ARAMARK INDIA P.LTD(NOW KNOWN AS ARAVON SERVICES PRIVATE LIMITED), MUMBAI V. DCIT-9(1)(2), MUMBAI

ITA 2546/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4611 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 25-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V K CHATURVEDI
• Keywords: Depreciation; TDS
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A, BENC H MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.2546/MUM/2018 ( ASSESSMENT YEAR :2012-13 ) ARAMARK INDIA PVT.LTD. (NOW KNOWN AS ARAVON SERVICES PVT.LTD.) STEEL HOUSE BUILDING, PLOT NO.27 B WING, GROUND FLOOR NEAR PAPER BOX, MAHAKALI CAVES ROAD, ANDHER(EAST) MUMBAI-400 093 VS. DCIT-9(1)(2) MUMBAI PAN/GIR NO. A A GCA4383F APPELLANT ) .. RESPONDENT ) ASSESSEE BY AARATI VISANJI REVENUE BY V.K.CHATURVEDI DATE OF HEARING 24/06 /201 9 DATE OF PRONOUNCEME NT 2 8 / 0 8 /201 9 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)16, MUM BAI DATED 25/01/2018 AND IT PERTAINS TO THE ASSESSMENT YEAR 2 012-13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS)- (CIT (A)) ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION ON GOODW ILL AMOUNTING TO RS. 3,03,70,514/-MADE BY THE DEPUTY COMMISSIONER OF INC OME TAX- 9( 1)(2),MUMBAI (HEREINAFTER KNOWN AS ASSESSING OFFICE R (AO)) ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 2 1.2 THE CIT (A) SHOULD HAVE ALLOWED DEPRECIATIO N ON GOODWILL AMOUNTING TO RS.3.03,70,514/- AS THE SAME IS ALLOWA BLE U/S 32(1) WHEN THE INTANGIBLE ASSETS WERE ACQUIRED AND PAID IN PAS T YEARS AND HONORABLE ITAT MUMBAI HAS ALLOWED DEPRECIATION ON GOODWILL IN THE ASSESSMENT YEAR 2009-10 . 1.3 THE AO HAS ERRED IN DISALLOWING DEPRECIATIO N ON GOODWILL ONLY ON THE PRETEXT THAT THE ASSET IS IMPAIRED IN THE BOOKS OF ACCOUNTS AS PER ACCOUNTING STANDARDS ISSUED BY INSTITUTE OF CHARTER ED ACCOUNTANTS OF INDIA AND THE PETITIONER COMPANY HAS NOT SOLD THE A SSET BUT CONTINUES TO ENJOY THE GOODWILL. 2. THE ASSESSEE RESERVES ITS RIGHT TO ADD, ALTER OR AMEND ANY OF THE AFORESAID GROUNDS. 3. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF FACULTY MANAGEMENT SERV ICES, INCLUDING FOOD SERVICES AND HOUSEKEEPING SERVICES AND GUEST H OUSE MANAGEMENT SERVICES ETC., FILED ITS RETURN OF INCOM E FOR AY 2012-13 ON 29/11/2012, DECLARING TOTAL INCOME AT RS. NIL, AFTER CLAIMING CURRENT YEAR LOSS OF RS. 7,91,58,527/-. THE CASE WA S SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961 ON 17/03/2015, DETERMINING THE TOTAL LOSS AT RS. 3,88,08,709/- BY MAKING ADDITIONS TOWARDS DISALLOWA NCE OF DELAY IN PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVID ENT FUND U/S 36(1)(VA), DIFFERENCE IN AIR INFORMATION, TDS WRITT EN OFF, CESSATION OF LIABILITY U/S 41(1) AND DISALLOWANCES OF DEPRECI ATION ON GOODWILL OF RS. 3,03,70,415/-. AGGRIEVED BY THE ASSESSMENT ORD ER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE HAS CHALLENGED ADDITIONS MA DE BY THE AO ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 3 TOWARDS DELAY IN PAYMENT OF EMPLOYEES CONTRIBUTI ON TO PROVIDENT FUND (PF), DISCREPANCY IN AIR, TDS WRITTEN OFF, CES SATION OF LIABILITY U/S 41(1) AND DEPRECIATION ON GOODWILL. THE LD. CIT (A) FOR THE DETAILED REASONS RECORDED IN ITS APPELLATE ORDER, A LLOWED RELIEF, IN RESPECT OF ADDITIONS MADE BY THE AO TOWARDS DISALLO WANCES OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PROVID ENT FUND, ADDITIONS TOWARDS TDS WRITTEN OFF, AND CESSATION OF LIABILITY U/S 41(1),HOWEVER CONFIRMED ADDITIONS MADE BY THE AO TO WARDS DISALLOWANCES OF DEPRECIATION ON GOODWILL, ON THE G ROUND THAT WHEN, THE ASSET CEASED TO CONTINUE IN BOOKS OF ACCOUNTS A ND ALSO, THE ASSESSEE IS NOT GETTING ANY ENDURING BENEFIT OUT O F GOODWILL, THE QUESTION OF DEPRECATION ON SUCH NON EXISTING ASSET IS INCORRECT AND ACCORDINGLY, THERE IS NO ERROR IN THE FINDINGS OF T HE AO, WHILE DISALLOWING DEPRECIATION ON GOODWILL . THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER: 6.4.1 VIDE THESE GROUNDS APPELLANT HAS AGITATED AGA INST DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS3,03,70,514/- ON GOODWI LL. IN PARA 8 OF THE ASSESSMENT ORDER, THE ID. A.O. HAD MENTIONED THAT W E APPELLANT COMPANY HAD CLAIMED AN AMOUNT OF RS.3,03,70,514/- A S DEPRECIATION U/S.32 OF THE ACT ON GOODWILL. THE APPELLANT HAD FU RTHER POINTED OUT-THAT THE APPELLANT COMPANY HAD REVALUED ITS GOODWILL AND RECORDED AN IMPAIRMENT LOSS IN RESPECT OF GOODWILL AS ON 31.03. 2011 IN ITS BOOKS. IN VIEW OF THESE FACTS THE LD.AO, ISSUED A SHOW CAUSE AND AFTER CONSIDERING TILE REPLY OF THE SHOW CAUSE, THE LD.AO HELD THAT D EPRECIATION IS CALCULATED ON THE WRITTEN DOWN VALUE (WDV) OF THE BLOCK OF ASS ETS. IF THE WDV OF ASSETS IS REDUCED TO ZERO OR THE BLOCK OF ASSETS IS EMPTY OR CEASES TO EXIST ON THE LAST DAY OF THE PREVIOUS YEAR THEN NO DEPRECIATION IS ALLOWABLE. IN THE CASE OF THE APPELLANT, THE APPELL ANT HAD IMPAIRED DIE COST OF GOODWILL AND REDUCED ITS VALUE IN THE BOOKS OF ACCOUNTS IN A.Y.2011-12. AS PER THE CONCEPT OF BLOCK OF ASSETS, IF THE BLOCK OF ASSETS ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 4 CEASES TO EXIST IT, NO DEPRECIATION IS ALLOWABLE. I N VIEW OF THESE FACTS. THE LD. AO DISALLOWED THE DEPRECIATION ON GOODWILL CLAI MED BY THE APPELLANT AND ADDED IT TO THE TOTAL INCOME. 6.4.2 DURING THE COURSE OF APPELLATE PROCEEDINGS A WRITTEN S SUBMISSION WAS FILED WHICH FIND PLACE IN PARA 5 OF THIS ORDER . THE APPELLANT SUBMITTED THAT IN APPELLANTS OWN CASE FOR A.Y.2009-10 SAME I SSUE WAS INVOLVED WHICH HAS BEEN DECIDED BY HON'BLE IT AT IN ITA MO.3839/MUM/2013 DATED 01.05.2015. THE GROUND RAISED BY THE APPELLANT WAS AS UNDER: 'PETITIONER COMPANY PRAYS THAT DEPRECIATION ON GOOD WILL BE ALLOWED FOR THE A.Y.2009-10. GOODWILL OF RS.28,79,5 7,469/- WAS WRITTEN OFF DURING THE ASSESSMENT YEAR IN QUESTION . THE DEPREDATION AT 25% ON WDV BASIS WAS NOT CLAIMED IN THE NATURE FILED. THUS A PLEA IS FILED TO ALLOW SUCH AMOUNT OF DEPRECIATION TO THE PETITIONER COMPANY. IN PARA 9 OF THE ORDER, THE HON'BLE ITAT HAS HELD A S UNDER: AS REGARD THE ISSUE RAISED IN ADDITIONAL GROUND, WE FIND THAT THE SAME IS PURELY A LEGAL GROUND, ARISING OUT OF THE F ACTS AVAILABLE ON RECORD AND ACCORDINGLY, THE SAME IS ADMITTED. THE I SSUE, WHETHER THE DEPRECIATION ON GOODWILL IS ALLOWABLE OR NOT, T HE SAME STANDS CONCLUDED BY THE DECISION OF HONBLE APEX COURT I N THE CASE OF SMIFF SECURITIES LTD. (SUPRA), WHEREIN THE HONBLE SUPREME COURT HELD THAT GOODWILL IS AN ASSET UNDER THE EXPRESSION USED IN EXPLANATION 3(B) TO SECTION 32(A) AND THEREFORE, DE PRECATION IS ALLOWABLE ON SUCH AN ASSET. THUS, THE DEPRECIATION ON THE GOODWILL SHOULD BE ALLOWED. HOWEVER, THE FACTS REGARDING COM PUTATION OF WDV AND THE AMOUNT OF DEPRECIATION, WHICH IS TO BE ALLOWED IN THE A.Y. 2009-10, NEEDS VERIFICATION AT THE END OF THE A.O, THEREFORE, THIS MATTER IS RESTORED BACK TO THE FILE OF THE AO TO EXAMINE THE CONTENTION OF THE ASSESSEE AND ALLOW THE CLAIM OF D EPRECIATION IN ACCORDANCE WITH THE SUPREME COURT DECISION. ACCORDI NGLY, ADDITIONAL GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6.4.3 I HAVE CONSIDERED THE SUBMISSIONS MADE BY T UPON THE JUDGMENT OF HON'BLE ITAT IN APPELLANTS OWN CASE FOR A.Y .20 09-10.THE HON'BLE ITAT HAS DECIDED THE ALLOWABILITY OF DEPRECIATION O N GOODWILL WHEN GOODWILL WAS REFLECTED AS AN ASSET IN ITS BALANCE S HEET DURING THE YEAR UNDER CONSIDERATION, FACTS OF THE APPELLANT ARE DIF FERENT FROM A.Y 2009-10. FOR THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD REVALUED ITS GOODWILL AND RECORDED AN IMPAIRMENT LOSS IN RESPECT OF GOODW ILL AS ON 31.03.2012. SINCE GOODWILL IS NOT HEATED AS AN ASSET IN ITS BOO KS OF ACCOUNT AND APPELLANT IS NOT ENDURING, ANY BENEFIT OUT OF GOODW ILL, THEREFORE DEPRECIATION CANNOT BE ALLOWED ON A NON EXISTING AS SET FROM WHICH APPELLANT IS NOT DERIVING ANY BENEFIT OR UTILIZING FOR THE BUSINESS 1 J OF THE ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 5 APPELLANT. THEREFORE, DISALLOWANCE OF RS. 3,03, 70,514/- MADE BY THE A.O IS CONFIRMED AND GROUND RAISED BY THE APPELLANT IS DISMISSED. 4. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE L D.CIT(A) WAS ERRED IN UPHOLDING THE DISALLOWANCES OF DEPRECATION ON GOODWILL AMOUNTING TO RS. 3,03,70,514/- WITHOUT APPRECIATING THE FACT THAT DEPRECIATION ON GOODWILL IS ALLOWABLE U/S 32(1) AS AN INTANGIBLE ASSET OF ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE. THE LD. AR, FURTHER SUBMITTED THAT ALTHOUGH, THE ASSESSEE H AS WRITTEN OF GOODWILL IN BOOKS OF ACCOUNTS BY IMPAIRMENT OF ASSE T, AS PER THE ACCOUNTING STANDARD ISSUED BY THE ICAI, BUT THE WRI TTEN DOWN VALUE OF SUCH GOODWILL IS CONTINUED TO BE REMAIN IN THE B OOKS OF ACCOUNTS AND ALSO, AS LONG AS, THE BLOCK OF ASSET IS CONTINU ED IN THE BOOKS OF ACCOUNTS, THE ASSESSEE IS ENTITLED TO CLAIM DEPRECI ATION ON WDV OF SUCH BLOCK OF ASSETS. 5. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTE D ORDER OF THE LD.CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THERE IS NO DOUBT WITH REGARD TO THE ALLOWABILITY OF DEPRECI ATION ON GOODWILL ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 6 BEING, ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF S IMILAR NATURE U/S. 32(1) OF THE I.T.ACT, 1961. THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS SMIFS SECURITIES LIMITED (2012) 348 ITR 3 02 (SC) HELD THAT GOODWILL IS AN ASSET UNDER THE EXPRESSION USED IN E XPLANATION 3(B)(II) TO SECTION 32(1) AND THEREFORE, DEPRECATION IS ALLO WABLE ON SUCH AN ASSET AS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE QUESTION BEFORE THE AO WAS WHETHER, DEPRECATION ON GOODWILL CLAIMED BY THE ASSESSEE IS ALLOWABLE OR NOT, WHEN S UCH GOODWILL IS CEASED TO EXIST IN THE BOOKS OF ACCOUNTS, DURING TH E RELEVANT FINANCIAL YEAR. THE PROVISION OF SECTION 32 OF THE I.T.ACT, 1961 PROVIDES FOR GRANT OF DEPRECATION. SECTION 2 (11) D EFINES, THE TERM OF BLOCK OF ASSETS, WHICH INCLUDES INTANGIBLE ASSETS B EING KNOW-HOW, PATENT, COPY RIGHTS, TRADE MARKS, LICENCES, FRANCHI SE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT SIMILAR NATURE. IN ORD ER TO CLAIM DEPRECIATION, THE ASSESSEE SHOULD FULFILL THREE CON DITIONS, AS PER WHICH, THE ASSESSEE SHOULD BE OWNER OF THE ASSET, T HE ASSET SHOULD BE USED FOR THE PURPOSE OF BUSINESS AND THE BLOCK O F ASSETS SHOULD EXIST TO CLAIM DEPRECATION. IN THIS CASE, THE ASSES SE HAS IMPAIRED, THE VALUE OF GOODWILL RECORDED IN THE BOOKS OF ACCO UNTS AND THE EXCESS VALUE AS DETERMINED, IN ACCORDANCE WITH ACCO UNTING STANDARD ISSUE BY THE ICAI HAS BEEN WRITTEN OFF IN AY 2011-12. FURTHER, IT WAS NOTICED FROM THE ASSESSMENT ORDER T HAT THE ASSESSEE ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 7 HAS SHOWN NIL VALUE FOR GOODWILL AS ON 31/03/2012 IN ITS BOOKS OF ACCOUNTS. THUS, AS PER BOOKS OF ACCOUNTS, THE GOODW ILL CEASED TO EXIST. ACCORDINGLY, THE ASSESSEE HAS NOT CLAIMED AN Y DEPRECATION IN THE BOOKS OF ACCOUNT ON VALUE OF