AT&T Communication Services India Pvt Ltd, V. DCIT Circle 2 (1),

ITA 1620/DEL/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81786 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-02-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 03-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: SALIL KAPOOR SHRI VIKAS JAIN
• Keywords: Capital asset; Depreciation; Question of law; Cost of acquisition; Revised return; Capital expenditure
• Section: 143(3); 234B; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A , NEW DELHI) BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1620,4257/DEL/2007 I.T.A.NO.2450 & 4660/DEL/2010 ASSESSMENT YEARS : 2003-04, 2004-05, 2005-06, 2006- 07 M/S. AT&T COMMUNICATION VS. DCIT, CIRCLE 2(1), INDIA P. LTD., MOHAN DEV HOUSE, NEW DELHI-110 002 13, TOLSTOY MARG, NEW DELHI-110 020 GIR / PAN: AACCA8033E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL KAPOOR SHRI VIKAS JAIN, ADV. RESPONDENT BY : SHRI Y KAKKAR, DR ORDER PER T.S. KAPOOR, AM: THESE ARE FOUR APPEALS FILED BY THE ASSESSEE AGAIN ST SEPARATE ORDERS OF LD. CIT(A) DATED 28.04.2006, 27.07.2007, 29.03.2010 AND 10.08.2010 FOR THE ASSESSMENT YEARS 2003-04, 2004-0 5, 2005-06 & 2006-07 RESPECTIVELY. THESE APPEALS WERE HEARD TOG ETHER THEREFORE, FOR THE SAKE OF CONVENIENCE, A COMMON AND CONSOLIDA TED ORDER IS BEING PASSED. THE GROUNDS OF APPEAL TAKEN BY THE A SSESSEE IN THESE FOUR YEARS ARE AS UNDER: I. ASSESSMENT YEAR 2003-04: 1.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A)- V, NEW DELHI ERRED IN UPHOLDING THE ADDITION OF RS. 81,68,529/- AS ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 2 INCOME OF THE APPELLANT, BEING THE AMOUNT RECEIVED/ RECEIVABLE FROM BIRLA AT&T COMMUNICATIONS LIMITED (NOW KNOWN AS IDE A CELLULAR LIMITED) BIRLA AT&T) TOWARDS EXPENSES TO BE INCURRE D ON BRAND BUILDING ACTIVITIES. 1.1.WITHOUT PREJUDICE AND IN ALTERNATIVE, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NOT ALL OWING DEDUCTION OF EXPENSE AMOUNTING TO RS.4,60,81,783/- BEING THE AMO UNT OF EXPENSES INCURRED DURING THE YEAR ON BRAND BUILDING ACTIVITI ES. 2.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.25,53,367 /- BEING DEPRECIATION CLAIMED UNDER SECTION 32(1)(II) OF THE ACT ON THE COMMERCIAL RIGHTS ACQUIRED BY THE APPELLANT. 3.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST UNDER SECTI ON 234B OF THE ACT. II. ASSESSMENT YEAR 2004-05: 1.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A)- V, NEW DELHI ERRED IN NOT ALLOWING DEDUCTION OF EXP ENSE AMOUNTING TO RS.2,66,42,537/- BEING THE AMOUNT OF EXPENSE TO BE INCURRED ON BRAND BUILDING ACTIVITIES. 2.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.19,15,025 /- BEING DEPRECIATION CLAIMED UNDER SECTION 32(1)(II) OF THE ACT ON THE COMMERCIAL RIGHTS ACQUIRED BY THE APPELLANT. 3.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN NOT ADJUDICATING THE APPELLANTS CLAIM FO R EXPENSES OF RS.11,30,052/- BEING EXPENSES PERTAINING TO THE ASS ESSMENT YEAR 2004-05. 4.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST U/S 234B AN D 234D OF THE ACT. III. ASSESSMENT YEAR 2005-06: 1.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS. 62,52,884/- BEING AMOUNTS SPENT TOWARDS BRAND BUILDING ACTIVITIES. 2.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.14,36,269 /- BEING ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 3 DEPRECIATION CLAIMED U/S 32 OF THE ACT ON INTANGIBL E ASSETS BEING COMMERCIAL RIGHTS ACQUIRED BY THE APPELLANT. 3.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST U/S 234D OF THE ACT. IV. ASSESSMENT YEAR 2006-07: 1.THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.10,77,202/- BEING DEPRECIATION CLAIMED U/S 32 OF THE ACT ON INT ANGIBLE ASSETS BEING COMMERCIAL RIGHTS ACQUIRED BY THE APPELLANT. 2.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITION OF R S.52,57,130/- RELATING TO WRITE BACK OF LIABILITY IN RESPECT OF P URCHASE OF FIXED ASSETS TO THE INCOME OF THE APPELLANT U/S 41(2) OF THE ACT . 2.2 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE P ROVISIONS OF SECTION 41(2) OF THE ACT ARE NOT APPLICABLE TO THE APPELLAN T. 2. GROUND NO.1 IN RESPECT OF ASSESSMENT YEARS 2003-04, 2004-05 AND 2005-06 IS COMMON, WHICH RELATES TO THE GRIEVANCE O F THE ASSESSEE WITH THE ACTION OF LD. CIT(A) BY WHICH HE HAD NOT A LLOWED DEDUCTION FOR EXPENSE INCURRED ON BRAND BUILDING ACTIVITIES. GROUND NO.1 IN ASSESSMENT YEAR 2003-04 ALSO INCLUDES ACTION OF LD. CIT(A) BY WHICH HE HAD CONFIRMED THE ACTION OF ASSESSING OFFI CER IN TREATING THE AMOUNT RECEIVED FROM BIRLA (AT&T) TOWARDS EXPENSES TO BE INCURRED ON BRAND BUILDING AS INCOME OF THE ASSESSEE. 3. AT THE OUTSET, IN RESPECT OF GROUND NO.1 IN RESPECT OF ASSESSMENT YEARS 2003-04 TO 2005-06, LD. A.R. SUBMITTED THAT THE A.O. AND CIT(A) HAD FOLLOWED EARLIER ORDER IN THE CASE OF AS SESSEE ITSELF FOR THE ASSESSMENT YEAR 2001-02 AND HAD MADE THE ADDITION W HEREAS THE SAME ORDER HAS ALREADY BEEN SET ASIDE BY THE TRIBUN AL AND IN THIS RESPECT, OUR ATTENTION WAS INVITED TO PAPER BOOK PA GES 1-13 WHERE A ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 4 COPY OF SUCH ORDER WAS PLACED. IT WAS FURTHER SUBM ITTED THAT THE SAID ORDER WAS CONFIRMED BY HONBLE DELHI HIGH COURT, A COPY OF WHICH WAS PLACED AT PAPER BOOK PAGES 14-20. IN VIEW OF T HE ABOVE, IT WAS SUBMITTED THAT FOLLOWING ASSESSMENT YEAR 2001-02, G ROUND NO.1 IN ASSESSMENT YEARS 2003-04, 2004-05 & 2005-06 NEED TO GO BACK TO ASSESSING OFFICER FOR READJUDICATION. 4. LD. D.R. HEAVILY RELIED UPON THE ORDERS OF AUTHORIT IES BELOW AND SUBMITTED THAT ISSUE OF ADDITION ON ACCOUNT OF BRAN D BUILDING FUND AND THE ISSUE OF THE ALLOWANCE OF BRAND BUILDING EX PENSES ARE TWO SEPARATE ISSUES. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUGH T HE MATERIAL PLACED ON RECORD. AS PER AGREEMENT BETWEEN THE ASSESSEE A ND BIRLA AT&T COMMUNICATIONS LTD., THE ASSESSEE HAD BEEN RECEIVIN G CERTAIN AMOUNTS FROM BIRLA AT&T COMMUNICATIONS INDIA LTD. ( NOW KNOWN AS IDEA CELLULAR LTD.), WHICH WERE TO BE INCURRED F OR BRAND BUILDING ACTIVITIES. DURING THE ASSESSMENT YEAR 2003-04, TH E ASSESSEE HAD RECEIVED AN AMOUNT OF RS.81,68,529/- FROM THE SAID COMPANY, WHICH THE ASSESSING OFFICER HAS TREATED THE INCOME OF ASS ESSEE. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN ASSESSMENT YEARS 2001-02 & 2002-03, COPIE S OF SUCH ORDER ARE PLACED AT PAPER BOOK PAGES 1-13 AND 21-35. THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2001-02 HAS ALSO BEEN C ONFIRMED BY HONBLE DELHI HIGH COURT, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 14-20. THE HONBLE DELHI HIGH COURT AFTER IN CORPORATING THE FINDINGS OF THE TRIBUNAL HAS DISMISSED THE APPEAL O F THE REVENUE. THE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 5 RELEVANT PORTION OF THE HONBLE HIGH COURT ORDER A S CONTAINED AT PARAGRAPHS 5-7 OF THE SAID ORDER IS REPRODUCED BELO W: 5. THE RELEVANT PORTION OF THE ORDER OF THE TRIBU NAL IN THIS BEHALF IS REPRODUCED BELOW: - ' ... .IT APPEARS THAT BOTH THE AO AND THE LEARNED CIT(A), 'HOWEVER, RELIED MORE ON THE SAID AGREEMENT TO DRAW AN INFERENCE ABOUT THE NATURE OF THE AMOUNT IN QUESTIO N RECEIVED BY THE ASSESSEE COMPANY AND THE TAXABILITY THEREOF IN ITS HANDS. THEY HOWEVER, APPEAR' TO HAVE NOT ASSIGNED THE DU E IMPORTANCE TO THE AGREEMENT/ARRANGEMENT BETWEEN THE ASSESSEE COMPANY AND AT &T CORPORATION, USA WHEREBY THE TERM S AND' CONDITIONS OF THE APPOINTMENT OF THE ASSESSEE COMPA NY AS A DESIGNEE AND INDEPENDENT CONTRACTOR WERE FINALIZED WHICH IN FACT' WERE RELEVANT AND MATERIAL' TO ASCERTAIN THE EXACT NATURE OF AMOUNT IN' QUESTION RECEIVED BY THE ASSESSEE COM PANY. BEFORE 'US, .THE LEARNED COUNSEL FOR THE ASSESSEE H AS FILED ONLY THE COPY OF LETTER DATED 10.9.1998 ADDRESSED' BY AT &T CORPORATION, USA TO BIRLA AT&T INFORMING ABOUT THE SELECTION OF THE ASSESSEE COMPANY AS ITS DESIGNEE AND AN INDE PENDENT CONTRACTOR TO PERFORM BRAND SERVICES. HOWEVER, IN T HE ABSENCE OF ANY OTHER DETAILS GIVEN THEREIN ABOUT THE TERMS AND CONDITIONS DETERMINING THE RIGHTS AND OBLIGATIONS O F BOTH THE PARTIES, WE FIND THAT THE SAME ALONE IS NOT SUFFICI ENT TO DECIDE THE ISSUE IN DISPUTE. EVEN THE SUBMISSION OF THE LE ARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE COMPANY, AS A DE SIGNEE AND INDEPENDENT CONTRACTOR WAS MERELY TO RECEIVE THE A MOUNT IN' QUESTION FROM BIRLA AT&T ON BEHALF OF AT&T CORPORAT ION, USA AND TO SPEND THE SAME WHOLLY FOR THE SPECIFIED EXPENDITURE WITHOUT RETAINING ANY REMUNERATION FOR ITSELF NEEDS TO BE VERIFIED BY EXAMINING THE RELEVANT DOCUMENTS GOVERN ING THE ARRANGEMENT BETWEEN THE ASSESSEE COMPANY AND AT&T CORPORATION, USA. KEEPING IN VIEW ALL THESE ASPECTS OF THE MATTER; WE ARE OF THE VIEW THAT IT WOULD BE FAIR AN D REASONABLE AND IN THE INTEREST OF JUSTICE TO SET ASIDE THE IMP UGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE MA TTER TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSU E RELATING TO THE EXACT NATURE OF THE AMOUNT IN QUESTION RECEIVED BY THE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 6 ASSESSEE COMPANY AND TAXABILITY OF THE SAME IN ITS HANDS AFRESH AFTER EXAMINING THE EXACT ARRANGEMENT BETWEEN THE A SSESSEE COMPANY AND AT &T CORPORATION, USA IN THIS REGARD.' 6. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE P LEA RAISED BEFORE THE TRIBUNAL, STATING THE AFORESAID ARRANGEM ENT ALLEGEDLY ENTERED BETWEEN THE ASSESSEE AND THE AT&T , USA, WAS NOT TAKEN BEFORE THE ASSESSING OFFICER OR THE C IT(A) AND IT WAS A NEW CASE SET UP BEFORE THE TRIBUNAL FOR THE F IRST TIME. AFTER GOING THROUGH THE ORDERS PASSED BY THE ASSESS ING OFFICER AS WELL AS- THE CIT(A), WE ARE NOT IN A POSITION T O .ACCEPT THE AFORESAID SUBMISSION MADE BY THE LEARNED COUNSEL FO R THE REVENUE. PARAGRAPH 3 OF THE ORDER OF THE ASSESSING OFFICER CATEGORICALLY RECORDS THE AFORESAID STAND OF THE AS SESSEE. IN FACT, IN THE NOTES APPENDED TO THE BALANCE SHEET AT POINT '6', THE AFORESAID PLEA WAS SPECIFICALLY TAKEN BY THE ASSES SEE WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN THE IMPUGNED ORDER'. HOWEVER, AFTER REPRODUCING -THE SA ME, THE ASSESSING OFFICER HAD SHIFTED HIS ATTENTION TO THE SERVICE MARK AGREEMENT DATED 30TH JULY, 1996- AND ULTIMATELY MAK ES THE- ADDITION ALSO RECORDED THE SUBMISSION OF THE ASSESS EE IN THIS BEHALF AS CONTAINED IN THE LETTERS WRITTEN BY THE A SSESSEE TO THE ASSESSING OFFICER BUT WHILE ARRIVING AT ITS CONCLUS ION THOSE ARE TOTALLY GLOSSED OVER, CONFINING THE DISCUSSION TO T HE SERVICE MARK AGREEMENT. 7. THE AFORESAID NARRATION WOULD DISCLOSE THAT THE INCOME TAX APPELLATE TRIBUNAL HAS NOT ACCEPTED THE VERSION OF THE ASSESSEE AS A GOSPEL TRUTH BUT HAS ONLY GIVEN THE D IRECTIONS TO THE ASSESSING OFFICER TO VERIFY THE VERSION PUT FOR TH BY THE ASSESSEE AND DECIDE ON THAT BASIS, SINCE THIS WAS A N EXERCISE NOT UNDERTAKEN BY THE ASSESSING OFFICER. WE DO NOT FIND ANY INFIRMITY IN THE AFORESAID APPROACH OF THE TRIBUNAL . NO QUESTION OF LAW ARISES. 6. FROM THE ABOVE FINDINGS OF THE HONBLE HIGH COURT W E FIND THAT HON'BLE HIGH COURT HAS DECIDED THE ISSUE OF RECEIPT OF AMOUNTS BUT HAS NOWHERE DECIDED ON THE ISSUE OF BRAND BUILDING EXPENSES WHICH ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 7 THE ASSESSEE HAD CLAIMED IN ITS PROFIT & LOSS ACCOU NT. IN OUR OPINION, LD. A.R. HAD WRONGLY CLAIMED THE ISSUE OF BRAND BUI LDING EXPENSES AS COVERED IN FAVOUR OF THE ASSESSEE AS THE TRIBUNAL A ND HON'BLE HIGH COURT HAS CONSIDERED THE ISSUE OF RECEIPT OF AMOUNT S AS BRAND BUILDING FUND. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE HIGH COURT ORDER, WE RESTORE GROUND NO.1 IN ASSESSMENT YEAR 2003-04 T O THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH KEE PING IN VIEW THE EARLIER DIRECTIONS OF THE TRIBUNAL IN A.Y. 2001-02. 7. GROUND NO.1.1 IN ASSESSMENT YEAR 2003-04 & GROUND N O.1 IN ASSESSMENT YEARS 2004-05 & 2005-06 RELATES TO THE A CTION OF CIT(A) BY WHICH HE HAD CONFIRMED THE DISALLOWANCE OF THE A MOUNT SPENT BY THE ASSESSEE TOWARDS BRAND BUILDING ACTIVITIES. A. O. HAS NOT MADE ANY ADDITION ON ACCOUNT OF BRAND BUILDING EXPENSES IN A SSESSMENT YEAR 2003-04. HOWEVER, ASSESSEE DURING PROCEEDINGS BEFO RE LD. CIT(A) HAD CLAIMED THAT IF THE AMOUNTS RECEIVED TOWARDS BR AND BUILDING FUND WERE TO BE TREATED AS TAXABLE INCOME OF THE ASSESSE E THEN AMOUNT SPENT ON BRAND BUILDING AMOUNTING TO RS.4,60,81,783/- SHO ULD BE ALLOWED. LD. CIT(A) WITHOUT COMMENTING ON THE ALTERNATIVE PL EA OF THE ASSESSEE FOLLOWING THE EARLIER ORDER OF 2001-02, DI SMISSED THE GROUND OF APPEAL. IN ASSESSMENT YEAR 2004-05 TO 2005-06, THERE WERE SPECIFIC ADDITIONS ON ACCOUNT OF DISALLOWANCE OF BR AND BUILDING EXPENSES. THE A.O. HAD MADE THE ADDITION OF RS.2,6 6,42,537/- CONSISTING OF RS.1,66,76,710/- AS BRAND BUILDING E XPENSES INCURRED OUT OF BRAND FUND AND FURTHER RS.99,65,827/- BECAUS E OF BRAND ACTIVITY EXPENSES DEBITED IN P & L ACCOUNT. THE FIGURES IN ASSESSMENT YEAR 2005-06 ARE OUT OF BRAND FUND NIL AND OUT OF P & L ACCOUNT ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 8 RS.62,82,554/-. LD. CIT(A) HAS DEALT WITH THIS ISSU E IN ASSESSMENT YEAR 2004-05 VIDE PARA 2 & 2.1 OF HIS ORDER, WHICH IS REPRODUCED BELOW: 2. THE FIRST GROUND OF APPEAL RELATES TO ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.2,66,42,537/- BEING AMOUNT OF EXPENSES INCURRED TOWARD BRAND BUILDING A CTIVITIES. THE APPELLANT HAS SUBMITTED THAT IN VIEW OF THE ADD ITIONS MADE IN THE EARLIER YEARS ON ACCOUNT OF AMOUNTS RECEIVED / RECEIVABLE FROM BRAND AT&T TOWARDS THE BRAND FUND, THE EXPENSE S IN ALL AMOUNTING TO RS.2,66,42,537/- SHOULD BE ALLOWED AND INCOME BE COMPUTED ACCORDINGLY. 2.1 THIS ISSUE WAS ALSO AN ISSUE BEFORE MY PREDECES SOR FOR A.Y.2001-02 AND 2002-03 AND BEFORE ME FOR A.Y. 2003 -04 AND FOR REASONS RECORDED THEREIN THE APPELLANTS CLAIM IN THIS REGARD WERE REJECTED. SINCE THE FACTS OF THE CASE REMAINING THE SAME AND LOOKING TO THE OVERALL FACTS AND REASONS F OR SUCH DISALLOWANCES OF EXPENSES, I DO NOT FIND ANY REASON S TO INTERFERE WITH THE ORDER OF THE A.O. AND THEREFORE IN LINE WI TH ORDER OF MY PREDECESSOR AS WELL AS MY OWN ORDER FOR A.Y. 2003-0 4 DATED 5.12.2006, THIS GROUND OF APPEAL IS DISMISSED. 8. LD. CIT(A) IN ASSESSMENT YEAR 2005-06 HAS DEALT WIT H SIMILAR ISSUE VIDE PARA 3 TO 3.5 AND FOR THE SAKE OF READY REFERE NCE, THE SAME IS REPRODUCED BELOW: 3. THE SECOND GROUND OF APPEAL RELATES TO ADDITION OF RS 62,82,554/- MADE BY THE ASSESSING OFFICER BEING AMO UNTS SPENT TOWARDS BRAND BUILDING ACTIVITIES. A BRAND FUND AGR EEMENT WAS ENTERED INTO BY BIRLA AT&T COMMUNICATIONS LIMITED ( 'BIRLA AT&T') AND AT&T CORP.(USA) WHICH PROVIDED THAT AT&T CORP, EITHER DIRECTLY OR THROUGH ITS DESIGNEE (BEIN G THE APPELLANT), WOULD UNDERTAKE BRAND BUILDING ACTIVITI ES FOR BUILDING THE AT&T BRAND IN INDIA. THE EXPENSES ON S UCH BRAND BUILDING ACTIVITIES WERE AGREED TO BE REIMBURSED BY BIRLA AT&T. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE APPELLANT CLAIMED THAT SINCE THE ADDITIONS WERE MAD E IN THE EARLIER YEARS ON ACCOUNT OF ADVANCE RECEIVED FROM B IRLA AT&T ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 9 TOWARDS BRAND BUILDING ACTIVITIES, THE EXPENSES, HA VING A DIRECT NEXUS WITH THE INCOME ALREADY TAXED, SHOULD BE ALLO WED AND INCOME BE COMPUTED ACCORDINGLY. 3.1 THE A.O. HELD THAT THE EXPENDITURE WAS INCURRED FOR BRAND BUILDING OF AT&T CORP (USA) AND FALLS WITHIN THE RE ALM OF CAPITAL EXPENDITURE EXPENDED TO CREATE A CAPITAL AS SET VIZ. BRAND OR GOODWILL AND CONSEQUENTLY DISALLOWED THE C LAIM OF THE APPELLANT. 3.2 DURING THE APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THAT A DEDUCTION FOR THE EXPENDITURE DEBITED TO PRO FIT & LOSS ACCOUNT IN RESPECT OF BRAND BUILDING ACTIVITIES SHO ULD BE ALLOWED, GIVEN THE FACT THAT CORRESPONDING CREDITS HAVE BEEN DEEMED AS INCOME OF THE APPELLANT IN THE EARLIER YE ARS. 3.3 THE APPELLANT FURTHER CONTENDED THAT THE REIMBU RSEMENTS WERE RECEIVED FOR THE SPECIFIC PURPOSE OF SPENDING THE D ESIGNATED AMOUNTS AND WERE SPENT FOR THAT PURPOSE AND THEREFO RE WERE ALLOWABLE AS EXPENDITURE IRRESPECTIVE OF ITS NATURE , WHETHER CAPITAL OR REVENUE. HOWEVER, WITHOUT PREJUDICE TO T HE ABOVE, THE APPELLANT ALSO CONTENDED THAT BRAND BUILDING EX PENDITURE IS NOT CAPITAL IN NATURE. RELIANCE IN THIS REGARD HAS BEEN PLACED IN DCIT VS. CORE HEALTHCARE LTD. [2009] 308 ITR 263 (G UJ) AND GLAXO SMITH KLINE CONSUMER HEALTHCARE LTD. VS. ACIT [2007] 112 TT] 94 (CHD.) 3.4 THE APPELLANT ALSO HIGHLIGHTED THAT ERRONEOUSLY THE DISALLOWANCE OF RS 62,82,554/- HAS BEEN MADE AS AGA INST RS.62,52,884/- DEBITED TO THE PROFIT AND LOSS ACCOU NT. 3.5 THE ISSUE WAS ALSO AN ISSUE BEFORE MY PREDECES SORS FOR EARLIER YEARS. SINCE THE FACTS OF THE CASE REMAINED THE SAME, THEREFORE IN LINE WITH ORDER OF MY PREDECESSOR, THI S GROUND OF APPEAL IS DISMISSED. HOWEVER, THE DISALLOWANCE SHOU LD BE RESTRICTED TO THE AMOUNT DEBITED TO PROFIT AND LOSS ACCOUNT, I.E. RS 62,52,884/-. 9. LD. A.R. HAD SUBMITTED THAT THIS ISSUE RELATING TO THE ALLOWABILITY OF BRAND BUILDING ACTIVITIES HAD ARISEN AS ASSESSEE WA S TAXED FOR AMOUNTS RECEIVED FOR BRAND BUILDING FUND. WE FIND THAT ASS ESSEE DURING APPELLATE PROCEEDINGS BEFORE LD. CIT(A) HAD SUBMITT ED THAT SINCE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 10 ADVANCE RECEIVED BY ASSESSEE ON ACCOUNT OF BRAND BU ILDING FUNDS HAD BEEN TAXED BY THE REVENUE THEREFORE, BRAND BUILDING EXPENSES SHOULD BE ALLOWED AS EXPENSES. WE FIND THAT THE ISSUE OF RECEIPT OF AMOUNT AS BRAND BUILDING FUND AND EXPENSES INCURRED FOR BRAND BUILDING ARE INTERCONNECTED. WE HAVE ALREADY SET ASIDE THE ISSU E OF TAXABILITY OF RECEIPTS FOR READJUDICAITON FOLLOWING THE EARLIER Y EAR AND SINCE THE ISSUE OF BRAND BUILDING EXPENSES IS DIRECTLY RELATE D TO THE AMOUNT RECEIVED FOR BRAND BUILDING FUND, WE ARE OF THE OPI NION THAT THIS ISSUE REGARDING ALLOWANCE OF BRAND BUILDING EXPENSES BE A LSO EXAMINED BY THE A.O. AFRESH TOGETHER WITH THE TAXABILITY OF THE AMOUNT RECEIVED TOWARDS BRAND BUILDING FUND. THE ASSESSING OFFICER SHOULD GO THROUGH THE RELEVANT AGREEMENTS AND SHOULD DEAL WITH THE IS SUE OF TAXABILITY OF AMOUNTS RECEIVED AS BRAND BUILDING FUND AND FURTHER SHOULD EXAMINE THE ALLOWABILITY OF BRAND BUILDING EXPENSE AS PER L AW. NEEDLESS TO SAY THAT ASSESSEE WILL BE PROVIDED REASONABLE OPPORTUNI TY OF BEING HEARD. IN VIEW OF THE ABOVE, GROUND NO.1 AND 1.1 IN ASSES SMENT YEARS 2003-04 AND GROUND NO.I IN ASSESSMENT YEARS 2004-05 & 2005-06 IS ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO.2 IN ALL THE YEARS IS COMMON WHICH RELAT ES TO THE GRIEVANCE OF THE ASSESSEE REGARDING DISALLOWANCE OF DEPRECIATION CLAIMED U/S 32 OF THE INCOME TAX ACT. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAD ACQUIRED CUSTOMERS RIGHTS WHICH WERE I N THE NATURE OF GOODWILL AND WHICH WERE CAPITALIZED IN ASSESSMENT Y EAR 2000-01 AND DEPRECIATION WAS ALLOWED ON THEM IN ASSESSMENT YEAR S 2000-01, 2001-02 & 2002-03. IN THIS RESPECT THE LD. A.R. IN VITED OUR ATTENTION TO PAGE 62 OF THE PAPER BOOK WHERE A CHART SHOWING CALCULATION OF ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 11 DEPRECIATION CLAIMED AND ALLOWED IN EARLIER YEARS W AS PLACED. LD. A.R. FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2000 -01, THE CLAIM OF DEPRECIATION WAS ALLOWED U/S 143(1) WHEREAS IN ASSE SSMENT YEAR 2001-02 DEPRECIATION WAS ALLOWED U/S 143(3). IN T HIS RESPECT, OUR ATTENTION WAS INVITED TO PAPER BOOK PAGES 65-74 WHE RE A COPY OF ASSESSMENT ORDER PASSED U/S 143(3) WAS PLACED. THE REFORE, IN VIEW OF THE ABOVE, THE LD. A.R. SUBMITTED THAT THE CLAIM OF DEPRECIATION WAS NOT FOR THE FIRST TIME AS ASSESSEE HAD ALREADY CAPI TALIZED THE VALUE OF COMMERCIAL RIGHTS IN EARLIER YEARS AND WAS BEING AL LOWED DEPRECIATION IN EARLIER YEARS AND THE A.O. CANNOT NOW DISALLOW T HE SAME IN THESE YEARS SPECIFICALLY IN VIEW OF THE FACT THAT THE DEP RECIATION WAS CLAIMED ON WRITTEN DOWN VALUES AS PER PROVISIONS OF SECTION 32(1)(II) OF THE ACT. IT WAS FURTHER SUBMITTED THAT LD. CIT(A) HAS DECIDED THE ISSUE AGAINST THE ASSESSEE IGNORING THE MAIN CONTRACT B Y WHICH ASSESSEE HAD ACQUIRED COMMERCIAL RIGHTS AND HAD IGNORED THE FACT THAT ASSETS WERE ACQUIRED IN EARLIER YEARS. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTED THAT THIS ISSUE AS TO WHETHER COMMERCIAL RIGHTS CONSTITUTE GOODWILL OR NOT, HAS BEEN FINALLY SETTLED BY HONBL E SUPREME COURT IN THE CASE OF CIT VS SMIFTS SECURITIES LTD. 24 TAXMAN .COM 222 (S.C.) & HON'BLE APEX COURT HAS HELD COMMERCIAL RIGHTS AS GOODWILL. 11. LD. D.R. ON THE OTHER HAND ARGUED THAT BEFORE ALLOW ING DEPRECIATION, IT HAS TO BE SEEN THAT THE ASSETS WERE PURCHASED BY TH E ASSESSEE AND ONLY AFTER BEING SATISFIED THAT ASSETS WERE PURCHASED, D EPRECIATION CAN BE ALLOWED. IN THIS RESPECT, OUR ATTENTION WAS INVITE D TO PAPER BOOK PAGES 33-54 WHERE A COPY OF AGREEMENT BETWEEN IBM GLOBAL SERVICES PVT. LTD. AND THE ASSESSEE WAS PLACED. OUR ATTENTION WA S ALSO INVITED TO ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 12 PAPER BOOK PAGE 33 AND IT WAS SUBMITTED THAT AGREEM ENT WAS ENTERED INTO ON 31.03.2000 AT 11.59PM. IT WAS SUBMITTED TH AT A.O. DID NOT CONSIDER THE THINGS IN EARLIER YEARS. THEREFORE, I T WAS ARGUED THAT HOW THESE ASSETS COULD BE SAID TO BE PUT TO USE DURING THE FINANCIAL YEAR ENDING 31.03.2000 AND MOREOVER, IT WAS SUBMITTED TH AT CUSTOMER CONTRACTS WERE PURCHASED SUBJECT TO CONSENT OF CUST OMERS AND CONSENT WAS NOT OBTAINED AND THEREFORE, ASSETS WERE NOT ACQ UIRED AT ALL. AS REGARDS THE ARGUMENT OF LD. A.R. THAT IN EARLIER YE ARS, DEPRECIATION WAS DULY ALLOWED LD. D.R. SUBMITTED THAT DOCTRINE O F RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS AND IF A.O. HAD COMMITTED SOME MISTAKE IN ONE YEAR, IT CANNOT BE ALLOWED TO BE CON TINUED IN SUBSEQUENT YEARS. FURTHER RELYING UPON THE PROVISI ONS OF SECTION 32(1)(II). LD. D.R. SUBMITTED THAT COMMERCIAL RIGHT S DOES NOT FIND MENTION IN THAT SECTION AND, THEREFORE, THE ASSESSE E WAS NOT ELIGIBLE FOR DEPRECIATION AT ALL. TO A QUESTION PUT BY THE BENC H AS TO WHETHER EARLIER YEAR ASSESSMENTS WERE REOPENED TO DISALLOW THE CLAIM OF DEPRECIATION ALREADY ALLOWED, LD. D.R. SUBMITTED TH AT SHE WAS NOT AWARE OF THIS FACT AND PRAYED THAT THE TRIBUNAL CAN NOW GIVE DIRECTIONS FOR REOPENING OF EARLIER YEAR ASSESSMENTS AS LIMITA TION DOES NOT APPLY IF DIRECTIONS ARE GIVEN BY THE TRIBUNAL AND IN THIS RESPECT, RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: I) 243 ITR 19 CIT VS AMY COLABAWALA II) 19 ITR 402 OAOAM MUTHIAH CHETTIAR VS CIT (MAD.) 12. INVITING OUR ATTENTION TO THE PROVISIONS OF SECTION 254(1) LD. D.R. SUBMITTED THAT ITAT HAD POWERS WHICH INCLUDE DIRECT IONS FOR RECTIFICATIONS. LD. D.R. SPECIFICALLY LAID EMPHASI S ON THE FACT THAT THE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 13 A.O. DURING THE YEAR OF PURCHASE OF SUCH RIGHTS DID NOT EXAMINE THIS ISSUE AS TO WHETHER ASSESSEE HAD ACTUALLY ACQUIRED CERTAIN INTANGIBLE PROPERTY OR NOT AS ASSESSMENT WAS MADE U/S 143(1) A ND IN NEXT YEAR HE JUST ALLOWED DEPRECIATION ON THE BASIS OF WRITTEN D OWN VALUES. IT WAS SUBMITTED THAT MISTAKE OF THE A.O. IN ONE YEAR CANN OT BE ALLOWED TO BE CONTINUED IN SUCCEEDING YEARS. 13. LD. A.R. IN HIS REJOINDER SUBMITTED THAT EARLIER YE AR CASES WERE NOT REOPENED ALTHOUGH REVENUE HAD SUFFICIENT TIME TO RE OPEN THE SAME. THEREFORE, BY IMPLICATION THE REVENUE HAD ACCEPTED THE POSITION. IT WAS FURTHER SUBMITTED THAT THE TRIBUNAL CANNOT GIVE DIRECTIONS FOR EARLIER YEARS AS THE TRIBUNAL HAS TO GIVE JUDGEMENT ON APPEAL UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED THAT DURIN G PROCEEDINGS U/S 143(3) THE A.O. HAD EXAMINED THIS ISSUE AND HAD FOU ND SATISFACTORY AND THAT IS WHY DEPRECIATION WAS NOT DISALLOWED. WITHOUT PREJUDICE, IT WAS FURTHER SUBMITTED THAT LD. CIT(A) HAS NOT GO NE INTO MAIN CONTRACT AND HAS PASSED HIS FINDINGS ON THE BASIS O F ASSUMING AGREEMENT ONLY. IT WAS SUBMITTED THAT IBM WAS IN T HE BUSINESS OF MAINTAINING NETWORK AND WHEN ASSETS WERE PURCHASED THESE WERE ACQUIRED WITH ALL CUSTOMER CONTRACTS AND WITHOUT CU STOMERS CONTRACTS WHAT WAS THE VALUE OF OTHER ASSETS. IT WAS FURTHER REITERATED THAT THESE RIGHTS WERE INDEED COMMERCIAL RIGHTS AND WERE PART OF GOODWILL AS HELD BY HONBLE SUPREME COURT IN THE CASE LAW OF CI T VS SMIFS SECURITIES. 14. IT WAS FURTHER SUBMITTED THAT LD. CIT(A) HAD ACCEPT ED THAT THESE WERE COMMERCIAL RIGHTS BUT HE DISALLOWED ON DIFFERENT GR OUND AS HE HELD ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 14 THAT IT WAS NOT CLEAR AS TO FROM WHOM CONSENT WAS T AKEN AND FROM WHOM CONSENT WAS NOT TAKEN. 15. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUGH T HE MATERIAL PLACED ON RECORD. WE FIND THAT THE ISSUE BEFORE US IS REG ARDING DEPRECIATION ON WRITTEN DOWN VALUE OF ASSETS ON WHICH DEPRECATIO N HAS ALREADY BEEN ALLOWED IN EARLIER YEARS AS THESE ASSETS WERE NOT PURCHASED DURING THE YEAR. LD. D.R. HAS STRONGLY ARGUED THAT A.O. HAD WRONGLY ALLOWED DEPRECIATION ON SUCH RIGHTS IN EARLIER YEAR S AS SUCH RIGHTS WERE NOT ACQUIRED AT ALL AND THEREFORE, A.O.S MIST AKE WAS RECTIFIED IN SUCCEEDING YEARS. HOWEVER, WE ARE NOT SATISFIED WI TH THIS ARGUMENT OF LD. D.R. AS HAD IT BEEN A WRONG ALLOWANCE OF DEP RECIATION IN ONE YEAR, THE REVENUE COULD HAVE REOPENED THE EARLIER A SSESSMENTS BY RESORTING TO THE PROVISION OF SECTION 147/148/154 O F THE ACT, WHICH HAS NOT BEEN DONE. IN OUR OPINION, THE CONFUSION OF LD. ASSESSING OFFICER AROSE, WHEN HE OBSERVED IN PARA 4.1 OF HIS ORDERS THAT ASSESSEE HAD PURCHASED SUCH COMMERCIAL RIGHTS DURING THE YEA R. SUCH OBSERVATIONS WERE MADE ON THE BASIS OF A LETTER DAT ED 27.02.2006 WRITTEN BY ASSESSEE TO EXPLAIN THE CLAIM OF DEPRECI ATION ON COMMERCIAL RIGHTS. FOR THE SAKE OF CONVENIENCE PAR A 4.1 OF ASSESSMENT ORDER IN ASSESSMENT YEAR 2003-04 IS REPR ODUCED BELOW: THE DEPRECIATION CHART FILED ALONG WITH THE RETURN OF INCOME SHOWED AN AMOUNT OF RS.25,53,367/- CLAIMED AS DEPRE CIATION @ 25% ON COMMERCIAL RIGHTS. DURING THE COURSE OF AS SESSMENT VIDE QUESTIONNAIRE DATED 06.02.2006, THE ASSESSEE W AS REQUIRED TO STATE THE NATURE OF SUCH RIGHTS AND EXPLAIN UNDE R WHAT PROVISION OF THE ACT THE SAME MAY BE ALLOWED. IN RE SPONSE, VIDE SUBMISSION DATED 27.02.2006, THE ASSESSEE FURNISHED A DETAILED NOTE REGARDING ITS CLAIM OF DEPRECIATION ON COMMERC IAL RIGHTS, WHEREIN IT WAS STATED THAT DURING THE YEAR THE ASSE SSEE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 15 PURCHASED THE INDIAN LEG OF THE BUSINESS FROM IBM I NDIA (IBM). IN CONSEQUENCE, THE ASSESSEE COMPANY ACQUIRED THE E XISTING CUSTOMER CONTRACTS FROM IBM AND THE CONSIDERATION P AID FOR ACQUIRING THE CUSTOMER CONTRACTS WERE CAPITALIZED A S COMMERCIAL RIGHTS IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. 16. IN THE SUBSEQUENT YEARS THE ASSESSING OFFICER FOLL OWED THE FINDING OF ASSESSMENT YEAR 2003-04. 17. WE HAVE GONE THROUGH REPLY FURNISHED BY THE ASSESSE E VIDE LETTER DATED 27.02.2006 PLACED AT PAPER BOOK PAGES 27 TO 3 2, WHEREIN AT PAGE 31, THE ASSESSEE HAD SUBMITTED THAT DURING THE YEAR ENDING 31.03.2000, THE ASSESSEE HAD PURCHASED SUCH COMMERC IAL RIGHTS. HOWEVER, THE A.O. IN HIS OBSERVATIONS AS NOTED IN P ARA 4.1 ABOVE NOTED THAT SUCH RIGHTS WERE PURCHASED DURING THE YE AR. HOWEVER, THE FACT REMAINED THAT SUCH RIGHTS WERE PURCHASED DURIN G THE YEAR ENDED 31.03.2000 AND WERE CAPITALIZED DURING THAT YEAR ON LY AND DEPRECIATION WAS ALSO ALLOWED IN THAT YEAR AND FUR THER IN NEXT TOW SUCCEEDING YEARS. IN THE PRESENT YEARS DEPRECIATIO N HAS BEEN DENIED ON W.D.V. OF SUCH ASSETS. IN THE YEAR UNDER CONSID ERATION ASSETS WERE NOT ACQUIRED. THEREFORE, WE AT THIS STAGE CANNOT D ECIDE AS TO WHETHER RIGHTS ACQUIRED IN EARLIER YEAR WERE ACQUIRED AT AL L OR NOT. THEREFORE, THE ISSUE UNDER CONSIDERATION DURING THE YEAR UNDER CONSIDERATION IS AS TO WHETHER CLAIM OF THE ASSESSEE REGARDING DEPRECIA TION ON WRITTEN DOWN VALUE OF SUCH ASSETS CAN BE DENIED IN THESE YE ARS ON WHICH DEPRECATION HAS ALREADY BEEN ALLOWED IN EARLIER YEA RS. 18. THE PROVISIONS REGARDING DEPRECATION AS CONTAINED I N SECTION 32(1) READS AS UNDER: 32(1) IN RESPECT OF DEPRECIATION OF- (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TAN GIBLE ASSETS; ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 16 (II) KNOW HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES , FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS 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 PROFES SION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED- I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESS EE AS MAY BE PRESCRIBED; II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. 19. FROM THE ABOVE PROVISIONS WE FIND THAT THE CLAIM OF THE ASSESSEE LIES IN SECTION 32(1)(II) APPLICABLE FOR DEPRECATION ON BLOCK OF ASSETS ON WRITTEN DOWN VALUE AS ASSESSEE IS NOT ENGAGED IN GE NERATION AND DEPRECIATION OF POWER. THERE IS NO DOUBT THAT ASSE TS ON WHICH DEPRECIATION HAS BEEN CLAIMED BELONG TO BLOCK OF AS SETS ON WHICH DEPRECIATION HAS ALREADY BEEN ALLOWED AND THEREFORE , DEPRECIATION CANNOT BE DENIED TO THE ASSESSEE ON BLOCK OF ASSETS IN THE YEARS UNDER CONSIDERATION. THE ARGUMENT OF LD. D.R. THAT TRIBU NAL SHOULD GIVE DIRECTIONS FOR REOPENING OF EARLIER YEARS ASSESSMEN T DOES NOT CARRY ANY FORCE AS THOSE YEARS ARE NOT UNDER APPEAL BEFORE US & WE CAN ONLY DECIDE THE ISSUES BEFORE US. THE CASE LAWS RELIED BY LD. D.R. WITH THE PROPOSITION THAT TRIBUNAL CAN GIVE DIRECTIONS FOR R EOPENING OF ASSESSMENTS ARE DISTINGUISHABLE. IN VIEW OF THE AB OVE DISCUSSIONS AND FACTS OF THE CASE, GROUND NO.2 IN ASSESSMENT YEAR 2 003-04 TO 2005- 06 AND GROUND NO.1 IN ASSESSMENT YEAR 2006-07 IS AL LOWED. 20. IN ASSESSMENT YEAR 2004-05, VIDE GROUND NO.3, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) BY WHICH HE HAD NOT ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 17 ENTERTAINED THE CLAIM OF EXPENSES AMOUNTING TO RS.1 1,30,052/-. THE FACTS REGARDING THIS ISSUE ARE THAT WHILE FINALIZIN G THE ACCOUNTS FOR ASSESSMENT YEAR 2005-06, THE AUDITORS OF THE ASSESS EE COMPANY POINTED OUT CERTAIN ITEMS OF EXPENDITURE WHICH RELA TED TO ASSESSMENT YEAR 2004-05. THEREFORE, ASSESSEE AT ITS OWN MADE DISALLOWANCE OF SUCH EXPENSES WHILE MAKING COMPUTATION OF INCOME FO R ASSESSMENT YEAR 2005-06 AND VIDE LETTER DATED 20.12.2006, HE R EQUESTED THE A.O. TO ALLOW THE CLAIM OF SUCH EXPENDITURE IN ASSESSMEN T YEAR 2004-05 WHEN THE ASSESSMENT WAS STILL NOT COMPLETED. A COP Y OF THE LETTER IS PLACED AT PAPER BOOK PAGES 1-3. THE LD. A.R. HAS A RGUED THAT THE A.O. DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESS EE AND DID NOT ALLOW SUCH CLAIM WHEREAS, HE SHOULD HAVE ALLOWED T HE CLAIM OF THE ASSESSEE AS THE ASSESSEE WAS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING AND THE EXPENSES RELATED TO THE ASSESSM ENT YEAR 2004-05. 21. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE A SSESSEE DID NOT CLAIM SUCH EXPENSES IN THE RETURN OF INCOME NOR IT REVISED RETURN OF INCOME THOUGH SUFFICIENT TIME WAS THERE TO REVISE T HE SAME. 22. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUGH T HE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSEE HAD APPROACHED A. O. ON 20.12.2006 TO CONSIDER THE CLAIM OF EXPENSES WHICH WERE WRONGL Y BOOKED IN THE SUCCEEDING YEAR. THE ASSESSMENT ORDER WAS PASSED O N 28.12.2006 I.E. AFTER THE DATE OF SUBMISSION OF THE ASSESSEE. THE A.O. DID NOT RECORD HIS FINDING ON THIS CLAIM OF THE ASSESSEE AND COMPL ETED THE ASSESSMENT ORDER WITHOUT EVEN MENTIONING ABOUT THE CLAIM OF TH E ASSESSEE. LD. CIT(A) ALSO DID NOT ENTERTAIN THE CLAIM OF THE ASSE SSEE HOLDING THAT THE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 18 SAME WAS NOT COMING OUT OF THE ASSESSMENT ORDER. L D. CIT(A) VIDE PARA 4.3 HAS HELD AS UNDER:- 4.3 THIS ISSUE IS NOT ARISING OUT OF THE IMPUGNED ORDER AS A.O. HAS NOT DEALT WITH IT. AS SUCH, THE APPELLANT IS ADVISED TO SEEK ALTERNATE REMEDY WITH THE A.O. SINCE THERE IS NO COMMENT MADE BY THE A.O. ON THIS ISSUE, THIS DOES NOT REQUI RE ANY ADJUDICATION AT THIS STAGE. 23. WE FURTHER FIND THAT THE ASSESSEE IN ASSESSMENT YEA R 2005-06 IN ITS COMPUTATION OF INCOME HAS SUO MOTO MADE ADDITION OF RS.15,83,999/- ON ACCOUNT OF PRIOR PERIOD EXPENSES . A COPY OF CO MPUTATION SHEET IS PLACED AS ANNEXURE 1 IN THE PAPER BOOK CONTAINING 1 4 PAGES. WE ALSO OBSERVE THAT BEFORE COMPLETION OF ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004-05, THE ASSESSEE HAD FILED ITS CLAIM FOR EXPENSES WHICH A.O. SHOULD HAVE CONSIDERED. IT IS A WELL SETTLED LAW THAT THE A.O. HAS TO ASSESS THE REAL INCOME OF THE ASSESSEE WHICH THE A.O. HAS NOT DONE BY ALTOGETHER IGNORING THE CLAIM OF THE ASSESSEE. A CLAIM MADE BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS EVEN IF NOT ALLOWABLE, HAS TO BE DEALT BY THE A.O. WHILE COMPLETING ASSESSMENT PR OCEEDINGS. THEREFORE, WE RESTORE THIS ISSUE TO THE OFFICE OF T HE A.O. FOR READJUDICAITON. IN VIEW OF THE ABOVE, GROUND NO.3 IN ASSESSMENT YEAR 2004-05 IS ALLOWED FOR STATISTICAL PURPOSES. 24. THE LAST ISSUE HAS BEEN RAISED BY THE ASSESSEE IN A SSESSMENT YEAR 2006-07 VIDE GROUNDS NO.2.1 & 2.2. THE A.O. HAD MA DE ADDITION OF RS.52,57,130/- U/S 41(1) OF THE ACT. THE A.O. OBSE RVED FROM THE NOTES FORMING PART OF BALANCE SHEET THAT THE ASSESS EE HAD WRITTEN BACK LIABILITY AMOUNTING TO RS.52,57,130/- WHICH WAS INC URRED FOR PURCHASE OF FIXED ASSETS DURING THE YEAR 1999-2000. THE A. O. CONFRONTED THE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 19 ASSESSEE AS TO WHY THE SAME SHOULD NOT BE ADDED U/S 41(1) OF THE ACT. THE ASSESSEE RELIED UPON A NUMBER OF CASE LAWS AND SUBMITTED THAT PROVISIONS OF SECTION 41(1) WERE NOT APPLICABLE TO THE ASSESSEE AS THE LIABILITY WAS NOT A TRADING LIABILITY AND RATHER IT WAS ON ACCOUNT OF PURCHASE OF FIXED ASSETS. THE A.O. OBSERVED FORM T HE SUBMISSION OF THE ASSESSEE THAT ASSESSEE HAD ALREADY AVAILED DEPR ECIATION ON SUCH ASSETS FROM FINANCIAL YEAR 2000-2001 TO 2004-05. T HEREFORE HE HELD THAT ASSESSEE HAD ALREADY AVAILED OF THE ALLOWANCE AND WAS COVERED BY PROVISIONS OF SECTION 41(1) AND THEREFORE, HE MADE ADDITION THEREOF. ON APPEAL BEFORE CIT(A), LD. CIT(A) HELD THAT PROVI SIONS OF SECTION 41(1)WERE NOT APPLICABLE TO THE ASSESSEE. HOWEVER, HE HELD THAT PROVISIONS OF SECTION 41(2) WERE APPLICABLE TO THE ASSESSEE, THEREFORE, HE CONFIRMED THE ADDITION MADE BY THE A.O. BY HOLDI NG AS UNDER: 5.4 I HAVE PERUSED THE ORDER OF THE A.O. AND THE S UBMISSIONS MADE BY THE APPELLANT. SECTION 41(1) OF THE ACT COV ERS CASES WHERE: AN ALLOWANCE OR DEDUCTION IN RESPECT OF A LOSS, EXP ENDITURE OR TRADING LIABILITY HAS BEEN CLAIMED BY AN ASSESSEE I N EARLIER YEARS; AND THE ASSESSEE HAS EITHER OBTAINED ANY AMO UNT IN RESPECT OF SUCH LOSS OR EXPENDITURE, OR THE ASSESSE E HAS OBTAINED SOME BENEFIT BY WAY OF REMISSION OR CESSAT ION OF SUCH TRADING LIABILITY. IN THE CASE OF THE APPELLANT, THE EXPENDITURE ADMIT TEDLY HAS BEEN INCURRED ON PURCHASE OF PLANT AND MACHINERY IN RESPECT OF WHICH NO ALLOWANCE OR DEDUCTION HAS BEEN MADE IN TH E EARLIER YEARS. THE APEX COURT IN THE CASE OF NECTAR BEVERAG ES (SUPRA) HAS HELD THAT DEPRECIATION IS NEITHER A LOSS, NOR E XPENDITURE, NOR A TRADING LIABILITY, REJECTED TO IN SECTION 41( 1) AND THAT THE CONCEPT IS FOREIGN TO THE SCHEME OF SECTION 41(1). APPLYING THE PRINCIPLE LAID DOWN BY THE APEX COURT IN NECTOR BEVERAGES CASE (SUPRA), IT IS CLEAR THAT THE CASE OF THE APPELLANT DOES NOT FALL WITHIN THE PURVIEW OF SECTION 41(1) O F THE ACT. ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 20 5.5 DURING THE COURSE OF THE HEARING, THE AR OF THE APPELLANT WAS ASKED TO SUBMIT AS TO WHY THE WRITE BACK OF LIA BILITY FOR PURCHASE OF CAPITAL ASSET FROM LARSCOM INC (TO THE EXTENT OF DEPRECATION CLAIMED) SHOULD NOT BE TAXED UNDER SECT ION 41(2) OF THE ACT. IN THIS REGARD, THE APPELLANT SUBMITTED AS UNDER: SECTION 41(2) OF THE ACT PROVIDES: 'WHERE ANY BUILDING, MACHINERY, PLANT OR FURNITURE, - (A) WHICH IS OWNED BY THE ASSESSEE; (B) IN RESPECT OF WHICH DEPRECIATION IS CLAIMED UND ER CLAUSE (0) OF SUB SECTION (1) OF SECTION 32; AND (C) WHICH WAS OR HAS BEEN USED FOR THE PURPOSES OF BUSINESS, IS SOLD. DISCARDED, DEMOLISHED OR DESTROYED AND THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDING, MACHINERY, PLA NT OR FURNITURE, AS THE CASE MAY BE, TOGETHER WITH THE AM OUNT OF SCRAP VALUE IF ANY, EXCEEDS THE WRITTEN DOWN VALUE, SO MU CH OF THE EXCESS AS DOES NOT EXCEED THE DIFFERENCE BETWEEN TH E ACTUAL COST AND THE WRITTEN DOWN VALUE, SHALL BE CHARGEABLE TO INCOME-TAX AS INCOME OF THE BUSINESS OF THE PREVIOUS YEAR IN W HICH THE MONEYS PAYABLE FOR THE BUILDING, MACHINERY, PLANT O R FURNITURE BECAME DUE. SECTION 41(2) IS APPLICABLE ONLY TO THE CASE WHERE DEPRECIATION HAS BEEN CLAIMED UNDER CLAUSE (I) OF SECTION 32(1). CLAUSE (I) OF SECTION 32(1) PROVIDES FOR DEPRECIATION ON ASSETS O F AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER. IN THIS REGARD, THE AR HAS S UBMITTED THE FOLLOWING - W.E.F. 1-4-1998, THE INCOME-TAX (AMENDMENT) ACT, 19 98 INTRODUCED CLAUSE (I) TO SECTION 32(1) PROVIDING FO R DEPRECIATION ON ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER (HEREINAFTE R REFERRED TO AS POWER SECTOR UNDERTAKING) ON A STRAIGHT LINE BAS IS. CONSEQUENTIAL AMENDMENTS WERE MADE VIDE THE FINANCE (NO. 2) ACT, 1998 TO ALLOW THE SHORTFALL ON SALE OF ASSETS AS A CHARGE ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 21 UNDER CLAUSE (HI) TO SECTION 32(1) AND TO TAX THE S URPLUS AS INCOME U/S 41(2) . THE AR HAS RELIED ON CIRCULAR NO.772 DATED 23RD DEC EMBER, 1998 ISSUED BY THE CBDT WHEREIN PARA 16 OF THE CIRC ULAR CLEARLY EXPLAINS THE AMENDMENTS IN SECTION 32(1)(II I)AND 41(2) BROUGHT IN BY THE FINANCE (NO. 2) ACT, 1998 FOR THE UNDERTAKINGS IN POWER SECTOR. THE APPELLANT HAS THUS CONTENDED THAT THE PROVISION S OF SECTION 41(2) ARE NOT APPLICABLE TO ITS CASE, AS HERE THERE IS REMISSION OF LIABILITY ON PURCHASE COST OF DIFFERENT PLANT & MACHINERY. 5.6 I HAVE PERUSED THE SUBMISSIONS MADE BY THE APP ELLANT IN THIS REGARD. IT IS CLEAR THAT THE CASE OF THE APPEL LANT DOES NOT FALL WITHIN THE AMBIT OF SUB- SECTION (1) BUT UNDER SUB-SECTION (2) OF SECTION 41 OF THE ACT. THE WRITE BACK OF THI S LIABILITY IS ON CAPITAL ACCOUNT [ON DIFFERENT PLANT & MACHINERY OTH ER THAN POWER GENERATION, AS PER BOARD'S CIRCULAR (SUPRA)]. I HAVE DISCUSSED THIS ISSUE WITH THE AO SEVERAL TIMES. HE DOWNLOADED THE MEMORANDUM FROM THE FMS SPEECH IN 1998 AND JUS TIFIED THAT THE AMENDMENT U/S 41(2) AND SECTION 32(1)(I) A RE IN RESPECT OF POWER SECTOR EQUIPMENTS ONLY. THOUGH THE AR TRIE D TO EXPLAIN ME THE AMENDMENTS OF SEC. 41(2) R.W.S.32(1) (I), I AM NOT CONVINCED ABOUT THE AMENDMENTS SO MADE. THERE I S AMENDMENT OF SECTION 32(1)(I) &. 32(1)(III) WHERE A LL THE PLANT & MACHINERY(INCLUDING POWER SECTOR EQUIPMENTS ARE I NCLUDED FOR THEIR REMISSION OF LIABILITY U/S 41(2) W.E.F. 0 1.04.1998. HENCE, THE AR'S ARGUMENT THAT THIS IS APPLICABLE TO ONLY POWER SECTOR EQUIPMENT ONLY IS NOT A VALID JUSTIFICATION. AS THE ASSESSEE IS IN ITAT FOR ISSUES ON GROUNDS OF APPEAL NOS., IT IS BETTER IF HE GOES TO APPEAL TO ITAT IN THIS GROUND ALSO. SINCE THE ASSESSEE HAD ALREADY AVAILED TAX DEPRECIATION A LLOWANCE U/S 32(1)(I)/32(1)(III) IN EARLIER ASST. YEARS FROM ASS ESSMENT YEARS 2001-02 TO 2005-06, AND THERE IS REMISSION OF LIABI LITY ON CAPITAL ETC TO M/S LARSONS INC., USA, THE ASSESSEE IS GAINING THE WHOLE AMOUNT OF RS.52,57,130/- ON WHICH FULL TAX DE PRECIATION ALLOWANCE IS ALREADY CLAIMED IN PREVIOUS ASSESSMENT YEARS 2001-02 TO 2006-07 NOW. THE ADDITION BY AO OF RS.5 2,57,130/- IS HEREBY SUSTAINED. HENCE, THE ASSESSEE'S APPEAL O N THIS GROUND IS DISMISSED. ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 22 25. BEFORE US, LD. A.R. SUBMITTED THAT LD. CIT(A) HAS M ADE CATEGORICAL FINDINGS THAT PROVISION OF SECTION 41(1) WERE NOT A PPLICABLE TO THE ASSESSEE AND REVENUE HAS NOT FILED ANY APPEAL AGAIN ST THE FINDING OF LD. CIT(A). AS REGARDS APPLICATION OF THE PROVISIO N OF SECTION 41(2), LD. A.R. SUBMITTED THAT THE PROVISIONS OF SECTION 4 1(2) CAN BE APPLIED ONLY IN A CASE WHERE ASSESSEE HAD SOLD, DISCARDED, DEMOLISHED OR DISMANTLED THE ASSETS AND IN THIS RESPECT, PROVISIO NS OF SECTION 41(2) WERE READ. LD. A.R. SUBMITTED THAT THE ASSESSEE CO MPANY WAS STILL OWNER OF THE ASSETS AS THE ASSETS WERE NEITHER SOLD NOR DISCARDED, NOR DISMANTLED NOR DEMOLISHED/DESTROYED. THEREFORE, THE PROVISIONS OF SECTION 41(2) WERE ALSO NOT APPLICABLE. 26. LD. D.R. ON THE OTHER HAND SUBMITTED THAT EVEN IF R EVENUE HAD NOT FILED APPEAL AGAINST THE FINDINGS OF LD. CIT(A) ON THE APPLICATION OF SECTION 41(1) BUT STILL REVENUE CAN TAKE STAND ON A NY GROUND IN SUPPORT OF LD. CIT(A) AND SUBMITTED THAT WITH THE A MENDMENT OF SECTION 32(1)(I) AND 32(1)(III) ALL PLANT AND MACHI NERY INCLUDING POWER SECTOR EQUIPMENTS ARE INCLUDED FOR THE REMISS ION OF LIABILITY U/S 41(2) W.E.F. 01.04.1998. SHE FURTHER ARGUED THAT SINCE THE ASSESSEE HAD ALREADY CLAIMED ALLOWANCE IN THE FORM OF DEPREC IATION, AND HAD WRITTEN BACK THE LIABILITY THEREFORE, PROVISIONS OF SECTION 41(2) WERE CLEARLY ATTRACTED. 27. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUGH T HE MATERIAL PLACED ON RECORD. WE FIND THAT THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE TO THE ASSESSEE AS HELD BY LD. CIT(A) IN HIS ORDER. LD. CIT(A) HAS BASED HIS FINDINGS ON THE BASIS OF THE D ECISION OF HON'BLE SUPREME COURT IN THE CASE OF NECTOR BEVERAGES LTD. VS DCIT 314 ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 23 ITR 314. THE HONBLE SUPREME COURT IN THIS CASE HA D HELD THAT DEPRECIATION WAS NEITHER A LOSS NOR EXPENDITURE NOR A TRADING LIABILITY REFERRED TO IN SECTION 41(1) AND DEPRECIATION TO CO VER THE SAID CAPITAL ASSET WAS INCLUDABLE IN THE SAID INCOME AS BALANCIN G CHARGE ONLY U/S 41(2). THEREFORE, CLEARLY THE HONBLE SUPREME COUR T HAS HELD THAT DEPRECIATION WAS NOT COVERED UNDER THE PROVISIONS O F SECTION 41(1). AS REGARDS THE APPLICATION OF SECTION 41(2), WE FIN D THAT THE NECESSARY CONDITIONS FOR THE APPLICATION OF SECTION 41(2) IS THAT THE ASSETS MUST HAVE BEEN SOLD, DISCARDED, DEMOLISHED OR DESTROYED WHEREAS IN THE PRESENT CASE, NONE OF THE ABOVE ACTION HAS BEEN ALL EGED BY THE A.O. OR LD. CIT(A). THEREFORE, WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 41(2) ARE ALSO NOT APPLICABLE. IN VIEW OF THE ABOVE, GROUND NO.2.1 AND 2.2 IN ASSESSMENT YEAR 2006-07 ARE ALLOW ED. 28. GROUND NO.3 IN ASSESSMENT YEAR 2003-04, GROUND NO.4 IN ASSESSMENT YEAR 2004-05 AND GROUND NO.3 IN ASSESSME NT YEAR 2005- 06 RELATE TO CHARGING OF INTEREST U/S 234B AND 234D WHICH ARE CONSEQUENTIAL IN NATURE AND DO NOT REQUIRE ANY ADJU DICATION. 29. IN VIEW OF THE ABOVE FACTS, CIRCUMSTANCES AND DISCU SSION, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATIS TICAL PURPOSES. 30. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEP., 2014. SD./- SD./- (I.C.SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 30TH SEP., 2014 SP ITA NO.1620,4257/DEL/2007 ITA NO.2450.4660/DEL/2010 24 COPY FORWARDED TO:- THE APPELLANT THE RESPONDENT THE CIT THE CIT (A)-, NEW DELHI. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING DATE OF DICTATION DATE OF TYPING DATE OF ORDER SIGNED BY BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.