I Metrex Technologies Limited (now known as Siemens Building Technologies P. Ltd.), CHENNAI V. ACIT, CHENNAI

ITA 286/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61229 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 21-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RANGAR AJAN JR
• Assessee Lawyers: N DEVANATHAN; A RAJA
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.286/MDS/2011 (ASSESSMENT YEAR: 2005-06) M/S. METREX TECHNOLOGIES LTD. (NOW KNOWN AS SIEMENS BUILDING TECHNOLOGIES P.LTD.) 49, OLD NO.22, ELDAMS ROAD, CHENNAI-600 018. PAN:AAACD1235B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(3), CHENNAI-34. (APPELLANT) (RESPONDENT) APPELLANT BY : MR.N.DEVANATHAN, ADVOCATE & A.RAJA, CA RESPONDENT BY : MR. K.E .B.RANGARAJAN, JR.STANDING COUNSEL DATE OF HEARING : 18 TH JUNE, 2012 DATE OF PRONOUNCEMENT : 28 TH JUNE, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER DATED 11.11.2010 PASSED BY THE CIT(A)-II I, CHENNAI. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE/APPELLANT IS ENGAGED IN THE MANUFACTURE, S UPPLY, INSTALLATION AND INTEGRATION OF SECURITY, FIRE AND BUILDING AUTOMATION SYSTEMS. THE APPELLANT FILED RETURN OF I NCOME FOR THE ASSESSMENT YEAR 2005-06 ADMITTING NIL INCOME ON ITA NO. 286/MDS/2011 2 30.10.2005. THE RETURN OF THE ASSESSEE WAS PROCESSE D UNDER SECTION 143(1) ON 30.03.2007. SUBSEQUENTLY, THE CAS E OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE. THE ASSESSI NG OFFICER VIDE ASSESSMENT ORDER DATED 20.11.2007 DETERMINED T HE TOTAL INCOME OF THE APPELLANT AS ` 4,31,30,470/- AFTER MAKING ADDITIONS IN RESPECT OF INTEREST ON FIXED DEPOSITS, DISALLOWANCE OF CLUB MEMBERSHIP, GOODWILL, LEAVE ENCASHMENT AND DEDUCTION UNDER SECTION 80IB. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSEE FILED AN APPEAL BEFO RE CIT(A) IMPUGNING THE ADDITIONS MADE BY THE ASSESSING OFFIC ER. THE CIT(A) VIDE ORDER DATED 11.11.2010 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. STILL AGGRIEVED AGAINST THE ORDE R OF THE CIT(A), THE ASSESSEE HAS COME IN SECOND APPEAL BEFO RE THE TRIBUNAL IMPUGNING THE ORDER DATED 11.11.2010 PRIMA RILY ON THE FOLLOWING GROUNDS:- I) DISALLOWANCE OF DEPRECIATION ON GOODWILL; II) NOT ALLOWINGPROVISION FOR LEAVE ENCASHMENT TO THE TUNE OF ` 2,18,735/-; AND ITA NO. 286/MDS/2011 3 III) APPORTIONMENT OF EXPENSES. 3. MR. DEVANATHAN, COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLE D FOR DEPRECIATION ON THE GOODWILL. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS ERRED IN NOT ALLOWING DEPREC IATION ON GOODWILL WHEN THE ASSESSEE HAD INCURRED COST ON ACQUIRING THE SAME AND THIS FACT HAS NOT BEEN DISPU TED BY THE ASSESSING OFFICER. IN ORDER TO SUPPORT THIS CONTENTION, HE RELIED ON THE JUDGEMENT OF THE HONB LE KERALA HIGH COURT IN THE CASE OF B.RAVEENDRAN PILLA I VS. CIT., REPORTED AS 332 ITR 531 AND DIVISION BENC H JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS. HINDUSTAN COCO COLA BEVERAGES P.LTD., REPORTED AS 331 ITR 192. HE SUBMITTED THAT THIS ISS UE WAS DECIDED AGAINST THE ASSESSEE IN THE ASSESSEES OWN CASE RELEVANT TO THE ASSESSMENT YEAR 2003-04 AN D 2004-05 BY THE TRIBUNAL IN ITA NOS.456 & 1963/MDS/2007 VIDE ORDER DATED 4.2.2009. HOWEVER, THE AFORESAID JUDGEMENTS OF THE HONBLE KERALA HIGH COURT AND DELHI HIGH COURT ARE SUBSEQUENT TO THE OR DER ITA NO. 286/MDS/2011 4 OF THE TRIBUNAL. THEREFORE, THE JUDGEMENTS OF THE H IGH COURTS WILL PREVAIL OVER THE ORDER OF THE TRIBUNAL. 4. WITH REGARD TO LEAVE ENCASHMENT, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW H AVE ERRED IN NOT ALLOWING PROVISION FOR LEAVE ENCASHMEN T TO THE TUNE OF ` 2,18,735/-. TO SUPPORT HIS CONTENTIONS, HE RELIED ON THE JUDGEMENT OF THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UOI & ORS. REPORTED AS 292 ITR 470 AS WELL AS THE ORDER OF TH E TRIBUNAL IN THE CASE OF ACIT VS. SIEMENS BUILDING TECH PVT. LTD. IN ITA NO.57/MDS/2011 DECIDED ON 27.06.2011. 5. THE THIRD ISSUE IN APPEAL RELATES TO APPORTIONME NT OF EXPENSES. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) IN APPEAL RELEVANT TO THE ASSESSMEN T YEAR 2003-04 VIDE ORDER DATED 7.12.2006 HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. THE CI T(A) HELD THAT THE TURNOVER METHOD FOR THE ALLOCATION OF INDIRECT EXPENSES IS REQUIRED TO BE ADOPTED IN THE CASE ITA NO. 286/MDS/2011 5 OF THE ASSESSEE FOR COMPUTING PROFITS OF EACH UNIT. THE ASSESSING OFFICER HAD DISTRIBUTED THE PROFIT OF THE APPELLANT IN THE RATIO OF TURNOVER OF VARIOUS BRANC HES AND THE PONDY UNIT. THE SAID METHOD ADOPTED BY THE ASSESSING OFFICER IS NEITHER SUPPORTED BY EVIDENCE NOR REASONABLE. THE VIEW OF THE CIT(A) WAS UPHELD BY TH E TRIBUNAL IN APPEAL IN ASSESSEES OWN CASE IN ITA NO S. 456 & 1963/MDS/2007 VIDE ORDER DATED 4.2.2009 WHIC H WAS AFFIRMED BY THE HONBLE MADRAS HIGH COURT VIDE JUDGEMENT DATED 25.08.2009. 6. ON THE OTHER HAND, MR. K.E.B.RENGARAJAN, DR SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED TH AT THE ORDER PASSED BY THE CIT(A) IS WELL REASONED AND DETAILED ORDER AND PRAYS FOR DISMISSAL OF THE APPEA L OF THE ASSESSEE. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPECTIVE PARTIES AND HAVE GONE THROUGH THE JUDGEMENTS RELIED ON BY THE COUNSEL FOR THE ASSESSE E. A PERUSAL OF THE ORDER DATED 4.2.2009, PASSED BY THE CO- ITA NO. 286/MDS/2011 6 ORDINATE BENCH OF THE TRIBUNAL IN ITA NOS.456 & 1963/MDS/2007 IN ASSESSEES OWN CASE RELEVANT TO TH E ASSESSMENT YEARS 2003-04 & 2004-05 RESPECTIVELY, SHOWS THAT THE CLAIM OF THE ASSESSEE WITH REGARD TO DEPRECIATION ON GOODWILL WAS REJECTED. HOWEVER, SUBSEQUENT JUDGEMENTS OF THE HONBLE KERALA HIGH COURT IN THE CASE OF B.RAVEENDRAN PILLAI (SUPRA) AN D THE HONBLE DELHI HIGH COURT IN THE CASE OF HINDUSTAN C OCO COLA BEVERAGES P. LTD., (SUPRA) HAVE HELD THAT ASSESSEE IS ENTITLED TO DEPRECIATION ON THE VALUE O F GOODWILL. THE HONBLE DIVISION BENCH OF THE KERALA HIGH COURT HAS HELD THAT GOODWILL IS NOT SPECIFICALLY MENTIONED IN SECTION 32(1)(II) OF THE INCOME TAX AC T. DEPRECIATION IS ALLOWABLE NOT ONLY ON TANGIBLE ASSE TS COVERED BY CLAUSE (I) OF SECTION 32(1) BUT ON THE INTANGIBLE ASSETS SPECIFICALLY ENUMERATED IN CLAUSE (II) AND SUCH OF THE OTHER BUSINESS OR COMMERCIAL RIGHTS SIMILAR TO THE ITEMS SPECIFICALLY COVERED THEREIN. SIMILARLY, THE DIVISION BENCH OF THE HONBLE DELHI HIGH COURT HAS UPHELD THAT PAYMENT ON ACCOUNT OF GOODW ILL ITA NO. 286/MDS/2011 7 IS SIMILAR TO ASSETS LIKE PATENTS, COPYRIGHTS, TRAD EMARKS, LICENCES REFERRED TO IN THE DEFINITION OF THE BLOCK OF ASSETS IN THE SENSES THAT THE FUNCTION OF ALL THESE ASSETS IS TO RESTRICT THEIR MISUSE AND TO EARN MAXIMUM PRO FITS IN THE BUSINESS. THE FUNCTION OF GOODWILL ACQUIRED BY THE ASSESSEE ALSO IS THE SAME IN VIEW OF THE FACT THAT IT MAXIMIZES THE PROFITS OF THE COMPANY. SINCE THE FUNCTION OF INTANGIBLES DEFINED IN THE ACT AND THE INTANGIBLE ACQUIRED BY THE ASSESSEE IS THE SAME, TH E ASSETS ARE SIMILAR. THEREFORE, THE ASSESSEES GOODW ILL BEING A VALUABLE COMMERCIAL ASSET SIMILAR TO OTHER INTANGIBLES SPECIFIED IN THE DEFINITION OF BLOCK AS SETS, IS ELIGIBLE TO DEPRECIATION. 8. WE ARE OF THE CONSIDERED OPINION THAT THE CASE O F THE ASSESSEE IS SQUARELY COVERED BY THE AFOREMENTIONED JUDGEMENTS OF THE HONBLE DELHI HIGH COURT AND HONBLE KERALA HIGH COURT. RESPECTFULLY FOLLOWING THE JUDGEMENTS, WE HOLD THAT THE ASSESSE E IS ENTITLED FOR THE DEPRECIATION ON GOODWILL AND ACCOR DINGLY ITA NO. 286/MDS/2011 8 WE REVERSE THE DECISION OF THE CIT(A) ON THIS ISSUE AND ALLOW THIS GROUND RAISED BY THE ASSESSEE. 9. WITH REGARD TO SECOND ISSUE I.E. PROVISION FOR LEAVE ENCASHMENT, WE FIND THAT THE ISSUE HAS ALREA DY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2002-03 BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.57/MDS/201 1 VIDE ORDER DATED 27.06.201, WHEREIN IT HAS HELD AS UNDER:- 6. IN THE CROSS OBJECTION FILED BY THE ASSESSEE, THE ONLY GROUND RAISED BY THE ASSESSEE IS THAT THE CIT(A) HAS ERRED IN NOT DELETING THE DISALLOWANCE MADE BY THE ASSESSING AUTHORITY IN RESPECT OF PROVISION OF ` 93,815/- MADE FOR LEAVE ENCASHMENT AS PER EXISTING STATUTORY REQUIREMENT AS HELD BY CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UOI & ORS (292 ITR 470). ON MERIT, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT., (245 ITR 428). IN LAW, THE ISSUE IS AGAIN IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UOI & ORS. (292 ITR 470) WHEREIN THE HONBLE COURT HAS STRUCK DOWN SEC.43B(F) WHICH STATED THAT LEAVE ENCASHMENT COULD BE ITA NO. 286/MDS/2011 9 ALLOWED ONLY ON ACTUAL PAYMENT. IN THESE CIRCUMSTANCES, WE DIRECT THE ASSESSING AUTHORITY TO GIVE DEDUCTION FOR THE PROVISION OF ` 93,815/- MADE BY THE ASSESSEE TOWARDS LEAVE ENCASHMENT. THE ASSESSEE IS SUCCESSFUL IN ITS CROSS OBJECTION. 10. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE GROUND OF APPEAL OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS WELL. 11. THE THIRD ISSUE, I.E. APPORTIONMENT OF EXPENSE S HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE WHICH HAS BEEN FURTHER REAFFIRMED BY THE HONB LE MADRAS HIGH COURT IN TAX APPEAL NOS.788 & 789 OF 2009 RELEVANT TO THE ASSESSMENT YEARS 2003-04 & 2004-05, WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER:- 3. THE TRIBUNAL, WHILE EXAMINING THE SAID ISSUE, HAS FOUND OUT THAT THE APPROACH OF THE ASSESSING OFFICER WAS ARBITRARY AND PRESUMPTIVE, AS IT HAS BEEN RIGHTLY HELD BY THE CIT(A) THAT THERE WAS NO MATERIAL EVIDENCE FOR THE ASSESSING AUTHORITY TO ADOPT THE SAID METHOD. THE TRIBUNAL HAS ALSO RIGHTLY HELD THAT EVEN ACCORDING TO THE CIT(A), THE PROPORTIONATE ALLOCATION MADE BY THE ASSESSEE COMPANY WAS ITA NO. 286/MDS/2011 10 NOT SOUND, WHICH CANNOT BE ACCEPTED AND THEREFORE, THE METHOD ADOPTED BY THE CIT(A) (VIZ.,) THE ONE WHICH IS USUALLY RECOGNIZED IN THE MATTER OF ALLOCATION OF EXPENDITURE AND THE SAID METHOD ADOPTED BY THE CIT(A) WAS SOUND AND ACCEPTABLE IN LAW. THE CO-ORDINATE BENCH OF THE TRIBUNAL ON THE ISSUE IN ITS ORDER DATED 4.2.2009 IN ITA NO.611 & 1832/MDS/2007 HAS OBSERVED AS UNDER:- THE CIT(A) ALSO HAS OBSERVED THAT THE PROPORTIONATE ALLOCATION MADE BY THE ASSESSEE- COMPANY IS NOT SOUND AND CORRECT, AND IT CANNOT BE ACCEPTED. THE CIT(A), THEREFORE, ADOPTED ONE OF THE METHODS OF APPORTIONMENTS USUAL RECOGNIZED IN THE MATTERS OF ALLOCATION OF EXPENDITURE, THAT IS, ON T HE BASIS OF UNIT-WISE TURNOVER AND DIRECTED TO APPORTI ON CONCERNED COMMON EXPENDITURES. IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD BY THE ASSESSING OFFICER, THE METHOD ADOPTED BY THE CIT(A) IS SUSTAINABLE IN LAW. ONCE THE METHOD ADOPTED BY THE CIT(A) IS FOUND TO BE ACCEPTED IN LAW, THE QUANTUM MODIFICATION ARISING OUT OF THE DIRECTION OF THE CI T(A) IS ONLY A CONSEQUENCE OF A LAWFUL DIRECTION. WE HAV E NO REASON TO INTERFERE IN SUCH LAWFUL CONSEQUENCES. THEREFORE, WE FIND THAT THE GROUND RAISED BY THE REVENUE ON THIS POINT OF ALLOCATION OF EXPENDITURE IS NOT MERITORIOUS. THE APPEALS FILED BY THE REVENUE ARE LIABLE TO BE DISMISSED. ITA NO. 286/MDS/2011 11 THE D.R. WAS UNABLE TO PRODUCE ANY JUDGEMENT OR AN Y OTHER DOCUMENT CONTRARY TO THE SUBMISSIONS MADE BY THE COUNSEL FOR THE ASSESSEE ON THE ISSUE OF APPORTIONM ENT OF EXPENSES AS WELL. WE, THEREFORE, RESPECTFULLY FOLL OWING THE AFORESAID JUDGEMENT OF THE JURISDICTIONAL HIGH COUR T, ALLOW THIS GROUND OF THE ASSESSEE. 12. IN VIEW OF THE ABOVE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE CIT(A) AND ALLOW THE APPEAL OF THE AS SESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE 28 TH DAY OF JUNE, 2012 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 28 TH JUNE, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.