UNIFY ENTERPRISE COMMUNICATIONS P. LTD, MUMBAI V. DCIT RG 7(2), MUMBAI

ITA 1920/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2844 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 28-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Depreciation; Transfer pricing; Rectification of order; International transaction
• Section: 32; 92

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C.N. PRASAD,JUDICIAL MEMBER ./I.T.A./1920/MUM/2014, /ASSESSMENT YEAR: 2009-10 M/S. PROGILITY TECHNOLOGIES PRIVATE LIMITED (FORMERLY KNOWN AS UNIFY ENTERPRISE COMMUNICATIONS PRIVATE LIMITED AND ALSO FORMERLY KNOWN AS M/S. SIEMENS ENTERPRISES COMMUNICATIONS PVT. LTD.) 601, 6 TH FLOOR, 247 PARK, TOWER B L.B.S. MARG, VIKHROLI (W) MUMBAI-400 083. PAN:AAKCS 5375 F VS. DCIT-RANGE-7(2) AAYAKAR BHAVAN, ROOM NO.624,6 TH FLOOR M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI N.K. CHAND ASSESSEE BY: S/SHRI M.P. LOHIA & HEMEN CHANDARIYA / DATE OF HEARING: 20.04.2016 / DATE OF PRONOUNCEMENT: 22.06.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) !' PER RAJENDRA, AM - CHALLENGING THE ORDER OF THE ASSESSING OFFICER(AO), DTD.19.02.2014,COMPLETED U/S.143(3) R.W.S.144C(13)OF THE ACT THE ASSESSEE HA D FILED THE PRESENT APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF DISTRIB UTION OF COMMUNICATION EQUIPMENTS, FILED ITS RETURN OF INCOME ON 30.09.200 9,DECLARING TOTAL INCOME OF RS.1.97 CRORES.DURING THE ASSESSMENT PROCEEDINGS,TH E AO FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION S(IT.S)WITH ITS ASSOCIATED ENTERPRISES (AE).SO,HE MADE A REFERENCE TO THE TRAN SFER PRICING OFFICER (TPO) TO DETERMINE THE ARMS LENGTH PRICE(ALP) OF SUCH T RANSACTIONS.AFTER RECEIVING THE ORDER OF THE TPO THE AO ISSUED A DRAFT ORDER TO THE ASSESSEE WHO CHALLENGED THE SAME BEFORE THE DRP.IN PERSUANCE OF THE DIRECTI ONS OF THE DRP,THE AO PASSED COMPLETED THE ASSESSMENT DETERMINING THE INC OME OF THE ASSESSEE AT RS.10.13 CRORES.VIDE ITS LETTER DATED 08.06.2015 TH E ASSESSEE HAD RAISED ADDITIONAL GROUNDS AND HAD MADE AN APPLICATION TO A DMIT THE SAME.IT WAS STATED THAT DURING THE YEAR IT HAD AMORTISED GOODWILL IN T HE BOOKS OF ACCOUNTS,THAT IT HAD NOT CLAIMED DEPRECIATION UNDER THE ACT,WHILE FI LING THE RETURN OF 1920/14-UNIFY ECPL 2 INCOME,THAT IN THE CASE OF SIMFS SECURITIES PRIVATE LIMITED(348ITR302)THE HONBLE APEX COURT HAD HELD THAT GOODWILL WAS AN IN TANGIBLE ASSET AND WAS ELIGIBLE FOR DEPRECIATION,THAT CLAIM WAS NOT MADE E ARLIER, THAT THE ISSUE WAS A LEGAL ISSUE AND THAT ALL THE FACTS WERE ON RECORD, THAT CLAIM FOR DEPRECIATION SHOULD BE ALLOWED.WE HAVE GONE THROUGH THE APPLICAT ION FIELD BY THE ASSESSEE.WE FIND THAT FOR DECIDING THE ADDITIONAL G ROUND NO NEW FACTS ARE TO BE LOOKED INTO.THEREFORE,ADDITIONAL GROUND RAISED BY T HE ASSESSEE IS ADMITTED. 2. FIRST EFFECTIVE GROUND OF APPEAL,RAISED BY THE ASSE SSEE IS ABOUT TRANSFER PRICING(TP) ADJUSTMENT MADE BY THE AO,AMOUNTING TO RS. 8.16 CRORES.IT WAS BROUGHT TO OUR NOTICE THAT THE AO HAD NOT FOLLOWED THE DIRECTIONS OF THE DRP AND HAD MADE THE ADDITION,THAT AN APPLICATION FILED BY THE ASSESSEE U/S.154 OF THE ACT IN THAT REGARD WAS NOT DEALT BY HIM. CONSID ERING THE SERIOUSNESS OF THE SITUATION THE DEPARTMENTAL REPRESENTATIVE (DR)WAS A SKED TO INFORM THE AO TO PASS NECESSARY RECTIFICATION ORDER.WE WERE INFORMED THAT ON 12.05.2016 THE AO HAD PASSED ORDER U/S.154 OF THE ACT AND HAD DELETED THE TP ADJUSTMENTS MADE. DURING THE COURSE OF HEARING BEFORE US, REPRESENTAT IVES OF BOTH THE SIDES STATED THAT THE FIRST EFFECTIVE GROUND OF APPEAL(GOA1-12)W ILL NOT SURVIVE.THEREFORE, SAME IS BEING TREATED AS INFRUCTUOUS. 3. GROUND NO.13 IS ABOUT NOT GRANTING TDS CREDIT OF RS .1.89 CRORES WHILE ARRIVING AT NET AMOUNT PAYABLE BY THE ASSESSEE. DUR ING THE COURSE OF HEARING BEFORE US, THE AR STATED THAT IF THE AO IS DIRECTED TO VERIFY THE TAX CREDIT THE ASSESSEE WOULD NOT HAVE ANY GRIEVANCE. ACCORDINGLY, WE DIRECT THE AO TO GRANT TDS CREDIT AFTER VERIFICATION. GROUND NO.13 IS PART LY ALLOWED. 4. GROUND NO.14 DEALING WITH LEVY OF INTEREST U/S.234 OF THE ACT IS CONSEQUENTIAL IN NATURE. 1920/14-UNIFY ECPL 3 5. GROUND NO.15 PERTAINS TO LEVY OF PENALTY.HOLDING IT TO BE PREMATURE,WE DISMISS IT. 6 .NOW,WE WILL TAKE ADDITIONAL GROUND DEALING WITH DE PRECIATION(GOA-16,17). THE FIRST GROUND WAS ABOUT NOT CONSIDERING THE DEPR ECIATION ON GOODWILL AN EXTRA ORDINARY NON OPERATING EXPENDITURE WHILE COMP UTING THE OPERATING MARGIN OF THE ASSESSEE.ADDL. GROUND NO.1 WAS NOT PRESSED B Y THE AR,DURING THE COURSE OF HEARING BEFORE US.THEREFORE,SAME STANDS DISMISSE D AS NOT PRESSED. 7. LAST GROUND OF APPEAL IS ABOUT NOT GRANTING DEPRECI ATION ON GOODWILL.IT WAS BROUGHT TO OUR NOTICE,BY THE AR,THAT WHILE DECIDING THE APPEALS FOR THE AY.S. 2008-09 AND 2010-11THE TRIBUNAL HAD DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE.THE DR IN HIS WRITTEN SUBMISSION STATED TH AT THAT THE DEFINITION OF INTANGIBLE PROPERTY IN EXPLANATION (II) BELOW SECT ION 92 WAS VERY WIDE WHEREAS THE DEFINITION OF INTANGIBLE ASSETS PROVIDED FOR I N SECTION 32(1)(II) READ WITH EXPLANATION 3(B) WAS VERY RESTRICTIVE,THAT SPECTRUM OF INTANGIBLE PROPERTIES WAS VERY LARGE AND WIDE,THAT THE LEGISLATURE, WHILE PRO VIDING FOR DEPRECIATION UNDER SECTION 32(1)(II) SOUGHT TO RESTRICT IT ONLY TO SPE CIFIC CATEGORIES OF INTANGIBLE ASSETS ALTHOUGH WIDENING A BIT BY INCORPORATING DE PRECIATION ON ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE,THAT ALL INTANGIBLE ASSETS/ PROPERTIES ARE NOT ELIGIBLE FOR DEPRECIATION U/S.32 (1)(II),THAT FOR DETERMINING WHETHER ANY INTANGIBLE FELL U/S.32(1)(II) PRINCIPL E OF EJUSDEM GENERIS WOULD BE HAVE TO BE EXAMINED ON THE FACTUAL MATRIX,THAT DEPR ECIATION WAS NOT ELIGIBLE ON ALL ASSETS,THAT IN ORDER TO HOLD THAT GOODWILL WAS ELIGIBLE FOR DEPRECIATION THERE HAD TO BE FINDING THAT THEY IT WAS AKIN TO ONE OR MORE OF THE SPECIFIED CATEGORIES LIKE KNOW-HOW,PATENTS,COPYRIGHTS,TRADE-MARKS, LICEN CES. FRANCHISES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS.WE ARE UNA BLE TO UNDERSTAND AS TO WHAT THE DR WANTED TO ARGUE.IN OUR OPINION,AFTER TH E JUDGMENT OF HON'BLE APEX 1920/14-UNIFY ECPL 4 COURT IN THE CASE OF SMIFS SECURITIES LTD.(348ITR30 2),THERE IS NO DOUBT ABOUT ALLOWABILITY OF DEPRECIATION ON GOODWILL.IN THE EAR LIER YEAR,THE TRIBUNAL HAS GIVEN A POSITIVE AND EMPHATIC RULING IN THAT REGARD .IT HAD REFERRED TO THE MATTER OF SMIFS SECURITIES LTD.(SUPRA).THE DR COULD NOT TH ROW LIGHT AS TO WHICH OF THE FACTS FOR THE YEAR UNDER CONSIDERATION WERE DIFFERE NT FROM THE FACTS OF LAST AY.2010-11.WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER FOR THAT AY.(ITA/790/ MUM/2015-DTD.22/12/2-15)AND SAME READS AS UNDER: 4. GROUND NO. 1: DEPRECIATION ON GOODWILL UNDER SEC TION 32 OF THE ACT 4.1 AT THE OUTSET, THE LEARNED A.R. FOR THE ASSESSE E SUBMITTED THAT THIS GROUND RELATING TO THE ISSUE OF GRANT OF DEPRECIATION UNDER SECTION 32 OF THE ACT ON GOODWILL BEING AN INTANGIBLE ASSET IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A .Y. 2008-09 IN ITA NO. 7399/MUM/2012 DATED 28.10.2015 WHEREIN THE COORDINA TE BENCH FOLLOWED THE DECISION OF THE HON'BLE APEX COURT IN SMIFS SECURIT IES LTD. 348 ITR 302 (SC). 