Beacon Higher Education Services Pvt Ltd, New Delhi V. ACIT CIRCLE-4(2), New Delhi

ITA 1867/DEL/2020

AI Insights

The case involves M/s Beacon Higher Education Services Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the assessment order passed by the Assistant Commissioner of Income Tax. The primary issues in the appeal were the disallowance of depreciation claimed on non-compete fees and the disallowance of set off of brought forward losses from the amalgamating company. The Tribunal heard the arguments from the Departmental Representative and reviewed the materials on record, noting the absence of the assessee's representative in most hearings. The Tribunal found no merit in the assessee's arguments and upheld the decisions of the lower authorities.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302271 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-10-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 17-11-2020
• Other Referred Cases: Sharp Business System vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ZAFRUL HAQUE TANWEER
• Keywords: Depreciation; Principle of natural justice; Revised return
• Section: 32; 2; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘A‘ BENCH DELHI BEFORE: SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA No.1867/Del/2020 (Assessment Year: 2016-17) M/s Beacon Higher Education Services Pvt. Ltd., S-40, 2 nd Floor, Vasant Square Mall, Plot A, Sector-B, Vasant Kunj, New Delhi 110070 Vs. The ACIT, Circle 4(2), New Delhi PAN/GIR No. AAECB 1283 F (Appellant) .. (Respondent) Assessee by None Revenue by Shri Zafrul Haque Tanweer, CIT-DR Date of Hearing 19/10/2023 Date of Pronouncement 30/10/2023 O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.1867/Del/2020 for A.Y. 2016-17 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-2, Delhi in appeal No.461/18-19/10175/19-20 dated 18.09.2020 (hereinafter referred to as ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30.12.2018 by the ld. ACIT, Circle 4(2) Delhi (hereinafter referred to as ld. AO). 2. None appeared on behalf of the assessee. There was no presence of the authorized representative of the assessee on various dates of hearing ITA No.1867/Del/2020 2 except 9.5.2023 on which date, Shri Deepesh Jain, Advocate appeared and sought an adjournment on behalf of the assessee. Thereafter, he also did not appear on behalf of the assessee. Since sufficient opportunities were given to the assessee, we proceed to dispose of this appeal on hearing the ld DR and based on materials available on record. 3. The assessee has raised the following grounds of appeal before us:- 1. Under the facts and circumstances of the case, the Ld. CIT (A) has grossly erred on facts of the matter under applicable provisions confirming order passed by the Ld. AO, which is arbitrary and has ignored the fact decided in judicial orders being against the principles of natural justice and the provisions of IT Act, 1961. 2. The Ld. CIT (A) has grossly erred on facts to extend an opportunity to examine any additional evidence being against the principles of natural justice. 3. The Ld. CIT(A) has grossly erred to confirm the disallowed depreciation of Rs. 2,92,67,578/-claimed u/s 32 (1) (ii) on intangible asset i.e. non- compete fee, as per definition u/s 2 (t) without going into the merit of fact of assessee and upheld the AO's addition based on a judicial order, which is not related to the matter of assess at all, and didn't accepted the already passed order (AY 12-13) by his predecessor in the same issue. 4. The Ld. CIT(A) has grossly erred confirming to disallow the brought forward accumulated losses of Amalgamating Company aggregating of Rs 618,27,952/- which was not claimed by the assesse u/s 72A of the Act, on the ground that section 72A is not applicable to assessee during the AY 2016-17. 5. The Ld. CIT (A) has grossly erred to accept the order of AY 2012-13, passed by his predecessor on the same issue allowing depreciation on intangible asset i.e. non compete fee and accepted that referred judicial order is not applicable to the assessee. 4. We have heard the ld DR and perused the materials available on record. The assessee company was incorporated on 28.5.2010. The company was amalgamated with its 100% subsidiary company M/s Great Learning Management Pvt Ltd with effect from 1.4.2015 pursuant to the order of the Hon’ble National Company Law Tribunal (NCLT), New Dlehi vide their order dated 31.3.2017. The assessee company is engaged in the business of setting up of management colleges, universities as well as providing educational support services to such colleges / institutions and helps to run education ITA No.1867/Del/2020 3 programs ensuring the quality and industry relevance of the programs offered and is also engaged in enabling the provision of high quality professional tertiary education including undergraduate, post graduate, executive and continuing education. The original return of income for the Asst Year 2016- 17 was filed by the assessee company on 17.10.2016 declaring total income of Rs 6,88,480/- and long term capital loss of Rs 21,06,14,092/- under normal provisions of the Act and Book Profit of Rs 5,85,92,276/- u/s 115JB of the Act. Later a revised return was filed on 30.10.2017 declaring total income of Rs 7,87,460/- and long term capital loss of Rs 21,06,14,092/- under normal provisions of the Act and Book Loss of Rs 2,89,33,618/- u/s 115JB of the Act. Reason for revising the return of income is due to amalgamation order passed by the NCLT. 5. During the course of assessment proceedings, on perusal of details filed by AR of the assessee company shows that the assessee company had executed "Non Competition and Non Solicitation Agreement" with Dr. Bala V. Balachandran, Mr. B. Hariharan, and M/s. Strategic Consulting Group dated 17-06-2011 and 20-07-2011 respectively and a further "Service continuation Agreement" on 02-08-2011 with Dr. Bala V. Balachandran. In terms of the said agreements, the non-compete fee was paid to these parties for restricting these parties from carrying out similar business activities or associating himself in any similar business for periods as mentioned in the respective agreements. Accordingly, the assessee has paid onetime non compete fee aggregating to Rs. 37 crore to the above mentioned three parties during the financial year 2011-12. It has claimed depreciation of Rs. 2,92,67,578/- in the year under consideration on the non compete fees claiming the same as intangible assets within the