ACIT 14(2)(1), MUMBAI V. LAFARGE AGGREGATES & CONCRETE P. LTD, MUMBAI

ITA 2783/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8533 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 11-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUNATH SWAMYCIT
• Keywords: Depreciation; Revised return

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL E BENCH, MUMB AI , , BEFRE S/SHRI RAJENDRA, A.M. AND SANDEEP GOSAIN,J.M. ./ ././ ./ ITA N. 2783/MUM/2015 / ASSESSMENT YEAR: 2009-10 ACIT-14(2)(1) 432, AAYAKAR BHAVAN, 4TH FLR M.K. MARG, MUMBAI-400 020. VS. M/S. LAFARGE AGGREGATES & CONCRETE PVT.LTD. EQUINOX BUSINESS PARK, TWER-3 EAST WING, 4 TH FLR,OFF BKC LBS MARG, KURLA (W)MUMBAI-400 070. PAN: AABCL 3845 L ( / // / APPELLANT ) ( / RESPNDENT ) REVENUE BY: SHRI MANJUNATHSWAMY-CIT ASSESSEE BY: S/SHRI PARAS SAVLA & PRATIK PODDAR / // / DATE OF HEARING: 28/09/2017 !' / DATE OF PRONOUNCEMENT: 15.11.2017 , ,, , 1961 254(1) O RDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , / // / -PER RAJENDRA,AM:- CHALLENGING THE ORDER DATED 10/02/2015 OF CIT(A)-2 1, MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAG ED IN THE BUSINESS OF MANUFACTURING AND SUPPLY OF READY MIX CONCRETE AND AGGREGATES FILED I TS RETURN OF INCOME ON 30 TH SEPT. 2009 AND SUBSEQUENTLY FILED TWO REVISED RETURN OF INCOME DEC LARING TOTAL LOSS AT RS.56.9 CRORESS. THE AO COMPLETED THE ASSESSMENT U/S.143(3) F THE ACT,DE TERMINING ITS INCOME AT RS.(-)9.53 CRORESS. 2. FIRST GROUND OF APPEAL IS ABOUT ALLOWING THE DEPREC IATION CLAIM OF RS. 109.53 CRORES. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE AS SESSEE HAD ACQUIRED THE RMC BUSINESS OF LARSEN AND TOUBRO(L&T) ON A SLUM SALE BASIS PURSUAN T TO AN AGREEMENT DATED 22/10/2008 FOR TRANSFER OF BUSINESS, THAT AS PER THE AGREEMENT THE RMC PLANS SPREAD ACROSS INDIA, ALONG WITH BATCHING PLANTS AND ALL THE CURRENT ASSETS SUCH AS RAW MATERIAL, SEMIFINISHED GOODS AND FINISHED GOODS ALONG WITH SPACE AND TOOLS WERE ACCR UED TO BE ACQUIRED FOR AN INITIAL CONSIDERATION OF RS.15,63,37,70,546/-, THAT AFTER T HE FINAL RECONCILIATION WITH L&T ON 29/06/ 2010,THE PURCHASE CONSIDERATION WAS AGREED AT RS.15 ,27,72,05, 176/-, THAT THE ASSESSEE CARRIED OUT AN ALLOCATION OF PURCHASE PRICE OF THE BUSINESS BASED ON VALUATION OBTAINED FROM INDEPENDENT VALUERS, THAT IN ITS BOOKS OF ACCOUNTS IT RECORDED THE INTANGIBLE ASSETS IN FORM OF TRADEMARK AND NON-COMPETE AGREEMENT ON THE BASIS OF VALUATION, THAT INVENTORY IS, DEBTORS, CASH,THAT THE RECEIVABLES AND CURRENT LIABILITIES A CQUIRED WERE RECORDED AT THEIR RESPECTIVE 2783/M/15 LAFARGE AGGREGATES & CONCRETE PVT.LTD. 2 BOOK VALUES,THAT THE EXCESS OF PURCHASE CONSIDERATI ON PAID OVER THE VALUE OF TANGIBLE ASSETS, INTANGIBLE ASSETS AND NET CURRENT ASSETS WAS RECOGN ISED AS GOODWILL.VIDE ITS LETTER DATED 9/11/2011, THE ASSESSEE CLAIMED DEPRECIATION ON FOL LOWING INTANGIBLE ASSETS: PARTICULARS VALUE(RS.IN CRORESS) PLANT NETWORK 278 TRADEMARK 10 NONCOMPETE AGREEMENT 71.90 CUSTOMER CONTRACT AND CUSTOMER RELATIONSHIP 18.60 LEASEHOLD BENEFITS 2.40 ASSEMBLED WORKFORCE 4.90 TOTAL 385.80 2.1. VIDE ITS LETTER,DATED 15/10/2012,THE ASSESSEE LODGE D A THE CLAIM OF RS. 109.53 CRORES IN RESPECT OF DEPRECIATION ON GOODWILL IN RESPECT OF P URCHASE OF RMC BUSINESS.DURING THE ASSESSMENT PROCEEDINGS, IT SUBMITTED REVISED CLAIM OF DEPRECIATION (OTHER THAN GOODWILL WHICH WAS NOT CLAIMED IN THE RETURN OF INCOME)TO RE CONCILE ITS DEPRECIATION CLAIM WITH THE AMOUNT APPEARING IN THE TAX AUDIT REPORT.IT REVISED THE DEPRECIATION ON INTANGIBLE ASSETS TO RS.13.30 CRORES FROM EARLIER CLAIM OF RS.13.39CRORE S IN ITS SECOND REVISED RETURN.AFTER CONSIDERING THE LETTERS OF THE ASSESSEE, THE AO HEL D THAT IT HAD NOT PLACED ANY CLAIM IN ITS RETURN OF INCOME AND THE TAX AUDIT REPORT WITH REGA RD TO DEPRECIATION ON GOODWILL. HE REFERRED TO THE CASE OF GOETZ INDIA LTD. (157 TAXMAN 1) AND HELD THAT THE ASSESSEE CANNOT MAKE A FRESH CLAIM WITHOUT FILING REVISED RETURN. SO, HE REJECTE D THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO THE DEPRECIATION ON GOODWILL. 2.2. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSI ONS.AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD THE HONBLE SUPREME COURT HAD, IN THE CASE OF SMIFS SECURITIES PRIVATE LIMITED (24 TAXMANN.COM 222), HELD THAT DEPRECIATIO N ON GOODWILL WAS ALLOWABLE, HE REFERRED TO THE MATTER OF PRITHVI BROKERS AND SHAREHOLDERS P RIVATE LTD. OF THE HONBLE BOMBAY HIGH COURT (ITA NO 398 OF 2010) AND HELD THAT ASSESSEE W AS ENTITLED TO CLAIM DEPRECIATION BEFORE THE APPELLATE AUTHORITIES. 2.3. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE (DR) STA TED THAT ASSESSEE HAD NOT MADE THE CLAIM IN THE ORIGINAL RETURN OF INCOME. THE AUTHORI SED REPRESENTATIVE (AR) SUPPORTED THE ORDER OF THE FAA.WE FIND THAT IN THE CASE OF PRITHV I BROKERS AND SHAREHOLDERS PRIVATE LTD.(SUPRA)THE HON'BLE JURISDICTIONAL HIGH COURT HA S HELD THAT A FRESH CLAIM CANNOT BE 2783/M/15 LAFARGE AGGREGATES & CONCRETE PVT.LTD. 3 ACCEPTED BY THE AO OTHERWISE THAN A REVISED RETURN AND THE APPELLATE AUTHORITIES CAN ACCEPT THE NEW CLAIM MADE BY THE ASSESSEES. SO,IN OUR OPINION, HE FAA HAD RIGHTLY ALLOWED THE D EPRECIATION ON GOODWILL, FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F SMIFS SECURITIES PRIVATE LIMITED (SUPRA).ACCORDINGLY, WE DECIDE FIRST GROUND OF APPE AL AGAINST THE AO. 3. SECOND GROUND IS ABOUT ALLOWING A DEPRECIATION CLAI M OF THE ASSESSEE TOTALING TO RS.12.22 CRORES ON NON-COMPETE AGREEMENT, CUSTOMER CONTRACT AND CUSTOMER RELATIONSHIP, ASSEMBLED WORKFORCE AND LEASEHOLD BENEFITS.DURING THE ASSESSM ENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD CLAIMED DEPRECIATION UNDER SECTION 32( 1) (II) OF THE ACT,ON ABOVE-MENTIONED FOUR ITEMS IN THE LETTER OF 15.10.2010. HE HELD THA T NO FRESH CLAIM COULD BE MADE WITHOUT FILING A REVISED RETURN. SO, HE DISALLOWED THE CLAI M MADE BY THE ASSESSEE. 3.1. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON VARIOUS INTANGIBLE ASSETS, THAT THE SETS WERE VALUE D BY RECOGNISED VALUERS, THAT IT HAD TREATED THESE ITEMS AS INTANGIBLE ASSETS. FOLLOWING HIS ORD ER, WITH REGARD TO DEPRECIATION ON GOODWILL, HE REVERSED THE ORDER OF THE AO.HE ALSO MADE A REFE RENCE TO SECTION 92B(2)(II) OF THE ACT. 3.2. BEFORE US THE DR AND THE AR MADE THE SAME ARGUMENTS THAT ARE MENTIONED AT PARAGRAPH NO.2.3. WE HAVE ALREADY DECIDED THE ISSUE OF DEPREC IATION ON GOODWILL IN THE EARLIER PART OF THE ORDER. THERE IS NO DOUBT THAT THE FOUR ITEMS AR E PART OF INTANGIBLE ASSETS THAT WERE ACQUIRED BY THE ASSESSEE WHILE PURCHASING THE BUSINESS FROM L&T. WE FIND THAT THE FAA HAS FOLLOWED THE JUDGMENTS OF THE HON'BLE BOMBAY HIGH COURT AND HON'BLE