Sujag Fine Chemicals Pvt.Ltd., Baroda V. The Income tax Officer,Ward-4(3), Baroda

ITA 2497/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89521 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Depreciation
• Section: 143(3); 32; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI N.S. SAINI , ACCOUNTANT MEMBER AND SHR I RAJPAL YADAV , JUDICIAL MEMBER M/S. SUJAG FINE CHEMICALS PVT. LTD, 14/6 & 7, GIDC ESTATE, AT & POST. NANDESARI, DIST. BARODA - 391340 PAN: AADCS2989J (APPELLANT) VS THE INCOME TAX OFFICER, WARD - 4(3), BARODA (RESPONDENT) ASSESSEE BY: S H R I SUNIL H. TALATI , A.R . REVENUE BY: S H RI NIMESH YADAV , SR. D.R DATE OF HEARING : 08 - 06 - 2 015 DATE OF PRONOUNCEMENT : 12 - 06 - 2 015 / ORDER P ER : RAJPAL YADAV , JUDICIAL MEMBER : - THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) DATED 2 3 RD AUGUST, 2011 PA SSED FOR ASSESSMENT YEAR 200 6 - 07 . I T A NO . 2497 / A HD/20 11 A SSESSMENT YEAR 20 06 - 07 I.T.A NO. 2497 /AHD/2011 A.Y. 20 06 - 07 PAGE NO M/S. SUHAG FINE CHEMICALS PVT. LTD VS. ITO 2 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN CON FIRMING THE DISALLOWANCE OF DEPRECIATION ON GOODWILL. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS FILED ITS RETURN OF INCOME ON 23 - 12 - 2006 DECLARING TOTAL INCOME OF RS. 5,39,660/ - . A N ASSESSMENT ORDER WAS PASSED U/S . 143(3) ON 22 - 12 - 2008 DETER MINING TOTAL INCOME AT RS. 90,90,889/ - . ON VERIFICA TION OF DEPRECIATION CLAIMED, IT REVEALED TO THE LD. ASSESSING OFFICER THAT , ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 1, 09,810/ - @ 25% WRITTEN DOWN VALUE OF GOODWILL. ACCORDING TO THE ASSESSING OFFICER, THE DEPRECIATION ON GOODWILL IS NOT ADMISSIBLE , T H E R E FORE , HE REOPENED THE ASSESSMENT AND ISSUED NOTICE U/S. 148 OF THE INCOME TAX ACT. HE DISALLOWED THE CLAIM OF ASSESSEE. 4. ON APPEAL, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE DISAL LOWANCE. 5. BEFORE US, LEARNED COUNSEL FOR THE ASSSESSEE AT THE VERY OUTSET SUBMITTED THAT ISSUE IN DISPUTE IS SQUARELY COVERED BY THE ORDER OF ITAT PASSED IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2003 - 04 WHEREBY DEPRECIATION ON GOODWILL WAS ALLOWED TO THE ASSESSEE. HE PLACED ON RECORD THE COPY OF THE TRIBUNAL S ORDER PASSED IN ITA NO. 2087/AHD / S 2012 . LD. DEPARTMENTAL REPRESENTATIVE WAS UNABLE TO CONTROVERT THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. ON DUE CONSIDERATION OF THE FACTS A ND CIRCUMSTANCES, WE FIND THAT ISSUE IN DISPUTE IS SQUARELY COVERED BY THE ORDER OF ITAT PASSED IN I.T.A NO. 2497 /AHD/2011 A.Y. 20 06 - 07 PAGE NO M/S. SUHAG FINE CHEMICALS PVT. LTD VS. ITO 3 ASSESSMENT YEAR 2003 - 04. THE DISCUSSION MADE BY THE TRIBUNAL IN ASSESSMENT YEAR 2003 - 04 ON THIS ISSUE READS AS UNDER: - 6. WE HAVE HEARD BOTH THE SIDES. FRO M THE SIDE OF THE REVENUE, LEARNED DR, MR. D.K. SINGH HAS ARGUED THAT SECTION 32 PRESCRIBES THAT AN ASSET IS REQUIRED TO BE ACQUIRED ON OR AFTER 1 ST DAY OF APRIL 1998 IN THE NATURE OF COPY RIGHT, LICENCES, KNOW HOW ETC. HE HAS RAISED TWO ARGUMENTS. THE FIR ST ARGUMENT WAS THAT GOODWILL IS NOT IN THE NATURE OF THE ASSETS AS DEFINED U/S. 32(1)(II) OF THE IT ACT. HIS SECOND OBJECTION WAS THAT THE ASSET IN QUESTION, I.E., GOODWILL WAS NOT IN EXISTENCES WHEN THE ASSESSEE COMPANY HAD TAKEN OVER THE ERSTWHILE FIR M. HE HAS ALSO PLACED RELIANCE ON VYOMIT SHARES, STOCKS & INVESTMENTS P. LTD. VS. DCIT, 106, ITD 408 (MUM). 7. ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDENT ASSESSEE, LEARNED AR, MR. SUNIL TOLOTI APPEARED AND PLACED RELIANCE ON SMIFS SECURITIES, 348 ITR 302 (SC), B. RAVEENDRAN PILLAI VS. CIT, 332 ITR 531 (2011) (KER) AND CIT VS. HINDUSTAN COCA COLA BEVERAGES (P) LTD. (DELHI), 331 ITR 192 (2011) . 8. FACTS OF THE CASE HAVE REVEALED THAT THE ASSESSEE HAD TAKEN OVER THE BUSINESS OF A PARTNERSHIP FIRM, N AMELY, SUJAG FINE CHEMICALS. THE ASSESSEE COMPANY WAS FORMED ON 19.2.1999. IN SUPPORT A CERTIFICATE OF INCORPORATION IS PLACED ON RECORD. THE GOODWILL WAS ACQUIRED BY THE ASSESSEE IN THE ASSESSMENT YEAR 1999 - 2000 WHEN THE FIRM, AS A GOING CONCERN, WAS TAKE N OVER BY THE COMPANY/ APPELLANT ALONG WITH ALL THE ASSETS. AT THE TIME OF ACQUISITION, THE GOODWILL AS AN ASSET WAS PURCHASED FROM THE FIRM FOR A CONSIDERATION OF RS.24,67,926/ - . THEREAFTER FOR A.Y. 1999 - 00, 2000 - 01 AND 2001 - 02, THE ASSESSEE COMPANY HAD C LAIMED DEPRECIATION @ 25% AS INFORMED BY LEARNED AR, MR. SUNIL TALATI. THE WDV FOR THE YEAR UNDER CONSIDERATION IS RS.10,47,157/ - OVER WHICH THE DEPRECIATION @ 25% AMOUNTING TO RS.2,60,289/ - WAS CLAIMED. ON ACCOUNT OF THESE FACTS, WE HEREBY HOLD THAT THE GOODWILL WAS ACQUIRED AFTER 1 ST DAY OF APRIL, 1998 AS REQUIRED U/S. 32(1)(II) OF THE ACT. NOW THE ONLY QUESTION LEFT FOR OUR CONSIDERATION IS THAT WHETHER GOODWILL CAN BE CONSIDERED FOR GRANT OF DEPRECIATION. IN THIS REGARD, A LATEST DECISION OF HON BLE HI GH COURT PRONOUNCED IN THE CASE OF CIT VS. SMIFS SECURITIES, 348 ITR 302 IS RELEVANT WHEREIN IT WAS HELD AS UNDER: I.T.A NO. 2497 /AHD/2011 A.Y. 20 06 - 07 PAGE NO M/S. SUHAG FINE CHEMICALS PVT. LTD VS. ITO 4 THE ASSESSING OFFICER HELD THAT GOODWILL WAS NOT AN ASSET FALLING UNDER EXPLANATION 3 TO SECTION 32(1) OF THE INCOME TAX, ACT, 1961 ( THE AC T , FOR SHORT). WE QUOTE HEREINBELOW EXPLANATION 3 TO SECTION 32(1) OF THE ACT: EXPLANATION 3 - FOR THE PURPOSES OF THIS SUB - SECTION, THE EXPRESSIONS ASSETS AND BLOCK OF ASSETS SHALL MEAN (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FUR NITURE; (B)INTANGIBLE ASSETS, BEING KNOW - HOW, PATENTS, COPYRIGHTS, TRADE - MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE: EXPLANATION 3 STATES THAT THE EXPRESSION ASSET SHALL MEAN AN INTANGIBLE ASSET, BEING KNOW - H OW, PATENTS, COPYRIGHTS, TRADE MARKS, 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 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE:. THE PRINCIPLE OF EJUSDEM GENERIC WOULD STRICTLY APPLY WHILE INTERPRETING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). IN THE CIRCUMSTANCES, WE AR E OF THE VIEW THAT GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32 (1) OF THE ACT. 9. EARLIER IN THE CASE OF B. RAVEENDRAN PILLAI, 332 ITR 531 (KERALA), THE HON BLE HIGH COURT HAS ALSO HELD THAT THE GOODWILL IS CERTAINLY COMPARABLE WITH TRA DE MARK, FRANCHISEE, COPY RIGHT, ETC., HENCE, ENTITLED FOR THE DEPRECIATION. RESPECTFULLY FOLLOWING THESE DECISIONS WHEREIN THE DOCTRIN OF EJUSDEM GENERIC IS APPLIED AND HELD THAT THE GOODWILL IS OF LIKE NATURE OF INTANGIBLE ASSET AS PRESCRIBED, THEREFORE, WE HEREBY HOLD THAT UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEPRECIATION ON THE DWV OF THE GOODWILL FOR THE YEAR UNDER CONSIDERATION. GROUND RAISED IN THIS REGARD IS HEREBY ALLOWED. 7. THER E IS NO DISPARITY ON FACTS, THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS ISSUE AND DELETE THE DISALLOWANCE. NO OTHER GROUND WAS PRESSED, HENCE ALL OTHER GROUNDS ARE REJECTED. I.T.A NO. 2497 /AHD/2011 A.Y. 20 06 - 07 PAGE NO M/S. SUHAG FINE CHEMICALS PVT. LTD VS. ITO 5 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PR ON OUNCED IN THE OPEN COURT ON 12 - 06 - 2015 SD/ - SD/ - ( N.S. SAINI ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 12 /06 /2015 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ( ,