M/s. Swastik Industries, Surat V. The Income tax Officer,Ward-6(4), Surat

ITA 204/AHD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9583 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-05-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) I.T. A. NOS. 203 TO 207/AHD/2012 (ASSESSMENT YEARS: 2003-2004 TO 2006-20 07 AND 2008-2009) M/S. SWASTIK INDUSTRIES 157, GIDC, PANDESARA, SURAT-394221 V/S ITO, WARD- 6(4), SURAT (APPELLANT) (RESPONDENT) PAN: AAKFS0511J APPELLANT BY : NONE (WRITTEN SUBMISSIONS) RESPONDENT BY : SHRI NIMESH YADAV, SR. D.R ( )/ ORDER DATE OF HEARING : 13-05-2015 DATE OF PRONOUNCEMENT : 29 -05-2015 PER BENCH. 1. THESE 5 APPEALS FILED BY THE ASSESSEE ARE AGAINST T HE ORDER OF CIT(A)-IV, SURAT DATED 30-09-2011 FOR A.YS. 2003-04, 2004-05, 2005-06, 2006-07 & 2008-09. 2. AT THE OUTSET, BEFORE US, LD. D.R SUBMITTED THAT TH OUGH THE APPEAL OF THE ASSESSEE RELATES TO 5 DIFFERENT ASSESSMENT YEARS BU T THE FACTS AND CIRCUMSTANCES OF ALL THE CASES ARE SIMILAR EXCEPT F OR THE ASSESSMENT YEARS AND AMOUNTS AND THE SUBMISSIONS ARE ALSO COMMON FOR ALL THE APPEALS AND ITA NOS. 203 TO 207/AHD/2012 . A.YS. 2003-0 4 TO 2006-07 & 2008-09 2 THEREFORE ALL THE APPEALS CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF ALL THE APPEALS TOGETHER FOR THE SAKE OF CONVENIENCE AND THUS PROCEED WITH THE FACTS IN A.Y. 2003-04 IN ITA NO. 2 03/AHD/2012. 3. IN THIS CASE, NONE APPEARED ON BEHALF OF ASSESSEE B UT HOWEVER WRITTEN SUBMISSIONS WERE FILED BY THE ASSESSEE. WE THEREFOR E PROCEED TO DECIDE THE APPEALS, EX PARTE QUA THE ASSESSEE ON THE BASIS OF MATERIAL ON RECORD AND WRITTEN SUBMISSIONS. 4. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF DOING JOB WORK OF EMBROIDERY. ASSESSEE FILED ITS RETURN O F INCOME ON 30.06.2003 FOR A.Y. 2003-04 DECLARING TOTAL LOSS OF RS. 2,18,4 80/-. THE RETURN OF INCOME WAS INITIALLY ACCEPTED U/S. 143(1). SUBSEQUE NTLY, THE CASE WAS RE- OPENED BY ISSUING NOTICE U/S. 148 AND THEREAFTER AS SESSMENT WAS FRAMED U/S. 147 R.W.S. 143 (3) VIDE ORDER DATED 22.10.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 5,94,680/-. AGGRIEVED BY THE ORDE R OF A.O, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 30.09.2011 DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND;- 1. THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING ADDITION OF RS. 4,86,443/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION OF GOODWILL AS PER PAR A 3 OF THE APPEAL ORDER. 5. ON PERUSING THE DEPRECIATION CHART FURNISHED ALONG WITH THE RETURN OF INCOME, IT WAS NOTICED BY A.O THAT ASSESSEE HAD CLA IMED DEPRECIATION OF RS. 4,86,443/- ON THE GOODWILL. A.O WAS OF THE VIEW T HAT ASSESSEE WAS NOT ELIGIBLE TO CLAIM DEPRECIATION OF GOODWILL AND ACCO RDINGLY DISALLOWED THE ITA NOS. 203 TO 207/AHD/2012 . A.YS. 2003-0 4 TO 2006-07 & 2008-09 3 CLAIM OF DEPRECIATION ON GOODWILL. AGGRIEVED BY T HE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO D ISMISSED THE GROUND OF THE ASSESSEE BY HOLDING AS UNDER:- 2. THE ONLY COMMON GROUND ACROSS ALL THREE APPEALS IS AGAINST THE A.O. MAKING AN ADDITION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON GOODWILL. IT IS SEEN THAT THE APPELLANT FIRM HAD MADE PAYMENT TO RETIRING PARTNER S OVER AND ABOVE THEIR CAPITAL IN THE FIRM. THIS ADDITIONAL AMOUNT WAS MENTIONED IN T HE FIXED ASSETS SCHEDULE AS GOODWILL AND DEPRECIATION WAS CLAIMED ON THIS. IT W AS THE CONTENTION OF THE APPELLANT THAT THE PAYMENT HAD BEEN MADE TO ACQUIRE COMMERCIA L RIGHTS WHICH ARE INTANGIBLE ASSETS AND THEREFORE ELIGIBLE FOR DEPRECIATION. THI S ISSUE HAS BEEN DECIDED BY ME AGAINST THE ASSESSEE IN MY ORDER IN APPEAL NO. CASI V/164/09-10, FOR A.Y. 2002-03. FOR THE DETAILED REASON GIVEN IN THAT ORDER, IT IS HELD THAT THE APPELLANT WAS NOT ELIGIBLE FOR DEPRECIATION ON GOODWILL. THE DISALLOW ANCE IS UPHELD. THIS GROUND FAILS. 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, IN THE WRITTEN SUBMISSIONS, THE ASSESSEE HAS SUBMITTED THAT THE FIRM WAS INITIALLY STARTED ON 17 TH JULY, 1981. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAD PAID COMPENSATION ON RETIREMENT TO THE RETIRING PARTNERS AND IT WAS TOWARDS ACQUIRING COMMERCIAL RIGHT BUT IN THE B OOKS OF ACCOUNTS IT WAS NAMED AS GOODWILL. IT IS FURTHER SUBMITTED THAT P AYMENT FOR ACQUIRING COMMERCIAL RIGHTS IS ELIGIBLE FOR DEPRECIATION WITH EFFECT FROM 01.04.1999 AND THE PAYMENT MADE FOR THE PURPOSE OF ACQUIRING C OMMERCIAL RIGHTS WAS ELIGIBLE FOR DEPRECIATION. RELIANCE WAS ALSO PLACED ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF B. RAVINDRAN PILLAI VS. C IT (2011) 332 ITR 531. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT THAT SIMILAR CONTROVERSY IS ALSO INA.Y. 04-05, 05- ITA NOS. 203 TO 207/AHD/2012 . A.YS. 2003-0 4 TO 2006-07 & 2008-09 4 06, 06-07 & 07-08 AND IN THOSE YEARS ALSO THE ASSES SEE IS NOW IN APPEAL BEFORE TRIBUNAL. 8. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD. IT IS ASSESSEES SUBMISSION THAT THE PAYMENTS WERE MADE T O THE RETIRING PARTNERS FOR ACQUIRING COMMERCIAL RIGHTS WHICH WAS IN THE NA TURE OF INTANGIBLE ASSETS. WE FIND THAT LD. CIT(A), FOLLOWING HIS ORDER FOR IN ASSESSEES OWN CASE FOR A.Y. 2002-03 DISALLOWED THE CLAIM OF DEPRECIATION. BEFORE US, THE AFORESAID DECISION OF LD. CIT(A) FOR A.Y. 02-03 HAS NOT BEEN