ACIT, CIRCLE-3(1), GURGAON vs. TPV TECHNOLOGY INDIA PVT. LTD. , GURGAON

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I”, NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 1947/Del/2023, A.Y. 2015-16 ACIT, Vs. M/s. TPV Technology Circle- 3(1), India Pvt. Ltd. Gurgaon 501-508, Fifth Floor, Beestech Chamber B-Block, Sushant Lok, Phase-1, Sector-27, Haryana- 122002 �थायीलेखासं./जीआइआरसं./PAN/GIR No: AAECT6700F Appellant .. Respondent Appellant by : Sh. Ajay Vohra, Sr. Adv. Ms. Nandini Bhatia, AR Respondent by : Shri Mahesh Kumar, CIT(DR) Date of Hearing 15.07.2026 Date of Pronouncement 22.07.2026

O R D E R PER VIMAL KUMAR, JM:

Application for condonation of delay of 42 days in filing appeal and the Appeal filed by the Revenue is against order dated 20.01.2023 of the Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon [hereinafter referred to as

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“the CIT(A)”] under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) arising out of penalty order dated 30.08.2019 of the Ld. Assessing Officer/ Assistant Commissioner of Income Tax, Circle 4(1), Gurgaon (hereinafter referred to as “the AO”) in pursuance to assessment order dated 07.02.2019 u/s 144C r.w.s. 143(3) of the Act for Assessment Year 2015-16.

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“4.1 These grounds of appeal have been taken up by the appellant against levyof penalty of Rs.3,80,13,460/-u/s 271AA of the Act. The appellant company is a wholly owned subsidiary of M/s Top Victory Investment Ltd, Hong Kong (hereafter referred as M/s Top Victory) and sells the product manufactured by the TPV group in the Indian Market. The appellant filed its return for the year under consideration on 29.11.2015 declaring loss at Rs. 10,31,48,811/-. Assessment u/s144C of the Act was completed in this case on 07.02.2019 at loss of Rs.2,01,40,27,030/-. During the course of assessment proceedings, the case was referred to the DCIT, Transfer Pricing-1(3)(2), New Delhi(TPO) as the appellant had entered into international transactions (Rs.315.53Cr). It was brought to the notice of the AO by the TPO that the appellant failed to disclose international transaction in 3CEB regarding acquisition of goodwill (Rs.1,90,06,73,197/-). Thus, penalty proceedings were initiated u/s271AA of the Act. In response, the appellant submitted before the AO that the business of Top Victory Investment Ltd. India Branch Office (TPIV-IBO') was demerged into the appellant company wef 01.04.2014 at the WDV of assets and liabilities appearing in the books of TPIV-IBOin pursuant to the Hon'ble Punjab and Haryana High Court order dated 09.03.2015.lt was explained before the AO that the appellant had recognized the goodwill suo moto to comply with the requirements of Accounting Standard and the amount of Rs.190Cr (goodwill) was ultimately adjusted against its reserves during the period of three years and no tax benefit has been claimed for these expenses as the amortized amount against the goodwill was added back suo moto while computing its taxable income in the ITR. For that, it was explained by the appellant that no goodwill was ever recognized in the books of TPIV-IBO. Further, without prejudice to above, it was explained that such goodwill would not get covered under the ambit of 'international transaction' as it was not a tangible asset and even if the same was an intangible asset, there was no purchase sale, transfer, lease or use of this goodwill in the instant case and for intangible

