DHR Holding India Pvt. Ltd., New Delhi V. JCIT, New Delhi

ITA 953/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7566 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 17-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Depreciation; Transfer pricing; Business expenditure; International transaction; TDS
• Section: 271(1)(c); 92C; 143(3); 234B; 10B; 13; 22; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI (THROUGH VIDEO CONFERENCING] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 953/DEL/2017 [A.Y 2012-13] DHR HOLDING INDIA PVT LTD VS. THE J.C.I.T UNIT NOS. 325 TO 328 SPECIAL RANGE-3 DLF TOWERS, SHIVAJI MARG NEW DELHI NEW DELHI PAN : AACCD 6672 N [APPELLANT] [RESPONDENT] DATE OF HEARING : 25.08.2021 DATE OF PRONOUNCEMENT : 27.08.2021 ASSESSEE BY : SHRI AJIT JAIN, CA REVENUE BY : SHRI SURENDER PAL, CI T-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER DATED 16.12.2016 FRAMED U/S 143(3) R.W.S 144C(3) OF THE I NCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHOR T]. 2 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. ON FACTS AND IN LAW, THE LEARNED DEPUTY COMMISSION ER OF INCOME TAX, TRANSFER PRICING OFFICER - 1(2)(1) AN D 1(2)(2) (LD. TPO) AND LEARNED JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-3, NEW DELHI / LEARNED ASSESSING OFFICER (LD. AO) ERRED IN DETERMINING, AND HON'BLE DISPUTE RESOLUTION PANEL - I, NEW DELHI (H ONBLE DRP) ERRED IN CONFIRMING ADDITIONS AMOUNTING TO IN R 9,15,19,446 TO THE TAXABLE INCOME OF THE APPELLANT ON ACCOUNT OF TRANSFER PRICING (TP) ADJUSTMENTS UNDE R SECTION 92CA(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) . PROVISION OF BUSINESS SUPPORT SERVICES AND MARKETIN G SUPPORT SERVICES (ADJUSTMENT OF INR 8.99.71.009) 2. ON THE FACTS AND IN LAW, THE LD. TPO ERRED IN NOT TREATING AMORTIZATION OF GOODWILL AND NONCOMPETE F EES AS ABNORMAL AND NON-RECURRING EXPENSES OUGHT TO BE EXCLUDED WHILE COMPUTING THE TNMM OPERATING MARGIN EARNED FROM PROVISION OF SERVICES TO ASSOCIATED ENTERPRISES (AES), IN CONTRAVENTION OF PROVISIONS OF RULE 10B OF THE INCOME TAX RULES, 1962 (THE RULES). IN TH IS 3 REGARD, THE LD. TPO AND LD. DRP COMPLETELY DISREGAR DED THE FACTS THAT - 2.1 SUCH EXPENSES WERE COMPLETELY UNRELATED TO THE PRICING OF INTERNATIONAL TRANSACTIONS; 2.2 THE COMPARABLE COMPANIES INCURRED NO COST OF SUCH OR SIMILAR NATURE; 2.3 APPROPRIATE ADJUSTMENT OUGHT TO HAVE BEEN PROVIDED UNDER RULE 10B( 1 )(E) OF THE RULES; AND 2.4 RELIANCE ON THE SAFE HARBOUR RULES WAS NEITHER APPROPRIATE NOR CORRECT. 3. ON THE FACTS AND IN LAW, LD. TPO ERRED IN AGGREGATING THE INTERNATIONAL TRANSACTIONS OF PROVI SION OF BUSINESS SUPPORT SERVICES AND PROVISION OF MARKETIN G SUPPORT SERVICES UNDERTAKEN BY THE APPELLANT BY FOL LOWING A COMBINED TRANSACTION BENCHMARKING APPROACH AND NO T APPRECIATING THAT THESE TRANSACTIONS ARE NOT INEXTR ICABLY LINKED AND CAN BE EVALUATED SEPARATELY. 4. ON THE FACTS AND IN LAW, THE LD. TPO VIOLATED THE PROVISIONS OF RULE 10B(2) AND 10B (3) OF THE RULES BY REJECTING CERTAIN COMPARABLE COMPANIES SELECTED IN TP DOCUMENTATION AND FURTHER SELECTING CERTAIN OTHER COMPANIES REJECTED BY THE APPELLANT, WITHOUT 4 APPRECIATING THAT SUCH COMPANIES ARE FUNCTIONALLY N ON- COMPARABLE TO THE APPELLANT. 5. ON THE FACTS AND IN LAW, THE HONBLE DRP/ LD. AO/ LD. TPO ERRED IN DISREGARDING THE APPELLANT A USE O F MULTIPLE YEAR/ PRIOR YEARS DATA AND IN NOT ALLOWIN G THE BENEFIT OF RISK ADJUSTMENTS IN CONTRAVENTION OF THE PROVISION OF SECTION 92C OF THE ACT READ WITH RULE 1 0B OF THE RULES. PURCHASE OF MEDICAL EQUIPMENT (ADJUSTMENT OFLNR 14,68,021) 6. ON FACTS AND IN LAW, THE HONBLE DRP/ LD. AO AND LD. TPO ERRED IN MAKING AN ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF PURCHASE OF MEDICAL EQUIPMENT BY: 6.1 ARRIVING AT NIL VALUE OF THE IMPORTED GOODS NOT APPRECIATING THAT THE MEDICAL EQUIPMENT COULD NOT H AVE BEEN IMPORTED AT NIL PRICE. 5 6.2 ARBITRARILY REJECTING THE TRANSACTIONAL NET MARGIN METHOD (TNMM) APPLIED BY THE ASSESSEE AND MAKING AN ARBITRARY ADJUSTMENT WITHOUT APPLYING ANY OF THE SPECIFIED METHODS, THEREBY DISREGARDING RULE 1 OB A ND RULE 1OC OF THE RULES 6.3 NOT APPRECIATING THAT THE DEPRECIATION CHARGED BY THE APPELLANT WITH RESPECT TO THE PURCHASE OF FIXED ASS ETS WAS ALREADY INCLUDED IN THE CALCULATION OF OPERATIN G MARGIN OF THE TRADING SEGMENT WHICH HAS OTHERWISE B EEN CONSIDERED AS ARMS LENGTH BY THE LD. TPO HIMSELF. INTEREST ON OUTSTANDING RECEIVABLES (ADJUSTMENT OF INR 80,416) 7. ON FACTS AND IN LAW, THE DRP/ LD. TPO HAS ERRED I N NOT APPRECIATING THAT THE OUTSTANDING RECEIVABLES A RE A RESULT/CONSEQUENCE OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ITS AE AND ARE NOT A SEPARATE INTERNATIONAL TRANSACTION PER SE; THEREFORE, DO NOT WARRANT DETERMINATION OF A SEPARATE ALP UNDER SECTI ON 92C OF THE ACT OWING TO THE FOLLOWING; 7.1 THAT NO INTEREST WAS CHARGED ON OUTSTANDING RECEIV ABLES FROM THIRD PARTIES IN AN ARM'S LENGTH SCENARIO FROM THE NON-AES BY THE APPELLANT. 6 7.2 NO INTEREST IS WARRANTED TO BE PAID BY THE APPELLANT FOR THE OUTSTANDING RECEIVABLES DURING TH E YEAR 7.3 THAT THE APPELLANT HAD SIGNIFICANT PAYABLES TOWARD S ITS AES ON WHICH THE APPELLANT HAS NOT PAID ANY INTEREST TO ITS AES 7.4 THAT THE ISSUE OF OUTSTANDING RECEIVABLES, IF ANY, IS SUBSUMED IN THE WORKING CAPITAL ADJUSTMENT GRANTED TO THE ASSESSEE AND NO SEPARATE ADJUSTMENT ON ACCOUNT OF OUTSTANDING RECEIVABLES IS CALLED FOR. 8. ON THE FACTS AND IN LAW, THE LD. AO ERRED IN NOT GRANTING FULL CREDIT OF TDS AVAILABLE TO THE APPELL ANT AND FURTHER ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT AND ARRIVING AT AN INCORRECT DEMAND OF INR 10,03,848 INSTEAD OF REFUND OF INR 17,92,400 DUE TO THE APPELLANT. 9. ON THE FACTS AND IN LAW, THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE A CT. 7 3. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH. CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTANCE O F THE LD. COUNSEL FOR THE ASSESSEE, WE HAVE CONSIDERED THE RELEVANT DOCUM ENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK, IN LIG HT OF RULE 18(6) OF THE ITAT RULES. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE APPELLANT COMPANY IS A DANAHER GROUP COMPANY, SET UP IN 2007 AND IS ENGAGED IN THE BUSINESS OF TRADING OF VARIOUS MEDICAL INSTRUME NTS AND PRODUCTS. THE APPELLANT COMPANY ALSO RENDERS BUSINESS SUPPORT SERVICES AND MARKETING SUPPORT SERVICES TO ITS ASSOCIATES ENTERP RISES [AE]. 5. UNDER THE PROVISION OF BUSINESS SUPPORT SERVICES , THE APPELLANT COMPANY HAS PROVIDED BUSINESS SUPPORT SERVICES TO I TS AES, NAMELY, IDENTIFYING POTENTIAL DISTRIBUTORS AND INFORMING TH EM OF THE PRODUCTS OFFERED BY THE AES, PASSING ON ALL ENQUIRIES/INFORM ATION PERTAINING TO DISTRIBUTORS TO AES FOR COMMENTS AND QUOTATIONS, PR OVIDING SUPPORT SERVICES IN THE NATURE OF SOFTWARE DEVELOPMENT AND TESTING, HARDWARE DEVELOPMENT AND TESTING, VERIFICATION AND VALIDATIO N ASSURANCE TO ITS AES, DEMONSTRATING THE USAGE OF THE MEDICAL EQUIPME NTS TO THE DISTRIBUTOR TO ENABLE THEM TO UNDERTAKE INSTALLATIO N AT THE CUSTOMERS 8 PREMISES AND PROVIDE INFORMATION AND PRODUCT TRAINI NG TO THE DISTRIBUTORS. 6. UNDER THE HEAD PROVISION OF MARKETING SUPPORT S ERVICES, THE APPELLANT ACQUIRED CERTAIN BUSINESS OPERATIONS FROM THIRD PARTY, NAMELY, LAB INDIA INSTRUMENTS PVT LTD., EFFECTIVE F ROM 11.11.2011. PURSUANT TO THE ACQUISITION, THE APPELLANT COMMENCE D THE PROVISION OF MARKETING SUPPORT SERVICES IN THE NATURE OF SALES S UPPORT INSTALLATION, AND POST WARRANTY SERVICES TO ITS AES. 7. THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY T HE ASSESSEE ARE AS UNDER: S. NO . TYPE OF INTERNATIONAL TRANSACTION METHOD SELECTED TOTAL VALUE OF TRANSACTION (RS.) MAM PLI I. TRADING OF MEDICAL EQUIPMENTS/CONSUMABLES FOR SALE TRANSACTIONAL NET MARGIN METHOD [TNMM] OPERATING PROFIT/ OPERATING REVENUE (OP/OR) 97,049,053 II, IMPORT OF MEDICAL EQUIPMENTS CAPITALISED OP/OR 20,550,167 III . PROVISION OF BUSINESS AND TECHNICAL SUPPORT SERVICES OPERATING PROFIT/ OPERATING COST OP/OC 396,362,471 IV. RECEIPT OF DISTRIBUTION AND MARKETING SERVICES 145432442 V. IMPORT OF CONSUMABLES FOR RESALE 37,352,066 9 8. DURING THE COURSE OF TRANSFER PRICING ASSESSMENT PROCEEDINGS, THE TPO ISSUED A SHOW CAUSE NOTICE, INTER ALIA, ASKING THE ASSESSEE TO EXPLAIN THE FOLLOWING: SL. NO. TYPE OF INTERNATIONAL TRANSACTION METHOD SELECTED MAM PLI TOTAL VALUE OF TRANSACTION [RS.] I. TRADING OF MEDICAL EQUIPMENTS/CONSUMABLES FOR SALE TRANSACTIONAL NET MARGIN METHOD OPERATING PROFIT/ OPERATING REVENUE (OP/OR 97049053 II. IMPORT OF MEDICAL EQUIPMENTS CAPITALIZED OP/OR 20550167 III. PROVISION OF BUSINESS AND TECHNICAL SUPPORT SERVICES OPERATING PROFIT/ OPERATING COST OP/OC 396362471 IV. RECEIPT OF DISTRIBUTION AND MARKETING SERVICES OP/OC 145432442 V. IMPORT OF CONSUMABLES FOR RESALE 37352066 9. THE RESULTS AS SUBMITTED BY THE TAXPAYER ARE AS UNDER: PARTICULARS BUSINESS SUPPORT DISTRIBUTION & MARKETING OPERATING REVENUES SERVICES 393,800,000 SERVICES 184,956,000 OPERATING COSTS 357,600,000 7 57,506,000 OPERATING PROFIT 36,200,000 27,450,000 T OP/OC 10.12% 17.43 TNMM TNMM 10 10. ON THE BASIS OF THE AFORESAID CHART, THE TPO OB SERVED THAT THE ASSESSEE HAS CONSIDERED BUSINESS SUPPORT SERVICES A ND DISTRIBUTION OF MARKETING SERVICES AS SEPARATE SEGMENTS WHEREAS THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE UNDER THESE TWO S EGMENTS ARE OF SIMILAR NATURE AND, ACCORDINGLY, HELD THAT THESE SH OULD BE CONSIDERED AS A SINGLE SEGMENT. 11. THE TPO FURTHER OBSERVED THAT THE ASSESSEE HAS CONSIDERED AMORTIZATION OF GOODWILL AS NON-OPERATING ITEM. THE TPO WAS OF THE FIRM BELIEF THAT SINCE DEPRECIATION OF TANGIBLE ASS ETS IS CHARGED TO THE PROFIT AND THEREFORE, AMORTIZATION OF GOODWILL SHOU LD ALSO BE CONSIDERED AS PART OF OPERATING COST LIKE DEPRECIAT ION AND RECOMPUTATION OF MARGIN AGGREGATING THE TWO SEGMENT S AS UNDER: PARTICULARS AMOUNT(IN INR) OPERATING REVENUE 578,756,000 OPERATING COSTS 585,063,000 OPERATING PROFIT (6,307,000) OP/OC (1.08) METHOD TNMM 11 12. THE ASSESSEE HAD USED THE FOLLOWING COMPARABLES FOR ITS TP ANALYSIS TO SHOW THAT THE TRANSACTIONS ARE AT ALP U NDER TNMM: NO. COMPANY NAME WEIGHTED AVERAGE OP/OC(%) I. CYBER MEDIA RESEARCH LTD. 11.70 II. EDCIL (INDIA) LTD. 8.65 III. HT MUSIC & ENTERTAINMENT CO. LTD. 3.52 IV. ICRA MANAGEMENT CONSULTING SE RV ICES LTD. 2.25 V. IN - HOUSE PRODUCTIONS LTD. - 5.59 VI. INDIA TOURISM DEV CORPORATION LTD. - 4.51 VII. INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. 4.82 VIII . INMACS MANAGEMENT SERVICES LTD 31.63 IX. OVERSEAS MANPOWER CORPORATION LTD - 19.77 MEAN 3.63% 13. AFTER ANALYSING THE COMPARABLES, THE TPO FINALL Y CAME TO SELECT THE FOLLOWING SET OF COMPARABLES TO DETERMINE THE A LP: SL. NO. COMPANY LONG NAME OP/OC 1. APITCO LTD 20.46% 2. AXIS INTEGRATED SYSTEMS LTD 25.80% 3. BVG INDIA LTD 24.46% 4 . CAMEO CORPORATE SERVICES LTD 7.98% 5. CONCEPT COMMUNICATION LTD. 4.00% 6 . CYBER MEDIA (INDIA) LTD 7.96% 7 . ICRA MANAGEMENT CONSULTING SERVICES LTD. 6.62% 12 8. KILLICK AGENCIES & MKTG. LTD. 8.96% 9 . MARKETING CONSULTANTS & AGENCIES LTD 10.53% 10. INMACS MANAGEMENT SERVICES LTD 51.12% AVERAGE 16.79% 14. THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRA NSACTION RELATED TO THE PROVISION OF MSS/BSS IS RECALCULATED AS UNDER: O P E R A T I O N A L C O S T 5 8 , 5 0 , 6 3 , 0 0 0 A R M S LENGTH P R I C E A T M A R G I N O F 1 6 . 7 9 . 6 8 , 3 2 , 9 5 , 0 7 8 P R I C E R E C E I V E D 5 7 , 8 7 , 5 6 , 0 0 0 1 0 5 % O F P R I C E R E C E I V E D 6 0 , 7 6 , 9 3 , 8 0 0 P R O P O S E D ADJUSTMENT U / S 9 2 C A 1 0 , 4 5 , 3 9 , 0 7 8 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT AMORTIZATION OF GOODWILL AND NON-COMPETE FEES IS AN ABNORMAL AND NON-RECURRING EXPENSE AND, THEREFORE, SHOULD BE EXCLUDED WHILE COMPUTING THE TNMM OPERATING MARGIN EARNED FROM PRO VISION OF SERVICES. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAID EXPENSES WERE IDENTIFIED ONLY FOR ACCOUNTING PURPOS ES CONSIDERING THAT ACQUISITION OF DIFFERENT LINE OF PRODUCTS BY THE AS SESSEE HAD RESULTED IN GOODWILL AND NON-COMPETE FEES. THE LD. COUNSEL FOR THE ASSESSEE 13 FURTHER STATED THAT SUCH EXPENSES WERE NOT INCURRED AS SUCH FOR THE PURPOSE OF PROVIDING SERVICES TO ITS AES. 16. REFERRING TO THE INTER-COMPANY AGREEMENT, THE L D. COUNSEL FOR THE ASSESSEE POINTED OUT THAT SUCH EXPENSES WERE NO T CONSIDERED WHILE DETERMINING THE COST BASE OF THE ASSESSEE NOR SUCH EXPENSE INFLUENCED THE PROFITABILITY. THE LD. COUNSEL FOR THE ASSESSE E FURTHER DREW OUR ATTENTION TO THE TRANSFER PRICING ASSESSMENT ORDER OF SUBSEQUENT ASSESSMENT YEARS I.E. 2013-14 AND 2014-15 AND POINT ED OUT THAT IN SUBSEQUENT ASSESSMENT YEARS, NEITHER THE ASSESSING OFFICER HAS AGGREGATED THE SEGMENTS NOR HAS CONSIDERED THE AMOR TIZATION OF GOODWILL AND NON-COMPETE FEES AS OPERATING EXPENSES . 17. PER CONTRA, THE LD. DR WAS IN FULL SUPPORT OF T HE FINDINGS OF THE TPO AND THE DRP AND READ THE RELEVANT FINDINGS OF T HE DRP. 18. IT IS TRUE THAT THE APPELLANT HAD ACQUIRED CERT AIN BUSINESS OPERATIONS FROM THIRD PARTY. AS A RESULT OF THIS A CQUISITION, THE ASSESSEE RECOGNIZED A PART OF THE PURCHASE PRICE AS GOODWILL AND NON- COMPETE FEES IN ITS BALANCE SHEET AND FOR COMPUTATI ON OF TESTED PARTY 14 MARGINS, THE ASSESSEE CONSIDERED AMORTIZATION OF GO ODWILL AND NON- COMPETE FEES AS NON-OPERATING EXPENSES AS THESE DID NOT PERTAIN TO THE PROVISION OF SERVICES TO THE AES. 19. IT WOULD BE PERTINENT TO REFER TO RULE 10B(1)(E ) OF THE ITAT RULES WHICH STATES AS UNDER: '(E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH,- (I) THE NET PROFIT MARGIN REALIZED BY THE ENTERPRIS E FROM AN INTERNATIONAL TRANSACTION [OR A SPECIFIED DOMESTIC TRANSACTION] ENTERED INTO WITH AN ASSOCIATED ENTERP RISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFF ECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE 20. IT CAN BE SEEN FROM THE ABOVE RULE THAT ONLY CO STS INCURRED IN RELATION TO INTERNATIONAL TRANSACTION OF PROVISION OF SERVICES TO THE AES SHOULD BE CONSIDERED IN COMPUTATION OF OPERATING MA RGIN. THIS IS IN LINE WITH THE GUIDELINES OF OECD, WHICH AT PARA 2.8 0, HAS MENTIONED AS UNDER: '2.80 NON-OPERATING ITEMS SUCH AS INTEREST INCOME A ND EXPENSES AND INCOME TAXES SHOULD BE EXCLUDED FROM THE DETERM INATION OF THE NET PROFIT INDICATOR. EXCEPTIONAL AND EXTRAORDI NARY ITEMS OF A NON-RECURRING NATURE SHOULD GENERALLY ALSO BE EXCLU DED.'' 15 21. ON IDENTICAL CIRCUMSTANCES, THIS TRIBUNAL IN IT A NO. 5158/DEL/2015 AND 1049/DEL/2016 IN THE CASE OF IMSO FER MANUFACTURING INDIA PVT. LTD HAS HELD AS UNDER: 7. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES BELOW. THERE IS NO DISPUTE THAT THE MACHINERY PURCH ASED BY THE ASSESSEE WAS LYING IN CAPITAL WORK IN PROGRESS. IT IS ALSO NOT IN DISPUTE THAT THE TREATMENT GIVEN BY THE ASSESSEE IS IN LINE WITH THE ACCOUNTING STANDARD ISSUED BY THE ICAI. IN OUR CONS IDERED OPINION A PROVISION FOR IMPAIRMENT OF ASSETS IS NOT A DEPRE CIATION CHARGE NOR AMORTISATION OF FIXED ASSETS BUT IT IS A PROVIS ION MADE TO THE CARRING AMOUNT OF THE FIXED ASSETS WHICH IS REVERSI BLE IN NATURE. MOREOVER SECTION 92 (1) OF THE ACT REQUIRES THAT AN Y INCOME ARISING FROM AN INTERNATIONAL TRANSACTION / ALLOWANCE FOR A NY EXPENSES SHALL BE COMPUTED HAVING REGARD TO ARMS LENGTH PRICE. IN OUR CONSIDERED VIEW IMPAIRMENT OF ASSETS CANNOT BE RELATED AS INTE RNATIONAL TRANSACTION OF THE ASSESSEE. FURTHER THE PROVISION FOR IMPAIRMENT OF ASSETS IS NOT REGULAR BUSINESS EXPENDITURE SINCE IT IS NOT RECURRING IN NATURE AND IS NOT RELATED NORMAL BUSIN ESS OPERATION AND HENCE NOT IN THE NATURE OF OPERATION EXPENSES, THER EFORE, IN OUR CONSIDERED OPINION THE SAME CANNOT BE TREATED AS OP ERATING EXPENDITURE FOR THE CALCULATION OF PLI OF THE ASSES SEE. WE ACCORDINGLY DIRECT THE AO / TPO TO EXCLUDE PROVISIO N OF IMPAIRMENT OF ASSETS AS OPERATING EXPENDITURE. THIS GROUND IS ACCORDINGLY ALLOWED. 16 22. FURTHER, THIS TRIBUNAL IN ERICSSON INDIA LTD I TA NO. 168/DEL/2015 HAS HELD AS UNDER: ASSESSEE HAS CHALLENGED THE FINDINGS RETURNED BY T PO/DRP TREATING AMORTIZATION OF GOODWILL AS NOT EXTRA ORDI NARY IN NATURE. IT IS THE CASE OF THE ASSESSEE THAT GOODWILL IS ON ACC OUNT OF ACQUISITION OF UNITS THROUGH SLUMP SALE UNDER BUSIN ESS TRANSFER AGREEMENT AND IN THESE CIRCUMSTANCES, AMORTIZATION OF GOODWILL IS AN EXTRA-ORDINARY ITEM AND IS NOT PERTAINING TO THE REGULAR OPERATION OF THE TAXPAYER, HENCE NON-OPERATING IN N ATURE. 16. LD. AR FOR THE ASSESSEE CONTENDED THAT LD. DRP IN ASSESSEE'S OWN CASE IN AYS 2011-12 AND 2012-13 AND LD. TPO IN AY 2013-14 ITA NO.168/DEL./2015 HAS ALREADY AMORTIZED GOODWILL AS EXTRA ORDINARY IN NATURE BY EXCLUDING THE SAME BY COMPUTI NG OPERATING MARGIN OF THE TAXPAYER AND ORDER THEREOF IS AVAILAB LE AT PAGES 2681 TO 2695, 2696 TO 2713 AND 2718 AND 2764 OF THE PAPER BOOK. IT IS ALSO NOT IN DISPUTE THAT THERE IS NO CHANGE I N THE FACTS OF AYS 2010-11, 2011-12, 2012-13 AND 2013-14. PERUSAL OF T HE ORDER PASSED BY LD. DRP AVAILABLE AT PAGE 2681 RELEVANT PORTION AT PAGE 2691, SHOWS THAT AMORTIZATION OF GOODWILL IS AN EXTRA-ORD INARY ITEM AND IS NOT PERTAINING TO THE REGULAR OPERATION OF THE ASSE SSEE, AND HENCE NON-OPERATING IN NATURE. SO, IN THESE CIRCUMSTANCES , WE DIRECT THE TPO TO VERIFY THE FACTS AND TREAT THE AMORTIZATION OF THE GOODWILL AS NON-OPERATING EXPENDITURE IN ORDER TO COMPUTE TH E OPERATING MARGIN OF THE ASSESSEE. SO, GROUND NO.7 IS DETERMIN ED IN FAVOUR OF THE ASSESSEE. 17 23. FURTHER, WE FIND THAT IN SUBSEQUENT A.YS, THE T PO HAS CONSIDERED AMORTIZATION OF GOODWILL AND NON-COMPETE FEES AS NO N-OPERATING EXPENSES. THEREFORE, WE DO NOT FIND ANY MERITS IN CONSIDERING THEM AS PART OF OPERATING EXPENSES FOR THE YEAR UNDER CONSI DERATION WHEN THE FACTS ARE SAME. 24. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, IN LIGHT OF THE DECISIONS OF THE CO-ORDINATE BENCH, WE DIRECT THE A SSESSING OFFICER TO TREAT AMORTIZATION OF GOODWILL AND NON-COMPETE FEES AS ABNORMAL AND NON RECURRING EXPENSE AND EXCLUDE THEM WHILE COMPUT ING TNMM OPERATING MARGIN EARNED FROM PROVISION OF SERVICES TO AES. 25. GROUND NO. 2 WITH ALL ITS SUB GROUNDS IS ALLOWE D. 26. SINCE WE HAVE DIRECTED FOR THE EXCLUSION OF AMO RTIZATION OF GOODWILL AND NON-COMPETE FEES AS NON-OPERATING EXPE NSES WHILE COMPUTING THE TNMM OPERATING MARGIN, WE DO NOT FIND IT NECESSARY TO DWELL INTO THE ISSUE RELATING TO THE COMPARABLES. ACCORDINGLY, GROUND NOS. 3, 4 AND 5 BECOME OTIOSE. 27. GROUND NO. 6 RELATES TO THE ADJUSTMENT ON PURCH ASE OF MEDICAL EQUIPMENTS. 18 28. FACTS ON RECORD SHOW THAT THE ASSESSEE IS ALSO ENGAGED IN THE BUSINESS OF TRADING OF MEDICAL EQUIPMENT I.E. BLOOD GAS ANALYSERS AND CONSUMABLES. WE FIND THAT THE ASSESSEE APPELLANT FO LLOWS A UNIQUE BUSINESS MODEL WHEREIN THE ASSESSEE BUYS ANALYSERS AND SELLS THEM TO THIRD PARTIES I.E. HOSPITALS, MEDICAL INSTITUTIONS ETC, BOOKS THE REVENUE UNDER THE TRADING SEGMENT. ON THE OTHER HAND, IF TH E CUSTOMER IS NOT WILLING TO BUY THE ANALYSERS, SUCH INSTRUMENTS WERE INSTALLED AT THE CUSTOMERS PREMISES AND THE CONSUMABLES REQUIRED BY THE CUSTOMER IN USING THESE INSTRUMENTS WERE PROVIDED BY THE ASSESS EE. WE FIND THAT THE COST OF SUCH ANALYSERS IMPORTED FROM THE AES, W ERE CAPITALIZED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ITS RELAT ED OPERATING COST, I.E. DEPRECIATION, HAS BEEN CHARGED TO THE PROFIT A ND LOSS ACCOUNT WHILE COMPUTING THE PROFITABILITY OF THE TRADING SE GMENT. WE FIND THAT THE ASSESSEE HAS USED TNMM ANALYSIS TO BENCH MARK A RMS LENGTH NATURE OF INTERNATIONAL TRANSACTION OF PURCHASE OF MEDICAL EQUIPMENT. 29. WE FIND THAT THE TPO HAS ACCEPTED THE PURCHASE PRICE OF SUCH ANALYSERS FOR THE TRADING SEGMENT AS ARMS LENGTH, BUT SURPRISINGLY, DETERMINED THE ARMS LENGTH PRICE OF PURCHASE OF FI XED ASSETS AT NIL. THE ASSESSING OFFICER, WHILE FRAMING THE FINAL ASSE SSMENT ORDER, EVEN 19 WENT AHEAD ONE STEP FURTHER AND DISALLOWED THE CLAI M OF DEPRECIATION CONSIDERING THE ARMS LENGTH PRICE DETERMINED BY TH E TPO AS NIL. 30. THE DOCUMENTS REFERRED TO BY THE LD. COUNSEL FO R THE ASSESSEE DURING THE COURSE OF ARGUMENTS WERE CONSIDERED FROM WHICH WE FIND THAT THE IMPORT OF GOODS WAS SUBSTANTIATED BY FURNI SHING THE CUSTOM DOCUMENTATION WHICH INCLUDES SAMPLE INVOICES ALONG WITH CORRESPONDING BILL OF ENTRIES. INTERESTINGLY, WE FI ND THAT THE CUSTOMS DUTY PAID AND COST OF TRANSPORTATION WERE CONSIDERE D AS THE ARMS LENGTH PRICE BY THE LOWER AUTHORITIES FOR COMPUTING THE ALLOWABLE DEPRECIATION WHEREAS THE COST OF EQUIPMENT HAS BEEN TAKEN AT NIL. 31. IN OUR CONSIDERED OPINION, EQUIPMENT WOULD NOT HAVE BEEN IMPORTED AT NIL PRICE EVEN IN AN INDEPENDENT SCENAR IO. MOREOVER, WE DO NOT FIND THAT THE TPO HAS APPLIED ANY METHOD TO BENCHMARK THE SAID TRANSACTION, WHICH ACTION OF THE TPO IS IN VIO LATION OF RULE 10B OF THE INCOME TAX RULES. WE FIND THAT WHILE TREATING T HE PURCHASE OF CAPITAL GOODS AS NIL, THE TPO FAILED TO PROVIDE ANY COMPARABLE DATA WHICH WOULD HAVE SUGGESTED THAT THE ARMS LENGTH PR ICE FOR THE PURCHASE OF CAPITAL GOODS CAN BE NIL. IN OUR UNDER STANDING, NO THIRD PARTY WOULD HAVE SOLD SUCH GOODS FREE OF COST. IN O UR CONSIDERED 20 OPINION, ARMS LENGTH PRICE COULD BE LOWER OR HIGHE R BUT CANNOT BE NIL, AS THE GOODS HAVE BEEN IMPORTED. 32. INCIDENTALLY, THE S AME PRODUCTS PURCHASED FROM THE SAME AE, FOR THE SAME PRICE, IN THE SAME YEAR, CANNOT BE HELD TO BE AT ARMS LENGTH FOR TRADING GOODS AND NOT AT ARMS LENGTH FOR CAPIT ALISED GOODS AT THE SAME TIME AND IN THE SAME BREATH. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEPRECIATION ON THE PURCHASE OF FIXED ASSETS. GROU ND NO. 6 WITH ALL ITS SUB GROUNDS IS, ACCORDINGLY, ALLOWED. 33. GROUND NO. 7 RELATES TO THE ADJUSTMENT OF RS. 8 0,416/- ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES. 34. CONSIDERING THE SMALLNESS OF THE AMOUNT, THE LD . COUNSEL FOR THE ASSESSEE DID NOT SERIOUSLY CONTEST THIS GROUND. TH E SAME IS DISMISSED FOR THE SMALLNESS OF THE AMOUNT. 35. GROUND NO. 8 RELATING TO LEVY OF INTEREST U/S 2 34B OF THE ACT IS CONSEQUENTIAL. 21 36. GROUND NO. 9 IS PREMATURE. 37. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 953/DEL/2017 IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 27.08. 2021 IN THE PRESENCE OF BOTH THE RIVAL REPRESENTATIVES. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH AUGUST, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 22 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