4.2.1.WE HAVE HEARD BOTH THE LEARNED A.R. FOR THE A SSESSEE AND THE LEARNED D.R. FOR REVENUE ON THIS ISSUE AND HAVE PERUSED AND CAREFULL Y CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT A COORDINATE BENCH OF THIS TRI BUNAL IN ITS ORDER IN ITA NO. 3799/MUM/2012 DATED 28.10.2015 IN ASSESSEES OWN CA SE FOR A.Y.2008-09 HAS CONSIDERED THIS ISSUE OF DEPRECIATION ON GOODWILL U NDER SECTION 32 OF THE ACT AND HELD IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE COORDINATE BENCH AT PARAS 11 AND 12 THEREOF IS EXTRACTED HEREUNDER: - 11. GROUND NOS.11 AND 12 RAISED BY THE ASSESSEE AR E RELATES TO THE CORPORATE ISSUES. GROUND NO.11 RELATES TO THE GRANTING OF THE DEPRECI ATION U/S 32 OF THE ACT ON THE GOODWILL, BEING AN INTANGIBLE ASSET. IN THIS REGARD , AT THE OUTSET, LD REPRESENTATIVES OF BOTH THE PARTIES AGREED TO THE PROPOSITION THAT THE SAID ADDITIONAL GROUND IS LEGAL IN NATURE AND THE SAME IS REQUIRED TO BE ADJUDICATED A S PER THE RATIO OF SUPREME COURT LAID DOWN IN THE CASE OF SMIFS SECURITIES LIMITED [ 348 ITR 302 (SC)] WHEREIN IT WAS HELD THAT THE GOODWILL CONSTITUTES AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. RELEVANT PORTION FROM THE SAID SUPREME COURT JUDGMENT READS AS UNDER: 8. THE ASSESSING OFFICER HELD THAT GOODWILL WAS NO T AN ASSET FALLING UNDER EXPLANATION 3 TO SECTION 32(1) OF THE INCOME TAX AC T, 1961 (THE ACT, FOR SHORT). 9. WE QUOTE HEREIN BELOW EXPLANATION 3 TO SECTION 3 2(1) OF THE ACT: EXPLANATION 3- FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSIO NS ASSET AND BLOCK OF ASSETS SHALL 1920/14-UNIFY ECPL 5 MEAN- (A) TANGIBLE ASSETS,BEING BUILDINGS, MACHINER Y, PLANT OR FURNITURE; (B) INTANGIBLE ASSETS, BEING KNOW-HOW PATENTS, COPYRIGHTS, TRADEMA RKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE. EXPLANATION 3 STATES THAT THE EXPRESSION ASSET SHALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. A READING THE WORDS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 I NDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERC IAL RIGHT OF A SIMILAR NATURE. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APP LY WHILE INTERPRETING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B).IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. 12. CONSIDERING THE ABOVE SETTLED NATURE OF THE ISS UE, WE DIRECT THE AO TO APPLY THE SAID JUDGMENT OF THE APEX COURT TO THE PRESENT CASE AND ALLOW THE ASSESSEES CLAIM AND DECIDED THE ISSUE ACCORDINGLY. THUS, THE ADDITI ONAL GROUND NO.11 BEING LEGAL IN NATURE IS ADMITTED AND ALLOWED IN FAVOUR OF THE ASS ESSEE. 4.2.2 FOLLOWING THE DECISION OF THE HON'BLE APEX CO URT IN THE CASE OF SMIFS SECURITIES LTD. (SUPRA) AND THE AFORESAID DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 (SUPRA), WE DI RECT THE AO TO ALLOW ASSESSEES CLAIM BY APPLYING THE JUDGEMENT OF THE HON'BLE APEX COURT (SUPRA). IT IS ORDERED ACCORDINGLY. CONSEQUENTLY, GROUND NO. 1 IS ALLOWED. RESPECTFULLY,FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL,WE ALLOW GROUND NO.17 IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY TH E ASSESSEE IS STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OP EN COURT ON 22 ND JUNE, 2016. 22 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( #$ / RAJENDRA ) % / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 22.06.2016. JV.SR.PS. # $ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ &' ( , 4. THE CONCERNED CIT / &' ( 5. DR K BENCH, ITAT, MUMBAI / * , , . . . & 6. GUARD FILE/ - //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR * , & /ITAT, MUMBAI.