Deputy Commissioner of Income tax, Pune V. M/s. Tranter India Pvt.Ltd, Pune

ITA 1280/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0101 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 19-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHABANA PARVEEN
• Assessee Lawyers: MANOJ SOLANKI
• Keywords: Depreciation; Unabsorbed depreciation; Set aside
• Section: 201; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1280 /PUN/201 7 / ASSESSMENT YEAR : 20 1 3 - 14 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE ....... / APPELLANT / V/S. M/S. TRANTER INDIA PVT. LTD., GAT NO. 127 & 128, DINGRAJWADI, TALUKA - SHIRUR, OFF PUNE NAGAR ROAD, PUNE 412208 PAN : AAFCA4598P / RESPONDENT ASSESSEE BY : SHRI MANOJ SOLANKI REVENUE BY : MS. SHABANA PARVEEN / DATE OF HEARING : 28 - 08 - 2019 / DATE OF PRONOUNCEMENT : 20 - 0 9 - 2019 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - 5, PUNE DATED 16 - 12 - 2016 FOR THE ASSESSMENT YEAR 201 3 - 14. 2 ITA NO .1280/PUN/2017, A.Y. 2013 - 14 2. THE REVENUE IN APPEAL HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS : 1 ) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) NOT ERRED IN ALLOWING OF DEPRECIATION OF GOODWILL CLAIMED BY THE ASSESSEE OF RS. 1,62,71,442/ - , WHICH OUGHT TO BE ALLOWED ON WDV AS ON 31.03.2012? P UNE HAS ERRED IN DELETING THE ADDITION OF RS . 50,20,948/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR WARRANTY EXPENSES? 2) W HETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) NOT ERRED IN NOT FOLLOWING THE PROVISIONS OF SEC. 32 OF THE I.T. ACT ? 3) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) NOT ERRED IN DELETING THE ADDITION MADE BY THE AO AT RS.1,33,75,475/ - ON ACCOUNT OF DEPRECIATION ON GOODWILL, DESPITE THE FACT THAT THE ACQUISITION OF GOODWILL (ASSETS) WAS MADE IN THE F. Y. 2006 - 07, THEREFORE, DEPRECIATION ON GOODWILL SHOULD HAVE BEEN CLAIMED FROM A. Y. 2007 - 08 INSTEAD OF ENTIR E DEPRECIATION CLAIM MADE IN A. Y. 2013 - 14 BY THE ASSESSEE? 4) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) NOT ERRED FOR ALLOWING PROVISIONS FOR WARRANTY OF RS . 50,20,948/ ? 5) IT IS PRAYED THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 5, PUNE BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RES TORED. 6) THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 3. SHRI MANOJ SOLANKI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE GROUND NOS. 1 TO 3 OF THE APPEAL ARE IN RESPECT OF ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL. THE ONLY DISPUTE IS WITH REGARD TO COMPUTATION OF GOODWILL. THERE IS NO DISPUTE ON ALLOWABILITY OF DEPRECIATION ON GOODWILL. THE ASSESSEE HAD ACQUIRED GOODWILL IN THE PERIOD RELEVANT TO THE ASSESSMENT YEA R 2007 - 08. THE ASSESSEE NEVER CLAIMED DEPRECIATION ON GOODWILL TILL ASSESSMENT YEAR 2012 - 13. THE DEPRECIATION ON GOODWILL WAS CLAIMED FOR THE FIRST TIME IN ASSESSMENT YEAR 2013 - 14. IN ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER RESTRICTED DEPRECIATIO N ON GOODWILL TO RS.28,95,967/ - AS AGAINST THE CLAIM OF ASSESSEE RS.1,62,71,442/ - . IN FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING 3 ITA NO .1280/PUN/2017, A.Y. 2013 - 14 THE DECISION OF HONBLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. DOOM DOOM A INDIA LTD. REPORTED AS 310 ITR 392 ALLOWED DEPRECIATION ON GOODWILL IN FULL AS CLAIMED BY THE ASSESSEE. THE LD. AR VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED FOR DISMISSING THE APPEAL OF REVENUE. 3.1 THE LD. A R FURTHER SUBMITTED THAT IN GROUND NO. 4 OF THE APPEAL, THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN ALLOWING PROVISIONS FOR WARRANTY RS.50,20,948/ - . THE CO - ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN APPEAL BY THE REVENUE IN ITA NO. 377/PUN/2016 FOR ASSESSMENT YEAR 2010 - 11 DECIDED ON 09 - 02 - 2018 HAD UPHELD THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN ALLOWING PROVISION FOR WARRANTY. 4. ON THE OTHER HAND MS. SHABANA PARVEEN REPRESENTING THE DEPARTME NT VEHEMENTLY DEFENDED THE ASSESSMENT ORDER AND PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN ALLOWING ASSESSEES ENTIRE CLAIM IN RESPECT OF DEPRECIATION ON GOODWILL AND ASSESSEES CLAIM WITH RESPECT TO PROVISION FOR WARRANTY . 5. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE REVENUE IN GROUND NOS. 1 TO 3 OF APPEAL HAS ASSAILED THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) IN ALLOWING ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL IN FULL. IN SO FAR AS ALLOWABILITY OF DEPRECIATION ON GOODWILL IS CONCERNED , THERE IS NO DISPUTE. THE ONLY DISPUTE IS WITH REGARD TO QUANTUM OF DEPRECIATION. UNDISPUTEDLY, THE ASSESSEE ACQUIRED GOODWILL IN AS SESSMENT YEAR 2007 - 08 AND CLAIMED DEPRECIATION FOR THE FIRST TIME IN 4 ITA NO .1280/PUN/2017, A.Y. 2013 - 14 ASSESSMENT YEAR 2012 - 13. THE ASSESSING OFFICER COMPUTED DEPRECIATION ON GOODWILL ON WRITTEN DOWN VALUE AS ON 31 - 03 - 2012 , WHEREAS , THE ASSESSEE COMPUTED DEPRECIATION ON THE OPENING VALUE OF GOODWILL AS IN ASSESSMENT YEAR 2007 - 08. THE HONBLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. DOOM DOOMA INDIA LTD. (SUPRA) HELD THAT THE DEPRECIATION HAS TO BE ALLOWED ON THE ACTUAL VALUE . THE RELEVANT EXTRACT OF THE DECISION READS A S UNDER: 7. DEDUCTIONS BY WAY OF DEPRECIATION ALLOWANCE HAVE BEEN SPECIFICALLY RECOGNIZED AND DEALT WITH IN SECTIONS 32 , 34 AND 43(6) OF THE 1961 ACT (WHICH DEALS WITH THE DEFINITION OF THE WORDS 'WRITTEN DOWN VALUE'). SECTION 32 ADOPTS TWO METHODS IN ALLOWING DEPRECIATION. IN THE CA SE OF OCEAN - GOING SHIPS, DEPRECIATION IS ALLOWED, YEAR AFTER YEAR, AT THE FIXED PERCENTAGE ON THE ORIGINAL COST OF THE ASSET [SEE: SECTION 32(1)(I) ]. THIS IS CALLED THE STRAIGHT - LINE METHOD. IN THE CASE O F NON - OCEAN - GOING SHIPS AND BUILDINGS, MACHINERY, PLANT OR FURNITURE, THE PRESCRIBED PERCENTAGE OF DEPRECIATION IS TO BE COMPUTED ON THE BASIS OF 'WRITTEN DOWN VALUE' OF THE ASSET [SEE: SECTION 32(1)(II) ]. THIS IS KNOWN AS 'WRITTEN - DOWN VALUE' METHOD. BOTH THESE METHODS SEEK TO ENSURE THAT THE TOTAL DEPRECIATION ALLOWANCE(S) GRANTED, YEAR AFTER YEAR, DOES NOT EXCEED 100 PER CENT, OF THE ORIGINAL COST OF THE ASSET. IN THE STRAIGHT - LINE METHOD, THE ENTIRE DEP RECIATION IS WRITTEN OFF SOONER THAN IN THE 'WRITTEN DOWN VALUE' METHOD, IF THE FIGURES OF THE ACTUAL COST AND THE PRESCRIBED PERCENTAGE ARE THE SAME IN EITHER CASE. SECTION 32 (2) ALLOWS THE CARRY FORWARD AND UNABSORBED DEPRECIATION ALLOWANCES TO ANY SUBSEQUENT YEAR, WITHOUT ANY TIME LIMIT, WHERE SUCH NON - ABSORPTION IS 'OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS BEING LESS THAN THE ALLOWANCE '. DEPRECIATION LOSS UNDER SECTION 32 (2) STANDS ON THE SAME FOOTING AS ANY OTHER BUSINESS LOSSES. AN ASSESSEE CLAIMING DEPRECIATION OF ASSETS HAS TO SHOW THAT SUCH ASSETS ARE OWNED BY HIM AND ARE USED BY HIM IN THE ACCOUNTING YEAR FOR THE PURPOSE OF HIS BUSINESS, THE PROFITS OF WHICH ARE BEING CHARGED [SEE: SECTION 32(1)(I) ]. FURTHER, THE TOTAL OF ALL DEDUCTIONS IN RESPECT OF DEPRECIATION UNDER SECTION 32(1)(I) , MADE YEAR AFTER YEAR, SHOULD NOT, IN ANY EVENT, EXCEED THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE [SEE: SECTION 34(2)(I) ]. THE DEFINITION OF 'ACTUAL COST' IS TO BE FOUND IN SECTION 43(1) AND THE DEFINITION OF 'WRITTEN DOWN VALUE' IS TO BE FOUND IN SECTION 43(6) OF THE 1961 ACT. THE LATTER DEFIN ES 'WRITTEN DOWN VALUE' UNDER SECTION 43(6) TO MEAN - (A) IN THE CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE; (B) IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION(S) ACTUALLY ALLOWED UNDER THE 1961 ACT. 8. THE KEY WORD IN SECTION 43(6)(B) OF THE 1961 ACT IS 'ACTUALLY'. WE QUOTE HEREINBELOW AN IMPORTANT OBSERVATI ON, MADE BY THIS COURT ON THE MEANING OF THE WORDS 'ACTUALLY ALLOWED' IN SECTION 43 (6)(B) IN THE CASE OF MADEVA 5 ITA NO .1280/PUN/2017, A.Y. 2013 - 14 UPENDRA SINAI V. UNION OF INDIA AND OTHER S - (1975) 98 ITR 209 AT PAGES 223 & 224, WHICH READS AS UNDER: 'THE PIVOT OF THE DEFINITION OF 'WRITTEN - DOWN VALUE' IS THE 'ACTUAL COST'' OF THE ASSETS. WHERE THE ASSET WAS ACQUIRED AND ALSO USED FOR THE BUSINESS IN THE PREVIOUS YEAR, SUCH VALUE WOULD BE ITS FULL ACTUAL COST AND DEPRECIATION FOR THAT YEAR WOULD BE ALLOWED AT THE PRESCRIBED RATE ON SUCH COST. IN SUBSEQUENT YEAR, DEPRECIATION WOULD BE CALCULATED ON THE BASIS OF ACTUAL COST LESS DEPRECIATION ACTUALLY ALLOWED. THE KEY WORD IN CLAUSE (B) IS 'AC TUALLY'. IT IS THE ANTITHESIS OF THAT WHICH IS MERELY SPECULATIVE, THEORETICAL OR IMAGINARY. 'ACTUALLY' CONTRA - INDICATES A DEEMING CONSTRUCTION OF THE WORD 'ALLOWED' WHICH IT QUALIFIES. THE CONNOTATION OF THE PHRASE 'ACTUALLY ALLOWED' IS THUS LIMITED TO DE PRECIATION ACTUALLY TAKEN INTO ACCOUNT OR GRANTED AND GIVEN EFFECT TO, I.E. DEBITED BY THE INCOME - TAX OFFICER AGAINST THE INCOMINGS OF THE BUSINESS IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE; IT CANNOT BE STRETCHED TO MEAN 'NOTIONALLY ALLOWED' OR MERE LY ALLOWABLE ON A NOTIONAL BASIS.' XXX XXX FROM THE ABOVE CONSPECTUS, IT IS CLEAR THAT THE ESSENCE OF THE SCHEME OF THE INDIAN INCOME - TAX ACT IS THAT DEPRECIATION IS ALLOWED, YEAR AFTER YEAR, ON THE ACTU AL COST OF THE ASSETS AS REDUCED BY THE DEPRECIATION ACTUALLY ALLOWED IN EARLIER YEARS. IT FOLLOWS, THEREFORE, THAT EVEN IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, WHERE IN THE PAST NO DEPRECIATION WAS COMPUTED, ACTUALLY ALLOWED OR CARRIED FO RWARD, FOR NO FAULT OF THE ASSESSEE, THE 'WRITTEN - DOWN VALUE' MAY, UNDER CLAUSE (B) OF SECTION 43(6) , ALSO, BE THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. 9. THEREFORE, THIS COURT HAS CLEARLY LAID DOWN THE MEANING OF THE WORDS 'ACTUALLY ALLOWED' IN SECTION 43(6)(B) TO MEAN - 'LIMITED TO DEPRECIATION ACTUALLY TAKEN INTO ACCOUNT OR GRANTED AND GIVEN EFFECT TO, I.E. DEBITED BY THE INCOME - TAX OFFICER AGAINST THE INCOMINGS OF THE BUSINESS IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE'. 6. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE AFORESAID DECISION OF HONBLE APEX COURT. WE SEE NO REASON TO INTERFERE WITH THE WELL REASONED FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, THE SAME ARE UPHELD AND GROUND NOS. 1 TO 3 OF THE APPEAL BY THE REVENUE ARE DISMISSED BEING DEVOID OF ANY MERIT. 7. IN GROUND NO. 4 OF THE APPEAL, THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN ALLOWING PROVISIONS FOR 6 ITA NO .1280/PUN/2017, A.Y. 2013 - 14 WARRANTY CLAIMED BY THE ASSESSEE. THE ASSESSEE IN ASSESSMENT YEAR 2013 - 14 HAS CLAIMED PROVISION FOR WARRAN TY RS.50,20,948/ - . THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT PROVISION HAS NOT BEEN MADE ON SCIENTIFIC AND SENSIBLE BASIS. THE LD. AR OF ASSESSEE HAS POINTED THAT THE PROVISION FOR WARRANTY WAS MADE ON SIMILAR LINES IN ASSESSMENT YEAR 2010 - 11. THE ASSESSING OFFICER HAD DISALLOWED THE PROVISION IN ASSESSMENT YEAR 2010 - 11 FOR SIMILAR REASONS. THE ISSUE TRAVELLED TO THE TRIBUNAL. THE CO - ORDINATE BENCH OF TRIBUNAL AFTER EXAMINING THE FACTS AND CONSIDERING THE DECISION OF HONBLE APEX COU RT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS. COMMISSIONER OF INCOME TAX REPORTED AS 314 ITR 62 HELD AS UNDER : 11. FROM THE ABOVE FACTS AS WELL AS THE LEGAL PROPOSITION, IT IS EVIDENT THAT THE PROVISION CAN BE ALLOWED AN A ALLOWABLE DEDUCTION SUBJ ECT TO THE CONDITIONS. IT IS A DECIDED ISSUE, IN PRINCIPLE, THE PROVISION FOR WARRANTY IS AN ALLOWABLE EXPENDITURE SUBJECT TO THE RELIABLE ESTIMATIONS LINKED TO THE ASSESSEES OBLIGATION TO DISCHARGE THE WARRANTIES GUARANTEED BY THE ASSESSEE AT THE TIME OF THE PRODUCT SALES. IN PRINCIPLE, THE RELIABLE ESTIMATION IS ALSO A MATTER OF ESTIMATIONS. SUCH ESTIMATION MAY BE MORE IN A YEAR OR LESS IN OTHER YEAR. IN THE PRESENT CASE, THE ASSESSEE ESTIMATED THE PROVISION AT RS.1,05,40,638/ - AND THE BASIS OF THE SAID ESTIMATION IS NOT FOUND ERRONEOUS BY THE AO. THE CASE OF THE REVENUE IS THAT THE CLAIM IS NOT ALLOWABLE AS THE SAME IS ONLY A PROVISION OF WARRANTY. INFACT, THE REVENUE DID NOT EVEN ALLOW THE ACTUAL EXPENDITURE OF RS.17,37,265/ - SURPRISINGLY. REVENUE RAISE D AN ALTERNATIVE GROUND ON THIS PART OF THE DECISION OF THE CIT(A). FROM THIS POINT OF VIEW, WHEN THERE IS NO ERROR NOTED BY THE AO IN THE CONSISTENCY PRINCIPLE OF ESTIMATION OF 0.4% OF THE SALES PRICE ADOPTED BY THE ASSESSEE TOGETHER WITH THE FACT THAT TH E ASSESSEE WRITES BACK THE EXCESS PROVISION AS INCOME OF THE ASSESSEE IN THE SUBSEQUENT YEARS, WE FIND NO REASON TO ALLOW THE GROUNDS RAISED BY THE REVENUE. THEREFORE, WE ARE OF THE VIEW THAT THE DECISION OF CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CA LL FOR ANY INTERFERENCE. CONSEQUENTLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. GROUND NO.2 BEING AN ALTERNATIVE G ROUND IS DISMISSED AS ACADEMIC. 8. SINCE, THE FACTS IN ASSESSMENT YEAR UNDER APPEAL ARE IDENTICAL, WE SEE NO REASON TO DEVIATE FROM THE VIEW ALREADY TAKEN BY THE CO - ORDINATE BENCH. FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 - 11, WE UPHOLD THE FINDINGS OF COMMISSIONER OF 7 ITA NO .1280/PUN/2017, A.Y. 2013 - 14 INCOME TAX (APPEALS) ON THIS ISSUE AND DISMISS GROUND NO. 4 OF THE APPEAL BY REVENUE. 9. THE GROUND NOS. 5 AND 6 OF THE APPEAL ARE GENERAL IN NATURE, HENCE, REQUIRE NO ADJUDICATION. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED BEING DEVOID OF ANY MERITS. ORDER PRONOUNCED ON FRIDAY, THE 20 TH DAY OF SEPTEMBER, 20 19. SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 20 TH SEPTEMBER, 2019 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 5, PUNE 4. THE PR. COMMISSIONER OF INCOME TAX - 4, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE