THERMO FISHER SCIENTIFIC INDIA P. LTD,MUMBAI vs. DCIT 15(3)(1), MUMBAI

ITA 2458/MUM/2015Status: DisposedITAT Mumbai16 July 2025AY 2010-1142 pages
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What did the Tribunal hold?

The Tribunal held that the consideration paid over and above the fair value of assets and liabilities acquired in slump sales from GSK and CTPL is attributable to goodwill, and this goodwill is eligible for depreciation. The Tribunal relied on its own earlier decision in the assessee's own case for AY 2009-10, which held that slump sale transactions are distinct from amalgamation and demerger, and that Explanation 7 to Section 43(1), Explanation 2 to Section 43(6), and the fifth proviso to Section 32(1)(ii) are not applicable to slump sale acquisitions of goodwill. Therefore, the claim for depreciation on goodwill is allowed. Regarding depreciation on contracts, the Tribunal noted that only a few contracts continued in the year under consideration and that maintenance contracts were yearly. However, it also noted that the relationships with manufacturers/customers/distributors had continued for many years, suggesting future economic benefits. The Tribunal decided to restore the issue of depreciation on contracts to the file of the AO for fresh adjudication, considering the principles laid down in its earlier decision regarding goodwill. For transfer pricing, the Tribunal allowed Ground No. 10, directing the TPO/AO to consider Satyatej Commercial Co. Ltd. as a comparable for AMP expenditure, excluding freight and forwarding costs. For indenting commission (Ground No. 11 and additional Ground No. 16), the Tribunal directed the exclusion of Hand Innovations Inc. and RG Medical Diagnostics as comparables, finding them functionally not comparable or operating in significantly different territories/product lines. For reimbursement expenses (Ground No. 12), the Tribunal held that the TPO and DRP were not justified in treating the arm's length price as Nil, citing High Court decisions that the TPO's jurisdiction is to determine ALP, not to disallow expenditure. The matter was allowed in favour of the assessee. For short credit of TDS (Ground No. 13), the issue was restored to the AO for verification and grant of credit as per law. Grounds relating to penalty proceedings (Grounds 14A and 14B) were dismissed as premature. The appeal was partly allowed.

What were the facts?

The assessee, Thermo Fisher Scientific India Pvt. Ltd., filed an appeal against the final assessment order dated 24/02/2015, passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, for Assessment Year 2010-11. This order was pursuant to directions from the Dispute Resolution Panel (DRP). The assessee's primary contention revolves around the denial of depreciation on various intangible assets, including manufacturing, supply, and maintenance contracts, as well as purchased goodwill, acquired through slump sales from Glaxosmithkline Pharmaceuticals Ltd (GSK) and Chemito Technologies Private Limited (CTPL) in prior assessment years. The Assessing Officer (AO) and DRP disallowed these claims, viewing the contracts as not qualifying as intangible assets and the goodwill as not eligible for depreciation. The appeal also addresses issues related to transfer pricing adjustments for Advertisement, Marketing, and Promotion (AMP) expenditure, import of finished goods, and receipt of indenting commission, as well as short credit of Tax Deducted at Source (TDS) and initiation of penalty proceedings.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the assessee is entitled to depreciation on manufacturing, supply, and maintenance contracts acquired through slump sales from GSK and CTPL, under Section 32(1) read with Section 2(11) of the IT Act. - Assessee's contention: These contracts represent business or commercial rights that qualify as intangible assets, and depreciation should be allowed. They also argued that even if not separate intangible assets, the consideration paid would be goodwill, eligible for depreciation. - Revenue's contention: These contracts do not qualify as intangible assets as per Accounting Standard-26, their future economic benefits cannot be reliably measured, and they are not enforceable in a court of law. 2. Whether the assessee is entitled to depreciation on purchased goodwill acquired from GSK and CTPL, under Section 32(1) read with Section 2(11) of the IT Act. - Assessee's contention: Purchased goodwill is an intangible asset eligible for depreciation, and depreciation is a mandatory allowance. - Revenue's contention: The claim for depreciation on goodwill made during assessment proceedings is an additional claim and cannot be accepted. 3. Whether the assessee is entitled to full deduction for non-compete fee payment of Rs. 7,00,00,000 as per the second proviso to Section 40(a)(ia) of the IT Act. - Assessee's contention: Full deduction should be allowed as payees discharged their tax liability. - Revenue's contention: Not explicitly recorded, but implied disagreement by disallowing full deduction. 4. Whether the assessee is entitled to allowance of brought forward unabsorbed depreciation for AY 2008-09 and AY 2009-10, under Sections 72, 80, 139(3), and 32(2) of the IT Act. - Assessee's contention: Unabsorbed depreciation is treated as current year's depreciation and should be allowed as a set-off. - Revenue's contention: Not explicitly recorded, but implied disagreement by disallowing the claim. 5. Whether the transfer pricing adjustment of Rs.19,18,64,661 relating to alleged excessive AMP expenditure is justified under Section 92CA of the IT Act. - Assessee's contention: The adjustment is incorrect as AEs did not benefit, there was no arrangement requiring compensation, the assessee is a normal risk-bearing distributor with arm's length returns, a substantial portion pertained to the local chemical division, and inappropriate methods (bright line test) and comparables were used. - Revenue's contention: The adjustment is justified as AEs benefitted from AMP expenses incurred by the assessee. 6. Whether the transfer pricing adjustment of Rs.6,42,81,181 relating to the import of finished goods is justified under Section 92CA of the IT Act. - Assessee's contention: The adjustment is incorrect as TP documentation was rejected and comparable companies were wrongly excluded. - Revenue's contention: The adjustment is justified. 7. Whether the transfer pricing adjustment of Rs.4,41,90,721 relating to the receipt of indenting commission is justified under Section 92CA of the IT Act. - Assessee's contention: The adjustment is incorrect as TP documentation was rejected and comparable companies were wrongly excluded. - Revenue's contention: The adjustment is justified. 8. Whether the transfer pricing adjustment of Rs.5,98,88,781 relating to reimbursement expenses is justified under Section 92CA of the IT Act. - Assessee's contention: The arm's length price should not be Nil as these expenses are essential to the business. - Revenue's contention: The arm's length price is Nil due to lack of justification for services and benefits. 9. Whether the assessee is entitled to credit for TDS of Rs.43,83,437 as claimed, instead of Rs.33,83,093 granted by the AO. - Assessee's contention: Short credit of TDS of Rs.10,00,344. - Revenue's contention: Not explicitly recorded, but implied disagreement by granting a lower credit. 10. Whether the initiation of penalty proceedings under Section 271(1)(c) and Section 271B of the IT Act is justified. - Assessee's contention: Penalty proceedings are unjustified as no income was concealed or inaccurate particulars furnished. - Revenue's contention: Not explicitly recorded, but implied by initiating the proceedings.

Which sections of the Income-tax Act were involved?

Section 32(1),Section 2(11),Section 143(3),Section 144C(13),Section 144C(5),Section 40(a)(ia),Section 72,Section 80,Section 139(3),Section 32(2),Section 92CA(3),Section 92C,Section 43(1),Section 43(6),Section 47,Section 170,Section 271(1)(c),Section 271B

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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI

Before: SHRI VIKRAM SINGH YADAVSHRI SANDEEP SINGH KARHAIL

For Appellant: Shri Dhanesh Bafna, Shri Amol Mahajan, Ms. Chandani Shah, Ms. Hinal Shah
For Respondent: Shri Ajay Chandra, CIT-DR, Shri Pravin Salunkhe, Sr.DR

PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal challenging the impugned final assessment order dated 24/02/2015, passed under section 143(3) read with section 144C (13) of the Income Tax Act, 1961 (“the Act”), pursuant to the directions dated 29/12/2014 passed by the learned Dispute Resolution Panel ("learned DRP”) under section 144C(5) of the Act, for the assessment year 2010-11. 2 In this appeal, the assessee has raised the following grounds:

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1.

Ground 1 - General On the facts and

The order continues below.

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