ADDL CIT 10(2), MUMBAI V. KOCH CHEMICAL TECHNOLOGY GROUP (i) P. LTD, MUMBAI

ITA 8091/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3100 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Bench Allotted: K
• Next Hearing Date: 29-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-12-2011
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Initiation of penalty proceedings; Wholly owned subsidiary; Fair market value; Valuation report
• Section: 92C; 143(3); 234B; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER A ND SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 8091 /MUM./ 2011 ( ASSESSMENT YEAR : 200 7 0 8 ) ASSTT. COMMISSIONER OF INCOME TAX RANGE 10(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED, 10, CORPORATE PARK II CST NO.354, S.T. ROAD CHEMBUR, MUMBAI 400 071 PAN AABCK3688G .... RESPONDENT ITA NO.7236/MUM./2010 ( ASSESSMENT YEAR : 2006 07 ) M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED, 10, CORPORATE PARK II CST NO.354, S.T. ROAD CHEMBUR, MUMBAI 400 071 PAN AABCK3688G .. APPELLANT V/S M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 2 ASSTT. COMMISSIONER OF INCOME TAX RANGE 10(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO.7958/MUM./2011 ( ASSESSMENT YEAR : 2007 08 ) M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED, 10, CORPORATE PARK II CST NO.354, S.T. ROAD CHEMBUR, MUMBAI 400 071 PAN AABCK3688G .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 10(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT REVENUE BY : SHRI N.K. CHAND SSESSEE BY : SHRI MILIN K. MEHTA DATE OF HEARING 10.09.2015 DATE OF ORDER 30.09.2015 O R D E R PER SAKTIJIT DEY, J.M. TH E S E ARE GROUP OF THREE APPEALS, OUT OF WHICH, TWO APPEALS BELONG TO THE SAME ASSESSEE AND THE REMAINING APPEAL IS BY THE REVENUE. APPEAL PERTAINING TO THE ASSESSMENT YEAR 2006 07 IS BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) PURSUANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP), WHEREAS THERE ARE CROSS APPEALS FILED AGAINST THE ORDER DATED 12 TH MAY 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 15, M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 3 MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2007 08. SINCE THE F ACTS AND ISSUES ARE MORE OR LESS COMMON, THESE APPEALS HAVE BEEN CLUBBED TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 7236/MUM/2010 2. IN THE PRESENT APPEAL T HE ASSESSEE HAS RAISED THREE ISSUES IN THIS APPEAL WHICH ARE AS UNDER: I) DISALLOWANCE OF 50% OUT OF PURCHASE VALUE PAID FROM PURCHASE OF MACHINERY FROM THE A.E; (GROUND NOS. 1.1 TO 1.5) II) DISALLOWANCE OF AMOUNT PAID TOWARDS COST SHARING ARRANGEMENT A ND IT SUPPORT ( GROUND NOS. 2.1 & 2.2) III) DISALLOWANCE OF DEPRECIATION ON GOODWILL. (GROUND NO. 3). 2.1 I T IS WORTH MENTIONING, THOUGH, THE ASSESSEE, DURING THE RELEVANT PREVIOUS YEAR, ENTERED INTO A NUMBER OF INTERNATIONAL TRANSACTION S WITH ITS A.E., BUT SINCE THE TRANSFER PRICING OFFICER MADE ADJUSTMENT TO THE ARM'S LENGTH PRIC E IN RESPECT OF TWO CATEGORIES OF INTERNATIONAL TRANSACTIONS I.E., PURCHASE OF FIXED ASSETS AND PAYMENT MADE UNDER COST SHARING AGREEMENT, WE WILL DISCUSS FACTS REL EVANT TO THE SE TWO ISSUES ONLY. 3. AS FAR AS THE FIRST ISSUE RAISED IN GROUND NOS. 1.1 TO 1.5 IS CONCERNED, BRIEFLY THE FACTS ARE, THE ASSESSEE AN INDIAN COMPANY IS A WHOLLY OWNED SUBSIDIARY OF KOCH GLISTSCH, MAURITIUS, WHICH IN TURN IS M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 4 ENTIRELY HELD BY KOCH ENG INEERING CO. INC., U.S.A. AS STATED, ASSESSEE IS BASICALLY ENGAGED IN THE BUSINESS OF MANUFACTUR E OF MASS TRANSFER EQUIPMENTS AND ALSO IS ENGAGED IN DESIGNING AND MANUFACTURE OF MASS TRANSFER PRODUCT FOR PROCESS SOLUTIONS AS WELL AS CRITICAL APPLICATIONS PROCESS, DESIGN, ENGINEERING AND FIELD SERVICE FACILITIES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 TH NOVEMBER 2006, DECLARING TOTAL INCOME OF RS. 10,29,75,143. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER NOTICING THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS A.E., MADE A REFERENCE TO THE TRANSFER PRICING OFFICER FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER NOTICED THAT ASSESSEE DURING THE YEAR HAS INCURRED EXPENDITURE OF RS. 1,10,45,668, TOWARDS PURCHASE OF FIXED ASSETS. HE F OU ND THAT THE ASSESSEE HAS BENCH MARKED THE TRANSACTIONS BY ADOPTING TRANSACTION NET MARGIN METHOD (TNM M ). THE TRANSFER PRICING OFFICER OBSERVED THAT THE ASSESSEE HAD PURCHASED TWO SECOND HAND MACHINER IES WORTH RS. 98,59,634 AND RS. 1,24,272, FROM ITS A.E. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WITH DETAIL TO SHOW HOW THE PRICES OF THE MACHI NES ARE ARRIVED INCLUDING THE METHOD OF VALUATION, ITS PROCESS, ETC. IN RESPONSE TO THE QUERY RAISED BY THE TRANSFER PRICING OFFICER, THE ASSESSEE THOUGH SUBMITTED A REPORT FROM THE VALUER BUT THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE VALUER HA S NOT PROVIDED THE BASIS THE BASIS FOR ARRIVING AT THE VALUATION. HE OBSERVED THAT ON WHAT BASIS THE FAIR MARKET VALUE HAVING REGARD TO THE FAIR MARKET VALUE OF SIMILAR NEW MACHINERY IN THE OPEN MARKET AND DEPRECIATION THEREON FOR THE PERIOD OF USE HAS BEE N TAKEN INTO CONSIDERATION BY THE VALUER. ALLEGING THAT THE ASSESSEE DID NOT FURNISH THE RELEVANT DETAILS RELATING TO THE VALUE OF SECOND HAND MACHINERY, HE OPINED THAT AN ADJUSTMENT TO THE EXTENT OF 50% OF THE VALUE OF PURCHASES OF THE SECOND HAND MACHINE RY AMOUNTING TO RS. 49,91,953, IS REQUIRED TO BE MADE. IN TERMS WITH THE ADJUSTMENT MADE M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 5 TO THE VALUE OF THE SECOND HAND MACHINERY, THE ASSESSING OFFICER ALSO MADE THE DISALLOWANCE IN THE DRAFT ASSESSMENT ORDER. 4. BEING AGGRIEVED OF SUCH DISALLOWANCE, TH E ASSESSEE RAISED OBJECTION BEFORE THE DRP. BEFORE THE DRP, THOUGH THE ASSESSEE REITERATED THE STAND TAKEN BEFORE TPO BUT THE DRP ADOPTING THE REASONING OF THE TRANSFER PRICING OFFICER UPHELD THE AD HOC DISALLOWANCE OF 50% OF THE COST OF MACHINERY . 