IL & FS INVESTMENT MANAGERS LTD, MUMBAI V. ACIT 10(1), MUMBAI

ITA 3148/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79056 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 03-06-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 22-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DILIP V LAKHANI
• Keywords: Depreciation; Additional evidence; Valuation report
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NOS. 3146, 3147, 3148 & 5466/MUM/2010 ASSESSMENT YEARS: 2003-04, 2004-05, 2005-06 & 200 6-07 IL & FS INVESTMENT MANAGERS LTD. THE IL & FS FINANCIAL CENTER, 9 TH FLOOR, PLOT NO. C-22, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 VS. ACIT -10(1) MUMBAI. (APPELLANT) (RESPONDENT) ITA NOS. 2693, 2694, 2695 & 5796/MUM/2010 ASSESSMENT YEARS: 2003-04, 2004-05, 2005-06 & 200 6-07 ACIT -10(1) MUMBAI. VS. IL & FS INVESTMENT MANAGERS LTD. THE IL & FS FINANCIAL CENTER, 9 TH FLOOR, PLOT NO. C-22, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :-AAACI 4829 C ASSESSEE BY : SHRI DILIP V. LAKHANI REVENUE BY : SHRI SANJEEV JAIN DATE OF HEARING : 03.06.2014 DATE OF PRONOUNCEMENT : 03.06.2014 O R D E R PER BENCH:- THERE ARE EIGHT APPEALS, FOUR APPEALS FILED BY THE ASSESSEE AND FOUR APPEALS FILED BY THE REVENUE, THE DETAILS OF WHICH ARE AFOR EMENTIONED IN THE SHORT CAUSE TITLE. SINCE COMMON ISSUES ARE INVOLVED IN ALL THES E APPEALS, THE SAME ARE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. ITA NOS. 3146, 3147, 3148 & 5466/MUM/2010 ITA NOS. 2693, 2694, 2695 & 5796/MUM/2010 IL & FS INVESTMENT MANAGERS LTD ASSESSMENT YEARS: 2003-04, 2004-05, 2005-06 & 200 6-07 2 2. THE COMMON ISSUE INVOLVED IN THE ASSESSEES APPE AL PERTAINS TO THE ALLOWABILITY OF DEPRECIATION ON THE VALUE OF GOODWI LL AMOUNTING TO RS.82.30 LAKHS. THE RELEVANT FACTS ARE THAT THE ASSESSEE VIDE TRANS FER AGREEMENT DATED 12 TH APRIL, 2002 HAD PURCHASED ASSETS I.E., BUSINESS FROM ITS A SSOCIATE CONCERN. AFTER THE PURCHASE/TRANSFER OF THE BUSINESS ASSET, THE ASSESS EE HAD CLAIMED THE DEPRECIATION @ 25% OF 11.13 CRORES, BEING THE VALUE FOR ASSET MA NAGEMENT RIGHTS/INTANGIBLE ASSETS WHICH INCLUDED THE CLAIM OF DEPRECIATION ON THE VALUE OF GOODWILL AMOUNTING TO RS.82.30 CRORES ON THE BASIS OF THE VALUATION RE PORT FROM M/S. SSPA & COMPANY OBTAINED BY THE ASSESSEE. IN THE ASSESSMENT FRAMED, THE AO WHILE NOT ACCEPTING THE VALUATION REPORT FILED BY THE ASSESSEE, REJECTED TH E CLAIM OF DEPRECIATION. ON APPEAL, LD.CIT(A) WHILE ACCEPTING THE VALUATION REPORT, HAS DENIED THE DEPRECIATION ON GOODWILL FOR THE REASON THAT GOODWILL IS NOT LI STED IN THE SIX ITEMS MENTIONED, NAMELY KNOW-HOW, PATENT, COPYRIGHTS, TRADEMARKS, LI CENSES, FRANCHISES, IN CLAUSE (II) OF SECTION 32(1). ACCORDING TO THE LD.CIT(A), THE A SSET GOODWILL WAS NOT A BUSINESS OR COMMERCIAL RIGHTS SIMILAR IN NATURE TO SIX ITEMS MENTIONED IN CLAUSE (II) OF SECTION 32(1) OF THE ACT. THEREFORE, THE CONSIDERATION PAID BY THE ASSESSEE AT RS.82.30 LAKHS AS VALUED BY THE VALUER WAS NOT ELIGIBLE FOR DEPREC IATION. 3. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD ON THE ISSUE OF ALLOWABILITY OF DEPRECIATION ON GOODWILL, IT IS PERTINENT TO MENTION THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. [ 2012] 24 TAXMANN.COM 222 (SC) HAS HELD THAT EXPLANATION 3 TO SECTION 32 STATES TH AT THE EXPRESSION ASSET SHALL MEAN INTANGIBLE ASSET BEING KNOW-HOW, COPYRIG HTS, TRADE MARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS ARE COMMERCIAL RIG HTS OF SIMILAR NATURE. THE WORDS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE STATED IN EXPLANATION 3 INCLUDES THAT GOODWILL WOULD FALL UNDER THE EXPRE SSION ANY OTHER BUSINESS OF COMMERCIAL RIGHTS OF A SIMILAR NATURE. FURTHER, T HE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRETING THE SAID EX PRESSION WHICH FIND PLACE IN EXPLANATION 3(B). CONSEQUENTLY, GOODWILL IS AN AS SET UNDER THE EXPLANATION 3(B) TO SECTION 32(1) AND ELIGIBLE FOR THE DEPRECIATION. IN VIEW OF THIS SETTLED LEGAL POSITION, WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) IS NOT JUSTIFIED IN DENYING THE BENEFIT OF DEPRECIATION CLAIMED BY THE ASSESSEE ON THE GOODWILL. ACCORDINGLY, WE ITA NOS. 3146, 3147, 3148 & 5466/MUM/2010 ITA NOS. 2693, 2694, 2695 & 5796/MUM/2010 IL & FS INVESTMENT MANAGERS LTD ASSESSMENT YEARS: 2003-04, 2004-05, 2005-06 & 200 6-07 3 DIRECT THE AO TO ALLOW CLAIM OF DEPRECIATION ON THE GOODWILL IN ALL THE FOUR ASSESSMENT YEARS IN WHICH THE SAID ISSUE IS INVOLVE D. 4. GROUNDS NO. 4 & 5 IN THE ASSESSEES APPEAL FOR T HE ASSESSMENT YEAR 2004-05 AND 2005-06 RELATE TO THE DISALLOWANCE U/S 14A READ WITH RULE 8D WHICH ARE NOT PRESSED BY THE ASSESSEE AND GROUND NO. 6 IN THE SAI D APPEALS ARE CONSEQUENTIAL IN NATURE. THUS GROUNDS NO. 4, 5 AND 6 IN THE ASSESSEE S APPEALS FOR THE ASSESSMENT YEAR 2004-05 AND 2005-06 ARE DISMISSED AS THE SAME DO NOT REQUIRE ANY ADJUDICATION. 5. THE COMMON ISSUE INVOLVED IN ALL THE APPEALS FIL ED BY THE REVENUE IS PERTAINING TO THE ADMISSION OF FRESH VALUATION REPO RT AS ADDITIONAL EVIDENCE UNDER RULE 46A BY THE LD.CIT(A). THE REVENUE HAS AGITATED THE SAME ON THE GROUND THAT THE SAID EVIDENCE WAS NOT IN EXISTENCE AT ALL TILL THE DATE OF ASSESSMENT, BUT CONSTRUCTED AT A LATER DATE TO SUPPORT THE CLAIM OF THE ASSESSEE. FURTHER, THE REVENUE HAS CHALLENGED THE DECISION OF THE LD.CIT(A ) IN ACCEPTING THE VALUATION OF GOODWILL AS PER REPORT OF MS. SSPA & COMPANY. IN TH IS CONNECTION, IT IS PERTINENT TO MENTION THAT THE ASSESSEE CLAIMED THE TOTAL DEPRECI ATION ON INTANGIBLE ASSET AS PER THE BUSINESS TRANSFER AGREEMENT, THE VALUE OF WHICH IS AT 11.13 CRORES. THIS VALUATION INCLUDES THE VALUATION OF GOODWILL ALSO. EVEN IF THE VALUATION REPORT VALUING THE GOODWILL IS NOT ACCEPTABLE, THEN ALSO THE ASSES SEE IS ENTITLED TO CLAIM THE DEPRECIATION ON THE TOTAL VALUE OF INTANGIBLE ASSET S INCLUDING THE VALUATION OTHERWISE DONE ON GOODWILL. THE MERE DEVALUATION OF THE GOODW ILL, AS CONTENDED/PROPOSED BY THE REVENUE, WILL NOT, IN ANY WAY, REDUCE THE CLAIM OF DEPRECIATION, AS THE ASSESSEE IS ENTITLED @ 25% ON THE TOTAL VALUE OF THE INTANGI BLE ASSETS VALUED AT RS.11.13 CRORES. NO NEED TO FURTHER EMPHASIS THAT THE ASSESS EE IS ENTITLED FOR THE DEPRECIATION ON THE GOOD WILL ON THE SAME RATE @ 25%. THEREFORE, CONTESTING THE VALIDITY OF THE VALUATION REPORT IN THE LIGHT OF OUR DECISION ALLOW ING THE CLAIM OF DEPRECIATION OF GOODWILL AS AFOREMENTIONED, THE ADJUDICATION OF THE SE GROUNDS RAISED BY THE REVENUE IN ALL THE APPEALS BECOMES ACADEMIC IN NATURE AND T HUS THE SAME ARE DISMISSED. 6. IN GROUND NO. 3, THE REVENUE, IN ITS APPEAL FOR THE ASSESSMENT YEAR 2005-06 HAS AGITATED THE DECISION OF THE LD.CIT(A) IN DELET ING THE DISALLOWANCE OF EMPLOYEES ITA NOS. 3146, 3147, 3148 & 5466/MUM/2010 ITA NOS. 2693, 2694, 2695 & 5796/MUM/2010 IL & FS INVESTMENT MANAGERS LTD ASSESSMENT YEARS: 2003-04, 2004-05, 2005-06 & 200 6-07 4 CONTRIBUTION TO PROVIDENT FUND AMOUNTING TO RS.5,28 ,983/-. IT IS PERTINENT TO MENTION THAT IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS M ADE THE PAYMENTS AFTER THE DUE DATE OF PAYMENT BUT THE SAID PAYMENT HAS BEEN PAID WITHIN THE GRACE PERIOD. THE DECISIONS OF VARIOUS COURTS AND TRIBUNALS HAVE HELD THAT THE PAYMENT MADE WITHIN THE GRACE PERIOD IS HELD TO BE MADE WITHIN THE DUE DATE. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WIT H THE DECISION OF THE LD.CIT(A) ON THIS COUNT AND THE SAME IS UPHELD. RESULTANTLY, THE GROUND RAISED BY THE REVENUE IN THIS REGARD IS DISMISSED. 7. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AND THAT OF THE REVENUE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF JUNE, 2014. SD/- SD/- (D. KARUNAKARA RAO) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 03.06.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.