In Spectris Technologies Pvt. Ltd., Gurgaon v. Income Tax Officer, New Delhi, the Delhi Bench of the Income Tax Appellate Tribunal examined two recurring issues for Assessment Year 2009–10—first, the correctness of transfer pricing adjustments made by aggregating distinct business segments, and second, the tax treatment of non-compete fees and related depreciation.

On the transfer pricing issue, the Tribunal noted that the assessee was engaged in two distinct segments, namely (i) Annual Maintenance Contract (AMC) services involving sale of spare parts, and (ii) Agency and Marketing Support Services. The TPO had rejected the assessee’s segmental accounts and applied TNMM at an entity level by aggregating both segments. Relying on its own binding decisions in the assessee’s case for AYs 2007-08 and 2008-09, the Tribunal held that where functional, asset, and risk profiles differ, benchmarking must be conducted separately for each segment. Accordingly, the matter was restored to the file of the TPO with directions to carry out segment-wise benchmarking in accordance with law and to examine whether the results fall within the tolerance range prescribed under the proviso to Section 92C(2).

On the issue of non-compete fees, the Tribunal observed that although the CIT(A) had followed the Delhi High Court judgment in Sharp Business System, the said ruling has since been overturned by the Hon’ble Supreme Court. Following the Apex Court judgment, the Tribunal held that non-compete fees are to be treated as revenue expenditure. However, since the assessee had capitalised the non-compete fee and claimed depreciation thereon, the Tribunal directed the Assessing Officer to re-examine the depreciation already claimed and determine the correct tax treatment in light of the Supreme Court ruling.

Accordingly, the appeal was partly allowed, with transfer pricing issues remanded for limited verification and appropriate directions issued regarding the treatment of non-compete fees and depreciation.

Source Link- https://itat.gov.in/public/files/upload/1767777934-WuhFag-1-TO.pdf

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