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE HAD PURCHASED CERTAIN SECOND HAND MACHINERIES FROM ITS A.E. DURING THE YEAR . IT WAS SUBMITTED , THESE MACHINERIES W ERE ACQUIRED BY THE A.E. IN EARLIER YEARS AND FROM THE MAKE AND MOD E L OF THE MACHINERIES, IT APPEARS THAT THEY ARE OF THE YEAR 1997, 1998, 2000 AND 2004. HE SUBMITTED THAT SINCE THESE WERE ACQUIRED BY THE A E AND USED BY IT, THE ASSESSEE, AT THE TIME OF PURCHASE, GO T THEM SURVEYED THROUGH A SURVEYOR AND THEREAFTER GOT THEM VALUED BY AN APPROVED VALUER IN U.S.A. AND AS PER THE VALUATION DONE BY THE APPROVED VALUER TAKING INTO ACCOUNT THE FAIR MARKET VALUE OF THE MACHINERIES AS ON DATE OF PURCHASE, THE ASSESSEE HAD PAID THE PURCHASE PRICE TO THE A.E. IT WAS SUBMITTED , THOUGH , THE ASSESSEE, HAD PURCHASED SOME OTHER SECOND HAND MACHINERIES FROM THE A.ES BUT THE TRANSFER PRICING OFFICER , EXCEPT THESE TWO ITEMS OF SECOND HAND MACHINERIES, ACCEPTED THE VALUE OF ALL OTHER MACHINERIES. IN THIS CONTEXT, THE LEARNED COUNSEL DREW OUR A TTENTION TO THE DETAILS OF PURCHASE OF MACHINERIES , A COPY OF WHICH IS AT PAGE 278 OF THE PAPER BOOK. IT WAS SUBMITTED , WHEN THE TRANSFER PRICING OFFICER IS ACCEPTING THE VALUE OF OTHER MACHINERIES AS PER THE VALUATION REPORT, THERE IS NO REASON WHY HE SHOULD REJECT THE VALUE OF TWO OF THE MACHINERIES PURCHASED BY THE ASSESSEE. THE LEARNED COUNSEL, TAKING US THROUGH THE VALUATION REPORT OF THE APPROVED VALUER, SUBMITTED THAT THE REPORT, AFTER TAKING INTO CONSIDERATION THE FAIR MARKET VALUE OF THE MAC HINERIES , HAS ARRIVED AT THE VALUE OF EACH OF THE MACHINERIES PURCHASED BY THE ASSESSEE FROM M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 6 ITS A.E. IT WAS SUBMITTED THAT THE PRICE PAID BY THE ASSESSEE TO ITS A.E. TOWARDS PURCHASE OF MACHINERIES IS THE SAME WHICH THE ASSESSEE WOULD HAVE PAID TO A THIRD PARTY IF SUCH MACHINERIES WOULD HAVE BEEN PURCHASED FROM THEM. IN THIS CONTEXT, THE LEARNED COUNSEL ALSO REFERRED TO THE INVOICE OF PURCHASES TO ESTABLISH THE FACT THAT THE PRICE PAID TOWARDS THE COST OF MACHINERIES IS THE ACTUAL MARKET VALUE IN TERMS WIT H THE VALUATION REPORT. HE SUBMITTED THAT IF THE TRANSFER PRICING OFFICER HAD ANY RESERVATIONS WITH REGARD TO THE VALUATION MADE BY THE APPROVED VALUER, THEN HE COULD HAVE REFERRED THE VALUATION TO THE DEPARTMENTAL VALUATION OFFICER (DVO). THE TRANSFER PRI CING OFFICER NOT BEING AN EXPERT IN THE MATTER OF VALUATION COULD NOT HAVE DISALLOWED 50% OF THE PURCHASE PRICE ON AD HOC BASIS. IN THIS CONTEXT, HE RELIED UPON A DECISION OF ITAT, HYDERABAD BENCH IN CASE OF TECUMSEH PRODUCTS LTD. VS. ACIT, ITA NO. 1686/HY D/2010, DT. 13/11/2013. HE SUBMITTED , WHILE DETERMINING THE ARM'S LENGTH PRICE, THE TRANSFER PRICING OFFICER HAS TO FOLLOW ANY ONE OF THE METHODS PRESCRIBED UNDER THE PROVISIONS OF THE ACT, WHEREAS, IN THE PRESENT CASE, WITHOUT FOLLOWING ANY METHOD OR BRIN G ING ANY COMPARABLE, THE TRANSFER PRICING OFFICER HAS DETERMINED THE VALUE ON ESTIMATE BASIS WHICH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. HE, THEREFORE, SUBMITTED THAT THE DISALLOWANCE IS NOT LEGALLY SUSTAINABLE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED BEFORE US THAT IN THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, THE ASSESSEE DID NOT FURNISH ANY DETAILS WITH REGARD TO THE YEAR OF PURCHASE OF THE MACHINERIES BY THE A. E. AND THE DEPRECIATED VALUE OF THE MACHINERIES IN THE BOOKS OF THE A.E. MOREOVER, THE VALUATION REPORT ALSO DOES NOT INDICATE THE BASIS ON WHICH APPROVED VALUER DETERMINED THE VALUE OF MACHINERIES. I N THE ABSENCE OF ANY DETAILS OR EVIDENCE THE APPROVED VA LUERS REPORT CANNOT BE ACCEPTED. HE, THEREFORE, SUBMITTED THAT IN THE GIVEN CIRCUMSTANCES, THE TRANSFER PRICING OFFICER WAS COMPETENT TO M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 7 DETERMINE THE VALUE OF THE MACHINERIES IN THE MANNER HE HAS DETERMINED. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDERS OF THE REVENUE AUTHORITIES. THE UNDISPUTED FACTS ARE , THE ASSESSEE, DURING THE YEAR, HAD PURCHASED CERTAIN FIXED ASSETS I.E., MACHINERIES FROM THIRD PARTIES AS WELL AS ITS A.ES. IT IS TO BE OBSERVED THAT THE ASSESSEE, DURING THE YEAR, PLACED ORDERS WITH ITS A.E. FOR PURCHASE OF MACHINERIES WORTH U.S. $224914.84 AND IN TERMS WITH THE PURCHASE ORDERS OF THE ASSESSEE, THE A.E. SUPPLIED THE MACHINERIES. IT APPEARS , OUT OF THE MACHINERIES S UPPLIED BY THE A.ES, WHICH ARE SECOND HAND, THE TRANSFER PRICING OFFICER HAS ACCEPTED THE PURCHASE VALUE IN RESPECT OF SOME MACHINERIES , WHEREAS , IN RESPECT OF TWO MACHINERIES WORTH RS. 1,24,611 AND RS. 98,59,634 , H E HAS RAISED OBJECTIONS BY OBSERVING THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE VALUE OF THE MACHINERIES. IT IS TO BE NOTED THAT THE INVOICES SUBMITTED BY THE ASSESSEE INDICATE THAT THE ASSESSEE HAS PAID THE PRICE FOR PURCHASE OF MACHINERIES TO THE A.E. AS CLAIMED BY THE ASSESSEE. IT IS ALSO TO BE NOTED THAT THE PURCHASE PRICE PAID BY THE ASSESSEE IS SUPPORTED BY REPORT OF APPROVED VALUER FROM THE U.S.A. THEREFORE, IT IS VERY MUCH EVIDENT THAT TO SUBSTANTIATE THE PRICE PAID FOR PURCHASE OF CERTAIN SECOND HAND MACHINERIES FROM THE A.E., T HE ASSESSEE HAS PRODUCED DOCUMENTARY EVIDENCE S INCLUDING THE VALUATION REPORT. WHEREAS, THE TRANSFER PRICING OFFICER, APART FROM MAKING SOME GENERAL OBSERVATIONS TO THE EFFECT THAT THE DETAILS OF DATE OF PURCHASE BY THE A.E., DEPRECIATED VALUE IN ITS BOOK S ARE NOT AVAILABLE, HAS QUANTIFIED THE VALUE OF THE TWO MACHINERIES AT 50% OF THE VALUE CLAIMED BY THE ASSESSEE. ON WHAT BASIS HE ADOPTED 50% OF THE VALUE AS ALP HAS NOT BEEN PROV IDED BY THE TRANSFER PRICING OFFICER. IN OUR VIEW, WHEN THE ASSESSEE HAS S UBMITTED A REPORT FROM THE APPROVED VALUER INDICATING THE FAIR MARKET VALUE OF MACHINERIES PURCHASED, BEFORE REJECTING SUCH VALUATION REPORT, THE TRANSFER PRICING OFFICER WAS DUT Y M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 8 BOUND TO REFER THE VALUATION OF THE MACHINERIES TO THE DVO AS PER THE PROCE DURE LAID DOWN UNDER THE STATUTE. THE TRANSFER PRICING OFFICER NOT BEING AN EXPERT TO DETERMINE THE VALUE OF MACHINERIES AND THERE BEING NO OTHER MATERIAL BROUGHT ON RECORD BY HIM TO DEMONSTRATE THAT HE MADE ENQUIRY OF ANY KIND TO ASCERTAIN THE FAIR MARKET VALUE OF MACHINERIES , HE COULD NOT HAVE QUANTIFIED THE VALUE OF THE MACHINERIES AT 50% OF THE VALUE SHOWN BY THE ASSESSEE. THE DRP, IN OUR VIEW, HAS ALSO SUSTAINED THE DISALLOWANCE WITHOUT PROPER APPLICATION OF MIND AND IN A MECHANICAL MANNER. THE TRIBUNAL, HYDERABAD BENCH, IN TEC U MSEH PRODUCTS LTD. V/S ACIT, ITA NO.1686/HYD./2010, DATED 13 TH NOVEMBER 2013, WHILE CONSIDERING MORE OR LESS SIMILAR NATURE OF DISPUTE, HAD OBSERVED IN THE FOLLOW ING MANNER: F) DISALLOWANCE OF ASSESSEES CLAIM FOR DEPRECIATION. I) AS BRIEFLY STATED ABOVE, ASSESSEE HAS IMPORTED CERTAIN MACHINERY (OLD AS WELL AS NEW MACHINERY) FROM TPC USA. THE PURCHASE PRICE OF THESE MACHINERIES WAS BASED ON FAIR MARKET VALUE A ND SUPPORTED BY AN INDEPENDENT VALUERS REPORT M/S SGS GLOBAL TRADE SOLUTIONS INC., WHO CERTIFIED SECOND HAND MACHINERY PROCURED BY ASSESSEE. AS ASSESSEE SUBMITTED BEFORE THE AUTHORITIES, THE COMPARATIVE ANALYSIS OF THE MACHINERY PREPARED INDICATES THAT PU RCHASE PRICE PAID TO M/S TPC USA IS LOWER THAN THE VALUE DETERMINED BY M/S SGS GLOBAL TRADE SOLUTIONS. ASSESSEE PAID CUSTOMS DUTY AND ALSO COUNTERVAILING DUTY AND THE VALUATION WAS ACCEPTED BY THE AUTHORITIES AT THE TIME OF IMPORT. THOUGH TPO AS WELL AS DR P WERE OF THE OPINION THAT THE MACHINERY DOES NOT HAVE ANY VALUE, WE DO NOT UNDERSTAND ON WHAT BASIS THEY HAVE COME TO THIS OPINION. THERE IS NO DISPUTE WITH THE FACT THAT THE MACHINERY WAS IMPORTED AND USED IN ASSESSEES BUSINESS FOR MANUFACTURING OF ITS COMPRESSORS / PARTS, SO, THERE IS NO DISPUTE WITH REFERENCE TO USAGE OF SECOND HAND MACHINERY. IT IS ALSO NOT THE CASE OF THE REVENUE THAT MACHINERY IMPORTED WAS KEPT IDLE AND ASSESSEE UNNECESSARILY PAID THE AMOUNT TO THE AE. THIS BEING SO, THE VALUE PAID BY ASSESSEE DULY SUPPORTED BY VALUATION REPORT CANNOT BE IGNORED. IN CASE OF ANY DOUBT ON THE MATTER, THE BEST WAY IS TO REFER THE MACHINERY TO THE VALUATION OFFICER UNDER THE IT ACT. WITHOUT DOING SO, THE TPO OR THE DRP HAS NO BASE TO DETERMINE THE VALUE AT NIL M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 9 AND CONSEQUENTLY DENYING THE DEPRECIATION CLAIM OF THE ASSESSEE WHILE AT THE SAME TIME, THE PAYMENT OF CUSTOM DUTY AND COUNTERVAILING DUTY ARE CONSIDERED AS VALUE OF COST. NOT ONLY THAT, AS SUBMITTED BY ASSESSEE AND AS SEEN FROM THE TABLE FURNISHED, NEW MACHINERY WORTH US$ 500,965 WAS ALSO TREATED AS OLD MACHINERY AND VALUATION WAS DETERMINED AT NIL. THIS SHOWS NON - APPLICATION OF MIND BY TPO AS WELL AS BY DRP. II) WHEN ASSESSEE RAISED SPECIFIC OBJECTIONS ON ALL ISSUES RUNNING TO 67 PAGES, THE DRP SIM PLY REJECTED THEM WITHOUT EVEN COMMENTING ABOUT FACTUAL ISSUES ALSO. THE PURPOSE FOR WHICH DRP IS CONSTITUTED GETS DEFEATED IF DRP DOES NOT APPLY ITS MIND AND ENDORSE THE ORDERS OF THE TPO WITHOUT EVEN EXAMINING THE FACTUAL ASPECTS OF THE SUBMISSIONS AND J UDICIAL PRINCIPLES RELIED UPON. IN THESE CIRCUMSTANCES, WE CANNOT APPROVE THE ACTION OF THE TPO/DRP AS THERE IS NO OTHER REPORT BY ANY VALUATION OFFICER THAT CAN BE TAKEN AS EXTERNAL CUP AND THE VALUE AS PAID BY ASSESSEE CAN BE ACCEPTED AS SUCH. FURTHER TH E PRICE PAID BEING LESSER THAN VALUATION OFFICERS VALUE AVAILABLE, THE SAME CAN BE ACCEPTED AS ALP. III) THE LEARNED COUNSEL IN THE COURSE OF ARGUMENTS RELIED ON THE DECISION OF THE COORDINATE BENCH OF ITAT, MUMBAI IN THE CASE OF BALLAST NEDAM DREDGING I N ITA NOS. 6531/MUM/06 & 1591/MUM/08, ORDER DATED 31 - 01 - 2013 TO SUBMIT THAT IN THE ABSENCE OF ANY CONTRARY CERTIFICATE, THE CERTIFICATE RELIED UPON BY ASSESSEE HAS TO BE ACCEPTED. IN THE SAID CASE, ASSESSEE HAS FILED TWO CERTIFICATES AND TPO TWEAKED WITH T WO CERTIFICATES SO AS TO ARRIVE AT THE SO CALLED DIFFERENCE IN THE ALP. ON THOSE FACTS, IT WAS HELD THAT IF PROPER ANALYSIS WAS MADE THERE WOULD NOT BE ANY DIFFERENCE FROM THE PRICE PAID TO THE PRICE DETERMINED, AS DEMONSTRATED BEFORE THE TPO BOTH ON THE BASIS OF THE THIRD PARTY QUOTATIONS WHICH ARE CONSIDERED AS INTERNAL CUP AND THE VG BOUW CERTIFICATES AS EXTERNAL CUP. UNDER BOTH THE WORKINGS ASSESSEE IS ABLE TO JUSTIFY THE PRICE PAID AND ON THIS REASON ALSO, WE HAVE TO ACCEPT ASSESSEES CONTENTIONS. SI MILARLY, IN THE CASE UNDER CONSIDERATION, ASSESSEE JUSTIFIED THE PRICE PAID BY WAY OF A CERTIFICATE WHICH CAN BE CONSIDERED AS EXTERNAL CUP. SINCE TPO/DRP DID NOT RELY ON ANY OTHER CERTIFICATE AND IN THE ABSENCE OF ANY CONTRARY INFORMATION, PRICE PAID BY A SSESSEE, WHICH WAS LESSER THAN THE VALUE MENTIONED IN THE CERTIFICATE CAN BE ACCEPTED AS SUCH. FOR THESE REASONS, WE ALLOW ASSESSEES GROUND AND DIRECT THE AO/TPO TO ACCEPT ASSESSEES VALUATION AND ALLOW DEPRECIATION AS CLAIMED. GROUNDS PERTAINING TO THIS ISSUE ARE ALLOWED. (EMPHASIS BY US) M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 10 7.1 MOREOVER, SECTION 92C OF THE ACT MANDATES DETERMINATION OF ALP BY APPLYING ANY ONE OF THE SIX MODES PROVIDED UNDER CLAUSE (A) TO (F) OF SECTION 92C(1). AS FAR AS CLAUSE (F) IS CONCERNED, IT IS NOT APPLICABLE TO TH E AY UNDER CONSIDERATION AS THE BOARD HAS NOT PRESCRIBED ANY SUCH METHOD. THUS, IT WAS INCUMBENT UPON THE TPO TO DETERMINE THE ALP BY APPLY ING ANY ONE OF THE METHOD AS PRESCRIBED UNDER SECTION 92C(1)(A) TO (E). IN THE PRESENT CASE, ADMITTEDLY THE ASSESSEE HAS BENCHMARKED THE TRANSACTION WITH AE BY APPLYING TNMM. ON CAREFULLY GOING THROUGH THE ORDER OF TPO IT APPEARS, HE HAS NOT REJECTED TNMM AS MOST APPROPRIATE METHOD. IN FACT, TPO IS TOTALLY SILENT ON WHAT METHOD HE HAS ADOPTED FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTION RELATING TO PURCHASE OF MACHINERIES. TPO HAS NOT BROUGHT EVEN A SINGLE INSTANCE OF COMPARABLE UNCONTROLLED TRAN SAC TION TO JUSTIFY THE ALP DETERMINED BY HIM. THE DETERMINATION OF ALP ON ADHOC BASIS IS NOT ONE OF THE METHOD PRESCRIBED UNDER THE PROVISIONS AS EXIST ED DURING THE RELEVANT ASSESSMENT YEAR. 7.2 WE MAY OBSERVE, T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAD SU BMITTED BEFORE US THAT AT THIS STAGE ALSO, THE MATTER CAN BE REMITTED BACK TO THE FILE OF THE TRANSFER PRICING OFFICER FOR MAKING A REFERENCE TO THE DVO FOR VALUATION OF ASSETS . HOWEVER, WE ARE UNABLE TO ACCEPT SUCH CONTENTION OF THE LEARNED DEPARTMENTAL R EPRESENTATIVE FOR THE SIMPLE REASON THAT WHEN THE TRANSFER PRICING OFFICER HAS FAILED TO REFER THE VALUATION TO THE DVO AND ON THE CONTRARY HAS PROCEEDED TO QUANTIFY THE VALUE OF THE MACHINERIES AT 50% BY ADOPTING A METHOD WHICH IS NOT IN CONFORMITY WITH T HE STATUTORY PROVISIONS, IN M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 11 OUR VIEW, THE MATTER CANNOT BE RESTORED BACK TO HIM AGAIN FOR GIVING HIM A SECOND INNING S. CONSIDERING THE FACT THAT 50% DISALLOWANCE MADE OUT OF THE PURCHASE VALUE OF MACHINERIES IS WITHOUT ANY BASIS AND IN VIOLATION OF STATUTO RY PROVISION , WE ARE INCLINED TO DELETE THE ADDITION MADE ON ACCOUNT OF ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER BY DISALLOWING 50% OF PURCHASE VALUE OF SECOND HAND MACHINERIES. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8. AS FAR AS THE SECOND ISSUE RAIS ED IN GROUND NOS. 2.1 TO 2.2 IS CONCERNED, THE TRANSFER PRICING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID AMOUNT S OF RS. 33,72,714, AND RS. 8,21,370 ON ACCOUNT OF COST SHARING ARRANGEME NT TOWARDS INFORMATION TECHNOLOGY, COMMERCIAL, FINANCE, LEGAL AND ADMINISTRATIVE SUPPORT. IT WAS SUBMITTED , THE ASSESSEE HAS ENTERED INTO COST SHARING AGREEMENT WITH THE A.E. WHICH IS COMMON FOR THE ENTIRE GROUP AND THE A.E. WAS REIMBURSED THE COST ON ACTU AL BASIS. THE TRANSFER PRICING OFFICER OBSERVED, THOUGH, THE ASSESSEE WAS CALLED UPON TO FURNISH DETAILS AND EVIDENCE S TO ESTABLISH RECEIPT OF SERVICES BUT THE ASSESSEE COULD NOT SUBSTANTIATE WHAT BENEFIT IT RECEIVED FROM THE A.E. HE ALSO OBSERVED THAT CER TAIN DOCUMENTS SUBMITTED BY THE ASSESSEE DO NOT PERTAIN TO INDIA. ALLEGING THAT THE INFORMATION SUBMITTED BY THE ASSESSEE IS IN COMPLE TE AND SOME OF THEM DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION, HE PROCEEDED TO DETERMINE THE ARM'S LENGTH PRICE OF THE TRANSACTIONS AT NIL. AS A RESULT OF SUCH DETERMINATION OF ARM'S LENGTH PRICE BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER ALSO ADDED THE AMOUNTS OF RS. 33,72,214 AND RS. 8,21,370, TO ASSESSEES INCOME OF THE YEAR. THE DRP ALSO SUSTAINED THE AD DITION MADE ON ACCOUNT OF DETERMINATION OF ARM'S LENGTH PRICE AT NIL BY MORE OR LESS ADOPTING THE VIEW EXPRESSED BY THE TRANSFER PRICING OFFICER. M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 12 9. T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, THE A.E. INCURRED CERTAIN COMMON COST IN RESPECT OF ALL THE COMPANIES IN THE GROUP FOR PROVIDING VARIOUS SUPPORT SERVICE INCLUDING COMMERCIAL CERVICES, FINANCIAL SERVICES, ADMINISTRATIVE SUPPORT, LEGAL SERVICES AND INFORMATION TECHNOLOGY SUPPORT. IT WAS SUBMITTED , FOR THIS PURPOSE, THE A.E. HAS ENTERED INTO AN AGREEMENT / ARRANGEMENT WITH ALL GROUP COMPANIES INCLUDING THE ASSESSEE. IT WAS SUBMITTED , THE COMMON COST INCURRED BY THE A.E. IS ALLOCATED TO ALL THE COMPANIES IN THE GROUP WHO SHARE THE COST IN THE SHAPE OF REIMBURSEMENT WITHOUT ANY MARK UP. IN THIS CONTEXT, THE LEARNED COUNSEL REFERRED TO THE AGREEMENT ENTERED BETWEEN THE A.E. AND OTHER GROUP COMPANIES FOR PROVIDING SUPPORT SERVICES. HE ALSO DREW OUR ATTENTION TO THE NATURE OF SERVICES PROVIDED BY THE A. E. AS WELL AS THE INVOICES RAISED FOR THE SERVICES RENDERED. THE LEARNED COUNSEL ALSO DREW OUR ATTENTION TO CERTAIN E MAIL EXCHANGED BETWEEN THE ASSESSEE AND THE A.E. IN RELATION TO THE SERVICES AVAILED AND COST INCURRED. THE LEARNED COUNSEL SUBMITTED , AL L THE DETAILS RELATING TO COST SHARING AGREEMENT WERE SUBMITTED BEFORE THE TRANSFER PRICING OFFICER AND IGNORING THOSE EVIDENCES, HE COULD NOT HAVE DETERMINED THE ARM'S LENGTH PRICE OF THE COST SHARING ARRANGEMENT AND I.T. SUPPORT AT NIL ON PURELY CONJEC TURES AND SURMISES. HE SUBMITTED , THE DRP ALSO WITHOUT APPLYING MIND , IN A MECHANICAL MANNER , HAS UPHELD THE DETERMINATION OF ARM'S LENGTH PRICE AT NIL. THE LEARNED COUNSEL SUBMITTED THAT IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR 2007 08, THE TRANSF ER PRICING OFFICER DISALLOWED 20% OUT OF THE AMOUNT PAID ON ACCOUNT OF COST SHARING ARRANGEMENT AND I.T. SUPPORT WHICH WAS DELETED IN APPEAL BY THE COMMISSIONER (APPEALS). 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, JUSTIFYING THE DETERMINATION OF ARM'S LENGTH PRICE AT NIL SUBMITTED THAT THE ISSUE WHICH REQUIRES TO BE LOOKED INTO IS WHETHER THERE WAS AT ALL A NECESSITY FOR COST SHARING . H E SUBMITTED , THE A SSESSEE ALSO WAS REQUIRED TO ESTABLISH THROUGH PROPER DOCUMENTARY EVIDENCES WHETHER M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 13 THE A.E. HAD ACTUALLY RENDERED SERVICES AND THE ASSESSEE HAS ACTUALLY AVAILED OF SUCH SERVICES. HE SUBMITTED , SINCE THE ASSESSEE THROUGH PROPER DOCUMENTARY EVIDENCE FAILED TO ESTABLISH THESE FACTS, THE DETERMINATION OF ALP AT NIL WAS JUSTIFIED. 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. ON GOING THROUGH THE ORDER DATED 28 TH OCTOBER 2009, PASSED UNDER SECTION 92CA(3) OF THE ACT BY THE TRANSFER PRICING OFFICER, IT IS VERY MUCH CLEAR THAT HE DOES NOT DISPUTE THE FACT THAT THE ASSESSEE AN D OTHER GROUP COMPANIES HA VE ENTERED INTO COST SHARING AGREEMENT WITH AE FOR VARIOUS SUPPORT SERVICES. HE ALSO DOES NOT DISPUTE THE FACT THAT THE COST RECOVERED BY THE A.E. TOWARDS SERVICES RENDERED T O ALL THE GROUP COMPANIES INCLUDING THE ASSESSEE WAS ON ACTUAL BASIS WITHOUT ANY MARK UP. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS MADE PAYMENTS TO THE A.E. IN TERMS WITH THE COST SHARING AGR EEMENT. THAT BEING THE CASE, WE FAIL TO UNDERSTAND AS TO HOW THE TRANSFER PRICING OFFICER CAN DETERMINE THE ARM'S LENGTH PRICE OF THE COST SHARING ARRANGEMENT AT NIL ON THE BASIS OF CERTAIN GENERAL AND SWEEPING OBSERVATION. WHEN THE TRANSFER PRICING OFFI CER DOES NOT DISPUTE THE FACT THAT THE ASSESSEE HAD FURNISHED THE COST SHARING AGREEMENTS AND OTHER ANCILLARY AND RELEVANT DOCUMENTS RELATING TO SHARING OF COST, WE FAIL TO UNDERSTAND, HOW HE CAN AGAIN CO MMENT THAT INFORMATION S OUGHT FOR WAS NOT SUPP LIED. HE HAS NOT SPECIFIED AS TO WHAT MORE INFORMATION WAS REQUIRED FROM THE ASSESSEE TO ESTABLISH THE FACT THAT THE PAYMENTS MADE WERE FOR AVAILING SERVICES FROM THE A.E. IN ANY CASE OF THE MATTER, THE TRANSFER PRICING OFFICER, AS PER THE PROVISIONS OF SE CTION 92C, HAS TO DETERMINE THE ARM'S LENGTH PRICE BY ADOPTING ANY ONE OF THE MODES PRESCRIBED THEREIN. HOWEVER, IN THE PRESENT CASE, THE ORDER PASSED BY THE TRANSFER