meaning of section 32(1)i) of the Income Tax Act.)The ld. AO by placing reliance on the decision of Hon’ble Jurisdictional High Court in the case of M/s Sharp Business System vs CIT reported in 254 CTR (Del) 233 concluded that depreciation is not allowable on the payment of ITA No.1867/Del/2020 4 non-compete fee which is not in the nature of acquiring intangible assets u/s 32(1)(ii) of the Act. Further the ld. AO observed in Para 4.9. and 4.10 of his order as under:- 4.9 Moreover, one of the stipulations for claiming depreciation u/s 32(1) is that the assessee had used the asset for the purpose of its business or profession. As evident from the clause of the agreement, the parties have undertaken to give the services to entire group of Beacon. In this case, the benefits of service of these persons are being enjoyed by the subsidiary company M/s Great Lakes Institutes of Management, Chennai, where all these persons have been already associated since inception. Merely because assessee has controlling power of its subsidiary company with 98.49% of shareholding, it is not justifiable to claim depreciation on the assets benefit of which is enjoyed by its subsidiary. Since both are different entity, expenditure or depreciation claimed by one cannot be allowable as deduction by other and vice versa. Such kind of arrangement is dubious in view of the fact that the subsidiary company, M/s Great Lakes Institute of Management is licensed company u/s 25 of Companies Act, 1956, whose income from operation is completely exempt from income tax. Thus, the assessee appears to be indulging in diverting its income by claiming depreciation on the assets which was never utilized for its business purposes and whatever benefit accrues out of the non compete agreement, it goes to its subsidiary company. 4.10 From the above discussion following points emerges: (i) The non compete fees do not constitute an asset intangible in nature akin to know how, patents, copyrights, trademarks, licence, franchise or any of the commercial or business rights to qualify for depreciation u/s 32(1)(ii) of the Income Tax Act. (i) Depreciation is claimed on the above non competent fees payment despite the fact that the same is not used by the assessee for its own business and profession. 5.1. With these observations, the ld. AO disallowed the claim of depreciation of Rs 2,92,67,578/- on non-compete fees in the assessment. 6. The ld AO further observed from the revised computation of income that assessee had set off brought forward losses against total profit amounting to Rs 6,18,27,952/- during the year. The assessee was asked by the ld. AO to provide note on merger of the companies in view of section 72A of the Act and explain whether all the compliances of section 72A of the Act have been done in the instant case for the purpose of set off of brought ITA No.1867/Del/2020 5 forward losses and carry forward of the loss to subsequent years. The assessee clarified that it had not claimed any carry forward losses available to the subsidiary company. The ld. AO observed that the business of the assessee company is providing education services and investment in educational institutions and the same does not fall within the ambit of section 72A of the Act as it cannot be construed as an industrial undertaking. The ld AO observed that for the purpose of section 72A of the Act, the expression ‘industrial undertaking’ means an undertaking engaged in the manufacturing or processing of goods, of the manufacture of computer software or the business of generation or distribution of electricity or any other form of power or mining or the construction of ships, aircrafts or rail systems or the business of providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service, network to trunking, broadband network an internet services, the ‘specified bank’ means the State Bank of India or a subsidiary bank as defined in the State Bank of India (Subsidiary Bank) Act, 1959, or a nationalized bank. Accordingly, the ld. AO show caused the assessee as to why the benefit of set off of brought forward losses should not be denied to the assessee. 7. The assessee responded that pursuant to the merger of Great Learning Management Private Limited (GLMPL) with the assessee company, there was no change in shareholding of assessee after the merger of GLMPL as on 31.3.2017 and even later. Both companies have carry forward business loss and unabsorbed depreciation aggregating to Rs 48,66,75,524/- which is available for set off in future years as on 31.3.2015 as per books of accounts. By referring to the provisions of sections 2(1B), 47(vi) and 72A of the Act, the assessee company pleaded that the amalgamated company (ie. Assessee) had not claimed set off of carry forward of accumulated losses and unabsorbed depreciation of amalgamating company while discharging its tax liability during the year. Thus, there is no requirement of complying with section 72A ITA No.1867/Del/2020 6 of the Act. The ld. AO however, summarily ignored the contentions of the assessee and disallowed the set off of brought forward losses amounting to Rs 6,18,27,953/- in the assessment. The ld. AO further observed that moreover, as per assessment order for the AY 2014-15, which was subsequently rectified u/s 154/143(3) dated 30.10.2018, there was no such brought forward losses available for set off in the instant case for the year under consideration. 8. The ld. CIT(A) by placing reliance on the order passed by his predecessor in assessee’s own case upheld the action of the ld. AO in disallowing the claim of depreciation on non-compete fees and also by placing reliance on the decision of Hon’ble Jurisdictional High Court in the case of Sharp Business System vs CIT reported in 254 CTR (Del) 233. The ld. CIT(A) also upheld the action of the ld. AO in disallowing the set off of brought forward losses during the year. 9. Before us, no cogent evidences has been brought on record by the assessee to buttress the categorical findings recorded by the ld. CIT(A). Hence we do not deem it fit to interfere in the order passed by the ld. CIT(A). Accordingly, the grounds raised by the assessee are dismissed. 10. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 30/10/2023. Sd/- (KUL BHARAT) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated 30/10/2023 NV Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. ITA No.1867/Del/2020 7 BY ORDER, (Asstt. Registrar) ITAT,Delhi 3. The CIT(A), Delhi. 4. CIT 5. DR, ITAT, Delhi 6. Guard file. //True Copy//