ACIT CORPORATE CIRCLE 6(1), CHENNAI V. SHRIRAM EPC LTD., CHENNAI

ITA 2994/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2547 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJIV RAGHAV MENON
• Keywords: Depreciation; Earning of tax free income
• Section: 154; 2; 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI , . , % BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER / I.T.A. NO.2994/CHNY/2018 /ASSESSMENT YEAR: 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), WANAPARTHY BLOCK, 7 TH FLOOR, 121, M.G.ROAD, CHENNAI-600 034. VS M/S. SHRI RAM EPC LTD, 18/3, SIGAPPI ACHI BUILDING, RAKMANI LAKSHMIPATHY ROAD EGMORE, CHENNAI-600 008. PAN:AAFCS1410C ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SRIDHAR DORA, JCIT /RESPONDENT BY : MR.RAJIV RAGHAV MENON, ADVOCATE /DATE OF HEARING : 07.03.2019 /DATE OF PRONOUNCEMENT : 07.03.2019 / O R D E R PER S.JAYARAMAN, AM: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, IN ITA NO.47/2 017-18/CIT(A)-15 DATED 31.07.2018 FOR THE ASSESSMENT YEAR 2009-10. 2. THE REVENUE FILED AN AFFIDAVIT PLEADING TO COND ONE TWO DAYS DELAY IN FILING OF APPEAL. AFTER HEARING BOTH THE P ARTIES, WE CONDONE THE DELAY IN FILING OF APPEAL AND ADMIT THE SAME FOR HE ARING. 3. M/S. SHRI RAM EPC LTD., THE ASSESSEE, IS ENGAGED I N THE BUSINESS OF EPC. THE ASSESSING OFFICER IN THE ORDER PASSED U NDER SECTION 154 2 ITANO.2994/CHNY/2018 DATED 31.03.2017 FOR THE ASSESSMENT YEAR 2009-10, I NTER-ALIA, MADE DISALLOWANCES UNDER SECTION 14A READ WITH RULE 8D A ND THE DEPRECIATION ON GOODWILL. AGGRIEVED, THE ASSESSEE FILED AN APP EAL BEFORE THE CIT(A). THE LD CIT(A) ALLOWED THE APPEAL. AGGRIEVED AGAIN ST THAT ORDER, THE REVENUE FILED THIS APPEAL WITH THE FOLLOWING GROUND S:- 1.THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE L AW AND FACTS OF THE CASE. 2. THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE UNDER SECTION 14A R W R 8D OF RS 68,30,935/- RELYING UPON THE DECISIO N OF HONBLE TRIBUNALS CHENNAI C BENCH VIDE ITS ORDER ITA NO 406 & 407/MDS/2017 DATED 5.12017 FOR THE A.YS. 2013-14 AN D 2014-15 IN ONE OF THE ASSESSEES GROUP CASES DECIDED IN FAVOUR OF THE ASSESSEE. 2.1 THE LD CIT(A) ERRED IN DELETING THE ADDITION MA DE U/S 14A R W R 8D ON THE GROUND THAT NO EXEMPT INCOME WAS EARNED DURI NG THE YEAR, WHEN SECTION 14A DOES NOT WARRANT SUCH EXCLUSION AS CAN BE INFERRED BY THE USE OF THE WORDS INCOME UNDER THE ACT AND NOT INCOME OF THE YEAR. 3.THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION ON INTANGIBLE ASSETS OF RS 39,55,078/- RELYING UPON TH E DECISION OF CLT(A)-15 ORDER IN ITA NO.64 & 59/2017-18 CIT(A)-15 AND ITA NO. 60 & 61/2017-18/CIT(A)-15 FOR THE AY 2005-06 & 2006-07 AND 2007-08 & 2008-09 RESPECTIVELY IN THE ASSESSEES OWN CASE. 3.1 THE LD CIT(A) ERRED IN ALLOWING DEPRECIATION OF TECHNICAL KNOW- HOW BY DISREGARDING THE FACT THAT THE ASSESSEE HAS NOT ESTABLISHED THE EXISTENCE OF ANY INTANGIBLE ASSET. 3.2 THE LD CIT(A) SHOULD HAVE APPRECIATED THAT NO C ONSIDERATION OR PAYMENT WAS INVOLVED IN THE TRANSFER OF THE ALLEGED INTANGIBLE ASSET. 4. THE LD. DR PRESENTED THE CASE ON THE LINES OF GROUNDS OF APPEAL. PER CONTRA, THE LD. AR SUBMITTED THAT THE A SSESSEE HAS NOT RECEIVED ANY DIVIDEND DURING THE RELEVANT ASSESSM ENT YEAR. THEREFORE, THE LD. CIT(A) DELETED THE DISALLOWANCE BASED ON T HE JURISDICTIONAL 3 ITANO.2994/CHNY/2018 TRIBUNALS DECISION AND HENCE, THE ORDER OF THE CIT (A) MAY BE CONFIRMED. WITH REGARD TO THE CLAIM OF DEPRECIAT ION ON GOODWILL, THE LD. AR SUBMITTED THAT THIS TRIBUNAL IN ITA NO.734, 736, 737 & 738/MDS/2016 DATED 24.08.2016 FOR THE ASSESSMENT YEARS 2008-09, 2005-06, 2006-07 & 2007-08, AFTER DUE EXAMINATION REMITTED THIS ISSU E BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH EXAMINATION AND H ENCE, THIS ISSUE MAY BE REMITTED BACK TO THE ASSESSING OFFICER FOR A FR ESH EXAMINATION. 5. WE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. ON THE ISSUE OF DISALLOWANCE U/S.14A READ WITH RULE 8D, SINCE THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME DURING THE RELEVANT ASSESSMENT YEAR, THE ORDER PASSED BY THE LD. CIT(A) IS IN ACCORDANCE WITH THE RATIO LAID BY THE HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF REDINGTON INDIA) LTD. VS. ADDL.CIT IN TCA NO.520 OF 2016 DATED 23.12.2016. THEREFORE, WE DO NOT FIND ANY REASON T O INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THE CORRESPO NDING GROUNDS OF THE REVENUE FAIL. 5.1 WITH REGARD TO THE ISSUE OF DISALLOWANCE OF DEP RECIATION ON GOODWILL, THE RELEVANT PORTION OF THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NOS.734, 736, 737 & 738 /MDS/2016 DATED 24.08.2016 IS EXTRACTED AS UNDER:- 4 ITANO.2994/CHNY/2018 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE QUEST ION ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE IS ELIGIBLE F OR DEPRECIATION ON THE SO CALLED EXPERTISE AND EXPERIENCE OF THE EMPLOYEES OF ERSTWHILE M/S SHRIRAM ENGINEERING CONSTRUCTION CO. LTD. THE CIT(A ) BY PLACING RELIANCE ON EXPLANATION 3(B) TO SEC. 32(1) OF THE A CT FOUND THAT THE TECHNICAL KNOWHOW OF THE AMALGAMATING COMPANY PER S E TAKES THE CHARACTER OF INTANGIBLE ASSET, THEREFORE, ELIGIBLE FOR DEPRECIATION. WE HAVE GONE THROUGH THE PROVISIONS OF SEC. 32(1) OF T HE ACT. EXPLANATION 3(B) TO SEC. 32(1) OF THE ACT READS AS FOLLOWS: EXPLANATION 3 - FOR THE PURPOSES OF THIS SUBSECTIO N [THE EXPRESSION ASSETS] SHALL MEAN (A).. (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE. EXPLANATION 3 TO SEC. 32(1) DEFINES INTANGIBLE ASSE T. IT DOES NOT SAY ANYTHING ABOUT EXPERIENCE AND EXPERTISE OF THE EMPL OYEES OF THE AMALGAMATING COMPANY. THEREFORE, THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT WHETHER THE EXPERTISE AND EXPERIENCE O F THE ERSTWHILE COMPANY WHICH WAS AMALGAMATED WITH THE ASSESSEE-COM PANY IS A TECHNICAL KNOWHOW WITHIN THE MEANING OF EXPLANATION 3(B) TO SEC. 32(1) OF THE ACT OR NOT NEEDS TO BE EXAMINED. THIS ASPECT WAS NOT CONSIDERED BY ANY OF THE LOWER AUTHORITIES. THEREFORE, THE ORD ERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ISSUE IS R EMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHA LL REEXAMINE THE ISSUE AFRESH AND FIND OUT WHETHER EXPERIENCE AND EX PERTISE OF THE AMALGAMATING COMPANY WOULD AMOUNT TO TECHNICAL KNOW HOW WITHIN THE MEANING OF EXPLANATION 3(B) TO SEC. 32(1) OF THE AC T AND DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING A REASONAB LE OPPORTUNITY TO THE ASSESSEE. 5 ITANO.2994/CHNY/2018 6. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E ALLOWED FOR STATISTICAL PURPOSES. 5.2 FOLLOWING THE ABOVE ORDER OF THIS TRIBUNAL, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION ON THE ABOVE LINES. 6. IN THE RESULT, THE REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH, 2019 AT CHENNAI SD/ SD /- ( ) ( . ) (GEORGE MATHAN) (S.JAYARAMAN) ( ! / JUDICIAL MEMBER) ( ! / ACCOUNTANT MEMBER) /CHENNAI, # /DATED 07 TH MARCH, 2019 SOMU '( )( /COPY TO: 1. APPELLANT 2. RESPONDENT 3. * () /CIT(A) 4. * /CIT 5. ( . /DR 6. 1 /GF