MARKS, REGISTERED DESIGN ETC. AND ALL OTHER RIGHTS AVAILABLE TO PREVENT THE MISUSE OR DISCLOSURE OF TRADE SECRETS. THE ASSESSEE ALSO SUBMITTED VALUATION REPORT FROM M/S. ANMOL SEKHRI AND ASSOCIATES, THE REGISTERED VALUERS (ENCLOSED AT PAGE NO. 10 TO 192 OF THE PAPER BOOK) FOR ASCERTAINING VALUATION OF THE BUSINESS GIVING VALUES OF EACH AND EVERY FIXED ASSETS AND OTHER INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE UNDER THE A FORESAID DEAL. IT IS NOTED BY US THAT THE LOWER AUTHORITIES HAVE GRANTED THE BENEFIT OF DEPRECIATION ON THE AMOUNT OF FIXED ASSETS ACQUIRED I.E. PLANT AND MACHINERY ETC. THUS, GENUINENESS OF TRANSACTION HAS NOT BEEN DOUBTED, BUT WHAT HAS BEEN DOUBTED MEREL Y IS THE VALUATION OF INTANGIBLE ASSETS ACQUIRED UNDER THE DEAL. IT IS TO BE NOTED HERE THAT FACTUM OF ACQUISITION OF INTANGIBLE ASSETS HAS ALSO NOT BEEN DISPUTED. THUS, UNDER THESE CIRCUMSTANCES, CASE MADE OUT BY THE LOWER AUTHORITIES IS THAT THE AMOUNT PAID BY THE ASSESSEE FOR ITS BUSINESS IS MORE THAN THE APPROPRIATE VALUE OF ITS INTANGIBLE ASSETS. THE ASSESSEE HAS ALSO ADMITTED THIS POSITION THAT THE ASSESSEE HAS PAID AN AMOUNT WHICH IS MORE THAN THE AMOUNT OF ITS TANGIBLE ASSETS BECAUSE OF NUMEROUS I NTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE WHICH WERE QUITE ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 6 VALUABLE IN THE OPINION OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE CAN SAY THAT SINCE THE ASSESSEE HAD PURCHASED THE GRINDING WHEEL BUSINESS FROM OAL AS A GOING CONCERN, THEREFORE, AMOUNT OF CO NSIDERATION PAID IN EXCESS OF VALUE OF TANGIBLE ASSETS WOULD BE ACCOUNTED FOR IN ITS BOOKS OF ACCOUNTS AS GOODWILL. UNDER THESE CIRCUMSTANCES, NO FURTHER EXERCISE WOULD BE REQUIRED TO MAKE PRECISE VALUATION OF THE AMOUNT OF GOODWILL. THERE ARE NO DOUBT S ABOUT THE LEGAL POSITION THAT AS PER LAW, THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON THE AMOUNT OF GOODWILL. IT IS WORTH NOTING THAT THIS LEGAL POSITION HAS BEEN ACCEPTED BY LD. CIT(A) IN THE SUBSEQUENT YEAR I.E. A.Y. 2008 - 09 WHEREIN CLAIM OF DEPR ECIATION ON GOODWILL WAS ACCEPTED AND ORDER OF CIT(A) HAS BEEN ACCEPTED BY THE REVENUE ALSO AS NO APPEAL HAS BEEN FILED AGAINST THE SAID DECISION. OUR VIEW FINDS SUPPORT FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF TRIUNE ENERGY SERVICES PR IVATE LIMITED V. DCIT 65 TAXMANN.COM 288(DELHI) WHEREIN IDENTICAL ISSUE WAS INVOLVED, IN SIMILAR FACTS AND CIRCUMSTANCES. HONBLE DELHI HIGH COURT RELIED UPON THE JUDGMENT OF APEX COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. (348 ITR 302) AND HELD AS UNDER: GOODWILL IS AN INTANGIBLE ASSET PROVIDING A COMPETITIVE ADVANTAGE TO AN ENTITY. THIS INCLUDES A STRONG BRAND, REPUTATION, A COHESIVE HUMAN RESOURCE, DEALER NETWORK, CUSTOMER BASE, ETC. THE EXPRESSION 'GOODWILL' SUBSUMES WITHIN IT A VARIETY OF INTA NGIBLE BENEFITS THAT ARE ACQUIRED WHEN A PERSON ACQUIRES A BUSINESS OF ANOTHER AS A GOING CONCERN. FROM AN ACCOUNTING PERSPECTIVE, IT IS WELL ESTABLISHED THAT 'GOODWILL' IS AN INTANGIBLE ASSET, WHICH IS REQUIRED TO. BE ACCOUNTED FOR WHEN A PURCHASER ACQUIR ES A BUSINESS AS A GOING CONCERN BY PAYING MORE THAN THE FAIR MARKET VALUE OF THE NET TANGIBLE ASSET, THAT IS, ASSETS LESS LIABILITIES. THE DIFFERENCE IN THE PURCHASE CONSIDERATION AND THE NET VALUE OF ASSETS AND LIABILITIES IS ATTRIBUTABLE TO THE COMMERCI AL BENEFIT THAT IS ACQUIRED BY THE PURCHASER. SUCH GOODWILL IS ALSO COMMONLY UNDERSTOOD AS THE VALUE OF THE WHOLE UNDERTAKING LESS THE SUM TOTAL OF ITS PARTS. THE 'FINANCIAL REPORTING STANDARD 10' ISSUED BY ACCOUNTING STANDARD BOARD WHICH IS APPLICABLE IN UNITED KINGDOM AND BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF IRELAND IN RESPECT OF ITS APPLICATION IN THE REPUBLIC OF IRELAND, EXPLAINS THAT THE ACCOUNTING REQUIREMENTS FOR GOODWILL REFLECT THE VIEW THAT GOODWILL ARISING ON AN ACQUISITION IS NEITHER AN ASSET LIKE OTHER ASSETS NOR AN IMMEDIATE LOSS IN VALUE. RATHER, IT FORMS THE BRIDGE BETWEEN THE COST OF AN INVESTMENT SHOWN AS AN ASSET IN THE ACQUIRER'S OWN FINANCIAL STATEMENTS AND THE VALUES ATTRIBUTED TO THE ACQUIRED ASSETS AND LIABILITIES IN THE CONSO LIDATED FINANCIAL STATEMENTS. IN VIEW OF ACCOUNTING STANDARD 10 AS ISSUED BY THE [CAI THE ASSESSEE'S CONTENTION WAS RIGHT THAT THE CONSIDERATION PAID BY THE ASSESSEE IN EXCESS OF VALUE OF TANGIBLE ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 7 ASSETS WAS RIGHTLY CLASSIFIED AS GOODWILL. IN THE FACTS OF THE PRESENT CASE, THE TRIBUNAL HAS REJECTED THE VIEW THAT THE SLUMP SALE AGREEMENT WAS A COLOURABLE DEVICE. ONCE HAVING HELD SO, THE AGREEMENT BETWEEN THE PARTIES MUST BE ACCEPTED IN ITS TOTALITY. THE AGREEMENT ITSELF DOES NOT PROVIDE FOR SPLITTING UP OF T HE INTANGIBLES INTO SEPARATE COMPONENTS. INDISPUTABLY, THE TRANSACTION IN QUESTION IS A SLUMP SALE WHICH DOES NOT CONTEMPLATE SEPARATE VALUES TO BE ASCRIBED TO VARIOUS ASSETS (TANGIBLE AND INTANGIBLE) THAT CONSTITUTE THE BUSINESS UNDERTAKING, WHICH IS SOLD AND PURCHASED. THE AGREEMENT ITSELF INDICATES THAT SLUMP SALE INCLUDED SALE OF GOODWILL AND THE BALANCE SHEET SPECIFICALLY RECORDED GOODWILL AT RS. 40.58 CRORE. GOODWILL INCLUDES A HOST OF INTANGIBLE ASSETS, WHICH A PERSON ACQUIRES, ON ACQUIRING A BUSINES S AS A GOING CONCERN AND VALUING THE SAME AT THE EXCESS CONSIDERATION PAID OVER AND ABOVE THE VALUE OF NET TANGIBLE ASSETS IS AN ACCEPTABLE ACCOUNTINPRACTICE. 23 GRINDWELL NORTON LTD. THUS, A FURTHER EXERCISE TO VALUE THE GOODWILL IS NOT WARRANTED. 5.8. I N THE CASE BEFORE US ALSO THE FACTS ARE IDENTICAL. THE GRINDING WHEEL BUSINESS HAS BEEN ACQUIRED UNDER A SLUMP SALE, UNDER A BUSINESS TRANSFER AGREEMENT WITH OAL. THE SAID AGREEMENT HAS NOT BEEN HELD TO BE BOGUS OR SHAM. IT CAN NEITHER BE REWRITTEN OR NOR HAS BEEN WRITTEN BY THE LOWER AUTHORITIES. THE AO HAD MADE DIRECT INQUIRIES WITH OAL WHEREIN IT WAS CONFIRMED THAT THE ASSESSEE HAD PAID SALES CONSIDERATION AS PER THE TERMS OF THE AGREEMENT AND THE TANGIBLE ASSETS WERE ACQUIRED AS STATED IN THE SAID AGREE MENT AND ACCEPTED BY THE AO AND DEPRECIATION WAS ALLOWED ON THE SAME AS PER FACTS BROUGHT BEFORE US. UNDER THESE CIRCUMSTANCES, ANY AMOUNT OF CONSIDERATION PAID OVER AND ABOVE THE VALUE OF TANGIBLE ASSETS WOULD BE CLASSIFIED AS AMOUNT OF GOODWILL ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEPRECIATION IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS SMIFS SECURITIES LTD,(SUPRA). SIMILAR VIEW HAS BEEN TAKEN BY HONBLE PUNE BENCH IN THE CASE OF COSMOS CO - OP BANK LTD. V. DCIT (64 SOT 90) AND COORDINATE BENCH OF MUMBAI IN THE CASE OF DCIT VS. WORLDWIDE MEDIA PVT LTD 153 ITD 162. IT IS FURTHER NOTED BY US THAT DELHI BENCH OF ITAT IN THE CASE OF THYSSENKRUP ELEVATOR (INDIA) PVT. LTD. V. ACIT 167 TTJ 131 ALSO HELD THAT WHERE THE ASSESSEE HAD ACQU IRED BUSINESS OF ANOTHER COMPANY ON SLUMP SALE BASIS, EXCESS CONSIDERATION PAID BY IT OVER AND ABOVE THE VALUE OF NET ASSET ACQUIRED, WAS TO BE CONSIDERED AS GOODWILL U/S 32(1)(II) WHICH WAS ELIGIBLE FOR DEPRECIATION.. 5.9. IN ADDITION TO THE ABOVE, ON FAC TS ALSO, IT IS NOTED BY US THAT THE ASSESSEE BROUGHT ON RECORD AMPLE EVIDENCES IN SUPPORT OF ITS CLAIM TO JUSTIFY THE ACQUISITION OF VARIOUS OTHER INTANGIBLE ASSETS AND THE JUSTIFICATION OF THEIR VALUATION AS WELL AS ADMISSIBILITY OF DEPRECIATION ON THESE ASSETS. IT IS NOTED THAT THE BUSINESS TRANSFER AGREEMENT WAS QUITE EXHAUSTIVE HAVING ELABORATE ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 8 SCHEDULES AND ANNEXURES CONTAINING ITEM WISE DESCRIPTION OF EACH AND EVERY TANGIBLE AND INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE. THE ASSESSEE ACQUIRED ENTIRE PLANT AND MACHINERY, VARIOUS TRADEMARKS, COMMERCIAL LIST OF CUSTOMERS AND DEALERS, ENTIRE DATA AND INFORMATION IN RELATION TO SALES AND DISTRIBUTION NETWORK, OF TECHNICAL KNOW - HOW, GOODWILL OF GRINDING WHEEL BUSINESS, RIGHTS OF NONCOMPETITION ETC WERE DESC RIBED IN THE SAID AGREEMENT. IT IS FURTHER NOTED THAT PROPER BREAK - UP AND JUSTIFICATION FOR THE CONSIDERATION HAS BEEN NARRATED IN THE SAID AGREEMENT. THE SAID AGREEMENT ALSO CONTAINS LISTS OF EMPLOYEES OF OAL TO BE TAKEN - OVER BY THE ASSESSEE COMPANY. IT A LSO CONTAINING THE LIST OF TRADEMARKS, PARTICULARS OF GOODWILL OF BUSINESS OF THE OAL IN THE FORM OF BUSINESS DATA, CUSTOMER DETAILS, SPECIFICATIONS AND QUALITY REQUIREMENT FOR THE PRODUCTS, TRADE SECRETS AND OTHER CONFIDENTIAL INFORMATION, SOFTWARE PROCES S AND SIMILAR OTHER INTANGIBLE ASSETS. THERE WAS A PROPER VALUATION REPORT SPECIFYING SEPARATE VALUE OF EACH AND EVERY ASSET OF TANGIBLE OR INTANGIBLE NATURE. IT IS ALSO NOTED THAT THE AO MADE DIRECT INQUIRIES WITH OAL IN RESPONSE TO WHICH PROPER REPLY WAS GIVEN BY THE OAL CONFIRMING THE TRANSACTIONS. THE OAL SUBMITTED LETTER DATED 21.02.2009 TO THE AO WHEREIN IT WAS 25 INTER ALIA CONFIRMED THAT THE SAID COMPANY TRANSFERRED ITS ABRASIVE DIVISION SITUATED AT BHIWADI (RAJASTHAN) TO THE ASSESSEE COMPANY FOR A TOTAL CONSIDERATION OF RS.26.17 CRORES. IT IS ALSO BROUGHT TO OUR NOTICE THAT SUBSEQUENT TO THE TAKEOVER, THE ASSESSEE COMPANY FILED PETITIONS WITH THE CONCERNED DEPARTMENTS FOR REGISTRATION OF TRADEMARKS IN THE NAME OF ASSESSEE COMPANY. IT IS FURTHER NOTE D BY US FROM THE PERUSAL OF THE ORDER OF LD. CIT(A) WHEREIN IT HAS BEEN ACCEPTED THAT THE ASSESSEE HAD PRODUCED BEFORE HIM (I.E. CIT(A)) MORE THAN 26 FILES CONTAINING EVIDENCES WITH REGARD TO ACQUISITION OF TECHNICAL KNOW - HOW. UNDER THESE CIRCUMSTANCES, WE FIND THAT THERE WAS NO BASIS WITH THE LOWER AUTHORITIES TO HOLD THAT NO INTANGIBLE ASSETS WERE ACQUIRED BY THE ASSESSEE. THUS, VIEWED FROM ANY ANGLE, THE ASSESSEE IS ELIGIBLE FOR THE CLAIM OF DEPRECIATION U/S 32(1)(II) ON THE AMOUNT OF INTANGIBLE ASSETS A CQUIRED BY IT AS PER BUSINESS TRANSFER AGREEMENT, AND THUS ACTION OF LOWER AUTHORITIES WAS NOT FACTUALLY OR LEGALLY JUSTIFIED WHILE MAKING DISALLOWANCE OF THE DEPRECIATION ON THE INTANGIBLE ASSETS. THE AO IS DIRECTED TO GRANT THE BENEFIT OF DEPRECIATION IN TERMS OF SECTION 32(1)(II) UPON THE INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE. THUS, THESE GROUNDS ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 6. SINCE THE ISSUE IN QUESTION HAS DULY BEEN COVERED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007 - 08 & 2009 - ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 9 09 IN ITA. NOS. 528/M/2012 & 5800/M/2013 DATED 27.07.2016, THEREFORE, WE ALLOWED THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO. 8 & 1 2 : - 7. UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF TRANSFER PRICING ADJUSTMENT OF RS. 8,49,589/ - IN RESPECT OF CORPORATE GUARANTEE GIVEN BY APPELLANT ON BEHALF OF IT S AE M/S. SAINT GOBAIN CERAMIC MATERIAL BHUTAN PVT. LTD., BHUTAN. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE THESE ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE BY THE HONBLE ITAT IN ITA. NO. 523/M/2014 DATED 30.09.2016 , THEREFORE, IN THIS CONNECTION THE CLAIM OF THE ASSES SEE IS LIABLE TO BE ALLOWED. COPY OF ORDER DATED 30.09.2016 IN THE ASSESSEES OWN CASE IS ON THE FILE. ACCORDINGLY, THE MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY THE HONBLE ITAT IN FAVOUR OF THE ASSESSEE IN THE ABOVE MENTIONED APPEAL . THE RELEVANT FI NDING HAS BEEN GIVEN IN PARA NO. 22 TO 24 WHICH ARE HEREBY REPRODUCED BELOW.: - 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE PRESENT CASE, AE OF THE ASSESSEE, M/S. SAINT - GOBAIN CERAMIC MATERIALS BHUTAN PVT. LTD., WHICH IS BASED IN BHUTAN , RAISED A TERM LOAN FROM BANK OF BHUTAN LTD., BHUTAN IN THE MONTH OF JANUARY, 2009 AND THE AMOUNT OUTSTANDING AS ON 31 ST MARCH WAS RS. 6,29,32,450/ - . THE ASSESSEE - COMPANY PROVIDED CORPORATE GUARANTEE TO THE BANK OF BHUTAN IN CONNECTION WITH THE SAID BORR OWING ON BEHALF OF ITS AE. THE PROVISION OF SUCH CORPORATE GUARANTEE IS QUITE WELL UNDERSTOOD AND IT MEANS THAT IF THE AE ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 10 WAS TO DEFAULT IN THE REPAYMENT OF LOAN AVAILED FROM THE BANK, ASSESSEE WOULD STEP IN AND MAKE GOOD THE DUES OWNED TO THE BANK. THE ASSESSEE - COMPANY HAS CHARGED CORPORATE GUARANTEE FEE @ 1% FROM ITS AE AND SUCH TRANSACTION HAS BEEN CONSIDERED AS AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SEC. 92B OF THE ACT. ACCORDINGLY, THE ARMS LENGTH PRICE OF SUCH TRANSACTION HAS BEEN DE TERMINED BY THE TPO AT 3.35%, WHICH HAS RESULTED IN ENHANCEMENT OF ASSESSEES INCOME BY A SUM OF RS. 2,12,937/ - . THE ISSUE BEFORE US IS RESTRICTED TO WHETHER THE ARMS LENGTH RATE OF THE CORPORATE GUARANTEE IS TO BE TAKEN AT 1%, WHICH HAS BEEN CHARGED BY THE ASSESSEE, OR THE RATE OF 3.35% DETERMINED BY THE INCOME - TAX AUTHORITIES. 23. NOTABLY, THE TPO HAS BENCHMARKED THE INSTANT TRANSACTION OF PROVISION OF CORPORATE GUARANTEE ON THE BASIS OF RESPECTIVE ABILITIES OF THE ASSESSEE AND AE TO RAISE BONDS IN THE INDIAN DOMESTIC MARKET. THE TPO ASSERTED THAT BASED ON THE DEBT - EQUITY RATIO THE CREDIT RATING OF THE ASSESSEE - COMPANY WAS HIGHER IN COMPARISON TO THAT OF THE AE AND, THEREFORE, THE RATE OF INTEREST PAYABLE BY THE AE TO RAISE BONDS IN THE INDIAN MARKET WOULD BE HIGHER THAN THE RATE PAYABLE BY THE ASSESSEE - COMPANY. SUCH DIFFERENTIAL H AS BEEN USED TO DETERMINE THE CORPORATE GUARANTEE FEE THAT SHOULD HAVE BEEN CHARGED BY THE ASSESSEE - COMPANY FROM ITS AE SO AS TO DETERMINE THE ARMS LENGTH PRICE OF THE INSTANT TRANSACTION. IN OUR CONSIDERED OPINION, THE AFORESAID APPROACH OF THE TPO IS C LEARLY INCONSISTENT WITH THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF EVEREST KANTO CYLINDER LTD. (SUPRA). NOTABLY, IN THE CASE OF EVEREST KANTO CYLINDER LTD. (SUPRA), THE DISPUTE WAS RELATING TO THE ADJUSTMENT MADE BY THE TPO IN TH E MATTER OF GUARANTEE COMMISSION EARNED FOR PROVIDING A CORPORATE GUARANTEE TO THE BANK IN CONNECTION WITH THE BORROWINGS MADE BY THE AE OF THE ASSESSEE THEREIN. THE TPO DETERMINED THE ARMS LENGTH PRICE OF SUCH TRANSACTION BASED ON THE INSTANCES OF COMME RCIAL BANKS PROVIDING GUARANTEE ON BEHALF OF THEIR CLIENTS. THE HON'BLE HIGH COURT HELD THAT THE CONSIDERATIONS WHICH APPLY FOR ISSUANCE OF CORPORATE GUARANTEE WERE DISTINCT AND SEPARATE FROM THAT OF GUARANTEE PROVIDED BY THE BANKS AND, THEREFORE, THE TWO TRANSACTIONS WERE INCOMPARABLE. IN OUR CONSIDERED OPINION, SIMILAR PARITY OF REASONING IS APPLICABLE IN ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 11 THE PRESENT CASE TOO BECAUSE THE CONSIDERATIONS WHICH WEIGH FOR RAISING OF BONDS, THAT TOO IN INDIAN MARKET, ARE QUITE DISTINCT AND INCOMPARABLE WITH THE INSTANCE OF PROVIDING OF CORPORATE GUARANTEE TO A BANK ABROAD IN CONNECTION WITH RAISING OF LOAN FROM SUCH BANK BY THE AE OF ASSESSEE OUTSIDE INDIA. THEREFORE, IN OUR CONSIDERED OPINION, THE EXERCISE CARRIED OUT BY THE TPO TO ARRIVE AT THE ARMS LENGT H RATE OF 3.35% SUFFERS FROM AN INHERENT MISCONCEPTION AS THE BENCHMARKING HAS BEEN DONE BETWEEN TWO INCOMPARABLE SITUATIONS. THEREFORE, WE ARE UNABLE TO UPHOLD THE SAID STAND OF THE INCOME - TAX AUTHORITIES. 