Incap Contract Manufacturing Services P Ltd, Bangalore V. Commissioner of Income tax(Appeals)-1, Bangalore

ITA 1469/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8608 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PRAVEENA
• Keywords: Capital asset; Depreciation; Revenue expenditure
• Section: 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO S . 1469 TO 1471 /BANG/201 4 (ASSESSMENT YEAR S : 200 9 - 10 TO 2011 - 12 ) M/S. INCAP CONTRACT MANUF ACTURING SERVICES PVT. LTD., SUFIYA ELITE, 3 RD FLOOR, NO.18, CUNNINGHAM ROAD, BANGALORE - 52 PAN AABCI 6651H VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(4), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI CHAVALI NARAYAN, C.A. RESPONDENT BY : MS. S. PRAVEENA, ADDL. CIT (D.R) DATE OF H EARING : 9.2.2016. DATE OF P RONOUNCEMENT : 9. 3 . 201 6 . O R D E R PER SHR I VIJAY P AL RAO, J. M. : THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE COMPOSITE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DT.16.7.2014 FOR THE ASSESSMENT YEAR 2009 - 10 TO 2011 - 12. 2. THE ASSESSEE HAS RAISED COMMON GROUNDS IN T HESE APPEALS. THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 2009 - 10 ARE AS UNDER : 2 ITA NO S . 1469 TO 1471 /BANG/ 2 014 1 THE ORDER OF THE LEARNED CIT(A) IS BASED ON INCORRECT INTERPRETATION OF LAW AND FACTS AND THEREFORE IS ERRONEOUS AND BAD IN LAW. GROUNDS RELATING TO CORPORATE TAX MATTERS 2 THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY DISALLOWING DEPRECIATION ON CUSTOMER RELATIONSHIP RIGHTS (NON - COMPETE FEES) WHICH WAS CONSIDERED AS AN INTANGIBLE ASSET BY THE APPELLANT. THIS ASSET WAS ACQUIRED BY THE AP PELLANT AS A PART OF BUSINESS TRANSFER AGREEMENT WITH MIS TVS ELECTRONICS LTD. 3 THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY FAILING TO APPRECIATE THAT THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE' WOULD INCLUDE SUCH 'CUSTOMER RELATIONSHIP RIGHTS (NON - COMPETE FEES)', WHICH IS ESSENTIAL TO CARRY ON THE BUSINESS AFTER THE BUSINESS TRANSFER. 4 THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY NOT GIVING THE APPELLANT THE ADVANTAGE OF RULI NG HELD IN THE FOLLOWING CASES: I) BY THE HONOURABLE KARNATAKA HIGH COURT IN CIT VS. INGERSOLL RAND INTERNATIONAL IND.LTD. II) BY THE ITAT CHENNAI BENCH IN ITO VS MEDICORP TECHNOLOGIES INDIA LTD (2009) 30 SOT 506 5 THE LE ARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY DIFFERENTIATING THE CUSTOMER RELATIONSHIP RIGHTS (NON - COMPETE FEES) FROM ANY OTHER BUSINESS OR COMMERCIAL RIGHTS. THE APPELLANT HAS CLAIMED DEPRECIATION ON CUSTOMER RIGHTS ON THE UNDERSTANDING THAT THE CONSIDERATION WAS PAID TO TVS ELECTRONICS LTD TO ACQUIRE CERTAIN COMMERCIAL RIGHTS, INCLUDING THESE CUSTOMER RELATIONSHIP RIGHT, WHICH ARE IN THE NATURE OF INTANGIBLE CAPITAL ASSETS AND ESSENTIAL FOR CARRYING ON THE BUSINESS. THUS THESE RIGHTS QUALIFY TO BE A PART OF 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS' AS MENTIONED UNDER SECTION 32(1 )(II) OF THE INCOME - TAX ACT, 1961 AND HENCE ELIGIBLE FOR DEPRECIATION. ON ACQUIRING THE BUSINESS FROM TVS ELECTRONICS LTD FOR A SLU MP PRICE ON A GOING CONCERN BASIS A PART OF THE CONSIDERATION WAS BONAFIDE ALLOCATED TOWARDS 'CUSTOMER RIGHTS' IN THE APPELLANTS BOOKS OF ACCOUNTS. THE PRICE WAS PAID FOR MARKETING AND TRADING REPUTATION, TRADING STYLE, TERRITORY KNOW - HOW, CUSTOMER DATABASE, DISTRIBUTION NETWORK, CONTRACTS, REFRAINING THE SELLER FROM ENTERING THE SAME BUSINESS AND EVENTUALLY SOLICITING APPELLANTS CUSTOMERS AND OTHER COMMERCIAL RIGHTS. THE FINDING OF THE LEARNED CIT(A) THAT THESE CUSTOMER RELATIONSHIP RIGHTS ARE DIFFERENT FROM 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS' AND HENCE NOT ELIGIBLE FOR DEPRECIATION IS ERRONEOUS AND CONTRARY TO LAW. FURTHER, THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEN D THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE, OR AT THE TIME OF, HEARING OF THE APPEAL. ON THE ABOVE GROUNDS AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED IN FULL. 3 ITA NO S . 1469 TO 1471 /BANG/ 2 014 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING COMPREHENSIVE CONTRACT MANUFACTURE SERVICES TO THE LEADING EQUIPMENT MANUFACTURERS AND DEVELOPMENT OF RENEWABLE ENERGY LIKE SOLAR ENERGY. THE ASSESSEE ENTERED INTO A BUSINESS TRANSFER AGREE MENT (BTA) WITH T VS ELECTRONICS (SELLER) ON 31.5.2007 TO PURCHASE THE BUSINESS OF CONTRACT MANUFACTURING SERVICES ( CM S ) DIVISION AS A GOING CONCERN. THE CMS WAS PURCHASED BY THE ASSESSEE FOR A TOTAL CONSIDERATION OF RS.42.33 CRORES. THE ASSESSEE IN ITS RETURN OF INCOME CLAIMED A SUM OF RS.1,26,54,563 AS DEPRECIATION ON CUSTOMER RIGHT TAKING IT AS BEING ON PAR WITH GOODWILL OR NON - COMPETE RIGHTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE CUSTOMER RELATIONSHIP RIGHT DOES N OT FALL UNDER THE EXPRESSIO N OF SIMILAR NATURE USED IN SECTION 32(1)(II) OF THE ACT TO THE TERM PATENT, COPY RIGHT, TRADE MARK, BUSINESS AND FRANCHISE. THUS THE ASSESSING OFFICER HELD THAT APPLYING THE DOCTRINE OF EJUSDE M GENER IS T HE EXPRESSION CUSTOMER RELATIONSHIP RIGHT CANNO T BE CONSIDERED AS ANOTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE OF PATENT, COPY RIGHT, TRADE MARK BUSINESSES AND FRANCHISE AS USED IN SECTION 32(1)(II) OF THE ACT. THUS THE ASSESSING OFFICER HELD THAT THE PAYMENT MADE IN RESPECT OF CUSTOMER REL ATIONSHIP RIGHT IS ONLY IN THE NATURE OF GOODWILL FOR WHICH 4 ITA NO S . 1469 TO 1471 /BANG/ 2 014 NO DEPRECIATION WAS ALLOWABLE. ACCORDINGLY, THE ASSESSING OFFICER DENIED THE BENEFIT OF DEPRECIATION ON THE AMOUNT PAID IN RESPECT OF CUSTOMER RELATIONSHIP RIGHT AND BROUGHT TO TAX THE SAID AMOUN T FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS). THE CIT (APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION ON THE SAID AMOUNT BY FO LLOWING THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEM VS. CIT (2013) 211 TAXMAN 576. 4. BEFORE US, THE LEARNED AUTHORISE REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT AS PER ARTICLE 11 OF THE BUSINESS TRANSFER AGR EEMENT (BTA), THE SELLER AGREED AND UNDERTOOK THAT IT WAS NOT DIRECTLY OR INDIRECTLY FOR A PERIOD OF THREE YEARS (I) PARTICIPATE OR ENGAGE IN ANY JURISDICTION OR IN ANY CAPACITY IN CONTRACT MANUFACTURING SERVICES (CMS) BUSINESS AND CONTRACT MANUFACTURING R ELATED TO MEDICAL AND POWER ELECTRONICS AND (II) SOLICIT / ENTICS THE EMPLOYEE OF THE CMS BUSINESS OF BUYER O F THE ASSESSEE (BUYER). THUS THE PAYMENT MADE BY THE ASSESSEE IS FOR GETTING A VESTED RIGHT, WHICH CAN BE ENFORCED UNDER LAW AND WITHOUT THAT OTHE R BUSINESS MAN COULD COMPETE WITH THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE PAYMENT OF NON - 5 ITA NO S . 1469 TO 1471 /BANG/ 2 014 COMPETE IS FOR ACQUIRING A NUMBER OF RIGHTS SUCH AS RESTRICTING THE SELLER DIRECTLY OR INDIRECTLY PARTICIPATING IN THE BUSINESS SIM ILAR TO THE ASSESSEE AS ACQUIRED OR DIRECTLY OR INDIRECTLY SOLICITING THE CLAIM OR CUSTOMERS OF THE EXISTING BUSINESS. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE PAYMENT HAS BEEN MADE FOR ACQUIRING A COMMERCIAL / BUSINESS RIGHT IS A VALUABLE RIGHT. THE LEARNED AUTHORISED REPRESENTATIVE HAS ALSO REFERRED THE NOTES TO ACCOUNTS AND SUBMITTED THAT THE CONTRACT MANUFACTURING SERVICE DIVISION HAS BEEN PURCHASED AS A GOING CONCERN AND IT WAS TRANSFERRED TO THE ASSESSEE FOR A PURCHASE CONS IDERATION OF RS.42.33 CRORES. THEREAFTER THE COMPANY ENGAGED EXTERNA L CONSULTANTS TO UNDERTAKE FAIR VALUATION OF FIXED ASSET AND INTANGIBLES TAKEN OVER FROM TVS ELECTRONICS LIMITED . ACCORDINGLY, AS PER THE CONSULTANT, THE PURCHASE PRICE HAS BEEN ALLOCAT ED TO VARIOUS ASSETS INCLUDING INTANGIBLES. AS PER THE SHARE VALUATION A SUM OF RS.6.7491 CRORES HAS BEEN ALLOCATED TO CUSTOMER RELATIONSHIP RIGHT AND A SUM OF RS.2.55 CRORES HAS BEEN ALLOCATED TO GOODWILL. THE LEARNED AUTHORISED REPRESENTATIVE HAS POINT ED OUT THAT SINCE IT WAS LUMPSUM SALE FOR TRANSFER OF ON GOING CONCERN THEREFORE NO VALUE WAS ASSIGNED TO THE SPECIFIC ASSETS IN THE AGREEMENT BUT THE PURCHASE CONSIDERATION WAS AGREED BETWEEN PARTIES ON LUMPSUM BASIS. THE LEARNED A.R. HAS CONTENDED 6 ITA NO S . 1469 TO 1471 /BANG/ 2 014 THAT T HE CIT (APPEALS) HAS RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE SHARP BUSINESS SYSTEM (SUPRA) WHEREAS THE JURISDICTIONAL HIGH COURT IN THE SUBSEQUENT JUDGMENT IN THE CASE OF CIT VS. INGERSO L L RAND INTERNATIONAL INDIA LTD. 48 TAXMANN.COM 34 9 (KAR) HAS DECIDED THIS ISSUE OF DEPRECIATION ON NON - COMPETE FEES IN FAVOUR OF THE ASSESSEE. HE LEARNED AUTHORISED REPRESENTATIVE HAS POINTED OUT THAT HON'BLE HIGH COURT AFTER CONSIDERING THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF SHARP BUSI NESS SYSTEM (SUPRA) HAS DECIDED THIS ISSUE. THEREFORE, IN VIEW OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT, THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE. HE HAS ALSO RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF AR E VA T & D INDIA LTD. V DCIT (2012) 345 ITR 421 AND SUBMITTED THAT IN AN IDENTICAL CASE THERE WAS A LUMP SUM SALE, THE HON'BLE DELHI HIGH COURT HAS HELD THAT THE INTANGIBLE ASSETS IN THE NATURE OF BUSINESS INFORMATION, BUSINESS RECORD, CONTRACT, EMPLOYEES A ND KNOW - HOW FALL IN THE GENUS OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRADE OF ASSESSEE FACILITATING SMOOTH CARRYING ON THE BUSINESS AND THEREFORE ELIGIBLE FOR DEPRECIATION UNDER SECTION 31(1)(II) OF THE ACT. 7 ITA NO S . 1469 TO 1471 /BANG/ 2 014 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT NEITHER ANYTHING MENTIONED IN THE BTA NOR IN THE ARRANGEMENT BETWEEN PARTIES WHICH CAN INDICATE THAT THERE WAS ANY TRANSFER OF INTANGIBLE ASSET IN THE TRANSACTION OF CONTRACT MANUFACTURE SERVICE DIVISI ON OF TVS ELECTRONICS LTD. . FURTHER, THE TERM CUSTOMER RELATIONSHIP RIGHT DOES NOT FIND PLACE IN SECTION 32(1)(II) AND THIS T ERM ALSO NOT SIMILAR TO THE TERMS OF KNOW HOW, PATENT, COPY RIGHT, TRADE MARK, BUSINESS OR FRANCHISE. THEREFORE, IN VIEW OF TH E JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEM (SUPRA), THE PAYMENTS MADE BY THE ASSESSEE ON ACCOUNT O F BUSINESS RELATIONSHIP RIGHT OR NON - COMPETE FEES IS NOT ELIGIBLE FOR DEPRECIATION. 6. WE HAVE HEARD THE RIVAL SUBMI SSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TRANSACTION OF PURCHASE OF CONTRACT MANUFACTURING SERVICE DIVISION OF TVS ELECTRONICS LTD. BY THE ASSESSEE VIDE BTA DT.31.5.2007 IS SLUMP SALE AS THE CONSIDERATION WAS AGREED AND PAID IN LUMP SUM WITHOUT ASSIGNING ANY VALUE TO SPECIFIC ASSETS. THEREFORE AS PER THE AGREEMENT THE CONSIDERATION WAS PAID LUMP SUM WITHOUT GIVING ANY DETAILS OF PAYMENT FOR ANY SPECIFIC ASSETS. THE BUSINESS WAS PURCHASED BY THE ASSESSEE AND IT WAS TRANSFERRED BY THE TVS ELECTRONICS AS AN ON GOING BUSINESS/DIVISION. HOWEVER, 8 ITA NO S . 1469 TO 1471 /BANG/ 2 014 IN ITS BOOKS OF ACCOUNTS THE ASSESSEE HAS VALUED THE FIXED ASSET AND INTANGIBLES AS PER THE VALUATION MADE BY THE CONSULTANTS AS UNDER : (IN RS. MILLION) LAND 29.013 BUILDING 15.286 P LANT AND MACHINERY 39.230 OTHER FIXED ASSETS 14.076 INVENTORY - RAW MATERIAL 92.062 - FINISHED AND SEMI - FINISHED GOODS 23.368 DEBTORS 97.793 LOANS AND ADVANCES 45.410 TOTAL ASSETS 356.238 CURRENT LIABILITIES AND PROIVSIONS 79.571 NET ASSETS TAKEN OVE R 276.667 ADVANCE FOR BUILDING 53.614 CUSTOMER RELATIONSHIPS 67.491 GOODWILL 25.563 TOTAL VALUE OF ASSETS TAKEN OVER (NET) 423.335 THUS IT IS CLEAR THAT THE EXCESS AMOUNT PAID BY THE ASSESSEE OVER AND ABOVE THE VALUE ASSIGNED TO THE VARIOUS ASSETS H AD BEEN ASSIGNED TO TWO INTANGIBLES NAMELY CUSTOMER RELATIONSHIP AND GOODWILL . THE ASSESSEE DID NOT CLAIM ANY DEPRECIATION ON THE VALUE OF RS.2.55 CRORES ASSIGNED TO THE GOODWILL AND THEREFORE THE SAME WAS NOT AN ISSUE BEFORE THE AUTHORITIES BELOW. TH E ASSESSEE CLAIMED DEPRECIATION IN RESPECT OF THE AMOUNT OF RS.6.74 CRORES WHICH 9 ITA NO S . 1469 TO 1471 /BANG/ 2 014 WAS ASSIGNED TO CUSTOMER RELATIONSHIP (INTANGIBLE). THE ASSESSEE TOOK A PLEA THAT THIS AMOUNT WAS PAID AS NON - COMPETE FEES AS THE SELLER HAS EXPRESSED, AGREED AND UNDERTOOK NO T TO PARTICIPATE OR ENGAGE IN ANY JURISDICTION AS A OWNER OR PARTNER OR AS SHAREHOLDER OR IN ANY CAPACITY IN THE BUSINESS OF CONTRACT MANUFACTURING SERVICES WHICH WAS TRANSFERRED TO THE ASSESSEE. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS REFERRED TO THE ARTICLE 11 OF B TA IN SUPPORT OF HIS CONTENTION THAT THE PAYMENT WAS MADE FOR NON - COMPETE FEES. HOWEVER, IN THE ABSENCE OF ANY AGREEMENT BETWEEN THE PARTIES FOR ANY CONSIDERATION ON ACCOUNT OF NON - COMPETE FEES AS WELL AS IN THE ABSENCE OF ANY SUCH VA LUE ASSIGNED TO THE NON - COMPETE FEES IN THE BOOKS OF ACCOUNTS, WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE SAID PAYMENT IS MADE AS NON - COMPETE FEES. THE ASSESSEE IN ITS BOOKS OF ACCOUNTS HAS ALLOCATED S UM TO THE INTANGIBLE BEING CUSTOMER RELATIONSHIP. THEREFORE, THOUGH THE SELLER HAS AGREED NOT TO ENGAGE IN ANY BUSINESS FOR A PERIOD OF THREE YEARS OR PARTICIPATE OR ENGAGE AS OWNER, PARTNER SHAREHOLDER, CONSULTANT, ADVISOR OR ANY OTHER CAPACITY SOLICIT T HE EMPLOYEE S OF THE CMS BUSINESS HOWEVER IN THE ABSENCE OF ANY INTENTION OF PARTIES TO PAY CONSIDERATION FOR SUCH RESTRICTI VE COVENANTS IN THE AGREEMENT 10 ITA NO S . 1469 TO 1471 /BANG/ 2 014 T HE PAYMENT IN QUESTION CANNOT BE REGARDED AS NON - COMPETE FEES. THEREFORE, THE DECISION OF THE HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF IN GERSO L L RAND INTERNATIONAL INDIA LTD. (SUPRA) WILL NOT H ELP THE CASE OF THE ASSESSEE. AS REGARDS THE NATURE OF PAYMENT IN QUESTION, AS TREATED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS BEING CUSTOMER RELATIONSH IP, THE ISSUE IS CLEARLY DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEM (SUPRA). HOWEVER, THIS CAN BE LOOKED FROM ANOTHER ANGLE BECAUSE THE ASSESSING OFFICER WHILE DENYING THE CLAIM OF DE PRECIATION HAS TAKEN A VIEW THAT THE CUSTOMER RELATIONSHIP RIGHTS ARE IN THE NATURE OF GOODWILL AS UNDER : THE SUBMISSIONS MADE BY COMPANY ARE CONSIDERED. THE ASSESSEE HAS RELIED UPON SECTION 32(1)(II) OF THE INCOME TAX ACT, STATING THAT THE WORDINGS NY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE GIVES SCOPE TO MANY SUCH BUSINESS OR COMMERCIAL RIGHTS INCLUDING CUSTOMER RELATIONSHIP RIGHTS WHICH ARE AS PER ASSESSEE ALMOST IN NATURE OF GOODWILL. HENCE THERE IS NO DISPUTE THAT CUSTOMER RELATI ONSHIP RIGHTS ARE IN NATURE OF GOODWILL. THEREFORE THE CLAIM OF THE ASSESSEE IS REQUIRED TO BE CONSIDERED BY TREATING THE SAID PAYMENT AS GOODWILL. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COU RT IN THE CASE OF CIT VS. SMSIFS SECURITIES LTD. 348 ITR 302 AND SUBMITTED THAT IN VIEW OF THE SAID 11 ITA NO S . 1469 TO 1471 /BANG/ 2 014 JUDGMENT OF THE HON'BLE SUPREME COURT, GOOD WIL L ELIGIBLE FOR DEPRECIATION AS PER THE SECTION 31(1)(II) OF THE ACT. SINCE THE ASSESSEE DID NOT CLAIM DEPRECI ATION ON GOODWILL IN THE RETURN OF INCOME AND EVEN NOT MADE ANY CLAIM BEFORE THE CIT (APPEALS). THEREFORE, THE ISSUE OF ALLOWING DEPRECIATION ON GOODWILL HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW. 7 . THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROU ND IN RESPECT OF DEPRECIATION ON GOODWILL AS UNDER : THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE CUSTOMER RELATIONSHIP RIGHTS (NON - COMPETE FEES) ARE AKIN TO ANY OTHE R BUSINESS OR COMMERCIAL RIGHTS AND THEREFORE ELIGIBLE FOR DEPRECIATION UNDER THE PROVISIONS OF SECTION 32(1)(II) OF THE ACT. ADDITION AL GROUND OF A PPEAL NO 1 WITHOUT PREJUDICE TO THE APPELLANT S CONTENTION THAT DEPRECIATION SHOULD BE ALLOWED ON THE NON - COMPETE FEES, THE LEARNED ASSESSING OFFICER / COMMISSIONER OF INCOME - TAX (APPEAL S) HAVE ERRED IN LAW AND FACTS IN NOT ALLOWING THE NON - COMPETE FEES PAID BY THE APPELLANT AS REVENUE EXPENDITURE SINCE THE SAME HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. ADDITION AL GROUND OF A PPEAL NO 2 THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW, AND IN FACT S , IN NOT ALLOWING DEPRECIATION ON GOODWILL AS PER SECTION 32(1)(II) OF THE ACT, AMOUNTING TO RS .5,992,765 I . E 25% OF THE WRITTEN DOWN VALUE OF THE TOTAL GOODWILL AMOUNTING TO RS 31,961,412 , WHICH AROSE ON ACCOUNT OF ACQUISITION OF THE CONTRACT MANUFACTURING SERVICES DIVISION OF TVS ELECTRONICS LIMITED UNDER A SLUMP SALE ARRANGEMENT BY EXECUTING A BUSINESS TRANSFER AGREEMENT. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL O N RECORD. THE ISSUE OF DEPRECIATION ON GOODWILL IS A LEGAL ISSUE AND DOES NOT REQUIRE ANY FURTHER INVESTIGATION OF FACT AS THE ASSESSING OFFICER HAS 12 ITA NO S . 1469 TO 1471 /BANG/ 2 014 NOT DISPUTED OR DISTURBED THE VALUATION ALLOCATED/ASSIGNED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS TO THE FIXED ASSETS AND INTANGIBLES INCLUDING GOODWILL. THEREFORE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE, WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. SINCE THIS ISSUE HAS BEEN RAISED FOR THE FIRST TIME BY THE A SSESSEE BEFORE US, THEREFORE WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR DECIDING THE SAME AS PER LAW. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COU RT ON THE 9 TH DAY OF MARCH, 201 6 . SD/ - (ABRAHAM P GEORGE) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELL ANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE