GBT India Private Limited, Delhi V. ACIT, Circle-10(1), New Delhi

ITA 8965/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7264 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2015-2016
• Appeal Filed On: 18-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Business expenditure; International transaction; Wholly owned subsidiary; Bad and doubtful debts; Valuation report; Commercial expediency
• Section: 32; 143(3); 133(6); 37(1); 144C; 13; 22; 20

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI N.K. CHOUDHARY, JUDICIAL M EMBER ITA NO. 8965/DEL/2019 [ASSESSMENT YEAR: 2015-16] GBT INDIA PVT. LTD VS. THE A.C.I.T G 21, GROUND FLOOR, SALCON RASVILA CIRCLE 10(1 ) PLOT NO. D-4, SAKET DISTT. CENTRE NEW DELHI SAKET, NEW DELHI PAN: AAFCG 5409 D [APPELLANT] [RESPONDENT] DATE OF HEARING : 20.01.2020 DATE OF PRONOUNCEMENT : 31.01.2020 ASSESSEE BY : SHRI HIMANSHU S. SINHA, AD V MS. VRINDA TULSHAN, ADV REVENUE BY : SHRI SURENDRA PAL, CIT- DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER DATED 30.10.2019 FRAMED U/S 143(3) R.W.S. 144C OF THE INC OME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] PE RTAINING TO ASSESSMENT YEAR 2015-16. 2 2. THE SUBSTANTIVE GRIEVANCES OF THE ASSESSEE CAN B E DIVIDED INTO TWO PARTS VIZ: (I) ADDITIONS MADE ON ACCOUNT OF TP ISSUES, AND (II) ADDITIONS MADE ON CORPORATE ISSUES. 3. THE REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTA NCE OF THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENC ES BROUGHT ON RECORD IN THE FORM OF PB IN LIGHT OF RULE 18(6) OF ITAT RULES AND HAVE ALSO PERUSED THE JUDICIAL DECISIONS RELIED UPON BY BOTH THE SIDES 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE APPELLANT IS A WHOLLY OWNED SUBSIDIARY OF GBT III BV, NETHERLANDS AND IS ENGAGED IN THE BUSINESS OF ARRANGING TRAVEL FOR DOMESTIC CUSTO MERS WITHIN AND OUTSIDE INDIA BY FACILITATING SERVICES ENTAILING BO OKING OF AIR TICKETS, ACCOMMODATION, CAB, CONFERENCE ROOMS, CATERING SERV ICES, MANAGEMENT OF CORPORATE EVENTS, PUBLIC RELATION SER VICES ETC. THE HOLDING COMPANY GBT III BV IS A JOINT VENTURE BETWE EN AMERICAN EXPRESS COMPANY, USA ( AMEX, IN SHORT ) AND CERTARES LP EFFECTIVE FROM 01.07.2014, WITH EACH GROUP HOLDING 50% SHARE IN IT . PRIOR TO 01.07.2014, GLOBAL BUSINESS TRAVEL (GBT), WAS THE C ORPORATE TRAVEL SEGMENT OF AMEX. 3 5. IN MARCH 2014, AS PER AN AGREEMENT ENTERED INTO BETWEEN AMEX AND GBT III BV, AMEX SPUN OFF ITS TRAVEL BUSINESS S EGMENT AND TRANSFERRED GBT ASSETS, OPERATIONS, EMPLOYEES AND S HARES OF CERTAIN AMEX AFFILIATES TO GBT III BV. PURSUANT TO A BUSINE SS TRANSFER AGREEMENT BETWEEN AMERICAN EXPRESS INDIA PVT LTD (AEIPL) AND THE APPELLANT, CORPORATE TRAVEL BUSINESS DIVISION OF AE IPL WAS TRANSFERRED TO THE APPELLANT VIDE A SLUMP SALE ON A GOING CONCE RN BASIS EFFECTIVE FROM 01.06.2014. IN LIEU OF THE SAME, THE APPELLANT HAD PAID A CONSIDERATION OF RS 45,48,85,303/- TO AEIPL. 6. WITH THIS FACTUAL BACKGROUND, THE FOLLOWING INTE RNATIONAL TRANSACTIONS WERE DONE BY THE APPELLANT WITH ITS AE S: S. NO DESCRIPTION OF THE TRANSACTIONS AMOUNT (IN INR) METHOD SELECTIO N PROFIT LEVEL INDICATOR (PLI) 1. PROVISION OF OPERATIONAL AND BUSINESS SUPPORT SERVICES 12,19,13,731 TNMM OP/TC 2. PROVISION OF TRAVEL SUPPORT SERVICES 128,112,973 TNMM OP/TC 3. PROVISION OF TRANSITION SUPPORT SERVICES(REVERSE TSA) 5,02,32,920 4. MISCELLANEOUS INCOME 7,55,047 R 5. REIMBURSEMENT OF DATA PROCESSING CHARGES 44,85,990 6. INCENTIVE FROM TRAVEL SUPPLIER 17,38,94,891 7. AVAILING OF TRANSITION SUPPORT SERVICES (FORWARD TSA) 32,08,78,406 8. AVAILING OF REGIONAL HEADQUARTER SERVICES(RHQ) 1,01,90,154 9. ISSUE OF SHARE CAPITAL 99,00,00,000 OTHER METHOD 4 7. TRANSACTION NO. 1 PERTAINS TO GLOBAL BUSINESS OF THE APPELLANT FOR WHICH IT HAS EARNED 15% NET PROFIT AND TRANSACTIONS 2 TO 8 PERTAIN TO INDIA BUSINESS FOR WHICH THE APPELLANT HAS EARNED 1 3.4% NET PROFIT MARGIN ON COST . THE INCOME FROM THE INDIA BUSINESS COMPRISES OF FEE FROM CORPORATE CUSTOMERS AND NON-NEGOTIATED REVENUE FROM AIRLINES AND HOTELS. FURTHER, IT RECEIVES SUPPORT FROM THE A E IF IT IS UNABLE TO MEET THE TARGETED PROFIT MARGINS AS PER THE GLOBAL TRANSFER PRICING POLICY. 8. DURING THE COURSE OF TP ASSESSMENT PROCEEDIN GS, THE TPO PROPOSED ADDITIONS ON ACCOUNT OF: (A) PROVISION OF OPERATIONAL AND BUSINESS SUPPO RT SERVICES AMOUNTING TO RS. 34,55,989/- BY INCLUDING / EXCLUDI NG CERTAIN COMPARABLE COMPANIES; (B) DISALLOWANCE OF AVAILING FORWARD TSA UNDER A MASTER TRANSITIONAL SERVICE AGREEMENT AND REGIONAL HEADQUA RTER SERVICES AMOUNTING TO RS.33,10,68,560/. 5 9. THE TPO APPLIED COMPARABLE UNCONTROLLED PRIC E (CUP) METHOD TO DETERMINE THE ARMS LENGTH PRICE TO BE NIL. THE TP O WAS OF THE STRONG BELIEF THAT THE ASSESSEE HAS FAILED TO PROVIDE ANY COGENT EVIDENCE TO DEMONSTRATE THAT SERVICES WERE RECEIVED BY THE ASSE SSEE AND, ACCORDING TO THE TPO, IT IS ONLY A CLANDESTINE METH ODOLOGY ADOPTED FOR COLLUSION TO SHIFT THE PROFITS FROM INDIAN TERRITOR Y. THE TPO FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO ESTABLISH ANY DIRECT NEXUS BETWEEN INCREASE IN BUSINESS AND PROFITABILITY AS A RESULT OF AVAILING OF THESE SERVICES. ACCORDING TO THE TPO, THE ASSESSEE DID NOT GAIN ANY ADVANTAGE OR BENEFIT AS A RESULT OF AVAILING OF THE SE SERVICES. THEREFORE, THE WHOLE PURPOSE OF RECEIVING THESE SER VICES IS DEFEATED. 10. THE TPO FURTHER OBSERVED THAT THE ASSESSEE I TSELF WAS PERFORMING THESE SERVICES, HENCE THERE WAS NO NEED FOR THE APP ELLANT TO AVAIL SERVICES FROM ITS AES. THE TP ADJUSTMENT CARRIED O UT BY THE TPO CAN BE UNDERSTOOD FROM THE FOLLOWING CHART: TRANSACTION NO. OF COMPARA- BLES ARMS LENGTH MARGIN MARGIN OF THE APPELLAN T QUANTUM OF ADDITION (IN INR) PROVISION OF OPERATIONAL AND BUSINESS SUPPORT SERVICES 7 18.26% 15% 34,55,989 AVAILING OF FORWARD TSA AND RHQ SERVICES NA NIL NA 331,068,56 0 6 11. THE ASSESSEE RAISED STRONG OBJECTIONS BEFOR E THE DRP BUT WITHOUT ANY SUCCESS. 12. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE TPO AND THE DRP HAVE TAKEN TWO CONTRADICTO RY VIEWS, IN AS MUCH AS, BOTH OF THEM HAVE ACCEPTED THE ALP OF THE FEE RECEIVED BY THE ASSESSEE AND AT THE SAME TIME, DISALLOWED FEE P AID UNDER SAME MASTER TSA AGREEMENT. IT IS THE SAY OF THE LD. COU NSEL FOR THE ASSESSEE THAT ONCE TNMM HAS BEEN ACCEPTED AS MOST APPROPRIAT E METHOD FOR TRANSACTIONS AGGREGATED TOGETHER, BOTH THE AUTHORIT IES GROSSLY ERRED IN PICKING OUT ONE INTERNATIONAL TRANSACTION AND SUBJE CTING IT TO CUP METHOD. 13. THE LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT PAYMENT FOR AVAILING FORWARD TSA AND RHQ SERVICES MADE BY THE A SSESSEE TO ITS AES FORMS COST BASE OF THE ASSESSEE. THE GLOBAL TRANSF ER PRICING POLICY ENSURES THAT THE ASSESSEE EARNS AN ASSURED MARGIN O F 3% OF THE NET REVENUE. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT IF FORWARD TSA CHARGES ARE TAKEN TO BE NIL, PROFIT MAR GIN OF THE ASSESSEE WOULD EXCEED 40% OF THE COSTS, WHICH IS AN ABSURDLY HIGH PROFIT MARGIN. 7 14. PER CONTRA, THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF THE TPO. IT IS THE SAY OF THE LD. DR THAT THE ASSESSEE IS NOT SUPPORTING ITS CLAIM BY WAY OF DEMONSTRATIVE DOCUMENTARY EVIDENCE AND EMAILS CORRESPONDENCE FILED BY THE ASSESSEE ARE VERY CRYPT IC. THEREFORE, FOR WANT OF DOCUMENTARY EVIDENCES, THERE IS NO ERROR IN THE FINDING OF THE TPO> 15. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW AND THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT TNMM HAS BEEN ACCEPTED AS THE MOST APPROPRIATE METH OD. IT IS EQUALLY TRUE THAT THE TPO HAS SINGLED OUT ONE TRANS ACTION AND APPLIED CUP AS MOST APPROPRIATE METHOD. 16. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF MAGNETI MARELLI POWERTRAIN INDIA PVT LTD 389 ITR 469 HAS HELD THAT WHEN INTRA GROUP SERVICES ARE LINKED TO THE MAIN BUSINESS ACTIVITY O F THE COMPANY, THEY SHOULD BE BENCH MARKED BY ADOPTING TNMM. THE RELEV ANT FINDINGS OF THE HON'BLE HIGH COURT READ AS UNDER: 17. AS FAR AS THE SECOND QUESTION IS CONCERNED, THE TPO ACCEPTED TNMM APPLIED BY THE ASSESSEE, AS THE MOST APPROPRIATE METHOD IN RESPECT OF ALL THE INTERNATIO NAL 8 TRANSACTIONS INCLUDING PAYMENT OF ROYALTY. THE TPO, HOWEVER, DISPUTED APPLICATION OF TNMM AS THE MOST APPROPRIAT E METHOD FOR THE PAYMENT OF TECHNICAL ASSISTANCE FEE OF RS. 38,58,80,000 ONLY FOR WHICH COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD WAS SOUGHT TO BE APPLIED. HERE, THIS COURT CONCURS WITH THE ASSESSEE THAT HAVING ACCEPTED THE TNMM AS THE MOST APPROPRIATE, IT WAS NOT OPEN TO THE TPO TO SUBJECT ONLY ONE ELEMENT, I.E PAYMENT OF TECHNICAL ASSISTAN CE FEE, TO AN ENTIRELY DIFFERENT (CUP) METHOD. THE ADOPTION OF A METHOD AS THE MOST APPROPRIATE ONE ASSURES THE APPLICABILI TY OF ONE STANDARD OR CRITERIA TO JUDGE AN INTERNATIONAL ITA 350/2014 PAGE 20 TRANSACTION BY. EACH METHOD IS A PACKAGE IN ITSELF, AS IT WERE, CONTAINING THE NECESSARY ELEMENTS THAT ARE TO BE USED AS FILTERS TO JUDGE THE SOUNDNESS OF THE INTER NATIONAL TRANSACTION IN AN ALP FIXING EXERCISE. IF THIS WERE TO BE DISTURBED, THE END RESULT WOULD BE DISTORTED AND WI THIN ONE ALP DETERMINATION FOR A YEAR, TWO OR EVEN FIVE METH ODS CAN BE ADOPTED. THIS WOULD SPELL CHAOS AND BE DETRIMENT AL TO THE INTERESTS OF BOTH THE ASSESSEE AND THE REVENUE. THE SECOND QUESTION IS, THEREFORE, ANSWERED IN FAVOUR OF THE A SSESSEE; THE TNMM HAD TO BE APPLIED BY THE TPO/AO IN RESPECT OF THE TECHNICAL FEE PAYMENT TOO. 9 17. IN OUR CONSIDERED OPINION, THE LOWER AUTHORITIE S ERRED IN QUESTIONING THE NEED AND BENEFIT ARRIVED BY THE ASS ESSEE FROM PAYMENT IN RESPECT OF AVAILING OF SERVICES FROM ITS AE. ALL THAT IS REQUIRED TO BE SEEN IS AS TO WHETHER THERE WAS ACTU AL RENDITION OF SERVICES OR NOT. WE HAVE CAREFULLY GONE THROUGH TH E EMAILS AND INVOICES PLACED IN THE PAPER BOOK VIS A VIS TSA AGR EEMENT. IN OUR CONSIDERED OPINION, THESE DOCUMENTARY EVIDENCES CLE ARLY SHOW THE RENDITION OF SERVICES BY THE AE TO THE APPELLANT CO MPANY. MOREOVER, THE TPO HIMSELF HAS ACCEPTED THE FEES RECEIVED BY T HE ASSESSEE FROM RENDERING THESE SERVICES. WE FAIL TO UNDERSTAND WH Y THE PAYMENTS HAVE BEEN SUBJECTED TO DIFFERENT TREATMENTS. 18. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF EKL APPLIANCES 345 ITR 241 HAS HELD THAT THE TPO DOES NOT HAVE POWER T O ADJUDICATE THE ALLOWANCE/DISALLOWANCE OF EXPENDITURE INCURRED BY T HE ASSESSEE THEREBY DEMOLISHING THE NEED AND BENEFIT DERIVED BY THE ASSESSEE. THE RELEVANT FINDINGS OF THE HON'BLE HIGH COURT REA D AS UNDER: 15. IT SEEMS TO US THAT THE DECISION TAKEN BY THE TRIBUNAL IS THE RIGHT DECISION. THE TPO APPLIED THE CUP METHOD WHILE EXAMINING THE PAYMENT OF BRAND FEE/ ROYALTY. THE CU P METHOD WHICH IN ITS EXPANDED FORM IS KNOWN AS 'COMPARABLE UNCONTROLLED 10 PRICE' METHOD IS PROVIDED FOR IN RULE 10B(1)(A) OF THE INCOME TAX RULES, 1962. IT IS ONE OF THE METHODS RECOGNISE D FOR DETERMINING THE ALP IN RELATION TO AN INTERNATIONAL TRANSACTION. RULE 10B(1) SAYS THAT FOR THE PURPOSES OF SECTION 92C(2) , THE ALP SHALL BE DETERMINED BY ANY ONE OF THE FIVE METH ODS, WHICH IS FOUND TO BE THE MOST APPROPRIATE METHOD, AND GOE S ON TO LAY DOWN THE MANNER OF DETERMINATION OF THE ALP UNDER E ACH METHOD. THE FIVE METHODS RECOGNIZED BY THE RULE ARE (I) COMPARABLE UNCONTROLLED PRICE METHOD (CUP), (II) RE -SALE PRICE METHOD, (III) COST PLUS METHOD, (IV) PROFIT SPLIT M ETHOD AND (V) TRANSACTIONAL NET MARGINAL METHOD (TNMM). THE MANNE R BY WHICH THE ALP IN RELATION TO AN INTERNATIONAL TRANS ACTION IS DETERMINED UNDER CUP IS PRESCRIBED IN CLAUSE (A) OF THE SUB-RULE (1) OF RULE 10B. THE FOLLOWING THREE STEPS HAVE BEE N PRESCRIBED: - '(A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHICH , (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER RED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRAN SACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPA RABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISE S ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFE CT THE PRICE IN THE OPEN MARKET; 11 (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB- CLAU SE (II) IS TAKEN TO BE AN ARM'S LENGTH PRICE IN RESPECT OF THE PROPE RTY TRANSFERRED OR SERVICES PROVIDED IN THE INTERNATION AL TRANSACTION;' 16. THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD , FOR SHORT) HAS LAID DOWN 'TRANSFER PRICING GUIDELINES' FOR MULTI-NATIONAL ENTERPRISES AND TAX ADMINISTRATIONS. THESE GUIDELINES GIVE AN INTRODUCT ION TO THE ARM S LENGTH PRICE PRINCIPLE AND EXPLAINS ARTICLE 9 OF THE OECD MODEL TAX CONVENTION. THIS ARTICLE PROVIDES THAT WH EN CONDITIONS ARE MADE OR IMPOSED BETWEEN TWO ASSOCIAT ED ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATI ONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEP ENDENT ENTERPRISES THEN ANY PROFIT WHICH WOULD, BUT FOR TH OSE CONDITIONS, HAVE ACCRUED TO ONE OF THE ENTERPRISES, BUT, BY REASON OF THOSE CONDITIONS, IF NOT SO ACCRUED, MAY BE INCLUDED IN THE PROFITS OF THAT ENTERPRISE AND TAXED ACCORDINGL Y. BY SEEKING TO ADJUST THE PROFITS IN THE ABOVE MANNER, THE ARM S LENGTH PRINCIPLE OF PRICING FOLLOWS THE APPROACH OF TREATI NG THE MEMBERS OF A MULTI-NATIONAL ENTERPRISE GROUP AS OPE RATING AS SEPARATE ENTITIES RATHER THAN AS INSEPARABLE PARTS OF A SINGLE UNIFIED BUSINESS. AFTER REFERRING TO ARTICLE 9 OF THE MODEL CONVENTION AND STATING THE ARM S LENGTH PRINCIPLE, THE GUIDELINES PROVIDE FOR 'RECOGNITION OF THE ACTUAL TRANSACTIONS UNDERTAKEN' IN PARAGRAPHS 1.36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 ARE IMPORTANT 12 AND ARE RELEVANT TO OUR PURPOSE. THESE PARAGRAPHS A RE RE- PRODUCED BELOW: - '1.36 A TAX ADMINISTRATION'S EXAMINATION OF A CONTR OLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANS ACTION ACTUALLY UNDERTAKEN BY THE ASSOCIATED ENTERPRISES A S IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY TH E TAXPAYER INSOFAR AS THESE ARE CONSISTENT WITH THE METHODS DE SCRIBED IN CHAPTERS II AND III. IN OTHER THAN EXCEPTIONAL CASE S, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRAN SACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. RESTRUCTURI NG OF LEGITIMATE BUSINESS TRANSACTIONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COULD BE COMPOUNDED BY DOUBLE TAXATION CREATED WHERE THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEWS AS TO HOW THE TRANSACTION SHOU LD BE STRUCTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCES IN WHICH IT MAY, EXCEPTIONALLY, BE BO TH APPROPRIATE AND LEGITIMATE FOR A TAX ADMINISTRATION TO CONSIDER DISREGARDING THE STRUCTURE ADOPTED BY A TAXPAYER IN ENTERING INTO A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTAN CE ARISES WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFE RS FROM ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DIS REGARD THE PARTIES' CHARACTERIZATION OF THE TRANSACTION AND RE -CHARACTERISE IT IN ACCORDANCE WITH ITS SUBSTANCE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN INVESTMENT IN AN ASSOCIATE D ENTERPRISE IN THE FORM OF INTEREST-BEARING DEBT WHEN, AT ARM'S LENGTH, HAVING REGARD TO THE ECONOMIC CIRCUMSTANCES OF THE BORROWING 13 COMPANY, THE INVESTMENT WOULD NOT BE EXPECTED TO BE STRUCTURED IN THIS WAY. IN THIS CASE IT MIGHT BE AP PROPRIATE FOR A TAX ADMINISTRATION TO CHARACTERIZE THE INVESTMENT I N ACCORDANCE WITH ITS ECONOMIC SUBSTANCE WITH THE RESULT THAT TH E LOAN MAY BE TREATED AS A SUBSCRIPTION OF CAPITAL. THE SECOND CI RCUMSTANCE ARISES WHERE, WHILE THE FORM AND SUBSTANCE OF THE T RANSACTION ARE THE SAME, THE ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER AND THE ACTUAL STRUC TURE PRACTICALLY IMPEDES THE TAX ADMINISTRATION FROM DET ERMINING AN APPROPRIATE TRANSFER PRICE. AN EXAMPLE OF THIS CIRC UMSTANCE WOULD BE A SALE UNDER A LONG-TERM CONTRACT, FOR A L UMP SUM PAYMENT, OF UNLIMITED ENTITLEMENT TO THE INTELLECTU AL PROPERTY RIGHTS ARISING AS A RESULT OF FUTURE RESEARCH FOR T HE TERM OF THE CONTRACT (AS PREVIOUSLY INDICATED IN PARAGRAPH 1.10 ). WHILE IN THIS CASE IT MAY BE PROPER TO RESPECT THE TRANSACTION AS A TRANSFER OF COMMERCIAL PROPERTY, IT WOULD NEVERTHELESS BE AP PROPRIATE FOR A TAX ADMINISTRATION TO CONFORM THE TERMS OF TH AT TRANSFER IN THEIR ENTIRETY (AND NOT SIMPLY BY REFERENCE TO P RICING) TO THOSE THAT MIGHT REASONABLY HAVE BEEN EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJECT OF A TRANSACT ION INVOLVING INDEPENDENT ENTERPRISES. THUS, IN THE CASE DESCRIBE D ABOVE IT MIGHT BE APPROPRIATE FOR THE TAX ADMINISTRATION, FO R EXAMPLE, TO ADJUST THE CONDITIONS OF THE AGREEMENT IN A COMMERC IALLY RATIONAL MANNER AS A CONTINUING RESEARCH AGREEMENT. 14 1.38 IN BOTH SETS OF CIRCUMSTANCES DESCRIBED ABOVE, THE CHARACTER OF THE TRANSACTION MAY DERIVE FROM THE RE LATIONSHIP BETWEEN THE PARTIES RATHER THAN BE DETERMINED BY NO RMAL COMMERCIAL CONDITIONS AS MAY HAVE BEEN STRUCTURED B Y THE TAXPAYER TO AVOID OR MINIMIZE TAX. IN SUCH CASES, T HE TOTALITY OF ITS TERMS WOULD BE THE RESULT OF A CONDITION THAT W OULD NOT HAVE BEEN MADE IF THE PARTIES HAD BEEN ENGAGED IN ARM'S LENGTH DEALINGS. ARTICLE 9 WOULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO REFLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAI NED HAD THE TRANSACTION BEEN STRUCTURED IN ACCORDANCE WITH THE ECONOMIC AND COMMERCIAL REALITY OF PARTIES DEALING AT ARM'S LENGTH.' 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LI ES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRAN SACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAM INATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED O N THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIF ICANCE THAT THE GUIDELINES DISCOURAGE RE-STRUCTURING OF LEGITIM ATE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERISATION OF SU CH RE- STRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN T HE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXATION IF THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 15 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESA ID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND S UBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFE R FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERP RISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. 19. THERE IS NO REASON WHY THE OECD GUIDELINES SHOU LD NOT BE TAKEN AS A VALID INPUT IN THE PRESENT CASE IN JUDGI NG THE ACTION OF THE TPO. IN FACT, THE CIT (APPEALS) HAS REFERRED TO AND APPLIED THEM AND HIS DECISION HAS BEEN AFFIRMED BY THE TRIB UNAL. THESE GUIDELINES, IN A DIFFERENT FORM, HAVE BEEN RECOGNIZ ED IN THE TAX JURISPRUDENCE OF OUR COUNTRY EARLIER. IT HAS BEEN H ELD BY OUR COURTS THAT IT IS NOT FOR THE REVENUE AUTHORITIES T O DICTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINE SS AND IT IS NOT FOR THEM TO TELL THE ASSESSEE AS TO WHAT EXPEND ITURE THE ASSESSEE CAN INCUR. WE MAY REFER TO A FEW OF THESE AUTHORITIES TO ELUCIDATE THE POINT. IN EASTERN INVESTMENT LTD. V. CIT , (1951) 20 ITR 1, IT WAS HELD BY THE SUPREME COURT THAT 'TH ERE ARE USUALLY MANY WAYS IN WHICH A GIVEN THING CAN BE BRO UGHT ABOUT IN BUSINESS CIRCLES BUT IT IS NOT FOR THE COURT TO DEC IDE WHICH OF THEM SHOULD HAVE BEEN EMPLOYED WHEN THE COURT IS DE CIDING A QUESTION UNDER SECTION 12(2) OF THE INCOME TAX ACT'. IT WAS FURTHER HELD IN THIS CASE THAT 'IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT IN FAC T ANY PROFIT WAS EARNED'. IN CIT V. WALCHAND & CO . ETC., (1967) 65 ITR 381, 16 IT WAS HELD BY THE SUPREME COURT THAT IN APPLYING T HE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT O F THE REVENUE. IT WAS FURTHER OBSERVED THAT THE RULE THAT EXPENDITURE CAN ONLY BE JUSTIFIED IF THERE IS CORRE SPONDING INCREASE IN THE PROFITS WAS ERRONEOUS. IT HAS BEEN CLASSICALLY OBSERVED BY LORD THANKERTON IN HUGHES V. BANK OF NE W ZEALAND, (1938) 6 ITR 636 THAT 'EXPENDITURE IN THE COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONE THE LESS A PROPER D EDUCTION IF WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSES OF TRA DE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE CREDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE'. THE QUESTION WHETHER AN EXPENDITURE CAN BE ALLOWED AS A DEDUCTION ONLY IF I T HAS RESULTED IN ANY INCOME OR PROFITS CAME TO BE CONSIDERED BY T HE SUPREME COURT AGAIN IN CIT V. RAJENDRA PRASAD MOODY , (1978) 115 ITR 519, AND IT WAS OBSERVED AS UNDER: - 'WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTH ERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECA USE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGO ING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIRE MENT OF PROPER ACCOUNTING AND THE INTERPRETATION OF SECTION 57(III) CANNOT BE DIFFERENT. THE DEDUCTION OF THE EXPENDITURE CANNOT, IN THE 17 CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPON THE M AKING OR EARNING OF THE INCOME.' IT IS NOTEWORTHY THAT THE ABOVE OBSERVATIONS WERE M ADE IN THE CONTEXT OF SECTION 57(III) OF THE ACT WHERE THE LANGUAGE IS SOMEWHAT NARROWER THAN THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT. THIS FACT IS RECOGNISED IN THE JUDGMEN T ITSELF. THE FACT THAT THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT IS BROADER THAN SECTION 57(III) OF THE ACT MAKES THE POSITION STRONGER. 20. IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD. V. CIT , (1979) 118 ITR 261 (SC), THE SUPREME COURT REFERRED TO THE LEGISLATIVE HISTORY AND NOTED THAT WHEN THE INCOME TAX BILL OF 1961 WAS INTRODUCED, SECTION 37(1) REQUIRED THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY, NECESSARILY AND EXCLUSI VELY' FOR THE PURPOSES OF BUSINESS IN ORDER TO MERIT DEDUCTION. P URSUANT TO PUBLIC PROTEST, THE WORD 'NECESSARILY' WAS OMITTED FROM THE SECTION. 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEG ITIMATE EXPENDITURE INCURRED BY HIM WAS ALSO INCURRED OUT O F NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW T HAT ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSI NESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ON LY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED ' WHOLLY AND 18 EXCLUSIVELY' FOR THE PURPOSE OF BUSINESS AND NOTHIN G MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE O R THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESS EE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INC URRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FO R THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO T HE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUAN TUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDIT URE OR A PART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERE D CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; TH ERE IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/ BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPEN DITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS P ROVIDED IN THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE 19 INTERNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWAN CE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR AUTHORISED. 23. APART FROM THE LEGAL POSITION STATED ABOVE, EVE N ON MERITS THE DISALLOWANCE OF THE ENTIRE BRAND FEE/ ROYALTY P AYMENT WAS NOT WARRANTED. THE ASSESSEE HAS FURNISHED COPIOUS M ATERIAL AND VALID REASONS AS TO WHY IT WAS SUFFERING LOSSES CON TINUOUSLY AND THESE HAVE BEEN REFERRED TO BY US EARLIER. FULL JUS TIFICATION SUPPORTED BY FACTS AND FIGURES HAVE BEEN GIVEN TO D EMONSTRATE THAT THE INCREASE IN THE EMPLOYEES COST, FINANCE CH ARGES, ADMINISTRATIVE EXPENSES, DEPRECIATION COST AND CAPA CITY INCREASE HAVE CONTRIBUTED TO THE CONTINUOUS LOSSES. THE COMP ARATIVE POSITION OVER A PERIOD OF 5 YEARS FROM 1998 TO 2003 WITH RELEVANT FIGURES HAVE BEEN GIVEN BEFORE THE CIT (AP PEALS) AND THEY ARE REFERRED TO IN A TABULAR FORM IN HIS ORDER IN PARAGRAPH 5.5.1. IN FACT THERE ARE FOUR TABULAR STATEMENTS FU RNISHED BY THE ASSESSEE BEFORE THE CIT (APPEALS) IN SUPPORT OF THE REASONS FOR THE CONTINUOUS LOSSES. THERE IS NO MATERIAL BRO UGHT BY THE REVENUE EITHER BEFORE THE CIT (APPEALS) OR BEFORE T HE TRIBUNAL OR EVEN BEFORE US TO SHOW THAT THESE ARE INCORRECT FIGURES OR THAT EVEN ON MERITS THE REASONS FOR THE LOSSES ARE NOT GENUINE. 24. WE ARE, THEREFORE, UNABLE TO HOLD THAT THE TRIB UNAL COMMITTED ANY ERROR IN CONFIRMING THE ORDER OF THE CIT (APPEALS) FOR BOTH THE YEARS DELETING THE DISALLOWA NCE OF THE 20 BRAND FEE/ ROYALTY PAYMENT WHILE DETERMINING THE AL P. ACCORDINGLY, THE SUBSTANTIAL QUESTIONS OF LAW ARE A NSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE. THE APPEALS ARE ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS. 19. CONSIDERING THE FACTS OF THE CASE IN TOTALITY I N LIGHT OF THE JUDICIAL DECISIONS REFERRED TO HEREINABOVE, WE DO NOT FIND A NY MERIT IN THE TP ADJUSTMENT OF RS. 33,10,68,560/-. THE ASSESSING OF FICER/TPO IS, ACCORDINGLY, DIRECTED TO DELETE THE SAME. GROUNDS RELATING TO TP ADJUSTMENTS WITH ALL ITS SUB GROUNDS ARE ALLOWED. 20. NOW WE WILL ADDRESS TO THE CORPORATE TAX ADDITI ONS. FIRST ADDITION IS IN RESPECT OF DISALLOWANCE OF DEPRECIAT ION ON GOOD WILL AMOUNTING TO RS. 10,93,97,864/-. 21. AS MENTIONED ELSEWHERE, THE ASSESSEE HAD ENTERE D INTO A LOCAL BUSINESS TRANSFER AGREEMENT WITH AMEX ON 01.06.2014 TO ACQUIRE ITS CORPORATE TRAVEL DIVISION. THE SAID DIVISION WAS AC QUIRED ON A SLUMP SALE AS A GOING CONCERN BASIS AND WAS PART OF A GLO BAL RESTRUCTURING EXERCISE. THE APPELLANT COMPANY HAD PAID A CONSIDE RATION OF RS. 45,48,85,303/- TOWARDS THE ACQUISITION OF CORPORATE TRAVEL DIVISION, WHICH COMPRISED OF NET ASSETS WORTH RS. 1,72,93,846 /-. THE 21 CONSIDERATION PAID OVER AND ABOVE THE VALUE OF NET ASSETS ACQUIRED WAS ACCOUNTED AS GOOD WILL AND, ACCORDINGLY, DEPRECIA TION WAS CLAIMED ON THE SAME. 22. IN SUPPORT OF THIS TRANSACTION, THE ASSESSEE SU BMITTED A VALUATION REPORT OBTAINED BY AMEX DATED 09.06.2014 WHEREIN TH E FAIR VALUATION OF VARIOUS ASSETS/BUSINESS DIVISIONS TO BE TRANSFER RED TO VARIOUS GBT ENTITIES WORLDWIDE WAS DETERMINED. THE SAID REPORT PROVIDED THE FAIR VALUATION OF THE CORPORATE DIVISION OF AMEX AT USD 7.7 MILLION AS ON 31.12.2013 FOR SLUMP SALE. ANOTHER REPORT FROM AN INDEPENDENT VALUER WAS ALSO OBTAINED WHO CONFIRMED THE VALUE OF CORPOR ATE TRAVEL DIVISION OF AMEX AT RS. 45,48,85,404/- AND PURSUANT TO THIS, THE ASSESSEE PAID CONSIDERATION OF RS. 45,48,85,303/-. 23. ANOTHER REPORT WAS ALSO OBTAINED DATED 25.07.20 14 FROM THE LOCAL VALUER FOR SUPPORTING THE CONSIDERATION PAID FOR ACQUIRING CORPORATE TRAVEL DIVISION. THE SAID VALUATION REPO RT HAD ESTIMATED THE FAIR VALUE OF THE CORPORATE TRAVEL DIVISION TO BE I N THE RANGE OF 47.11 CRORES TO 50.72 CRORES AS ON 01.06.2014. ALL THESE VALUATION REPORTS ARE PART OF THE PAPER BOOK. 22 24. AT THIS POINT, IT WOULD BE PERTINENT TO MENTION THAT AMEX HAS PAID CAPITAL GAIN TAX ON RECEIVING CONSIDERATION OF RS. 45,48,85,404/-. THE MAIN REASON FOR DISMISSING THE CLAIM OF DEPRECI ATION BY THE ASSESSING OFFICER IS THAT IN NONE OF THE VALUATION REPORTS, GOOD WILL HAS BEEN SEPARATELY MENTIONED. 25. OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE DR P WERE DISMISSED. 26. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 27. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF T HE ASSESSING OFFICER. 28. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW AND HAVE CAREFULLY GONE THROUGH T HE VALUATION REPORTS MENTIONED ELSEWHERE, WHICH ARE PART OF THE PAPER BOOK FILED BEFORE US. IT IS TRUE THAT IN NONE OF THE VALUATIO N REPORTS, GOODWILL HAS BEEN SEPARATELY VALUED. BUT IT IS EQUALLY TRUE THA T THE ASSESSEE HAS PAID CONSIDERATION OVER AND ABOVE THE FAIR VALUE OF THE ASSETS OF AMEX. IN OUR CONSIDERED OPINION, DIFFERENTIAL AMOUNT REPR ESENTS PAYMENT 23 TOWARDS GOODWILL. 29. WE DO NOT CONCUR WITH THE OBSERVATIONS OF THE D RP THAT THE ASSESSEE, WITH THE MOTIVE OF REDUCING PROFITS IN FO RM OF DEPRECIATION, HAD ENTERED INTO THIS TRANSACTION. IN OUR CONSIDER ED VIEW, NO PRUDENT BUSINESS MAN WOULD PAY A SUM OF RS. 45.48 CRORES TO CLAIM DEPRECIATION OF RS. 10.93 CRORES OVER A PERIOD OF F IVE YEARS, NOT TO MENTION THAT THE AMEX HAVE CONFIRMED THAT THEY HAVE PAID CAPITAL GAIN TAX ON THE CONSIDERATION PAID BY THE ASSESSEE TO ACQUIRE CORPORATE TRAVEL DIVISION. 30. FURTHER, WE FIND THAT THE ASSESSING OFFICER HAS CONFUSED HIMSELF WITH THE VALUATION REPORT OF THE INDEPENDENT VALUER WITH ANOTHER REPORT WHEREIN THE VALUE OF THE TRANSFERRED BUSINES S HAD BEEN DETERMINED AT NEGATIVE VALUE OF RS. 1.9 MILLION. W E FIND THAT THIS VALUATION REPORT WAS PREPARED ONLY FOR FEMA PURPOSE S TO JUSTIFY THE DETERMINATION OF PRICE OF SHARES ISSUED BY THE ASSE SSEE TO ITS SHARE HOLDERS. 31. IN SO FAR AS THE DEPRECIATION OF GOOD WILL IS C ONCERNED, THIS ISSUE IS BY NOW WELL SETTLED BY THE DECISION OF THE HON'B LE SUPREME COURT IN 24 THE CASE OF SMIFS SECURITIES LTD 348 ITR 203 WHEREI N THE HON'BLE APEX COURT HAS HELD THAT GOOD WILL ACQUIRED ON AMALGAMAT ION [BEING THE DIFFERENCE BETWEEN COST OF ASSETS AND CONSIDERATION PAID] IS A CAPITAL RIGHT AND THUS ELIGIBLE FOR DEPRECIATION U/S 32 OF THE ACT. 32. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, IN THE LIGHT OF DECISION OF THE HON'BLE SUPREME COURT [SUPRA], WE D IRECT THE ASSESSING OFFICER TO ALLOW CLAIM OF DEPRECIATION. THIS GROUN D IS, ACCORDINGLY, ALLOWED. 33. NEXT DISALLOWANCE RELATES TO CLAIM OF BAD DEBTS AMOUNTING TO RS. 2,25,26,524/-. 34. FACTS RELATING TO THIS GRIEVANCE SHOW THAT IN T HE ACQUISITION OF CORPORATE TRAVEL DIVISION, THE ASSESSEE HAD ALSO AC QUIRED RECEIVABLES OF RS. 37.04 CRORES BESIDES OTHER ASSETS AND LIABILITI ES. OUT OF THESE RECEIVABLES, THE ASSESSEE WAS UNABLE TO RECOVER RS. 2.25 CRORES FROM CERTAIN PARTIES. THE SAME WAS WRITTEN OFF AS BAD D EBTS IN THE PROFIT AND LOSS ACCOUNT. 25 35. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE BAD DEBTS ARE RE LATED TO VERY BRAND CONSCIOUS ENTITIES, WHICH BY NO STRETCH OF IMAGINAT ION CAN BE MADE AS BAD DEBTS. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED CONVINCING EXPLANATION FOR CONSID ERING THESE ENTITIES AS BAD DEBTS. THE ASSESSING OFFICER ISSUED NOTICE U/S 133(6) OF THE ACT TO AMEX AND ON RECEIVING NO REPLY, DISALLOWED THE C LAIM OF BAD DEBTS WHICH WAS UPHELD BY THE DRP. 36. THERE IS NO DISPUTE THAT ON THE ACQUISITION OF CORPORATE TRAVEL DIVISION, THE APPELLANT COMPANY ALSO ACQUIRED RECEI VABLES. IT IS ALSO NOT IN DISPUTE THAT OUT OF THE RECEIVABLES, THE REC EIVABLES AMOUNTING TO RS. 2.25 CRORES FROM CERTAIN PARTIES COULD NOT B E RECOVERED. IT IS A SETTLED PROPOSITION OF LAW THAT TO CLAIM BAD DEBT, ALL THAT IS REQUIRED FOR THE ASSESSEE IS TO ACTUALLY WRITE OFF THE DEBTS IN HIS BOOKS OF ACCOUNT. THE RECEIVABLES WRITTEN OFF BY THE APPELL ANT COMPANY WERE ERSTWHILE RECEIVABLES TO AMEX DULY REFLECTED IN THE IR BALANCE SHEET AND, THEREFORE, IT CAN BE SAFELY PRESUMED THAT THE RECEIVABLES WERE PART OF BUSINESS PROFITS OF THE AMEX. 26 37. IN OUR CONSIDERED OPINION, THE ASSESSEE HAS SUC CESSFULLY DISCHARGED ITS ONUS AND HAS FULFILLED THE CONDITION S LAID DOWN U/S 36 OF THE ACT. WE, THEREFORE, DO NOT FIND ANY REASON WHY THE WRITE OFF OF BAD DEBTS SHOULD NOT BE ALLOWED. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF BAD DEBTS. 38. OTHER GROUNDS ARE CONSEQUENTIAL IN NATURE. 39. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 8965/DEL/2019 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31.01. 2020. SD/- SD/- [N.K. CHOUDHARY ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 ST JANUARY, 2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR 27 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER