Janes Defense India LLP Vs DCIT (ITAT Delhi)
Delhi ITAT Holds Amortisation of Goodwill Is a Non-Operating Expense for Transfer Pricing Purposes
The Delhi ITAT held that amortisation of goodwill arising from the acquisition of a business is a non-operating expense and, therefore, cannot be included in operating costs while computing the Profit Level Indicator (PLI) under the Transactional Net Margin Method (TNMM). The assessee had acquired a business through a slump sale, resulting in goodwill, and had amortised the same in its books. The TPO, without giving the assessee an opportunity of being heard, treated the amortisation as an operating expense and made a transfer pricing adjustment.
The Tribunal observed that goodwill generated on acquisition of a business is not a functional asset employed in day-to-day operations. Unlike other intangible assets that directly contribute to business operations, goodwill is an extraordinary accounting item arising from business acquisition. Consequently, its amortisation cannot be regarded as a routine operating expenditure for benchmarking international transactions under TNMM.
Relying on a series of decisions, including Hitachi Solutions India Pvt. Ltd., CH Robinson Worldwide Freight India Pvt. Ltd., Hospira Healthcare India Pvt. Ltd., and other Tribunal rulings, the ITAT held that amortisation of goodwill must be excluded from operating expenditure while computing the operating margin. The transfer pricing adjustment was accordingly deleted, and the assessee’s appeal was allowed.
Cases Discussed
- Hitachi Solutions India Pvt. Ltd. (ITAT Chennai), IT(TP)A No. 17/Chny/2025 Dt. 6.6.2025
- Continental Automotive Components (India) Pvt. Ltd. (ITAT Bangalore), [2022] 139 Taxmann.com 187 (Bang. Trib.)
- DHR Holding India Pvt. Ltd. (ITAT Delhi), [2021] 133 Taxmann.com 519 (Del. Trib.)
- TE Connectivity Services India Private Ltd., IT(TP)A No. 300/Bang/2021
- ST-Ericsson India Pvt. Ltd. vs. DCIT (ITAT Delhi), ITA No. 609/Del./2015
- CH Robinson Worldwide Freight India Pvt. Ltd. (ITAT Chennai), ITA No.3444/Chny/2016 & No.28/Chny/2017
- Hospira Healthcare India Pvt. Ltd. (ITAT Chennai), ITA No.469/Chny/2017
- DIAB Core Materials Pvt. Ltd., ITA No.2176/Chny/2017
- Ametek Instruments India Pvt. Ltd., IT(TP)A No.398/Bang/2016
- Nalco Water India Limited Vs. ACIT (ITAT Pune), ITA No.742/PUN/2021
- Citrix Systems India Private Limited (ITAT Bangalore), IT(TP)A No.2513/Bang/2019
- Imsofer Manufacturing India Pvt. Ltd. (ITAT Delhi), [2020] 121 Taxmann.com 209 (Delhi-Trib.)
- Siemens Public Communication Network (P.) Ltd. Vs. CIT (SC)
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal filed by the assessee is directed against the assessment order dated 27.09.2024 passed by the DCIT, Circle 38 (2), Delhi under section 143(3) read with section 144(C)(13) and 144B of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2021-22 pursuant to the directions of the Dispute Resolution Panel u/s 144C (5) of the Act.
