Coventya India Pvt.Ltd, Pune V. Income-tax Officer, Ward - 1(3), Pune

ITA 3030/PUN/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5814 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-04-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 20-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VITTHAL BHOSALE
• Keywords: Depreciation; Set aside
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE SHRI R . S . SYAL , VP AND SHRI S.S. VISWANETHRA RAVI , JM . / I TA NO. 3030 /PUN/20 17 / ASSESSMENT YEAR : 2014 - 15 CO VENTYA INDIA PRIVATE LIMITED GAT NO.520 B, SHELKEWADI, RIHE ANDHALE ROAD, GHOTAWADE MULSHI, PUNE - 412 115 PAN : AAECC5710A ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD - 1(3), PUNE. / RESPONDENT A SSESSEE BY : SHRI KISHORE PHADKE REVENUE BY : SHRI VITTHAL BHOSALE / DATE OF HEARING : 29.04.2021 / DATE OF PRONOUNCEMENT : 29 .04.2021 / ORDER PER R.S. SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.09.2017 PASSED BY THE LD. CIT(APPEAL), PUNE - 1 IN RELATION TO THE ASSESSMENT YEAR 2014 - 15. 2. THE ASSESSEE HAS FILED MODIFIED GROUNDS OF APPEAL. THE ONLY ISSUE RAISED THROUGH THE ORIGINAL AND MODIFIED GROUND S IS THE CONFIRMATION OF 2 ITA NO. 3030 /PUN/20 17 A.Y. 2014 - 15 DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.2,01,68,047/ - ON I NTANGIBLE ASSETS. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE , DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2012 - 13, ACQUIRED ELECTROPLATING BUSINESS OF CHEME TALL RAI INDIA LTD. (CRIL) VIDE AGREEMENT DATED 15.12.2011 FOR A TOTAL CONSIDERATION OF RS.11.80 CRORE INCLUDING PAYMENT TOWARDS I NTANGIBLE ASSETS OF RS.11.51 CRORES AND T ANGIBLES ASSETS AMOUNTING TO RS.29 LAC . T HE ASSESSEE CLAIMED DEPRECIATION OF RS.2,01,68,047/ - FOR THE YEAR UNDER CONSIDERATION IN RESPECT OF SUCH INTANGIBLE ASSETS WITH OPENING WRITTEN DOWN VALUE AS ON 01.04.2013 A S INCREASED BY AN ADDITION OF RS.1 CRORE MADE DURING THE YEAR . THE ASSESSING OFFICER NOTICED THE BREAK - UP OF RS.11.51 CRORE: N ON COMPETE FEES OF RS.1 1, 0 9 , 0 0 , 000/ - ; G OODWILL OF RS.44,10,000/ - ; DISTRIBUTION NE T WORK RIGHTS OF RS.5.50 CRORE; AND C USTOMER LIST OF RS.4.17 CRORE. A DDITION OF RS.1 CRORE MADE DURING THE YEAR WAS IN N ON COMPETE FEES. THE ASSESSING OFFICER DID NOT FIND ANY DIFFICULTY IN ALLOWING DEPRECIATION ON G OODWILL BY RELYING UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CAS E OF CIT VS. SMIFS SECURITIES LTD. (2012) 348 ITR 302 (SC) . HE, HOWEVER, HELD THAT OTHER ITEM S: N ON COMPETE FEES, D ISTRIBUTION NET WORK RIGHTS AND C USTOMER LIST INCLUDED BY THE ASSESSEE UNDER THE HEAD `I NTANGIBLE ASSETS FOR CLAIMING DEPRECIATION U/S.32(1)(II) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) W ERE NOT OF THE NATURE AS SPECIFIED IN THE SECTION. HE, THEREFORE, HELD THAT NO DEPRECIATION WAS ELIGIBLE ON SUCH ASSETS . HOWEVER, WHILE COMPUTING DISALLOWANCE OF DEPRECIATION IN THE COMPUTATION OF TOTAL INCOME , HE ALSO INCLUDED AMOUNT OF DEPRECIATION ON G OODWILL , ON WHICH HE HA D PRINCIPALLY AGREED . THE LD. CIT(APPEALS) COUNTENANCED THE VIEW TAKEN BY THE ASSESSING 3 ITA NO. 3030 /PUN/20 17 A.Y. 2014 - 15 OFFICER , AGAINST WHICH THE ASSESSEE HAS C O ME UP IN APPEAL BEFORE THE TRIBUNAL. 4 . WE HAVE HEARD THE RIVAL CONTENTIONS THROUGH VIRTUAL COURT AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE ENTERED INTO AGREEMENT WITH CRIL FOR ACQUIRING THE IR ELECTROPLATING BUSINESS IN THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR 2012 - 13. OUT OF THE TOTAL CONSIDERATION OF RS.11.80 CRORE , THE ASSESSEE PAID RS.11.51 CRORE TOWARDS N ON COMPETE FEES, G OODWILL, D ISTRIBUTION NET WORK RIGHTS AND C USTOMER S LIST. WHEN THE ISSUE OF GRANTING DEPRECIATION CAME UP FOR C ONSIDERATION BEFORE THE ASSESSING OFFICER FOR THE FIRST TIME IN THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2012 - 13, HE DISALLOWED SUCH DEPRECIATION. SIMILAR COURSE WAS FOLLOWED IN THE SUCCEEDING YEAR AS WELL. THE INSTANT ASSESSMENT YEAR IS THIRD YEAR IN LINE. AGAINST THE DISALLOWANCE OF DEPRECIATION FOR THE IMMEDIATELY TWO PRECEDING YEARS I.E. 2012 - 13 AND 2013 - 14, THE ASSESSEE APPROACHED THE TRIBUNAL. V IDE ORDER DATED 17.02.2020 IN ITA NOS.974 &975/PUN/2017 , A COPY OF WHICH HAS BEEN PLACED ON RECORD, THE TRIBUNAL ALLOWED DEPRECIATION ON I NTANGIBLE ASSETS OF N ON COMPETE FEES, D ISTRIBUTION NET WORK RIGHTS AND C USTOMER LIST ( DEPRECIATION ON GOODWILL WAS SUO MOTU ALLOWED BY THE AO ) . THE AUTHORITIES BELOW HAVE RELIED ON THEIR RESPECTIVE ORDERS FOR THE EARLI ER YEARS, WHICH HAVE BEEN ADJUDICATED BY THE TRIBUNAL. IN ABSENCE OF ANY DISTINGUISHING FACTS HAVING BEEN BROUGHT TO OUR NOTICE BY THE LD. DR , RESPECTFULLY FOLLOWING THE PRECEDENT, WE HOLD THE ASSESSEE ENTITLED TO DEPRECIATION U/S.32(1)(II) OF THE ACT ON T HE OPENING WRITTEN DOWN VALUE OF N ON COMPETE FEES, D ISTRIBUTION OF NET WORK RIGHTS AND C USTOMER LIST. 5. WE HAVE OBSERVED THAT ALBEIT THE ASSESSING OFFICER , IN PRINCIPLE , HELD THE ASSESSEE TO BE ENTITLED TO DEPRECIATION ON GOODWILL , BUT INADVERTENTLY MADE 4 ITA NO. 3030 /PUN/20 17 A.Y. 2014 - 15 DISALLOWANCE OF DEPRECIATION ON GOODWILL AS WELL. THE HONBLE SUPREME COURT IN SMIFS SECURITIES LTD . (SUPRA) HAS ALLOWED DEPRECIATION ON GOODWILL . RESPECTFULLY FOLLOWING THE SAME , WE DIRECT TO ALLOW DEPRECIATION ON GOODWILL ALSO. THE IMP UGNED ORDER IS OVERTURNED PRO TANTO RESULTING INTO GRANT OF DEPRECIATION ON OPENING WRITTEN DOWN VALUE OF THE INTANGIBLE ASSETS . 6 . T HE ASSESSEE MADE AN ADDITION OF RS.1 CRORE DURING THE YEAR UNDER CONSIDERATION TO THE I NTANGIBLE ASSET OF N ON COMPETE FEES AND CLAIMED DEPRECIATION THEREON ALSO. ON A POINTED QUERY FROM THE BENCH AS TO THE NATURE OF THIS INCREASE IN THE VALUE OF NON COMPETE FEES, THE LD. AR SUBMITTED THAT THE ASSESSEE , WHILE ENTERING INTO ORIGINAL AGREEMENT WITH CRIL, AGREED FOR CERTAIN MORE PAYMENT IN FUTURE YEARS ON THE BASIS OF A FORMULA. THE SAID AMOUNT OF RS.1.00 CRORE WAS STATED TO BE PURSUANT TO SUCH FORMULAE. HOWEVER, N O CALCULATION IN ACCORDANCE WITH THE FORMULA HAS BEEN PLACED ON RECORD. IN TH E S E CIRCUMSTANCE S, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING TRUE NATURE OF RS.1 CRORE . IF THE SAME IS FOUND OUT TO BE CORRECT IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT AS TO THE QUANTUM AND N ATURE, THEN DEPRECATION ON SUCH ADDITIONAL AMOUNT OF RS.1 CRORE SHOULD ALSO BE GRANTED. IN THE OTHERWISE SCENARIO, THE AO IS FREE TO DECIDE THE ISSUE AS PER LAW. NEEDLESS TO SAY, THE ASSESSEE WILL BE GR ANT ED REASONABLE OPPORTUNITY OF HEARING. 7 . IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRO NOUNCED ON 29 TH DAY OF APRIL, 2021 SD/ - SD/ - S.S. VISWANETHRA RAVI R . S . SYAL JUDICIAL MEMBER VICE - PRESIDENT / PUNE; / DATED : 29 TH APRIL, 2021 SB 5 ITA NO. 3030 /PUN/20 17 A.Y. 2014 - 15 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEAL), PUNE - 1 4. THE PR. CIT - 1, PUNE. 5 . , , , / DR, ITAT, A BENCH, PUNE. 6 . / GUARD FILE. / BY ORDER, // TRUE COPY // / PRIVATE SECRETARY , / ITAT, PUNE . 6 ITA NO. 3030 /PUN/20 17 A.Y. 2014 - 15 * DATE 1 DRAFT DICTATED ON 29.04.2021 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 29.04.2021 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER