Navin Global Pvt. Ltd. , Ahmedabad V. The Dy.CIT, Circle (3)(1)(1), Ahmedabad

ITA 1941/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7041 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2003-2004
• Appeal Filed On: 29-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P SRIVASTAVA
• Keywords: Depreciation; Rule of consistency; Question of law; Scheme of amalgamation
• Section: 143(3); 2

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.1941/AHD/2017 / ASSTT. YEAR: 2003-04 NAVIN GLOBAL P.LTD. NIRMA HOUSE ASHRAM ROAD AHMEDABAD. PAN : AAACN 5215 B VS. DCIT, CIR.(3)(1)(1) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI HIMANSHU SHAH, AR REVENUE BY : SHRI B.P. SRIVASTAVA, SR.DR ! / DATE OF HEARING : 11/01/2019 '#$ ! / DATE OF PRONOUNCEMENT: 16/01/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-9, AHMEDABAD DATED 14.7.2017 PASSED FOR T HE ASSTT.YEAR 2003-04. 2. THOUGH THE ASSESSEE HAS TAKEN FOUR GROUNDS OF AP PEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE WHEREBY IT HAS PLEADED THAT HE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.8,20,313/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME DECLARING A LOSS OF RS.23,64,220/-. AN ASSE SSMENT WAS MADE ITA NO.1941/AHD/2017 2 UNDER SECTION 143(3) ON 22.3.2006 WHEREBY TOTAL INC OME OF THE ASSESSEE WAS DETERMINED AT RS.7,55,415/- AS AGAINST RETURNED LOSS. THE ASSESSEE HAS CLAIMED DEPRECIATION ON LICENCE FE E AMOUNTING TO RS.8,20,313/-. THIS DEPRECIATION WAS DISALLOWED TO THE ASSESSEE BY THE AO. DISPUTE TRAVELLED UPTO THE TRIBUNAL, AND THE I SSUE WAS REMITTED BACK TO THE AO. AGAIN THIS DISALLOWANCE HAS BEEN M ADE, AND TOTAL INCOME OF THE ASSESSEE HAS BEEN DETERMINED AT A NEG ATIVE FIGURE OF RS.15,43,907/-. THE LD.CIT(A) DISCUSSED THE ISSUE ELABORATELY IN THE IMPUGNED ORDER. WE WOULD LIKE TO TAKE NOTE OF RELE VANT FINDING RECORDED BY THE LD.CIT(A) ON THIS ISSUE, WHICH READ S AS UNDER: IT CAN BE SEEN FROM, THE ABOVE REFERRED FINDING OF HON'BLE SUPREME COURT THE MAIN ARGUMENT FOR CLAIMING DEPRECIATION ON THE GOODWILL ARISING ON AMALGAMATION WAS THAT THE EXTRA CONSIDERATION WAS P AID TOWARDS- THE REPUTATION THAT THE AMALGAMATING COMPANY WAS ENJOYI NG IN ORDER TO RETAIN ITS EXISTING CLIENTELE. RELYING ON THIS MAIN ARGUME NT, THE HON'BLE APEX COURT HAS CONSIDERED GOODWILL AS AN ASSET UNDER EXPLANATI ON-3(B) TO SEC.32(1) OF THE ACT. HON'BLE APEX COURT HAS FURTHER GONE IN TO ANOTHER ASPECT THAT NO AMOUNT WAS ACTUALLY PAID ON ACCOUNT OF GOODWILL WHI CH WAS A FINDING OF FACT. IN THE CASE BEFORE HON'BLE SUPREME COURT, THE CIT(A) .HAD COME TO THE CONCLUSION THAT THE ASSETS AND LIABILITIES OF Y SN SHARES AND SECURITIES (P) LTD. WERE TRANSFERRED TO THE ASSESSEE FOR A CON SIDERATION AND THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMO UNT PAID CONSTITUTED GOODWILL AND THE ASSESSEE COMPANY IN THE PROCESS OF AMALGAMATION HAS ACQUIRED A CAPITAL RIGHT IN THE FORM OF GOODWILL BE CAUSE OF WHICH THE 'MARKET WORTH' OF THE ASSESSEE COMPANY STOOD INCREASED. HON 'BLE SUPREME COURT HAS ALSO MENTIONED THAT THE ITAT HAS UPHELD THIS FA CT AND HENCE THERE IS NO REASON TO INTERFERE WITH THE FACTUAL FINDING. FURTH ER THE SUPREME COURT HAS ALSO MENTIONED THAT THE ONLY QUESTION RAISED BEFORE IT WAS WHETHER GOODWILL IS AN ASSET U/S.32 OF THE ACT OR NOT ? AND THE REVE NUE HAD NOT FILED AN APPEAL BEFORE THE HIGH COURT ON THE FINDING OF FACT MENTIONED EARLIER. THE A.O HAS ALSO MENTIONED IN THE ORDER OF ASSESSMENT T HAT THE FINDINGS GIVEN BY THE HON'BLE SUPREME COURT THAT THE ONLY QUESTION OF LAW THAT WAS RAISED BEFORE IT WAS WHETHER GOODWILL IS A DEPRECIABLE ASS ET OR NOT? THERE IS NO DOUBT THAT THE JUDGMENT OF THE APEX COURT IS THE LA W OF LAND. THERE IS ALSO NO DOUBT THAT 'GOODWILL' IS AN INTANGIBLE ASSET ELI GIBLE FOR CLAIM OF DEPRECIATION U/S.32 OF THE ACT. IT IS SEEN THAT THE APPELLANT HAD ACQUIRED THE CONCERN ALPA MARKETING ENTERPRISES FOR THE REASON O F MARKETING SET UP OF ALPA MARKETING ENTERPRISE IN DIFFERENT STATES AND C ENTRE, WITH ITS OWN LIECENSE AND ARRANGEMENT ALONGWITH VAST NUMBER OF D ISTRIBUTORS. THE DATA BASE OF CONSUMER HABITS AND MARKET POTENTIAL OF ALP A MARKETING WAS ALSO ACQUIRED AND HENCE AN AMOUNT OF RS. 50 LAC WAS PAID . IT IS A MATTER OF FACT THAT THE APPELLANT HAD PAID RS. 50 LACS AS A LUMPSU M PAYMENT FOR ACQUIRING RUNNING BUSINESS OF ALPA MARKETING. THE AUDITORS HA VE ALSO MENTIONED THAT ITA NO.1941/AHD/2017 3 IT WAS A CONSIDERATION FOR SLUMP SALE AND IT DOES N OT AMOUNT TO PURCHASE OF LICENSE OR INTANGIBLE ASSETS. IN THE AGREEMENT THE SELLER HAD AGREED THAT ALL THE CONTRACTS, DEED, AGREEMENTS, OTHER INSTRUMENTS AND DOCUMENTS OF WHATEVER NATURE OF WHICH THE SAME WAS THE PARTY SHA LL REMAIN IN FULL FORCE IN FAVOUR OF THE PURCHASER. IT HAD ALSO AGREED THAT AL L THE BENEFITS UNDER AGREEMENTS WHICH WAS EARNED BY THE SELLER WOULD BE TRANSFERRED TO THE PURCHASER AS A PART OF RUNNING BUSINESS AND ASSETS. I AM OF THE CONSIDERED OPINION THAT HON'BLE -SUPREME COURT HAS MENTIONED I N ITS JUDGMENT IN SMIFS SECURITIES THAT IT IS A MATTER OF FACT THAT IN THE PROCESS OF AMALGAMATION THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMO UNT PAID CONSTITUTED THE GOODWILL FOR REASON THAT SMIFS SECURITIES HAD ACQUI RED A CAPITA! RIGHT IN THE FORM OF GOODWIL BECAUSE OF WHICH MARKET WORTH OF SM IFS SECURITIES INCREASED BY MEANS OF SCHEME OF AMALGAMATION OF YSN SHARES AND SECURITIES PVT. LTD. WITH SMIFS SECURITIES. THUS TH E MAIN QUESTION REMAINS THAT BY ACQUIRING ALPA MARKETING ENTERPRISE WHETHER THE MARKET WORTH OF THE APPELLANT COMPANY STOOD INCREASED OR NOT? IT IS SEE N FROM THE AGREEMENT BETWEEN THE APPELLANT AND THE ALPA MARKETING ENTERP RISE THAT THE APPELLANT HAS PAID RS. 50 LACS OVER AND ABOVE THE TOTAL ASSET S AND .LIABILITIES RECEIVED BY THE APPELLANT. THE PAYMENT IS IN LIEU OF TOTAL A SSETS ALONG WITH LIABILITIES AND IN LIEU OF RUNNING BUSINESS OF ALPA MARKETING. NEITHER IN THE AGREEMENT NOR IN THE AUDIT REPORT IN FORM NO.SCEA THE VALUATI ON OF INTANGIBLE ASSETS SUCH AS GOVERNMENT APPROVALS, LICENSES AND REGISTRA TION ETC HAVE BEEN REFLECTED UPON NOR HAS THERE BEEN ANY DISCUSSION ON VALUE OF SUCH INTANGIBLES. THUS, THE PAYMENT APPEARS TO HAVE BEEN MADE ONLY FOR ACQUIRING THE RUNNING BUSINESS AND NOT IN LIEU OF A NY INTANGIBLE ASSETS THAT WOULD INCREASE THE MARKET WORTH OF THE APPELLANT. F URTHER, THE AUDIT REPORT AND THE AGREEMENT IS ALSO NOT CLEAR WHETHER THE SAI D AGREEMENT HAS LEAD TO INCREASE IN MARKET WORTH OF THE APPELLANT COMPANY O R NOT. AT THE SAME TIME IT IS A MATTER OF FACT THAT THE PAYMENTS OF RS. 50 LACS WAS OVER AND ABOVE THE TOTAL ASSETS AND LIABILITIES RECEIVED BY THE AP PELLANT. CONSIDERING ALL THE FACTS ABOVE, 1 AM OF THE CONSIDERED OPINION THAT IT HAS NOT BEEN PROVED BY THE APPELLANT DURING THE ASSESSMENT AS WELL AS APPE LLATE PROCEEDINGS THAT THE PAYMENTS OF RS. 50 LACS HAS LEAD TO INCREASE IN ITS MARKET WORTH BY ACQUIRING A CAPITAL RIGHT IN THE FORM OF GOODWILL. THEREFORE, THE DISALLOWANCE OF RS.8,20,313/- MADE BY THE A.O ON ACCOUNT OF CLAI M OF DEPRECIATION ON THE GOODWILL ARISING OUT OF ACQUIRING ALPA MARKETIN G IS HEREBY CONFIRMED AND THE GROUND OF APPEAL IS DISMISSED. 4. A PERUSAL OF THE ABOVE FINDING WOULD INDICATE TH AT BASICALLY, THE LD.CIT(A) HAS DOUBTED VERY EXISTENCE OF THE ASSETS BY VIRTUE OF THIS TRANSACTION. IN THE OPINION OF THE LD.CIT(A) NO IN TANGIBLE ASSET IN THE SHAPE OF LICENCE ETC. APPEARS TO HAVE COME TO THE A SSESSEE, AND THE PAYMENTS WERE MADE ONLY FOR ACQUIRING RUNNING BUSIN ESS. HOWEVER, DURING THE COURSE OF DISCUSSION, IT CAME TO OUR NOT ICE THAT DEPRECIATION WAS GRANTED FOR THE FIRST TIME IN THE ASSTT.YEAR 20 01-02. A RE- ASSESSMENT ORDER WAS PASSED, BUT IT WAS QUASHED BY THE TRIBUNAL. IN ITA NO.1941/AHD/2017 4 THE ASSTT.YEAR 2002-03, DEPRECIATION WAS ALLOWED BY THE AO HIMSELF UNDER SECTION 143(3). THE LD.COUNSEL FOR THE ASSESS EE FURTHER POINTED OUT THAT EXCEPT ASSTT.YEAR 2003-04 I.E. PRESENT YEA R, IN SUBSEQUENT YEAR ALSO DEPRECIATION HAS BEEN GRANTED. CONSIDERI NG ABOVE POSITION, WE DO NOT SEE ANY REASON TO DOUBT ABOUT EXISTENCE O F AN ASSET IN A PARTICULAR YEAR, MORE SO, WITHOUT ANY SPECIFIC EVID ENCE ON RECORD. THE LD.CIT(A) HAS JUST RE-APPRECIATED THE AGREEMENT, WH ICH HAS BEEN CONSTRUED OTHERWISE BY THE REVENUE AUTHORITIES IN A LL OTHER ASSESSMENT YEARS. CONSIDERING PRINCIPLE OF CONSISTENCY, WE AR E OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION THIS YEAR ALS O. THEREFORE, WE ALLOW THIS GROUND OF APPEAL AND DELETE DISALLOWANCE MADE BY THE AO, AND CONFIRMED BY THE LD.CIT(A). 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 16 TH JANUARY, 2019 AT AHMEDABAD. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER