PRIMETALS TECHNOLOGIES INDIA PVT. LTD.,KOLKATA vs. ACIT, CIRCLE - 1(1), KOLKATA, KOLKATA

O R D E R

PER DR. MANISH BORAD, ACCOUNTANT MEMBER :

2. The assessee has raised the following grounds of appeal for Assessment Year 2017-18:- “Ground 1:

2 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. That the orders dated January 22, 2021 and March 11, 2022 passed by the Learned Transfer Pricing Officer (hereinafter referred to as ‘the Learned TPO’) under section 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and under section 92CA(3) read with section 144C(5) of the Act respectively, the final assessment order dated April 29, 2022 passed by the Learned Assessing Officer (hereinafter referred to as ‘Learned AO’ or ‘Ld. AO’) under section 143(3) read with section 144C and section 144C(5) of the Act and the Directions of the Hon’ble Dispute Resolution Panel (hereinafter referred to as ‘Hon’ble DRP’) dated February 18, 2022 for the said assessment year 2017-18 are contrary to the provisions of law and erroneous on the facts of the case and are liable to be set aside and/or quashed. Ground 2: That on the facts and in the circumstances of the case, the final assessment order dated April 29, 2022 passed by the Learned AO is invalid and bad in law since the Computation Sheet and the Notice of demand under section 156 of the Act have not been served upon the appellant. Ground 3: That on the facts and in the circumstances of the case, the final assessment order dated April 29, 2022 passed by the Learned AO is invalid since it does not contain a Document Identification Number (‘DIN’) and has also not been digitally signed. Ground 4(a): That on the facts and in the circumstances of the case, the authorities below grossly erred in disallowing the claim of depreciation amounting to Rs. 118,51,19,424/- on the opening WDV of goodwill for the assessment year 2017-18 and the disallowance made is liable to be deleted. Ground 4(b): That the purported findings of the authorities below disallowing the claim of depreciation of Rs. 118,51,19,424/- on the opening WDV of goodwill for the assessment year 2017-18 are wholly arbitrary, erroneous, unreasonable and perverse. Ground 4(c): That the authorities below erred in not considering the various submissions made by the appellant with respect to its claim of depreciation on the opening written down value (WDV) of goodwill, in spite of the request made by the appellant in this regard.

Ground 4(d): That the authorities below failed to consider that the claim for depreciation on goodwill was allowed by the Learned AO in the scrutiny assessment for the assessment year 2015-16, relevant to the financial year 2014-15, being the year of acquisition, and the appellant was thereafter entitled to depreciation on the opening WDV in subsequent years.

Ground 4(e): That further and in any event and without prejudice to the grounds taken hereinabove, the authorities below failed to appreciate that the said claim of depreciation on goodwill, being an intangible asset within the meaning of Explanation 3(b) to section 32(1) of the Act, is allowable in view of the decision of Hon’ble Supreme Court in the case of CIT, Kolkata v. Smifs Securities Limited, reported in (2012) 348 ITR 302 (SC). Ground 4(f): That further and in any event and without prejudice to the grounds taken hereinabove, the authorities below grossly erred in disallowing the claim of depreciation on opening WDV of goodwill as if the instant case was one of amalgamation or succession and by incorrectly placing reliance on the order of the Bangalore Bench of the Hon’ble Tribunal in the case of United Breweries Ltd v/s Addl CIT, Range-12 Bangalore, reported in [2016] 76 taxmann.com 103 (Bangalore - Trib.). Ground 4(g): That the authorities below erred in proceeding on the basis as if the goodwill acquired by the appellant from Siemens Limited was the appellant’s self-generated asset. Ground 5(a): That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in making an arithmetical error in computation of business income at Rs. 7,83,74,814/- instead of Rs. 5,43,83,696/- in the final assessment order dated April 29, 2022. Ground 5(b): That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in making an arithmetical error in computation of assessed income at Rs. 14,76,67,699/- instead of Rs. 6,92,92,885/- in the final assessment order dated April 29, 2022. Ground 6: That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in computing demand of Rs. 5,01,12,510/- in case of the appellant for the assessment year under consideration, as appearing on the income-tax portal. Ground 7: That further and in any event and without prejudice to the grounds taken hereinabove, on the facts and in the circumstances of the case, it is apparent that the authorities below erred in not allowing credit for taxes deducted at source.

Ground 8: That further and in any event and without prejudice to the grounds taken hereinabove on the facts and in the circumstances of the case, the authorities below erred in not granting set- off of brought forward losses. Ground 9: That the authorities below erred in making transfer pricing adjustment of Rs. 2,03,38,414/- to the international transactions of the appellant with its Associated Enterprises relating to the purchase of raw materials and consumables/finished goods and sale of finished goods. Ground 10(a): That on the facts and in the circumstances of the case, the authorities below erred in rejecting the capacity utilisation adjustment of Rs. 10,95,55,035/- made for under-utilization of installed capacity while computing the margin of the appellant.

Ground 10(b): That the purported findings of the authorities below that the idle capacity should not be considered to be an abnormal event requiring adjustment or that the claim of under- utilization had not been explained with any reliable evidence or any supporting documents/data or any auditor certificate are wholly arbitrary, illegal, without any justification and/or basis and perverse. Ground 11(a): That the authorities below erred in considering foreign exchange loss of Rs. 7,24,81,109/- as operating expense -, while computing the margin of the appellant. Ground 11(b): That the Learned TPO did not carry out the directions of the Hon’ble DRP with respect to the foreign exchange loss. Ground 12(a): That the authorities below erred in rejecting adjustment of Rs. 18,94,44,210/- made for the purpose of normalizing the impact of non-conformance cost over runs on the margin of the appellant. Ground 12(b): That the authorities below completely ignored the detailed submissions made by the appellant in this behalf duly supported by the Report of the Chartered Accountant.

5 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. Ground 13: That the authorities below erred in holding that conditions under Rule 10D(1)(k) of the Rules had not been fulfilled by the appellant. Ground 14(a): That the authorities below erred in selecting Power Mech Projects Ltd. as a comparable without appreciating that it is not functionally comparable to the appellant. Ground 14(b): That the purported findings of the authorities below that the appellant and Power Mech Projects Ltd. are carrying on the same functions even if they are in different sectors is wholly arbitrary, illegal, without any justification and/or basis and perverse. Ground 15(a): That the authorities below erred in making a transfer pricing adjustment of Rs. 36,30,977/- on account of intra-group services. Ground 15(b): That the purported finding of the authorities below that the authorized representative of the appellant did not object to the proposed reduction of the mark-up @ 3 percent for determining the arm’s length price for the receipt of IT services is wholly arbitrary, erroneous, unreasonable and perverse. Ground 15(c): That the authorities below completely ignored the detailed submissions made by the appellant in this behalf duly supported by a robust economic analysis and the Report of an independent auditor. Ground 16: That on the facts and in the circumstances of the case, the Ld. AO grossly erred in initiating penalty under section 270A of the Act. Ground 17: That the appellant craves leave to add and / or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.”

2.1. The assessee has raised the following grounds of appeal for Assessment Year 2018-19:-

6 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. “Ground 1: That the orders dated July 27, 2021 and April 4, 2022 passed by the Learned Transfer Pricing Officer (hereinafter referred to as ‘the Learned TPO’) under section 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and under section 92CA(3) read with section 144C(5) of the Act respectively, the final assessment order dated April 29, 2022 passed by the Learned Assessing Officer (hereinafter referred to as ‘Learned AO’) under section 143(3) read with section 144C and section 144C(5) of the Act and the Directions of the Hon’ble Dispute Resolution Panel (hereinafter referred to as ‘Hon’ble DRP’) dated March 4, 2022 for the said assessment year 2018-19 are contrary to the provisions of law and erroneous on the facts of the case and are liable to be set aside and/or quashed. Ground 2: That on the facts and in the circumstances of the case, the final assessment order dated April 29, 2022 passed by the Learned AO is invalid and bad in law since the Computation Sheet and the Notice of demand under section 156 of the Act have not been served upon the appellant. Ground 3: That on the facts and in the circumstances of the case, the final assessment order dated April 29, 2022 passed by the Learned AO is invalid since it does not contain a Document Identification Number (‘DIN’) and has also not been digitally signed. Ground 4(a): That on the facts and in the circumstances of the case, the authorities below grossly erred in disallowing the claim of depreciation amounting to Rs. 88,88,39,567/- on the opening WDV of goodwill for the assessment year 2018-19 and the disallowance made is liable to be deleted. Ground 4(b): That the purported findings of the authorities below disallowing the claim of depreciation of Rs. 88,88,39,567/- on the opening WDV of goodwill for the assessment year 2018-19 are wholly arbitrary, erroneous, unreasonable and perverse. Ground 4(c): That the authorities below erred in not considering the various submissions made by the appellant with respect to its claim of depreciation on the opening written down value (WDV) of goodwill, in spite of the request made by the appellant in this regard.