PRICING OFFICER, IN NO MANNER, INDICATE THE SPECIFIC METHOD ADOPTED BY THE TRANSFER PRICI NG OFFICER TO DETERMINE THE ARM'S LENGTH PRICE. THAT BEING THE CASE, THE DETERMINATION OF ARM'S LENGTH PRICE AT NIL WITHOUT FOLLOWING THE METHOD PRESCRIBED UNDER M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 14 THE STATUTE IS LEGALLY UNSUSTAINABLE. THE DRP, IN OUR VIEW, HAS ALSO UPHELD THE DETERMINATIO N OF ARM'S LENGTH PRICE AT NIL IN A MECHANICAL MANNER WITHOUT PROPER APPLICATION OF MIND. IT IS PERTINENT TO MENTION HERE THAT IN THE IMMEDIATELY SUCCEEDING YEAR I.E., ASSESSMENT YEAR 2007 08, THE TRANSFER PRICING OFFICER, WHILE CONSIDERING THE ISSUE REL ATING TO DETERMINATION OF ARM'S LENGTH PRICE O F SIMILAR COST SHARING ARRANGEMENT AND I.T. SUPPORT, HAS DISALLOWED 20% OF THE TOTAL COST INCURRED BY THE ASSESSEE. THIS ITSELF SHOWS THAT THE TRANSFER PRICING OFFICER ACCEPTS THE FACT THAT THE A.E. HAS PROVIDE D CERTAIN SERVICES TO THE ASSESSEE AND THE ASSESSEE HAS AVAILED SUCH SERVICES. IN VIEW OF THE AFORESAID, WE HOLD THAT THE DETERMINATION OF ARM'S LENGTH PRICE OF THE COST SHARING ARRANGEMENT AND I.T. SUPPORT CANNOT BE TAKEN AS NIL AND THE COST INCURRED BY THE ASSESSEE ON ACTUAL BASIS DESERVES TO BE ALLOWED. WE ORDER ACCORDINGLY. THUS, THE SECOND ISSUE RAISED BY THE ASSESSEE IS DECIDED IN ASSESSEES FAVOUR . 12. AS FAR AS THE THIRD ISSUE RELATING TO DISALLOWANCE OF DEPRECIATION ON GOODWILL IS CONCERNED, THE FACTS ARE , DURING THE ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD ACQUIRED RUNNING BUSINESS OF SAVLI UNIT FROM TOPACK INDUSTRIES ON 24 TH OCTOBER 1999 F OR A TOTAL CONSIDERATION OF RS. 15,77,34,000, OUT OF WHICH THE ASSESSEE HAS APPORTIONED AN AMOUNT OF RS. 13,30,31,000, TOWARDS COST OF GOODWILL ON WHICH THE ASSESSEE DURING THE YEAR HAS CLAIMED DEPRECIATION OF RS. 72,47,405. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY DEPRECIATION CLAIMED ON GOODWILL SHOULD NOT BE DISALLOWED. THOUGH THE ASSESSEE ON 24 TH AUGUST 2009, SUBMITTED A DETAIL EXPLANATION STATING THEREIN THE REASONS FOR WHICH THE CLAIM OF DEPRECIATION SHOULD BE ALLOWED BUT THE ASSESSING OFFICER REFERRING TO THE PROVISIONS CONTAINED UNDER EXPLA NATION 3(B) OF SECTION 32 OF THE ACT, OBSERVED THAT THE TERM INTANGIBLE ASSET , HAS NOT BEEN DEFINED BUT MERELY ENUMERATES CERTAIN CLASS OF INTANGIBLE ASSET. HE OBSERVED THAT IN THE INTANGIBLE M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 1 5 ASSETS CLASSIFIED THEREIN, GOODWILL DOES NOT FIND PLACE. HE, T HEREFORE, WAS OF THE OPINION THAT THOUGH , GOODW ILL MAY BE AN INTANGIBLE ASSET BUT IT WILL NOT BE ELIGIBLE FOR DEPRECIATION UNLESS IT IS IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS HAVING THE CHARACTER OF KNOWHOW, PATENTS, COPY RIGHTS, TRADEMARK, LICENSE, FRANCHISEE. HE WAS OF THE VIEW THAT GOODWILL DOES NOT POSSESS ANY OF THE CHARACTERISTIC OF INTANGIBLE ASSET AS ENUMERATED IN EXPLANATION 3(B) TO SECTION 32, WHICH ARE CONSIDERED TO BE TOOLS OF BUSINESS. HE OBSERVED , AS GOODWILL IS NOT AT ALL A RIGHT IT IS NOT ELIGIBLE FOR DEPRECIATION. ACCORDINGLY, H E DISALLOWED THE CLAIM OF DEPRECIATION OF RS. 72,47,405. 13. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE DRP. THE DRP OBSERVING THAT THE COMMISSIONER (APPEALS) IN THE PRECEDING YEARS, HAVE DISALLOWED DEPRECIATION ON GOODWILL UPHELD THE DISALLOWAN CE. IN TERMS WITH THE ORDERS PASSED BY THE DRP, THE ASSESSING OFFICER PASSED THE IMPUGNED ASSESSMENT ORDER, WHICH IS UNDER CHALLENGE IN THE PRESENT APPEAL BEFORE US. 14. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISS UE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 06. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.6499/MUM./2010, ETC., DATED 29 T H MARCH 2012. THE LEARNED COUNSEL FURTHER SUBMITTED, THE ISSUE WHETHER GOODWILL IS AN INTANGIBLE ASSET AND DEPRECIATION IS ALLOWABLE ON GOODWILL HAS ALSO BEEN DECIDED BY THE HON'BLE SUPREME COURT IN CIT V/S SMIFS SECURITIES LTD., [2012] 348 ITR 302 (SC). 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRENUOUSLY SUBMITTED BEFORE US , GOODWILL CANNOT BE CONSIDERED TO BE A BUSINESS OR COMMERCIAL RIGHT OF THE NATURE ENVISAGED UNDER EXPLANATION 3(B) TO SECTION 32 OF THE ACT. HE SUBMITTED , THE COMMERCIAL RIGHTS WHICH CAN BE CONSIDERED AS INTANGIBLE ASSET ON M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 16 WHICH DEPRECIATION IS ALLOWABLE ARE KNOW - HOW , PATENTS, COPY RIGHTS, TRADE MARKS, LICENSE AND FRANCHISEE. THE TERM ANY OTHER BUSINESS OR COMMERCIAL RIGHTS MUST BE OF SIMILAR NATURE AS IT TAKES COLOUR FROM PRECEDING WORDS. THUS, IT WAS SUBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE SINCE THE TERM GOODWILL IS NOT EXPRESSLY PROVIDED AS AN INTANGIBLE ASSET UNDER EXPLANATION 3(B) TO SECTION 32 OF THE ACT , DEPRECIATION ON GOODWILL CANNOT BE ALLOWED. IN THIS CONTEXT, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN TECHNO SHARES AND STOCKS LTD. V/S CIT, [2010] 327 ITR 323 (SC). 16. WE HAVE CONSIDERED RIVAL SU BMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS COULD BE SEEN , DEPRECIATION ON GOODWILL HAS BEEN DISALLOWED BY THE ASSESSING OFFICER BASICALLY FOR THE REASON THAT GOODWILL HAS NOT BEEN INCLUDED AS AN INTANGIBLE ASSET UNDER SECTION 32 OF THE AC T. THE DRP HAS UPHELD THE DISALLOWANCE BY OBSERVING THAT SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2005 06 HAS BEEN CONFIRMED BY THE LEARNED CIT(A). HOWEVER, IT IS EVIDENT FROM MATERIAL ON RECORD THAT AGAINST THE DISALLOWANC E OF DEPRECIATION ON GOODWILL ARISING OUT OF SAME TRANSACTION IN AY 2005 - 06 , THE ASSESSEE HAD PREFERRED APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL, WHILE DECIDING THE ISSUE IN ASSESSEES OWN CASE CITED SUPRA, FOLLOWING CERTAIN JUDICIAL PRECEDENTS, ALLOWED AS SESSEES CLAIM OF DEPRECIATION ON GOODWILL BY HOLDING AS UNDER: 31. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE ABOVE ITA NO.6908/MUM/2010 25 CROSS - OBJECTION NO.198/M/ 2011 ITA NO.6499/MUM /2010) JUDGMENTS AND THE CONSISTENT VIEW OF THE TRIBUNAL HOLD THAT SINCE THE ASSESSEE HAS MADE THE PAYMENT FOR ACQUIRING THE BUSINESS AND COMMERCIAL RIGHTS, IT WAS COMPARABLE WITH THE TRADEMARK, COPYRIGHTS ETC. REFERRED TO IN THE FIRST PART OF CLAUSE (II) OF SECTION 32(1) AND SO MUCH SO, GOODWILL IS COVERED BY THE PROVISIONS OF ACT ENTITLING THE AS SESSEE FOR DEPRECIATION AND ACCORDINGLY, WE DELETE THE DISALLOWANCE OF DEPRECIATION ON GOODWILL MADE BY THE AO AND SUSTAINED M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 17 BY THE LD. CIT(A). THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALLOWED. 