Appeal Details
Counselvise Citation
[2019] 118 COUNSELVISE.COM (IT) 8200 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 1 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
01-01-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
15-09-2017
Assessment Year
2008-2009
Appeal Filed On
25-11-2013
Judgement Text
, , ,, , * ** * IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD LOZJH LOZJH LOZJH LOZJH EGKOHJ EGKOHJ EGKOHJ EGKOHJ IZLKN] U; IZLKN] U; IZLKN] U; IZLKN] U;KF KFKF KF;D LNL; , ;D LNL; , ;D LNL; , ;D LNL; ,OA OAOA OA OLHE OLHE OLHE OLHE VGEN] YS[KK LNL; DS LE{KA VGEN] YS[KK LNL; DS LE{KA VGEN] YS[KK LNL; DS LE{KA VGEN] YS[KK LNL; DS LE{KA BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.1904/AHD/2013 & CROSS OBJECTION NO. 204/AHD/2013 (IN ITA NO.1904/AHD/2013) /ASSESSMENT YEAR : 2008-09 D.C.I.T.(OSD), CIRCLE-8, AHMEDABAD. VS. M/S. V. F. ARVIND BRANDS PVT. LTD. ARVIND MILLS PREMISES, NARODA ROAD, AHMEDABAD-380025. PAN: AACCV 2727 L (APPLICANT) ( RESPONENT ) / CROSS OBJECTOR REVENUE BY : SMT APARNA M. AGARWAL, CIT.D.R ASSESSEEBY : SHRI DHINAL SHAH & SNEHAL SUKHADIA, A.R. /DATE OF HEARING : 14/11/2018 /DATE OF PRONOUNCEMENT : 01/01/2019 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE ALONG WITH A CROSS OBJECTION BY ASSESSEE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) XIV, AHMEDAB AD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-XIV/ACIT CIR.8/264/201 0-11 DATED 25.04.2013 ARISING IN THE MATTER OF ASSESSMENT ORDE R PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 2 30.12.2010 RELEVANT TO THE ASSESSMENT YEAR (AY) 200 8-09 WITH THE FOLLOWING GROUNDS: 1) THE LD CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.18,11,46,000/- MADE IN RESPECT OF DEPRECIATION ON INTANGIBLE ASSETS NAMELY DESIGN AND TECHNICAL KNOWHOW, VENDOR & CUSTOMER NET WORK RELATIONSHIPS. 2) A. THE LD CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW AN D ON FACTS IN DELETING THE DISALLOWANCE MADE IN RESPECT OF DEPREC IATION AMOUNTING TO RS.117.31 MILLIONS ON AMOUNT OF GOODWILL OF RS.469 MILLIONS, WHICH WAS NEITHER CLAIMED IN THE RETURN OF INCOME, NOR DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2) B. THE LD. CIT(A)-XIV, AHMEDABAD HAS ERRED IN L AW AND ON FACTS IN SET-ASIDE THE MATTER & DIRECTING THE ASSESSING OFFI CER TO EXAMINE THE MATTER REGARDING CLAIM OF DEPRECIATION ON GOODWILL, WHICH IS NOT PERMITTED UNDER PROVISION OF SECTION 251(1)(A) OF T HE ACT AS AMENDED W.E.F. 01/10/1998. 3) THE LD CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE DISALLOWANCE OF RS.1,21,74,000/- MADE ON ACCOUN T OF PROVISION OF OBSOLETE INVENTORY WITHOUT BASIS OF SUCH VALUATION. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A)-XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 5) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD CI T(A)-XIV, AHMEDABAD MAY BE SET-A-SIDE AND THAT OF THE ORDER OF THE AO B E RESTORED. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN TH E PRESENT CASE IS A PRIVATE LIMITED COMPANY WHICH WAS FORMED AS A RESULT OF JOI NT VENTURE AGREEMENT BETWEEN ARVIND MILLS LTD AND VF CORPORATION A COMPA NY BASED IN US. THE JOINT VENTURE AGREEMENT WAS ENTERED AS ON 1 ST SEPTEMBER 2006. 2.1 AS PER THE AGREEMENT THE ASSESSEE ACQUIRED THE BUSINESS OF ARVIND FASHION LTD- A WHOLLY OWNED SUBSIDIARY COMPANY OF A RVIND MILLS LTD AS A GOING CONCERN AS SLUMP SALE FOR LUMP-SUM CONSIDERAT ION. THE BUSINESS ACQUIRED BY THE ASSESSEE FROM ARVIND FASHION LTD (F OR SHORT AFL) WAS CONSISTING OF DESIGN, PROCUREMENT, MARKETING, AND M ANAGEMENT OF THE DISTRIBUTION OF THE APPELLANT COMPANY FOR THE BRAND ED PRODUCTS, IN INDIA, ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 3 SRILANKA, THE REUNION ISLAND, SEYCHELLES, MADAGASCA R, MAURITIUS, AND THE MALDIVES. 2.2 THE BUSINESS WAS ACQUIRED BY THE ASSESSEE FOR A LUMP SUM CONSIDERATION OF RS. 1816.53 MILLION WHICH WAS ALLO CATED TO VARIOUS ASSETS TAKEN OVER AT FAIR VALUE ON THE ACQUISITION DATE. T HE ASSESSEE OUT OF THE TOTAL LUMP-SUM CONSIDERATION TREATED A SUM OF RS. 1435/- MILLION TOWARDS INTANGIBLE ASSETS. THE DETAILS OF THE INTANGIBLE AS SETS AND THE VALUE ALLOTTED TO THEM ARE REPRODUCED AS UNDER: SR.NO. PARTICULARS OF INTANGIBLE ASSETS VALUE 1. DESIGN AND TECHNICAL KNOW-HOW 403.2 8 2. VENDOR NETWORK RELATIONSHIP 320.74 3. CUSTOMER NETWORK RELATIONSHIP 242.10 4. GOODWILL 469.00 2.3 THE ASSESSEE IN RESPECT OF INTANGIBLE ASSETS ME NTION ABOVE IN SERIAL NO. 1, 2 & 3 CLAIMED THE DEPRECIATION AS DETAILED UNDER : SR. NO. INTANGIBLE ASSET OPENING WDV (IN RS.) RATE OF DEPRECIATION (%) DEPRECIATION CLAIMED(IN 1 RS.) 1. DESIGN AND TECHNICAL KNOWHOW 30,24,57,000/- 25% 7,56,14,250/- 2. VENDOR RELATIONSHIP 24,05,52,000/- 25% 6,01,38,000/- 3. CUSTOMER RELATIONSHIP 18,15,75,000/- 25% 4,53,93,750/- TOTAL 72,45,84,000/- 25% 18,14,46,000/- HOWEVER, THE AO WAS NOT SATISFIED WITH THE CLAIM OF THE DEPRECIATION OF THE ASSESSEE IN RESPECT OF THE ABOVE ASSETS DUE TO THE REASONS AS DETAILED UNDER: ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 4 DESIGN AND TECHNICAL KNOW-HOW: THE ASSESSEE IS NOT CARRYING OUT INDUSTRIAL ACTIVIT Y. IT HAS ACQUIRED THE WHOLESALE BUSINESS OF AFL WITHOUT ACQUIRING THE FAC TORY. AS SUCH THE ACTIVITY OF AFL IS OF STITCHING OF THE TEXTILES WHICH WERE M ANUFACTURED BY A GROUP CONCERN OF THE ASSESSEE MAINLY ARVIND MILLS LTD. TH EREFORE THE CASE OF THE ASSESSEE DOES NOT FALL UNDER THE EXPLANATION-4 TO S ECTION 32 OF THE INCOME TAX ACT. AS PER THE AO, KNOW-HOW IS INDUSTRIAL INFORMA TION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURING OR PROCESSING OF GOO DS. AS THE ASSESSEE IS NOT ENGAGED IN ANY MANUFACTURING ACTIVITY, THEREFORE, I T IS NOT ENTITLED TO DEPRECIATION AS CLAIMED BY IT ON THE DESIGN AND TEC HNICAL KNOW-HOW. IT IS A FACT ON RECORD THAT THE FACTORY OF AFL WAS NOT TRANSFERRED TO THE ASSESSEE. AS SUCH, AFL UNDER THE AGREEMENT WITH THE ASSESSEE WAS UNDER OBLIGATION TO ACT AS A JOB WORKER ON BEHALF OF THE ASSESSEE. THEREFORE THE AO WAS OF THE VIEW THAT THERE WAS NO TRANSFER OF ANY D ESIGN AND TECHNICAL KNOW- HOW TO THE ASSESSEE FOR WHICH THERE WAS NO NEED TO MAKE ANY PAYMENT TO AFL. IT WAS ALSO AGREED BETWEEN THE ASSESSEE AND AF L THAT IN CASE THERE IS UNDERUTILIZATION OF THE CAPACITY OF THE ASSESSEE TH EN AFL WOULD BE FREE TO UNDERTAKE THE ACTIVITY OF GARMENT PRODUCTION ON BEH ALF OF OTHER PARTIES. THE DEPRECIATION IS ALLOWED WHEN THE CAPITAL ASSETS ARE USED FOR THE PURPOSE OF THE BUSINESS. IN THE INSTANT CASE, THERE WAS NO UTILIZATION OF INTANGIBLE ASSETS AS REQUIRED BY THE ASSESSEE. 2.4 IN VIEW OF ABOVE THE AO WAS OF THE VIEW THAT TH E ASSESSEE IS NOT ENTITLED TO DEPRECIATION ON THE INTANGIBLE ASSET NA MELY DESIGN AND TECHNICAL KNOW-HOW. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 5 VENDOR AND CUSTOMER RELATIONSHIP THE AO OBSERVED THAT THE VENDOR AND CUSTOMER RELATI ONSHIP DOES NOT FALL WITHIN THE DEFINITIONS OF INTANGIBLE ASSETS. THEREF ORE HE WAS OF THE VIEW THAT THE DEPRECIATION ON THE INTANGIBLE ASSETS NAMELY VE NDOR AND CUSTOMER RELATIONSHIP CANNOT BE ALLOWED. 2.5 IN VIEW OF ABOVE THE AO DISALLOWED THE DEPRECIA TION CLAIMED BY THE ASSESSEE ON THE AFORESAID INTANGIBLE ASSETS AMOUNTI NG TO RS. 18,11,46,000/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CI T(A) THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED AS UNDER: I. AFL HAS DEVELOPED INDUSTRIAL TECHNIQUES AFTER RESEA RCHING THE DESIGNS AND TECHNICAL KNOW-HOW OVER A PERIOD OF TIME. THESE INDUSTRIAL TECHNIQUES INCLUDE THE FOLLOWING: A) UNDERSTANDING THE VALUE PROPOSITION OF THE BRAND. B) BRAND PSYCHOLOGY/CUSTOMER DEMOGRAPHICS. C) PROCESS OF DESIGN FORECASING. D) UNDERSTANDING THE FABRICS. E) SHIRTS PATTERN MAKING. F) DENIM PATTERN MAKING. G) USE OF VARIETY OF SOFTWARE IN DESIGN. H) FINISHING SAMPLING UNIT ETC. THE TECHNIQUES ABOVE WILL CERTAINLY ASSIST TO THE A SSESSEE IN THE MANUFACTURING AND PROCESSING OF GOODS. THEREFORE TH E CASE OF THE ASSESSEE IS COVERED IN EXPLANATION- 4 TO SECTION 32 OF THE ACT. II. THE CLAIM OF THE DEPRECIATION IN RESPECT OF INTANGI BLE ASSETS CANNOT BE LINKED WITH THE INDUSTRIAL UNDERTAKING. THEREFORE T HE DEPRECIATION ON THE INTANGIBLE ASSETS CANNOT BE DENIED MERELY ON TH E GROUND THAT THE ASSESSEE DOES NOT OWN THE INDUSTRIAL UNDERTAKING. T HE WORD INDUSTRIAL UNDERTAKING HAS A DIFFERENT CONNOTATION WITH RESPEC T TO DIFFERENT ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 6 INDUSTRIES. IT IS USED IN COMMON PARLANCE TO REFER TO A SPECIFIC INDUSTRY SUCH AS FILM INDUSTRY, ADVERTISEMENT INDUSTRY, GARM ENT INDUSTRY, ELECTRICAL GOODS INDUSTRY AND MARKETING INDUSTRY, E TC. THEREFORE THE TERM INDUSTRY IS USED TO REFER THE DIFFERENT BUSINE SS ACTIVITIES CARRIED OUT BY A DIFFERENT CLASS OF PEOPLE REPRESENTING SOME SP ECIFIC ACTIVITY. III. THE ASSESSEE IS GETTING THE GARMENTS MANUFACTURED N OT ONLY FROM THE FACTORY OWNED BY AFL, BUT IT IS ALSO GETTING THE WO RK DONE FROM THE OUTSIDERS ON A JOB WORK BASIS. THESE OUTSIDERS PERF ORM THE WORK AND CARRYING OUT THE ACTIVITY AS PER THE DESIGNS AND TE CHNICAL KNOW-HOW OF THE ASSESSEE. THUS IT IS CLEAR THAT THE TECHNICAL K NOW-HOW ACQUIRED BY THE ASSESSEE WAS BEING USED BY IT. HAD THESE NOT BE EN ACQUIRED BY IT FROM AFL THEN IT WOULD NOT HAVE BEEN GETTING THE JO B DONE FROM THE OUTSIDE PARTIES. THE ASSESSEE IN SUPPORT OF ITS CLA IM ALSO FILED THE LIST OF THE JOB WORKERS. IV. THE ASSESSEE HAS ACQUIRED THE BUSINESS ACTIVITY OF AFL AFTER MAKING THE AGREED PAYMENT. THE PAYMENT TO AFL WAS NOT LIMITED TO THE BUSINESS ACTIVITIES, BUT IT ALSO COVERED THE INTANGIBLE ASSE TS ACQUIRED BY THE ASSESSEE. THUS THE ASSESSEE IS ENTITLED TO DEPRECIA TION ON THE COST INCURRED BY IT ON THE PURCHASE OF INTANGIBLE ASSETS ALONG WITH THE BUSINESS ASSETS ACQUIRED FROM AFL. V. AS REGARDS THE VENDOR NETWORK RELATIONSHIP, THE ASS ESSEE SUBMITTED THAT IT WAS PAID TO AFL FOR UTILIZING THE NETWORK WHICH WAS BUILD UP BY AFL OVER A PERIOD OF TIME. THESE VENDORS HAVE BEEN TRAINED OVER A PERIOD OF TIME BY AFL AND BECAME CAPABLE OF GENERAT ING THE QUALITY PRODUCTS AS PER THE SPECIFICATIONS OF THE ASSESSEE. THE ASSESSEE WAS ABLE TO SAVE SUBSTANTIAL TIME IN DEVELOPING THE NETWORK OF SUCH VENDORS. VI. THERE WERE 87 JOB WORKERS/ VENDORS OF AFL WHICH WER E TRANSFERRED TO THE ASSESSEE. THESE JOB WORKERS WERE IN A POSITION TO PROVIDE THE DESIRED SERVICES TO THE ASSESSEE IN TIME BOUND MANN ER WITHOUT COMPROMISING WITH THE QUALITY OF THE WORK. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 7 VII. THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND THE AFL WHEREBY THE FACTORY OF AFL WAS USED BY THE ASSESSEE AS A DE DICATED JOB WORKER. THIS AGREEMENT WAS MADE FOR 3 YEARS BEGINNING FROM 1 ST SEPTEMBER 2006 TO 31 ST AUGUST 2009. VIII. THE ASSESSEE ALSO ACQUIRED A NETWORK OF AFL CONSIST ING OF 58 FABRIC SUPPLIER AND 77 TRIM SUPPLIERS. THESE SUPPLIERS HAV E BEEN EMPANELLED BY AFL WHICH WAS MEETING THE REQUIREMENT OF FABRIC AND THE ACCESSORIES WITH QUALITY AND IN TIME BOUND MANNER. IX. SIMILARLY, THE ASSESSEE ALSO ACQUIRED THE NETWORK O F ADVERTISEMENT VENDORS CONSISTING OF 232 COMPANIES. THESE VENDORS WERE PROVIDING ADVERTISEMENT SERVICES AND PROMOTING THE PRODUCTION OF THE ASSESSEE. AS SUCH THE ASSESSEE WAS ABLE TO SAVE SUBSTANTIAL T IME IN BUILDING SUCH A HUGE NETWORK. X. AS REGARDS THE CUSTOMER NETWORK RELATIONSHIP, THE A SSESSEE SUBMITTED THAT THERE WAS A HUGE NETWORK OF CUSTOMERS OF AFL W HICH WAS ACQUIRED BY IT. THE ASSESSEE HAS ACQUIRED THE ENTIRE MULTI-B RAND OUTLETS WHICH WERE CREATED BY AFL OVER A PERIOD OF TIME. IN THE F INANCIAL YEAR 2005- 06 THESE MULTI-BRAND OUTLETS CONTRIBUTED 26% OF THE TOTAL SALES OF AFL. THUS ON THE ACQUISITION OF CUSTOMER NETWORK OF THE AFL, THE ASSESSEE WAS ABLE TO ACHIEVE DESIRED RESULTS IN THE SHORT PE RIOD. AS SUCH THERE WERE 325 MULTI-BRAND OUTLETS WHICH WERE TRANSFERRED TO THE ASSESSEE. XI. AS REGARDS THE EXCLUSIVE BRAND OUTLET AND EXCLUSIVE OUTLET ON PURCHASE THE ASSESSEE SUBMITTED THAT IT HAS ACQUIRED 39 EXCL USIVE BRAND OUTLET AND 51 EXCLUSIVE OUTLET ON PURCHASE FROM AFL. IN TH E FINANCIAL YEAR 2005-06 AFL WAS ABLE TO ACHIEVE 20% OF THE TOTAL SA LE AND 16% OF THE TOTAL SALE THROUGH THE NETWORK OF EOBS AND EOPS XII. THE CUSTOMER NETWORK OF AFL WAS LOCATED IN DIFFEREN T GEOGRAPHICAL LOCATIONS INVOLVING HUGE CAPITAL INVESTMENT WITH TR AINED MARKETING STAFF. THE ASSESSEE ACQUIRED ALL THESE NETWORKS CRE ATED BY AFL. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 8 3.1 IN VIEW OF THE ABOVE THE ASSESSEE CLAIMED THAT IT IS ELIGIBLE FOR THE DEPRECIATION UNDER SECTION 32 OF THE ACT IN RESPECT OF INTANGIBLE ASSETS. 4. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: IN VIEW OF FACTS MENTIONED ABOVE, I AM OF THE OPIN ION THAT THE A.O. WASNOT JUSTIFIED IN HOLDING THAT TERM 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OFSIMILAR NATURE' USED IN SECTION 32 SHOULD BE HAVI NG SAME MEANING OF EARLIERWORDS VIZ KNOWHOW, PATENTS, COPY RIGHTS, TRA DE MARK, LICENCES AND FRANCHISES. THE APPELLANT HAS CORRECTLY REFERRED TO VARIOUS DECISIONS WHICH HELD THAT THE APPELLANT WAS ENTITLED TO DEPRECIATIO N ON THE ASSETS SKILL AND KNOWHOW, BUSINESS F INFORMATION, TRADING REPUTATION , MARKETING AND DISTRIBUTION, TERRITORIAL KNOWHOW. SUCH DECISIONS H AVE HELD THAT ANY RIGHT WHICH IS OBTAINED FOR CARRYING ON BUSINESS EFFECTIV ELY IS LIKELY TO FALL WITHIN THE MEANING OF INTANGIBLE ASSETS. IT IS BROUGHT TO MY NOTICE THAT DELHI TRIBUNAL IN THE CASE OF SARABHAI ANIMAL HEALTH LTD. HAS HELD THAT MARKETING RIGHTS ACQUIRED BY THE COMPANY WERE INTANGIBLE RIGH T ELIGIBLE FOR DEPRECIATION. SIMILARLY ITAT, AHMEDABAD IN THE CASE OF ARVIND BRAND HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN RESPECT OF DE PRECIATION ON INTANGIBLE ASSETS CONSISTING OF BRAND NAME, KNOWHOW, LICENSES AND MARKETING DISTRIBUTION NET WORK WHICH IS A CASE SIMILAR THAT OF THE APPELLANT. IN THIS CASE OF ARVIND BRAND LTD. THE ASSESSEE HAD CLAIMED DEPRECIATION ON BRAND NAME AND MARKETING AND DISTRIBUTION NET WORK. THE TRIBUNAL IN PARA 6 OF THE ORDER BEING NO. 1679/AHD/2005 DATED 24-10-2008 HELD AS UNDER: WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE RECORDS. BEFORE US, THE LEARNED AR OF THE ASSESSEE REITERATED THE SUBMISSIONS AS WE MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CITA). THE LEARNED DR ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDER OF THE ASSESSING OFFICER. THE MOOT QUESTION THAT IS TO BE DECIDED WH ETHER THE DEPRECIATION CLAIMED ON THE INTANGIBLE ASSETS AMOUN T TO RS. 12,03,12,500 WHICH RELATES TO THESE TWO ASSETS IN T HE NAMES OF BRAND NAME 'ARVIND' AND 'MARKETING AND DISTRIBUTION NETW ORK' IS ALLOWABLE U/S. 32(1) (II) OF THE INCOME-TAX ACT, 19 61. GOING THROUGH THE SAID SECTION, IT IS VERY MUCH CLEAR THATTHIS SE CTION INCLUDES KNOW- HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES FRA NCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE, BEING INTANGIBLE ASSETS. THE REVENUE IS NOT DISPUTING THA T THE ASSESSEE HAS ACQUIRE C THESE TWO INTANGIBLE ASSETS IN QUESTION U NDER AN AGREEMENT. THE ITEMS MENTIONED IN SECTION 32(1) (II) ARE WIDE ENOUGH SO AS TO ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 9 INCLUDE THESE TYPES C; INTANGIBLE ASSETS UNDER CONS IDERATION. THEREFORE, IN OUR CONSIDERED VIEW, THE LEARNED CIT( A) HAS RIGHTLY ALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE AN D AS SUCH, IT NEEDS NO INTERFERENCE.' I FIND THAT ITAT, CHENNAI IN THE CASE OF ACIT VS. B EST & CROMPTON ENGG. PROJECTS LTD. REPORTED AT 46 SOT 116 CONSIDER ED SIMILAR QUESTION. THE HEAD NOTES FROM THE JUDGMENT REPORTED IN THE ABOVE CASE READS AS UNDER: 'SECTION 32 OF THE INCOME-TAX ACT, 1961 - DEPRECIAT ION - ALLOWANCE/RATE OF - ASSESSMENT YEARS 2002-03 TO 200 5-06 - ASSESSEE- COMPANY WAS SUBSIDIARY OF 'B' LTD. WHICH WAS DOING BUSINESS OF ELECTRICALS & PROJECTS CONTRACTING, LIKE, ERECTION OF HIGH VOLTAGE SUBSTATIONS, TRANSMISSION LINES, RAILWAY ELECTRIFIC ATION BOTH IN INDIA AND OUTSIDE INDIA - SINCE THERE WERE MAJOR PROBLEMS WITH MANUFACTURING UNITS OF 'B' LTD. WHICH COULD AFFECT OPERATIONS OF PROJECTS DIVISION, 'B' LTD. TRANSFERRED ITS ELECTRI CAL AND PROJECT CONTRACTING DIVISION ALONG WITH ITS FIXED ASSETS, C URRENT ASSETS AND CURRENT LIABILITIES TO ASSESSEE - SAID TRANSFER TOO K PLACE ON BASIS OF BUSINESS VALUATION REPORT OBTAINED FROM A CHARTERED ACCOUNTANT FIRM, ACCORDING TO WHICH BUSINESS OF ELECTRICAL & PROJECT S CONTRACTING DIVISION WAS VALUED , AT RS. 34.85 CRORES - SAID BU SINESS VALUE OF RS. 34.85 CRORES WAS FIXED AS I PURCHASE CONSIDERATION FOR TRANSFER OF ELECTRICAL PROJECTS AND CONTRACTING F DIVISION - PR OJECT CONSIDERATION INCLUDED COST OF TECHNICAL PROPRIETARY INFORMATION AND VALUE OF COMMERCIAL/PRE-QUALIFICATION RIGHT - ASSESSEE CLAIM ED DEPRECIATION ON TWO ITEMS OF INTANGIBLE ASSETS, VIZ., TECHNICAL PROPRIETARY INFORMATION AND PRE-QUALIFICATION RIGHTS UNDER SECT ION 32(L)(II) ASSESSING OFFICER DISALLOWED SAID CLAIM ON GROUND T HAT THOSE INTANGIBLE ASSETS WOULD PARTAKE CHARACTER OF GOODWI LL WHICH WAS NOT ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1 )(II) - ASSESSING OFFICER ALSO HELD THAT ENTIRE TRANSACTION WAS PAPER TRANSAC TIONS IN ORDER TO AVAIL BENEFIT OF DEPRECIATION - HOWEVER, ON APPEAL, COMMISSIONER (APPEALS) ALLOWED ASSESSEE'S CLAIM AND SET ASIDE OR DER OF ASSESSING OFFICER - WHETHER PRE-QUALIFICATION RIGHTS AND TECH NICAL PROPRIETARY INFORMATION COULD NOT BE TREATED AS 'GOODWILL 1 - HELD, YES - WHETHER TRANSFER OF PRE-QUALIFICATION RIGHTS AND TECHNICAL PROPRIETARY INFORMATION BY 'B' LTD. WAS ON ACCOUNT OF GENUINE C OMMERCIAL CONSIDERATIONS DONE, AT ARMS LENGTH, BASED ON BUSIN ESS VALUATION REPORT, GIVEN BY A REPUTED FIRM OF CHARTERED ACCOUN TANTS AND WITHOUT WHICH ASSESSEE WOULD NOT HAVE BEEN IN A POSITION TO CARRY ON BUSINESS AND ALSO TO SECURE FURTHER BUSINESS - HELD, YES - W HETHER TRANSACTION COULD NOT TANTAMOUNT TO ONLY A PAPER TRANSACTION OR SHAM TRANSACTION AS THERE WAS NO SUCH EVIDENCE ON RECORD - HELD, YES -WHETHER, ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 10 THEREFORE, THERE WAS NO ERROR IN ORDER OF COMMISSIO NER (APPEALS) AND SAME WAS TO BE CONFIRMED - HELD, YES SIMILARLY IN THE CASE OF AREVA T & D INDIA LTD. REP ORTED AT 345 ITR 421 (DELHI HIGH COURT) WHILE CONSIDERING THE CLAIM OF D EPRECIATION ON COMMERCIAL RIGHTS ALLOWED THE CLAIM STATING AS UNDE R: '13. IN THE PRESENT CASE, APPLYING THE PRINCIPLE OF EJUSDEM GENERIS, WHICH PROVIDES THAT WHERE THERE ARE GENERAL WORDS FOLLOWI NG PARTICULAR AND SPECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHA LL BE CONFINED TO THINGS OF THE SAME KIND, AS SPECIFIED FOR INTERPRETING THE EX PRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN S ECTION 32(1 )(II) OF THE ACT, IT IS SEEN THAT SUCH RIGHTS NEED NOT ANSWER THE DES CRIPTION OF 'KNOWHOW, PATENTS, TRADEMARKS, LICENSES OR FRANCHISES' BUT MU ST BE OF SIMILAR NATURE AS THE SPECIFIED ASSETS. ON A PERUSAL OF THE MEANING O F THE CATEGORIES OF SPECIFIC INTANGIBLE ASSETS REFERRED IN SECTION 32(1 )(II) OF THE ACT PRECEDING THE TERM 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT IS SEEN THAT THE AFORESAID INTANGIBLE ASSETS ARE NOT OF THE SAME KIN D AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' H AVE BEEN ADDITIONALLY USED, CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBL E ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMSTANCES, THE N ATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTED TO ONLY THE AFORESAID SIX CATEGORIES OF ASSETS, VIZ., KNOWHOW, PATENTS, TRADEMARKS, COPY RIGHTS, LICENSES OR FRANCHISES. THE NATURE OF 'BUSINESS OR COMMERCIAL R IGHTS' CAN BE OF THE SAME GENUS IN WHICH ALL THE AFORESAID SIX ASSETS FALL. A LL THE ABOVE FALL IN THE GENUS OF INTANGIBLE ASSETSTHAT FORM PART OF THE TOOL OF T RADE OF AN ASSESSEE FACILITATING SMOOTH CARRYING ON OF THE BUSINESS. IN THE CIRCUMSTANCES, IT IS OBSERVED THAT IN CASE OF THE ASSESSEE, INTANGIBLE A SSETS, VIZ. CLAIMS; BUSINESS INFORMATION; BUSINESS RECORDS; CONTRACTS; EMPLOYEES ; AND KNOWHOW, ARE ALL ASSETS, WHICH ARE INVALUABLE AND RESULT IN CARRYING ON THE TRANSMISSION AND DISTRIBUTION BUSINESS BY THE ASSESSEE, WHICH WAS HI THERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHOUT ANY INTERRUPTION. THE AF ORESAID INTANGIBLE ASSETS ARE, THEREFORE, COMPARABLE TO A LICENSE TO CARRY OU T THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR. IN THE ABSENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASSESSEE WOULD HAVE HAD TO C OMMENCE BUSINESS FROM SCRATCH AND GO THROUGH THE GESTATION PERIOD WHEREAS BY ACQUIRING THE AFORESAID BUSINESS RIGHTS ALONG WITH THE TANGIBLE A SSETS, THE ASSESSEE GOT AN UP AND RUNNING BUSINESS. THIS VIEW IS FORTIFIED BY THE RATIO OF THE DECISION OF THE SUPREME COURT IN TECHNO SHARES & STOCKS LTD. ( SUPRA) WHEREIN IT WAS HELD THAT INTANGIBLE ASSETS OWNED BY THE ASSESSEE A ND USED FOR THE BUSINESS PURPOSE WHICH ENABLES THE ASSESSEE TO ACCESS THE MA RKET AND HAS AN ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 11 ECONOMIC AND MONEY VALUE IS A 'LICENSE' OR 'AKIN TO A LICENSE' WHICH IS ONE OF THE ITEMS FALLING IN SECTION 32(1)(II) OF THE AC T. 14. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEME NT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' S PECIFIED IN SECTION 32(I)(II) OF THE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIATION UNDER THAT SECTION. 15. IN VIEW OF THE ABOVE, IT IS NOT NECESSARY TO DE CIDE THE ALTERNATIVE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT GOOD WILL PER SE IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1(II) OF THE ACT. IN THE CIRCUMSTANCES, THE SUBSTANTIAL QUESTION OF LAW IS DECIDED IN THE AFFIR MATIVE AND THIS APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE AND THE IMPUGNED ORDER IS SET ASIDE.' IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. REPORTED AT 348 ITR 302 (SCJ ALLOWING THE CLAIM OF DEPRECIATION ON GOODWILL IT W AS HELD AS UNDER: 'SECTION 32 OF THE INCOME-FAX ACT, 196] - DEPRECIAT ION - ALLOWANCE/RATE OF - ASSESSMENT YEAR 2003-04 - WHETHER 'GOODWILL' IS AN ASSET UNDER EXPLANATION 3FBJ TO SECTION 32(1] - HELD, YES - DURING RELEVANT .ASSESSMENT YEAR, ONE Y LTD. AMALGAMATED WITH ASSESSEE-COMPANY - ACCORDING TO ASSESSEE, EXCESS CONSIDERATION PAID BY IT OVER VALUE OF NET ASSETS A CQUIRED OF 'Y' LTD. AMOUNTED TO GOODWILL ON WHICH DEPRECIATION WAS TO BE ALLOWED - AUTHORITIES BELOW RECORDED A FINDING THAT ASSETS AND LIABILITIES OF Y LTD. WERE TRANSFERRED TO ASSESSEE FOR A CONSIDERATION; THAT DIFFERENCE BETWE EN COST OF AN ASSET AND AMOUNT PAID CONSTITUTED GOODWILL AND THAT ASSESSEE- COMPANY IN PROCESS OF AMALGAMATION HAD ACQUIRED A CAPITA! RIGHT IN FORM O F GOODWILL BECAUSE OF WHICH MARKET WORTH OF ASSESSEE-COMPANY STOOD INCREA SED - ACCORDINGLY, ASSESSEE'S CLAIM WAS ALLOWED -WHETHER SINCE REVENUE COULD NOT REBUT FACTUAL FINDINGS RECORDED BY AUTHORITIES BELOW, IMPUGNED OR DER PASSED BY THEM WAS TO BE UPHELD -HELD, YES [PARA 8] [IN FAVOUR OF ASSE SSEE] II. SECTION 32 OF THE INCOME-TAX ACT, 1961 - DEPREC IATION - ALLOWANCE /RATE OF - WHETHER STOCK EXCHANGE MEMBERSHIP CARD IS AN A SSET ELIGIBLE FOR DEPRECIATION UNDER SECTION 32 - HELD, YES [PARA 1] [IN FAVOUR OF ASSESSEE]' IN THE CASE OF RFCL THE CHANDIGADH ITAT HAS WHILE A LLOWING CLAIM FOR DEPRECIATION ON INTANGIBLE CONSIDERED THE FOLLOWING AND ACCEPTED THE CLAIM OF ASSESSEE: 'ITAT OBSERVED THAT 'THE PERUSAL OF THE SCHEDULES T O BPA COMPRISING OF THE ABOVE SAID LIST OF STOCKIEST AGREEMENTS, DISTRIBUTI ON AGREEMENTS, LEASE ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 12 AGREEMENTS AND ALSO DISTRIBUTION AND MARKETING AGRE EMENTS, ALONGWITH LIST OF LICENSES AND PERMISSIONS AND LIST OF VARIOUS PRO DUCTS, THE NAME LICENSE AND ALSO THE MANUFACTURING KNOW-HOW ETC., ALONG WIT H LIST OF EMPLOYEES ARE ASSETS, WHICH ARE INVALUABLE AND INSTRUMENTAL IN CA RRYING ON THE BUSINESS OF ANIMAL HEALTH CARE AND DIAGNOSTICS BUSINESS DIVISIO NS ACQUIRED BY THE ASSESSEE FROM M/S. RANBAXY LABORATORIES LTD. AS PER THE BPA. THE ACQUISITION OF THE ABOVE SAID ITEMS IS A BUNDLE OF RIGHTS ACQUIRED BY THE ASSESSEE FOR WHICH A LUMP SUM PRICE WAS FIXED AND N O BREAK UP IN THE VALUE OF PRICE WAS DETERMINED EITHER BY THE ASSESSEE OR B Y THE AUDITORS BUT THE SAME CONSTITUTED BUNDLE OF RIGHTS AKIN TO A LICENSE OR COMPARABLE TO A LICENSE TO CARRY ON THE (ACQUIRED) BUSINESS .... THE ABOVE SAID ASSETS ACQUIRED BY THE ASSESSEE WERE THE 'BUSINESS OR COMMERCIAL RIGHTS OR LICENSE ACQUIRED' IN ORDER TO CARRY ON NEW BUSINESS ACQUIRED BY THE ASSE SSEE INCLUDING LIST OF EMPLOYEES AND ALSO VARIOUS LICENSES OWNED BY RANBAX Y LABORATORIES LTD.' THUS HAVING REGARD TO THE RATIO LAID DOWN IN THE AB OVE REFERRED DECISIONS, I AGREE WITH THE APPELLANT THAT THE TECH NICAL KNOWHOW, DESIGN AND VENDORS NETWORK RELATIONSHIP AND CUSTOMERS NETWORK RELATIONSHIP ARE IN THE NATURE OF INTANGIBLE ASSETS ENVISAGED IN SECTION 32 AND ARE ELIGIBLE FOR DEPRECIATION. AT THIS POINT OF TIME IT IS BROUGHT T O MY NOTICE THAT THE BUSINESS WAS ACQUIRED BY THE APPELLANT IN F.Y. 2006-07 I.E., A.Y. 2007-08 WHEREIN SALE CONSIDERATION REFERRED TO ABOVE WAS ALLOCATED TO THE INTANGIBLE ASSETS AS DISCUSSED HEREINABOVE THEAPPELLANT HAD CLAIMED DEPR ECIATION IN ITS RETURN OF INCOME. THE AO HAS DISPUTED THE ALLOCATION OF SALE CONSIDERATION AMONGST DIFFERENT CONSTITUENT C ; SLUMP SALE. THE CLAIM OF APPELLANT HAS NOT BEEN DISTURBED BY THE DEPARTMENT, R THE CIRCUMSTANCES, T HE APPELLANT HAS CLAIMED DEPRECIATION ON CARRIED FORWARD BALANCES OF WRITTEN DOWN VALUE OF THOSE ASSETS IN THE YEAR UNDER CONSIDERATION I.E. A.Y. 20 08-09. HAVING REGARD TO THE RULE OF CONSISTENCY AS IN JUDICIAL PARLANCE, I AGREE WITH THE APPELLANT THAT HAVING NOT CHALLENGED THE CLAIM OF THE APPELLANT IN EARLIER YEAR, THE DEPARTMENT WAS NOT JUSTIFIED IN NOT ACCEPTING THE C LAIM ON THE WRITTEN DOWN VALUE OF SUCH ASSET IN THE PRESENT YEAR. THE DISALL OWANCE IS NOT JUSTIFIED ON THIS ACCOUNT TOO. THE GROUND OF APPEAL IS ACCORDING LY ALLOWED. ! BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNN ING FROM THE PAGES AS 1 TO 216 AND SUBMITTED THAT THE MEANING OF THE TERM INTANGIBLE ASSETS U/S 32(1)(II) OF THE ACT IS AN INCLUSIVE DEFINITION AND THEREFORE CARRIES WIDER APPLICATION. THE LIST GIVEN IN THE SAID DEFINITION IS NOT EXHAUSTIVE OF ITEMS ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 13 FALLING WITHIN THE CLASS OF INTANGIBLE ASSETS. GIVE N THIS, DEPRECIATION HAS BEEN CLAIMED ON DESIGN AND TECHNICAL KNOW-HOW, CUSTOMER RELATIONSHIP, AND VENDOR NETWORK AS THEY REPRESENT A BUSINESS OR COMM ERCIAL RIGHTS. THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT (A). 6. ON THE OTHER HAND LD. DR SUBMITTED THAT THERE WA S NO VALUATION DONE BY THE ASSESSEE IN RESPECT OF INTANGIBLE ASSETS. THE L D. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION, WE NOTE T HAT THE AO WHILE MAKING THE DISALLOWANCE OF THE DEPRECIATION CLAIMED BY THE ASSESSEE ON THE INTANGIBLE ASSETS AS DISCUSSED ABOVE HAS REFERRED TO THE COMME NT GIVEN BY THE STATUTORY AUDITOR OF THE COMPANY. THE STATUTORY AUDITOR OF TH E COMPANY HAS COMMENTED ON THE ALLOWABILITY OF THE DEPRECIATION CLAIM MADE BY THE ASSESSEE IN RESPECT OF INTANGIBLE ASSETS. ACCORDINGLY, THE AO HAS REFER RED IN HIS ASSESSMENT ORDER REGARDING THE COMMENT GIVEN BY THE STATUTORY AUDITO R OF THE COMPANY. HOWEVER ON PERUSAL OF THE COMMENT OF THE STATUTORY AUDITOR OF THE COMPANY WE FIND THAT CLAIM OF THE ASSESSEE HAS NOT BEEN DEN IED FOR THE DEPRECIATION ON THE INTANGIBLE ASSETS. THE AUDITOR HAS MENTIONED TH AT THEY ARE UNABLE TO COMMENT ON THE CLAIM OF THE ASSESSEE ON THE DEPRECI ATION OF INTANGIBLE ASSETS. THE EXPRESSION USED BY THE STATUTORY AUDITOR OF THE COMPANY CANNOT BE CONSTRUED AS IF THE DEPRECIATION CLAIMED BY THE ASS ESSEE WAS DENIED. THE COMMENT OF THE STATUTORY AUDITOR OF THE COMPANY REA DS AS UNDER: AS PER INFORMATION AND EXPLANATION GIVEN TO US AND BASED ON THE OPINION OBTAINED FROM THE COMPANYS TAX CONSULTANTS, COMPAN Y RECKONED AND CLAIMED DEPRECIATION ON THE INTANGIBLE ASSETS ACQUI RED AT THE TIME OF ACQUISITION OF BUSINESS UNDERTAKING OF ARVIND FASHI ONS LIMITED COMPRISING OF DESIGN AND TECHNICAL KNOWHOW, VENDOR RELATIONSHI P ETC. THE COMPANY IS ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 14 OF THE OPINION THAT THE PAYMENT MADE BY THE COMPANY TOWARDS THESE INTANGIBLES GIVES THE COMPANY RIGHT TO USE THE VEND OR AND CUSTOMER RELATIONSHIP NETWORK OF ACQUIRED COMPANY AND SUCH PAYMENT FALLS WITHIN THE MEANING OF ANY OTHER BUSINESS OR COMMERCIAL RIGHT S AS PER SECTION 32(1)(II) OF THE INCOME TAX ACT. WE ARE UNABLE TO COMMENT ON THE ALLOWABILITY OR OTHERWISE OF THE COMPANYS CONTENTION AND HAVE RELI ED ON THE REPRESENTATION MADE BY THE COMPANY AND OPINION OF THE UNDERSTAND A S TO HOW THE INTANGIBLE ASSETS WERE ACQUIRED BY THE ASSESSEE. 7.1 MOREOVER, WE NOTE THAT THE COMMENT MENTIONED BY THE STATUTORY AUDITOR IS NOT THE DECIDING FACTOR FOR THE ALLOWABILITY OF THE CLAIM OF THE ASSESSEE FOR THE DEPRECIATION ON THE INTANGIBLE ASSETS. THE STAT UTORY AUDITOR OF THE COMPANY HAS NO AUTHORITY UNDER THE INCOME TAX ACT TO DECIDE THE ISSUE WHETHER ANY PARTICULAR CLAIM OF THE ASSESSEE IS ALLOWABLE. 8. NOW COMING TO THE ISSUE OF THE DEPRECIATION CLAI MED BY THE ASSESSEE ON THE DESIGN AND TECHNICAL KNOW-HOW, IN THIS REGARD W E NOTE THAT THE AO HAS FRAMED THE QUESTIONS IN THE ASSESSMENT ORDER AS DET AILED UNDER: 8.1 QUESTION NO. 1 DESIGN AND TECHNICAL KNOW-HOW DO NOT COME WITHIN THE PURVIEW OF EXPLANATION 4 TO SECTION 32 OF THE A CT. 8.2 BEFORE ADVERTING TO THE SPECIFIC ISSUE RAISED B Y THE AO, THE QUESTION ARISES WHETHER THE EXPLANATION GIVEN UNDER SECTION SUPERSEDES THE CONTENT OF THE MAIN SECTION. IN THIS REGARD, WE NOTE THAT THE EXPLANATION CAN NOT SUPERSEDE THE CONTENT OF THE MAIN SECTION. THE EXPL ANATION IS USED TO ELABORATE THE CONTENT OF THE MAIN SECTION TO CLARIF Y THE AMBIGUITY IF ANY. BUT IT CANNOT OVERRIDE THE MAIN PROVISIONS OF THE SECTION. IN THIS REGARD, WE PLACE OUR RELIANCE ON THE ORDER OF THE HONBLE HYDERABAD TRIBUNAL IN CASE OF PRITHVI INFORMATION SOLUTION LTD. VS. ITO REPORTED IN 47 TA XMANN.COM 214 WHEREIN IT WAS HELD AS UNDER. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 15 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS , EXAMINED THE DETAILS ON RECORD. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE HAS UNDERTAKEN ON-SITE WORK IN USA AND THE RE CEIPTS AND PAYMENTS ARE IN USA. SINCE ASSESSEE IS AN INDIAN COMPANY , THE NET OF THE AMOUNTS AFTER CONSIDERING THE EXPENDITURE WAS REMITTED TO INDIA AND WAS INCORPORATED IN THE BOOKS OF ACCOUNTS. JUST BECAUSE THE EXPENDITURE WAS DEBITED TO THE P & L ACCOUNT IN THE BO OKS OF ACCOUNTS IN INDIA, THE AMOUNTS CANNOT BE CONSIDERED AS PAYMENTS M ADE FROM INDIA. IT IS A FACT THAT AMOUNTS ARE PAID ABROAD AND THE SERVIC ES ARE RENDERED ABROAD. THOSE COMPANIES WHO RECEIVED THE AMOUNTS HAVE NO PERMANENT ESTABLISHMENT IN INDIA OR EVEN THE BUSINESS C ONNECTION IN INDIA. THEREFORE, THE PAYMENTS MADE TO THEM ABROAD CAN NOT BE BROUGHT TO TAX IN INDIA AS THE JURISDICTION OF IT ACT EXTENDS ONLY TO TERRITORY OF INDIA WHERE THE PAYMENTS HAVE BEEN MADE FROM INDIA (SIC), THEN IT CAN BE VERIFIED WHETHER AMOUNTS CAN BE BROUGHT TO TAX AS P ER THE PROVISIONS OF I.T ACT OR WHETHER DOUBLE T AXATION A VOIDANCE AG REEMENT (DT AA) CAN BE INVOKED SO AS TO CLAIM BENEFIT. HOWEVER, SINCE THE AMOUNTS ARE PAID OUTSIDE INDIA TO PERSONS OUTSIDE INDIAN TERRITORY , WHO DOES NOT HAVE ANY TAX LIABILITY AS FAR AS I.T . ACT, 1961 IS CONCERNED, THE AMOUNTS PAID ABROAD CANNOT BE CONSIDERED AS ' SUMS CHARGEABLE' UNDER THE PROVISIONS OF THIS ACT. EVEN THOUGH EXPL ANATION-2 CLARIFIES THE POSITION THAT WHETHER OR NOT A NON-RESIDENT PE RSON HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR ANY OTHER PERSONS IN ANY OTHER MANNER WHATSOEVER IN INDIA, THE EXPLANATION CANNOT OVERRIDE THE MAIN PROVISION OF SECTION 195 AB OUT 'SUM CHARGEABLE' UNDER THE PROVISIONS OF THE ACT. MOREOVER, A S DEFINED IN SECTION-5, SCOPE OF TOTAL INCOME NO INCOME ACCRUES OR ARISE OR DEEMED TO ACCRUE OR ARISE IN INDIA ON THE PAYMENTS MADE IN U SA BY BRANCH THERE. THEREFORE, THE PAYMENTS MADE ABROAD CANNOT BE CONSIDERED AS INCOME CHARGEABLE UNDER THE PROVISIONS OF THE ACT. EXTRATERRITORIAL JURISDICTION CANNOT BE ASSIGNED TO SECTION 195 BY INVOKING EX PLANATION (2) ON THE FACTS OF THE CASE. THEREFORE, WE ARE OF THE OPIN ION THAT THE ACTION OF THE A.O. AS CONFIRMED BY THE LD. CIT(A) IS NOT JU STIFIED AND CANNOT BE SUPPORTED BY PROVISIONS OF THE ACT. THEREFORE, AS SESSEE'S CONTENTIONS INCLUDING ADDITIONAL GROUNDS RAISED ON THIS ISSUE A RE ALLOWED. 8.3 THUS WE ARE OF THE VIEW THAT THE EXPLANATION CA NNOT SUPERSEDE THE CONTENTS OF THE MAIN SECTION. NOW LET US UNDERSTAN D THE MEANING OF KNOW- HOW, AS PER OUR UNDERSTANDING THE WORD KNOW HOW SHALL MEAN TECHNICAL DATA, FORMULAE, STANDARDS, TECHNICAL INFORMATION, SPECIFI CATIONS, PROCESSES, METHODS, CODE BOOKS, RAW MATERIALS, AS WELL AS ALL INFORMATION, KNOWLEDGE, ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 16 ASSISTANCE, TRADE PRACTICES AND SECRETS, AND IMPROV EMENTS THERETO, DIVULGED, DISCLOSED, OR IN ANY WAY COMMUNICATED TO THE LICENS EE UNDER THIS AGREEMENT, UNLESS SUCH INFORMATION WAS, AT THE TIME OF DISCLOS URE, OR THEREAFTER BECOMES PART OF THE GENERAL KNOWLEDGE OR LITERATURE WHICH I S GENERALLY AVAILABLE FOR PUBLIC USE FROM OTHER LAWFUL SOURCES. THE BURDEN OF PROVING THAT ANY INFORMATION DISCLOSED HEREUNDER IS NOT CONFIDENTIAL INFORMATION SHALL REST ON THE LICENSEE. THUS IT CAN BE INFERRED THAT IT IS NO T LIMITED TO THE INDUSTRIAL UNDERTAKING. 8.4 NOW COMING TO THE ISSUE ON HAND, IN THIS CONNEC TION IT IS IMPORTANT TO REFER TO THE PROVISIONS OF SECTION 32 OF THE ACT WH ICH READS AS UNDER: DEPRECIATION. 32. (1) IN RESPECT OF DEPRECIATION OF (I) BUILDINGS , MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASS ETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED , WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. 8.5 SIMILARLY IT IS ALSO IMPORTANT TO REFER TO THE EXPLANATION-4 OF SECTION 32 OF THE ACT WHICH READS AS UNDER: EXPLANATION 4:- FOR THE PURPOSES OF THIS SUB-SECTI ON, THE EXPRESSION KNOW- HOW MEANS ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKIN G OF A MINE, OIL-WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDING SEARCH ING FOR DISCOVERY OR TESTING OF DEPOSITS FOR THE WINNING OF ACCESS THERE TO). 8.6 WE NOTE THAT DEPRECIATION ON THE INTANGIBLE ASS ETS WAS BROUGHT UNDER THE STATUTE BY THE FINANCE ACT 1998 FOR THE PURPOSE S AS MENTIONED UNDER: DEPRECIATION TO BE ALLOWED ON INTANGIBLE ASSETS UN DER THE EXISTING PROVISIONS, DEPRECIATION IS ALLOWABLE WHEN BUILDING , PLANT, MACHINERY OR FURNITURE IS USED BY THE ASSESSEE FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 17 IT IS PROPOSED TO WIDEN THE SCOPE OF THIS SECTION S O AS TO PROVIDE THAT DEPRECIATION WILL ALSO BE ALLOWED WHERE INTANGIBLE ASSETS ARE OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND ARE USED BY SUCH ASSE SSEE FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION. INTANGIBLE ASSETS, SUCH AS KNOW-HOW, PATENT RIGHTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHIS ES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF THE ASSESSEE WILL FORM A SEPAR ATE BLOCK OF ASSETS. AS AND WHEN ANY CAPITAL EXPENDITURE IS INCURRED BY AN ASSESSEE ON ACQUIRING SUCH INTANGIBLE ASSETS THE AMOUNT OF SUCH EXPENDITU RE WILL BE ADDED TO THE BLOCK OF INTANGIBLE ASSETS AND DEPRECIATION WILL BE CLAIMED ON THE WRITTEN DOWN VALUE AT THE END OF THE FINANCIAL YEAR. AS A CONSEQUENCE OF THIS AMENDMENT, IT IS PROPOSED TO PROVIDE THAT ANY EXPENDITURE OF A CAPITAL NATURE INCURRED BEFORE THE 1ST APRIL, 1998 ON THE ACQUISITION OF PATENT RIGHTS OR COPYRIGHTS USED FOR THE PURPOSES OF BUSINESS SHALL NOT QUALIFY FOR DEDUCTION UNDER THE SAID SECT ION 35A.IT IS ALSO PROPOSED TO AMEND SUB-SECTION (1) OF SECTION 35AB ACCORDINGL Y SO AS TO RESTRICT THE PROVISIONS OF THAT SECTION TO LUMPSUM PAYMENTS BY T HE ASSESSEE IN ANY PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1998-99. THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 1 999 AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 1 999-2000 AND SUBSEQUENT YEARS. 8.7 FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE WA S ENTITLED TO THE DEPRECIATION ON THE INTANGIBLE ASSETS ON THE COST I NCURRED BY IT ON ITS ACQUISITION. THERE WAS NO DIFFERENTIATION WHETHER I T IS AVAILABLE TO THE INDUSTRIAL UNDERTAKING OR OTHERWISE. 8.8 HOWEVER WE FIND THAT THE AO HAS LIMITED THE DED UCTION OF THE DEPRECIATION IN RESPECT OF KNOW-HOW ONLY CONCERNING THE INDUSTRIAL UNDERTAKING. MORE SPECIFICALLY THE AO IN THE INSTAN T CASE CONCLUDED THAT THE KNOW-HOW USED CONCERNING INDUSTRIAL UNDERTAKING WOU LD BE ELIGIBLE FOR THE DEPRECIATION. AS PER THE AO INDUSTRIAL UNDERTAKING MEANS THE FACTORY WHERE THE MANUFACTURING ACTIVITIES ARE CARRIED ON BY THE ASSESSEE. WE FURTHER OBSERVE THAT THE ASSESSEE IN THE INSTANT CASE HAS N OT ACQUIRED THE FACTORY OF ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 18 AFL. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE A SSESSEE IS NOT CARRYING OUT ANY INDUSTRIAL ACTIVITY. 8.9 HOWEVER, THE AO ALSO OBSERVED THAT AFL WAS ALSO NOT CARRYING OUT ANY INDUSTRIAL ACTIVITY ON THE GROUND THAT IT WAS JUST ENGAGED IN THE ACTIVITY OF STITCHING THE FABRICS WHICH WERE MANUFACTURED BY AR VIND MILLS LTD. IN VIEW OF THE ABOVE, THE AO WAS OF THE VIEW THAT THE ASSES SEE IS NOT ELIGIBLE FOR THE DEPRECIATION ON THE TECHNICAL KNOW-HOW AS DISCUSSED ABOVE. 8.10 HOWEVER WE DISAGREE WITH THE CONTENTIONS OF TH E AO ON THE GROUND THAT THE USE OF TECHNICAL KNOW-HOW IS NOT LIMITED T O ANY INDUSTRIAL UNDERTAKING. AS SUCH THE USE OF TECHNICAL KNOW-HOW IS ALSO AVAILABLE EVEN TO THE BUSINESS ACTIVITIES WHERE THERE WAS NO MANUFACT URING ACTIVITY. IN OUR CONSIDERED VIEW THE AO HAS TAKEN A NARROW MEANING O F THE TECHNICAL KNOW- HOW ON THE BASIS OF EXPLANATION 4 TO SECTION 32 OF THE ACT. 8.11 THE PURPOSE FOR THE DEPRECIATION ON THE INTANG IBLE ASSETS HAS BEEN EXPLAINED IN THE MEMORANDUM OF THE FINANCE ACT TO 1 998, AND THERE WAS NO SUCH LIMITATION PROVIDED FOR THE ALLOWABILITY OF TH E DEPRECIATION ON TECHNICAL KNOW-HOW. THEREFORE WE ARE NOT INCLINED TO UPHOLD T HE FINDING OF THE AO THAT THE DEPRECIATION ON THE TECHNICAL KNOW-HOW IS AVAIL ABLE ONLY IN RELATION TO THE INDUSTRIAL UNDERTAKING. 9. THE 2 ND QUESTION FRAMED BY THE AO WAS THAT WHETHER THE ASS ESSEE HAS ACQUIRED ANY DESIGN AND TECHNICAL KNOW-HOW FROM AFL. IN THIS REGARD, WE FIND THAT THE ASSESSEE CLAIMED T O HAVE ACQUIRED DESIGNS AND TECHNICAL KNOW-HOW FROM AFL AS DETAILED UNDER: ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 19 6.1 DESIGN AND TECHNICAL KNOW-HOW (TKH) DESIGN REFERS TO THE. VISUAL IMAGE THAT WOULD BE EX ECUTED ON A PIECE OF CLOTH WITH THE REQUIRED TECHNICAL KNOW-HOW. DESIGN &: TKH HAS BEEN VALUED TOGETHER AS THEY ARE COMPLEMENTARY ASSETS AND TOGET HER PROVIDE A BETTER LOGIC FOR THE VALUE ARRIVED. THE PROCESS OF DESIGN IS FAIRLY ELABORATE AND EXTENDS FROM CONCEPTUALIZATION OF THE PRODUCT TO PR OVIDING THE PROTOCOL FOR COMMERCIAL PRODUCTION AND COULD INCLUDE THE FOLLOWI NG: 1. UNDERSTANDING THE VALUE PROPOSITION OF THE BRAND 2. BRAND PSYCHOLOGY/CUSTOMER DEMOGRAPHICS 3. UNDERSTANDING THE COMPETITION BRANDS FROM DESIGN PE RSPECTIVE - MARKET ASSESSMENT 4. PROCESS OF DESIGN FORECASTING 5. CONCEPTUALIZATION (FROM PAST SEASONS TRANSLATION OF CONCEPT TO DESIGN) 6. BRAND WISE TREND FORECASTING EXERCISE: (10 MAIN CON CEPTS THAT CAN BE (SPOTTED IN CURRENT RANGES) 7. UNDERSTANDING THE FABRICS: WOVEN, DENIM, KNITWEAR 8. UNDERSTANDING THE DESIGN PERSPECTIVE IN SELECTION 9. PROCESS OF DESIGN PRESENTATION AND DOCKETS 10. USE OF VARIETY OF SOFTWARE IN DESIGN 11. PROCESS OF CONVERSION OF DESIGN INTO ACTUAL SAMPLE 12. SHIRTS -PATTERN MAKING 13. DENIM-PATTERN MAKING 14. CONVERSION OF DESIGN .IN TERMS OF WASHES-WASHING UN IT 15. FINISHING-SAMPLING UNIT. 9.1 FROM THE ABOVE WE NOTE THAT THE ASSESSEE HAS NE VER CLAIMED TO HAVE ACQUIRED ANY DESIGNS FROM AFL. RATHER WE FIND THAT AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND AFL THAT THE ASSESSEE SHAL L PROVIDE THE DESIGN TO AFL. THE RELEVANT EXTRACT OF THE AGREEMENT IS REPRO DUCED AS UNDER: 6.1 VFABPL SHALL PROVIDE THE DESIGNS, RAW MATERIAL S, TRIMS AND ALL OTHER COMPONENTS FOR MANUFACTURING THE PRODUCTS (IT BEING UNDERSTOOD THAT AFL WILL PROVIDE ALL ITEMS NEEDED FOR THE MANUFACTURING PROCESS, INCLUDING CUTTING, SEWING LAUNDERING AND FINISHING) AS PER TH E ORDERS AT ITS OWN COST 9.2 MOREOVER THE QUESTION AS DISCUSSED ABOVE WAS FR AMED BY THE AO HIMSELF WHICH WAS ALSO ANSWERED BY HIM. BUT THE AO HAS NOT POINTED OUT ANY ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 20 DEFECT IN THE SUBMISSION MADE BY THE ASSESSEE DURIN G ASSESSMENT PROCEEDINGS AS DISCUSSED ABOVE. 9.3 WE ALSO NOTE THAT THE PATTERN OF DESIGN KEEPS O N CHANGING VERY RAPIDLY IN THE GARMENT INDUSTRY AND THERE CANNOT BE ANY PER MANENT DESIGNS WHICH WILL PREVAIL IN THE MARKET BEYOND THE PARTICULAR POINT O F TIME. AS SUCH WE ARE OF THE VIEW THAT THERE CANNOT BE ANY FIXED PATTERN OF ANY DESIGN FOR ANY PARTICULAR CLASS OF THE PEOPLE. ACCORDINGLY, WE ARE NOT IMPRES SED WITH THE FINDING OF THE AO THAT THERE WAS NO DESIGN AND TECHNICAL KNOW-HOW ACQUIRED BY THE ASSESSEE. 10. THE 3 RD QUESTION FRAMED BY THE AO WAS THAT WHETHER THE ASS ESSEE HAS USED TECHNICAL KNOW-HOW ACQUIRED FROM AFL. IN THIS REGARD, WE FIND THAT THE ASSESSEE HAS ACQUI RED THE FACTORY OF AFL ON CONTRACT WHEREIN IT WAS AGREED THAT THE AFL SHOULD GIVE PRIORITY TO THE WORK OF THE ASSESSEE ASSIGNED TO IT WHICH WILL BE EXECUT ED UNDER ITS SUPERVISION. THE RELEVANT CLAUSES OF THE AGREEMENT ARE REPRODUCE D AS UNDER: AGREEMENT TO MANUFACTURE PRODUCTS THIS AGREEMENT IS ENTERED INTO ON THE 1 ST DAY OF SEPTEMBER, 2006 BY AND BETWEEN 1. ARVIND FASHIONS LIMITED, A COMPANY INCORPORATED UND ER THE LAWS OF INDIA HAVING ITS REGISTERED OFFICE AT THE ARVIND MI LLS NARODA ROAD, RAILWAYPURA POST AHMEDABAD 380 025 INDIA HEREINAFTE R REFERRED STO AS AFL (WHICH TERM MEANS AND INCLUDES ITS SUCCES SORS AND ASSIGNS) AND 2. VF ARVIND BRANDS PVT. LTD. A COMPANY INCORPORATED U NDER THE LAWS OF INDIA AND HAVING ITS REGISTERED OFFICE AT ARVIND MI LLS PREMISES, ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 21 NARODA ROAD, AHMEDABAD 380025 HEREINAFTER REFERRED TO AS VFABPL (WHICH MEANS AND INCLUDES ITS SUCCESSORS AND ASSIGNS). WHEREAS 1. AFL IS IN THE BUSINESS OF MANUFACTURING AND MARKETI NG APPAREL IN INDIA AND OTHER COUNTRIES AND FOR THIS PURPOSE HAS A MANUFACTURING SET UP CONSISTING OF LAND, BUILDING AND MACHINERY M ORE FULLY DECRIBED IN ANNEXURE 1 ATTACHED HERETO. 2. VFABPL IS A JOINT VENTURE COMPANY INVOLVED IN THE M ARKETING OF APPAREL IN INDIA AND OTHER COUNTRIES AND REQUIRES A COMMITTED MANUFACTURING FACILITY FOR THE PURPOSE OF MANUFACTU RING ITS PRODUCTS. 3. VFABPL NOW DESIRES TO APPOINT AFL TO MANUFACTURE PR ODUCTS FOR VFABPL USING ITS FACTORY FOR THIS PURPOSE AND AFL I S AGREEABLE TO ACCEPT SUCH APPOINTMENT AND GIVE FIRST PRIORITY TO ORDERS PLACED BY VEABPL ON THE FOLLOWING TERMS AND CONDITIONS. NOW THIS AGREEMENT RECORDS AS FOLLOWS 1. DEFINITIONS 1.1 EFFECTIVE DATE MEANS CLOSE OF BUSINESS AUGUST 31, 2006, THE DATE ON WHICH THIS AGREEMENT COMES INTO FULL FORCE AND E FFECT. 1.2 FACTORY MEANS THE COMPOSITE OPERATIONAL MANUFACTU RING UNIT, INCLUDING WITHOUT LIMITATION, THE LAUNDRY, HAND FIN ISHING, SAND BLASTING AND EFFLUENT TREATMENT PLANT, OF AFL WHICH CONSISTS OF THE LAND, BUILDING, MACHINERY AND PEOPLE INCLUDING WORK ERS SITUATED AT NO.12, 4 TH CROSS, BOMMASANDRA INDUSTRIAL AREA, HOSUR ROAD, BANGALORE 560 099 MORE FULLY DESCRIBED IN ANNEXURE 1 TO THIS AGREEMENT. 1.3 TRADEMARKS SHALL MEAN THE VARIOUS TRADEMARKS LICE NSED TO VFABPL WHICH ARE REQUIRED TO BE PUT INTO THE PRODUC TS. 1.4 PRODUCTS MEANS THE VARIOUS PRODUCTS ORDERED TO BE MANUFACTURED BY VFABPL AT THE FACTORY BY AFL. 1.5 ORDERS MEANS THE ORDERS FOR MANUFACTURING RAISED BY VFABPL FROM TIME TO TIME WHICH ARE DULY ACCEPTED BY AFL. 1.6 INVESTMENT MEANS RS.147.15 MILLION WHICH AMOUNT H AS BEEN AGREED BY THE PARTIES TO BE THE MARKET VALUE AS SPE CIFIED IN ANNEXURE 1 OF ALL MACHINERY, LAND AND BUILDING, AND OTHER AS SETS OF THE FACTORY. THE INVESTMENT SHALL BE INCREASED BY ANY AMOUNT OF ADDITIONAL CAPITAL EXPENDITURE MADE BY AFL IN THE FACTORY AT THE BEHES T OF VFABPL IN ACCORDANCE WITH CLAUSE 7.6. 2. TERM AND RENEWAL ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 22 THIS AGREEMENT SHALL BE IN FULL FORCE FROM THE EFFE CTIVE DATE FOR A PERIOD OF 3 YEARS UNLESS TERMINATED IN WRITING BY EITHER P ARTY AS PROVIDED FOR HEREIN 3. APPOINTMENT FOR MANUFACTURING PRODUCTS VFABPL HEREBY APPOINTS AFL FOR MANUFACTURING PRODUC TS AS PER THE ORDERS FROM THE FACTORY, SUCH APPOINTMENT SHALL BE FROM THE EFFECTIVE DATE FOR THE ENTIRE TERM OF THIS AGREEMENT FOR THE CONSIDERATION STIPULATED BELOW. 4. ORDERS VFABPL SHALL PERIODICALLY RELEASE ORDERS IN FAVOUR OF AFL STIPULATING THEREIN THE PRODUCTS TO BE MANUFACTURED, RATE AND D ELIVERY SCHEDULE WHICH WHEN ACCEPTED BY AFL SHALL BE DULY EXECUTED B Y AFL. 5. OBLIGATIONS OF AFL 5.1 AFL SHALL ENSURE THE FACTORY IS IN GOOD WORKING CON DITION AT ALL TIMES AND THAT IT COMPLIES WITH THE VF TERMS OF ENGAGEMEN T A COPY OF WHICH HAS BEEN MADE AVAILABLE TO AND SIGNED BY AFL. 5.2 AFL SHALL MAKE EVERY EFFORT TO ENSURE THAT THE PROD UCTS MANUFACTURED ARE OF THE QUALITY REQUIRED BY VFABPL. FURTHER, AFL SHALL DELIVER ALL ORDERS TO SUCH PLACE AS NOTIFIED/ COMMUNICATED BY V FABPL TO AFL. 5.3 AFL SHALL GIVE FIRST PRIORITY TO ORDERS RECEIVED F ROM VFABPL AND SHALL TAKE ON ORDERS FROM THIRD PARTIES SUBJECT TO THE SAME. 5.4 AFL SHALL PROVIDE ALL DIRECT AND INDIRECT LABOUR FO R THE OPERATION OF THE FACTORY AND SHALL TAKE DIRECTION FOR VFABPL AS TO INCREASING OR DECREASING DIRECT AND INDIRECT LABOUR AT THE FACTOR Y NECESSARY TO FULFILL VFABPLS PRODUCTION REQUIREMENTS. ALL SUCH LABOUR SHALL BE EMPLOYED BY AFL AND VFABPL SHALL HAVE NO OBLIGATION TO ANY SUCH EMPLOYEES AS AN EMPLOYER OR OTHERWISE. AFL SHALL IN DEMNITY VFABPL FROM AN AGAINST ANY AND ALL CLAIMS BY ANY SU CH EMPLOYEE. 10.1 FROM THE ABOVE AGREEMENT IT IS TRANSPIRED THAT AFL POSSESSED THE RICH EXPERIENCE IN THE FIELD OF STITCHING OF THE GARMENT S. AS A RESULT OF THE AGREEMENT AS DISCUSSED ABOVE THE FACTORY OF AFL WAS WORKING EXCLUSIVELY FOR THE ASSESSEE. THUS IT IS IMPLIED THAT THE ASSESSEE WILL USE ALL THE BENEFITS HELD BY THE FACTORY OF AFL. THUS WE ARE OF THE VIEW THAT THE TECHNICAL KNOW-HOW ACQUIRED BY THE ASSESSEE FROM AFL WAS USED FOR ITS BUSINESS ACTIVITY. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 23 10.2 BESIDES THE ABOVE WE NOTE THAT THE ASSESSEE HA S ALSO GIVEN WORKS ON A CONTRACT BASIS TO THE OUTSIDE JOB WORKERS WHO WERE WORKING EXCLUSIVELY FOR THE ASSESSEE. THESE JOB WORKERS WERE PERFORMING THE WORK FOR THE ASSESSEE IN THE MANNER IN WHICH THE FACTORY OF AFL WAS DOING TH E WORK FOR THE ASSESSEE. THEREFORE IT IS INFERRED THAT THE PROCEDURES TAKEN BY THE ASSESSEE FROM AFL WERE USED FOR THE WORK ASSIGNED TO SUCH OUTSIDE JOB WORKERS. THE LIST OF SUCH JOBS WORKER IS PLACED ON PAGE 195 OF THE PAPER BOOK . THEREFORE WE ARE OF THE VIEW THAT THE DESIGN AND TECHNICAL KNOW-HOW ACQUIRE D BY THE ASSESSEE FROM AFL WERE USED FOR ITS BUSINESS ACTIVITIES. THE LIST OF THE JOB WORKER IS REPRODUCED AS UNDER: DETAILS OF JOB-WORKERS: JOB WORKER NAME JOB WORK CHARGES % SHARE 1. ARVIND FASHIONS LTD FACTORY 145,037,091 67% 2. DIVINITEE GENESIS APPAREL PVT. LTD. 7,067,728 3% 3. TRINITY APPARELS 5,550,448 3% 4. S R FASHION 4,534,597 2% 5. DEVKI DESIGNS 4,060,842 2% 6. SILK FASHION EXPORT 3,996,205 2% 7. SREE SHILPA APPARELS 3,619,944 2% 8. SHOHA DESIGNS PVT. LTD. 3,517,318 2% 9. SRI VINAYAKA APPARELS 3,143,776 1% 10. NARAYAN APPARELS PVT. LTD. 3,013,344 1% 11. WHITE HORSE FASHIONS 2,967,453 1% 12. PRATHIBA FASHIONS 2,371,271 1% ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 24 13. SONETRA GARMENTS 2,191,295 1% 14. AMRUTHA CREATION 1,612,715 1% 15. A. R. KOLOR KRAFT 1,423,522 1% 16. MAX COLORS 1,394,196 1% 17. DHATRI KREATIONS 1,364,366 1% 18. MEGHA GARMENTS PVT. LTD. 1,319,743 1% 19. SREERAM AND SONS 1,176,460 1% 20. OTHER SMALL JOB WORKERS AROUND 70 NOS. 16,996,882 8% GRAND TOTAL 216,359,196 VENDOR AND CUSTOMER RELATIONSHIP 10.3 IN THIS REGARD WE NOTE THAT THE ASSESSEE HAS A CQUIRED A LOT OF VENDORS AND CUSTOMERS WHICH WERE GENERATED BY AFL OVER A LO NG PERIOD OF TIME. HOWEVER, THE ASSESSEE HAS ACQUIRED SUCH RELATIONSHI P WITH THE VENDOR AND CUSTOMER OF AFL INSTANTLY ON THE ACQUISITION OF THE BUSINESS OF AFL. ACCORDINGLY, THE ASSESSEE HAS PAID A CERTAIN SUM OF MONEY TO AFL FOR THE ACQUISITION OF SUCH RELATIONSHIPS. WE FIND IMPORTAN T TO REFER THE DETAILS OF THE VENDOR AND CUSTOMER RELATIONSHIP ACQUIRED BY THE AS SESSEE WHICH ARE REPRODUCED UNDER: 6.2 VENDOR RELATIONSHIPS VENDOR RELATIONSHIPS REFER TO THE RELATIONSHIP WITH THE EXISTING SET OF V VALUATION. THE KEY VENDORS CONSIDERED FOR THE PURPO SE OF VALUATION ARE. 6.2.1 JOB WORKERS NETWORK I JOB WORKERS NETWORK IS AN INTEGRAL COMPONENT OF GAR MENTS BUSINESS. THEY PROVIDE THE SERVICE OF MAKING GARMENTS USUALLY BASE D ON THE DESIGN PROVIDED BY THE CUSTOMERS AND ARE COMPENSATED ON A PER GARME NT BASIS. OF ALL THE ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 25 VENDORS, JOB WORKERS ARE OF HIGH IMPORTANCE AS DESC RIBED IN THE SUBSEQUENT PARAGRAPHS. VENDOR NO OF VENDORS (AS TRANSFERRED) JOB WORKERS 87 6.2.2 FABRIC & TRIMS SUPPLIERS: THEY CONSTITUTE THE RAW MATERIAL SUPPLIERS THAT WOU LD INCLUDE FABRIC AND ACCESSORIES AND ARE USUALLY EMPANELLED BASED ON THE NATURE OF REQUIREMENT, QUALITY PARAMETERS AND TIMELINESS OF USUAL DELIVERY . VENDOR NOS OF VENDORS (AS TRANSFERRED) FABRICS 58 RIMS 77 6.2.3 ADVERTISEMENT VENDORS: PROVIDE THE SERVICE OF ADVERTISING AND PROMOTING TH E PRODUCTS. VENDOR NO'S OF VENDORS (AS TRANSFERRED) ADVERTISEMENT 232 6.2.4 OF THE ABOVE VENDORS, JOB WORKERS HOLD A PROM INENT POSITION DUE TO THE NATURE OF THEIR INVOLVEMENT. IN, MANY INSTANCES JOB-WORKERS ARE DEDICATED TO THE PARENT COMPANY AND CONDUCT NO OTHE R BUSINESS. HENCE THEIR BUSINESS, PROCESS, KEY PEOPLE ARE ALIGNED WITH THE REQUIREMENTS OF THE PARENT COMPANY. WHILE CREATING A POOL OF SUCH CONTRACT MAN UFACTURERS, THE PARENT COMPANY INVESTS A SIGNIFICANT AMOUNT OF TIME NOT JU ST IN SELECTION AND TRIALS (AS WOULD BE APPLICABLE FOR ANY GROUP OF VENDORS) B UT ALSO IN TRAINING, QUALITY CONTROL, ADVISE ON TECHNOLOGY, MANAGEMENT, ETC. IN A BUSINESS SUCH AS THIS, JOB WORKERS ARE INTEGRAL TO THE BUSINESS O F THE PARENT COMPANY. TYPICALLY, THE VALUE ATTRIBUTABLE TO SUCH A GROUP O F VENDORS IS HIGHER, AS IT WOULD INVOLVE SIGNIFICANT INVESTMENT OF PEOPLE AND COST TO INDUCT AND CULTIVATE SUCH A VENDOR GROUP. IT IS UNDERSTOOD THAT THE FACTORY AT AFL WOULD PRIN CIPALLY BE A VENDOR TO VFABL. IN THE EVENT OF UNDER-UTILIZATION OF THE CAP ACITIES -BY VFABL, AFL IS FREE TO UNDERTAKE GARMENT PRODUCTION ON BEHALF OF 3 RD PARTIES. WE HAVE CONSIDERED AFL'S FACTORY AS A JOB WORKER, AND THE V ALUE ADDITION MADE BY THIS FACTORY IS INCLUDED IN THE TOTAL VALUE OF THE JOB WORKERS. 6.2.5 OTHER VENDOR GROUPS SUCH AS SUPPLIER OF FABRI CS & TRIMS AXE ALSO OF BENE6T TO THE PARENT COMPANY PROVIDING MINOR PRICE CONCESSIONS OR ENSURING ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 26 DELIVERY ON TIME AND OF REQUIRED QUALITY. HOWEVER D IE EXTENT OF INVOLVEMENT, INFLUENCE AND CONTROL OF THE PARENT COMPANY IS FAIR LY LIMITED. THESE ARE PRINCIPALLY PRODUCT OR COMMODITY SUPPLIERS NOT EXCL USIVE TO AFL, ABUNDANTLY AVAILABLE IN THE MARKET AND HAVE LOW SWITCHING COST . 6.2.6 OTHER VENDORS' VIZ. CAPITAL GOODS, TRADED GOO DS & OTHERS ARE NOT CONSIDERED AS THEY CAN BE EASILY ESTABLISHED AND AR E NOT SPECIFIC TO THE BUSINESS. 6.3 CUSTOMER CONTRACTS AND RELATIONSHIPS CUSTOMER CONTRACTS REFER TO THE SALES CONTRACT WITH THE EXISTING CUSTOMERS AS ON DATE OF VALUATION AND CUSTOMER RELATIONSHIPS REF ER TO THE EXPECTED REVENUE STREAM GENERATION FROM THE EXISTING CUSTOMERS THAT ARE NOT CONTRACTED. THE KEY CUSTOMER RELATIONSHIPS CONSIDERED FOR VALUATION ARE: 6.3.1 MULTI-BRAND OUTLET (MBO): MBO'S ARE THIRD PAR TY OWNED OUTLETS AND FORMS A MAJOR PART OF THE RETAIL SEGMENT IN THE UNO RGANIZED MARKET. IT SHOWCASES SALES PRODUCTS OF DIFFERENT BRANDS. MBO'S ARE ONE OF THE MAIN CHANNELS OF SALES OF VFABL BECAUSE OF THEIR PRESENC E ON HI-STREET. FOR THE YEAR 2005-06, MBO'S CONTRIBUTED 26% OF THE TOTAL SA LES TO AFL. THE SALES TRANSACTIONS WITH MBO'S WERE CARRIED OUT DIRECTLY BY VFABPL UNTIL RECENTLY, WHEN THE COMPANY DECIDED TO TRANSACT THROUGH DIE DISTRIBUTORS. TODAY VFABPL HAS 18 DISTRIBUTORS WHO MANAGE THE NETWORK OF THE ENTIRE MBO SYSTEM. SALES CHANNEL NO. OF STORES % CONTRIBUTION TO SALES MBO'S 325 26% (FOR THE YEAR 2005-05) 6.3.2 EXCLUSIVE BRAND OUTLETS (EBOS): EBO'S ARE SHOPS OR OUTLETS, WHETHER LEASED OR OWNED, THAT ARE CREATED, RUN AND OPERATED, BY AFL. EBO'S ARE RETAIL STORES THAT EXCLUSIVELY SELL PRODUCTS OF VFABPL. IT MAY BE PERTINENT TO MENTION THAT THESE EBOS WERE NOT TRANS FERRED AS PART OF BUSINESS, BUT WOULD ACT AS FRANCHISEES OF VFABPL IN DIE FUTURE. SALES CHANNEL NO. OF STORES % CONTRIBUTION TO SALES EBO'S 39 20% (FOR THE YEAR 2005-06) ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 27 6.3.3 EXCLUSIVE OUTLET ON PURCHASE (EOF): EOP'S ARE FRANCHISEE'S BELONGING TO AFL THAT HAS BEEN TRANSFERRED AS PART OF THE BUSINESS. THESE FRANCHISEES ARE EXCLUSIVE TO VFABL PRODUCTS & BRAND S. SALES CHANNEL NO. OF STORES % CONTRIBUTION TO SALES EOP'S 51 16% (FOR THE YEAR 2005-06) 6.3.4 KEY ACCOUNTS (KA): KA IS A LARGER VERSION OF AN MBO AND FORM A MAJOR PART IN THE RETAIL SEGMENT OF THE ORGANIZED M ARKET. TYPICALLY THESE REPRESENT THE LARGE FORMAT RETAIL CHAINS THATHAVE G ROWN SIGNIFICANTLY IN THE RECENT PAST. FOLLOWING THE CURRENT TREND OF RISING INCOMES AND INCREASED URBANIZATION, KA ARE A SIGNIFICANT SALES CHANNEL FO R ALL BRANDED PRODUCTS. SALES CHANNEL NO. OF STORES % CONTRIBUTION TO SALES KEY ACCOUNTS 60 20% (FOR THE YEAR 2005-06) 6.3.5 OTHER SALES CHANNELS VIZ. THIRD PARTY OUTL ET (TPO), INSTITUTIONAL SALES, AND EXPORTS ARE NOT CONSIDERED FOR THE CURRE NT EXERCISE AS THE BENEFITS REALIZED ARE LIMITED AND EFFORT AND TIME REQUIRED F OR AGGREGATION IS MINIMAL . 10.4 THUS FROM THE ABOVE IT IS CLEAR THAT THE ASSES SEE HAS MADE THE PAYMENT TO AFL FOR THE INTANGIBLE ASSETS WHICH WERE CREATED BY THE AFL OVER A PERIOD OF TIME. THEREFORE WE ARE OF THE VIEW THAT THE CONS IDERATION PAID BY THE ASSESSEE IS REPRESENTING THE BENEFITS WHICH IT IS G OING TO USE FOR ITS BUSINESS PURPOSES. WE ALSO NOTE THAT IN THE SIMILAR FACTS AN D CIRCUMSTANCES THE HONBLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA L TD. DCIT REPORTED IN 345 ITR 421 AFTER OBSERVING THE FACTS HAS HELD AS UNDER : FACTS AS OBSERVED (IV) THE BUSINESS OF THE TRANSFEROR WAS ACQUIRED BY THE ASSESSEE COMPANY FOR A TOTAL SALE CONSIDERATION OF RS.44.7 CRORES. ON BIFU RCATION, IT IS REVEALED THAT THE TANGIBLE ASSETS WERE TRANSFERRED FOR A NET VALU E OF RS. 28.11 CRORES. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 28 (V) THE EXCESS AMOUNT OF RS. 16,58,76,000/- WAS CLA IMED AS PAYMENT MADE BY THE ASSESSEE COMPANY FOR ACQUISITION OF VARIOUS BUSINES S AND COMMERCIAL RIGHTS CATEGORIZED UNDER THE SEPARATE HEAD, NAMELY, 'GOODW ILL' IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THESE BUSINESS AND COMMERC IAL RIGHTS COMPRISED OF THE FOLLOWING: BUSINESS CLAIMS; BUSINESS INFORMATIO N; BUSINESS RECORDS; CONTRACTS; SKILLED EMPLOYEES; KNOWHOW. (VI) THE ASSESSEE COMPANY WHILE FILING ITS RETURN F OR THE RELEVANT ASSESSMENT YEAR 2005-06 CLAIMED DEPRECIATION UNDER SECTION 32(1)(II ) OF THE ACT WITH RESPECT TO THE AFORESAID AMOUNT OF RS. 16,58,76,000/- AS BE ING A PRICE PAID FOR ACQUISITION OF ABOVE MENTIONED INTANGIBLE ASSETS. (VII) THE ASSESSING OFFICER(AO) WHILE COMPLETING TH E ASSESSMENT UNDER SECTION 143(3) OF THE ACT DISALLOWED THE DEPRECIATION ON 'G OODWILL' AS CLAIMED IN THE RETURN VIDE ORDER DATED 28TH DECEMBER, 2007. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE COMPANY ON TWO GROUNDS, NAMELY, (A) DE PRECIATION UNDER SECTION 32(2)(II) IS NOT AVAILABLE ON GOODWILL; (B) THE ASS ESSEE COMPANY WAS UNABLE TO DEMONSTRATE THAT THE AMOUNT OF RS. 16,58,76,000/- S HOWN AS GOODWILL IN THE BOOKS OF ACCOUNTS WAS IN FACT A PAYMENT MADE TOWARD S ACQUIRING OF 'CERTAIN BUSINESS AND COMMERCIAL RIGHTS' AND THEREFORE ELIGI BLE FOR DEPRECIATION IN TAX AS PER SECTION 32(1)(II) OF THE ACT. JUDGMENT 16. IN THESE APPEALS, THE ITAT, RELYING UPON THE DECISI ON IN ASSESSEE'S OWN CASE ITA NO.336/DEL/08 DATED 6TH JULY, 2009 PERTAINING T O ASSESSMENT YEAR 2005- 06, HELD:- '5. ON CAREFUL CONSIDERATION OF RIVAL SUBMISSION, W E ARE OF VIEW THAT LEARNED CIT(APPEALS) HAS RIGHTLY ALLOWED RELIEF TO THE ASSE SSEE AFTER CONSIDERING RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE. THE A SSESSEE HAS NOT CLAIMED DEPRECIATION ON GOODWILL IT ACQUIRED COMMERCIAL RIG HTS TO SELL PRODUCTS UNDER THE TRADE NAME AND PAID CONSIDERATION IN DISP UTE FOR ACQUIRING MARKETING AND TERRITORIAL RIGHTS TO SELL THROUGH DE ALERS AND DISTRIBUTORS I.E. THE NETWORK CREATED BY THE SELLER FOR SALE IN INDIA . UNDER THE AGREEMENT. IT BECOME ENTITLED TO USE OF INFRASTRUCTURE DEVELOPED BY THE SELLER. RIGHTS WERE ACQUIRED SINCE 1.4.1998 AND THESE RIGHTS HAVE ALL A LONG BEEN TREATED AS AN ASSET ENTITLED TO DEPRECIATION AND DEPRECIATION WAS ACTUALLY ALLOWED IN THE PAST. THE LEARNED ASSESSING OFFICER, IN OUR VIEW WA S NOT CORRECT IN MAKING A DEPARTURE FROM THE PAST AND IN HOLDING THAT PAYMENT WAS MADE FOR ACQUISITION OF 'GOODWILL'. PAYMENT HAD BEEN MADE FO R ACQUISITION OF COMMERCIAL RIGHTS ON WHICH DEPRECIATION IS PERMISSI BLE. THE ASSESSING OFFICER WAS FURTHER NOT JUSTIFIED IN TREATING ENTRI ES IN THE BOOKS OF ACCOUNT AS CONCLUSIVE AND IN TAKING PAYMENT IN DISPUTE AS CONS IDERATION FOR ACQUISITION OF GOODWILL. IT IS NOW MORE OF LESS SETTLED THAT EN TRIES IN BOOKS CANNOT BE ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 29 TREATED AS CONCLUSIVE AND TRUE NATURE OF TRANSACTIO N HAS TO BE DETERMINED WITH REFERENCE TO LAW. THE LEARNED CIT(A) IN THE IM PUGNED ORDER EXAMINED THE ISSUE WITH REFERENCE TO AGREEMENT AND FOUND THA T PAYMENT WAS MADE FOR ACQUISITION OF COMMERCIAL RIGHTS. ON FACTS AND CIRC UMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR IN THE APPROACH OF THE LEARNE D CIT(A). HIS ACTION IS HEREBY CONFIRMED.' 17. IN VIEW OF THE FOREGOING DISCUSSION, IT IS SEEN THA T THE ASSESSEE IN THE PRESENT APPEALS HAD NOT CLAIMED DEPRECIATION ON 'GO ODWILL' BUT ON THE COMMERCIAL RIGHTS ACQUIRED TO SELL PRODUCTS UNDER T HE TRADE NAME AND THROUGH THE NETWORK CREATED BY THE SELLER FOR SALE IN INDIA . IT IS FURTHER OBSERVED THAT THE AO WAS NOT CORRECT IN HOLDING THAT PAYMENT WAS MADE FOR ACQUISITION OF 'GOODWILL'. PAYMENT HAD, IN FACT, BEEN MADE FOR ACQ UISITION OF COMMERCIAL RIGHTS ON WHICH DEPRECIATION IS PERMISSIBLE. IN THE CIRCUMSTANCES, THESE APPEALS ARE DISMISSED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10.5 WE ALSO FIND SUPPORT FROM THE ORDER OF THIS TR IBUNAL IN THE CASE OF ACIT VS. ARVIND BRANDS LTD. IN ITA NO. 3080/AHD/201 0 WHEREIN IT WAS HELD AS UNDER: 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GO NE THROUGH THE RECORDS. BEFORE US, THE LEARNED AR OF THE ASSESSEE REITERATE D THE SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPP ORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A). THE LEARNED DR, ON THE OTHER HAND, ITA NO.3080/AHD/2010 ITO VS. ARVIND BRANDS LTD. ASST.YE AR - 2005- 06 SUPPORTED THE IMPUGNED ORDER OF THE ASSESSING OF FICER. THE MOOT QUESTION THAT IS TO BE DECIDED WHETHER THE DEPRECIATION CLAI MED ON THE INTANGIBLE ASSETS AMOUNTING TO RS.12,03,12,500 WHICH RELATES T O THESE TWO ASSETS IN THE NAMES OF BRAND NAME 'ARVIND' AND 'MARKETING AND DIS TRIBUTION NETWORK IS ALLOWABLE U/S.32(1)(II) OF THE INCOME-TAX ACT, 1961 . GOING THROUGH THE SAID SECTION, IT IS VERY MUCH CLEAR THAT THIS SECTION IN CLUDES KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR AN Y OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIB LE ASSETS. THE REVENUE IS NOT DISPUTING THAT THE ASSESSEE HAS ACQUIRED THESE TWO INTANGIBLE ASSETS IN QUESTION UNDER AN AGREEMENT. THE ITEMS MENTIONED IN SECTION 32(1)(II) ARE WIDE ENOUGH SO AS TO INCLUDE THESE TYPES OF INTANGI BLE ASSETS UNDER CONSIDERATION. THEREFORE, IN OUR CONSIDERED VIEW, T HE LEARNED CIT(A) HAS RIGHTLY ALLOWED THE DEPRECIATION CLAIMED BY THE ASS ESSEE AND AS SUCH, IT NEEDS NO INTERFERENCE. 10.6 IN ADDITION TO THE ABOVE, WE NOTE THAT THERE I S NO DISPUTE WITH REGARD TO THE ACQUISITION OF AFL BY THE ASSESSEE COMPANY AS D ISCUSSED ABOVE. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 30 ACCORDINGLY, THE CONSIDERATION WAS PAID BY THE ASSE SSEE TO AFL WHICH HAS ALSO NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. TH US IT IS APPARENT THAT THE ASSESSEE HAS INCURRED EXPENDITURES IN THE CONNECTIO N OF ITS BUSINESS. IT IS SETTLED LAW THAT THE EXPENSES INCURRED BY THE ASSES SEE FOR THE PURPOSE OF THE BUSINESS ARE ELIGIBLE FOR DEDUCTION UNDER DIFFERENT PROVISIONS OF THE ACT. THESE DEDUCTIONS HAVE BEEN SPECIFIED UNDER SECTIONS 30 TO 38 OF THE INCOME TAX ACT. FOR EXAMPLE, IF THE ASSESSEE ACQUIRES ANY CAPITAL ASSETS, THEN IT IS ELIGIBLE FOR A DEDUCTION OF THE DEPRECIATION UNDER SECTION 32 OF THE ACT. SIMILARLY, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION F OR REPAIR AND MAINTENANCE UNDER SECTION 30 OF THE ACT. 10.7 WE ALSO NOTE THAT IN SOME CASES EVEN THE DEFER RED REVENUE EXPENDITURES HAVE BEEN ALLOWED THROUGHOUT THE USEFUL LIFE OF THE RIGHTS ACQUIRED BY THE ASSESSEE. IN THIS REGARD, WE FIND SUPPORT AND GUIDA NCE FROM THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TAPARIA TO OLS LTD. VS. JCIT REPORTED IN 372 ITR 605 WHEREIN IT WAS HELD AS UND ER: 17. THUS, THE FIRST THING WHICH IS TO BE NOTICED IS TH AT THOUGH THE ENTIRE EXPENDITURE WAS INCURRED IN THAT YEAR, IT WAS THE A SSESSEE WHO WANTED THE SPREAD OVER. THE COURT WAS CONSCIOUS OF THE PRINCIP LE THAT NORMALLY REVENUE EXPENDITURE IS TO BE ALLOWED IN THE SAME YEAR IN WH ICH IT IS INCURRED, BUT AT THE INSTANCE OF THE ASSESSEE, WHO WANTED SPREADING OVER, THE COURT AGREED TO ALLOW THE ASSESSEE THAT BENEFIT WHEN IT WAS FOUND T HAT THERE WAS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY OVER THE ENT IRE PERIOD. 18. WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY THE O RDINARY RULE IS TO BE APPLIED, NAMELY, REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS, IF THE ASSESSEE CLAIMS THAT EXPENDITURE IN THAT YEAR, THE IT DEPARTMENT CANNOT DENY THE SAME. HOWEV ER, IN THOSE CASES WHERE THE ASSESSEE HIMSELF WANTS TO SPREAD THE EXPE NDITURE OVER A PERIOD OF ENSUING YEARS, IT CAN BE ALLOWED ONLY IF THE PRINCI PLE OF 'MATCHING CONCEPT' IS SATISFIED, WHICH UPTO NOW HAS BEEN RESTRICTED TO THE CASES OF DEBENTURES. 19. IN THE INSTANT CASE, AS NOTICED ABOVE, THE ASSESSE E DID NOT WANT SPREAD OVER OF THIS EXPENDITURE OVER A PERIOD OF FIVE YEAR S AS IN THE RETURN FILED BY IT, IT HAD CLAIMED THE ENTIRE INTEREST PAID UPFRONT AS DEDUCTIBLE EXPENDITURE IN ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 31 THE SAME YEAR. IN SUCH A SITUATION, WHEN THIS COURS E OF ACTION WAS PERMISSIBLE IN LAW TO THE ASSESSEE AS IT WAS IN CON SONANCE WITH THE PROVISIONS OF THE ACT WHICH PERMIT THE ASSESSEE TO CLAIM THE EXPENDITURE IN THE YEAR IN WHICH IT WAS INCURRED, MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN THE BOOKS OF ACCOUNT CANNOT BE A FACTOR WH ICH WOULD DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE EXPENDITURE AS A DEDUCTION. IT HAS BEEN HELD REPEATEDLY BY THIS COURT THAT ENTRIES IN THE B OOKS OF ACCOUNT ARE NOT DETERMINATIVE OR CONCLUSIVE AND THE MATTER IS TO BE EXAMINED ON THE TOUCHSTONE OF PROVISIONS CONTAINED IN THE ACT [SEE - KEDARNATH JUTE MFG. CO.LTD. V. CIT [1971] 82 ITR 363 (SC) ; TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT [1997] 227 ITR 172/93 TAXMA N 502 (SC) ; SUTLEJ COTTON MILLS LTD. V. CIT [1979] 116 ITR 1 (SC) AND UNITED COMMERCIAL BANK V. CIT [1999] 240 ITR 355/106 TAXMAN 601 (SC) . 20. AT THE MOST, AN INFERENCE CAN BE DRAWN THAT BY SHO WING THIS EXPENDITURE IN A SPREAD OVER MANNER IN THE BOOKS OF ACCOUNT, TH E ASSESSEE HAD INITIALLY INTENDED TO MAKE SUCH AN OPTION. HOWEVER, IT ABANDO NED THE SAME BEFORE REACHING THE CRUCIAL STAGE, INASMUCH AS, IN THE INC OME TAX RETURN FILED BY THE ASSESSEE, IT CHOSE TO CLAIM THE ENTIRE EXPENDITURE IN THE YEAR IN WHICH IT WAS SPENT/PAID BY INVOKING THE PROVISIONS OF SECTION 36 (1)(III) OF THE ACT. ONCE A RETURN IN THAT MANNER WAS FILED, THE AO WAS BOUND T O CARRY OUT THE ASSESSMENT BY APPLYING THE PROVISIONS OF THAT ACT A ND NOT TO GO BEYOND THE SAID RETURN. THERE IS NO ESTOPPEL AGAINST THE STATU TE AND THE ACT ENABLES AND ENTITLES THE ASSESSEE TO CLAIM THE ENTIRE EXPENDITU RE IN THE MANNER IT IS CLAIMED. 21. IN VIEW OF THE AFORESAID DISCUSSION, WE ARE OF THE OPINION THAT THE JUDGMENT AND THE ORDERS OF THE HIGH COURT AND THE A UTHORITIES BELOW DO NOT LAY DOWN CORRECT POSITION IN LAW. THE ASSESSEE WOUL D BE ENTITLED TO DEDUCTION OF THE ENTIRE EXPENDITURE OF RS. 2,72,25,000 AND RS . 55,00,000 RESPECTIVELY IN THE YEAR IN WHICH THE AMOUNT WAS ACTUALLY PAID. THE APPEALS ARE ALLOWED IN THE AFORESAID TERMS WITH NO ORDERS AS TO COSTS. 10.8 IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT T HE EXPENDITURES INCURRED BY THE ASSESSEE HAVE TO BE ALLOWED AS A DEDUCTION I N ONE OR THE OTHER WAY. 11. NOW COMING TO THE OTHER FACTS OF THE INSTANT CA SE WE NOTE THAT THE AO HAS NOT CHALLENGED THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE INTANGIBLE ASSETS IN CONNECTION WITH THE BUSINESS OF THE ASSES SEE. THE VALUATION DETERMINED BY THE ASSESSEE FOR THE DIFFERENT ASSET ACQUIRED BY THE ASSESSEE WAS ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 32 ALSO NOT DISPUTED BY THE AO. THEREFORE IN OUR CONSI DERED VIEW, IT IS AN ESTABLISHED FACT THAT THE ASSESSEE HAS INCURRED THE COST WHICH HAS NOT BEEN DISPUTED. THE ENTIRE TRANSACTIONS AS DISCUSSED ABOV E ARE BASED ON THE AGREEMENTS BETWEEN THE ASSESSEE AND AFL WHICH ARE P LACED ON PAGES 196 TO 202 OF THE PAPER BOOK. 11.1 SIMILARLY THERE IS A VALUATION REPORT ALLOCATI NG THE PURCHASE CONSIDERATION PAID BY THE ASSESSEE TO AFL WHICH HAS NOT BEEN DISPUTED BY THE AO. THE COPY OF THE VALUATION REPORT IS PLACED ON P AGES 159 TO 194 OF THE PAPER BOOK. 12. THE NEXT QUESTION ARISES ABOUT THE ALLOWABILITY OF THE COST INCURRED BY THE ASSESSEE IN CONNECTION WITH THE BUSINESS. IN OU R VIEW, SUCH DEDUCTIONS CANNOT BE DISALLOWED ON A TECHNICAL BASIS. SUPPOSIN G THE ASSESSEE DOES NOT ALLOCATE THE EXPENSES UNDER THE HEAD DESIGN AND TEC HNICAL KNOW-HOW AND IT PREFERS TO ALLOCATE THE SAME UNDER THE HEAD GOODWIL L. THERE IS NO DISPUTE FOR THE DEPRECIATION ON THE GOODWILL AS HELD BY THE HON OURABLE SUPREME COURT IN THE CASE OF SEMIFS SECURITIES LTD. REPORTED IN 348 ITR 302 WHEREIN IT WAS HELD AS UNDER: 4. EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' S HALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMA RKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE. A READING THE WORDS 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF S IMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILA R NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRE TING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). 5. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 'GOO DWILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. 6. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. IN THE PR ESENT CASE, THE ASSESSING OFFICER, AS A MATTER OF FACT, CAME TO THE CONCLUSION THAT NO AMOUNT ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 33 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 ABOV E TWO COMPANIES; THAT THE ASSETS AND LIABILITIES OF M/S. YSN SHARES AND S ECURITIES PRIVATE LIMITED WERE TRANSFERRED TO THE ASSESSEE FOR A CONSIDERATIO N; THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMOUNT PAID CO NSTITUTED GOODWILL AND THAT THE ASSESSEE-COMPANY IN THE PROCESS OF AMALGAM ATION HAD ACQUIRED A CAPITAL RIGHT IN THE FORM OF GOODWILL BECAUSE OF WH ICH 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. 7. ONE MORE ASPECT WHICH NEEDS TO BE MENTIONED IS THA T, AGAINST THE DECISION OF ITAT, THE REVENUE HAD PREFERRED AN APPEAL TO THE HIGH COURT IN WHICH IT HAD RAISED ONLY THE QUESTION AS TO WHETHER GOODWILL IS AN ASSET UNDER SECTION 32 OF THE ACT. IN THE CIRCUMSTANCES, BEFORE THE HIG H COURT, THE REVENUE DID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREINABOVE. 8. FOR THE AFORE-STATED REASONS, WE ANSWER QUESTION N O.[B] ALSO IN FAVOUR OF THE ASSESSEE. 12.1 THUS IN OUR CONSIDERED VIEW THERE COULD NOT HA VE BEEN ANY DISPUTE REGARDING THE CLAIM OF DEPRECIATION ON THE GOODWILL AS DISCUSSED ABOVE. THEREFORE IN OUR CONSIDERED VIEW, THE EXPENSES INCU RRED BY THE ASSESSEE IN CONNECTION WITH THE BUSINESS CANNOT BE DISALLOWED M ERELY ON THE GROUND THAT THESE HAVE BEEN CLAIMED UNDER DIFFERENT NOMENCLATUR AL. THUS WE HOLD THAT THE EXPENSES HAVE BEEN INCURRED FOR THE BUSINESS THEN T HE DEDUCTION HAS TO BE ALLOWED TO THE ASSESSEE UNDER THE PROVISIONS OF THE ACT. 12.2 WE ALSO NOTE THAT THE ASSESSEE HAS CLAIMED DEP RECIATION ON THE SAME INTANGIBLE ASSETS IN THE IMMEDIATELY PRECEDING YEAR IN ITS INCOME TAX RETURN WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT . THUS IT IS CLEAR THAT THERE WAS WRITTEN DOWN VALUE OF THESE INTANGIBLE AS SETS WHICH WERE BROUGHT FORWARD IN THE YEAR UNDER CONSIDERATION. THUS IN OU R CONSIDERED VIEW THE OPENING WRITTEN DOWN VALUE IN THE YEAR CANNOT BE DI SPUTED. IN THIS REGARD WE ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 34 FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE HIGH COURT OF BOMBAY IN CASE OF HSBC ASSET MANAGEMENT INDIA PVT. LTD. REPORTED IN 47 TAXMANN.COM 286 WHEREIN IT WAS HELD AS UNDER: HAVING PERUSED THIS APPEAL MEMO INCLUDING THE IMPU GNED ORDERS, WE ARE OF THE OPINION THAT THE DELHI HIGH COURT JUDGMENT H AS BEEN DELIVERED ON 5TH NOVEMBER 2012 AND THE IMPUGNED ORDER WAS PASSED ON 15TH JUNE 2011. THE TRIBUNAL HAS ESSENTIALLY BASED ITS CONCLUSION ON TH E CONSISTENT STAND OF THE ASSESSEE AND THAT OF THE ASSESSING OFFICER. IN DEAL ING WITH THE SHIFT IN STAND FOR THE SUBJECT ASSESSMENT YEAR, THE TRIBUNAL FOUND THAT THIS CLAIM OF DEPRECIATION WAS RAISED IN THE ASSESSMENT YEAR 2003 -2004. THE ASSESSEE CLAIMED THAT IT IS ALLOWABLE AS PER THE PROVISIONS OF INCOME TAX ACT ON BLOCK OF ASSETS UNDER THE HEAD 'INTANGIBLE ASSETS'. THE A SSESSING OFFICER ALLOWED THE CLAIM FOR THAT ASSESSMENT YEAR BY AN ORDER UNDE R SECTION 143(3) DATED 28.03.2006. THE TRIBUNAL THEN, PROCEEDS TO HOLD THA T WHEN THE ASSESSING OFFICER HAD TO ALLOW DEPRECIATION ON THE WRITTEN DO WN VALUE OF THE BLOCK OF ASSETS, THEN, IT CANNOT IN THE PRESENT ASSESSMENT Y EAR DISPUTE THE OPENING WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS NOR CAN H E EXAMINE THE CORRECTNESS OR OTHERWISE OF THE OPENING WRITTEN DOWN VALUE BROU GHT FORWARD FROM THE EARLIER YEAR. THE ORDER UNDER SECTION 143(3) FOR TH E ASSESSMENT YEAR 2003- 2004 CONTINUES TO OPERATE AND NO PROCEEDINGS UNDER THE ACT WERE INITIATED TO DISTURB THE SAME. 12.3 WE ALSO NOTE THAT THE LD. DR HAVE NOT BROUGHT ANYTHING ON RECORDS SUGGESTING THAT ANY ACTION AGAINST THE ASSESSEE WAS TAKEN UNDER SECTION 147 OF THE ACT ON ACCOUNT OF ESCAPEMENT OF INCOME. 12.4 IN VIEW OF ABOVE THERE REMAINS NO AMBIGUITY TH AT THE ASSESSEE IS ELIGIBLE FOR THE DEPRECIATION IN RESPECT OF THE INT ANGIBLE ASSETS AS DISCUSSED ABOVE. ACCORDINGLY, WE DO NOT FIND ANY REASON TO IN TERFERE IN THE ORDER OF LD. CIT(A). 12.5. THUS THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 35 13. THE NEXT ISSUE RAISED BY THE REVENUE IN THIS AP PEAL IS THAT LD. CIT(A) ERRED ALLOWING THE DEPRECIATION BY RESTORING THE MA TTER TO THE FILE OF AO FOR EXAMINING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF T HE DEPRECIATION ON GOODWILL. 14. THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR DATED 1-6-2006 ACQUIRED THE BUSINESS OF AFL ON SLUMP SALE BASIS. T HE ASSESSEE PAID A LUMP SUM CONSIDERATION OF RS. 1816.53 MILLION WHICH WAS ALLOCATED BY IT ON VARIOUS ASSETS INCLUDING THE GOODWILL OF RS. 469 MI LLION. BUT THE ASSESSEE DID NOT CLAIM ANY DEPRECIATION ON THE GOODWILL ON THE G ROUND THAT THE ISSUE ON THE DEPRECIATION OF GOODWILL WAS NOT SETTLED AT THAT RE LEVANT TIME. AS SUCH THERE WERE MANY LITIGATIONS ON THE ISSUE OF DEPRECIATION ON THE GOODWILL WHICH WAS PENDING BEFORE VARIOUS COURTS. HOWEVER THE ASSESSEE DURING THE HEARING BEFORE THE LD. CIT(A) FOUND THAT THE ISSUE OF DEPRE CIATION ON GOODWILL HAS BEEN SETTLED BY THE JUDGMENT OF HONBLE SUPREME COU RT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD REPORTED IN 348 ITR 302. A CCORDINGLY THE ASSESSEE CLAIMED DEPRECIATION 1 ST TIME BEFORE THE LD. CIT(A). HOWEVER THE LD. CIT(A) AFTER CONSIDERING THE SUBMIS SION OF THE ASSESSEE RESTORED THE ISSUE TO THE FILE OF AO FOR EXAMINING THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE HONBLE SUPREME COURT JUDGMENT AS DISCUSSED ABOVE. THE RELEVANT EXTRACT OF THE ORDER OF LD. CIT(A) IS EXTR ACTED OF UNDER: I HAVE CONSIDERED THE ABOVE REFERRED CONTENTIONS OF THE APPELLANT. IT IS SEEN THAT THE CLAIM FOR DEPRECIATION ON THE AMOUNT OF GO ODWILL WAS NOT MADE BEFORE THE A.O OR IN THE RETURN OF INCOME. THE CLAI M HAS BEEN RAISED FOR THE FIRST TIME IN THE GROUNDS OF APPEAL. HENCE THE A.O HAS NOT BEEN GIVEN AN OPPORTUNITY TO EXAMINE THIS CLAIM. I HAVE GONE THRO UGH THE RATIO LAID DOWN IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. REPORTED AT 348 ITR 302[SC]. THE FACT REMAINS THAT ANY SUBORDINATE JUDICIAL AUTHORIT Y HAS TO FOLLOW THE RATIO LAID DOWN BY THE SUPERIOR JUDICIAL AUTHORITY. THE C LAIM NOW MADE BY ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 36 APPELLANT IS SUPPORTED BY RECENT DECISION OF HONBL E SUPREME COURT, THEREFORE, THE A.O IS DIRECTED TO CONSIDER THIS CLA IM IN THE LIGHT OF THE DECISION OF APEX COURT REFERRED TO ABOVE AND PASS A SPEAKING ORDER. THE ORDER OF APPEAL IS, THEREFORE ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) BOTH REV ENUE AND ASSESSEE ARE IN APPEAL BEFORE US. 15. THE REVENUE IS IN APPEAL AGAINST THE DIRECTION OF THE LD. CIT(A) WHEREAS THE ASSESSEE IS IN ITS CO AGAINST THE DIREC TION OF LD. CIT(A) THAT HE HAS NOT ALLOWED THE CLAIM OF THE DEPRECIATION ON GO ODWILL. BOTH THE PARTIES BEFORE US RELIED ON THE ORDER OF A UTHORITIES BELOW AS FAVORABLE TO THEM. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS THE UNDISPUTED FACT THAT THE ASSES SEE DID NOT CLAIM THE DEPRECIATION ON GOODWILL IN ITS INCOME TAX RETURN A S WELL AS BEFORE THE AO DURING ASSESSMENT PROCEEDING U/S 143(3) OF THE ACT. THE REASON GIVEN BY THE ASSESSEE IS THAT THERE WAS A LOT OF LITIGATION ON T HE ISSUE OF DEPRECIATION ON GOODWILL. TO AVOID SUCH LITIGATION ASSESSEE NOT CLA IMED DEPRECIATION ON GOODWILL. HOWEVER AT THE TIME OF HEARING BEFORE THE LD. CIT(A) THE ASSESSEE FOUND THAT THE HONBLE SUPREME COURT HAS SETTLED TH E ISSUE OF DEPRECIATION ON THE GOODWILL IN THE CASE OF CIT VS. SMIFS SECURITIE S LTD. REPORTED IN 348 ITR 302. THEREFORE THE ASSESSEE 1 ST TIME CLAIMED THE DEDUCTION BEFORE THE LD. CIT(A). 16.1 NOW THE ISSUE BEFORE US ARISES WHETHER THE ASS ESSEE CAN CLAIM THE DEDUCTION BEFORE THE LD. CIT(A) WHICH WAS NOT CLAIM ED IN THE INCOME TAX ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 37 RETURN AS WELL AS BEFORE THE AO. IN THIS REGARD, WE NOTE THAT THE ISSUE OF DEPRECIATION ON GOODWILL WAS SUBJECT TO LITIGATION AT VARIOUS COURTS. THEREFORE THE SAME WAS NOT CLAIMED BY THE ASSESSEE IN THE INC OME TAX RETURN. HOWEVER AT THE TIME OF HEARING BEFORE THE LD. CIT(A) THE HO NBLE SUPREME COURT HAS GIVEN THE RULING THAT THE DEPRECIATION ON GOODWILL IS ALLOWED. THEREFORE THE DEDUCTION WAS CLAIMED. THE SCHEME OF THE INCOME TAX ACT REQUIRES THAT THE ASSESSEE IS LIABLE TO PAY TAX ON THE INCOME WHICH I S CHARGEABLE TO TAX. SIMILARLY, THE ASSESSEE IS ENTITLED TO THE DEDUCTIO NS WHICH ARE ELIGIBLE UNDER THE PROVISIONS OF THE ACT. THE HONBLE SUPREME COUR T HAS SETTLED THE ISSUE ON THE ISSUE OF DEPRECIATION ON THE GOODWILL BEYOND DO UBT THAT THE ASSESSEES CLAIM OF THE DEPRECIATION ON GOODWILL IS RIGHTFUL C LAIM WHICH HAS TO BE ALLOWED TO THE ASSESSEE. IN THIS REGARD, WE FIND SU PPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF JU TE CORPORATION OF INDIA LTD. VS. CIT REPORTED IN 187 ITR 688 WHEREIN IT WAS HELD AS UNDER: THE ACT DOES NOT CONTAIN ANY EXPRESS PROVISION DEB ARRING AN ASSESSEE FROM RAISING AN ADDITIONAL GROUND IN APPEAL AND THERE IS NO PROVISION IN THE ACT PLACING RESTRICTION ON THE POWER OF THE APPELLATE A UTHORITY IN ENTERTAINING AN ADDITIONAL GROUND IN APPEAL. IN THE ABSENSE OF ANY STATUTORY PROVISION, THE GENERAL PRINCIPLE RELATING TO THE AMPLITUDE OF APPE LLATE AUTHORITY'S POWER BEING CO-TERMINUS WITH THAT OF THE INITIAL AUTHORIT Y SHOULD NORMALLY BE APPLICABLE. IF THE TAX LIABILITY OF THE ASSESSEE IS ADMITTED AND IF THE ITO IS AFFORDED OPPORTUNITY OF HEARING BY THE APPELLATE AU THORITY IN ALLOWING THE ASSESSEE'S CLAIM FOR DEDUCTION ON THE SETTLED VIEW OF LAW, THERE APPEARS TO BE NO GOOD REASON TO CURTAIL THE POWERS OF THE APPELLA TE AUTHORITY UNDER SECTION 251(1)(A). EVEN OTHERWISE AN APPELLATE AUTHORITY WH ILE HEARING APPEAL AGAINST THE ORDER OF SUBORDINATE AUTHORITY HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTIO N BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATIONS, IF ANY, PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISION THE APPELLAT E AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHICH THE SUBORDINATE AUTHOR ITY MAY HAVE IN THE MATTER. THERE APPEARED TO BE NO GOOD REASON TO JUST IFY CURTAILMENT OF THE POWER OF THE AAC IN ENTERTAINING AN ADDITIONAL GROU ND RAISED BY THE ASSESSEE IN SEEKING MODIFICATION OF THE ORDER OF AS SESSMENT PASSED BY THE ITO. THERE MAY BE SEVERAL FACTORS JUSTIFYING RAISIN G OF SUCH NEW PLEA IN APPEAL, AND EACH CASE HAS TO BE CONSIDERED ON ITS O WN FACTS. IF THE AAC IS ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 38 SATISFIED HE WOULD BE ACTING WITHIN HIS JURISDICTIO N IN CONSIDERING THE QUESTION SO RAISED IN ALL ITS ASPECTS. OF COURSE, W HILE PERMITTING THE ASSESSEE TO RAISE AN ADDITIONAL GROUND, THE AAC SHOULD EXERC ISE HIS DISCRETION IN ACCORDANCE WITH LAW AND REASON. HE MUST BE SATISFIE D THAT THE GROUND RAISED WAS BONA FIDE AND THAT THE SAME COULD NOT HAVE BEEN RAISED EARLIER FOR GOOD REASONS. THE SATISFACTION OF THE AAC DEPENDS UPON T HE FACTS AND CIRCUMSTANCES OF EACH CASE AND NO RIGID PRINCIPLES OR ANY HARD AND FAST RULE CAN BE LAID DOWN FOR THIS PURPOSE. IN THE PRESENT CASE, THE ASSESSEE DID NOT CLAIM ANY DEDUCTION OF ITS LIABILITY TO PAY PURCHASE TAX UNDER THE PROVISIONS OF THE BENGAL RAW JUTE TAXATION ACT, 1941, AS THE ASSESSEE ENTERTAINED A BELIEF THAT IT WAS NOT LIABLE TO PAY PURCHASE TAX UNDER THE AFORESAID ACT. BUT LATER ON IT WAS ASSESSED TO PURCHASE TAX AND THE ASSESSEE DISPUTED THE DEMAND A ND FILED AN APPEAL BEFORE THE APPELLATE AUTHORITY AND OBTAINED STAY OR DER. THE ASSESSEE THEREAFTER CLAIMED DEDUCTION FOR THE SAID AMOUNT TO WARDS HIS LIABILITY TO PAY PURCHASE TAX AS DEDUCTION FOR THE ASSESSMENT YEAR U NDER CONSIDERATION. THE ASSESSEE HAD NOT ACTUALLY PAID THE PURCHASE TAX AS HE HAD OBTAINED STAY FROM THE APPELLATE AUTHORITY. NONETHELESS ITS LIABILITY TO PAY TAX EXISTED AND IT WAS ENTITLED TO THE SAID DEDUCTION. THUS, THE HIGH COURT AND THE TRIBUNAL BOTH COMMITTE D ERROR IN REFUSING TO STATE THE CASE OR MAKING A REFERENCE. THE HIGH COUR T SHOULD BE DIRECTED TO CALL FOR THE STATEMENT OF CASE FROM THE TRIBUNAL AN D THEREUPON DECIDE THE MATTER AFRESH, BUT THIS PROCEDURE WOULD BE TIME CON SUMING. SINCE, THE VIEW TAKEN BY THE TRIBUNAL WAS NOT SUSTAINABLE IN LAW, I T WAS TO BE SET ASIDE AND THE MATTER WAS TO BE REMITTED TO THE TRIBUNAL TO CO NSIDER THE MERIT OF THE DEDUCTION PERMITTED BY THE AAC. 16.2 IN VIEW OF THE ABOVE WE HOLD THAT CLAIM MADE B Y THE ASSESSEE 1 ST TIME BEFORE THE LD. CIT(A) WAS RIGHTFUL CLAIM AND WITHIN THE PROVISIONS OF LAW. 17. THE 2 ND CONTROVERSY ARISES WHETHER THE DEPRECIATION IS ELI GIBLE FOR DEDUCTION ON THE GOODWILL ACQUIRED BY THE ASSESSEE. IN THIS REGARD WE NOTE THAT THE HONBLE SUPREME COURT HAS SETTLED THE ISSU E OF DEPRECIATION ON GOODWILL IN THE CASE DISCUSSED ABOVE. THE RELEVANT JUDGMENT OF THE SUPREME COURT IS EXTRACTED BELOW: 4. EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' S HALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMA RKS, LICENCES, FRANCHISES ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 39 OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE. A READING THE WORDS 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF S IMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILA R NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRE TING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). 5. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 'GOO DWILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. 6. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. IN THE PR ESENT 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 ABOV E TWO COMPANIES; THAT THE ASSETS AND LIABILITIES OF M/S. YSN SHARES AND S ECURITIES PRIVATE LIMITED WERE TRANSFERRED TO THE ASSESSEE FOR A CONSIDERATIO N; THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMOUNT PAID CO NSTITUTED GOODWILL AND THAT THE ASSESSEE-COMPANY IN THE PROCESS OF AMALGAM ATION HAD ACQUIRED A CAPITAL RIGHT IN THE FORM OF GOODWILL BECAUSE OF WH ICH 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. 7. ONE MORE ASPECT WHICH NEEDS TO BE MENTIONED IS THA T, AGAINST THE DECISION OF ITAT, THE REVENUE HAD PREFERRED AN APPEAL TO THE HIGH COURT IN WHICH IT HAD RAISED ONLY THE QUESTION AS TO WHETHER GOODWILL IS AN ASSET UNDER SECTION 32 OF THE ACT. IN THE CIRCUMSTANCES, BEFORE THE HIG H COURT, THE REVENUE DID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREINABOVE. 8. FOR THE AFORE-STATED REASONS, WE ANSWER QUESTION N O.[B] ALSO IN FAVOUR OF THE ASSESSEE. 17.1 IN VIEW OF ABOVE WE HOLD THAT THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEPRECIATION ON THE GOODWILL. THEREFORE WE ALLOW TH E CLAIM OF THE ASSESSEE RAISED IN ITS C0. ACCORDINGLY WE DISMISSED THE GROUND OF APPEAL RAISED BY THE REVENUE. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 40 18. NEXT ISSUE RAISED BY REVENUE IS THAT LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,21,74,000/- ON ACCOUNT OF PRO VISION FOR OBSOLETE INVENTORY. 19. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S CREATED A PROVISION OF RS. 1,21,74000/- ON ACCOUNT OF OBSOLETE INVENTORY. AS PER THE ASSESSEE, THE MARKET PRICE OF THE INVENTORY WAS REDUCED BELOW THE COST PRICE. THEREFORE THE PROVISION WAS MADE IN THE BOOKS OF ACCOUNTS. HOWEVER, THE ASSESSING OFFICER DISAGREED WITH THE S UBMISSION OF THE ASSESSEE ON THE FOLLOWING REASONS: I. THERE WAS NO VALUATION REPORT FILED BY THE ASSESSEE SUGGESTING THAT THE MARKET RATE OF INVENTORY HAS GONE DOWN BELOW THE CO ST PRICE. THEREFORE THE AO WAS OF THE VIEW THAT THE PROVISION FOR INVEN TORY HAS BEEN MADE ON ESTIMATED BASIS. II. IT WAS THE 2 ND YEAR OF OPERATION OF THE ASSESSEE BUSINESS. THEREF ORE IT WAS NOT POSSIBLE TO CREATE THE PROVISIONS IMMEDIATE LY IN THE 2 ND YEAR FOR THE INVENTORY AS DISCUSSED ABOVE. III. THE PROVISION CREATED BY THE ASSESSEE WAS REPRESENT ING THE UNASCERTAINED LIABILITIES OF THE ASSESSEE. 19.1 IN VIEW OF ABOVE THE AO DISALLOWED THE SAME AN D ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 20. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L D. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE INVENTORY IS IN RESPECT OF WHICH PROVISION WAS CREATED WERE LYING FROM THE LONG-TIME . THE PROVISION WAS MADE IN THE BOOKS OF ACCOUNTS AS PER ACCOUNTING STANDARD 2 ISSUED BY THE ICAI. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 41 20.1 THE INVENTORY WAS SHOWN AT THE MARKET PRICE BY CREATING THE PROVISIONS IN THE BOOKS OF ACCOUNTS. 20.2 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A ND THE SUBMISSION MADE BY THE APPELLANT. THE DISALLOWANCE IS MAINLY MADE O N THE GROUND THAT IT IS A CONTINGENT LIABILITY. HOWEVER, IT IS NOTICED FROM T HE DETAILS FURNISHED BY THE APPELLANT THAT THE APPELLANT HAS MADE VALUATION OF INVENTORIES AND MADE THE PROVISION ON A SYSTEMATIC BASIS. CONSIDERING THAT T HE FINISHED GOODS ARE REPRESENTING VERY OLD STOCK I.E. 3 TO 4 SEASONS FOR WHICH THE APPELLANT HAS MADE PROVISION FOR REDUCTION IN THE VALUE. SIMILARL Y IN RESPECT OF RAW MATERIALS NAMELY FABRICS ALSO THE NON-MOVING AND SA LE MOVING MATERIAL ARE PROVIDED FOR REDUCTION IN VALUE. THUS IT IS A SYSTE MATIC WAY OF VALUING INVENTORY FOR WHICH DETAILS ARE FURNISHED. AS SUCH IT IS NOT CORRECT TO SAY THAT IT IS CONTINGENT LIABILITY PROVIDED BY THE APPELLAN T. THE APPELLANT'S CLAIM IS SUPPORTED BY THE SUPREME COURT DECISION IN THE CASE OF HINDUSTAN ZINC LTD. (SUPRA). THE CIT(A)-VIII, AHMEDABAD IN THE CASE HIT ACHI HOME AND LIFE SOLUTION INDIA LTD. FOR A.Y. 2007-08 VIDE APPELLATE ORDER DATED 23-6-201 IS ON SIMILAR ISSUE AND HAS BEEN SEEN. APART FROM THIS IT IS ALSO SEEN THAT THE APPELLANT HAD TAKEN OVER THE BUSINESS OF ARVIND FAS HIONS LTD. IN THE LAST YEAR AND THAT IT CONSISTS OF STOCK ACQUIRED FROM TH EM. THEREFORE, IT IS NOT CORRECT FOR THE A.O. TO OBSERVE THAT THIS BEING SEC OND YEAR OF OPERATION COMPANY WAS TO BE QUESTIONED ABOUT PROVISIONS MADE FOR DIMINUTION IN VALUE OF INVENTORY. IN VIEW OF FACTS OF THE CASE AND SUPR EME COURT DECISION IN THE CASE OF HINDUSTAN ZINK LTD., THE CLAIM OF APPELLANT IS REASONABLE. A.O. IS DIRECTED TO ALLOW THE DEDUCTION ACCORDINGLY. THIS G ROUND OF APPEAL IS ACCORDINGLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 21. THE LEARNED AR BEFORE US SUBMITTED THAT THE INV ENTORY HELD BY THE COMPANY IS VALUED AT THE END OF THE YEAR AS PER ACC OUNTING STANDARD 2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. SUCH PROVISION WAS MADE IN THE BOOKS OF ACCOUNTS IN RESPECT OF NON-MOVING OR S LOW-MOVING ITEMS OF INVENTORY AFTER MAKING DETAILED TECHNICAL ANALYSIS OF THE REALIZABLE VALUE OF ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 42 SUCH OBSOLETE STOCK. SUCH PROVISION WAS ACTUALLY WR ITTEN OFF IN THE BOOKS OF ACCOUNTS. THE LEARNED AR VEHEMENTLY SUPPORTED THE O RDER OF LEARNED CIT(A). 22. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THA T THE PROVISIONS CANNOT BE ALLOWED WHILE DETERMINING THE INCOME UNDER THE I NCOME TAX ACT. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO . 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION, WE FIND F ROM THE FINANCIAL STATEMENTS FILED BY THE ASSESSEE THAT THE ASSESSEE HAS ACTUALLY WRITTEN OF THE PROVISION CREATED IN RESPECT OF THE INVENTORY IS IN ITS PROFIT AND LOSS ACCOUNT. THE RELEVANT EXTRACT OF THE PROFIT AND LOSS ACCOUNT IS PLACED ON PAGE NO14 OF THE PAPER BOOK WHICH IS REPRODUCED AS UNDER: VF ARVIND BRANDS PRIVATE LTD. SCHEDULES TO ACCOUNTS 2008 01.09.2006 TO 31.03.2007 RS.000 SCHEDULE 16 MANUFACTURING AND OTHER EXPENSES EMPLOYEE COST: SALARIES, BONUS ETC., [INCLUDING PROVISION FOR LEAV E ENCASHMENT RS.1,021 (2007: RS.72) 210,923 61,619 CONTRIBUTION TO PROVIDENT AND OTHER FUNDS [INCLUDIN G PROVISION FOR GRATUITY RS.8,268 (2007: RS. 1,892/-) ] 19,677 7,032 STAFF WELFARE EXPENSES* 5,266 2,092 235,866 70,743 JOB WORK CHARGES 216,354 85,685 STORES AND SPARES CONSUMED 118 556 POWER AND FUEL* 5,327 1,863 RENT [SCHEDULE 19, NOTE 17(B)]* 64,937 8,033 RATES AND TAXES 28,834 18,228 INSURANCE 2426 1,041 REPAIRS AND MAINTENANCE -PLANT AND MACHINERY 9 7 -BUILDINGS 2,818 207 ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 43 -OTHERS 15,202 4,510 CONTRACT LABOUR CHARGES 12,996 5,804 LEGAL AND PROFESSIONAL CHARGES [SCHEDULE 19, NOTE 1 1] 24,360 8,068 COMMUNICATION* 13,429 4,542 TRAVELLING AND CONVEYANCE* 54,069 21,554 COMMISSION ON SALES 12,215 10,133 ADVERTISEMENT AND SALES PROMOTION 225,130 116,847 FREIGHT 30,043 15,672 ROYALTY 77,177 42,937 PROVISION FOR DOUBTFUL DEPOSITS 18,261 15,214 PROVISION FOR OBSOLETE INVENTORY 12,174 1,700 PROVISION OTHERS [SCHEDULE 19, NOTE 20] 10,179 58,756 EXCHANGE LOSS [NET] 1,809 1,789 MISCELLANEOUS* 33,155 15,338 1,096,888 509,227 23.1 WE ALSO NOTE THAT SUCH PROVISION WAS NOT SHOWN AS LIABILITY IN THE BALANCE SHEET. THUS THERE REMAINS NO DOUBT THAT THE PROVISION HAVE ACTUALLY BEEN WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF AC COUNTS. THUS THE PROVISION IS NOT REPRESENTING THE UNASCERTAINED LIA BILITY OF THE ASSESSEE AS ALLEGED BY THE AO. WE ALSO NOTE THAT THE ASSESSEE I N ITS FINANCIAL STATEMENT HAS REDUCED THE PROVISION FROM THE INVENTORY SHOWN IN ITS FINANCIAL STATEMENT. THE RELEVANT EXTRACT OF THE INVENTORY SH OWN IN THE FINANCIAL STATEMENT BY THE ASSESSEE STANDS AS UNDER: SCHEDULE 7 INVENTORIES [SCHEDULE 19, NOTE 1(V)] RAW MATERIALS, PACKING MATERIALS AND ACCESSORIES [INCLUDING IN-TRANSIT: RS.7,340 (2007: RS.2,054] 95,619 78,736 WORK-IN-PROCESS 23,468 19,191 FINISHED GOODS 45,773 155,589 TRADED ITEMS 316,918 105,804 481,778 359,320 13,874 1,700 LESS: PROVISION FOR OBSOLESCENCE 4,67,904 357,620 ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 44 23.2 ONCE THE PROVISION HAS BEEN WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS THAN IN OUR CONSIDERED VIEW THERE WAS NO NEED TO EXAMINE THE VALUATION REPORT. 23.3 IN VIEW OF THE ABOVE WE ARE NOT IMPRESSED WIT H THE FINDING OF LD. AO. HENCE WE DO NOT FIND ANY REASON TO INTER FERE IN THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MAD E BY HIM. THUS THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 23.4 HENCE THE APPEAL OF REVENUE IS DISMISSED. 24. NOW COMING TO THE CROSS OBJECTION RAISED BY TH E ASSESSEE WITH THE FOLLOWING OBJECTION: 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANTS CASE, WHEN ALL THE RELEVANT DOCUMENTS AND FACTS WERE AVAI LABLE BEFORE THE AO AS WELL AS THE LD CIT(A)-XIV, AHMEDABAD, FOR THE PURPO SE OF REACHING THE CONCLUSION TO ALLOW DEPRECIATION OF RS.117.31 MILLI ON ON VALUE OF GOODWILL OF RS.469 MILLION, THEY THEMSELVES SHOULD HAVE ALLOWED THE SAME. THUS, THE APPELLANT COMPANY OUGHT TO HAVE BEEN ALLOWED DEPREC ATION OF RS.117.31 MILLION ON GOODWILL. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LD CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY AO IN RESPECT OF REGISTRATION CHARGES OF RS.3,19,476/-, IN SPITE OF THE HIS OWN OBSERVATION THAT THE CHARGES ARE FOR REGISTRATION TO LEASE DEED FOR THE PURPOSE OF BUSINESS OF ASSESSEE. 3. THE ASSESSEE CARVES LEAVE TO ADD, ALTER, AMEND A ND/OR WITHDRAW ANY GROUND OF GROUNDS OF CROSS OBJECTIONS EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 25. THE 1 ST ISSUE RAISED BY THE ASSESSEE IS THAT LEARNER CIT-A ERRED IN NOT ALLOWING THE DEPRECIATION ON THE GOODWILL 117.31 MILLION. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 45 26. THE ISSUE RAISED BY THE ASSESSEE HAS ALREADY B EEN ADJUDICATED ALONG WITH GROUND OF APPEAL OF THE REVENUE IN PARAG RAPH NUMBER 13 OF THIS ORDER WHEREIN THE ISSUE RAISED BY THE ASSESSEE IN ITS CO WAS ALLOWED. THUS THE GROUND RAISED IN THE CO BY THE ASSESSEE IS ALLOWED. 27. THE 2 ND ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. CIT(A ) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO IN RE SPECT OF REGISTRATION CHARGES OF RS. 3,19,476/- IN RESPECT OF LEASE DEED. 28. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION H AS INCURRED AN EXPENSE OF RS. 3,54,973/- CONNECTION WITH THE LEASE OF THE BUILDING. THE AO TREATED SUCH EXPENSE AS CAPITAL IN NATURE. THERE FORE THE AO DISALLOWED THE SAME AFTER REDUCING THE DEPRECIATION ON SUCH EX PENDITURE. THUS THE AO DISALLOWED THE SUM OF RS. 3,19,476/- AFTER DEPRECI ATION @ 10% AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 29. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE R EGISTRATION CHARGES WERE INCURRED IN RESPECT OF THE BUILDINGS WHICH WER E ACQUIRED ON LEASE. AS SUCH THESE EXPENSES DO NOT REPRESENT ANY CAPITAL EX PENDITURE. THEREFORE THE SAME SHOULD BE ALLOWED AS REVENUE IN NATURE. 29.1 THE LD. CIT-A AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABO VE CONTENTIONS. THE REGISTRATION CHARGES THOUGH RELATE TO PROPERTY, THE SAME ARE FOR REGISTRATION OF LEASE DEED. HOWEVER, THE SAME HAVING RELATION WI TH THE PROPERTY ACQUIRED BY THE APPELLANT ON LEASE, THE ASSESSEE IS ENTITLED TO DEPRECIATION. THEREFORE DISALLOWANCE IS CONFIRMED AND THE GROUND OF APPEAL IS DISMISSED. ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 46 BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE IS IN CO BEFORE US. 30. THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW WHEREAS THE LEARNED AR BEFORE US SUBMITTED THAT THE LEASE EXPENSE DOES NOT PERTAIN TO THE ACQUISITION O F ANY PROPERTY. THEREFORE THE SAME SHOULD BE TREATED AS REVENUE NAT URE. 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE OUT OF SUCH EXPEN DITURE HAS NOT ACQUIRED ANY CAPITAL ASSETS. THEREFORE THE SAME CANNOT BE TR EATED AS CAPITAL IN NATURE. ACCORDINGLY, WE TREAT THEM AS REVENUE EXPEN SES. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE HIGH COURT OF BOMBAY IN CASE OF CINCEITA (P) LTD. REPORTED IN 137 ITR 652 WHEREIN IT WAS HELD AS UNDER: THE IMPUGNED EXPENDITURE DID NOT INVOLVE ANY ELEME NT OF PREMIUM ON THE LEASEHOLD. IT WAS INCURRED ONLY TO DRAW UP AND GET REGISTERED AN EFFECTIVE AND PROPER LEASE DEED AND WOULD HAVE REMAINED THE S AME IRRESPECTIVE OF THE PERIOD OF LEASE, AS LONG AS IT WAS MORE THAN ONE YE AR. FURTHER, THE PERIOD OF LEASE BY ITSELF COULD NOT BE DECISIVE OF THE QUESTI ON WHETHER THE ASSET OR ADVANTAGE SECURED WAS OF AN ENDURING NATURE. ON THE FACTS OF THE INSTANT CASE, THE IMPUGNED EXPENDITURE WAS A REVENUE NATURE 32. IN VIEW OF ABOVE, IT IS CLEAR THAT THE EXPENSE S INCURRED IN RELATION TO THE PROPERTY TAKEN ON LEASE CANNOT BE TREATED AS CAPITAL IN NATURE. THUS THE GROUND RAISED BY THE ASSESSEE IN ITS CO IS ALLOWED . ITA NO.1904/AHD/2013 ARVIND BRANDS PVT. LTD. VS. DCIT(OSD) ASSTT. YEAR 2008-09 47 33. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED, AND THE CO OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 01/01/2019 AT AHMEDABAD. SD/- SD/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 01/01/2019 PRITI YADAV, SR. PS / COPY OF THE ORDER FORWARDED TO : ! ' # / BY ORDER, TRUE COPY $ / # %& ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION : 03-12-2018. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.12.2018. 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S. 27.12.2018 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT.. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.. 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER 9. DATE OF DESPATCH OF THE ORDER 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-XIV, AHMEDABAD. 5. , / DR, ITAT, 6. ! / GUARD FILE.
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