GOODWILL. FURTHER, DEPRECATION IS CALCULATED ON WRITTEN DOWN VALUE OF THE BLOCK OF AS SETS. IF, THE WRITTEN DOWN VALUE OF ASSET IS REDUCED TO ZERO OR, THE BLO CK OF ASSET IS EMPTY OR CEASED TO EXIST ON THE LAST DATE OF THE P REVIOUS YEAR, THEN NO DEPRECIATION IS ALLOWABLE, EVEN THOUGH THE WRITT EN DOWN VALUE OF THE ASSET IS NOT REDUCED TO ZERO. IN THIS CASE, THE RE IS NO DOUBTS OF WHATEVER WITH REGARD TO EXISTS OF ASSETS IN THE BOO KS OF ACCOUNTS FOR THE RELEVANT FINANCIAL YEAR. AS CLAIMED BY THE ASSE SSEE ITSELF, IT HAS FULLY WRITTEN OFF GOODWILL IN THE BOOKS OF ACCOUNTS ON THE ASSET CEASED TO EXIST IN THE BOOKS OF ACCOUNTS AND THE LA ST DATE OF THE PREVIOUS YEAR. THEREFORE WE ARE OF THE CONSIDERED V IEW THAT ONCE, A PARTICULAR ASSET IS CEASED TO EXIST IN THE BOOKS OF ACCOUNT AND ALSO, THE ASSESSEE IS NOT GETTING ANY ENDURING BENEFIT F ROM SUCH ASSETS, THEN THE QUESTION OF DEPRECIATION ON SUCH NON EXIST ING ASSET DOES NOT ARISE. FURTHER, THE LD. AR FOR THE ASSESSEE REL IED UPON BY THE JUDGMENT OF THE ITAT, IN ASSESSEES OWN CASE FOR AY 2009-10 TO ARGUE THAT THE TRIBUNAL HAS ALLOWED DEPRECIATION ON GOODWILL. WE FIND THAT THE TRIBUNAL HAS ALLOWED DEPRECATION ON G OODWILL BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SMIFS ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 8 SECURITIES LIMITED VS CIT (SUPRA), ON THE GROUND TH AT GOODWILL IS AN ASSET UNDER THE EXPRESSION USED IN EXPLANATION 3(B) TO SECTION 32(1) AND THEREFORE, DEPRECATION IS ALLOWABLE ON SUCH ASS ET AS INTANGIBLE ASSETS BEING ANY OTHER BUSINESS OR COMMERCIAL RIGHT S OF SIMILAR NATURE. AS WE HAVE ALREADY STATED EARLIER, THERE IS NO DISPUTE WITH REGARD TO ALLOWABILITY OF DEPRECATION ON GOODWILL, BUT WHEN YOU COMPARE THE FACTS OF THE CURRENT YEAR, THE QUESTION OF ALLOWABILITY OF DEPRECATION HAS TO BE EXAMINED, IN THE LIGHT OF PRO VISION OF SECTION 32(1), WHERE IT MANDATES THE BLOCK OF ASSETS SHOULD EXISTS TO CLAIM DEPRECIATION. SINCE, GOODWILL IS NOT TREATED AS AN ASSET IN ITS BOOKS OF ACCOUNTS AND ALSO, THE ASSESSEE IS NOT GETTING A NY ENDURING BENEFIT OUT OF SUCH GOODWILL, THE QUESTION OF ALLO WING DEPRECIATION ON SUCH NON EXISTING ASSET DOES NOT ARISE. THE LD.AO AS WELL THE LD.CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RI GHTLY DISALLOWED DEPRECIATION CLAIMED ON NON-EXISTING ASSET BEING GO ODWILL. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A). H ENCE WE ARE INCLINED TO UPHOLD ORDER OF THE LD.CIT(A) AND DISMI SSED APPEAL FILED BY THE ASSESSEE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 /08/ 2019 ITA NO.2546/MUM/2018 ARAMARK INDIA PVT.LTD. 9 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 28/08/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//