17. IN VIEW OF THE AFORESAID OBSERVATIONS OF THE CO O RDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR, ON MATERIALLY IDENTICAL FACTS, WE HAVE NO HESITATION IN ALLOWING ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL. INSOFAR AS THE LEARNED DEPARTMENTAL REPRESENTATIVES CONT ENTION THAT GOODWILL HAVING NOT BEEN SPECIFICALLY INCLUDED IN EXPLANATION 3(B) TO SECTION 32 OF THE ACT , DEPRECIATION IS NOT ALLOWABLE, W E HAVE TO OBSERVE , THE ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE HON'BLE SUPREME COURTS DECISION IN SMIFS SECURITIE S LTD. (SUPRA), WHEREIN IN NO UNCERTAIN TERMS IT HAS BEEN HELD THAT GOODWILL BEING IN THE NATURE OF ANY OTHER BUSINESS OR COMMERCIAL RIGHTS IS AN INTANGIBLE ASSET UNDER EXPLANATI ON 3(B) TO SECTION 32(1) OF THE ACT. IN VIEW OF THE AFORESAID, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. ACCORDINGLY, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION O N GOODWILL. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 18. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006 07 STANDS ALLOWED. 19. WE NOW PROCEED TO DISPOSE OF ASSESSEES APPEAL IN ITA NO.7958/ MUM./2011, FOR THE ASSESSMENT YEAR 2007 08. 20. IN THIS APPEAL, THE ASSESSEE HAS RAISED IN TOTAL FIVE GROUNDS. GROUND NO.1, READS AS FOLLOWS: THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION ON INTANGIBLES AMOUNTING TO ` 54,35, 554. M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 18 21. BRIEFLY STATED THE FACTS ARE , ASSESSEE, ON 24 TH OCTOBER 1999, HAD ACQUIRED A RUNNING BUSINESS FROM TOPACK INDUSTRIES LTD., FOR A TOTAL CONSIDERATION OF ` 15,77,34,000. OUT OF THE SAID AMOUNT, THE ASSESSEE APPORTIONED AN AMOUNT OF ` 13,30,31,000, TOWARDS COST OF GOODWILL ON WHICH IT CLAIMED DEPRECIATION OF ` 54,35,554, FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER, WHILE COMPLETING ASSESSMENT DISALLOWED ASSESSEES CLAIM OF DEPRECIATION ON THE REASONING THAT GOODWILL NOT BEI NG AN INTANGIBLE ASSET AS PER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT, DEPRECIATION IS NOT ALLOWABLE. 22. THE LEARNED COMMISSIONER (APPEALS) ALSO SUSTAINED THE DISALLOWANCE TAKING INTO ACCOUNT THE FACT THAT SIMILAR DISALLOWANCE MADE IN THE ASSESSMENT YEAR 2005 06, WAS CONFIRMED BY HIS PREDECESSOR IN OFFICE. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS AND ISSUE INVOLVED IN THIS GROUND RAISED BY THE ASSESSEE ARE MATERIALLY IDENTICAL TO GROUN D NO.3 RAISED BY THE ASSESSEE IN ITA NO.7236/MUM./2010, FOR THE ASSESSMENT YEAR 2006 07. FOLLOWING OUR DETAILED REASONING GIVEN IN PARAGRAPH 16 AND 17 (SUPRA) THEREIN, WE ALLOW ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL. THIS GROUND IS, THEREFORE, ALLOWE D. 24. GROUNDS NO.2 AND 2.1 WHICH ARE ON COMMON ISSUE, READ AS UNDER: 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN ENHANCING THE VALUE OF CLOSING STOCK OF RAW MATERIAL BY THE AMOUNT OF UNUTILIZED C ENVAT CREDIT AMOUNTING TO ` 1,04,59,372. 2.1 WITHOUT PREJUDICE TO ABOVE THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN NOT DIRECTING THE ASSESSING OFFICER TO M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 19 INCREASE THE VALUATION OF THE OPENING STOCK OF RAW MATERIAL FOR A.Y. 2008 09 BY THE AMOUNT ADDED IN THE CLOSING STOCK OF RAW MATERIAL OF THE CURRENT YEAR. 25. BRIEFLY STATED THE FACTS ARE , IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT ADJUSTED HIS CLOSING STOCK BY INCLUDING THE AMOUNT OF CENVAT CREDIT IN TERMS OF SECTION 145A OF THE ACT. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE DIFFERENCE OF SUCH CREDIT AMOUNTING TO ` 1,17,72,672, AS ON 31 ST MARCH 2006, AND 31 ST MARCH 2007, SHOULD NOT BE ADDED TO THE CLOSI NG STOCK. OBJECTING TO THE ADDITION PROPOSED BY THE ASSESSING OFFICER, IT WAS SUBMITTED BY THE ASSESSEE THAT IT IS ELIGIBLE TO CLAIM 50% OF CENVAT IN THE YEAR OF PURCHASE OF CAPITAL GOODS AND BALANCE 50% IN THE NEXT YEAR. WHILE COMPUTING THE DEPRECIATION O N FIXED ASSET, THE ASSESSEE HAS ALREADY REDUCED SUCH CENVAT AVAILED ON CAPITAL GOODS, HENCE, DEPRECIATION WAS CLAIMED ON REDUCED RATE. THUS, IT WAS SUBMITTED , AS THE ASSESSEE HAS ALREADY OFFERED CENVAT CREDIT TO TAX BY CLAIMING DEPRECIATION AT REDUCED VALU E OF CAPITAL GOODS, NO ADDITION NEED BE MADE IN RESPECT OF UNUTILIZED CENVAT SHOWN UNDER THE HEAD LOANS AND ADVANCES . INSOFAR AS UNUTILIZED CENVAT ON RAW MATERIAL IS CONCERNED, IT WAS SUBMITTED , THE ASSESSEE HAS ALREADY OFFERED SUCH UNUTILIZED CENVAT CRE DIT TO TAX BY REDUCING THE SAID AMOUNT FROM THE COST OF TOTAL PURCHASE DEBITED TO THE PROFIT & LOSS ACCOUNT. THUS, IT WAS SUBMITTED THAT AS PURCHASES ARE ACCOUNTED NET OF CENVAT CREDIT IN THE BOOKS OF ACCOUNT AND WHILE DEBITING THE COST OF PURCHASE TO THE PROFIT & LOSS ACCOUNT, THE ASSESSEE HAS TAKEN THE COST OF PURCHASES NET OF CENVAT CREDIT AND CENVAT CREDIT IS SEPARATELY DEBITED TO PROFIT & LOSS ACCOUNT, NO SEPARATE ADDITION ON THE UNUTILIZED CENVAT CREDIT SHOULD BE MADE AS IT WILL AMOUNT TO DOUBLE TAXAT ION. IT WAS SUBMITTED , THOUGH , UNUTILIZED CENVAT CREDIT ON RAW MATERIAL WAS NOT INCLUDED IN THE CLOSING STOCK OF RAW MATERIAL, THERE IS NO IMPACT ON THE TAXABLE PROFIT OF THE ASSESSEE. IF THE VALUE OF UNUTILIZED CENVAT CREDIT IS ADDED IN THE CLOSING STOCK, CORRESPONDING INCREASE IS REQ UIRED TO BE M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 20 MADE IN THE PURCHASES AS THE ASSESSEE HAS ACCOUNTED FOR THE PURCHASES IN THE BOOKS OF ACCOUNT NET OF CENVAT CREDIT. THE ASSESSING OFFICER, HOWEVER, WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. HE WAS OF THE VIEW , THE RAW MATERIALS, FINISHED GOODS OR SEMI FINISHED GOODS WILL HAVE TO BE VALUED AFTER TAKING INTO CONSIDERATION CENVAT RELATABLE TO SUCH STOCK IN TERMS OF SECTION 145A OF THE ACT. IN THIS CONTEXT, HE ALSO RELIED UPON CERTAIN JUDICIAL PRECEDENTS AS WELL AS CBDT CIRCULAR NO.77 2 DATED 23 RD DECEMBER 1988. FINALLY, THE ASSESSING OFFICER MADE ADJUSTMENT IN THE CLOSING STOCK AS ON 31 ST MARCH 2007, BY ENHANCING IT WITH A SUM OF RS. 1,04,59,372. BEING AGGRIEVED WITH THE SAID ADDITION, THE ASSESSEE CHALLENGED THE SAME IN AN APPEAL BEF ORE THE LEARNED CIT(A). L EARNED CIT(A) HOWEVER, SUSTAINED THE ADDITION BY APPROVING THE VIEW EXPRESSED BY THE ASSESSING OFFICER. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW A ND THE MATERIAL AVAILABLE ON RECORD. AS COULD BE SEEN , DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER PROPOSED TO MAKE ADJUSTMENT OF UNUTILIZED CENVAT CREDIT BOTH IN RESPECT OF PURCHASE OF RAW MATERIAL AS WELL AS PURCHASE OF CAPITAL GOODS. IT WA S THE CONTENTION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT IT IS FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING BY REDUCING THE CENVAT FROM THE COST OF CAPITAL GOODS AS WELL AS RAW MATERIAL WHILE ACCOUNTING THE PURCHASE VALUE IN THE BOOKS OF ACCOUNT. THEREFORE, AS THE PURCHASE VALUE OF RAW MATERIAL AND CAPITAL GOODS ARE NET OF CENVAT CREDIT, THERE IS NO NEED TO MAKE ADJUSTMENT OF CLOSING STOCK BY INCLUDING THE UNUTILIZED CENVAT CREDIT. IT IS THE FURTHER CONTENTION OF THE ASSESSEE THAT IN CASE CENVAT C REDIT IS INCLUDED IN THE CLOSING STOCK, THEN CORRESPONDING ADJUSTMENT HAS TO BE MADE TO THE OPENING STOCK IN THE NEXT YEAR. HENCE, IN EITHER CASE, IT WILL BE REVENUE NEUTRAL. ON A PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT AS FAR AS ADJUSTMENT OF CEN VAT CREDIT ON PURCHASE OF CAPITAL GOODS IS CONCERNED, THE ASSESSING M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 21 OFFICER HAS ACCEPTED ASSESSEES EXPLANATION AND NO ADJUSTMENT HAS BEEN MADE TO THE CLOSING STOCK. HOWEVER, AS FAR AS RAW MATERIAL IS CONCERNED, THE ASSESSING OFFICER HAS ADDED THE DIFFEREN CE OF CENVAT CREDIT AS ON 31 ST MARCH 2007 AND 1 ST APRIL 2006, AMOUNTING TO ` 1,04,59,372. WE DO NOT FIND ANY JUSTIFIABLE REASON FOR SUCH DIFFERENTIAL TREATMENT. WHEN THE ASSESSEE HAS REDUCED THE CENVAT FROM THE PURCHASE VALUE OF RAW MATERIAL AND ACCOUNTED FOR THE PURCHASE VALUE IN THE BOOKS NET OF CENVAT CREDIT, THERE IS NO REASON F O R MAK ING ADJUSTMENT TO THE CLOSING STOCK ONLY BY INCLUDING THE UNUTILIZED CENVAT CREDIT. THOUGH SECTION 145A OF THE ACT PROVIDES FOR ADJUSTMENT BY INCLUDING ANY TAX, DUTY, CESS OR FEE WHILE VALUING THE PURCHASE AND SALE OF GOODS AND INVENTORY BUT AS HELD BY THE HON'BLE DELHI HIGH COURT IN CIT V/S MAHAVIR ALUMINUM LTD., [2008] 29 7 ITR 77 (DEL.), WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY, IT WILL AFFECT BOTH THE OPENING STOCK AND CLOSING STOCK. IF ANY ADJUSTMENT IS REQUIRED TO BE MADE IN TERMS WITH SECTION 145A, EFFECT TO THE SAME SHOULD BE GIVEN IRRESPECTIVE O F ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. THE COURT HELD FOR GIVING EFFECT TO SECTION 145A OF THE ACT, IF THERE IS CHANGE IN THE CLOSING STOCK OF THE RELEVANT PREVIOUS YEAR, THEN THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT M ADE IN THE OPENING STOCK AS ON THE BEGINNING OF THE RELEVANT PREVIOUS YEAR. THE AFORESAID VIEW OF THE HON'BLE DELHI HIGH COURT WAS ACCEPTED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S MAHALAXMI GLASS WORKS PVT. LTD. , [2009] 318 ITR 116 (BOM.) . IN THE PRESENT CASE, SINCE THE ASSESSEE HAS NOT MADE ANY ADJUSTMENT TO THE OPENING STOCK BY INCLUDING THE CENVAT CREDIT, THERE IS NO NEED TO MAKE ADJUSTMENT TO THE CLOSING STOCK ONLY BY INCLUDING THE UNUTILISED CENVAT CREDIT. ON THE FLIP SIDE, IF A DJUSTMENT IS MADE TO THE CLOSING STOCK, THEN CORRESPONDING ADJUSTMENT HAS TO BE MADE TO THE OPENING STOCK OF RAW MATERIAL FOR THE NEXT YEAR. IN EITHER CASE , IT WILL BE REVENUE NEUTRAL. HENCE, IN OUR VIEW, THE ADJUSTMENT OF ` 1,04,59,372, MADE BY THE ASSESS ING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) IS NOT M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 22 SUSTAINABLE. ACCORDINGLY, WE DELETE THE SAME. GROUND RAISED BY THE ASSESSEE IS ALLOWED. 27. GROUNDS NO.3 AND 4 RELATE TO LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT. 28. B OTH THE PARTIES ADMITTED BEFORE US THAT TH E S E GROUND S ARE CONSEQUENTIAL IN NATURE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO GIVE CONSEQUENTIAL EFFECT WHILE RE COMPUTING THE INCOME OF THE ASSESSEE KEEPING IN VIEW OUR FINDINGS GIVEN ABOVE AND IN ACCOR DANCE WITH THE PROVISIONS OF LAW. 29. GROUND NO.5, RELATES TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 30. THIS GROUND BEING PRE MATURE IS NOT MAINTAINABLE BEFORE US. HENCE, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED . 31. IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007 08 IS PARTLY ALLOWED. 32. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.8091/MUM./2011, FOR THE ASSESSMENT YEAR 2007 08. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADJUSTMENT OF ` 24,95,977, MADE TO THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION IN RESPECT OF MACHINERIES AND IGNORING THE FACT THAT THE ASSESSI NG OFFICER HAD RIGHTLY DETERMINED THE ARM'S LENGTH PRICE OF SOUND HAND MACHINERIES ACQUIRED BY THE COMPANY BEING 50% OF THE ACTUAL VALUE OF THE TRANSACTIONS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADJUSTMENT M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 23 OF ` 3,88,155, MADE TO THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION IN RESPECT OF COST SHARING ARRANGEMENT AND IN RESPECT OF PAYMENT FOR INFORMATION TECHNOLOGY SUPPORT SERVICES. 