PLACED BY EITHER PARTIES. FURTHER THE LD. D.R. COULD ALSO NOT THROW LIGHT AS TO WHETHER THE ASSESSEE HAD PREFERRED ANY APPEAL AGAINST THE ORDER FOR A.Y. 2002-03 WHEREBY ITS CLAIM OF DEPRECIATION WAS DENIED BY LD. CIT(A) NOR HAS THE ASSESSEE PLACED ANY MATERIAL ON RECORD IN RESPECT OF THE AFORESAID. AS FAR AS THE PAYMENT TO RETIRING PARTNERS OVER AND ABOVE THE CAPITAL AND DI SCLOSED AS GOODWILL BY THE ASSESSEE IS CONCERNED, THE SAME IS NOT IN DISPUTE. WE FIND THAT IN THE CASE OF B. RAVINDRAN PILLAI (SUPRA), THE HONBLE HIGH COURT HAS HELD THAT WHEN THE GOODWILL PAID WAS FOR ENSURING RETENTION AND CONTIN UED BUSINESS, IT WAS FOR ACQUIRING A BUSINESS AND COMMERCIAL RIGHTS AND WAS COMPARABLE WITH TRADE MARK, FRANCHISE, COPY RIGHT ETC RENDERED TO IN THE FIRST PART OF CLAUSE 2 OF SECTION 32(1) AND SO MUCH SO, GOODWILL WAS COVERED BY THE ABOVE PROVISION OF THE ACT ENTITLING THE ASSESSEE FOR DEPRECIATION. WE ALSO FIND THAT THE HONBLE APEX COURT IN THE CASE OF CIT VS. SMIFS SEC URITIES LTD. (2012) 348 ITR 302 HAS HELD THAT GOODWILL IS AN ASSET UNDE R EXPLANATION 3(B) TO SECTION 32(1). BEFORE US, REVENUE HAS NOT POINTED O UT ANY CONTRARY BINDING DECISION IN ITS SUPPORT. IN VIEW OF THESE FACTS AND RELYING ON THE AFORESAID DECISIONS WE ARE OF THE VIEW THAT ASSESSEE IS ELIGI BLE FOR DEPRECIATION. WE THUS DIRECT ACCORDINGLY. ITA NOS. 203 TO 207/AHD/2012 . A.YS. 2003-0 4 TO 2006-07 & 2008-09 5 9. IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLOWED F OR A.Y. 03-04, 04-05, 05- 06, 06-07 & 08-09. 10. WE NOW TAKE UP THE OTHER GROUND WHICH IS COMMON FOR A.Y. 06-07 & 07-08 PERTAINING TO DISALLOWANCE OF MILGIN AND FACTORY E XPENSES AND THE GROUNDS RAISED BY THE ASSESSEE FOR A.Y. 2006-07 READS AS UN DER:- 2. THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING ADDIT ION OF RS. 1,58,606/- ON ACCOUNT OF LUMP SUM DISALLOWANCE OUT OF MILGINE AND FACTORY EX PENSES AS PER PARA 5 OF THE APPEAL ORDER. THE GROUND IS WITH RESPECT TO ADDITION OF RS. 1,58, 606/- OUT OF MILGIN AND FACTORY EXPENSES. 11. A.O NOTICED THAT ASSESSEE HAD DEBITED MILGINE EXPEN SES OF RS. 7,79,014/- AND FACTORY EXPENSES OF RS. 14,014/- AGGREGATING TO RS. 7,93,028/-. A.O NOTICED THAT SOME OF THE EXPENSES INCURRED WERE NOT FULLY SUPPORTED BY PROPER VOUCHERS OR SOME OF THE BILLS VOUCHERS WERE MISSING OR WERE SELF MADE VOUCHERS. THUS IN THE ABSENCE OF COMPLETE SUPP ORTING EVIDENCE WITH REGARD TO THE QUANTUM OF CLAIM AND THE PURPOSE OF E XPENSES, A.O WAS OF THE VIEW THAT THE EXPENSES CANNOT BE VERIFIED AND FURTH ER AS TO WHETHER THE ENTIRE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE ACCORDINGLY DISALLOWED 1/5 TH OF