DCIT., Circle-2(1,) Hyderabad, Hyderabad V. M/s Karvy Computer Share Private Limited, Hyderabad

ITA 1816/HYD/2014

• Counselvise Citation: 181622514 RSA 2014
• Duration Of Justice: 1 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 02-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: P MURALIKRISHNA
• Keywords: Depreciation; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1816/HYD/2014 : ASSESSMENT YEARS 2010-11 ITA NO.345/HYD/2015 : ASSESSMENT YEARS 2011-12 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), HYDERABAD V/S M/S. KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. (PAN - AACCK 2193 P ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.KURMI NAIDU DR RESPONDENT BY : SHRI P.MURALI KRISHNA DATE OF HEARING 3.12.2015 DATE OF PRONOUNCEMENT 18.12.2015 O R D E R PER SMT. P. MADHAVI DEVI, JUDICIAL MEMBER : THESE ARE REVENUES APPEALS FOR THE ASSESSMENT YE ARS 2010-11 AND 2011-12 RESPECTIVELY. 2. IN BOTH THESE APPEALS, REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A)S ALLOWING DEPRECIATION ON GOODWILL O N THE ORIGINALLY ACQUIRED VALUE IN THE ASSESSMENT YEAR 2010-11, EVEN THOUGH THE SAID ASSET WAS CLAIMED TO HAVE BEEN ACQUIRED IN THE ASSE SSMENT YEAR 2004-05. ACCORDING TO THE REVENUE, THE CIT(A) OUGHT TO HAVE ALLOWED DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE ASSET AS ON 1.4.2009 AND NOT ON THE VALUE AT WHICH THE ASSET WAS ACQUIRE D, EVEN THOUGH THE ASSESSEE HAS NEVER CLAIMED DEPRECIATION AND NO DEPR ECIATION WAS ALLOWED IN THE EARLIER YEARS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF PROVIDING REGIS TRY SERVICES TO VARIOUS COMPANIES AND MUTUAL FUNDS, FILED ITS RETUR N OF INCOME FOR THE RELEVANT ASSESSMENT YEARS. DURING THE ASSESSMENT PROCEEDINGS UNDER ITA NO.1816/HYD/2014 & ANR M/S.KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. 2 S.143(3) OF THE ACT FOR THE RESPECTIVE ASSESSMENT Y EARS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRE CIATION ON GOODWILL OF RS.3,68,15,261 FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS INCORPORATED ON 5 TH SEPTEMBER, 2003 WITH THE OBJECT OF PURSUING THE BUSINESS OF SE CURITIES REGISTRY AND FOR THIS PURPOSE, HAS ACQUIRED EXISTING SECURITY RE GISTRY BUSINESS OF KARVY CONSULTANTS LTD. AND THAT THE SAID BUSINESS W AS PURCHASED THROUGH SLUMP SALE AGREEMENT. HE OBSERVED THAT THE PAYMENT IN EXCESS OF THE NET ASSET VALUE OF RS.23,16,98,043 WA S TREATED BY THE COMPANY AS GOODWILL IN THE BOOKS OF ACCOUNT AND SHO WN AS AN ASSET IN THE SCHEDULE OF FIXED ASSETS. HE OBSERVED THAT THE ASSESSEE DID NOT RECOGNIZE THE GOODWILL AS AN ASSET IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 AND HAS NEVER CLAIMED DEPRE CIATION ON THE SAME. HE OBSERVED THAT FOR THE FIRST TIME IN THE R ETURN FOR ASSESSMENT YEAR 2010-11 AS WELL AS IN THE ANNEXURE 3CD TO THE TAX AUDIT REPORT, THE VALUE OF GOODWILL AS ON 1.4.2009 WAS SHOWN AT R S.14,72,61,042 AND DEPRECIATION AT THE RATE OF 25% THEREON WAS CLA IMED. THE ASSESSEE WAS THEREFORE ASKED TO INFORM THE BASIS FO R THE CLAIM OF DEPRECIATION ON GOODWILL ALONGWITH THE SPECIFIC DET AILS. 4. THE ASSESSEE FILED ITS WRITTEN SUBMISSIONS STA TING THAT GOODWILL IS RELATED TO THE SLUMP SALE IN THE FINANC IAL YEAR 2003-04 AND THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION THEREON. FURTHER, THE ASSESSEE ALSO DETAILED AS TO HOW THE GOODWILL WAS VALUED AT RS.14,72,61,042. THE ASSESSING OFFICER OBSERVED THAT THIS VALUE DIFF ERS FROM THE VALUE MENTIONED IN THE ANNUAL REPORT FOR THE FINANCIAL YE AR 2003-04 OF RS.23,63,98,043 AND THE DIFFERENCE ARISES ON ACCOUN T OF THE FACT THAT COMPUTER SOFTWARE OF RS.8,91,37,000 WAS TREATED AS A SEPARATE ASSET. IT WAS FURTHER EXPLAINED THAT IN THE PROCESS OF VAL UING THE PROPERTY, THE COMPANY VALUED THE TANGIBLE PROPERTY BUT ERRONE OUSLY OMITTED TO VALUE INTANGIBLE PROPERTY, AND THIS OMISSION WAS ID ENTIFIED DURING THE ITA NO.1816/HYD/2014 & ANR M/S.KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. 3 PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2005-06 A ND IN ORDER TO SET THE RECORD STRAIGHT, THE INTANGIBLE PROPERTY ACQUIR ED IN THE SLUMP SALE AGREEMENT, VIZ. COMPUTER SOFTWARE, WAS VALUED AT RS .8,91,37,000 AND THE BALANCE AMOUNT OF RS.14,.72.61,042 WAS TREATED AS GOODWILL AND REVISED RETURN WAS ACCORDINGLY FILED FOR THE ASSESS MENT YEAR 2004-05 ON 31.3.2006. THE ASSESSEE ALSO RELIED UPON THE JU DGMENT OF THE APEX COURT IN THE CASE OF SMIFS SECURITIES LTD. (I N CIVIL APPEAL NO.5961 OF L2012 DATED 22.8.2012) WHEREIN IT WAS H ELD THAT GOODWILL WOULD FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE AND WOULD BE ELIGIBLE FOR DEPRECIATION THEREON. 5. THE ASSESSING OFFICER, HOWEVER, HELD THAT THE ASSESSEE HAS NEVER TREATED THE GOODWILL AS A DEPRECIABLE ASSET A ND HAS NEVER CLAIMED DEPRECIATION THEREON FOR ANY OF THE YEARS, AND THERE IS NO REASON FOR SUDDEN CHANGE OF MIND AFTER SIXTH YEAR. HE HELD THAT THE ASSESSEE HAS SUDDENLY RECOGNIZED THE GOODWILL AS AN INTANGIBLE ASSET IN THE FINANCIAL YEAR 2009-10, WITH A VIEW TO REDUC E THE TAXABLE INCOME AND CLAIM REMISSION OF PAYMENT OF TAXES. THEREAFTER , HE HELD THAT EVEN IF IT WERE TO BE CONCEDED THAT THE CLAIM OF THE ASS ESSEE IS OUT OF GENUINE CONSIDERATION, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION ON THE AMOUNT CLAIMED BY IT. HE HELD THAT IN VIEW OF EXPLANATION 5 TO S.32(1), DEPRECIATION IS ALLOWABLE TO THE ASSESSEE, EVEN IF THE ASSESSEE HAS NOT CLAIMED IT AND THEREFORE, ACCORDING TO HIM, WRITTEN DOWN VALUE OF THE GOODWILL AS ON 1.4.2009, I.E. RS.3,05,77,519 NEEDS TO BE CONSIDERED FOR ALLOWANCE OF DEPRECIATION, WHICH WOR KS OUT TO ONLY RS.76,44,380. HE THEREFORE, DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION AND ADDED IT TO THE INCOME OF THE ASSE SSEE. 6. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT(A), WHO ALLOWED THE SAME AND AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. ITA NO.1816/HYD/2014 & ANR M/S.KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. 4 7. LEARNED DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE LEA RNED COUNSEL FOR THE ASSESSEE, REITERATING THE SUBMISSION MADE BEFORE TH E REVENUE AUTHORITIES SUPPORTED THE ORDER OF THE CIT(A). 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS ACQUIRED THE BUSINESS OF KARVY CONSULTANCY LTD. UNDER A SLUMP SALE AGREEMENT. WHIL E VALUING THIS COMPANY, THE ASSESSEE HAS VALUED ONLY THE TANGIBLE ASSETS AND THE BALANCE OF SALE CONSIDERATION WAS TREATED AS THE VA LUE OF GOODWILL. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR PART ICULAR ATTENTION TO PAGE 25 OF THE PAPER-BOOK FIELD BY THE ASSESSEE TO DEMONSTRATE THAT THE SAID ASSET, I.E. GOODWILL, HAS ALWAYS BEEN TRE ATED AS A DEPRECIABLE ASSET IN THE BALANCE SHEETS OVER THE YEARS AND DEPR ECIATION HAS BEEN PROVIDED FOR IN THE BOOKS OF ACCOUNT. THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE EARLIER YEARS, THERE WAS A DISPUTE AS TO WHETHER GOODWILL WAS A TANGIBLE ASSET AND WHETHER SUCH AN ASSET WAS ELIGIBLE FOR DEPRECIATION. IN VIEW OF THE SAME, TH E ASSESSEE HAD NOT CLAIMED DEPRECIATION IN THE COMPUTATION OF INCOME U NDER THE NORMAL PROVISIONS OF THE IT ACT. HE SUBMITTED THAT THE HO N'BLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD.(SUPRA), HAS HE LD THAT GOODWILL IS IN THE NATURE OF INTANGIBLE ASSET OF A BUSINESS AND FALLS WITHIN THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHT AS PROVIDED IN CLAUSE (B) OF EXPLANATION 3 TO S.32(1) OF THE ACT A ND THEREFORE, ELIGIBLE FOR DEPRECIATION ON INTANGIBLE ASSET. HE SUBMITTE D THAT IN VIEW OF THIS DECISION OF THE HON'BLE SUPREME COURT, THE ASSESSEE HAS CLAIMED DEPRECIATION FOR THE FIRST TIME IN THE ASSESSMENT Y EAR 2010-11 AND THEREAFTER. HE HAS ALSO DRAWN OUR ATTENTION TO THE DEFINITION OF THE TERM WRITTEN DOWN VALUE AS PROVIDED IN S.43(6) TO SUBMIT THAT THE W.D.V. IN THE CASE OF ASSETS ACQUIRED BEFORE THE P REVIOUS YEAR IS THE ITA NO.1816/HYD/2014 & ANR M/S.KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. 5 ACTUAL COST OF THE ASSET LESS DEPRECIATION ACTUALL Y ALLOWED TO HIM UNDER THE ACT. AS REGARDS THE EXPLANATION 5 TO S.32 OF T HE ACT, WHEREIN IT IS PROVIDED THAT DEPRECIATION HAS TO BE ALLOWED IRRESP ECTIVE OF THE CLAIM MADE BY THE ASSESSEE IN THE RETURN OF ANY YEAR, IT IS SUBMITTED THAT THE SAID PROVISION HAS COME INTO STATUTE WITH EFFEC T FROM 1.4.2010 AND THE SAME IS NOT APPLICABLE TO THE EARLIER ASSESSMEN T YEARS. WE FIND FORCE IN THIS ARGUMENT OF THE ASSESSEE. THE ASSESSE E CANNOT BE EXPECTED TO CONFORM TO A PROVISION OF LAW, WHICH WA S NOT IN FORCE DURING THE RELEVANT ASSESSMENT YEAR. DURING THE AS SESSMENT YEAR 2004-05, THERE WAS NO REQUIREMENT THAT DEPRECIATION HAS TO BE CLAIMED BY THE ASSESSEE OR HAS TO BE ALLOWED EVEN I F NOT CLAIMED BY THE ASSESSEE. THEREFORE, UNDER SUB-SECTION (6) OF S .43 AND CLAUSE (D) THEREUNDER, THE WRITTEN DOWN VALUE IS THE ACTUAL V ALUE OF THE ASSET IN THE HANDS OF THE ASSESSEE LESS THE DEPRECIATION ACT UALLY ALLOWED TO THE ASSESSEE. SINCE THE ASSESSEE HAS NEVER CLAIMED DEP RECIATION IN THE RETURN OF INCOME FOR THE ASSESSMENT YEARS, THOUGH I T PROVIDED FOR THE SAME IN ITS BOOKS OF ACCOUNT, DEPRECIATION CANNOT B E THRUST UPON THE ASSESSEE TO ALLOW DEPRECIATION ON A REDUCED VALUE I N THE SUBSEQUENT ASSESSMENT YEARS. IT IS ALSO NOT IN DISPUTE THAT TR EATMENT TO BE GIVEN TO THE GOODWILL AS AN INTANGIBLE ASSET WAS A DEBATA BLE ISSUE DURING THE EARLIER ASSESSMENT YEARS AND HENCE, ASSESSEE CANNOT BE FOUND FAULT WITH, IF NO DEPRECIATION WAS CLAIMED IN THE EARLIER ASSESSMENT YEARS. WE FIND THAT THE CIT(A) HAS EXTENSIVELY DEALT WITH THE ISSUE AND AFTER CONSIDERING THE JUDICIAL PRECEDENTS ON THE ISSUE AN D ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V/S . DOOM DOOMA INDIA LTD. (222 CTR 105) HAS ALLOWED THE DEPRECIAT ION ON THE ACTUAL VALUE OF THE ASSET LESS NIL, VIZ. NIL., BEING TH E DEPRECIATION ACTUALLY ALLOWED TO THE ASSESSEE. THEREFORE, WE DO NOT SEE ANY REASON TO TAKE ANY OTHER VIEW FROM THAT OF THE CIT(A). WE ACCORD INGLY UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEALS OF THE REVENUE. ITA NO.1816/HYD/2014 & ANR M/S.KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. 6 8. IN THE RESULT, REVENUES APPEALS FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. PRONOUNCED IN THE COURT ON 18 TH DECEMBER, 2015 SD/- SD/- (S.RIFAUR RAHAMAN) (P.MADHAVI DEVI) ACCOUNTANT MEMBER. JUDICIAL MEMBER DT/- 18 TH DECEMBER, 2015 COPY FORWARDED TO: 1. M/S. KARVY COMPUTER SHARE PVT. LTD., KARVY HOUSE, 4 6, AVENUE 4, STREET NO.1, BANJARA HILLS, HYD 500 034 2. DY. COMMISSIONER OF INCOME - TAX CIRCLE 2(1), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) III , HYDERABAD COMMISSIONER OF INCOME - TAX II, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.