SPECTRIS TECHNOLOGIES PVT. LTD.,GURGAON vs. ITO, NEW DELHI

Hon’ble CIT(A) erred in facts and in law by not providing the benefit of economic adjustment on account of difference in working capital in arriving at the arm’s length mean margin under TNMM.

The Ld. CIT(A) erred in facts and in law in making a disallowance of Rs.3,75,831/- on account of depreciation on Non- Compete Fee. 5.1 The Hon’ble CIT(A) has erred in disallowing depreciation on Non-Compete Fee holding the same to be capital in nature without appreciating that the appellant has itself treated the same as capital expenditure and thus claimed depreciation on the same and not claimed the entire non-compete fee as revenue expenditure. 5.2 The Ld. CIT(A) has erred in disallowing depreciation on Non- Compete Fee holding the same to be purely personal in nature. 5.3 That the Ld. CIT(A) erred in not following the binding orders of the jurisdictional Hon’ble Income Tax Appellate Tribunal (“ITAT”) and also Ld. Commissioner of Income Tax (Appeals) [CIT(A)] in Appellant’s case for previous years on this issue.

The Ld. CIT(A) erred in law and on facts in not allowing the benefit of brought forwarddepreciation of Rs. 1,08,61,406/- as claimed by the Appellant and further erred in notallowing the carry forward of unabsorbed depreciation of Rs.2,52,06,777/- as claimed by the Appellant in the return of income filed. 6.1 That the Ld. CIT(A) has erred in arbitrarily remanding the matter to the AO forverification while treating the Appellant’s claim for brought forward andunabsorbed depreciation as brought forward losses.

The Ld. AR argued with the help of written submissions and a plethora of case laws, including the orders of ITAT, presented in the shape of paper books and written submissions. The Ld. AR relied on the finding given in the assessee’s own case for AY 2007-08 [ITA No.1818/Del/2013, order dated 07.03.2024]. The Ld. AR read paragraphs 11 to 18 on pages 8 to 15 of this order to canvass the point that segmental division of business activity was not approved, as against the TPO’s stand. Thereafter, the Ld. AR also pointed out order in the assessee’s own case for AY 2008-09 [ITA No.3563/Del/2014, order dated 17.12.2025], wherein the finding given for AY 2007-08 by the ITAT has been relied upon to remand the issue on a limited matter to the Ld.TPO.

Regarding sale of spare parts and equipments, the assessee is responsible for making sale of spare parts and equipment imported by it from its AE. Sale of spare parts under AMC business can be broadly categorized into three types: (i) Over the counter sale wherein the customer has not taken anyAMC and he purchases only spare parts or equipment from the assessee. (ii) Sale to AMC customer wherein the customer has taken AMC from the assessee. (iii) Replacement under AMC wherein the customer has taken AMC from the assessee and spare part required to be replaced is covered under AMC.

For contracts entered into between the assessee and its customers, the assessee is responsible for delivery of equipment and spare parts and services and, accordingly, it is also responsible for invoicing and collection of charges relating to it. The assessee deploys necessary assets for performing its business. It does not own any manufacturing facilities, research and development facilities or other significant assets for this activity. Employees of the assessee possess technical knowledge especially those who are involved in providing AMC services.

However, under provision of Agency and Marketing support services, R & D are undertaken by the AE of the assessee. All the spare parts and equipment supplied to the assessee are manufactured by its AE. The AE of the assessee is 7 responsible for maintaining the requisite inventory levels of all the spare parts and equipment. The assessee does not employ any specific assets, tangible asset for providing agency and administrative services to its AEs or intangible including human resources and does not bear any inventory risk. The assessee does not bear any credit risk.

Based on the facts mentioned in the TP Study Report, it can be safely concluded that the assessee’s business can be divided into two business segments: (i) AMC service provider, and (ii) Agency and marketing support service provider 15. During the course of TP assessment proceedings, the assessee has explained that for the purpose of TP analysis, it has divided its revenue and expenditure broadly into two segments based on functional, asset and risk analysis and providing AMC services including sale of goods. The assessee has also given basis of allocation/apportionment of revenue and expenses which is as under: …. …….. ……. …….

From the above charts, it can be seen that the assessee has allocated common expenses and has also given basis of apportionment. We find that the Id. CIT(A) has put a doubt on whether segmental accounts are to be accepted and the only reason given by the authorities, as we understand from the respective cross is that it is not audited.

Merely because segmental accounts are not audited cannot make them untrustworthy without pointing out any specific defect/error/fallacy in them. Observations of the Id. CIT(A) that non-compete fee and good will has not been allocated is not accepted as the TPO himself has not allocated these expenses.

As mentioned elsewhere, the assessee has not only provided segmental account but has also allocated expenses and has given basis of allocation. Considering the facts of the case in totality, we do not find any merit in the stand taken by the TPO/Assessing Officer as confirmed by the Ld. CIT(A). We, accordingly, direct the Assessing Officer to delete the impugned adjustment.

Recently vide order dated 17th December 2025 passed in in appeal for AY 2008-09 (copy enclosed at pages 56 to 72 of PB) the Hon’ble ITAT followed its previous order for AY 2007-08 and has directed the TPO to benchmark the 8 international transactions of the appellant separately under different segments and the FAR of segment 1 differs from FAR of segment 2. It is therefore submitted that for the year under consideration i.e. AY 2009-10 also the directions given by Hon’ble ITAT in AYs 2007-08 and 2008-09 be followed and TPO be directed to do separate benchmarking segment wise in accordance with law.”

Per contra, the Ld. DR argued with the help of written submissions, some portions from which may be extracted as under: -

We have considered the rival submissions and have gone through the documents before us. Right at the outset, it deserves to be mentioned that the issue of TP Adjustment on the impugned services is now settled through the findings given for two previous years by the ITAT. In this regard, the finding given for AY 2008-09 (supra) deserves to be extracted: - “5. Since the Tribunal had accepted that the assessee is into two different business segments i.e. AMC service provider and agency market and support services provider the transfer pricing adjustment made by the TPO by considering both the segments as a single segment for the year under consideration is to be revisited. In the light of the order of the Tribunal for the AY 2007-08 and the submissions of the Ld. Counsel for the Assessee, in principle we agree that the assessee s having two segments are observed by the Tribunal in assessee’s own case for the immediately preceding assessment year and, therefore, since the assessee is having segmental account the benchmarking has to be done segment wise separately and thus we direct the TPO to analyze the submissions of the assessee viz-a-viz the segmental accounts and the comparables and pass appropriate order after providing opportunities to the Assessee.

In case the PLI of the assessee as tested party as per the segmental accounts is 17.95% and average result of comparable 10

Regarding the issue of treatment being given to non-compete fees, we find that the Ld. CIT(A) was right at that point in time to follow the Hon’ble Delhi High Court in the Sharp Business System case (supra).

The AO must follow the said judgment in treating non- compete fees as a revenue expenditure.

The Ld. AO must, with the help of the assessee, work out the treatment to be given to the said asset now in the light of the Apex Court’s judgment, with regard to the depreciation already claimed by the assessee. In this regard the portion pertaining to depreciation issue in the Delhi High Court’s Judgment (supra) can also be utilized for giving effect to the Hon’ble Apex Court’s order.

In the result, this appeal is partly allowed.