33. IN GROUND NO.1, THE REVENUE HAS CHALL ENGED THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN DELETING THE ADDITION MADE OF ` 24,95,977, ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION INVOLVING PURCHASE OF MACHINERY FROM THE A.E. 34. BRIEFLY STATED THE FAC TS ARE , DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE HAD PURCHASED SECOND HAND MACHINERY FROM ITS A.E. WORTH RS. 49,91,953. THE TRANSFER PRICING OFFICER, DURING THE COURSE OF PROCEEDINGS BEFORE HIM, AFTER VERIFYING THE DOCUMENTARY EVIDENCE S PRODUCED BEFORE HIM AS WELL AS OTHER MATERIAL AVAILABLE ON RECORD, HELD THAT IN THE VALUATION REPORT SUBMITTED BY THE ASSESSEE SINCE THE VALUER HA S NOT PROVIDED THE BASIS FOR VALUATION OF THE MACHINERY, THE PRICE PAID BY THE ASSESSEE TOWARDS PURCHASE OF M ACHINERY CANNOT BE CONSIDERED TO BE AT ARM'S LENGTH. HE OBSERVED THAT THE VALUER HAD NOT ESTABLISHED THAT THE VALUE DETERMINED BY HIM IS THE FAIR MARKET VALUE OF THE MACHINERY HAVING REGARD TO THE FAIR MARKET VALUE OF SIMILAR NEW MACHINERY IN THE OPEN MAR KET AFTER EXCLUDING DEPRECIATION THEREOF FOR THE PERIOD OF USE. ACCORDINGLY, HE DISALLOWED 50% OF THE VALUE DECLARED BY THE ASSESSEE AND DETERMINED THE ARM'S LENGTH PRICE OF THE TRANSACTION AT ` 24,95,976. IN TERMS OF THE ORDER PASSED BY THE TRANSFER PRICI NG OFFICER, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING DISALLOWANCE OF AN AMOUNT OF ` 24,95,976. BEING AGGRIEVED, THE ASSESSEE CHALLENGED THE SAME BEFORE THE LEARNED COMMISSIONER (APPEALS). 35. THE LEARNED COMMISSIONER (APPEALS), AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE ADDITION ON THE FOLLOWING REASONS: M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 24 I) THE TRANSFER PRICING OFFICER HAS NOT OBJECTED AND HAS GIVEN NO REASONING FOR REJECTION OF ARM'S LENGTH PRICE DECLARED BY THE ASSESSEE. THE TRANSFER PRICING OFFICER HAS NOT FOUND ANY FAULT WITH THE VALUATION REPORT EXCEPT OBSERVING THAT THE BASIS FOR ARRIVING AT THE VALUATION IS NOT PROVIDED; II) THE TRANSFER PRICING OFFICER HAS NOT GIVEN ANY REASON FOR ADOPTING THE ARM'S LENGTH PRICE @ 50% OF THE VALUE OF THE INTER NATIONAL TRANSACTION ON AD HOC BASIS; AND III) THE TRANSFER PRICING OFFICER HAS NOT DETERMINED THE ARM'S LENGTH PRICE BY FOLLOWING ANY OF THE METHODS PRESCRIBED IN THE STATUTE. 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AV AILABLE ON RECORD. THE AFORESAID ISSUE IS MATERI ALLY IDENTICAL TO S IMILAR ISSUE ARISING IN ASSESSEES OWN CASE IN ITA NO. 7236/MUM./2010, FOR THE ASSESSMENT YEAR 2006 07 . W HILE CONSIDERING IDENTICAL NATURE OF DISPUTE IN THE EARLIER PART OF THIS ORDER, WE HAVE HELD THAT AD HOC DISALLOWANCE OF 50% OF THE VALUE OF INTERNATIONAL TRANSACTION RELATING TO THE PURCHASE OF SECOND HAND MACHINERY IS NOT VALID IN LAW AND ACCORDINGLY DELETED THE ADDITION MADE ON THAT ACCOUNT. FOLLOWING OUR DETAIL REASON ING IN PARA 7 TO 7.2 OF THE ORDER, WE UPHOLD THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. GROUND NO.1 IS THUS DISMISSED. 37. GROUND NO.2, RAISED BY THE REVENUE RELATES TO THE DECISION OF LEARNED CIT(A) IN DELETING THE ADDITION OF ` 3,88,155, BEING ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE OF THE INTERNATIONAL M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 25 TRANSACTION RELATING TO COST SHARING ARRANGEMENT AND I.T. SUPPORT SERVICES. 38. BRIEFLY STATED THE FACTS ARE , IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OF FICER FOUND THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION WORTH ` 5,90,170, RELATING TO COST SHARING ARRANGEMENT WITH ITS A.E. THE NATURE OF SERVICES CLAIMED TO HAVE BEEN PROVIDED BY AE ARE COMMERCI AL SERVICES, FINANCIAL SERVICES AND LEGAL S ERVICES. SIMILARLY, AN AMOUNT OF RS. 13,50,606, WAS PAID TO THE A.E. ON COST SHARING ARRANGEMENT TOWARDS PROVISION OF I.T. SUPPORT SERVICES. ALLEGING THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBMIT THE GROSS ALLOCATION BASE OUT OF WHICH THE COST ALLOCATION T O THE ASSESSEE HAS BEEN COMPUTED, THE TRANSFER PRICING OFFICER DISALLOWED AN AMOUNT OF 20% OUT OF THE AMOUNT PAID BY THE ASSESSEE TO ITS A.E. ON COST SHARING ARRANGEMENT. AS A RESULT, AN ADJUSTMENT OF RS. 3,88,155, WAS MADE TO THE ARM'S LENGTH PRICE. 39. BEING AGGRIEVED OF SUCH ADJUSTMENTS, THE ASSESSEE CHALLENGED THE SAME BEFORE THE LEARNED COMMISSIONER (APPEALS). THE LEARNED COMMISSIONER (APPEALS) DELETED THE ADDITION BY OBSERVING THAT THE TRANSFER PRICING OFFICER HAS NOT BEEN ABLE TO POINT OUT ANY SPECI FIC DEFECT OR DEFICIENCY IN RESPECT OF ALLOCATION OF COST. IT WAS HELD BY THE LEARNED COMMISSIONER (APPEALS) THAT WHEN THE TRANSFER PRICING OFFICER HAS NOT DISPUTED THE FACT THAT THE ASSESSEE AND THE A.E. HA VE ENTERED INTO COST SHARING ARRANGEMENT AND COST HAS BEEN ALLOCATED IN THE CASE OF SERVICE BASED ON THE TURNOVER AND IN CASE OF I.T. SUPPORT BASED ON THE NUMBER OF USERS, HE W AS NOT JUSTIFIED IN DISALLOWING A PART OF THE COST WITHOUT MAKING OUT A CASE THAT THE ASSESSEE HAS NOT RECEIVED CORRESPONDING SER VICES FROM THE A.E. HE FURTHER HELD THAT AS PER THE STATUTORY PROVISIONS, THE TRANSFER PRICING OFFICER HAS TO DETERMINE THE ARM'S LENGTH PRICE BY ADOPTING ANY ONE OF THE METHODS PRESCRIBED UNDER SECTION 92C. SINCE THE AD HOC DISALLOWANCE OF 20% MADE BY THE ASSESSING OFFICER WAS NOT IN TERMS WITH ANY OF THE M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 26 PRESCRIBED METHODS THE ADJUSTMENT MADE TO ARM'S LENGTH PRICE WILL NOT SURVIVE. ACCORDINGLY, HE DELETED THE ADDITION. 40. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE O N RECORD. IDENTICAL ISSUE WAS DE ALT HEREINBEFORE BY US WHILE DECIDING GROUND NO.2 BY THE ASSESSEE IN ITS APPEAL IN ITA NO. 7236/MUM./2010, FOR THE ASSESSMENT YEAR 2006 07. FOLLOWING OUR DETAILED REASONING IN PARA 11 OF THIS ORDER, WE UPHOLD THE DECISION OF THE LEARNED CIT(A) ON THIS ISSUE BY DISMISSING THE GROUND RAISED BY THE REVENUE. 41. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. 42. TO SUM UP, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2006 07 IS ALLOWED, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007 08 STANDS PARTLY ALLOWED AND REVENUES APPEAL FOR THE ASSESSMENT YEAR 2007 08 STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N 30.09.2015 SD/ - D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 30.09.2015 M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 27 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI M/S. KOCH CHEMICAL TECHNOLOGY GROUP (INDIA) LIMITED 28 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED AT THE END OF FILE 1. DRAFT DICTATED ON 10 11 . 9 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 15 .9 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 30 . 9 .2015 SR.PS 6. DATE OF PRONOUNCEMENT 30 . 9 .2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 3 30 . 9 .2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER , / / 19997 98 2000 01 / / / / / / / / / /