DCIT, circle-12(1), New Delhi V. Infrasoft Technologies Ltd., Mumbai

ITA 3475/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4725 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 10-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARUL SINGH SENIOR
• Keywords: Depreciation; Transfer pricing; International transaction; Question of law; Valuation report; Set aside
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.3475/DEL./2018 (ASSESSMENT YEAR : 2012-13) ITA NO.3850/DEL./2018 (ASSESSMENT YEAR : 2013-14) ITA NO.4330/DEL./2018 (ASSESSMENT YEAR : 2014-15) ITA NO.1637/DEL./2019 (ASSESSMENT YEAR : 2015-16) DCIT, CIRCLE 12 (1), VS. M/S. INFRASOFT TECHNOLOGIE S LTD., NEW DELHI. UNIT NO.86 & 87, SDF III, SEEPZ, SEZ, MIDC, ANDHERI EAST, MUMBAI 400 096 (MAHARASHTRA). (PAN : AAACB2817R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANISH SHAH, CA REVENUE BY : MS. PARUL SINGH, SENIOR DR DATE OF HEARING : 12.10.2020 DATE OF ORDER : 20.10.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : AFORESAID INTERCONNECTED APPEALS FILED BY THE REVEN UE CHALLENGING THE IMPUGNED ORDERS PASSED BY THE LD. C IT (A) BEARING ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 2 COMMON QUESTION OF LAW AND FACTS ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUS SION. 2. APPELLANT, DCIT, CIRCLE 12 (1), NEW DELHI (HEREI NAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEALS SOUGHT TO SET ASIDE THE IMPUGNED ORDERS DATED 27.02.2018, 15. 03.2018, 16.03.2018 & 26.12.2018 FOR ASSESSMENT YEARS 2012-1 3, 2013-14, 2014-15 & 2015-16 RESPECTIVELY PASSED BY THE COMMIS SIONER OF INCOME - TAX (APPEALS)-4, NEW DELHI ON THE IDENTIC AL GROUNDS EXCEPT THE DIFFERENCE IN AMOUNT OF DEPRECIATION CLA IMED BY THE ASSESSEE INTER ALIA THAT :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER IS WRONG IN DISALLOWING DEPRECIAT ION U/S 32 CLAIMED ON SELF VALUED, UNSUBSTANTIAL INTANG IBLES DECLARED AS CUSTOMERS CONTRACT & GOODWILL, WHER EAS NO SUCH BREAKUP WAS PART OF AGREEMENT WITH KPIT. 2. WHETHER THE CIT (A) HAS ERRED IN ALLOWING DEPRECIATION ON CLAIMED INTANGIBLE CUSTOMER CONTRA CT WHICH IS NOT COVERED IN THE DEFINITION OF INTANGIB LE ASSETS AS DEFINED IN EXPLANATION 3 TO SECTION 32 ( 1) OF THE IT ACT. 3. FOR THE SAKE OF BREVITY, WE ARE TAKING UP THE FACTS OF ITA NO.3475/DEL/2018 FOR AY 2012-13 TO DISPOSE OFF ALL THE FOUR APPEALS BEARING COMMON QUESTION OF LAW AND FACTS WH ICH ARE : ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 3 4. ASSESSEE COMPANY IS INTO THE BUSINESS OF SALE OF SOFTWARE LICENCE, SOFTWARE DEVELOPMENT AND OTHER SOFTWARE RE LATED SERVICES WHICH HAS ENTERED INTO INTERNATIONAL TRANSACTIONS B UT LD. TPO HAS NOT DRAWN ANY ADVERSE INFERENCE IN RESPECT OF THE I NTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. ASSESSING OFFICER (AO) NOTICED THAT DURING THE YEARS UNDER ASSESSMENT, ASS ESSEE HAS SHOWN ADDITION IN THE INTANGIBLE ASSETS IN GOODWILL AMOUN TING TO RS.6,52,80,577/- AND RS.10,89,00,000/- IN GOODWILL AND IN CUSTOMER CONTRACT AND CLAIMED SUBSTANTIAL DEPRECIAT ION THEREON. ASSESSEE WAS CALLED UPON TO FILE DETAILS OF THE SAI D INTANGIBLE ASSETS AND PROVE ALLOWABILITY OF DEPRECIATION CLAIMED. AS SESSEE FILED REPLY WHICH HAS BEEN EXTRACTED BY THE AO IN PARA 4 OF THE ASSESSMENT ORDER. DECLINING THE EXPLANATION OFFERE D BY THE ASSESSEE, AO PROCEEDED TO CONCLUDE THAT THE CLAIM O F THE ASSESSEE IN TRANSFERRING PART INVESTMENT AS INTANGIBLE ASSET S I.E. CUSTOMER CONTRACT AND GOODWILL WAS NOT JUSTIFIED AND THEREBY DISALLOWED DEPRECIATION CLAIMED BY THE ASSESSEE ON SUCH INTANG IBLE ASSETS AND FRAMED THE ASSESSMENT ACCORDINGLY. ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 4 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF APPEALS WHO HAS DELETED THE DISALLOWANCE OF DEPRECI ATION ON GOODWILL AND CUSTOMER CONTRACT MADE BY THE AO BY AL LOWING THE APPEALS. FEELING AGGRIEVED, THE REVENUE HAS COME U P BEFORE THE TRIBUNAL BY WAY OF FILING THE AFORESAID APPEALS. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEALS, GONE THROUGH THE DOCUMENTS RELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTEDLY, DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE HAS ACQUIRED CERTAIN BUSINESS INTEREST FRO M M/S. KPIT CUMMINS INFOSYSTEMS LTD. FOR A CONSIDERATION OF RS.19,02,00,000/- OUT OF WHICH AN AMOUNT OF RS.6,52 ,80,577/- AND RS.10,89,60,000/- HAS BEEN SHOWN AS GOODWILL AND CU STOMER CONTRACT RESPECTIVELY. IT IS ALSO NOT IN DISPUTE T HAT ASSESSEE HAS FURNISHED DETAIL OF AMOUNT OF RS.17.52 CRORES PAID DURING THE YEAR UNDER ASSESSMENT BASED ON THE VALUATION REPORT DATE D 21.08.2012 WHICH IS AS UNDER :- ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 5 SR.NO. ASSET AMOUNT (RS.) 1 CUSTOMER CONTRACTS 10,89,00,000 2 GOODWILL 6,52,80,577 3 COMPUTER EQUIPMENT 9,00,000 TOTAL 17,50,80,577 8. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS CLAIMED AFORESAID INVESTMENT IN TWO INTANGIBLE ASSETS AND C LAIMED DEPRECIATION THEREON. IT IS ALSO NOT IN DISPUTE TH AT THE AFORESAID INTANGIBLE ASSETS HAVE BEEN ACQUIRED BY THE ASSESSE E BY VIRTUE OF THE BUSINESS TRANSFER AGREEMENT DATED 24.06.2011 EN TERED INTO BETWEEN THE ASSESSEE AND M/S. KPIT CUMMINS INFOSYST EMS LTD. FOR ACQUIRING BFSI SOFTWARE SERVICES BUSINESS COMPR ISING TARGET CUSTOMER CONTRACTS, TARGET EMPLOYEES AND TARGET ASS ETS. 9. PERUSAL OF THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) SHOWS THAT THE ISSUE IN CONTROVERSY HAS BEEN THRASH ED IN ENTIRETY IN THE LIGHT OF THE LAW LAID DOWN BY THE HONBLE APEX COURT AND HONBLE DELHI HIGH COURT. AO HAS DISALLOWED GOODWI LL AND CUSTOMER CONTRACT MERELY ON THE BASIS OF SURMISES; THAT CONSIDERATION PAID ON ACCOUNT OF CUSTOMER CONTRACT AND GOODWILL HAS BEEN CLASSIFIED AS INTANGIBLE ASSETS JUST TO RE DUCE ITS TAX LIABILITY BY WRONGFULLY CLAIMING GOODWILL AND CUSTOMER CONTRA CT. ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 6 10. ASSESSEE HAS PURCHASED THE RUNNING BUSINESS OF M/S. KPIT CUMMINS INFOSYSTEMS LTD. FOR ACQUIRING ITS BANKING AND FINANCIAL SERVICES BUSINESS (BFSI) FOR A CONSIDERATION OF RS. 19,02,00,000/- AS PER VALUATION REPORT, AVAILABLE AT PAGES 87 TO 8 9 OF THE PAPER BOOK. VALUATION REPORT CONTAINS VALUE OF TANGIBLE AND INTANGIBLE ASSETS SEPARATELY AS IN THE BUSINESS OF BANKING AND FINANCIAL SOFTWARE BUSINESS, CONTRACTS AND THE PEOPLE ALONG W ITH A MARGINAL AMOUNT OF ASSETS IS CONSIDERED AS THE MAJOR COMPONE NT OF THE TRANSFER. FURTHERMORE, IN THE BUSINESS TRANSFER AG REEMENT, COMPLETE DETAIL OF SPECIFIED BSFI BUSINESS, TARGET ASSETS, T ARGET CUSTOMERS AND NAME OF THE TARGET CUSTOMERS ARE AVAILABLE AT P AGES 46 & 47 OF THE PAPER BOOK. 11. HONBLE SUPREME COURT IN CIT VS. SMIFFS SECURITIES LTD. (2012) 348 ITR 302 HELD THAT, GOODWILL IS AN ASSET UNDER EXPLANATION 3B TO SECTION 32 OF THE ACT AND IS ELIG IBLE FOR DEPRECIATION . 12. SO FAR AS DEPRECIATION OF CUSTOMER CONTRACTS IS CONCERNED, LD. AR FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON CUSTOMER CONTRACTS ALSO IN VIEW OF THE DECISION ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 7 RENDERED BY THE HONBLE DELHI HIGH COURT IN CASE OF AREVA T&D INDIA LTD. VS. DCIT (2012) 345 ITR 421 (DELHI) . 13. HONBLE DELHI HIGH COURT IN AREVA T&D INDIA LTD. (SUPRA) HAS HELD THAT WHEN GOODWILL IN BOOKS OF ACCOUNT COM PRISES INTER ALIA BUSINESS CLAIMS, BUSINESS INFORMATION, BUSINES S RECORDS, CONTRACTS, SKILLED EMPLOYEES & KNOWHOW HAS BEEN PUR CHASED FOR A CONSIDERATION TO ACQUIRE THE RUNNING BUSINESS, IT I S COMPARABLE TO A LICENCE TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR AND IN THE ABSENCE OF AF ORESAID INTANGIBLE ASSETS BUSINESS, ASSESSEE WOULD HAVE TO COMMENCE BU SINESS FROM SCRATCH. EFFECT OF ACQUIRING RUNNING BUSINESS WITH TANGIBLE AND INTANGIBLE ASSETS INCLUDING GOODWILL AND CUSTOMER C ONTRACTS ARE QUITE VISIBLE AS TURNOVER OF THE ASSESSEE HAS BEEN INCREASED FROM RS.18.32 CRORES TO RS.13.92 CRORES DURING THE YEAR UNDER ASSESSMENT. 14. DESPITE THE FACT THAT THE ASSESSEE HAS GIVEN TH E COMPLETE DETAILS OF AGREEMENT VIDE WHICH TANGIBLE AND INTANG IBLE ASSETS OF RUNNING BUSINESS OF M/S. KPIT CUMMINS INFOSYSTEMS L TD. WERE PURCHASED AS PER VALUATION REPORT, AO HAS DISALLOWE D THE ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 8 DEPRECIATION ON GOODWILL AND CUSTOMER CONTRACTS BY IGNORING THE SETTLED PRINCIPLE OF LAW THAT GOODWILL / CUSTOMER C ONTRACTS DULY RECORDED IN THE AUDITED FINANCIALS ARE ELIGIBLE FO R DEPRECIATION BEING INTANGIBLE ASSETS UNDER SECTION 32 (1)(II) O F THE ACT. 15. WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE AO BY FOLLOWIN G SETTLED PROPOSITION OF LAW DISCUSSED IN THE PRECEDING PARAS . FINDING NO ILLEGALITY OR PERVERSITY IN IMPUGNED ORDER PASSE D BY THE LD. CIT (A), APPEAL BEARING ITA NO.3475/DEL/2018 FILE D BY THE REVENUE IS HEREBY DISMISSED. 16. SINCE QUESTION OF FACT AND LAW RAISED IN APPEA LS BEARING ITA NOS.3850/DEL/2018, 4330/DEL/2018 & 1637/DEL/201 9 IS IDENTICAL VIS--VIS APPEAL BEARING ITA NO.3475/DEL/ 2018, THE SAME ARE ALSO DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 20 TH DAY OF OCTOBER , 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 20 TH DAY OF OCTOBER, 2020/TS ITA NOS.3475/DEL./2018 ITA NOS.3850/DEL./2018 ITA NOS.4330/DEL./2018 ITA NOS.1637/DEL./2019 9 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-4, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.