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assets to be covered under the purview of section 92B, there must be either a purchase or sale or transfer or lease or use of such intangible asset. The reply of the appellant was considered by the AO but not found tenable. The AO held in his order that Hon'ble Supreme Court of India declared goodwill to fall under the expression 'any other business or commercial right of a similar nature' as intangible asset in the case of Smifs Security Ltd vs CIT. It was noted by the AO that as per explanation (e) of section 92B, the demerger and creation of the entity-TPV India was a business re- organization and hence, falls under the purview of international transaction. 4.2 The appellant submitted during the appellate proceedings that the appellant company was established in India on June 24, 2013 as a subsidiary of M/s Top Victory Investments Limited, Hong Kong (hereinafter referred to as "TVIL HK" or the "TPV Group"). Pursuant to the order issued by Hon'ble High Court of Punjab and Haryana dated March 09, 2015, the operations of TVIL-IBO (Indian Branch Office of "TVII. IIK") were demerged with the Appellant with effect from April 01, 2014. Submission of the appellant is summarized as under:- (i) As per the scheme of arrangement between the two entities, the assets & liabilities of TVIL-IBO were transferred to the appellant with effect from April 01, 2014 at the written down value (WDV) of assets and liabilities appearing in the books of TVIL-IBO as on date. The Appellant relied upon the provision of section 92B .It was explained that the amount of goodwill shown in the books of the appellant was only by way of an accounting entry passed pursuant to the scheme of demerger, there was no intangible asset in the first place in the accounts of branch office and accordingly, the recording of goodwill in books of the Appellant does not fall under the purview of international transaction. The assets and liabilities of the demerged undertaking have been recorded in the accounts of the Appellant at their book values. Goodwill amounting to Rs 190 crore was recognized in the books of the Appellant only as per the accounting principles. The same was reflected in the fixed assets schedule forming part of the financial statements. The same was partly amortized during the relevant previous year, which was reflected in the fixed assets schedule as also charged to the Profit and Loss Account. Complete disclosure of the scheme of arrangement was made vide note no 31 of the notes to accounts forming part of the financial statements.Additionally, the charge to the Profit and Loss Account in respect of amortisation of goodwill had been added back suo moto while computing taxable income in the ITR.

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(iii) That the demerger between the appellant and the erstwhile Branch office was a tax neutral transaction with no profit or loss and thereby, no impact on taxes. (iv) The decision of the Hon'ble Bombay High Court in case of Vodafone India Services P Ltd WP No. 871/2014 has also been accepted by the Central Board of Direct Taxes (CBDT) vide instruction No.2/2015 dated 29th January 2015 which states as follows: "1. In reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. for A.Y. 2009-10 (WP No.871/2014), wherein the Hon'ble Court has held, inter-alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment" (v) The Ld. TPO and the Ld. AO had in the respective orders passed for AY 2015-16 accepted that the recording of goodwill in the accounts had no revenue impact, i.e. the same had no bearing on assets, profits, etc. of the Appellant. 4.3 After looking into the factual matrix of the case, it is observed that as per the scheme of arrangement between the appellant and M/s TVIL (Indian branch office of "TVIL HK") as approved by Hon'ble Punjab and Haryana High Court, the assets & liabilities of M/s TVIL IBO were transferred to the appellant with effect from April 01, 2014 at the written down value (WIDV) of assets and liabilities appearing in the books of TVIL-IBO as on date. In order to give effect to demerger as approved by Hon'ble Punjab and Haryana High Court, the appellant recognized goodwill amounting to Rs. 1,90,06,73,197/- (difference of asset and liabilities of M/s TVIL- IBO) in its books. The goodwill was accounted for in the schedule of fixed assets (balance sheet) and was amortized subsequently in phased manner during the F.Ys 2014-15, 2015-16 and 2016-17. Further, the amount of goodwill charged to the P&L account during the current year was added back in the computation of income. During the course of assessment proceedings, it was inferred by the AO that the appellant had acquired goodwill upon merger and the same, being international transaction, was not disclosed in form 3CEB as per the provision of section 92B of the Act.

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4.4 In view of the provisions of section 928 of the Act, for a transaction to fall under the category of "international transaction", there should be purchase, sale or lease of any tangible or intangible asset, any transaction having bearing on profits, income. /losses or assets between two or more associated enterprises. Thus, in order to decide the grounds of appeal raised, it is imperative to examine whether the goodwill recognized by the appellant in its books of account subsequent to demerger falls under the category of international transaction or not. 4.5 During the appellate proceedings, the financial statements of M/s TVIIL-IBO as on 31.03.2014 were examined and it was found that there was no goodwill recognized in the books of M/s TVIL-IBO which implies that there was no transfer of goodwill between the appellant and M/s TVIL-IBO. The liabilities of M/s TVIL-IBO were more than the assets, the difference in the assets and liabilities was recognized by the appellant in its books in the shape of goodwill as per Accounting Standard-14. Thus, the goodwill of Rs.190Cr reflected in the books of the appellant was to give effect to demerger of M/s TVIL-IBO with the appellant. The same is also evident from note 31 of the financial statement of the appellant for the year under consideration. From the material available on record, it is evident that recording of goodwill in the books of accounts by the Appellant was merely in the nature of an accounting entry denoting the excess of liabilities over assets of the demerged undertaking (TVIL-IBO) without any acquisition or transfer of goodwill or any other intangible asset, could not be said to have resulted in an international transaction within the meaning of section 92B of the Act. Thus, it is evident from the above facts that the goodwill reflected in the books of pellant did not fall under the category of 'International Transaction' as it was not by the appellant from M/s TVIL-IBO. Further, reliance is placed upon the decision of the Hon'ble Delhi High Court in the case of Whirlpool of India Ltd. wherein it is held that "Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction." When there was no goodwill appearing in the books of M/s TVIL-IBO, there arises no question of acquiring the same by the appellant from M/s TVIL-IBO. Thus, there was no international transaction on this account in terms of provisions of section 928 of the Act. 4.6 Further, it is noted from the perusal of Form No. 3CEB that Form No. 3CEB was prepared after examining the financial accounts along with notes to the accounts and records of the appellant. Moreover, the accounting of goodwill in the books of the appellant was revenue neutral since out of goodwill of Rs.190Cr, goodwill amounting to Rs.150Cr was amortized by charging the same to P&L account during the current year and the amount charged to the P&L account was added back in the

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computation of income. Moreover, the appellant has disclosed all material facts and particulars to the accountant for the preparation in Form 3CEB rws 92E of the Act and thus, has made complete and bona fide disclosure about the above facts, Further, the AO, while making the assessment in the case of the appellant for the year under consideration, did not make any adverse inference on the issue of goodwill while assessing the income. The AO has relied upon the decision of Hon'ble Supreme Court of India in the case of M/s Smifs Securities Ltd vs CIT(supra). However, the said decision of Hon'ble Supreme Court of India is not applicable to the facts of the present case since the same was in the context of charging of depreciation u/s 32 of the Act. 4.7 From the perusal of penalty notice u/s 274 rws 271AA of the Act dated 07.02.2019, it is noted that the AO has not specified how the appellant has failed to report certain transactions. The notice u/s 274 rws 271AA of the Act is vague. Further, in para 3 of the said notice, section 271(1)(C) of the Act in mentioned instead of section 271AA of the Act. Thus, it is noted that penalty notice issued by the AO was mechanical in nature. The same is reproduced as under for reference:

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4.8 In view of the above facts and discussion, it is found that there is bona fide difference of opinion between the appellant and the AO on the above issue. Therefore, keeping in view the provisions of sections 92B-92E of the Act rws 273B of the Act, the levy of penalty u/s 271AA of the Act by the AO was not justified as explanation submitted by the appellant has been found to be reasonable. There was a reasonable cause for not disclosing the amount of goodwill in Form 3CEB. Thus, penalty of Rs.3,80,13,460/- levied by the AO u/s 271AA of the Act is hereby deleted. Accordingly, grounds of appeal no. 1-13 are hereby allowed.” 6. From perusal of above discussion and observations, it is evident that Ld. CIT(A) set aside the accounting of goodwill in the books of the assessee was revenue neutral since out of goodwill of Rs. 190 Cr. Goodwill amounting to Rs. 150 Cr. was amortized by charging the same to P&L account during the current year and the amount charged to the P&L account was added back in the computation of income. Therefore, the grounds of appeal of revenue being devoid of merit are untenable.

Order pronounced in the open court on 22.07.2026

Sd/- Sd/- (M BALAGANESH) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 22.07.2026 Binita, Sr. PS Copy forwarded to: 1. Appellant

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