SUMITO CHEMICAL INDIA P. LTD, MUMBAI V. DCIT RG 3(3), MUMBAI

ITA 3078/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5850 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 18-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 04-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Keywords: Capital asset; Depreciation; Principle of natural justice; Additional depreciation; Additional evidence; Non-deduction of tax; Capital expenditure
• Section: 37(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI . . , ! ' #'' '$ , % ! & BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 3078 / / 2012 : 2006-07 ITA NO. : 3078/MUM/2012 (ASSESSMENT YEAR: 2006-07) SUMITOMO CHEMICAL INDIA PRIVATE LIMITED, 6 TH FLOOR, MOTI MAHAL, 195, J TATA ROAD, CHURCHGATE, MUMBAI -400 020 PAN: AAECS 3750 L VS DY. COMMISSIONER OF INCOME-TAX RANGE 3(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDRA JAIN RESPONDENT BY : SHRI MOURYA PRATAP /DATE OF HEARING : 18-02-2014 / DATE OF PRONOUNCEMENT : 28-03-2014 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE ASSESSEE, AGAINST THE ORDER OF CIT(A)- 15, MUMBAI, DATED 27.02.2012, WHEREIN, THE FOLLOWING GROUNDS HA VE BEEN TAKEN: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED COM MISSIONER OF INCOME-TAX (APPEALS)-15, MUMBAI [CIT(A)] HAS ERRE D ON THE FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO E ACH OTHER. 1. IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER (AO) WITH RESPECT TO THE DEDUCTION OF RS. 14,27,727/- CLAIMED UNDER SECTION 35D OF THE INCOME-TAX ACT, 19 61 (THE ACT) INCURRED ON ACQUISITION OF A MANUFACTURING FA CILITY (UNIT) FROM BILAG INDUSTRIES PRIVATE LIMITED (BILAG) 2. IN CONFIRMING THE DISALLOWANCE MADE BY THE AO WITH RESPECT TO THE APPELLANTS ALTERNATE CLAIM THAT EXP ENDITURE OF RS. 53,88,637/- PERTAINING TO LEGAL AND PROFESSIONAL FE ES INCURRED ON ACQUISITION OF UNIT FROM BILAG BE ALLOWED AS DED UCTION UNDER SECTION 37(1) OF THE ACT. SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 2 3. IN CONFIRMING THE DISALLOWANCE MADE BY THE AO WITH RESPECT TO RS. 1,13,57,742/- CLAIMED ON INCIDENTAL EXPENSES INCURRED ON ACQUISITION OF ASSETS FROM BILAG, WHICH WERE CAPITALIZED ALONG WITH THE ASSETS SO PURCHASED. 4. IN CONFIRMING THE DISALLOWANCE MADE BY THE AO WITH RESPECT TO THE PROFESSIONAL FEES OF RS. 2,374,987/- REIMBURSED TO SCCL, IN RELATION TO SERVICES PROVIDED BY ERNST & Y OUNG PRIVATE LIMITED (E&Y), ON ACCOUNT OF NON-DEDUCTION OF TAX ES AT SOURCE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFO RE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONOURABLE INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO THE LAW. FOR THE ABOVE AND OTHER GROUNDS AND REASONS WHICH M AY BE SUBMITTED DURING THE COURSE OF HEARING OF THIS APPE AL, THE APPELLANT REQUESTS THAT THE APPEAL BE ALLOWED AS PR AYED. 2. VIDE LETTER DATED 15.07.2013, THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND: THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) E RRED IN NOT DIRECTING THE ASSESSING OFFICER TO CAPITALIZE THE L EGAL AND PROFESSIONAL FEES OF RS. 53,88,637/- TO BILAG UNIT AND GRANT DEPRECIATION THEREON AFTER GIVING THE FINDING THAT IT WAS FOR ACQUISITION OF THE SAID UNIT. 3. VIDE LETTER DATED 17.02.2013, THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND: THE LEARNED DCIT ERRED IN NOT GRANTING DEPRECIATIO N ON GOODWILL AND NON COMPETE FEES UNDER SECTION 32 OF THE ACT. WE ARE, THEREFORE, SEIZED WITH ORIGINAL GROUNDS FILED WITH FORM NO. 36 AND ADDITIONAL GROUNDS FILED VIDE LETTERS DATED 17.02.2013 AN D 15.07.2013. AT THE TIME OF HEARING, THE AR SUBMITTED THAT ADDITIONAL EVIDENCE ARE NOT BEING PRESSED. SINCE THE ADDITIONAL EVIDENCE IS NO T PRESSED TO BE REFERRED TO, THE SAME ARE SET APART AND ARE IGNORED. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURING AND TRADING OF CHEMICALS AND INSECTICIDES . DURING THE CURRENT FINANCIAL YEAR THE ASSESSEE ACQUIRED THE MA NUFACTURING FACILITY FROM BILAG INDUSTRIES PVT LTD (BILAG). IN THIS CONNECTIO N, THE ASSESSEE INCURRED THE FOLLOWING EXPENDITURE: SR. NO. PURPOSE AMOUNT 1 STAMP DUTY FOR INCREASE OF AUTHORIZED SHARE CAPIT AL 5,00,000 2 REGISTRATION FEE PAID TO ROC 12,50,000 3 LEGAL & PROFESSIONAL FEE IN CONNECTION WITH THE A CQUISITION 53,88,637 SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 3 TOTAL 71,38,637 6. IN THE RETURN OF INCOME, THE ASSESSEE INVOKED THE P ROVISIONS OF SECTION 35D, WHEREBY, THE ASSESSEE CLAIMED RS. 14,27,727/- BEING 1/5 TH OF RS. 71,38,637/-. 7. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE, AS THE ASSESSEE WAS UNABLE TO BRING ANYTHING ON RECORD TO PROVE AS TO HOW, THE CONDITIONS ARE SATISFIED UNDER SECTION 35D. THE AO ALSO OBSERVED THA T EXPENDITURE OF RS. 53,88,637/- ALSO COULD NOT BE ALLOWED, BE CAUSE, THE ASSESSEE HAD NOT DEDUCTED TAS, WHICH WOULD, OTHERWISE, B E HIT BY THE PROVISIONS OF SECTION 40(A)(IA). 8. THE ASSESSEE APPROACHED THE CIT(A) ON THE IMPUGNED ISSUES, WHO HELD THAT THE EXPENSE COULD NOT BE ALLOWED EITHER WA YS, BECAUSE THE UNIT BELONGED TO BILAG, WHICH WAS PURCHASED BY THE AS SESSEE, SUCH EXPENSE, FALLING UNDER THE CAPITAL STREAM, COULD NOT BE ALLOW ED AS REVENUE EXPENSE. 9. AGAINST THESE OBSERVATIONS, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 10. BEFORE US, THE AR SUBMITTED THAT IN GROUNDS, THE ASS ESSEE IS ONLY CONTESTING THE ISSUE PERTAINING TO LEGAL AND PROFESS IONAL FEE PAID AT RS. 53,88,637/-. THE AR HAS CONCEDED ON ITEM 1 AND ITE M 2 IN THE ABOVE TABLE. 11. FROM THE SUBMISSIONS MADE BEFORE THE CIT(A), IT WAS SU BMITTED THAT THE ASSESSEE CLAIMED RS. 10,77,727/-, BEING 1/5 TH OF RS. 53,88,637/-, AS DEFERRED EXPENSE, U/S 35D. IT WAS FURTHER SUBMITTED BEFORE THE CIT(A) THAT THE AO, TO DISALLOW THE EXPENDITURE , OBSERVED THAT SINCE THE ASSESSEE DID NOT DEDUCT TAS, HENCE THE EXPENSE OF RS. 10,77,727/- (RS. 53,88,637/-) WAS NOT ALLOWED. 12. THE ASSESSEE POINTED OUT TO THE CIT(A) THAT THE ISS UE OF TDS WAS NEITHER CALLED FOR NOR DISCUSSED BEFORE THE AO. HENCE DISALL OWANCE ON THAT BASIS WAS NOT ONLY INCORRECT (APB 18, 19), BUT AGAIN ST THE SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 4 PRINCIPALS OF NATURAL JUSTICE. THE AR FURTHER POINTED OUT TH AT THE CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE, I.E. ALLOWIN G RS. 10,77,727/- (BEING 1/5 TH OF RS. 53,88,637/-) U/S 35D OR UNDER SECTION 37(1). THE CIT(A), HELD THAT THE EXPENSE IS IN THE NATURE OF CAPITAL EXPENDITURE. SINCE HE HELD THAT THE EXPENDITURE WAS CAPIT AL IN NATURE, THE CIT(A) REFRAINED FROM GIVING ANY FINDING ON THE ISSUE OF T DS AND 40(A)(IA). 13. THE AR FURTHER POINTED OUT THAT THE ASSESSEE HAS FILED AN ADDITIONAL GROUND, WHEREIN IT HAS BEEN AGITATED THAT WHEN THE CIT(A) HELD THAT THE EXPENDITURE TO BE CAPITAL IN NATURE, THEN, D EPRECIATION, AS PER LAW, SHOULD HAVE BEEN ALLOWED. 14. THE AR, THEREFORE, SUBMITTED THAT THE CLAIM U/S 35D SHOULD HAVE ALLOWED OR ELSE, DEPRECIATION SHOULD HAVE BEEN ALLOWED, AS THE EXPENSE WAS INCURRED FOR ACQUIRING PLANT AND MACHINERY. 15. THE DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE REVENUE AUTHORITIES AND SUBMITTED THAT IF THE CLAIM HAS TO BE VERIFIE D, THEN THE ISSUE BE RESTORED FOR COMPLETE VERIFICATION. 16. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES AND HA VE PERUSED THE SUBMISSION MADE BEFORE THE REVENUE AUTHORITIES. 17. AT THE MOMENT, THE DISPUTE PERTAINS TO THE TREATME NT TO BE GIVEN FOR EXPENSE INCURRED ON LEGAL AND PROFESSIONAL CHARGES AT RS. 10,77,727/- (1/5 TH OF RS. 53,38,637/-). THE ASSESSEE CLAIMED RS. 10,77,727/- BEING 1/5 TH OF RS. 53,38,637/- TO BE AMORTIZED IN FIVE YEARS U/S 35D. THE AO DISALLOWED THE SAME BECAUSE, THE ASSESSEE DID NOT PROVIDE ANY EVIDENCE TO SHOW THAT THE ASSESSEE HA D DEDUCTED TAS. THIS MEANS, THAT THE AO HAS TREATED THE EXPENSE TO BE ALLOWABLE AS A REVENUE EXPENSE, BECAUSE SECTION 40(A)(IA) CAN BE APPLIED ON AN EXPENDITURE, WHICH IS REVENUE IN NATURE. BEFORE THE CIT(A), T HE ASSESSEE TOOK THE PLEA THAT THE EXPENSE BE ALLOWED TO BE AMORTIZED U/S 35D OR ELSE ALLOW IT AS A REVENUE EXPENSE. THE CIT(A) WENT AHEAD TO SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 5 DISALLOW BOTH THE ARGUMENTS AND HELD IT TO BE CAPITAL EXP ENDITURE, HENCE NOT ALLOWABLE. 18. WHEN WE LOOK AT THE VARIOUS TREATMENTS GIVEN TO ON E TYPE OF EXPENSE, THE ONLY CONCLUSION THAT CAN BE DRAWN IS, THAT THE REVENUE AUTHORITIES ARE THEMSELVES NOT SURE, AS TO HOW THE EXPE NDITURE HAS TO BE TREATED. 19. IN SUCH A CASE, IN OUR OPINION, THE MOST REASONABLE A DJUDICATION WOULD BE TO SET ASIDE THE FINDINGS OF THE CIT(A) ON THIS I SSUE AND RESTORE THE ISSUE TO THE AO, WITH A DIRECTION TO EXAMINE THE NATURE OF EXPENSE AND COME TO ONE DEFINITE FINDING, I.E. WHETHER THE A SSESSEE WAS CORRECT TO INVOKE SECTION 35D, OR THE AO WAS CORRE CT TO TREAT IT AS REVENUE AND IN THAT CASE, THE FACTUM OF TAS WOULD BE LOO KED INTO, OR THE EXPENSE IS A CAPITAL EXPENDITURE AND IF SO, DEPRECIATION AS PER LAW HAS TO BE ALLOWED THEREON. 20. GROUNDS NO. 1 & 2 ARE THEREFORE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 21. GROUND NO. 3 PERTAINS TO EXCESS CLAIM OF DEPRECIATION AT RS. 1,13,57,742/-. 22. THE FACTS PERTAINING TO THE ISSUE ARE, THAT THE ASS ESSEE CLAIMED DEPRECIATION AMOUNTING TO RS 11,357,742 ON CAPITALIZATION OF INCIDENTAL EXPENSES INCURRED IN ACCORDANCE WITH THE ACQU ISITION OF ASSETS FROM BILAG. TOWARDS PURCHASE OF THE MANUFACTURING FACILITY FRO M BILAG (I.E. INCLUDING MACHINERY FURNITURE AND PATENTS), THE ASSE SSEE INCURRED INCIDENTAL EXPENSES LIKE STAMP DUTY, REGISTRATION FEES, SALES TAX AND LEGAL AND PROFESSIONAL FEES. THE ASSESSEE, THEREFO RE, CAPITALIZED THE ABOVE EXPENSES ALONG WITH THE COST OF ASSETS ACCOR DINGLY, CLAIMED DEPRECIATION ON THE ASSETS PURCHASED. BECAUSE OF CERTAIN COMMERCIAL EXIGIENCIES, THE ASSESSEE WAS UNABLE TO OPERATE THE MANU FACTURING FACILITY PURCHASED FROM BILAG ON ITS OWN, IMMEDIATELY. THE ASS ESSEE, SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 6 THEREFORE, ENTERED INTO A FACILITY USER AGREEMENT WITH BILAG, THEREBY GRANTING THEM THE RIGHT TO USE THE FACILITIES (BUILDING, PLANT A ND MACHINERY AND FURNITURE) FOR MANUFACTURE OF THE PRODUCTS. 23. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO EXPLAIN THE REASONS AS TO WHY THE DEPRECIA TION CLAIMED ON CAPITALIZATION OF INCIDENTAL EXPENSES SHOULD NOT BE DISALLOWED . THE ASSESSEE MADE DETAILED SUBMISSIONS. THE AO, AFTER CONSIDERIN G THE DETAILED REPLY FROM THE ASSESSEE, DISALLOWED THE DEPRECIAT ION CLAIMED ON INCIDENTAL EXPENSES ON THE GROUND THAT SINCE THE ASS ESSEE HAS PURCHASED AND LEASED BACK THE ASSETS. HE, THEREFORE, CON CLUDED THAT EXPLANATION 4A TO SECTION 43(1) OF THE ACT IS SQUARELY ATT RACTED. BASED ON THE SAID EXPLANATION THE LEARNED AO HAS RESTRICTED T HE ACTUAL COST OF THE ASSETS (I.E. BUILDING, FURNITURE, PLANT AND MACHINERY AN D PATENTS) TO THE WRITTEN DOWN VALUE IN THE HANDS OF BILAG A T THE TIME OF SALE AND ACCORDINGLY ALLOWED DEPRECIATION ON THAT VALUE. 24. THE ASSESSEE, SUBMITTED THAT THE AO DID NOT NOTICE THAT THE ASSESSEE HAS NOT LEASED BACK THE PATENTS ACQUIRED FROM BILAG AND HENCE, EXPLANATION 4A TO SECTION 43(1) OF THE ACT DOES NOT GET ATTRACTED. IT WAS FURTHER ARGUED, THAT THE AO HAS FAILED TO CONSIDER THE DETAILED SUBMISSIONS FILED BY THE ASSESSEE DURING THE COURS E OF ASSESSMENT PROCEEDINGS THAT SUCH INCIDENTAL EXPENDITURE WAS REQUIRED TO BE INCURRED BY THE ASSESSEE TO OBTAIN A CLEAR TITLE T O THE ASSETS PURCHASED AND THAT SUCH EXPENDITURE CAN ONLY BE INCUR RED BY THE BUYER. HENCE, THE SAME CAN NEVER BE A PART OF THE WRITT EN DOWN VALUE OF THE ASSETS TO THE SELLER AND SHOULD BE ALLOWED TO BE CAPITALIZED IN THE HANDS OF THE BUYER. 25. IT WAS FURTHER, SUBMITTED THAT THE AO HAS ALSO HELD THAT TH E LEGAL AND PROFESSIONAL FEES AMOUNTING TO RE 7,137,794 INCURRED IN CONNECTION WITH THE ACQUISITION OF THE MANUFACTURING FACILITY FROM SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 7 BILAG CANNOT BE ALLOWED AS A DEDUCTION SINCE NO TAXES HAV E BEEN WITHHELD ON THE SAME. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSEE SUBMITTED THAT DURING ASSESSMENT YEAR 2 006-07 SCCL ENGAGED A PROFESSIONAL SERVICES FIRM IN INDIA FOR RENDERING CERTAIN SERVICES IN CONNECTION WITH ACQUISITION OF THE MANUFACTURING FACILITY AT BILAG. THESE SERVICES WERE RENDERED BY A PROFESSIONAL SERV ICES FIRM AT THE BEHEST OF SCCL AND THE PAYMENT WAS ALSO MADE BY S CCL. IT WAS LATER DECIDED BY SCCL THAT SINCE THE FACILITY AT BILAG WOULD BE ACQUIRED BY THE ASSESSEE, THE SAME SHOULD BE RECOVERED FROM TH E ASSESSEE. ACCORDINGLY, THE ASSESSEE REIMBURSED AN AMOUNT OF RS 7,1 37,794 TO SCCL WITHOUT DEDUCTION OF TAXES AT SOURCE SINCE THE PAY MENT AMOUNTED TO REIMBURSEMENT OF EXPENSES. THE AO DISREGARD ED THE SUBMISSIONS MADE BY THE ASSESSEE AND DISALLOWED THE DEPR ECIATION, AS CLAIMED BY THE ASSESSEE. 26. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE CI T(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO. 27. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE CAME TO A CONCLUSION THAT THE ASSESSEE ACQUIRED THE M ANUFACTURING UNIT FROM BILAG AND IN THAT CONNECTION INCURRED CERTAIN EXP ENSES. HE FURTHER OBSERVED THAT AFTER THE UNIT WAS ACQUIRED, THE U NIT WAS LEASED BACK TO BILAG. THE CIT(A) CAME TO THE CONCLUSION THAT THE PROVISIONS OF EXPLANATION 4A TO SECTION 43(1) CLEARLY APPLIES TO THE ISSUE AND HENCE, THE CLAIM OF DEPRECIATION BY THE ASSESSEE ON BILAG ASSETS HAD TO BE DISALLOWED. 28. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT. 29. BEFORE US, THE AR REITERATED THE SUBMISSIONS AND FACTS AS MADE BEFORE THE REVENUE AUTHORITIES AND SUBMITTED THAT INCIDEN TAL EXPENSES HAD BEEN APPORTIONED THEREON. THE AR ALSO INFORMED THAT BEFORE THE REVENUE AUTHORITIES THE ASSESSEE HAD NOT CLAIMED DEPREC IATION ON SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 8 GOODWILL AND NON-COMPETE FEE, WHICH THE ASSESSEE WANTS TO CLAIM, BY WAY OF ADDITIONAL GROUNDS OF APPEAL, FILED BEFORE US. 30. THE DR SUPPORTED THE ORDER OF THE REVENUE AUTHORITIES. 31. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE DETAILS AS APPENDED IN THE APB. THE ACQUISITION OF THE MACHINERY FROM BILAG IS NOT DISPUTED, IT IS ALSO NOT DISPUTED THAT THE MACHINERY I S A CAPITAL ASSET AND WHATEVER EXPENSE IS INCURRED ON SUCH OUTLAY, IT SHALL BEAR THE CHARACTER OF CAPITAL AND ADDED TO THE COST. SINCE TH IS IS A FACT, THEN APPLYING THE RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIBA OF INDIA LTD. VS CIT, REPORTED IN 70 TAXMAN 505 (BOM), WHEREIN IT HAS BEEN HELD THIS BEING SO, THIS AMOUNT WOULD FORM PART OF TH E COST OF THE ASSESSMENT FOR THE PURPOSE OF DEPRECIATION 32. IN SUCH A CASE, THE ADDITIONAL DEPRECIATION, CLAIMED BY T HE ASSESSEE ON BILAG MACHINERY IS TO BE ALLOWED. WE ALSO ACCEP T THAT THE ACTION OF THE ASSESSEE DID NOT SUFFER FROM ANY INFIRMITY. 33. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE DEPRECIATION ON THE MACHINERY THAT HAD BE EN ACQUIRED FROM BILAG, AND ALSO INCLUDE INCIDENTAL EXPENSES INCURRED ON ACQUISITION OF ASSETS, AS LAID DOWN BY THE HONBLE BOMBAY H IGH COURT IN CIBA ( SUPRA ). THIS WOULD ALSO INCLUDE LEGAL AND PROFESSIONAL EXPENSES OF RS. 53,88,637/- AS INCIDENTAL EXPENSES, RAISED A S AN ADDITIONAL GOA. 34. GROUND NO. 3 IS THEREFORE, ALLOWED. 35. GROUND NO. 4 PERTAINS TO DISALLOWANCE OF PROFESSIONAL FEE OF RS. 23,74,987/- REIMBURSED TO SCCL FOR THE SERVICES PROVIDED BY E&Y, ON NON-DEDUCTION OF TAS. 36. THE ISSUE IS THAT PARENT COMPANY OF THE ASSESSEE, I.E. SCCL UNDERTOOK CERTAIN PROFESSIONAL SERVICES FROM E&Y AS A PAR T OF GLOBAL SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 9 REVIEW OF OPERATIONS OF ITS SUBSIDIARIES, WORLD WIDE. AGAINST TH IS GLOBAL EXERCISE, SCCL PAID TO E&Y, BUT WAS LATER ON RECOVERED FROM THE ASSESSEE. ON THIS PAYMENT TO SCCL, THE ALLEGATION PERTAIN S TO NON DEDUCTION OF TAS. 37. BEFORE THE REVENUE AUTHORITIES THE ASSESSEE SUBMITTE D THAT PAYMENT WAS MADE TO SCCL IN CONNECTION WITH THE SYSTE M AUDIT AS A PART OF GROUP POLICY TO REVIEW THE OPERATIONS OF ITS SUBS IDIARIES AROUND THE WORLD AND TO ENSURE THAT THE SUBSIDIARIES ADHERE T O THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES & STANDARDS LAID DOWN IN TH E GROUP POLICY. THE ASSESSEE SUBMITTED THAT SINCE THE SYSTEMS AU DIT WAS CONDUCTED FOR REVIEW OF THE ASSESSEES OPERATION, THE CO ST OF THE SAME SHALL BE BORNE BY THE ASSESSEE, AS DECIDED BY THE PAREN T COMPANY, AND THEREFORE, THE ASSESSEE REIMBURSED THE PAYMENT OF U SD 53,221 TO SCCL, BEING THE SHARE PERTAINING TO THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE TRANSACTION BETWEEN SCCL AND E&Y W AS ON PTP BASIS AND PLACING RELIANCE ON CIRCULAR NO. 726 DATED 18.10.1 995, THAT THE PAYMENT MADE BY A NON RESIDENT TO A RESIDENT PROFE SSIONAL ARE EXEMPT FROM TAS REQUIREMENT AND THEREFORE, PAYMENT MADE BY SCCL TO E&Y WAS NOT SUBJECT DEDUCTION OF TAS & CONSEQUENTL Y, THE PAYMENT MADE TO SCCL BY THE ASSESSEE BEING REIMBURSEMENT OF ITS SHARE ONLY, THEREFORE, THE ASSESSEE DID NOT DEDUCT TAS. 38. THE CIT(A) DID NOT ACCEPT THE ARGUMENTS OF THE ASSES SEE AND HELD THE SAME TO BE FAADE, BECAUSE, THE RESIDENT E&Y CO NDUCTED SYSTEMS AUDIT ON THE ASSESSEE, WHICH WOULD HAVE HAD THE ASSESSEES APPROVAL AND SIMPLY BECAUSE THE PAYMENT HAS BEEN ROUT ED THROUGH THE NON-RESIDENT PARENT, WOULD NOT ABSOLVE THE LIABILITY OF THE ASSESSEE FOR NON DEDUCTION OF TAS AND ALSO THE ASSESSEE CANNOT B E ALLOWED TO TAKE SHELTER OF CBDT CIRCULAR NO. 726 DATED 18.10.1995. 39. THE ASSESSEE IS NOW BEFORE THE ITAT. SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 10 40. BEFORE US, THE AR REITERATED THE SUBMISSIONS MADE BEF ORE THE REVENUE AUTHORITIES THAT THE PAYMENT MADE TO SCCL WAS SIMPLY IN THE NATURE OF REIMBURSEMENT & WITHOUT ANY PROFIT ELEMENT AND ALSO IT IS UNDISPUTED THAT THE EXPENSE WAS FOR THE PURPOSE OF BUS INESS AND PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS AKTIONGESELLSCHAFT, REPORTED IN 310 ITR 320 (BOM). 41. THE DR, HOWEVER PLACED RELIANCE ON THE ORDER OF THE R EVENUE AUTHORITIES AND ALSO THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THAT THERE WAS NO SUCH LEGAL REQUIREMENT FOR DEDUCTION OF TAS. 42. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE REVENUE AU THORITIES. THERE IS NO DOUBT THAT THE EXPENSE IS ALLOWABLE, BUT SINCE THE ALLOWABILITY OF THE EXPENSE IS DEPENDENT ON THE DEDUCTION OF TAS OR EXEMPTION THEREFROM, IS THE ONUS, ON THE ASSESSEE TO PRO VE THE CORRECT RELIANCE OF LEGAL PROVISIONS. FROM THE APB WE HAVE SEEN THA T THERE ARE INVOICES RAISED BY THE AUDIT PROFESSIONALS AND THERE UPON, REQUESTS TO THE PARENT COMPANY, TO MAKE THE PAYMENT TO E&Y AND B MR ASSOCIATES. BESIDES THESE, THERE IS NO EVIDENCE OR AGREEM ENT HAS BEEN SHOWN, AS TO WHO, HAS TO MAKE THE PAYMENT INITIALLY AND A LSO THAT THERE IS ANY CORRESPONDENCE BETWEEN THE ASSESSEE AND ITS PARENT FOR SUCH AN ARRANGEMENT. THESE DOCUMENTS ARE ESSENTIAL TO COME TO VIABLE CONCLUSION. SINCE WE ARE NOT PRIVY TO THESE DOCUMENTS, PRIMA FACIE , THE DECISION, IF, TAKEN EITHER WAY WOULD LEAD TO INCONSISTENCY. WE ARE, THEREFORE, OF A CONSIDERED OPINION THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THE AO BE DIRECTED TO TAKE DEFINITE VIEW, TAKING INTO CONSIDERATION THE FACTS AND IN ACCORDANCE WITH LAW. 43. GROUND NO. 4, THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 44. THE ASSESSEE HAD ALSO FILED ANOTHER ADDITIONAL GOA TO A LLOW DEPRECIATION ON GOODWILL AND NON COMPETE FEE. SUMITOMO CHEMICAL INDIA PRIVATE LIMITED ITA 3078/MUM/2012 11 45. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE A SSESSEE AND WE FIND THAT THE ISSUE OF GOODWILL STANDS COVERED BY T HE HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD REPORTE D IN 348 ITR 302, WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT INT ANGIBLES LIKE GOODWILL ARE ELIGIBLE FOR DEPRECIATION. 46. HOWEVER IN SO FAR AS NON COMPETE FEE IS CONCERNED, TH E NATURE OF THIS PAYMENT IS NOW COVERED U/S 28(VA) OF THE INCOME TAX ACT, 1961 HENCE, IT WOULD BE REVENUE IN NATURE. 47. WE, THEREFORE, DIRECT THE AO TO ALLOW THE DEPRECIATION O N GOODWILL AS PER LAW AND CONSIDER THE PAYMENT OF NON COMPETE FEE, IN TERMS OF SECTION 28(VA), TO CONSIDER TO ALLOW RS. 3,05,40,600/- AS REVE NUE EXPENDITURE. 48. THE APPEAL, AS FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MARCH, 2014. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 28 TH MARCH, 2014 / COPY TO:- 1) / THE ASSESSEE. 2) / THE RESPONDENT. 3) THE CIT (A)-15, MUMBAI 4) THE CIT-3, MUMBAI, 5) !'# $ % , & $ , '(% / THE D.R. K BENCH, MUMBAI. 6) #) * COPY TO GUARD FILE. &+,- / BY ORDER / / TRUE COPY / / . / / (0 & $ , '(% DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * CHAVAN