The DCIT, Circle-5, Ahmedabad V. NetVision Web Technologies Pvt.Ltd., Ahmedabad

ITA 1189/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6912 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-10-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 21-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANKARLAL YADAV
• Assessee Lawyers: S N DIVATIA
• Keywords: Depreciation; Valuation report; Scheme of amalgamation
• Section: 14A; 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. ITA.NO.1189/AHD/2011 (ASSESSMENT YEAR:2005-06) DY.CIT, CIRCLE-5, AHMEDABAD. APPELLANT VS. NETVISION WEB TECHNOLOGIES P. LTD., 401-402, S.K. HOUSE, OPP. DRIVE IN CINEMA, THALTEJ, AHMADABAD. RESPONDENT PAN: AABCN6164G /BY APPELLANT : SHRI SHANKARLAL YADAV, CIT DR /BY RESPONDENT : SHRI S. N. DIVATIA, A. R. !'# /DATE OF HEARING : 17.10.2014 $%& !'# /DATE OF PRONOUNCEMENT : 29.10.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XI, AHMEDAB AD, DATED 21.02.2011 FOR A.Y. 2005-06 ON THE FOLLOWING ISSUE. I.T.A. NO. 1189/AHD/2011 A.Y. 05-06 (DY.CIT VS. NETVISION WEB TECHNOLOGIES P. LTD.) PAGE 2 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE DISALLOWANCE OF DEPRECIATION ON GOODWI LL OF RS. 1,60,38,123/-. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST U/S. 14A OF RS.3,88,847/-. 3. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 10A OF R S. 11,47,87,841/-. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2. THE FIRST ISSUE IS WITH REGARDS TO DISALLOWANCE OF ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL. IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE FOR A.Y.07-08 WHEREIN ITAT HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. IN FACT TRIBUNAL HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF ASSESSEE, FOLLOWING DECI SION IN REVENUES APPEAL IN ITA NO. 1186/AHD/2011 BY OBSERV ING AS UNDER: 7 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS, DULY PERUSED THE RELEVANT CASE RECORDS, BOOKS OF AC COUNTS OF THE ASSESSEE AND ALSO THE CASE LAWS RELIED BY THE L EARNED AR. 8. ON PERUSAL OF THE RECORDS, WE FIND THAT ITAT AHMEDABAD 'B' BENCH HAS RECENTLY DECIDED SIMILAR IS SUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE WHIL E ADJUDICATING REVENUE'S APPEAL IN ITA NO.1186/AHD/20 11 ETC. IN THE CASE OF NET 4 NUT LTD. DATED 21-09-2012 . THE RELEVANT PORTION OF THE ABOVE ORDER OF THE TRIBUNAL IS EXTRACTED HEREIN UNDER FOR REFERENCE: '5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORD ERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIA L ON I.T.A. NO. 1189/AHD/2011 A.Y. 05-06 (DY.CIT VS. NETVISION WEB TECHNOLOGIES P. LTD.) PAGE 3 RECORD. THE LEARNED CIT(A) HAS GIVEN CATEGORICAL FI NDINGS THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS. 1,87,81,830/- ON DEVELOPMENT OF 'AVTAAR' AND THE SAID SOFTWARE WAS REGISTERED AS TRADE MARK UNDER TH E TRADE-MARK ACT,1999 IN THE NAME OF THE ASSESSEE AND THE SAME WAS UTILIZED BY THE ASSESSEE FOR THE PURPO SE OF HIS BUSINESS AND IN VIEW OF THIS FACT, DEPRECIAT ION ON THIS SOFTWARE SHOULD BE ALLOWED. FURTHER, SECTION 3 2 OF THE ACT CLEARLY SPECIFIES THAT DEPRECIATION SHALL BE ALLOWABLE ON ANY INTANGIBLE ASSETS. THE LEARNED AR H AS ALSO PLACED RELIANCE IN THE DECISION OF ITAT AHMEDAB AD 'A' BENCH IN THE CASE OF DICT VS M/S. BHAGAWATI BANGUETS AND HOTELS LTD. IN ITA NO. 1312/AHD/2002 FOR AY 2007-08 ORDER DATED 28-02-2012. IN THIS CASE THE TRIBUNAL HAD DECIDED THE ISSUE OF CLAIM OF DEPRECIA TION ON INTANGIBLE ASSET IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE RELEVANT PORTION OF THE AFORESAID ORDER OF THE TRIBUNAL IS REPRODUCED HEREI N BELOW: '5. 7. IN A NUT-SHELL, THE ASSESSEE, WITHOUT INTANGIBLE ASSETS IN THE SHAPE OF RIGHTS AND ENTITLEMENT OF COMMERCIAL RIGHTS OF THE ERSTWHILE ENTITIES, WOULD NOT HAVE PROSPERED OR IN A POSITION TO CARRY ON THE CATERING BUSINESS ONLY BY ACQUIRING TANGIBLE ASSETS. BY ACQUIRING TANGIBLE AND INTANGIBLE ASSETS OF THE ERSTWHILE CONCERNS CITED SUPRA, THE ASSESSES HAD PROSPERED IN ITS BUSINESS BY POSTING SUBSTANTIAL TURNOVER AND PROFITS WHICH IMPLICITLY EXHIBITS THAT THE ASSESSEE HAD, IN FACT, ACQUIRED INTANGIBLE ASSETS [BUSINESS AND COMMERCIAL RIGHTS] IN THE FORM OF 'GOODWILL'. IN ESSENCE, THE INTANGIBLE ASSETS WERE IN THE NATURE OF VALUABLE COMMERCIAL AND BUSINESS RIGHTS WHICH WERE TO BE USED IN EXPANDING THE ASSESSEE'S BUSINESS, RESULTING IN, -HUGE TURNOVER AND PROFITS AS POINTED OUT SUPRA. 5.9. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PARAGRAPHS AND ALSO IN CONFORMITY WITH THE RULING OF VARIOUS JUDICIARIES, CHIEFLY, THE RULING OF THE I.T.A. NO. 1189/AHD/2011 A.Y. 05-06 (DY.CIT VS. NETVISION WEB TECHNOLOGIES P. LTD.) PAGE 4 HON'BLE HIGH COURT OF KERALA REFERRED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE CIT (A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION ON INTANGIBLE ASSETS ACQUIRED BY IT. IT IS ORDERED ACCORDINGLY. WE MAKE IT VERY CLEA R THAT WE HAVE ARRIVED AT THIS ABOVE CONCLUSION FROM THE FACTS OF THIS CASE AS THE VALUATION REPORT SUBMITTED BY THE APPELLANT HAS NOT BEEN SUCCESSFULLY CHALLENGED BY THE REVENUE TO ESTABLISH THE TRANSACTION TO BE SHAM. THEREFORE, WE CONSIDER THE PAYMENT MADE ON ACCOUNT OF GOODWILL IS GENUINE AND REASONABLE SINCE IT IS ARRIVED BASED ON A REASONABLE VALUATION AND COMPUTATION.' 5.2 IN VIEW OF THE ABOVE DISCUSSIONS, WE DO NOT FIN D ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LE ARNED CIT(A). THEREFORE, THIS GROUND RAISED BY THE REVENU E IS DISMISSED.' 9. CONSIDERING THE ABOVE DISCUSSIONS AND IN VIEW OF THE FACT THAT THE LEARNED DR COULD NOT CONTROVERT THE SUBMISSION OF THE LEARNED AR BY ANY COGENT MATERIAL EVIDENCE, WE ARE OF THE OPINION THAT THE LEARNED CI T(A) WAS RIGHT IN ALLOWING ASSESSEE'S CLAIM OF DEPRECIATION ON GOOD WILL AMOUNTING TO RS.90,21,444/- AND HIS ORDER REQU IRES NO INTERFERENCE BY US. ACCORDINGLY, WE HEREBY DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE IN THIS APPE AL. 2.1. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWL EDGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO FOLL OWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS DELETED THE DISALLOWANCE OF CLAIM OF DEPREC IATION ON GOODWILL AMOUNTING TO RS.1,60,38,123/-. THE SAME I S UPHELD. 3. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE U/S. 14A OF RS.3,88,847/- OF INTEREST EXPENSES MADE BY ASSESSIN G OFFICER. IN APPEAL, CIT(A) FOLLOWING SIMILAR MATTER FOR ASSESSE ES OWN CASE FOR I.T.A. NO. 1189/AHD/2011 A.Y. 05-06 (DY.CIT VS. NETVISION WEB TECHNOLOGIES P. LTD.) PAGE 5 A.Y. 2003-04 DIRECTED TO DELETE THE DISALLOWANCE MA DE BY ASSESSING OFFICER U/S. 14A. THERE IS NOTHING ON RE CORD TO SUGGEST FINALITY ON THE ISSUE IN ASSESSEES OWN CASE FOR A. Y. 03-04. IT WAS POINTED OUT BY LD. A.R. THAT NO SUCH GROUND WAS TAK EN BY REVENUE IN A.Y. 07-08 WHILE THIS SIMILAR GROUND WAS RESTORED TO ASSESSING OFFICER IN ITA NO. 3304/AHD/2008 DATED 23 .01.2009 FOR A.Y. 06-07. LD. A.R. ALSO RELIED ON THE DECISI ON OF CIT VS. CORRTECH ENERGY PVT. LTD. IN TAX APPEAL NO. 239 OF 2014 DATED 24//03/2014 BUT LD. D.R. WAS NOT IN POSITION TO TEL L ABOUT THE FINALITY OF THE ISSUE IN A.Y. 03-04. SO, LD. A.R. AGREED TO ON THE PROPOSITION THAT LET THE ISSUE BE RESTORED TO ASSES SING OFFICER WITH THE DIRECTION TO DECIDE THE SAME AS PER FACTS AND L AW AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSE E. 3.1 FINDING FORCE IN THE CONTENTION OF LD. A.R., WE RESTORE THE MATTER TO ASSESSING OFFICER WITH THE DIRECTIONS TO DECIDE THE SAME AS PER FACTS AND LAW AFTER PROVIDING DUE OPPORTUNIT Y OF HEARING TO THE ASSESSEE. 4. NEXT GROUND IS WITH REGARDS TO DEDUCTION U/S. 10 A OF RS.11,47,87,841/-. ASSESSING OFFICER MADE DISALLOW ANCE OF DEDUCTION U/S. 10A OF RS.11,47,87,841/-. IN APPEAL , CIT(A) FOLLOWING ITS PREDECESSORS DECISION FOR A.Y. 02-03 TO 04-05 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. IT WAS PO INTED OUT THAT ITAT IN ITA NO. 2120/AHD/07 AND 212-1138/AHD/08 DAT ED 01/10/2010 VIDE PARA 10.1 TO 10.2 HAS DECIDED SIMIL AR ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 10.1. AFTER CAREFULLY GOING THROUGH THE SUBMISSION S MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) AND EVIDENCES FURNISHED, WE ARE CONVINCED THAT THE I.T.A. NO. 1189/AHD/2011 A.Y. 05-06 (DY.CIT VS. NETVISION WEB TECHNOLOGIES P. LTD.) PAGE 6 ASSESSEE-COMPANY IS A RESULTANT COMPANY OUT OF AMALGAMATION OF THE TWO COMPANIES, NAMELY NETVISION WEB TECHNOLOGIES PRIVATE LIMITED AND INDOTECH CAPITAL M ARKET LTD. AND THE ASSESSEE-COMPANY HAS FOLLOWED THE DUE PROCEDURE WITH THE REGISTRAR OF COMPANIES WITH REGA RD TO AMALGAMATION. THE SCHEME OF AMALGAMATION IS PROVED BY THE SHAREHOLDERS AND ALSO BY THE HON'BLE GUJARAT HI GH COURT. THE ASSESSEE-COMPANY IS ALSO REGISTERED WITH SOFTWARE TECHNOLOGY PARKS OF INDIA (IN SHORT 'STPF) , WHICH IS AN AUTONOMOUS SOCIETY UNDER MINISTRY OF INFORMAT ION TECHNOLOGY, GOVERNMENT OF INDIA ON 10.01.2001. IT H AS FULFILLED ALL THE CONDITIONS AS STIPULATED BY THE S TP1. THEREFORE, IN OUR OPINION, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING EXEMPTION CLAIMED BY THE ASSES SEE FOR ALL THE THREE ASSESSMENT YEARS UNDER APPEALS. 10.2. IT IS ALSO PERTINENT TO NOTE THAT ALL THE REQ UISITE DETAILS WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDI NGS AS WELL AS BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WITH REGARD TO DEDUCTION/ EXEMPTION CL AIMED UNDER SECTION 10A OF THE INCOME TAX ACT, 1961. THE SOFTWARE DEVELOPMENT AND SALES INCOME WAS STARTED O NLY AFTER JANUARY, 2001 WHICH IS AFTER AMALGAMATION. TH IS CANNOT BE OBSERVED FROM THE ANNUAL REPORTS FILED BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AS WELL AS BEFORE US. THE ASSESSEE COM PANY ALSO ADDUCED EVIDENCES OF ITS SET UP OF NEW UNIT IN FORM OF ITS REGISTRATION WITH COMMISSIONER OF INFORMATION TECHNOLOGY, GOVERNMENT OF GUJARAT VIDE REGISTRATION NO. 81 DATED 24.05,2001 FOR HAVING REGISTERED AS NEW UNIT FOR I.T. SOFTWARE. THE CENTRAL EXCISE LICENSE FOR 100% EOU W AS ALSO GRANTED BY THE CENTRAL EXCISE AUTHORITIES VIDE THEIR LETTER/ CERTIFICATE NO.V/MISC-22/100%EOU/20(X) BOND DATED 25.01.2002 WHICH SHOWED THAT NO FUNCTIONING O F EOU OR BUSINESS ACTIVITIES IN QUESTION WAS PRIOR TO AMALGAMATION. 11. IN VIEW OF THE ABOVE, WE ARE CONVINCED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER APPRECIA TING THE CORRECT FACT HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT F OR ALL THE THREE ASSESSMENT YEARS UNDER APPEALS. WE, THER EFORE, I.T.A. NO. 1189/AHD/2011 A.Y. 05-06 (DY.CIT VS. NETVISION WEB TECHNOLOGIES P. LTD.) PAGE 7 INCLINE TO UPHOLD THE ORDERS OF LEARNED COMMISSIONE R OF INCOME TAX (APPEALS). 4.1. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWL EDGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO FOLL OWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS HELD THAT ASSESSEE IS ENTITLED FOR DEDUCTIO N U/S. 10A ON THE GROUND OF RS.11,47,87,841/- AS DISCUSSED ABOVE. 5. AS A RESULT, APPEAL FILED BY THE REVENUE IS PART LY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 29TH DAY OF OCTOBER, 2014. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR YA DAV) ACCOUNTANT MEMBER JUDICIAL MEM BER TRUE COPY S.K.SINHA ' ' ' ' !( !( !( !( )(&! )(&! )(&! )(&! / COPY OF ORDER FORWARDED TO:- 1. ,- / REVENUE 2. / ASSESSEE 3. 00! 1 / CONCERNED CIT 4. 1- / CIT (A) 5. (56 !, , / DR, ITAT, AHMEDABAD 6. 69: ;< / GUARD FILE. BY ORDER / ' , =/ 0, , ?