SUPREME COURT,WHILE ALLOWING THE APPEAL OF THE ASSESSEE.IN OUR OPINION,THERE IS NO NEED TO INTERFERE WITH THE ORDER OF THE FAA, AS IT DOES NOT SUFFER FROM ANY LEGAL OR FACTUA L INFIRMITY.SO,CONFIRMING HIS ORDER WE DECIDE THE SECOND GROUND OF APPEAL AGAINST THE AO. 4. NEXT GROUND OF APPEAL IS ABOUT DELETING THE DISALLO WANCE OF RS.25.23 LAKHS OUT OF MISCELLANEOUS EXPENDITURE.DURING THE ASSESSMENT PRO CEEDINGS,THE AO FOUND THAT ASSESSEE HAD CLAIMED EXPENDITURE UNDER THE HEADS SECURITY CH ARGES, MEETING AND CONFERENCE EXPENSES, POSTAGE AND COURIER EXPENSES,SAFETY CAMPAIGN EXPENS ES AMOUNTING TO RS.2.52 CRORES, THAT THE ENTIRE EXPENDITURE WAS CLAIMED UNDER THE HEAD MISCE LLANEOUS EXPENDITURE IN THE FINANCIAL STATEMENTS.AFTER EXAMINING THE ACCOUNTS HE HELD THA T EXPENDITURE WAS CAPITAL IN NATURE AND DISALLOWED 10% OF THE EXPENDITURE. 2783/M/15 LAFARGE AGGREGATES & CONCRETE PVT.LTD. 4 4.1. IN THE APPELLATE PROCEEDINGS, BEFORE THE FAA, THE A SSESSEE MADE DETAILED SUBMISSIONS. HE HELD THAT THE EXPENSES WERE INCURRED FOR BUSINESS P URPOSES AND WERE REVENUE IN NATURE, THAT THE AO WAS NOT JUSTIFIED IN MAKING ADHOC DISALLOWAN CE. 4.2. BEFORE US, THE DR STATED THAT MATTER COULD BE DECID ED ON MERITS. THE AR SUPPORTED THE ORDER OF THE FAA.WE FIND THAT THE AO HAD MADE THE A D HOC DISALLOWANCE WITHOUT ANY BASIS AND HAD HELD THAT THE EXPENDITURE WAS OF CAPITAL NA TURE. HE HAD NOT GIVEN ANY REASON FOR TREATING THE EXPENDITURE AS CAPITAL.THE EXPENSES IN CURRED BY THE ASSESSEE ARE FOR RUNNING THE BUSINESS AND CANNOT BE CONSIDERED AS CAPITAL EXPEND ITURE.THEREFORE, CONFIRMING THE ORDER OF THE FAA,WE DISMISS THIRD GROUND OF APPEAL, RAISED B Y THE AO. 5. LAST GROUND OF APPEAL IS ABOUT DELETING THE DISALLO WANCE OF RS.9.81 LAKHS PAID AS REIMBURSEMENT OF EXPENSES. DURING THE ASSESSMENT PR OCEEDINGS, THE AO FOUND THAT THE HOLDING COMPANY OF THE ASSESSEE HAD PROVIDED CERTAI N INFORMATION TECHNOLOGY SUPPORT SERVICE TO THE ASSESSEE AND INVOICE FOR THE SERVICES PROVID ED. THE ASSESSEE SETTLED THE ACCOUNT BY MAKING PAYMENT TO THE PARENT COMPANY.THE AO DISALLO WED THE EXPENDITURE AS IT WAS NOT MADE IN THE ORIGINAL RETURN OF INCOME. 5.1. DURING THE APPELLATE PROCEEDINGS, THE FAA HELD THAT REIMBURSEMENT OF EXPENSES WAS CLAIMED IN A REVISED RETURN OF INCOME, THAT PAYMENT WAS IN THE NATURE OF EXPENSES ON COST TO COST BASIS,THAT NO INCOME ELEMENT EXISTED IN THE PA YMENT MADE BY IT,THAT IN CASE OF REIMBURSEMENT OF EXPENSES NO TAX WAS TO BE DEDUCTED AT SOURCE. HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5.2. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENC H AND THE AR RELIED UPON THE ORDER OF THE FAA.WE FIND THAT THE ASSESSEE HAD REIMBURSED TH E PAYMENT MADE BY THE PARENT COMPANY, THAT THE CLAIM WAS MADE IN THE REVISED RETURN FILED . AS THERE WAS NO ELEMENT OF INCOME IN THE PAYMENT, SO, THE FAA HAD RIGHTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. WE SEE NO REASON TO DISTURB HIS FINDINGS.LAST GROUND OF APPEAL IS DE CIDED AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER , 2017. 15 2017 SD/- SD/ - ( /SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 15.11.2017. JV.SR.PS. 2783/M/15 LAFARGE AGGREGATES & CONCRETE PVT.LTD. 5 / CPY F THE RDER FRWARDED T : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY RDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.