M/s. Inditrade Capital Ltd(Formerly known as JRG Securities Ltd), Cochin V. The ACIT, Cochin

ITA 326/COCH/2015

• Counselvise Citation: 32621914 RSA 2015
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 03-06-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHANTAM BOSE
• Assessee Lawyers: ANEESH VISWANATHAN
• Keywords: Depreciation; Opportunity of being heard
• Section: 143(3); 263

Judgement Text

ITA NO. 326/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & GEORGE GEORGE.K , JM ITA NO . 326/COCH/2015 (ASST YEAR 2010 - 11 ) INDITRADE CAPITAL LTD (FORMERLY KNOWN AS JRC SECURITIES LTD) XXXVI - 202 JJ COMPLEX DAIRY METHANAM ROAD E DAPALLY KOCHI 682 024 VS THE ASST COMMR OF INCOME CIRCLE 1(2), KOCHI ( APP ELLANT ) (RESPONDENT) PAN NO. AAACJ7327G ASSESSEE BY SH ANEESH VISWANATHAN REVENUE BY SHRI SHANTAM BOSE, CIT - DR DATE OF HEARING 17 TH SEPT 2015 DATE OF PRONOUNCEMENT 21 ST SEPT 2015 OR D ER PER GEORGE GEORGE.K JM : THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE CITS ORDER DATED 30.3.2015 PASSED U/S 263 OF THE I T ACT. THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. 2 THE GROUNDS RAISED READ AS FOLLOWS: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT HAS ERRED IN DISALLOWING AN AMOUNT OF RS. 1 ,2 5 , 00,000 BEING DEPRECIATION CLAIMED ON NON - COMPE TE FEE UNDER 32(1)(II) OF THE I T ACT, 1961 WITHOUT CONSIDERING THE DETAILED SUBMISSIO NS AND JUDICIAL PRECEDENTS QUOTED BY THE APPELLANT. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT HAS ERRED IN DISALLOWING THE DEPRECIATION CLAIMED ON NON - COMP E TE FEE ITA NO. 326/C/2015 2 WITHOUT EVALUATING THE TRUE NATURE OF SUCH EXPENSE AND ITS DEDUCTIBILITY UNDER THE ACT. 3 THE BRIEFLY STATED FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A BROKER IN NATIONAL STOCK EXCHANGE. FOR THE RELEVANT ASSESSMENT YEAR , THE RETURN OF INCOME WAS F I LED ON 14.10.2010 DECLARING AN INCOME OF RS. 3,39,35,400/ - . THE ASSESSMENT WAS PICKED UP FOR SCRUTINY BY ISSUING NOTICE U/S 142(2) ON 29.8.2011 AND THE SCRUTINY ASSESSMENT U/S 143(3) WAS COMPLETED VIDE ORDER DATED 14.3.2013 DETERMINING A TOTAL INCOME OF RS. 4,17,01,442/ - . 4 SUBSEQUENT LY, THE CIT ISSUED NOTICE DATED 10.3.2015 FOR SETTING ASIDE THE ASSESSMENT ORDER BY INVOKING HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT. THE ASSESSEE FILED REPLY DATED 26.3.2015. THE REASON FOR THE CIT TO ISSUE NOTICE WAS THAT THE ASSESSEE HAD MADE AN ADDITION OF RS. 5 CRORES TOWARDS NON - COMPETE FEE AND CLAIMED DEPRECIATION @ 25% AMOUNTING TO RS. 1,25,00,000/ - WHICH WAS ALLOWED IN THE SCRUTINY ASSESSMENT COMPLETED ON 14.3.2015. ACCORDING TO CIT , NON - COMPETE FEE IS CAPITAL NATURE AND DOES NOT REPRESE NTS ANY INTANGIBLE ASSETS MENTIONED IN SECTION 32(1)(II) OF THE INCOME TAX ACT 1961 AND HENCE, THE DEPRECIATION ON THE SAME CANNOT BE ALLOWED . THE OBJECTIONS RAISED BY THE ASSESSEE VIDE LETTER DATED 26.3.2015 WAS REJECTED AND THE CIT DIRECTED THE AO TO R E - DO THE ASSESSMENT BY DISALLOWING THE DEPRECIATION CLAIMED ON NON - COMPETE FEE. THE RELEVANT OBSERVATIONS OF THE CIT AT PARA 4.1 AND 5 OF HIS ORDER READ AS UNDER: ITA NO. 326/C/2015 3 4 . 1 THE LD. AR , IN H I S REPLY DATED 26 . 03 . 2015 , OPPOSED PROPOSAL QUOT I NG VARIOUS CASE LAW S OF DIFFERENT COU R TS . THE CASE LAWS QUOTED WERE EXAMINED AND FOUND TH A T THE DECISION IN THE CASE OF SHARP BUSINESS SYSTEM SYSTEMS VS . CIT ( 2012 ) WHICH I S A RECENT JUDGMENT SQUARELY APPLIES IN THE CASE OF THE ASSESSEE . AS SUCH THE NON - COMPETENT FEE PAID BY T HE ASSESSEE IS CAPITAL IN NATURE WHICH COULD NOT CREATE AN ASSET OF INTANGIBLE NATURE ELIGIBLE FOR DEPRECIATION U/S 32(1) OF THE IT ACT . 5 . IN THE LIGHT OF THE ABOVE , BY INVOKING THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT , 1961 , THE ASSESSMENT OR DER DATED 14.03 . 2013 IS SET ASIDE AS IT I S PREJUDICIAL TO THE INTEREST OF REVENUE AND I DIRECT THE ASSESSING OFFICER TO DO REASSESSMENT BY INCORPORATING THE ABOVE DIRECTION AND PASS A FRESH ASSESSMEN T ORDER .. 5 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE RELIED ON THE LATEST JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS INGERSOLL RAND INTERNATIONAL IND. LTD., REPORTED IN (2014) 48 TAXMANN.COM.349 (KARNATAKA) AND SUBMITTED THAT THE HONBLE KARNATAKA HIGH COURT HAS CONSIDERED IDENTICAL ISSUE AND HELD THAT NON - COMPETE FEE IS A INTANGIBLE ASSET MENTIONED IN THE CATEGORY OF ASSETS U/S 32(1)(II) AND DEPRECIATION IS TO BE ALLOWED ON THE SAME. 6 ON THE OTHER HAND, THE LD DR RELIED ON THE O RDER OF THE CIT AND THE JUDGMENT OF THE HONBLE DELHI HIGH COURT , REFERRED IN CITS ORDER WHICH ACCORDING TO HIM IS ELABORATE AND CATEGORIC. 7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ON A QUERY FROM THE BENCH, THE LD AUTHORIZED REPR ESENTATIVE FOR THE ASSESSEE FAIRLY SUBMITTED THAT THE ISSUE WHETHER NON COMPETE FEE IS AN ASSET ON WHICH DEPRECIATION CAN ITA NO. 326/C/2015 4 BE CLAIMED WAS NEVER THE SUBJECT MATTER OF EXAMINATION BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS NOR WAS THE SAME DISCUSSED IN THE ASSESSMENT ORDER. THEREFORE, THE ORDER OF THE AO DATED 14.3.2013 WHICH LACK ENQUIRY ON TH IS ISSUE HAS BEEN RIGHTLY INTERFERED BY THE CIT BY INVOKING HIS POWERS U/S 263 OF THE ACT 8 HOWEVER , WE NOTICE THAT WHILE SETTING ASIDE THE ASSESSMENT ORDER THE CIT HAS SPECIFICALLY DIRECTED THE AO TO DISALLOW THE DEPRECIATION ON CON - COMPETE FEE. THE CIT HAS REFERRED TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEMS REPORTED IN 254 CTR 23 . THE SPECIFIC DIRECTION OF THE C IT TO AO TO DISALLOW THE DEPRECIATION IS UNWARRANTED . THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF INGERSOLL RAND INTERNATIONAL IND. LTD (SUPRA) WAS NEVER BROUGHT TO THE NOTICE OF THE CIT IN THE COURSE OF REVISIONARY PROCEEDINGS. T HEREFORE, IN THE INTEREST OF JUSTICE AND EQUITY , WE DEEM IT APPROPRIATE TO DIRECT THE AO TO RE - DO THE ASSESSMENT , UNTRAMMELED BY OBSERVATIONS OF THE CIT VIZ TO DISALLOW THE DEPRECATION CLAIMED ON NON COMPETE FEE. THE AO SHALL RE - DO THE ASSESSMENT IN AC CORDANCE WITH LAW AFTER CONSIDERING ALL THE JUDICIAL PRECEDENTS ON THE SUBJECT. NEEDLESS TO SAY THAT THE ASSESSEE SHALL BE ALLOWED REASONABLE OPPORTUNITY OF BEING HEARD BEFORE THE ASSESSMENT IS REFRAMED. IT IS ORDERED ACCORDINGLY. WITH THE ABOVE OBSERVA TIONS, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ITA NO. 326/C/2015 5 9 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF SEPT 2015 . SD/ - SD/ - ( B P JAIN ) (GEORGE GEORGE .K ACCOUNTANT MEMBER JUDICIAL MEMBER COCHI N: DATED 21 ST SEPT 2015 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN