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

ITA 5637/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8504 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 01-03-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 15-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Additional evidence; Wholly owned subsidiary; Fair market value; Valuation report; Non passing of speaking order; Revenue expenditure
• Section: 92C; 43B; 143(3); 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.5637/MUM/2015 (ASSESSMENT YEAR 2011-12) M/S.HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LIMITED, B-WING, LIGHTHALL, HIRANANDANI BUSINESS PARK, SAKI VIHAR ROAD, MUMBAI 400 072 PAN: AAACH9149J ...... APPELLANT VS. THE DCIT, 10(1)(1), MUMBAI. .... RESPOND ENT ITA NO.382/MUM/2016 (ASSESSMENT YEAR 2011-12) THE DCIT, 10(1)(1), MUMBAI. ..... APPELLANT VS. M/S.HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LIMITED, B-WING, LIGHTHALL, HIRANANDANI BUSINESS PARK, SAKI VIHAR ROAD, MUMBAI 400 072 PAN: AAACH9149J ...... APPELLANT ASSESSEE BY : SHRI S.N.SOPARKAR REVENUE BY : SHRI N.K.CHAND DATE OF HEARING : 27/01/2017 DATE OF PRONOUNCEMENT : 31/01/2017 2 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) ORDER PER G.S.PANNU,A.M: THE CAPTIONED CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE PERTAINING TO ASSESSMENT YEAR 2011-12 ARE DIRECTED AGAINST AN ORDER PASSED BY DCIT, 10(1)(1), (IN SHORT THE ASSESSING O FFICER ) PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX AC T, 1961 ( IN SHORT THE ACT) DATED 26/11/2015, WHICH IS IN CONFORMITY WITH THE DIRECTION OF THE DISPUTE RESOLUTION PANNEL-1, MUMBAI ( IN SHO RT THE DRP) DATED 22/09/2015. 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS/ ADDITIONAL GROUNDS OF APPEAL:- THE APPELLANT OBJECTS TO THE ORDER UNDER SECTION 143(3) R.W.S 144C (13) OF THE INCOME TAX ACT, 1961 ('THE ACT') DATED 26 NOVEM BER 2015 (RECEIVED ON 30 NOVEMBER 2015) PASSED BY THE LEARNED DEPUTY COMM ISSIONER OF INCOME TAX (' AO') INCORPORATING THE DIRECTIONS OF THE DIS PUTE RESOLUTION PANEL ('DRP') FOR THE AFORESAID ASSESSMENT YEAR ON THE FO LLOWING GROUNDS: GROUND NO. 1: ERRONEOUS DISALLOWANCE OF THE CORPORA TE SERVICE CHARGES 1.1 THE LEARNED AOIDRP ERRED IN UPHOLDING THE TRAN SFER PRICING OFFICER'S ('TPO') CONTENTION FOR THE DISALLOWANCE OF CORPORAT E SERVICE CHARGES PAID BY THE APPELLANT TO ITS AES AMOUNTING TO RS. 63,411,80 3/- BY FAILING TO APPRECIATE AND CONSIDER THE FACTS OF THE CASE, INCL UDING THE SUBMISSIONS MADE BY THE APPELLANT AND THE EVIDENCES PRODUCED. 1.2 THE AO/ TPOIDRP FAILED TO APPRECIATE THE METHO D FOLLOWED BY THE APPELLANT TO BENCHMARK: THE INTERNATIONAL TRANSACTI ON IN RELATION TO RECEIPT OF CORPORATE SERVICES. 1.3 THE LEARNED AO/TPO/DRP ERRED IN COMPUTING THE ARM'S LENGTH PRICE (ALP') OF THE CORPORATE SERVICES AS RS. 4,505,000/ - MERELY BASED ON ESTIMATION BY APPLYING ADHOC NUMBER OF HOURS FOR EA CH SUB-CATEGORY OF SERVICES AND THEN APPLYING ESTIMATED HOURLY RATE OF RS. 8,500/-. 1.4 THE DRP IN UPHOLDING THE ACTIONS OF THE AO/TPO, ERRED IN HOLDING THAT THE APPELLANT FAILED TO PRODUCE EVIDENCE TO PROVE R ECEIPT OF SERVICES 3 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) WITHOUT APPRECIATING THE FACTS AND THE EVIDENCES SU BMITTED BEFORE IT IN A CORRECT PERSPECTIVE. GROUND NO. 2: DISALLOWANCE OF DEPRECIATION ON INTANGI BLE ASSETS 2.1 THE LEARNED AO ERRED IN ALLOWING DEPRECATION UN DER SECTION 32(1 )(II) OF THE INCOME-TAX ACT, 1961 OF RS. 3,85,14,551 ON INTA NGIBLE ASSETS AS AGAINST DEPRECIATION OF RS. 4,34,58,398, WHILE COMPUTING TH E TAXABLE INCOME FOR THE CAPTIONED ASSESSMENT YEAR. GROUND NO. 3: DISALLOWANCE UNDER SECTION 14A 3.1 THE LEARNED AO / DRP HAS ERRED IN DISALLOWING A SUM OF RS. 5,95,20,534 UNDER SECTION 14A OF THE INCOME-TAX ACT,. 1961 READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 WITHOUT APPRECIATING THE FAC TS OF THE CASE AND LAW APPLICABLE THERETO. 3.2 THE LEARNED AO /DRP ERRED IN NOT APPRECIATING T HAT INVESTMENTS MADE WERE BY WAY OF STRATEGIC INVESTMENTS IN SUBSIDIARY. 3.3 THE LEARNED AO / DRP ERRED IN APPRECIATING THAT INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS, 3.4 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO / DRP HAS ERRED IN NOT REDUCING THE SUO-MOTO DISALLOWANCE MADE BY THE APPE LLANT FROM THE TOTAL DISALLOWANCE UNDER SECTION 14A OF THE ACT. GROUND NO. 4: GENERAL 4.1 THE LEARNED AO ERRED IN INITIATING PENALTY PROC EEDING U/S 271 (1)( C) READ WITH EXPLANATION 7 OF THE ACT. 4.2 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D AND/OR SUBSTITUTE ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 4.3 EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WIT HOUT PREJUDICE TO THE ABOVE. GROUNDS OF REVENUES APPEAL:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HONBLE DRP IS NOT JUSTIFIED IN AS MUCH AS WHILE HOLDING TH AT THE DISTRIBUTION NETWORK AND MATERIAL SUPPLY CONTRACT ARE ELIGIBLE F OR DEPRECIATION, IT HAS FAILED TO SPECIFY ANY REASON AS TO HOW IT FALLS WIT HIN THE CLAUSE ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF A SIMILAR NATURE OF SECTION 32(1)(III) AND AS TO HOW THE DOCTRINE OF EJUSDEM GENERIS IS APPL ICABLE IN THE INSTANT CASE. 4 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DRP FAILED TO APPRECIATE THAT DISTRIBUTION NETWORK AND MATERIAL CONTRACT EVEN IF THE CONTENTION THAT THESE CONSTI TUTE ASSETS IS ACCEPTED, ARE IN THE NATURE OF TANGIBLE ASSETS, AND FURTHER, EVERY COMMERCIAL OR BUSINESS RIGHT IS NOT ELIGIBLE FOR DEPRECIATION UNL ESS IT PARTAKES THE NATURE OF 'KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICE NSES, FRANCHIESES.......... III. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON.BLE DRP EXCEEDED THE JURISDICTION CONFERRED ON IT U/S 144C (SUBSECTION 1 & 8 THEREOF) WHICH MANDATE IT TO ADJUDICATE ONLY WITH REFERENCE TO ANY VARIATIONS FROM THE RETURNED INCOME IN THE DRAFT OR DER WHICH IS PREJUDICIAL TO THE INTEREST OF THE ASSESSE AND, THEREFORE, COUL D NOT HAVE ADJUDICATED IN RESPECT OF CLAIM FOR DEPRECIATION ON GOODWILL AND D EDUCTION U/S 43B MADE DURING THE ASSESSMENT PROCEEDINGS AND NOT IN THE RE TURN OF INCOME. ' IV. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND WITHOUT PREJUDICE TO THE PRECEDING GROUNDS, THE HON 'BLE DRP OUGHT TO HAVE ADJUDICATED ON MATTERS NOT INCLUDED IN THE DRAFT OR DER ONLY AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSING OFFICER WHEN SUCH ADJUDICATION WAS PREJUDICIAL TO THE INTEREST OF REVENUE. ' V. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, AND WITHOUT PREJUDICE TO THE PRECEDING GROUNDS, THE HON 'BLE DRP ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEPREC IATION ON GOODWILL WHEREAS NEITHER ASSESSE NOR DRP HAS SPECIFIED AS TO HOW THE QUANTIFICATION FOR GOODWILL HAS BEEN ARRIVED AT.' VI. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON 'BLE DRP ERRED IN NOT APPRECIATING THAT CIBA SPECIA LITY AND DDCL IS MERELY ASSIGNING THE RIGHT FOR A LIMITED PERIOD AND NOT TR ANSFERRING THE OWNERSHIP OF DISTRIBUTION NETWORK, MATERIAL SUPPLY CONTRACT A ND GOODWILL TO ASSESSEE COMPANY IMPLYING THAT THE ASSESSEE COMPANY IS NOT T HE OWNER OF THE ASSET AS IT NEVER ACQUIRED A RIGHT SO AS TO ALIENATE THE SAID ASSET FROM ITSELF AND HENCE IT FAILS IN THE PRIMARY TEST OF ELIGIBILITY O F DEPRECIATION, WHICH IS 'OWNERSHIP' OF THE ASSET'. 3. BEFORE WE ADDRESS THE SPECIFIC GROUNDS RAISED I N THE CAPTIONED CROSS-APPEALS, THE BRIEF BACKGROUND OF THE CASE IS AS FOLLOWS. THE ASSESSEE BEFORE US IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGE D IN THE BUSINESS OF SUPPLY POLYURETHANE, AUTOMOTIVE AND FOOTWEAR IN IND IA. THE ASSESSEE IS AN INDIRECTLY HELD WHOLLY OWNED SUBSIDIARY OF M/ S. HUNTSMAN 5 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) INTERNATIONAL LLC. FOR THE ASSESSMENT YEAR UNDER C ONSIDERATION, IT FILED THE RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.66,56,67,790/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT, WHEREIN THE FINAL INCOME HAS BEEN ASSESSED AT RS.75 ,26,58,594/-, AFTER CONSIDERING THE DIRECTIONS OF THE DRP DATED 14/10/2 015 IN TERMS OF SECTION 144C(5) OF THE ACT. IN THIS BACKGROUND, TH E ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL ON THE ABOVE STATED GROU NDS OF APPEAL. 4. FIRST, WE MAY TAKE UP THE APPEAL OF THE REVENUE. ALTHOUGH REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT ONLY THREE SUBSTANTIVE DISPUTES ARE INVOLVED . IT WAS A COMMO N POINT BETWEEN THE PARTIES THAT ALL THE THREE DISPUTES HAVE BEEN A SUBJECT MATTER OF CONSIDERATION BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS. HOWEVER, IN ORDER TO IMPART COM PLETENESS TO THE ORDER, THESE THREE ISSUES ARE BEING DEALT WITH HER EINAFTER IN SERIATIM. 5. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE ARI SES FROM THE DIRECTION OF THE DRP THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT WITH RESPECT TO THE INTANGIBLE ASSETS, NAMELY, MATERIAL SUPPLY CONTRACT AND DISTRIBUTION NETWORK. IN THIS CONTEXT, BRIEF FACTS ARE THAT DURING THE PREVIOUS Y EAR RELEVANT TO THE ASSESSMENT YEAR OF 2007-08 ASSESSEE HAD ACQUIRED T EXTILE EFFECTS BUSINESS FROM CIBA SPECIALITY LIMITED AND DIAMOND D YCHEM LIMITED FOR A LUMPSUM CONSIDERATION. THE LUMPSUM CONSIDERA TION PAID FOR THE ACQUISITION OF BUSINESS INCLUDED CONSIDERATION FOR TANGIBLE AS WELL AS INTANGIBLE ASSETS INCLUDING THE DISTRIBUTION NETWOR K AND MATERIAL SUPPLY CONTRACT. IN RESPECT OF DISTRIBUTION NETWOR K AND MATERIAL 6 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) SUPPLY CONTRACT, ASSESSEE CLAIMED DEPRECIATION CONS IDERING IT AS INTANGIBLE ASSETS IN TERMS OF SECTION 32(1)(II) O F THE ACT FOR THE FIRST TIME IN ASSESSMENT YEAR 2007-08. IN ASSESSMENT YEA R 2007-08, THE ASSESSING OFFICER DENIED SUCH CLAIM OF THE ASSESSEE AND FOLLOWING THE SAME IN THE PRESENT YEAR ALSO THE ASSESSING OFFICER PROPOSED DENIAL OF DEPRECIATION IN THE DRAFT ASSESSMENT ORDER PASSED U NDER SECTION 143(3) R.W.S. 144C(1) OF THE ACT. THE DRP, HOWEVER , DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION NOTING THAT FOR ASSESSMENT YEAR 2007-08, THE TRIBUNAL IN ASSESSEES OWN CASE V IDE ITA NO.3916/MUM/2014 DATED 31/08/2015 HAS ALLOWED THE C LAIM OF THE ASSESSEE . BEFORE US, THE REVENUE IS IN APPEAL AGAINST SUCH DI RECTION OF THE DRP. 5.1 BEFORE US, THE LD. CIT-DR HAS NOT DISPUTED THE FACT POSITION THAT IN ITS ORDER DATED 31/08/2015(SUPRA), THE TRIBUNAL HAS CONSIDERED SIMILAR CONTROVERSY FOR ASSESSMENT YEAR 2007-08 AND 2009-10. IT IS ALSO NOT IN DISPUTE THAT THE SAID DECISION HAS SINC E BEEN FOLLOWED BY THE TRIBUNAL IN ASSESSMENT YEAR 2010-11 ALSO VIDE I TA NO.980/MUM/2015 DATED 18/12/2015. SO HOWEVER, THE PLEA OF THE LD. CIT-DR IS THAT THE LEGISLATURE, WHILE PRESCRIBI NG DEPRECIATION ALLOWANCE FOR INTANGIBLES UNDER SECTION 32(1)(II) OF THE ACT HAS SOUGHT TO RESTRICT IT ONLY TO THE SPECIFIED CATEGORIES OF INTANGIBLE ASSETS. THE LD. CIT-DR HAS EMPHASIZED THAT THE EXPRESSION IN OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE CONTAINED IN SECTION 32(1)(II) OF THE ACT DOES NOT COVER THE IMPUGNED ASSETS BECAUSE THEY DO NOT HAVE THE TRAPPING SIMILAR TO THE OTHER CATEGORIES OF AS SET PRESCRIBED 7 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) THEREIN, NAMELY, KNOW-HOW, PATENTS, COPY RIGHTS, TR ADEMARKS, LICENCE OR FRANCHISEES. ON THIS BASIS, IT IS SOUGHT TO BE POINTED OUT THAT THE CLAIM OF THE ASSESSEE WAS RIGHTLY DENIED BY THE ASS ESSING OFFICER IN THE DRAFT ASSESSMENT ORDER. 5.2 ON THE OTHER HAND, LD. REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE DISPUTE WAS NO LONGER RES-INTEGRA, SO FAR AS ASSESSEE IS CONCERNED BECAUSE IN THE EARLIER ASSESSMENT YEARS O F 2007-08 TO 2010-11, THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE VIDE ORDERS DATED 31/08/2015 AND 18/12/2015(SUPRA). 5.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. BEFORE PROCEEDING FURTHER, WE MAY REPRODUCE HEREINAFTER T HE RELEVANT FINDINGS OF THE TRIBUNAL IN ITS ORDER DATED 31/8/20 15(SUPRA) FOR ASSESSMENT YEAR 2007-08, WHICH IS THE LEAD YEAR OF DISPUTE:- 2.2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF DEP RECIATION ON INTANGIBLES,AMOUNTING TO RS.13.73CRORES.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE-COMPANY HAD CLAIMED DEPRECIATION OF RS.12.07 CRORES UNDER THE HEAD DEPR ECIATION ON MATERIAL SUPPLY CONTRACT (MSC)AND ON DISTRIBUTION N ETWORK(DN)AND RS.6.25 CRORES UNDER THE HEAD BRAND USES EXPENSES ( BUE).HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE ABOV E REFERRED CLAIM SHOULD BE ALLOWED AS REVENUE EXPENDITURE.THE ASSESS EE IN ITS REPLY STATED THAT HUNTSMAN GROUP TOOK GLOBAL ACQUISITION OF THE TEXTILE EFFECTS OF CIBA SPECIALITY CHEMICAL GROUP, THAT THE GROUP OPERATED IN INDIA THROUGH ITS INDIAN COMPANIES NAMELY CIBA S PECIALITY CHEMICALS (I) LTD. CIBA-INDIA, AND DIAMOND DYE-CHEM LTD.(DDCL),THAT ASSESSEE ENTERED INTO AN AGREEMENT WITH CIBA- INDIA AND DDCL FOR ACQUIRING THE TEXTILE BUSINESS E FFECT ASSETS ON A SLUMP SALE BASIS, THAT THE ASSESSEE ALSO ENTERED I NTO TOLL MANUFACTURING AGREEMENT(MATERIAL SUPPLY AGREEMENT W ITH CIBA- INDIA AND DDCL),THAT IT HAD RECORDED THE FIXED ASSE TS AND INTANGIBLE ASSETS AT FAIR VALUE AS DETERMINED BY AN INDEPENDEN T VALUER,THAT AS PER THE AGREEMENT IT WAS GRANTED NON EXCLUSIVE IRRE VOCABLE AND ROYALTY FEE LICENCE TO USE TRADEMARKS,DOMAIN NAME F OR A PERIOD OF 8 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) 24 MONTHS,THAT BASED ON VALUATION REPORT OF INDEPEN DENT VALUER IT HAD VALUED THE AFORESAID RIGHT(TO USE BRANDS), AS R EVENUE EXPENDITURE,THAT THE PAYMENT MADE BY THE ASSESSEE W AS NOT FOR ACQUISITION OF BRAND NAME ITSELF,THAT IT DID NOT AC QUIRE OWNERSHIP OF CIBA BRAND,THAT IT DID NOT HAVE EXCLUSIVE RIGHT OVE R THE USE OF BRANDS,THAT PAYMENT WAS MADE FOR USING THE BRAND FO R ONLY A SHORT PERIOD, THAT BENEFIT ACCRUING TO THE ASSESSEE FROM SUCH PAYMENT FOR USE OF BRAND WAS TRANSIT IN NATURE, THAT THE ASSES SEE DID NOT DERIVE ANY ENDURING BENEFIT OR ANY PERMANENT ADVANTAGE.THE ASSESSEE REFERRED TO THE CASE OF CIBA-INDIA LTD.(69 ITR 692) , IAEC PUMPS LTD.(232 ITR 316).WITHOUT PREJUDICE TO THE ABOVE,IT WAS CONTENDED THAT IF THE PAYMENTS MADE FOR BRAND USE WAS TREATED AS CAPITAL ASSET THEN DEPRECIATION@25% AS PER THE PROVISIONS O F SECTION 32(1)(II)OF THE ACT SHOULD BE ALLOWED. WITH REGARD TO MSC,IT WAS STATED THAT ON ACQUISITIO N OF TEXTILE EFFECT BUSINESS THE MANUFACTURING FACILITIES OF DDCL WERE NOT TRANSFERRED TO THE ASSESSEE,THAT IN ORDER TO PROTECT ITS BUSINE SS INTEREST IT ENTERED INTO AN MSC WITH DDCL TO ENSURE CONSISTENCY IN QUALITY AND QUANTITY OF THE TEXTILE CHEMICALS,THAT THE MSC WAS A BUSINESS/COMMERCIAL RIGHT AND WAS SIMILAR TO KNOW H OW, PATENTS, COPY RIGHTS,TRADE MARKS LICENCES AND FRANCHISEES,TH AT THE AGREEMENT SECURED SUPPLY OF CERTAIN PRODUCTS FOR A PERIOD OF FIVE YEARS,THAT THE SUPPLY OF MINIMUM QUANTITY WAS TO BE AT COST OF MAN UFACTURING,THAT OWING TO THE AGREEMENT THE ASSESSEE DID NOT CARRY T HE RISK ATTACHED WITH THE MANUFACTURING OF THE PRODUCTS,THAT IT WAS GRANTED DISCOUNTS SUCH AS VOLUME DISCOUNT OF 3% AND A FURTH ER DISCOUNT OF 4.5% ON INVOICE VALUE IF THE PAYMENT WAS MADE WITHI N FIVE DAYS, THAT MSCWAS AN INTANGIBLE ASSET IN TERMS OF S.32(1) (II) AND WAS ELIGIBLE FOR DEPRECIATION @ 25%.THE ASSESSEE RELIED UPON THE CASES OF SKYLINE CATERERS LTD.(306 ITR-AT-369)KOTAK FOREX BROKERAGE LTD. AND COCA COLA BEVERAGE P LTD. ABOUT THE DN,IT WAS CONTENDED THAT OVER THE YEARS C IBA-INDIA AND DDCL HAD CREATED STRONG DISTRIBUTION NETWORK FOR SE LLING THEIR PRODUCTS,THAT THROUGH THE DN AGREEMENT THE ASSESSEE GOT ACCESS TO THE BUYERS,THAT DN WAS AN INTANGIBLE ASSET AND WAS ELIGIBLE FOR DEPRECIATION U/S. 32(1)(II) OF THE ACT,THAT THE EXP RESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE USE D IN SECTION 32 OF THE ACT HAD NOT BEEN DEFINED OR EXPLAINED IN THE AC T, THAT THE AGREEMENT WAS MADE FOR A PERIOD OF FIVE YEARS, THAT THE DISTRIBUTION NETWORK DEVELOPED BY CIBA-INDIA WAS CRUCIAL TO ACHI EVE THE SALES TARGET. IT WAS FURTHER STATED THAT THE ASSESSEE HAD ACQUIRE D THE POLYURETHANE BUSINESS FROM ICI LTD.IN THE AY 2002-0 3 AS A GOING CONCERN IN ACCORDANCE WITH BUSINESS TRANSFER AGREEM ENT (BTA),THAT IT HAD ACQUIRED THE FIXED ASSETS,INTELLECTUAL PROPE RTIES,INTANGIBLES 9 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) AND THE NET CURRENT ASSETS, THAT THE ACTUAL COST OF THE FIXED ASSETS FOR THE ASSESSEE WAS THE CONSIDERATION WHICH IT HA D PAID TO ICI LTD.,THAT A SIMILAR DISALLOWANCE HAD BEEN MADE BY T HE AO IN THE EARLIER A.Y.S, THAT THE TRIBUNAL HAD DELETED THE AD DITION FOR THE A.Y.S 2002-03, 2003-04 AND 2004-05.WITH REGARD TO TEXTILE EFFECT DIVISION (TED) IT WAS CONTENDED SIMILAR ARGUMENTS WERE MADE. THE ASSESSEE FURTHER STATED THAT WHEN UNIT WAS ACQUIRED AT SLUMP PRICE AS GOING CONCERN, NO SEPARATE PRICE WAS ASSIGNED TO EACH IND IVIDUAL ASSET, THAT IT WAS NECESSARY FOR THE ASSESSEE TO CARRYOUT VALUATION OF EACH ASSET FOR WHICH A CONSOLIDATED PRICE WAS PAID, THAT IT HAD OBTAINED THE VALUATION REPORT FOR ITS OWN SPECIFIC PURPOSE I .E. TO RECORD THE INDIVIDUAL VALUE OF THE ASSETS ACQUIRED ON PAYMENT OF SLUMP SALE CONSI-DERATION,THAT IT WAS NOT A CASE OF REVALUATIO N OF THE ASSETS.THE ASSESSEE REFERRED TO THE CASE OF ASHWIN VANASPATI (255 ITR 26) IN ITS SUPPORT. IN ITS SUPPORT THE ASSESSEE FURNISHED VAL UATION REPORT DT.19.1.2007 PREPARED BY M.M. RAVJI & CO.CA. TO ENQUIRE INTO THE GENUINENESS OF THE CLAIM OF THE ASSESSEE,THE AO CALLED FOR INFORMATION FROM DDCL AND CIBA INDIA UND ER SEC.131 OF THE ACT.HE DIRECTED THEM TO FURNISH DETAILS OF WRIT TEN DOWN VALUE (WDV)OF ALL THE BLOCKS OF ASSETS TRANSFERRED TO THE ASSESSEE AND ALSO A COPY OF THE REPORT PREPARED BY AN ACCOUNTANT IN ACCORDANCE WITH THE PROVISIONS OF SEC.50B OF THE ACT. ON PERUS AL OF THE SAME,HE FOUND THAT NO INTANGIBLE ASSETS WERE TRANSFERRED TO THE ASSESSEE ON ACCOUNT OF SLUMP SALE.THEREFORE,A SHOW CAUSE NOTICE WAS ISSUED ON 9.12.2012 TO THE ASSESSEE CALLING FOR EXPLANATION/ JUSTIFICATION FOR CLAIM OF RS.18.42 CRORES(DEPRECIATION ON MSC RS.2.9 7 CRORES + DEPRECIATION OF DN RS.9.20 CRORES + BUE-RS.6.25 CRO RES).ON 20.12.2010,THE ASSESSEE FILED ITS EXPLANATION IN TH AT REGARD.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,HE HELD THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENSE ON BRAND USE, THAT THE NOTIONAL VALUE ASCRIBED BY THE VALUER WAS ON THE BASIS OF FUTURE E STIMATED SALES, THAT THERE WAS NO EXISTENCE OF ANY BRAND USES RIGHT AT THE TIME OF TRANSFER,THAT THE TRANSFEROR HAD ADMITTED THAT THE ASSET AS A BRAND USES WAS NOT IN EXISTENCE AT THE TIME OF TRANSFER, THAT THE CLAIM OF THE ASSESSEE THAT AN AMOUNT OF RS.6.25 CRORES SHOUL D BE ALLOWED AS REVENUE EXPENDITURE WAS LEGALLY UNTENABLE, THAT THE ALTERNATIVE CLAIM OF THE ASSESSEE TO ALLOW DEPRECIATION U/S.32 (1)(II) OF THE ACT WAS NOT ACCEPTABLE, THAT EVEN IF THERE WERE ASSET L IKE MSC,DN AND BRAND USES RIGHT AS AN INTANGIBLE ASSET THE ASSESSE E WAS NOT ELIGIBLE FOR CLAIM OF DEPRECIATION AS THE SAME WERE NOT AKIN TO THE ASSETS DEFINED IN THE PROVISION LIKE KNOW-HOW, PATENTS,COP YRIGHTS ETC.FINALLY,HE REJECTED THE CLAIM OF DEPRECIATION O N MSC,DN AND RIGHT TO USE BRAND. 2.3. BEFORE US,THE AR CONTENDED THAT AS PER THE TOLL MAN UFACTURING AGREEMENT (TMA) THE ASSESSEE WAS TO GET THE THINGS MANUFACTURED 10 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) FOR A PERIOD OF 5 YEARS AT NO PROFIT /LOSS BASIS,TH AT THE INDEPENDENT VALUER HAD VALUED THE BENEFIT OCCURRING TO THE ASSE SSEE,THAT ALL THE THREE INTANGIBLES WERE ENTITLED FOR DEPRECIATION U/ S.32(1)OF THE ACT,THAT THERE WAS TRANSFER OF INTANGIBLES BY WAY O F SLUMP SALE,THAT THE VALUERS REPORT WAS COMPLETE AND CONCLUSIVE IN ALL REGARD, THAT IN ABSENCE OF ASSIGNMENT OF SOME VALUE TO THE INTANGIB LES IN THE BALANCE SHEET OF THE TRANSFERORS WAS NOT THE DECISI VE FACTOR.HE RELIED UPON THE CASES OF SMIFS SECURITIES LTD.(248 ITR 302),B.RAVINDRAN PILLAI(332 ITR 531), AREVA T&D IND IA LTD.(345ITR 421),TECHNO SHARES AND STOCKS LTD.(327ITR 323),BIRL A GLOBAL ASSET FIN.CO.LTD.(221TAXMANN176),MANIPAL UNIVERSAL LEARNI NG P.LTD.(359 ITR369),SKS MICRO FINANCE LTD.(145ITD111),GURUJI EN TERTAINMENTS NETWORK LTD.(108TTJ 180),ONGC VIDESH LTD(37SOT97),W EIZMANN FOREX LTD.(51SOT535), SARABHAI ZYDUS ANIMAL HEALTH LTD.(ITA /26/DEL./2005) AND DRILL BITS INTERNATIONAL PVT. LT D. (ITA/ 1361/ PUN/ 2010).HE REFERRED TO PAGE NO.42, 309-311, OF THE PA PER BOOK.DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT T HE TRANSACTION WAS A SLUMP PURCHASE,THAT VALUATION OF EACH UNIT WA S NOT MADE,THAT BUSINESS AS A SINGLE UNIT WAS SOLD BY CIB A AND DYE CHEM,THAT BOTH THOSE ENTITIES HAD NOT MENTIONED ANY THING ABOUT THE SO-CALLED INTANGIBLE ASSETS IN THEIR BALANCE SH EETS,THAT ONLY GOOD WILL WAS TO BE VALUED,THAT THE VALUATION WAS BASED ON FUTURE PROJECTION AND NOT ON PRESENT BENEFITS,THAT VALUATI ON WAS NOT IMMEDIATELY ON ACQUIRING THE BUSINESS,THAT IN THE M SC NO INTANGIBLE ASSET WERE INVOLVED,THAT THERE WAS NO PLACE FOR SUC H VALUATION UNDER THE ACT. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.BEFORE PROCEEDING FURTHER,WE WOULD LIKE T O CONSIDER THE CASES DEALING WITH INTANGIBLE ASSETS AND GOODWILL.I N THE CASE OF SMIFS SECURITIES LTD.(SUPRA)THE HONBLE SUPREME COU RT HAS HELD THAT PROVISIONS OF SEC. 31(2)ARE APPLICABLE TO GOODWILL. IT IS ALSO FOUND THAT BUSINESS RIGHTS,LIST OF CLIENTS,BRAND EQUITY, NON COMPETE FEE ETC. HAVE BEEN HELD TO BE INTANGIBLE ASSETS BY THE HONB LE COURT/ITAT,WHILE DEALING WITH THE ISSUE OF DEPRECIA TION.WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTIONS OF THE JUDG MENTS DEALING WITH THE ISSUE.THE HONBLE SUPREME COURT IN THE CAS E OF SMIFS SECURITIES (SUPRA)HAS HELD THAT A READING OF THE WO RDS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 TO SECTION 32(1)INDICATES THAT GOODWI LL WOULD FALL UNDER THE EXPRESSION.THE PRINCIPLE OF EJUSDEM GENER IS WOULD STRICTLY APPLY WHILE INTERPRETING THE EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B),THAT GOODWILL IS AN ASSET UNDER EX PLANATION 3(B) TO SECTION 32(1) OF THE ACT. IN THE MATTER OF RAVEENDRA PILLAI THE HONBLE KERAL A HIGH COURT(SUPRA)HAS DELIBERATED UPON THE FACTS OF THE C ASE AND 11 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) ALLOWABILITY OF DEPRECIATION ON INTANGIBLE ASSETS.I N THAT MATTER THE ASSESSEE HAD PURCHASED A HOSPITAL IN QUILON WITH IT S LAND, BUILDING,EQUIPMENT, STAFF, NAME, TRADE MARK AND GOO DWILL AS A GOING CONCERN UNDER TWO SEPARATE SALE DEEDS.UNDER T HE SALE DEED, THE VALUE OF THE GOODWILL WHICH INCLUDED THE NAME O F THE HOSPITAL AND ITS LOGO AND TRADE MARK WAS RS.2 CRORES. THE AS SESSEE WAS ALLOWED DEPRECIATION ON THE GOODWILL.HOWEVER,IN THE SCRUTINY ASSESSMENT,THE AO HELD THAT GOODWILL WAS NOT COVERE D BY SECTION 32(1)(II).THE APPEALS FILED BY THE ASSESSEE BEFORE THE FAA) AND THE TRIBUNAL WERE UNSUCCESSFUL.THE HONBLE HIGH COURT D ECIDED THE ISSUE AS FOLLOW: IN FACT, WITHOUT RESORTING TO THE RESIDUARY ENTRY THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON THE NAME, TRA DE MARK AND LOGO UNDER THE SPECIFIC HEAD PROVIDED UNDER SECTION 32(1)(II) WHICH COVERS TRADE MARK AND FRANCHISE. ADMITTEDLY T HE HOSPITAL WAS RUN IN THE SAME BUILDING, IN THE SAME TOWN, IN THE SAME NAME FOR SEVERAL YEARS PRIOR TO PURCHASE BY THE ASS ESSEE. BY TRANSFERRING THE RIGHT TO USE THE NAME OF THE HOSPI TAL ITSELF, THE PREVIOUS OWNER HAD TRANSFERRED THE GOODWILL TO THE ASSESSEE AND THE BENEFIT DERIVED BY THE ASSESSEE WAS RETENTI ON OF CONTINUED TRUST OF THE PATIENTS WHO WERE PATIENTS O F THE PREVIOUS OWNERS. WHEN THE GOODWILL PAID WAS FOR ENS URING RETENTION AND CONTINUED BUSINESS IN THE HOSPITAL, I T WAS FOR ACQUIRING A BUSINESS AND COMMERCIAL RIGHTS AND IT W AS COMPARABLE WITH TRADE MARK, FRANCHISE, COPYRIGHT ET C., REFERRED TO IN THE FIRST PART OF CLAUSE (II) OF SECTION 32(1 ) AND SO MUCH SO, GOODWILL WAS COVERED BY THE ABOVE PROVISION OF THE ACT ENTITLING THE ASSESSEE FOR DEPRECIATIONGOODWILL IS NOT SPEC IFICALLY MENTIONED IN SECTION 32(1)(II) OF THE INCOME-TAX AC T, 1961. DEPRECIATION IS ALLOWABLE NOT ONLY ON TANGIBLE ASSE TS COVERED BY CLAUSE (I) OF SECTION 32(1), BUT ON THE INTANGIBLE ASSETS SPECIFICALLY ENUMERATED IN CLAUSE (II) AND SUCH OF THE OTHER BUSINESS OR COMMERCIAL RIGHTS SIMILAR TO THE ITEMS SPECIFICALLY COVERED THEREIN. THE HONBLE DELHI HIGH COURT IN THE MATTER OF AREV A T AND D INDIA LTD.(SUPRA)HAS DISCUSSED THE ISSUE OF DEPRECIATION TO BE GRANTED ON INTANGIBLE ASSETS.IT HAS ALSO DISCUSSED THE FACTS O F THE CASE.FOLLOWING ARE THE FINDING OF THE COURT: THE PRINCIPLE OF EJUSDEM GENERIS PROVIDES THAT WHER E THERE ARE GENERAL WORDS FOLLOWING PARTICULAR AND SPECIFIC WOR DS, THE MEANING OF THE LATTER WORDS SHALL BE CONFINED TO TH INGS OF THE SAME KIND. FOR INTERPRETING THE EXPRESSION BUSINES S OR COMMERCIAL RIGHTS OF SIMILAR NATURE SPECIFIED IN S ECTION 32(1)(II) OF THE ACT, SUCH RIGHTS NEED NOT ANSWER THE DESCRIP TION OF KNOW-HOW, PATENTS, TRADE MARKS, LICENCES OR FRANCH ISES BUT 12 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) MUST BE OF SIMILAR NATURE AS THE SPECIFIED ASSETS. ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANG IBLE ASSETS REFERRED TO IN SECTION 32(1)(II) OF THE ACT PRECEDI NG THE TERM BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, IT IS SEEN THAT THE INTANGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE HAVE BEEN ADDITIONALLY USED,CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF THE SPECIFIED INTAN GIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH IT IS NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUME RATE. IN THE CIRCUMSTANCES, THE NATURE OF BUSINESS OR COMMERCIA L RIGHTS CANNOT BE RESTRICTED ONLY TO THE SIX CATEGORIES OF ASSETS, VIZ., KNOW-HOW, PATENTS,TRADE-MARKS,COPYRIGHTS,LICENCES O R FRANCHISES. THE NATURE OF BUSINESS OR COMMERCIAL R IGHTS CAN BE OF THE SAME GENUS IN WHICH ALL THESE SIX ASSETS FALL. ALL OF THEM FALL IN THE GENUS OF INTANGIBLE ASSETS THAT FO RM PART OF THE TOOL OF TRADE OF AN ASSESSEE FACILITATING SMOOTH CA RRYING ON OF THE BUSINESS. .IN THE CASE OF THE ASSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS, BUSINESS INFORMATION, BUSINESS RECORDS, CON TRACTS, SKILLED EMPLOYEES AND KNOW-HOW WERE ALL ASSETS, WHICH WERE INVALUABLE AND RESULTED IN CARRYING ON THE TRANSMIS SION AND DISTRIBUTION BUSINESS BY THE ASSESSEE, WHICH WAS HI THERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHOUT ANY INTERRUP TION. THE INTANGIBLE ASSETS WERE, THEREFORE, COMPARABLE TO A LICENCE TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTIO N BUSINESS OF THE TRANSFEROR. IN THE ABSENCE OF THE INTANGIBLE AS SETS, THE ASSESSEE WOULD HAVE HAD TO COMMENCE BUSINESS FROM S CRATCH AND GO THROUGH THE GESTATION PERIOD WHEREAS BY ACQU IRING THE BUSINESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT AN UP AND RUNNING BUSINESS. THE SPECIFIED INTANGIBL E ASSETS ACQUIRED UNDER THE SLUMP SALE AGREEMENT WERE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE S PECIFIED IN SECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGLY E LIGIBLE FOR DEPRECIATION UNDER THAT SECTION.THE COMMERCIAL RIG HTS ACQUIRED TO SELL PRODUCTS UNDER THE TRADE NAME AND THROUGH THE NETWORK CREATED BY THE SELLER FOR SALE IN INDIA WER E ENTITLED TO DEPRECIATION. IN THE CASE OF MANIPAL UNIVERSAL LEARNING PVT.LTD.( SUPRA)THE ASSESSEE HAD AGREED IN THE SALE AGREEMENT TO THE PR ICE OF RS. 51.63 CRORES AS THE VALUE OF THE SMU AGENCY RIGHTS. ON TH E VERY NEXT DAY,IT REVALUED SUCH RIGHTS AT RS.98,73,25,000 AND CLAIMED DEPRECIATION ON THE REVALUED RIGHTS.THE ASSESSING AUTHORITY HELD TH AT THE EXCESS 13 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) CONSIDERATION PAID OVER THE VALUE OF THE NET ASSETS WAS IN THE NATURE OF GOODWILL PAID FOR THE FUTURE PROFITS OF THE BUSI NESS. THEREFORE, HE ALLOWED DEPRECIATION ONLY ON THE VALUE MENTIONED IN THE AGREEMENT.THE FAA AFFIRMED THE ORDER OF THE AO.HOWEVER,THETRIBUNAL ALLOWED DEPRECIATION ON THE ENTIRE AMOUNT ARRIVED AT ON REVALUA -TION INCLUDING THE VALUE OF GOODWILL.ON APPEAL TO THE HONBLE KARNATAKA HIGH COURT THE COURT HELD THAT EXPLANATION 3 TO SECTION 32(1) OF THE ACT,DEFINED THE EXPRESSIO N ASSET TO INCLUDE INTANGIBLE ASSETS LIKE GOODWILL.GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1)OF THE ACT,THAT DE PRECIATION WAS ALLOWABLE EVEN ON THE GOODWILL,THAT THAT THE ASSESS EE WOULD BE ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF AN AMO UNT OF RS.98,73,25,000(INCLUDING GOODWILL) AND NOT THE AMO UNT OF RS.51.63 CRORES AS REFLECTED IN THE SALE AGREEMENT FOR PURCH ASE OF THE DISTANCE LEARNING DIVISION.IN THE MATTERS OF SKS MI CROSOFT FINANCE LTD.AND WEIAMANN FOREX LTD.(SUPRA)IT HAS BEEN HELD THAT ACQUISITION OF CLIENT BASE/CUSTOMERS LIST FORMS PA RT OF INTANGIBLE ASSETS MENTIONED IN THE SECTION 32(1)OF THE ACT. 2.4.1. WE FIND THAT THE ASSESSEE HAD ACQUIRED TEXTILE EFFECT(TE)BUSINESS FROM CIBA-INDIA AND DDCL AS A GO ING CONCERN ON A LUMP SALE BASIS,THAT MANUFACTURING FACILITIES OF BOTH THE ENTITIES WERE NOT TRANSFERRED AS PART OF SLUMP SALE,THAT AS A PART OF SLUMP SALE THE ENTIRE DISTRIBUTION CHANNEL WAS HANDED OVE R TO THE ASSESSEE INCLUDING THE CUSTOMER,DEALERS,MARKETING PEOPLE, MA RKETING PLANS, LABORATORY,SUPPLY-CHAIN AND THE WAREHOUSES,THAT THE SERVICES OF TEXTILE EFFECTS EMPLOYEES WAS TRANSFERRED TO THE AS SESSEE,THAT IT HAD ENTERED INTO AGREEMENT WITH CIBA-INDIA AND DDCL FOR MATERIAL SUPPLY AND FOR SUPPLY OF CHEMICAL PRODUCTS TO THE N EWLY ACQUIRED TE BUSINESS,THAT IT REGARDED THE FIXED ASSETS AND INTA NGIBLE ASSETS OF ACQUIRED TE BUSINESS AT FAIR MARKET VALUE AS DETERM INED BY AN INDEPENDENT VALUER. IN CASE OF A SLUMP SALE,GENERALLY NO SEPARATE VALUE IS ASSIGNED TO EACH AND EVERY ASSET BY THE TRANSFEROR AND THE PART Y TAKING OVER THE ASSETS ASSIGN SPECIFIC VALUES TO THE ACQUIRED ASSET S.IN THE CASE BEFORE US,THE ASSESSEE HAD OBTAINED A VALUATION REP ORT FROM AN EXPERT AND ON THE BASIS OF THAT REPORT HAD RECORDED THE VALUE OF THE TANGIBLE AND INTANGIBLE ASSETS IN THE BOOKS OF ACCO UNT. WE FIND THAT IN THE VALUATION REPORT THE VALUER HAD ASSIGNED VAL UE TO MSC,DN AND BRAND USES, THAT THE AO/DRP HAS NOT BROUGHT ANY THING ON RECORD TO DISPROVE THE CORRECTNESS OF THE VALUER. A S FAR AS THE ENTRIES IN THE BALANCE SHEET OF CIBA-INDIA AND DDCL IS CONC ERNED,IN OUR OPINION SAME ARE NOT DECISIVE FACTORS.WHAT HAS TO B E SEEN IN CASE OF A SLUMP SALE IS THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT TO THE ASSETS ACQUIRED AND AS TO WHETHER TH E VALUATION IS BASED ON SOME SCIENTIFIC BASIS.THE ASSESSEE HAD ENT ERED INTO 14 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) AGREEMENTS FOR A PERIOD OF FIVE YEARS WITH CIBA IND IA AND DDCL AND BECAUSE OF THE AGREEMENTS THE PRODUCTS MANUFACTURED BY BOTH THE ENTITIES WERE MADE AVAILABLE AT COST TO THE ASSESSE E,THE ASSESSEE WAS GRANTED NON-EXCLUSIVE, IRREVOCABLE, ROYALTY FRE E LICENSE TO USE TRADE-MARKS,DOMAIN NAMES FOR A PERIOD OF TWO YEARS. NOT ONLY THAT THE ASSESSEE GOT THE DISTRIBUTION NETWORK.IN SHORT, THE ASSESSEE GOT VALUABLE BUSINESS/COMMERCIAL RIGHTS.THEREFORE,WE AR E OF THE OPINION THAT BY ENTERING INTO MCS AND GETTING DISTR IBUTION NETWORK,THE ASSESSEE HAD ACQUIRED BUSINESS/COMMERCI AL RIGHTS THAT WERE OF THE SIMILAR NATURE AS MENTIONED IN SEC.32(1 )(II) OF THE ACT. SAME IS THE CASE ABOUT USE OF BRAND NAME.THE ASSESS EE HAD ASSIGNED VALUE TO VARIOUS ASSETS NAMELY FIXED ASSET S(RS.6.68 CRORES), INTANGIBLE ASSETS(RS.54. 94 CRORES),GOODWILL(41.87C RORES).WE ARE OF THE OPINION THAT BY RELYING UPON THE VALUATION REPO RT OF AN EXPERT THE ASSESSEE HAD NOT CONTRAVENED ANY OF THE PROVISI ONS OF THE ACT. WE HAVE ALREADY HELD THAT BUSINESS RIGHT,DISTRIBUTI ON NETWORK AND BRAND USAGE FALL IN THE SAME CATEGORY OF COMMERCIAL RIGHTS MENTIONED IN SECTION 32 OF THE ACT.THEREFORE,WE HOL D THAT ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON THE INTANGIB LE ASSETS. HERE,WE WOULD LIKE TO REFER TO THE CASE OF KEC INTE RNATIONAL [(2010)- TIOL 478-ITAT-MUM].IN THAT MATTER,THE TRIBUNAL HAS OBSERVED THAT IN CASE OF A SLUMP SALE THE VALUE ADOPTED BY THE AS SESSEE ON THE BASIS OF VALUATION REPORT CAN BE CONSIDERED FOR DEP RECIATION PURPOSE.THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ASWIN VANASPATI INDUSTRIES LTD.(255ITR26)HAS APPROVED THE PRINCIPLE OF VALUATION OF ACQUIRED ASSET BY A VALUER AND HELD TH AT IN ABSENCE OF ADEQUATE MATERIAL ON RECORD IN FORM OF DEPARTMENTAL VALUATION REPORT AND THE OPINION OF THE TECHNICAL EXPERTS COU LD NOT BE IGNORED.IN LIGHT OF THE ABOVE DISCUSSION,GROUND NO. 1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 5.4 THE AFORESAID FINDING OF THE TRIBUNAL CLEARLY BRINGS OUT THAT THE DISTRIBUTION NETWORK RIGHTS ACQUIRED BY THE ASSESSE E HAVE BEEN FOUND TO BE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGH TS FOR THE PURPOSES OF SECTION 32(1)(II) OF THE ACT. ALTHOUGH THE LD. CIT-DR HAS CANVASSED THAT THE SAID FINDING IS ERRONEOUS, SO HOWEVER, NO SPECIFIC ERROR HAS BEEN SOUGHT TO BE MADE OUT. IN FACT, WE FIND THAT SIMILAR ARGUMENTS WERE SET-UP BY THE REVENUE BEFORE THE TRIBUNAL EVEN WHEN THE MATTER CAME UP IN RELATION TO ASSESSMENT YEAR 2010- 11, AS SUCH A PLEA HAS BEEN SPECIFICALLY NOTE BY THE TRIBUNAL IN PARA 6.2 OF ITS ORDER DATED 15 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) 10/12/2015(SUPRA). AFTER HAVING CONSIDERED THE SAI D ARGUMENTS, THE TRIBUNAL FOLLOWED THE EARLIER DECISION OF THE CO-OR DINATE BENCH OF THE TRIBUNAL DATED 31/08/2015(SUPRA) AND HELD THAT THE IMPUGNED ASSETS FALL WITHIN THE CATEGORY OF BUSINESS OR COMMERCIAL RIGHTS MENTIONED IN SECTION 32(1)(II) OF THE ACT. IN OUR CONSIDERED OPINION, IN VIEW OF THE AFORESAID PRECEDENTS, WE FIND NO MERIT IN THE PLEA OF THE LD. CIT-DR, WHICH WOULD REQUIRE US TO DEPART FROM THE AFORE-STA TED PRECEDENTS. THEREFORE, ON THIS ASPECT THE REVENUE HAS TO FAIL. 6. ANOTHER ISSUE RAISED IN THE APPEAL OF THE REVENU E ARISES FROM THE DIRECTION OF THE DRP TO ALLOW DEPRECIATION ON G OODWILL WHICH FORMED A OF THE CONSIDERATION PAID BY THE ASSESSEE FOR ACQUISITION OF POLYURETHANE BUSINESS FROM ICI LTD. AS WELL TEXTI LE EFFECTS BUSINESS FORM CIBA SPECIALITY LTD. AND DIAMOND DYECHEM LTD . 6.1 IN THIS CONTEXT, AS NOTED EARLIER, ASSESSEE HA D ACQUIRED TEXTILE EFFECTS BUSINESS FROM CIBA SPECIALITY LTD. ALSO TH E POLYURETHANE BUSINESS FROM ICI LTD. IN THE EARLIER ASSESSMENT YE ARS. FOR BOTH THE AFORESAID ACQUISITION, ASSESSEE HAD PAID A LUMPSUM CONSIDERATION AND THE PORTION OF PURCHASE CONSIDERATION, WHICH WAS IN EXCESS OF THE VALUE OF TANGIBLE AND INTANGIBLE ASSETS WAS TREATED AS GOODWILL. THE DRP NOTED THAT ASSESSEE HAD MADE THE CLAIM FOR DEPR ECIATION ON GOODWILL IN THE COURSE OF ASSESSMENT BEFORE THE ASS ESSING OFFICER BUT THERE WAS NO DISCUSSION IN THE DRAFT ASSESSMENT OR DER. THE DRP ALSO NOTED THAT IN ASSESSMENT YEAR 2006-07, THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 12/06/2013 HAD ALLOWED THE CL AIM OF THE ASSESSEE AND SIMILAR POSITION PREVAILED IN ASSESS MENT YEAR 2009-10, 16 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) WHEREIN THE TRIBUNAL ALLOWED THE CLAIM VIDE ORDER D ATED 31/08/2015(SUPRA). ON THIS BASIS, THE DRP NOTICED THAT IN VIEW OF THE PRECEDENTS GOODWILL FORMS PART OF THE BLOCK OF A SSETS OF THE ASSESSEE FROM ASSESSMENT YEAR 2006-07 ONWARDS AND, THEREFORE , THE DEPRECIATION ON GOODWILL WAS TO BE ALLOWED IN THE I NSTANT ASSESSMENT YEAR ALSO. 6.2 BEFORE US, IT IS NOT DISPUTED BY THE LD. CIT-DR THAT THE PRECEDENTS NOTED BY THE DRP CONTINUE TO HOLD THE FI ELD AND HAVE NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. AS A CONSEQU ENCE, WE, THEREFORE, AFFIRM THE DIRECTION OF THE DRP, WHICH I S IN LINE WITH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS. AS A CONSEQUENCE, WE FIND NO MER IT IN THE SAID GROUND RAISED BY THE REVENUE. 6.3 IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE A REFERENCE HAS ALSO BEEN MADE TO THE DIRECTION OF THE DRP TO ALL OW ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 43B OF THE ACT WITH REG ARD TO CERTAIN LIABILITIES PERTAINING TO THE TEXTILE EFFECTS DIVIS ION TAKEN OVER FROM CIBA SPECIALITY LTD. 6.4 IN THIS CONTEXT, THE DRP NOTED THAT ON ACQUISIT ION OF THE TEXTILE EFFECTS BUSINESS, IN ASSESSMENT YEAR 2007-08 ASSES SEE HAD ACQUIRED CERTAIN UNPAID LIABILITIES FROM CIBA SPECIALITY LT D., WHICH WERE TO BE ALLOWED ON PAYMENT BASIS IN TERMS OF SECTION 43B O F THE ACT . THE DRP FURTHER NOTICED THAT THERE WAS DISCUSSION IN TH E DRAFT ASSESSMENT PASSED BY THE ASSESSING OFFICER DESPITE THE CLAIM M ADE BY THE ASSESSEE. IT WAS ALSO NOTICED THAT IN ASSESSMENT Y EAR 2007-08, THE 17 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) TRIBUNAL VIDE ITS ORDER DATED 31/08/2015(SUPRA) HA D ALLOWED SIMILAR CLAIM OF THE ASSESSEE. ACCORDINGLY, FOLLOWING THE ORDER OF THE TRIBUNAL DATED 31/08/2015(SUPRA), THE DRP DIRECTED THE ASS ESSING OFFICER TO ALLOW THE CLAIM OF PAYMENT OF STATUTORY DUES OF THE TEXTILE EFFECTS BUSINESS TAKEN OVER FROM CIBA SPECIALITY LTD. APPLY ING SECTION 43B OF THE ACT AFTER DUE VERIFICATION. 6.5 THE REVENUE HAS CONTESTED THE SAID DIRECTION OF THE DRP IN ITS GROUNDS OF APPEAL FILED BEFORE US. QUITE CLEARLY, THE DIRECTION OF THE DRP IS BASED ON THE ORDER OF THE TRIBUNAL FOR ASSES SMENT YEAR 2007- 08, WHICH CONTINUES TO HOLD THE FIELD AND, THEREFOR E, NO FAULT CAN BE FOUND WITH THE SAID DECISION OF THE DRP. EVEN OTHE RWISE, WE FIND THAT THE SAID PLEA OF THE REVENUE IS MISCONCEIVED BECAUS E IN THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER NO SUCH DEDUCTION HAS BEEN ALLOWED. THE ASSESSING OFFICER NOTES IN P ARA 14 OF THE ASSESSMENT ORDER THAT NO SUCH CLAIM U/S. 43B OF THE ACT HAS BEEN PUT FORTH AND, THEREFORE, NO DEDUCTION WAS WARRANTED ON THIS ISSUE. IN VIEW OF THE SAID DISCUSSION IN THE ASSESSMENT ORDER , IT IS QUITE CLEAR THAT THE SAID GROUND IS OTHERWISE ALSO MISCONCEIVED . BE THAT AS IT MAY, THE SAID PLEA OF THE REVENUE DESERVES TO BE DI SMISSED. WE HOLD SO. 6.6 IN THE RESULT, IN SO FAR AS THE APPEAL OF THE R EVENUE IS CONCERNED, THE SAME IS DISMISSED. 7. WE MAY NOW TAKE UP THE APPEAL OF THE ASSESSEE. THE FIRST ISSUE IN THIS APPEAL RELATES TO THE TRANSFER PRICING ADJU STMENT OF RS.6,34,11,803/- MADE BY THE ASSESSING OFFICER IN R ESPECT OF THE 18 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) INTERNATIONAL TRANSACTIONS ON ACCOUNT OF CORPORATE SERVICE CHARGES PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE. THE RELEVANT FACTS ARE THAT ASSESSEE HAD PAID CORPORATE SERVICES CHARG ES AMOUNTING TO RS.2,49,34,938/- AND RS.4,29,81,865/- TOWARDS SERVI CE CLAIMED TO HAVE BEEN UTILIZED FROM THE ASSOCIATED ENTERPRISE, M/S. HUNTSMAN INTERNATIONAL LLC IN THE POLYURETHANE AND TEXTILE E FFECTS DIVISIONS RESPECTIVELY. THE SAID PAYMENTS WERE MADE IN TERMS OF AN AGREEMENT DATED 01/07/2008 WITH HUNTSMAN INTERNATIONAL LLC, W HICH INVOLVED AVAILING OF SERVICES FROM THE ASSOCIATED ENTERPRISE ON ACCOUNT OF LEGAL SERVICES, TREASURY AND CREDIT, PURCHASING, TRANSPOR TATION AND LOGISTICS, TRAVEL CO-ORDINATION SERVICES, INTERNAL AUDIT, HUMA N RESOURCES SERVICES, ETC. THE ASSESSEE HAD BENCHMARKED THE SAID PAYME NT OF CORPORATE SERVICE CHARGES BY USING TNM METHOD, WHEREAS THE TP O REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE COMPARABLE UNC ONTROLLED PRICE(CUP) METHOD SHOULD NOT BE APPLIED TO BENCHMAR K SUCH INTERNATIONAL TRANSACTIONS. AFTER CONSIDERING THE SUBMISSIONS AND EVIDENCES FURNISHED BY THE ASSESSEE THE TPO DEDUCED MAN HOURS OF VARIOUS SERVICES RENDERED BY THE ASSOCIATED ENTERPR ISE AND DETERMINED RS.45.05 LACS AS ARMS LENGTH PRICE OF S UCH TRANSACTIONS. AS A CONSEQUENCE THE BALANCE OF RS.6,34,11,803/- WA S DISALLOWED. THE DRP HAS ALSO AFFIRMED THE STAND OF THE TPO, AGA INST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7.1 AT THE TIME OF HEARING, IT WAS BROUGHT OUT THAT THE TRIBUNAL, IN ASSESSEES OWN CASE IN ITA NO.1539/MUM/2014 FOR ASS ESSMENT YEAR 2009-10 VIDE ORDER DATED 31/08/2015 HAS REMITTED TH E MATTER BACK TO 19 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) THE FILE OF DRP FOR RE-ADJUDICATION BY PASSING A SP EAKING AND REASONED ORDER. THE OPERATING PORTION OF THE ORDER OF THE T RIBUNAL DATED 31/08/2015(SUPRA) IN THIS REGARD IS REPRODUCED HERE AFTER:- 4.3. WE HAVE GONE THROUGH THE AVAILABLE MATERIAL.WE FIND THAT WHILE FILING OBJECTION BEFORE THE DRP THE ASSESSEE HAD RAISED VA RIOUS ISSUES.THE ASSESSEE HAD REQUESTED THE DRP TO ADMIT ADDITIONAL EVIDENCE AS PER PROVISIONS OF THE DRP RULES.BUT,THE DRP HAS NOT MENTION ANYTHING IN I TS ORDER ABOUT THE ISSUE RAISED BY THE ASSESSEE AND THE DOCUMENTS SUBMITTED. IN OUR OPINION,IT WAS DUTY OF THE DRP TO REJECT OR ACCEPT THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE ONCE SAME WERE FILED BEFORE IT.SECONDLY,TH E GROUND OF APPEAL RELATING TO WAS NOT DECIDED.NON-ADJUDICATION OF A GROUND RAISED BY AN ASSESSEE IS MISCARRIAGE TO JUSTICE.WE WOULD LIKE TO REPRODUCE THE ORDER OF THE DRP DEALING WITH TP ISSUE AND SAME READS AS UNDER: 5.2.1 THE APPLICANT HAS SUBMITTED BEFORE THE DRP TH AT THE ENTIRE PAYMENT OF CORPORATE EXPENSES OF RS.46,299,732/- AS AN ADJ USTMENT U/S 92CA. WE HAVE CONSIDERED THE SUBMISSIONS FILED BY THE APPLIC ANT AND FOUND THAT THE ASSESSEE FAILED TO SUBMIT EVEN A SINGLE EVIDENCE T O PROVE THAT IT HAD RECEIVED ANY SERVICES FROM ITS AE IN LIEU OF WHICH THE PAYMENT WAS MADE TO THE AE IN SPITE OF BEING GIVEN A NUMBER OF OPPORTUN ITIES BY THE TPO.THUS THE ARM'S LENGTH PRICE OF ALLOCATION OF CORPORATE EXPENSES PAID WAS RIGHTLY TREATED AS RS.NIL BY THE TPO DUE TO INADEQUACY OF T HE ASSESSEE'S ARGUMENT AND THE ENTIRE PAYMENT OF ALLOCATION OF CORPORATE E XPENSES OF RS. 46,299,732 /- WAS TREATED AS AN ADJUSTMENT U/S 92CA .WE AGREE WITH THE ORDER OF THE TPO AND THE ADDITION PROPOSED ON THIS COUNT IN THE DRAFT ORDER. 5.2.2 THE ASSESSEE HAS SUBMITTED THAT TPO HAS REWOR KED THE MARGIN CALCULATION INCORRECTLY AS FOLLOWING ERRORS WERE FO UND IN THE CALCULATION SUBMITTED BY THE ASSESSEE: - IN CASE OF ALLIED RESINS, THE INCREASE IN CLOSING STOCK WAS NOT TAKEN INTO ACCOUNT WHILE WORKING OUT THE MARGIN - IN CAMPHOR AND JYOTI RESINS, INCREASE IN CLOSING STOCK WAS ADDED TO TURNOVER INSTEAD OF REDUCING IT FROM OPERATING COST IF THE REVISED MARGINS ARE TAKEN INTO ACCOUNT,THE A RITHMETIC MEAN COMES TO 5.57% INSTEAD OF 5.78% AS CALCULATED BY THE TPO. ON THIS ISSUE WE DIRECT THE AO/TPO TO VERIFY THE CO MPUTATION OF THE OP/OR AND CORRECTLY COMPUTE THE ARITHMETIC MEAN AND ACCOR DINGLY WORK OUT THE QUANTUM OF ADJUSTMENT. 5.2.3 THE ASSESSEE HAS SUBMITTED THAT THE TPO HAS E RRED IN REJECTING THE TP STUDY REPORT WITHOUT APPROPRIATE JUSTIFICATIONS FOR DOING SO AND HAS ERRED IN USING ENTITY LEVEL FOR THE PURPOSES OF BENCH MAR KING INTERNATIONAL TRANSACTIONS.IN THIS REGARD,WE FIND THAT THE TPO HA S CORRECTLY POINTED OUT THE INFIRMITIES IN THE TP STUDY REPORT BEFORE REJEC TING IT AND WE ARE IN AGREEMENT WITH HIS VIEWS.THE TPO IN HIS ORDER HAS C LEARLY BROUGHT OUT THE 20 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) REASONS FOR MAKING THE ADJUSTMENT AT THE ENTITY LEV EL. THEREFORE, WE ARE IN AGREEMENT WITH THE TPO ON THIS ISSUE. 5.2.4 THE ASSESSEE HAS SUBMITTED THAT THE TPO IS EN TITLED ONLY TO DETERMINE ARMS LENGTH PRICE IN RELATION TO THE INTE RNATIONAL TRANSACTION THEREFORE,THE ADJUSTMENT,IF ANY,BASED ON THE ARMS L ENGTH OPERATING MARGIN SHOULD BE WORKED OUT ONLY IN RESPECT OF THE REVENUE S IN THE AE SEGMENT.THE ASSESSEE HAS SUBMITTED THAT IF THIS IS DONE NO ADJU STMENT WOULD BE NECESSARY.ASSSESSEE STATES THAT TPO HAS ERRED IN TA KING THE PLI MARGIN ON THE ENTITY BASIS.WE FIND THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS FOR THE AE AND NON-AE SEGMENTS.THE SEGMENT S PREPARED JUST FOR THE REASON OF CALCULATION OF PLI ARE NOT ACCEPTABLE AS THE BASIS OF ALLOCATION OF EXPENSES AND THE CORRECTNESS OF ALLOC ATION ARE NOT VERIFIABLE.THEREFORE,THESE ARE NOT RELIABLE.IN THE ABSENCE OF THE SAME, AND CONSIDERING THE INTERLINKING BETWEEN AE AND NON-AE IMPORTS, IT IS NOT POSSIBLE TO PREPARE RELIABLE SEGMENT-WISE ACCOUNTS. FURTHER,IT IS NOTED THAT THE ASSESSEE ITSELF HAS BENCH -MARKED ITS INTERNATI ONAL TRANSACTIONS USING ENTITY-LEVEL OPERATING MARGIN AS THE PLI.THIS WOULD INDICATE THAT THOUGH MAKING THE CLAIM ASSESSEE UNDERSTANDS THE IMPOSSIBI LITY OF ITS APPLICATION. HOWEVER IN SO FAR AS THE ADJUSTMENT TO BE MADE WE F IND THAT THE JUDICIAL PRECEDENCE SUGGESTS THAT THE ADJUSTMENT SHOULD BE L IMITED TO THE AE TRANSACTIONS AND NOT ON THE ENTITY LEVEL TURNOVER. IN THE FACTS AND CIRCUMSTANCES OF THE CASE,THEREFORE, WHILE THE TPO S ACTION IS SUSTAINED,THE TPO SHOULD RECALCULATE THE PLI AND LIMIT THE ADJUST MENT TO THE AE TRANSACTION. 5.2.5 THE APPLICANT HAS ALSO OBJECTED TO THE TPO/S ACTION OF CONSIDERING SINGLE YEAR DATA FOR THE COMPARABLE COMPANIES SELEC TED BY HIM FOR THE YEAR ENDED 31ST MARCH 2009 AS AGAINST THREE YEAR DATA US ED BY THE ASSESSEE.WE HAVE CONSIDERED THE ORDER OF THE TPO AN D THE SUBMISSIONS FILED BY THE APPLICANT AND FOUND THAT THE ACTION OF THE TPO IS AS PER THE PROVISIONS OF RULE 10B( 4) OF THE INCOME TAX RULE S, 1962. THUS, WE CONFIRM THE ACTION OF THE TPO IN THIS REGARD. 5.2.6 REGARDING CLAIM OF STANDARD DEDUCTION OF 5% F ROM THE ARM'S LENGTH PRICE,WE ARE UNABLE TO AGREE WITH THE ASSESSEE, IN VIEW OF THE AMENDMENTS CARRIED OUT IN SECTION 92C BY THE FINANCE ACTS 2009 AND 2012. FURTHER, WITH DUE RESPECTS TO THE HON'BLE ITAT, THERE HAVE BEEN S EVERAL DECISIONS RENDERED BY DIFFERENT BENCHES OF THE ITAT HOLDI NG THAT THE 5%)VARIATION IS NOT TO BE ALLOWED AS STANDARD DEDUCTION[E.G.DCIT VS ROCHE DIAGNOSTICS 19 TAXMANN.COM 192 (MUM) (2012)].THIS GROUND OF OB JECTION TAKEN BY THE ASSESSEE IS ACCORDINGLY REJECTED. 5.2.7IN VIEW OF THE ABOVE DISCUSSION WE CONFIRM THE ADJUSTMENT CARRIED OUT BY THE AO IN PURSUANCE OF THE ORDER OF THE TPO IN P RINCIPLE SUBJECT TO VERIFICATION OF THE COMPUTATIONAL ERROR' AS CLAIMED BY THE APPLICANT. A GLANCE AT THE ORDER OF THE DRP SHOWS THAT THE ORD ER IS A NON SPEAKING ORDER AND IT HAS NOT GIVEN ANY REASONS FOR ARRIVING AT IT S CONCLUSION.IN PARA NO.5.2.1.THE DRP TALKS OF FAILURE OF THE ASSESSEE T O SUBMIT EVEN A SINGLE 21 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) EVIDENCE TO PROVE THAT IT HAD RECEIVED ANY SERVICE S FROM ITS AE IN LIEU OF WHICH THE PAYMENT WAS MADE TO THE AE IN SPITE OF BEING G IVEN A NUMBER OF OPPORTUNITIES BY THE TPO.WE FIND THAT DRP HAS NOT MENTIONED ANYTHING ABOUT THE DOCUMENTS SUBMITTED BY THE ASSESSEE,AS ST ATED EARLIER.IN PARA 5.2.2 THE DRP HAS ISSUED DIRECTIONS BUT WE ARE NOT AWARE AS HOW FAR SAME WERE FOLLOWED BY THE OFFICERS CONCERNED.THE ASSESSEE HAS SPECIFICALLY ALLEGED THAT THE DIRECTIONS OF THE DRP WERE NOT CARRIED OUT.IN N EXT PARA I.E.PARA 5.2.3 THE DRP MENTIONS THAT THE TPO HAD RIGHTLY REJECTED THE TP STUDY BUT REASONS HAVE NOT BEEN GIVEN FOR AGREEING WITH THE VIEWS OF THE T PO ESPECIALLY WHEN THE ASSESSEE HAD MADE EXTENSIVE SUBMISSIONS STATING THA T AS HOW THE STAND TAKEN BY THE TPO WAS FLAWED.SIMILAR IS THE POSITION OF TH E NEXT PARAGRAPH.THE DRP HAS ENDORSED THE VIEWS OF THE TPO IN A VERY MECHANI CAL WAY WITHOUT GIVING ANY REASONED FINDING ON THE ARGUMENTS TAKEN BY THE ASSESSEE. THEREFORE,IN THE INTEREST OF JUSTICE WE ARE REMITTING BACK THE M ATTER TO THE FILE OF THE DRP WHO WOULD ADJUDICATE THE ISSUES RAISED BY THE ASSES SEE IN GROUNDS NO.2 TO 5 OF BY PASSING A SPEAKING AND REASONED ORDER AND AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.THE ADDITION AL EVIDENCES PRODUCED BY THE ASSESSEE BEFORE THE DRP HAVE TO BE TAKEN IN TO CONSIDERATION DURING FRESH ADJUDICATION PROCEEDINGS.GROUNDS NO.2-5 ARE ALLOWED IN FAVOUR OF THE ASSESSEE IN PART. 7.2 SUBSEQUENTLY, IN ASSESSMENT YEAR 2010-11 ALSO T HE TRIBUNAL VIDE ORDER DATED 18/12/2015(SUPRA) HAS REMANDED THE MATT ER BACK TO THE FILE OF DRP FOR FRESH ADJUDICATION FOLLOWING THE E ARLIER PRECEDENT, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10(SU PRA). IN THE INSTANT YEAR ALSO THE FACTS AS WELL AS RIVAL STANDS ARE SIMILAR TO THOSE FOR THE EARLIER ASSESSMENT YEARS AND, THEREFORE, FO LLOWING THE PRECEDENTS IN THE ASSESSEES OWN CASE FOR ASSESSMEN T YEARS 2009- 10(SUPRA) AND ASSESSMENT YEAR 2010-11 (SUPRA), THE MATTER IS REMANDED BACK TO THE FILE OF DRP TO RE-ADJUDICATE T HE ISSUE RELATING TO THE COMPUTATION OF ARMS LENGTH PRICE OF THE INTERN ATIONAL TRANSACTIONS OF PAYMENT OF CORPORATE SERVICE CHARGES TO THE ASSO CIATED ENTERPRISE IN THE LIGHT OF THE EARLIER DIRECTIONS OF THE TRIBU NAL DATED 31/08/2015(SUPRA). NEEDLESS TO SAY, THE DRP SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PASS ING AN ORDER 22 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) AFRESH AS PER LAW. THUS, IN SO FAR AS THE GROUND OF APPEAL NO.1 IS CONCERNED, THE SAME IS TREATED AS ALLOWED FOR STATI STICAL PURPOSES. 8. IN SO FAR AS THE GROUND OF APPEAL NO.2 IS CONCER NED, THE SAME RELATES TO THE ACTION OF THE ASSESSING OFFICER IN A LLOWING DEPRECIATION ON INTANGIBLE ASSETS U/S. 32(1)(II) OF THE ACT AT R S.3,85,14,551/- AS AGAINST A CLAIM OF RS.4,34,58,398/- MADE BY THE AS SESSEE. IN THE CONTEXT OF THE SAID GROUND, ASSESSEE HAS FILED AN A DDITIONAL GROUND OF APPEAL,WHICH READS AS UNDER:- ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE : 1:0 NON-GRANTING OF DEPRECIATION ON CLOSING WRITTE N DOWN VALUE OF INTANGIBLE ASSETS (VIZ. MATERIAL SUPPLY CONTRACTS, BRAND USAGE AND DISTRIBUTION NETWORK) FOR ASSESSMENT YEAR 2010-11 : 1.1 THE LEARNED AO ('ASSESSING OFFICER') ERRED IN NOT GRANTING DEPRECIATION ON CLOSING WRITTEN DOWN VALUE OF INTANGIBLE ASSETS FOR ASSESSMENT YEAR 2010-11, RESULTING IN ALLOWANCE OF DEPRECIATION ON INTANGIBLE ASSETS AT RS. 3,85,14,551 INSTEAD OF RS. 4,34,58,398 FOR THE CAPT IONED ASSESSMENT YEAR. 1:2 THAT DEPRECIATION OF RS. 49,43,848 (I.E. RS. 4, 34,58,398 LESS RS. 3,85,14,551) ON INTANGIBLE ASSETS, INADVERTENTLY NO T GRANTED BY THE LEARNED AO, BE DIRECTED TO BE ALLOWED AS DEDUCTION IN THE C APTIONED ASSESSMENT YEAR. 8.1 AT THE TIME OF HEARING LD. REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT THE ADDITIONAL GROUND OF APPEAL IS NOTHING BUT THE ISSUE ALREADY RAISED IN THE GROUND OF APPEAL NO.2 RAISED IN THE MEMO OF APPEAL, BUT IT IS BEING RAISED AS ABUNDANT CAUTI ON TO CLARIFY THE MATTER. 8.2 AT THIS STAGE, IT WOULD BE RELEVANT TO RECAPITU LATE THAT AT THE TIME OF ACQUISITION OF THE TEXTILE EFFECTS BUSINESS FROM CIBA SPECIALITY 23 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) LTD. AND DIAMOND DYECHEM LTD. FOR A LUMPSUM CONSIDE RATION, ASSESSEE HAD CLAIMED DEPRECIATION IN RELATION TO TH E VALUE OF INTANGIBLES ACQUIRED, NAMELY, DISTRIBUTION NET-WORK AND MATERIAL CONTRACT, GOODWILL AND THE VALUE OF THE BRANDS. IT WAS POINTED OUT THAT SO FAR AS THE COST RELATING TO THE ACQUISITION OF BRAND WAS CONCERNED, AN ALTERNATE CLAIM WAS PUT UP THAT IT MA Y BE ALLOWED AS REVENUE EXPENDITURE BECAUSE THE SAME INVOLVED USE O F BRAND FOR LIMITED PERIOD OF TWO YEARS. THE LD. REPRESENTATIV E FOR THE ASSESSEE EXPLAINED THAT IN ASSESSMENT YEAR 2007-08, THE TRI BUNAL ALLOWED THE CLAIM OF ASSESSEE FOR DEPRECIATION ON INTANGIBLES I NCLUDING THE VALUE OF BRAND AND THE ALTERNATE PLEA FOR ALLOWING COST OF B RAND AS REVENUE EXPENDITURE HAS BEEN DISMISSED. 8.3 IN SO FAR AS ADMISSION OF ADDITIONAL GROUND IS CONCERNED, IT DOES NOT RAISE ANY NEW ISSUE, INASMUCH AS, IT IS SUBSUM ED IN THE GROUND OF APPEAL NO.2 ORIGINALLY RAISED BY THE ASSESSEE IN TH E MEMO OF APPEAL, AND IS THUS ADMITTED. ON THIS ASPECT, WE DIRECT TH E ASSESSING OFFICER TO RE-WORK THE DEPRECIATION ALLOWABLE ON THE INTANG IBLES FOLLOWING THE PRECEDENTS IN THE ASESSEES OWN CASE FOR THE EARLIE R ASSESSMENT YEARS. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS FOR STATIST ICAL PURPOSES. 9. THE LAST ISSUE RAISED BY THE ASSESSEE IS WITH RE GARD TO A DISALLOWANCE OF RS.5,95,20,534/- MADE BY THE INCOME -TAX AUTHORITIES BY INVOKING THE PROVISIONS OF SECTION 14A OF THE AC T. IN THIS CONTEXT, BRIEF FACTS ARE THAT ASSESSEE WAS FOUND TO HAVE MAD E INVESTMENT IN THE EQUITY SHARES OF A SUBSIDIARY BARODA TEXTILE EF FECTS PVT. LTD. AND AN ASSOCIATE CONCERN, NAMELY, M/S. SWATI ORGANICS. IT IS ALSO NOTICED BY 24 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) THE LOWER AUTHORITIES THAT SUCH INVESTMENTS WERE MA DE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2010 -11 AND THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION NO INVESTMENTS HAVE BEEN MADE. THE A SSESSEE HAD MADE SUO-MUTO DISALLOWANCE U/S. 14A OF THE ACT BY I DENTIFYING 50% OF THE TRAVEL EXPENSES I.E. RS.45,412/- AS EXPENDITURE INCURRED TOWARDS EARNING EXEMPT INCOME FROM THE SAID INVESTMENT. HO WEVER, THE ASSESSING OFFICER HAS PROCEEDED TO MAKE THE DISALLO WANCE U/S.14A OF THE ACT BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE INCOME TAX RULES,1962. THE SAID ASPECT HAS ALSO AFFIRMED BY THE DRP AND HENCE, IN THE FINAL ASSESSMENT ORDER A DISALLOWANCE OF RS.5,95,20,534/- HAS BEEN MADE. 9.1 AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT DURING THE YEAR UNDER CONSIDERATIO N, NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED AND, THEREFORE, FOLLOWING THE DECISIONS OF THE HONBLE DELHI HIGH COURT IN THE C ASE OF CHEMINVEST LTD. VS. CIT, 317 ITR 86(DEL)& HOLCIM INDIA (PVT.) LTD., ITA NO.486 OF 2014 (DEL) THE DISALLOWANCE IS TOTALLY UNWARRANTED. APART THEREFROM, IT HAS BEEN POINTED OUT THAT SIMILAR POSITION PREVA ILED IN ASSESSMENT YEAR 2010-11 ALSO, WHEREIN THE TRIBUNAL VIDE ITS O RDER DATED 18/12/2015(SUPRA) HAS DELETED THE DISALLOWANCE MADE U/S. 14A OF THE ACT. IN THIS CONTEXT, THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 18/12/2015 HAS BEEN ADVERTED TO:- 7.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUD ICIAL DECISIONS CITED. THE ASSESSEES SUBMISSION THAT IT HAS NOT EARNED RECEIV ED ANY EXEMPT DIVIDEND INCOME 25 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) DURING THE YEAR UNDER CONSIDERATION IS NOT CONTROVE RTED. THAT THE ASSESSEE HAS MADE INVESTMENTS IN ITS SUBSIDIARIES IS IN THE FOR M OF STRATEGIC INVESTMENTS IS ALSO NOT DISPUTED. THE CONTENTION OF THE ASSESSEE IS TH AT SINCE IT HAS NOT EARNED ANY EXEMPT DIVIDEND INCOME DURING THE YEAR, DISALLOWANC E UNDER SECTION 14A CANNOT BE MADE. IN THIS REGARD, THE ASSESSEE HAD PLACED R ELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD.(SUPRA). 7.3.2 IN THIS DECISION, THE HONBLE DELHI HIGH CO URT REFERRED AND FOLLOWED TO ITS OWN DECISION IN THE CASE OF HOLCIM INDIA (P) LTD.(S UPRA) FOR ASSESSMENT YEAR 2008- 09, WHEREIN THE SIMILAR QUESTION AROSE, VIZ. WHETHE R THE TRIBUNAL WAS JUSTIFIED IN DELETING THE DISALLOWANCE U/S.14A OF THE ACT, WHEN NO EXEMPT INCOME WAS EARNED, RECEIVED OR RECEIVABLE BY THE ASSESSEE IN THE RELEV ANT YEAR. THE HONBLE HIGH COURT OBSERVES THAT IN THE CASE OF HOLCIM INDIA (P) LTD.( SUPRA) THE COURT HAD REFERRED TO THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD.( SUPRA) AND OF THE ITAT SPECIAL BENCH IN THE VERY SAME CASE I.E. CHEMINVEST LTD. VS . CIT(2009) 317 ITR 86 AND ALSO TO THE DECISION OF HIGH COURTS AGAINST REVENUE I. E. LAKHANI MARKETING INCL.(SUPRA), SHIVAM MOTORS (P) LTD. (SUPRA), ETC. AFTER CONSIDERING THE VARIOUS DECISIONS REFERRED TO AT LENGTH, THE HONBLE COURT AT PARA 23 OF ITS ORDER HELD AS UNDER:- 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREIN BEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EX PRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF TH E ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE P URPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID IN COME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS R ECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 7.3.3 FOLLOWING THE AFORESAID DECISIONS OF THE HON BLE DELHI HIGH COURT IN THE CASES OF HOLCIM INDIA (P) LTD.(SUPRA) FOR ASSESSMEN T YEAR 2008-09 AND CHEMINVEST LTD. (SUPRA) WE HOLD THAT SINCE THE ASSESSEE HAS N OT EARNED ANY EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION, I.E. ASSESSMENT YEAR 2010-11, NO DISALLOWANCE U/S. 14A OF THE ACT CAN BE MADE AND ACCORDINGLY DELETE T HE DISALLOWANCE MADE IN THIS REGARD BY THE AUTHORITIES BELOW. CONSEQUENTLY, GRO UND NO.4(1) RAISED BY THE ASSESSEE IS ALLOWED. SINCE ASSESSEES GRIEVANCE IS ADDRESSED, GROUND S 4(2) AND (3) ARE NOW ACADEMIC IN NATURE AND ARE NOT BEING SEPAR ATELY ADJUDICATED. 9.2 THE LD. CIT-DR HAS NOT DISPUTED THE FACT-SITUAT ION THAT SIMILAR ASPECT HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSES SMENT YEAR 2010- 11, BUT REITERATED THE DISALLOWANCE MADE BY THE LOW ER AUTHORITIES BY APPLYING SECTION 14A OF THE ACT R.W. RULE 8D OF THE RULES. 26 ITA NO.5637/MUM/2015 382/MUM/2016 (ASSESSMENT YEAR 2011-12) 9.3 THE FACTUM OF THE ASSESSEE NOT HAVING EARNED OR RECEIVED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION I S NOT IN DISPUTE. THEREFORE, IN VIEW OF THE JUDGMENT OF THE HONBLE D ELHI HIGH COURT IN THE CASE OF CHEMINVEST (SUPRA) AS WELL AS THE DECI SION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 (SUPRA) NO DISALLOWANCE U/S. 14A IS WARRANTED. AS A CONSEQUEN CE, WE SET- ASIDE THE ORDER OF THE ASSESSING OFFICER WITH A DIRECTION TO DELETE THE IMPUGNED ADDITION. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS. 10. RESULTANTLY, WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/01/2017 SD/- SD/- ( AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 31/01/2017 VM , SR. PS 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