Ground 4(d): That the authorities below failed to consider that the claim for depreciation on goodwill was allowed by the Learned AO in the scrutiny assessment for the assessment year 2015-16, 7 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. relevant to the financial year 2014-15, being the year of acquisition, and the appellant was thereafter entitled to depreciation on the opening WDV in subsequent years. Ground 4(e): That further and in any event and without prejudice to the grounds taken hereinabove, the authorities below failed to appreciate that the said claim of depreciation on goodwill, being an intangible asset within the meaning of Explanation 3(b) to section 32(1) of the Act, is allowable in view of the decision of Hon’ble Supreme Court in the case of CIT, Kolkata v. Smifs Securities Limited, reported in (2012) 348 ITR 302 (SC). Ground 4(f): That further and in any event and without prejudice to the grounds taken hereinabove, the authorities below grossly erred in disallowing the claim of depreciation on opening WDV of goodwill as if the instant case was one of amalgamation or succession and by incorrectly placing reliance on the order of Bangalore Bench of the Hon’ble Tribunal in the case of United Breweries Ltd v/s Addl CIT, Range-12 Bangalore, reported in [2016] 76 taxmann.com 103 (Bangalore - Trib.). Ground 4(g): That the authorities below erred in proceeding on the basis as if the goodwill acquired by the appellant from Siemens Limited was the appellant’s self-generated asset. Ground 5(a): That on the facts and in the circumstances of the case, the authorities below grossly erred in ignoring the appellant’s submissions and in not allowing deduction of provision for warranty amounting to Rs. 13,06,037/- which was created on scientific basis. Ground 5(b): That the authorities below completely ignored the fact that a similar claim of provision for warranty was rightly allowed upon due enquiry in the scrutiny proceedings in the immediately preceding assessment year, i.e. assessment year 2017-18. Ground 6(a): That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in making an arithmetical error in computation of business income at Rs. 2,16,79,482/- instead of Rs. 1,78,71,550/- in the final assessment order dated April 29, 2022. Ground 6(b): That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in making an arithmetical error in computation of assessed income 8 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. at Rs. 4,14,31,342/- instead of Rs. 1,97,51,860/- in the final assessment order dated April 29, 2022. Ground 7: That further and in any event and without prejudice to the grounds taken hereinabove, the Learned AO grossly erred in computing demand of Rs. 1,38,31,439/- in case of the appellant for the assessment year under consideration, as appearing on the income-tax portal. Ground 8: That further and in any event and without prejudice to the grounds taken hereinabove, on the facts and in the circumstances of the case, the authorities below erred in not allowing credit for taxes deducted at source. Ground 9: That further and in any event and without prejudice to the grounds taken hereinabove, on the facts and in the circumstances of the case, the authorities below erred in not granting set- off of brought forward losses. Ground 10: That the authorities below erred in making transfer pricing adjustment of Rs. 3,51,93,955/- to the international transactions of the appellant with its Associated Enterprises relating to the purchase of raw materials and consumables/finished goods and sale of finished goods. Ground 11(a): That on the facts and in the circumstances of the case, the authorities below erred in rejecting the capacity utilisation adjustment of Rs. 6,31,47,981/- made for under-utilization of installed capacity while computing the margin of the appellant. Ground 11(b): That the purported findings of the authorities below that the idle capacity should not be considered to be an abnormal event requiring adjustment or that the claim of under- utilization had not been explained with any reliable evidence or any supporting documents/data or any auditor certificate are wholly arbitrary, illegal, without any justification and/or basis and perverse. Ground 12(a): That the authorities below erred in considering foreign exchange loss of Rs. 2,49,62,367/- as operating expense while computing the margin of the appellant. Ground 12(b):

9 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. That the Learned TPO did not carry out the directions of the Hon’ble DRP with respect to the foreign exchange loss. Ground 13(a): That the authorities below erred in rejecting adjustment of Rs. 3,71,81,824/- made for the purpose of normalizing the impact of non-conformance cost over runs on the margin of the appellant. Ground 13(b): That the authorities below completely ignored the detailed submissions filed by the appellant in this behalf duly supported by the Report of the Chartered Accountant. Ground 14: That the authorities below erred in holding that conditions under Rule 10D(1)(k) of the Rules had not been fulfilled by the appellant. Ground 15(a): That the authorities below erred in selecting Power Mech Projects Ltd. as a comparable without appreciating that it is not functionally comparable to the appellant. Ground 15(b): That the purported findings of the authorities below that the appellant and Power Mech Projects Ltd. are carrying on the same functions even if they are in different sectors is wholly arbitrary, illegal, without any justification and/or basis and perverse. Ground 15(c): That the authorities below erred in rejecting High Quality Steels Ltd. as a comparable merely on the ground of turnover filter, without considering the functions carried on by High Quality Steels Ltd. and the nature of its business activities. Ground 16(a): That the authorities below erred in making a transfer pricing adjustment of Rs. 33,53,065/- on account of intra-group services. Ground 16(b): That the purported finding of the authorities below that the authorized representative of the appellant did not object to the proposed reduction of the mark-up @ 3 percent for determining the arm’s length price for the receipt of IT services is wholly arbitrary, erroneous, unreasonable and perverse. Ground 16(c):

That the authorities below completely ignored the fact that for the year under consideration, the mark-up charged by the Associated Enterprise was approximately 1.15 per cent only and not 3 percent as arbitrarily and incorrectly assumed by the authorities below. Ground 16(d): That the authorities below completely ignored the detailed submissions made by the appellant in this behalf duly supported by a robust economic analysis. Ground 17: That on the facts and in the circumstances of the case, the Ld. AO grossly erred in initiating penalty under section 270A of the Act. Ground 18: That the appellant craves leave to add and / or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.”

, the assessee has raised additional grounds of appeal for both the Assessment Years and has prayed that in view of the judgments of the Hon’ble Supreme Court in the case of NTPC Ltd. v. CIT reported in (1998) 229 ITR 383 (SC) and Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 (SC), the additional grounds may be admitted. In view of the settled judicial pronouncements, as the issues go to the root of the matter, we admit the same.

4. The assessee has raised the following additional ground of appeal for Assessment Year 2017-18:- “1. That on the facts and circumstances of the case and in law the Ld. TPO / DRP erred in selecting BGR Energy System Ltd. (Seg.) as a comparable company not appreciating that the company is primarily engaged in construction and maintenance of power plants and is therefore not an appropriate comparable in terms of Rule 10B (2) of the Rules for benchmarking the international transactions undertaken by the appellant, a company engaged in providing services primarily to companies engaged in metal sector.

2. That on the facts and circumstances of the case and in law the Ld. TPO/DRP erred in selecting Engineers India Ltd. as a comparable not appreciating that the company is a public sector undertaking owned by Government of India and is therefore not an appropriate 11 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. comparable for undertaking benchmarking analysis of the international transactions undertaken by the appellant. 2.1 That on the facts and circumstances of the case and in law the Ld. TPO/DRP erred in selecting Engineers India Ltd. as a comparable not appreciating that the company is providing engineering consulting services as against Engineering, Procurement and Construction ('EPC') services provided by the appellant and therefore cannot be considered as comparable in terms of Rule 10B (2) of the rules.

3. That on the facts and circumstances of the case and in law the Ld. TPO/DRP erred in rejecting High Quality Steels Ltd. as a comparable merely on the ground of turnover filter, without considering the functions carried on by High Quality Steels Ltd. and the nature of its business activities.”

4.1. The assessee has raised the following additional ground of appeal for Assessment Year 2018-19:-

1. That on the facts and circumstances of the case and in law the Ld. TPO/DRP erred in selecting Engineers India Ltd. as a comparable not appreciating that the company is a public sector undertaking owned by Government of India and is therefore not an appropriate comparable for undertaking benchmarking analysis of the international transactions undertaken by the appellant. 1.1 That on the facts and circumstances of the case and in law the Ld. TPO/DRP erred in selecting Engineers India Ltd. as a comparable not appreciating that the company is providing engineering consulting services as against Engineering, Procurement and Construction ('EPC') services provided by the appellant and therefore cannot be considered as comparable in terms of Rule 10B (2) of the rules.

13 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. On the other hand, the ld. D/R vehemently argued supporting the orders of both the lower authorities including the ld. DRP.

10. Ground No. 1 raised for AY 2017-18 & 2018-19 are general in nature and require no adjudication.

13. In Ground Nos. 4(a) to 4(g) for Assessment Year 2017-18 and 2018- 19, the issue involved is disallowance of depreciation claimed of goodwill at Rs. 118,51,19,424/- and Rs.88,88,39,567/- for Assessment Years 2017-18 and 2018-19 respectively.

15 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. 13.1. Brief facts relevant to this issue are that in 2014, Siemens Group and Mitsubishi Group entered into an agreement to operate in the business of metallurgical industry as a complete provider of plant, products and services for iron, steel and aluminium industry globally. For this purpose, the assessee company was formed and the Metals Technologies Business (MT Business) of Siemens group was transferred into a new entity i.e., the assessee company. The assessee entered into a slump sale agreement with Siemens Limited for purchase of its MT Business on a going concern basis at an agreed consideration of Rs.1023.27 Crores out of the said consideration value attributable to the net assets transferred from Siemens Ltd. to assessee were at Rs.300 Crores and the remaining amount was considered as fair value of identified intangibles. Since these transactions took place in FY 2014-15, the assessee claimed depreciation @ 12.5% (assets held for less than six months) and thereafter on the written down value as on 01/04/2015 assessee again claimed depreciation @ 25% for FY 2015-16 relevant to AY 2016-17. Claim of depreciation for both these years have been allowed by the revenue authorities and there is no dispute to this end. Now, for the year under appeal, depreciation claimed on the written down value of the goodwill has been disallowed on the ground that the assessee had claimed double deduction in AY 2015-16 on account of impairment of goodwill i.e., by claiming deduction of impairment expense, and also claiming depreciation on goodwill. The ld. AO further observed that the goodwill is a self-generated asset based on the TPA report of the independent valuer wherein difference in the total 16 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. consideration paid and consideration allocated towards net asset was given the label of goodwill. The ld. AO further observed that 6th proviso to section 32(1)(ii) of the Act is applicable and that the assessee, being amalgamated company/ successor, cannot claim or be allowed to claim depreciation on assets acquired in scheme of amalgamation/ succession, of an amount which is more than the depreciation that was allowable to the amalgamating company. Reliance was placed by the ld. AO on decision of the ITAT Bangalore Bench in the case of United Breweries Ltd vs ACIT 76 taxmann.com 103 (Bang Trib.). 13.2. Before us, the ld. Counsel for the assessee submitted that the claim of the assessee that residual paid to Siemens Ltd. over and above the value attributable to the net asset is in the nature of goodwill only and is supported by the ratio laid down by the judgment of the Hon’ble Apex Court in the case of CIT vs Smifs Securities Ltd 348 ITR 302 (SC) wherein the assessee, being the amalgamated company, claimed depreciation on goodwill acquired pursuant to/ as a result of amalgamation of a company, viz., YSN Shares and Securities Private Limited. The assessee claimed depreciation on the extra consideration paid over the value of net assets, by treating such excess consideration to be in the nature of goodwill, being paid towards reputation that the amalgamating company was enjoying in order to retain its existing clientele. In these facts, the Hon’ble Supreme Court, upholding the claim of depreciation on goodwill in the hands of the amalgamated company, held as under:

17 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. “……………… It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 [‘Act’, for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3:- For the purposes of this sub-section, the expressions ‘assets’ and ‘block of assets’ shall mean- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Explanation 3 states that the expression ‘asset’ shall mean an intangible asset, being know- how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words ‘any other business or commercial rights of similar nature’ in clause (b) of Explanation 3 indicates that goodwill would fall under the expression ‘any other business or commercial right of a similar nature’. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). In the circumstances, we are of the view that ‘Goodwill’ is an asset under Explanation 3(b) to Section 32(1) of the Act. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) [‘CIT(A)’, for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal [‘ITAT’, for short]. We see no reason to interfere with the factual finding.……………………………………” (emphasis supplied)

13.3. Similar view was taken by the Hon’ble Delhi High Court in the case of Triune Energy Services Private Limited vs DCIT 237 Taxman 230 18 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. (Del), wherein the assessee purchased business of another company as going concern by way of slump sale. The amount paid over and above net value of assets was capitalized as goodwill. The assessing officer treated the transaction in nature of succession and did not admit the assessee’s claim for depreciation. On appeal before the Hon’ble High Court, it was held that goodwill is an intangible asset providing a competitive advantage to an entity which includes a strong brand, reputation, a cohesive human resource, dealer network, customer base, etc.; the expression ‘goodwill’ subsumes within it a variety of intangible benefits that are acquired when a person acquires business of another as going concern. 13.4. The Hon’ble High Court observed that from an accounting perspective, it is well established that ‘goodwill’ is an intangible asset, which is required to be accounted for when a purchaser acquires business as a going concern by paying more than the fair market value of the net tangible assets, i.e., assets less liabilities; the difference in the purchase consideration and the net value of assets and liabilities is attributable to the commercial benefit that is acquired by the purchaser. 13.5. The Hon’ble High Court further observed that “Financial Reporting Standard 10” issued by Accounting Standard Board which is applicable in United Kingdom and by the Institute of Chartered Accountants of Ireland in respect of its application in the Republic of Ireland, explains that the accounting requirements for goodwill reflect the view that goodwill arising on an acquisition is neither an asset like other assets nor an immediate loss in value; rather, it forms the bridge 19 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. between the cost of an investment shown as an asset in the acquirer’s own financial statements and the values attributed to the acquired assets and liabilities in the consolidated financial statements. 13.6. Accordingly, the Hon’ble High Court held that in view of Accounting Standard 10 issued by the ICAI, the consideration paid by the assessee in excess of value of tangible assets was rightly classified as goodwill. The High Court further noted that since the Tribunal had rejected the view that the slump sale agreement was a colourable device, the agreement between the parties ought to be accepted in its totality and further, since the agreement itself did not provide for splitting up of the intangibles into separate components, recording the excess consideration paid over and above the value of net tangible assets as goodwill, was an acceptable accounting practice. Relying on the decision in the case of Smifs Securities (supra), it was held that the amount of lump sum consideration ascribed to goodwill was eligible for depreciation under section 32 of the Act. Relevant extracts of the decision are as under: “9. We have heard the learned counsel for the parties.

20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting up of the intangibles into separate components. Indisputably, the transaction in question is a slump sale which does not contemplate separate values to be ascribed to various assets (tangible and intangible) that constitute the business undertaking, which is sold and purchased. The Agreement itself indicates that slump sale included sale of goodwill and the balance sheet drawn up on 22nd September, 2006 specifically recorded goodwill at Rs. 40,58,75,529.40/-. As indicated hereinbefore Goodwill includes a host of intangible assets, which a person acquires, on acquiring a business as a going concern and valuing the same at the excess consideration paid over and above the value of net tangible assets is an acceptable accounting practice. Thus, a further exercise to value the goodwill is not warranted.” (emphasis supplied) 13.7. Ratio laid down by the Hon’ble Supreme Court in the case of Smirf Securities (supra) has been further relied upon by the Hon’ble Gujarat High Court in the case of PCIT vs Zydus Wellness Ltd in Tax Appeal No.779 of 2017 (Guj). 14(a). Now, so far as the observation of the ld. AO that the assessee has claimed double deduction in AY 2015-16 by claiming deduction of impairment expenses i.e., goodwill and also claiming depreciation on goodwill and this observation has triggered the issue of impugned disallowance of goodwill, we note that that in the original return for AY 2015-16, assessee had claimed the deduction of the goodwill as expenditure and has also claimed depreciation of goodwill but subsequently the assessee revised the return for AY 2015-16 and suo moto disallowed the impairment expenses which, however, was not 21 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. accepted by the ld. AO but the fact remains that in the revised return impairment expenses i.e., claim of taxes of goodwill expenses was disallowed and taxes were accordingly paid. 14(b). Now, so far as reference given by the ld. AO to the 6th proviso to Section 36(1)(ii) of the Act is concerned, first we will go through the said provision, which is reproduced below for ready reference:- “Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.”

14.1. On going through the above proviso, we note that the same refers to the assets already standing in the books of amalgamating company/de-merged company and that the depreciation claim, shall not exceed in any previous year the amount calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. In simple words, if any such transactions of takeover or amalgamation 22 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. or merger takes place then the depreciation normally allowable can only be claimed by both the entities for the year in which such merger/amalgamation takes place. So, the 6th proviso to Section 32(1)(ii) of the Act only refers to the depreciation claimed on the assets existing prior to such merger/amalgamation. However, in the instant case during Assessment Year 2015-16, a new asset came into existence i.e., the intangible asset at Rs.722.36 Crores and such creation of asset termed as intangible asset is goodwill, is in consonance with the ratio laid down by the Hon’ble Supreme Court in the case of Smirf Securities (supra) wherever similar transaction takes place. Therefore, we fail to find any merit in the observation of the revenue authorities that 6th proviso to Section 36(1)(ii) of the Act is applicable. We thus, accept the contention of the ld. Counsel for the assessee that during FY 2014-15 relevant to Assessment Year 2015-16 out of the total consideration of Rs. 1022.40 Crores, Rs.722.40 Crores, was attributable to the cost of goodwill which was on account of huge business potential, brand value, market base, supplier information and the license agreement for executing various large contracts and the value of the same could not have been identified in the regular books of accounts maintained in replacement cost method. Now, once we have agreed to this contention that the alleged asset acquired during the deal of amalgamation which took place during AY 2015-16, is goodwill, now comes the issue of allowance of depreciation for the year under consideration.

24 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. Even in that event, the amounts, by which the moneys are payable in respect of that particular building, machinery, etc., together with the amount of scrap value, are to be deducted from total written down value of the ‘block of assets’. There was no merit in the contention of the revenue that unless a particular asset is used for the purpose of business depreciation is not to be allowed. No doubt, as per section 32(1), in order to be entitled to depreciation, the asset is to be owned by the assessee and it is also to be used for the purpose of business or profession. However, the expression ‘used for the purpose of business’ when applied to block of assets would mean the use of block of assets and not any specific building, machinery, plant or furniture in the said block of assets as individual assets have lost their identity after becoming inseparable part of the block of assets. That is the only manner in which various provisions can be harmonized. It was also argued by the revenue that if a particular asset is acquired after 30th September during the previous year and is put to use for a period of less than 180 days in the previous year, the deduction under sub-section (1) of section 32 is restricted to 50 per cent of amount admissible and, thus, the requirement of user of individual asset would remain intact. That would be the position in the first year when the particular asset is acquired. With the user, it would meet the requirement of section 32. In the subsequent years, it is the use of block of assets, which becomes the yardstick and not the individual asset already acquired in the earlier years, other than the previous year in which it is first brought into use.” (emphasis supplied)

27 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd.

which remains to be adjudicated for both the impugned AYs relates to Transfer Pricing (TP) issues. For AY 2017

18. Ground Nos. 9 to 15(c) have been raised for AY 2018-19 and for AY 2018-19, Ground Nos. 10 to 16(d) have been raised. Assessee has also raised additional grounds for both the years which are confined to the selection of comparables. Ground No. 15(a) to 15(c) for AY 2017-18 and Ground Nos. 16(a) to 16(d) have been raised on this issue. The first TP issue is regarding the adjustment in respect of intra-group services. Common facts are that the assessee received IT services from Associate Enterprises (AEs). For providing services, AEs charged service free at cost + 3% basis. Though the ld. TPO has accepted that the services have been rendered by the AE but on observing that such mark-up has been charged on the third party cost also, the same 30 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. tantamounts to double mark-up because on one hand, the third party had its mark-up and again AE has charged his mark-up of 3%. During the course of hearing before the ld. TPO when the ld. TPO proposed that this addition of mark-up on third party cost needs to be reduced for determination of ALP, the ld. Counsel for the assessee did not object and accordingly the ld. TPO proposed the adjustment by reducing 3% mark-up on the payments made for receipt of IT services. Before us, the ld. Counsel for the assessee has not made any reference to the mark-up on the third party cost, however, reference has been made to Section 92C(2) of the Act, which provides that if the variation between the arm's length price so determined and price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed such percentage not exceeding three per cent of the latter, as may be notified by the Central Government in the Official Gazette in this behalf, the price at which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm's length price. 26.1. We find merit in the contention of the ld. Counsel of the assessee and since the adjustment falls within the 3% range of the value of international transaction, no adjustment on account of international transaction of availing intra-group services undertaken by the assessee is warranted. The TP adjustment of Rs. 36,30,977/- and Rs. 33,53,065/- for AY 2017-18 and 2018-19, respectively, are hereby deleted. Accordingly, Ground Nos. 15(a) to 15(c) for AY 2017-18 and Ground Nos. 16(a) to 16(d) raised by the assessee are allowed.

31 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd.

. So far as the inclusion of Engineers India Ltd. is concerned, we on going through the details placed on record, notice that Engineers India Ltd., is a Government of India undertaking company and is controlled by 34 I.T.A. No. 371 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. Central Government and all the directors are appointed by the Government of India and is under the administrative control of Ministry of Petroleum and Natural Gas. It is an admitted fact that Government owned and controlled companies have a separate style of working because the public interest is of foremost concern. Further such companies enjoy the support of the Government in relation to flow of business and funds and have different business model. The Hon’ble Delhi High Court in the case of International SOS India P. Ltd (ITA No. 454/2016) held that Public Sector Companies cannot be regarded as an appropriate comparable for the purpose of undertaking benchmarking analysis. Similar view was taken by the Hon’ble Bombay High Court in the case of Thyssen Krupp Industries India Pvt Ltd (ITA No. 2218/2013) upheld the rejection of Engineers India Ltd. as a comparable on the basis that it is a Govt. owned company.

30. Respectfully following the same, we are inclined to accept the contentions of the ld. Counsel for the assessee and hold that Engineers India Ltd., should not be included as a comparable for calculating the profit level indicator i.e., the Average OP/OC and Average OP/OR.

31. Now, we take up BGR Energy System Ltd.. We note that this company is primarily engaged in construction and maintenance of power plants. On the other hand, the assessee company is engaged in the providing of EPC services to the companies operating in the metal sector and is not providing services relating to construction of power plants. Also we note that BGR Energy System Ltd., provides operation and maintenance services in respect of power plants, which the assessee 35 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd. does not provide. It prima facie indicate that the specific characteristic of services and products sold by BGR Energy System Ltd. and the assessee company are significantly different. Hon’ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT [2015] 377 ITR 533 (Del) held that comparability analysis should be undertaken on the basis of functional profile and characteristics of services provided. Respectfully following the same, we hold that as the functional profile of BGR Energy System Ltd. is significantly different from the assessee company, the ld. AO erred in including the same as comparable for calculating the mean PLI of the assessee company.

32. Thus, to conclude, for AY 2017-18, we direct the ld. AO to exclude Engineers India Ltd. and BGR Energy System Ltd. from the list of comparables for calculating the mean PLI and accordingly direct him to re-calculate the average OP/OC and average OP/OR and then decide in accordance with the law the adjustments, if any, to be made in the hands of the assessee. Thus, the additional ground nos. 1, 2 & 2.1. raised by the assessee for Assessment Year 2017-18 are allowed and consequentially the respective grounds raised

for TP adjustment for purchase of raw material and finished goods are allowed for statistical purposes.

33. Through additional ground no. 3, assessee has claimed that the ld. TPO/Assessing Officer erred in rejecting High Quality Steels Ltd., without considering the functions carried out by High Quality Steels Ltd. and the nature of its business activities.

36 & 372/Kol/2022 Assessment Year: 2017-18 & 2018-19 Primetals Technologies India Pvt. Ltd.