24. INSOFAR AS THE ADEQUACY OF 1% RATE CHARGED BY THE ASSESSEE IS CONCERNED, WE FIND ENOUGH REASONABLENESS IN THE SAME. IN THIS CONTEXT, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO VARIOUS DECISIONS OF THE TRIBUNAL, VIZ., HINDALCO INDUSTRIES LTD. V. ACIT (62 TAXMANN.COM 181) (MUM TRIB.), T HOMAS COOK (INDIA) LTD. V. ACIT (69 TAXMANN.COM 443) (MUM TRIB.) AND GODREJ CONSUMER PRODUCTS LTD. V ACIT (69 TAXMANN.COM 436) (MUM TRIB.), WHEREIN THE ARMS LENGTH RATE OF 0.5% HAS BEEN APPROVED IN THE MATTER OF BENCHMARKING GUARANTEE COMMISSION FEE CHARG EABLE FROM ASSOCIATED ENTERPRISES. ON THIS ASPECT, WE MAY OBSERVE THAT EACH CASE WOULD HAVE TO BE DECIDED IN THE LIGHT OF THE PREVAILING FACTS AND CIRCUMSTANCES. IN THE PRESENT CASE, A POINT WHICH HAS BEEN CONSISTENTLY MADE BY ASSESSEE IS TO THE EFFECT T HAT THERE IS NO CONCEPT OF CREDIT RATING IN BHUTAN AND THAT THE BANKS CHARGE A UNIFORM RATE OF INTEREST ON THE TERM LOANS, WHICH IS 12%. SECONDLY, IT IS POINTED OUT WITH REFERENCE TO THE BALANCE - SHEET OF AE THAT IT HAS ADEQUATE DEBT - EQUITY RATIO TO RAISE SUCH LOAN FROM THE BANK OF BHUTAN. IN FACT, IT HAS ALSO BEEN POINTED OUT, AND WHICH IS REFLECTED FROM THE NOTES IN THE BALANCE - SHEET OF AE, THAT THE CORPORATE GUARANTEE HAS BEEN ADVANCED BY THE ASSESSEE - COMPANY ONLY FOR 35% OF THE SANCTIONED LOAN. UNDER THESE CIRCUMSTANCES, IT CAN BE SAFELY INFERRED THAT PROVIDING OF CORPORATE GUARANTEE WAS NOT A CRITICAL MASS, WHICH ENABLED THE AE TO RAISE TERM LOAN FROM BANK OF BHUTAN LTD. MOREOVER, THE SAVINGS TO THE ASSESSEE - COMPANY IN THE SHAPE OF LOWER PRODUCTION COSTS ON PROCUREMENT OF MATERIAL FROM THE AE IS ALSO A RELEVANT FACTOR. THUS, CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, CORPORATE GUARANTEE FEE ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 12 CHARGED BY THE ASSESSEE @ 1% IS WELL - FOUNDED AND DOES NOT REQUIRE ANY TRANSFER PRICING ADJUSTMENT. THUS, WE SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.2,12,937/ - . THUS, GROUNDS OF APPEAL NO. 13 & 14 ARE ALLOWED. 8. SINCE THE ISSUES HAS BEEN SQUARELY COVERED BY THE DECISION OF HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10 IN ITA. NO.523/M/2014. THEREFORE, IN THE SAID CIRCUMSTANCES, WE ALLOWED THE CLAIM OF THE ASSESSEE AND DELETE THE ADDITION. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 9 . IN THE RESULT , THE APPEA L OF THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30.08. 2018 . SD/ - SD/ - ( B.R. BASKARAN ) ( AMARJIT SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED : 30.08 . 201 8 . V IJAY ITA. NO.3589/ M/201 6 A.Y. 2010 - 11 13 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT, MUMBAI