THE EXPENSES AMOUNTING TO RS. 1,58,606/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO UPHELD THE ORDER OF A.O AND C ONFIRMED THE DISALLOWANCE BY HOLDING AS UNDER:- 5. GROUND NO.3 IN A.Y. 2006-07 AND GROUND NO.3 IN A .Y. 2008-09 ARE AGAINST THE A.O. MAKING ADDITION ON ACCOUNT OF MILLGIN & FACTORY EXP ENSES. THE A.O. DURING THE COURSE OF ITA NOS. 203 TO 207/AHD/2012 . A.YS. 2003-0 4 TO 2006-07 & 2008-09 6 ASSESSMENT PROCEEDINGS OBSERVED THAT THESE EXPENSES WERE NOT FULLY SUPPORTED BY VOUCHERS AND BILLS AND ALSO SOME OF THE BILLS/VOUCH ERS WERE SELF MADE AND NOT IN CHRONOLOGICAL ORDER AND HENCE UNVERIFIABLE. HE THER EFORE HELD THAT THE ENTIRE EXPENSES CANNOT BE HELD AS INCURRED WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE THEREFORE DISALLOWED L/5 TH OF THE EXPENSES AND MADE ADDITION OF RS. 1,58,606/ - AND RS. 1,01,507/- IN A.Y. 2006-07 AND IN A.Y. 2008-09, RESPECTIVELY. DUR ING THE COURSE OF APPEAL PROCEEDINGS, NO SUBMISSIONS HAVE BEEN MADE IN RESPECT OF THIS GR OUND. THE SOF ACCOMPANYING THE APPEAL DOES NOT GIVE ANY REASON WHY THE ACTION OF T HE A.O. SHOULD NOT BE UPHELD. I AM THEREFORE CONSTRAINED TO UPHOLD THE ACTION OF THE A .O. GROUND NO.3 IN A.Y. 2006-07 AND GROUND NO.3 IN A.Y. 2008-09 ARE THEREFORE DISMISSED . 12. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 13. BEFORE US, THE ASSESSEE IN THE WRITTEN SUBMISSIONS HAS SUBMITTED THAT NO SPECIFIC DEFECTS WERE FOUND IN THE VOUCHERS AND MOS T OF THE MILGINE EXPENSES WERE PAID BY ACCOUNT PAYEE CHEQUES. IT WAS FURTHER SUBMITTED THAT THE FACTORY EXPENSES IN COMPARISON TO THE TOTAL TUR NOVER WAS REASONABLE AND NO DISALLOWANCE WAS CALLED FOR. LD. D.R. ON THE OTH ER HAND SUPPORTED THE ORDER OF A.O AND LD. CIT(A). 14. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIA L ON RECORD. WE FIND THAT WHILE CONFIRMING THE DISALLOWANCE, LD. CIT(A) HAS N OTED THAT NO SUBMISSIONS WERE MADE BY THE ASSESSEE IN RESPECT OF THE AFORESA ID GROUND. BEFORE US ALSO APART FROM THE GENERAL STATEMENT, NO DETAILS HAVE B EEN FILED BY THE ASSESSEE IN SUPPORT OF ITS SUBMISSIONS. IN VIEW OF THE AFORE SAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AN D THUS THIS GROUND OF ITA NOS. 203 TO 207/AHD/2012 . A.YS. 2003-0 4 TO 2006-07 & 2008-09 7 ASSESSEE IS DISMISSED. SINCE SIMILAR GROUND HAS BEE N RAISED BY ASSESSEE FOR A.Y. 08-09, THE GROUND FOR A.Y. 08-09 IS ALSO DISAL LOWED. 15. IN THE RESULT, THE APPEALS OF ASSESSEE IN ITA NOS. 203,204 & 205/AHD/2012 ARE ALLOWED AND ITA NOS. 206 & 207/AHD/2012 ARE PAR TLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 05 - 2015 . SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD