ACIT 12(2)(2), MUMBAI V. GHARDA CHEMICALS LTD, MUMBAI

ITA 111/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3643 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 07-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Wholly owned subsidiary; Valuation report

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./ITA/111/MUM/2015, /ASSESSMENT YEARS: 2011-12 ACIT, CIRCLE-12(2)(2) ROOM NO.363, 3 RD FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. GHARDA CHEMICALS LIMITED GHARDA HOUSE, 48 HILL ROAD, BANDRA (W), MUMBAI-50. PAN: AAACG 1255 E ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI P.O. MEENA-DR ASSESSEE B Y: SHRI KETAN VED / DATE OF HEARING: 16.08.2016 / DATE OF PRONOUNCEMENT:16.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.21.10.2014 OF CIT(A)-19,MU MBAI,THE ASSESSING OFFICER (A.O.) HAS FILED APPEAL THE PRESENT APPEAL .ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF AGRO- CHEMICALS AND PLOYMERS, FILED ITS RETURN OF INCOME ON 30.09.2011 DECLARING TOTAL AT RS.68.37 CRORES.THE AO COMPLETED ASSESSMENT,ON 28.01.2014,U/.S143(3) OF THE ACT,DETERMINING INCOME OF THE ASSESSEE AT RS.103.97CRORES.THE GROUN D OF APPEAL,RAISED BY THE AO,IS ABOUT DELETION OF DISALLOWANCE OF RS.1.02 CRO RES. 2. DURING THE COURSE OF HEARING BEFORE US,AUTHORISED R EPRESENTATIVE(AR)AND DEPARTMENTAL REPRESENTATIVE(DR)AGREED THAT THE ISSU E STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL FOR THE AY.S2000-01,2001-02 ,2003-04,2004-05 AND 2005-06.THE RELEVANT PORTION O F THE ORDER OF THE TRIBUNAL DEALING WITH THE ISSUE IN THE APPEAL FOR THE AY.200 5-06 (ITA/8758/MUM/2010- DTD.29.04.2016) AND SAME READS AS UNDER: 18. GROUND NO.8 PERTAINS TO SECOND TP ADJUSTMENT AND IT IS ABOUT DEPRECIATION OF REGISTRATION RIGHTS AMOUNTING TO RS.5,76,55,986/-AND REGISTRATIO N RIGHTS,VALUED AT RS.67,99,06,271/-.DURING THE TP PROCEEDINGS,THE TPO FOUND THAT THE ASSESSEE HAD ACQUIRED THE REGISTRATION RIGHTS FOR TOTAL AMOUNT OF RS.67.99 CRORES BASED ON ASSETS REV ALUED IN THE BOOKS OF G-USA,AS ON 111/M/15 GHARDA CHEMICALS 2 1.10.2004 WHICH ON 30/09/2004 BEFORE THE VALUATION WAS EQUIVALENT TO RS. 44.92 CRORES.HE HELD ADJUSTMENT OF THE 23.06 CRORES WILL HAVE TO BE MADE ,THAT THE ADJUSTMENT WOULD RESULT IN REWORKING OF CAPITAL LOSS ON LIQUIDATION OF ASSETS AND THE SAME TIME THE CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS BEING REGISTRATION RIGHTS WOUL D HAVE TO BE REDUCED. ON A QUERRY BY THE AO IN THAT REGARD,THE ASSESSEE S TATED THAT IN THE EVENT THE TP ADJUSTMENT PROPOSED BY THE TPO WERE TO BE ACCEPTED CAPITAL LOS S ON LIQUIDATION OF INVESTMENT HELD BY THE ASSESSEE IN G-USA HAD TO BE RECOMPUTED,THAT AFTER D ISALLOWANCE OF REVALUATION OF REGISTRATION RIGHTS THERE WOULD BE A LOSS OF RS. 23.06 CRORES,TH AT THE LOSS SHOULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF IN THE SUBSEQUENT ASSESSMENT YE ARS. AFTER CONSIDERING SUBMISSION OF THE ASSESSEE,THE AO HELD THAT THE ASSESSEE HAD COMPUTED LONG TERM CAPITAL LOSS ON SHARES OF G-USA ON LIQUIDATION OF INVESTMENT, THE AE WAS HUNDRED PERCENT SUBSIDIARY COMPANY OF THE ASSESSEE, THAT IT HAD TAK EN OVER THE 100% SUBSIDIARY COMPANY AND ALL THE ASSETS AND LIABILITIES WERE TAKEN OVER,THAT AS PER THE PROVISIONS OF SECTION 47(IV)/ (V) TRANSACTIONS FROM THE HOLDING COMPANY TO SUBSIDIARY COMPANY OR VICE VERSA WERE NOT REGARDED TRANSFER,THAT PROVISIONS OF SECTION 45 OF THE ACT W ERE NOT APPLICABLE, THAT THE COMPUTATION OF CAPITAL GAINS COULD NOT BE CARRIED OUT IN RESPECT O F TRANSACTIONS WITH THE AE, THAT ADJUSTMENT OF RS.23.06 CRORES WOULD RESULT IN REWORKING OF CAPITA L LOSS,THAT THE VALUE OF REGISTRATION HAD TO BE REDUCED TO RS.44.92 CRORES,THAT THERE WAS A LOSS OF CAPITAL TO THE ASSESSEE.HE FURTHER HELD THAT THE ADJUSTMENT WAS NOT CALLED FOR COMPUTATION OF IN COME UNDER THE HEAD CAPITAL GAINS IN VIEW OF THE PROVISION OF SECTION 47 OF THE ACT,THAT ASSE SSEE WAS NOT ENTITLED TO CARRY FORWARD OF LONG- TERM CAPITAL LOSS AND THE CLAIM MADE BY IT IN THAT REGARD HAD TO BE REJECTED.HE HELD THAT DEPRECIATION WAS TO BE ALLOWED IN RESPECT OF REGIST RATION RIGHT TAKING THE VALUE BEFORE THE REVALUATION OF RS.44.92 CRORES. HE WORKED OUT THE D EPRECIATION @ 25%(RS11.23 CRORES) IS AGAINST THE ASSESSEES CLAIM OF RS.16.99 CRORES. HE DISALLOWED THE CLAIM OF ACCESS DEPRECIATION OF RS.5.76 CRORES AND ADDED THE SAME TO THE TOTAL N O OF THE ASSESSEE.FINALLY THE WDV OF REGISTRATION WAS REVISED AT RS.33.69 CRORES AS ON 3 1.03/2005. 18.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM, IT WAS ARGUED THAT THE ASSESSEE HAD WHOLLY OWNED SUBSIDIARY IN USA,THAT IT HAD REGISTRATION RIGHT IN CFS AND DIACAMBA ,THAT THE REGISTRATION RIGHTS WERE RESTATED IN ITS BOOKS OF ACCOUNTS BY TH E AE AS ON 30/09/2004 ON THE BASIS OF VALUATION ANALYSIS CARRIED OUT BY AN INDEPENDENT EX PERT,THAT THE AE WAS DISSOLVED ON THE LAST DAY OF SEPTEMBER, 2004, THAT UPON DISSOLUTION ALL T HE ASSETS AND LIABILITY OF THE AE WERE DISTRIBUTED TO THE ASSESSEE AT BOOK VALUE, THAT POS T LIQUIDATION THE ASSESSEE CONTINUED THE BUSINESS IN USA THROUGH ITS BRANCHES, THAT THE ASSE TS WERE TAKEN OVER BY THE ASSESSEE INCLUDED INTANGIBLE ASSETS-BEING TO REGISTRATION RIGHTS OF C FS AND DIACA -MBA,THAT THE BOOK VALUE OF THE REGISTRATION WAS RS.67.99 CRORES, THAT THE PESTICID E MARKET OF US WAS A VERY MATURE MARKET WITH THE STRONG REGULATORY REQUIREMENTS, THAT PESTI CIDE REGISTRATION WAS A PRE-REQUISITE FOR ANY OPERATION, THAT AS PER THE PREVALENT LAWS OF USA AS SESSEES WERE REQUIRED TO OBTAIN A REGISTRATION FROM THE US ENVIRONMENTAL PROTECTION A GENCIES, THAT FOR A REGISTRATION THE APPLICANT WOULD BE REQUIRED TO SUBMIT A DOSSIER,THA T THE AE HAD OBTAINED REGISTRATION,THAT THE PRODUCT REGISTRATION WAS REVIEWED ON A PERIODIC BAS IS FOR SAFETY TO HUMAN BEINGS,ANIMALS AND THE ENVIRONMENT,THAT FEES WERE PAYABLE ANNUALLY TO MAINTAIN THE REGISTRATIONS, THAT THE AE HAD INCURRED SIGNIFICANT REGISTRATION COST FOR THE PROD UCTION REGISTRATION AMOUNTING TO USD 1, 28, 6,995.33,THAT THE ABOVE VALUE WAS DULY REFLECTED AS GROSS BLOCK IN THE BOOKS OF THE AE,THAT THE VALUER HAD CONSIDERED THE ACTUAL EXPENDITURE INCURR ED ON ACQUISITION OF REGISTRATION RIGHTS AS ABOVE WHILE VALUING THE REGISTRATION RIGHTS,THAT TH E AE HAD MEMBERSHIP OF THREE PROFESSIONAL TASK FORCE AGENCIES FORMED UNDER FEDERAL INSECTICID E,FUNGICIDE,AND RODENTICIDE ACT,THAT THE MEMBERSHIP OF THE ABOVE AGENCIES WAS ESSENTIAL TO M AINTAIN THE REGISTRATION OF CPF AND DIACAMBA, THAT THE ELIGIBILITY TO SELL THE PRODUCTS BY THE ASSESSEE IN USA DEPENDED SOLELY ON THE OWNERSHIP OF THE REGISTRATION RIGHTS OF THE PRO DUCTS AS REQUIRED BY THE LAW OF THAT COUNTRY, THAT THE AO/TPO HAD MADE AN ADJUSTMENT OF RS. 23.06 CRORES BY REJECTING THE VALUATION OF REGISTRATION RIGHTS BY AN INDEPENDENT EXPERT VALUE, THAT THE TPO HAD NOT READ THE VALUATION REPORT IN PROPER PERSPECTIVE, THAT THE ASSESSEE HAD REQUESTED THE VALUER TO FURTHER CLARIFY THE VALUATION REPORT, THAT THE VALUER HAD REPORTED THAT ACCURATE DETERMINATION OF ACTUALLY STUDY 111/M/15 GHARDA CHEMICALS 3 COSTS PAID BY THE THAT ORDER WAS KEY IN PREPARING T HE BASIS FOR VALUING THE TOTAL NEGOTIATED SETTLEMENT PAID BY THE FELLOW ON REGISTRATION, THAT THE ASSESSEE HAD INCURRED COST OF USD1,28,16,995 AND FURTHER SUM OF USD30,62,311 WAS ALSO SPENT,THAT AE HAD INCURRED EXPENDITURE OF USD 1,58,79,306 AND NOT USD 97,33,6 79 AS ADOPTED BY THE TPO,THAT THE BUSINESS OF THE ASSESSEE WAS GROWING FROM YEAR TO Y EAR. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE MADE AN APPLICATION FOR ADMISSION OF ADDIT IONAL EVIDENCES UNDER RULE 46AOF THE INCOME TAX RULES, 1962.AFTER ADMITTING THE ADDITION AL EVIDENCES, THE FAA FORWARDED A COPY OF THE DOCUMENTS TO THE TPO FOR HIS COMMENTS. THE TPO FILED HIS COMMENTS IN THAT REGARD. AFTER CONSIDERING THE AVAILABLE MATERIAL,THE FAA HE LD THAT THE ASSESSEE HAD A WHOLLY OWNED SUBSIDY IN USA,THAT THE AE HELD REGISTRATION RIGHTS IN TWO PRODUCTS,THAT THE RIGHTS WERE REVALUED IN THE BOOKS OF THE AE AS ON 1.1.2004 BASE D ON VALUERS REPORT, THAT THE REGISTRATION RIGHTS WERE REVALUED FROM RS. 44.29 CRORES TO RS. 6 7.99 CRORES,THAT THE AE WAS DISSOLVED ON 30/09/2004, THAT UPON DISSOLUTION ALL THE ASSETS AN D THE LIABILITIES OF THE AE WERE TAKEN BY THE ASSESSEE AT THE BOOK WILL YOU WHICH INCLUDED VALUE OF REGISTRATION RIGHTS ARE TO BE 67.99 CRORES,THAT THE TPO HAD MADE AN ADJUSTMENT OF RS. 2 3.06 CRORES TO THE CONSIDERATION PAID BY THE ASSESSEE ON ACQUISITION OF THE ASSETS AND LIABI LITIES OF THE AE BY IGNORING THE REVALUATION OF THE REGISTRATION RIGHTS,THAT A SUM OF USD30,62,311W AS SPENT ON MEMBERSHIP FEES AND INCIDENTAL EXPENSES, THAT THOSE EXPENSES WERE INCUR RED MUCH PRIOR TO THE YEAR 2004, THAT THERE WAS INFLATION AND RISK PREMIUM FACTOR ATTACHED TO I T, THAT SAME HAD TO BE FACTORED IN, THAT THE TPO IN HIS REMAND REPORT HAD NOT DISPUTED THE ACTUA L EXPENDITURE INCURRED BY THE AE, THAT HE HAD ALSO NOT DISPUTED THE CONTENTS OF THE VARIOUS C LARIFICATIONS PROVIDED BY THE VALUER,THAT THE AE WAS IN A POSITION TO TRANSFER OR ASSIGN THE REGI STRATION TO ITS SUCCESSOR OR TO ANY THIRD PARTY WHICH ACQUIRED RESPECTIVE REGISTRATIONS,THAT THE OB SERVATIONS MADE BY THE TPO ABOUT NON- TRANSFERABILITY OF THE REGISTRATION AND RESTRICTION ON SALE OF REGISTRATION DATA WERE NOT IN ACCORDANCE WITH THE FACTS ON RECORD, THAT THE AE WA S DISSOLVED AND BY OPERATION OF LAW LICENSES FOR THE TWO PRODUCTS DEVOLVED ON THE ASSESSEE AND T HEY WERE NOT ACQUIRED BY IT, THE BOOK VALUE OF REGISTRATION RIGHTS TAKEN OVER BY THE IT AS USD1 ,47,30,136,THAT IT WAS MUCH LOWER VALUE COMPARED TO THE VALUATION MADE BY THE VALUER AT USD 15.6 MILLION, THAT THE BOOK VALUE WAS ALSO LOWER COMPARED TO THE ACTUAL EXPENDITURE INCURRED O F USD1,58,79,306 ON THE REGISTRATION OF THOSE PRODUCTS, THAT THE TPO HAD MERELY REJECTED TH E VALUATION DONE BY THE VALUER ON THE SURMISE WITHOUT CONSIDERING THE EVIDENCES ON RECOR D,THAT THE ADJUSTMENT MADE BY THE TPO BY REJECTING THE REVALUATION OF THE REGISTRATION RIGHT WAS NOT PROPER.FINALLY,HE HELD THAT THE CONSIDERATION FOR REGISTRATION RIGHTS,AS ADOPTED BY THE ASSESSEE AS PER THE BOOK VALUE OF RS.67.99 CRORES IN THE BOOKS OF THE AE,HAD TO BE AC CEPTED. 18.2. BEFORE US,THE DR RELIED UPON THE ORDER OF THE TPO.T HE AR MADE THE SAME SUBMISSIONS THAT WERE MADE BEFORE THE FAA AND SUPPORTED HIS ORD ER. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE WHOLLY OWNED SUBSIDY OF THE ASSESSEE HELD REGISTRATION RIG HTS IN TWO PRODUCTS,THAT IT HAD PAID REGISTRATION CHARGES FOR SELLING THOSE PRODUCTS IN THE US MARKETS,THAT IT HAD ALSO PAID OTHER FEES AS REQUIRED BY THE US LAWS,THAT IT HAD INCURRED TOT AL EXPENDITURE OF USD 1,58,79,306 UNDER THE HEAD REGISTRATION CHARGES,THAT THE AE GOT THE ASSET S REVALUED AS ON 01.01.2204,THAT REGISTRATION RIGHTS WERE REVALUED FROM RS. 44.29 CRORES TO RS. 6 7.99 CRORES BY THE INDEPENDENT VALUER,THAT ON 30.09.2004 THE AE WAS DISSOLVED,THAT THE ASSESSE E TOOK OVER THE ASSETS AND LIABILITIES OF THE AE AT THE REVALUED PRICE,THAT THE PAYMENT FOR REGIS TRATION RIGHTS AND OTHER FEES WERE PAID MUCH BEFORE THE REVALUATION,THAT IT ADOPTED LESSER VALUE OF THE RIGHTS AS COMPARED TO THE VALUE DETERMINED BY THE VALUER,THAT FURTHER CLARIFICATION WERE CALLED FROM THE VALUER,THAT IN THE REMAND REPORT THE TPO AGREED THAT PAYMENT WAS MADE BY THE AE FOR THE RIGHTS IN EARLIER YEARS,THAT THERE WAS NO DISCREPANCY IN THE METHOD O F VALUATION,THAT THE TPO POINTED OUT ELEMENT OF NON TRANSFERABILITY IN THE VALUATION REP ORT FOR SUPPORTING THE ADJUSTMENT,THAT THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT TH E TPO WAS FACTUALLY INCORRECT IN ARRIVING AT THE CONCLUSION OF NON TRANSFERABILITY, THAT THE AE HAD RIGHT TO TRANSFER THE RIGHTS TO OTHERS ALSO.CONSIDERING THE ABOVE FACTS,WE ARE OF THE OPIN ION,THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.THEREFORE, CONF IRMING HIS ORDER,WE DECIDE GROUND NO.8 AGAINST THE AO. 111/M/15 GHARDA CHEMICALS 4 RESPECTFULLY FOLLOWING THE ABOVE, GROUND RAISED BY THE AO IS DISMISSED. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPE N COURT ON 16 TH AUGUST,2016. 16 ! , 2016 SD/- SD/- ( / R.L.NEGI ) ( '# / RAJENDRA ) $! / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 16.08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.