Assessee’s Contentions

Revenue’s Contentions

Tribunal’s Judgment

The assessee contended that amortisation of goodwill arising from acquisition of business  was a non-operating, abnormal and extraordinary item arising from acquisition of business and should be excluded from operating costs for PLI computation.

The Revenue contended that goodwill was recognised as an intangible asset and was employed in the business, and hence amortisation was recurring in nature and should be treated as operating expenditure for computing PLI.

The ITAT held that goodwill was not a functional asset and arose from acquisition of another undertaking; therefore, amortisation of goodwill was an abnormal item arising out of acquisition of business and not a regular operating expenditure.

The assessee relied on judicial precedents, including Hitachi Solutions India Pvt. Ltd., CH Robinson Worldwide Freight India Pvt. Ltd. and Hospira Healthcare India Pvt. Ltd., wherein amortisation of goodwill was held to be non-operating for TP purposes.

         The Revenue submitted that depreciation/amortisation forms part of EBIT and that excluding goodwill amortisation from operating costs would artificially increase the assessee’s PLI and result in a distorted comparison with comparables.

Relying on the judicial precedents, particularly Hitachi Solutions India Pvt. Ltd., the Tribunal directed the AO/TPO to exclude amortisation of goodwill from operating expenditure and consequently deleted the TP adjustment.