Alstom T & D India Limited, V. ACIT, New Delhi

ITA 3536/DEL/2009

• Counselvise Citation: 353621714 RSA 2009
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 11-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: L V SRINIVASAN ITD OF COMPANY
• Keywords: Depreciation; Scheme of amalgamation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NOS. 3536 & 3537/DEL/2009 (ASSESSMENT YEARS : 2003-04 & 2005-06) M/S ALSTOM T&D INDIA LTD. (ERSTWHILE AREVA T&D INSTRUMENT TRANSFORMERS INDIA PRIVATE LTD.), FSSC BUILDING, 19/1, GST ROAD, PALLAVARAM, CHENNAI - 600 043. PAN : AACCA 8622 R (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), NEW DELHI. (RESPONDENT) APPELLANT BY : SHRI L.V. SRINIVASAN, ITD OF ASSESSEE-COMPANY RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 10.09.2013 DATE OF PRONOUNCEMENT : 26.09.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE ASSESSEE, DIRECTED AGAINST ORDERS DATED 14.5.2009 AND 15.5.2009 OF COMMISSIONE R OF INCOME TAX (APPEALS) IV, DELHI. I.T.A. NOS. 3536 & 3537/MDS/09 2 2. APPEAL FOR ASSESSMENT YEAR 2003-04 IS TAKEN UP F IRST FOR DISPOSAL. 3. ASSESSEE HAS RAISED FOUR GROUNDS IN TOTAL, OF SU CH, GROUND NO.4 IS GENERAL NEEDING NO ADJUDICATION. 4. GROUND NO.1 OF THE ASSESSEE ASSAILS DISALLOWANCE OF PROVISION FOR WARRANTIES ` 1,12,97,047/-. 5. LEARNED A.R. FAIRLY ADMITTED THAT THIS ISSUE STO OD COVERED AGAINST ASSESSEE BY VIRTUE OF AN ORDER OF THIS TRIB UNAL FOR ASSESSMENT YEAR 2001-02 AS WELL AS 2002-03. COPIES OF TRIBUNA L ORDERS IN I.T.A. NO. 2035/MDS/2005 AND I.T.A. NO. 2247/MDS/2005 DATE D 16 TH MAY, 2007 AND 3 RD NOVEMBER, 2008 RESPECTIVELY, WERE PLACED ON RECORD . SINCE ADMITTED POSITION IS THAT THE ISSUE IS COVERE D AGAINST ASSESSEE BY THE ORDERS OF THIS TRIBUNAL FOR ASSESSMENT YEARS 2001-02 AND 2002-03 ON SIMILAR FACTS, THIS GROUND OF THE ASSESS EE STANDS DISMISSED. 6. WHEN GROUND NO.2 IS TAKEN UP, LEARNED A.R. SUBMI TTED THAT HE WAS NOT PRESSING IT. GROUND NO.2 IS THEREFORE DISM ISSED AS NOT PRESSED. I.T.A. NOS. 3536 & 3537/MDS/09 3 7. VIDE ITS GROUND NO.3, ASSESSEE ASSAILS DISALLOWA NCE OF DEPRECIATION ON GOODWILL. 8. FACTS APROPOS ARE THAT ASSESSEE HAD, DURING THE FINANCIAL YEAR 2000-01, ACQUIRED NET ASSETS RELATING TO PC DIVISIO N OF ONE M/S WS INDUSTRIES (INDIA) LTD. AND BUSHINGS DIVISION OF ON E M/S SSB INDUSTRIES LTD. THE DIFFERENCE BETWEEN CONSIDERATI ON PAID AND VALUE OF NET ASSETS TAKEN OVER, WAS TREATED BY THE ASSESS EE AS GOODWILL. THE AMOUNT WHICH WAS CLAIMED AS GOODWILL WAS ` 14,30,03,287/-. ASSESSEE TREATED IT AS DEFERRED REVENUE EXPENDITURE AND AMORTIZED SUCH SUM IN ITS BOOKS THROUGH A FIVE YEAR PERIOD. CLAIM OF AMORTIZATION WHICH WAS MADE BY THE ASSESSEE FOR THE FIRST TIME IN ASSESSMENT YEAR 2001-02, WAS NOT ALLOWED BY THE ASS ESSING OFFICER. ASSESSEE THEREAFTER MOVED IN APPEAL BEFORE CIT(APPE ALS). LD. CIT(APPEALS) HELD THAT ASSESSEES CLAIM FOR AMORTIZ ATION OF GOODWILL COULD NOT BE ALLOWED. HOWEVER, LD. CIT(APPEALS) HE LD THAT ITS ALTERNATE CLAIM OF DEPRECIATION ON THE GOODWILL AMO UNT COULD BE CONSIDERED. THE ISSUE OF DEPRECIATION WAS SENT BAC K TO THE ASSESSING OFFICER FOR ALLOWING THE CLAIM AFTER EXAM INING WHETHER THE OUTGO WAS ACTUALLY FOR ACQUIRING ANY GOODWILL. FOR THE IMPUGNED I.T.A. NOS. 3536 & 3537/MDS/09 4 ASSESSMENT YEAR ALSO, ASSESSING OFFICER FOLLOWING H IS OWN ORDER FOR 2001-02, DECLINED TO ALLOW THE CLAIM OF AMORTIZATIO N OF GOODWILL. 9. ASSESSEE MOVED IN APPEAL BEFORE CIT(APPEALS) CLA IMING THAT IF AMORTIZATION WAS NOT ALLOWED, THEN DEPRECIATION HAD TO BE ALLOWED. LD. CIT(APPEALS) WAS OF THE OPINION THAT THE GOODWI LL THOUGH AN INTANGIBLE ASSET, COULD NOT BE TREATED ON PAR WITH KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSES, FRANCHISES OR OTH ER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THUS, ACCORDI NG TO HIM, DEPRECIATION ON GOODWILL COULD NOT BE ALLOWED. HE DID NOT FOLLOW THE DIRECTIONS GIVEN BY HIS PREDECESSOR FOR ASSESSMENT YEAR 2000-01. 10. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT ASSE SSEE HAD ACQUIRED DIVISIONS OF ONE M/S WS INDUSTRIES (INDIA) LTD. AND ONE M/S SSB INDUSTRIES LTD. IN FINANCIAL YEAR 2000-01. ACC ORDINGLY, WHOLE OF THE ASSETS OF THE SAID DIVISIONS WERE TAKEN OVER. THOUGH IT WAS AN ITEMISED PURCHASE, ACCORDING TO HIM, WHAT WAS REALL Y PAID OVER AND ABOVE THE VALUE OF THE ASSETS COULD ONLY BE CONSIDE RED AS GOODWILL. RELYING ON THE DECISION OF HON'BLE APEX COURT IN TH E CASE OF CIT V. SMIFS SECURITIES LTD. (CIVIL NO.5961 OF 2012 DATED 22 ND AUGUST, 2012), LEARNED A.R. SUBMITTED THAT THE DISTINCTION BETWEEN A GOODWILL ACQUIRED AS SUCH AND A GOODWILL COMING TO THE BOOKS AS A RESULT OF A I.T.A. NOS. 3536 & 3537/MDS/09 5 SCHEME OF AMALGAMATION STOOD OBLITERATED BY THE ABO VE DECISION OF HON'BLE APEX COURT. ACCORDING TO HIM, IRRESPECTIVE OF THE NATURE OF THE ORIGIN OF THE GOODWILL, DEPRECIATION HAD TO BE ALLOWED CONSIDERING IT TO BE A COMMERCIAL ASSET. FURTHER, ACCORDING TO HIM, THE FACT THAT ASSESSEE HAD ACQUIRED THE DIVISIONS IN ASSESSMENT Y EAR 2000-01 WAS NOT DISPUTED. IN THE NOTES ON ACCOUNTS IT WAS CLEARLY MENTIONED THAT THE DIFFERENCE BETWEEN THE CONSIDERATION PAID AND THE VALUE OF ASSETS TAKEN OVER WAS TREATED AS GOODWILL. WHAT WA S TAKEN OVER BY THE ASSESSEE, ACCORDING TO LEARNED A.R., WAS NOT ON LY THE ASSETS BUT ALSO THE EMPLOYEES. ALL THE CONTRACTS OF THE DIVIS IONS, WHICH WERE TAKEN OVER HAD TO BE HONOURED BY THE ASSESSEE. JUS T BECAUSE GOODWILL RESULTED OUT OF AN AGREEMENT BY VIRTUE OF WHICH A DIVISION AS SUCH WAS ACQUIRED, BASED ON AN ITEMISED STRUCTURING OF ASSETS, WOULD NOT MAKE IT INELIGIBLE FOR CLAIMING OF DEPRECIATION . ACCORDING TO HIM, ORIGINAL AGREEMENTS ENTERED WERE BETWEEN ALSTOM T&D SA WITH M/S WS INDUSTRIES (INDIA) LTD. AND ALSTOM T&D SA WITH M /S SSB INDUSTRIES LTD., BUT, LATER THROUGH SUPPLEMENTARY A GREEMENTS, ASSESSEE WAS NOMINATED BY ALSTOM INSTRUMENT T&D SA IN ITS PLACE. 11. PER CONTRA, LEARNED D.R. SUBMITTED THAT THE GOO DWILL HERE WAS NOT THE RESULT OF ANY AMALGAMATION SANCTIONED BY AN Y COURT. I.T.A. NOS. 3536 & 3537/MDS/09 6 ASSESSEE HAD MADE AN ITEM WISE PURCHASE OF ASSETS. ASSESSEE NEVER PRODUCED ANY RECORDS TO SHOW HOW THE SO-CALLE D GOODWILL AMOUNT WAS ARRIVED AT. ACCORDING TO HIM, THOUGH AS SESSEE WAS NOMINATED BY ALSTOM T&D SA VIS--VIS ITS AGREEMENT WITH M/S WS INDUSTRIES (INDIA) LIMITED, NO SUCH NOMINATION FOR THE AGREEMENT ENTERED WITH M/S SSB INDUSTRIES LTD. WAS ON RECORD. LEARNED D.R., CONTINUING HIS ARGUMENTS, SUBMITTED THAT IN THE CAS E OF SMIFS SECURITIES LTD. (SUPRA), GOODWILL AROSE ON AN AMALG AMATION, WHICH WAS DONE AS PER A SCHEME SANCTIONED BY THE HIGH COU RT. RELYING ON THE DECISION OF PANAJI BENCH OF THIS TRIBUNAL IN TH E CASE OF CHOWGULE & CO. (P.) LTD. V. ACIT (131 ITD 545), LEARNED D.R . SUBMITTED THAT UNLESS A PAYMENT WAS MADE FOR ACQUIRING A GOODWILL AND UNLESS GOODWILL AS A NOMINAL HEAD OF ACCOUNT APPEARED IN T HE BOOKS OF THE SELLING COMPANY, IT COULD NOT BE PRESUMED THAT ANY PAYMENT WAS MADE BY THE ASSESSEE FOR GOODWILL. IN THE PRESENT CASE, ASSESSEE HAD PURCHASED ITEMS BASED ON THE ASSET VALUES AND E XCESS PAYMENT, IF ANY, COULD NOT BE CONSTRUED AS GOODWILL . FURTHER, ACCORDING TO HIM, EVEN FOR ASSESSMENT YEAR 2001-02, A CLEAR DIRECTION WAS GIVEN BY THE CIT(APPEALS) TO THE A.O. FOR VERIFYING THE FACTS BEFORE ALLOWING DEPRECIATION. I.T.A. NOS. 3536 & 3537/MDS/09 7 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT THE CLAIM OF DEPRECIATION ON GOODWILL IS EMANATING FROM THE TRANSACTION OF ACQUISITION OF A DIVISION OF M/S WS INDUSTRIES (INDIA) LTD. AND A DIVISION OF M/S SSB I NDUSTRIES LTD. IN FINANCIAL YEAR 2000-01. ASSET PURCHASE AGREEMENT E NTERED BY M/S ALSTOM T&D SA WITH THESE TWO COMPANIES HAVE BEEN PL ACED ON RECORD AT PAPER-BOOK PAGES 1 TO 49 AND 50 TO 97 RES PECTIVELY. PARA 4.1 OF THE ASSET PURCHASE AGREEMENT ENTERED WITH M/ S WS INDUSTRIES (INDIA) LTD., CLEARLY MENTIONS THAT ASSESSEE WAS PU RCHASING THE ASSETS OF A DIVISION CALLED PC DIVISION OF M/S WS I NDUSTRIES (INDIA) LTD. BY WAY OF AN ITEMISED SALE. THERE IS NOTHING ON RECORD TO SHOW HOW THE SUM OF ` 14,30,03,287/- CLAIMED BY THE ASSESSEE AS GOODWILL, HAD COME INTO THE ACCOUNTS OR HOW IT WAS WORKED OUT. ONCE AN ASSESSEE HAS PAID MORE THAN WHAT IS THE VAL UE OF AN ASSET, WHILE ACQUIRING A DIVISION OF ANOTHER COMPANY, THEN , IF SUCH EXCESS PAYMENT IS NOT ALLOWED ON THE REVENUE HEAD, IT HAS TO BE EITHER TREATED AS THE COST OF ASSET PURCHASED OR AS GOODWI LL. IN OUR OPINION, THERE CANNOT BE ANY QUESTION ON THIS ASPECT. HOWEV ER, WHEN IT IS AN ITEMISED PURCHASE OF ASSETS, WHETHER IT CAN BE CONS IDERED AS A GOODWILL OR IT HAS TO BE CONSIDERED AS COST OF THE ASSET AS SUCH CAN BE SEEN ONLY BY MAKING A COMPARISON OF THE COST OF EACH ASSET AND I.T.A. NOS. 3536 & 3537/MDS/09 8 ACTUAL CONSIDERATION PAID FOR THAT. AGREEMENT HAS TO BE UNDERSTOOD IN ITS ENTIRETY BEFORE COMING TO A CONCLUSION AS TO THE NATURE OF THE AMOUNT PAID IN EXCESS OF THE VALUE OF EACH ASSET CA N BE ARRIVED AT. NO DOUBT, IN THE DECISION OF HON'BLE APEX COURT IN THE CASE OF SMIFS SECURITIES LTD. (SUPRA), IT WAS HELD THAT DEPRECIAT ION HAD TO BE ALLOWED ON GOODWILL ARISING OUT OF A SCHEME OF AMALGAMATION . BUT, HERE, AS POINTED OUT BY THE LEARNED D.R., GOODWILL CLAIMED B Y THE ASSESSEE WAS NOT ARISING OUT OF AMALGAMATION. IN ANY CASE, FOR ASSESSMENT YEAR 2001-02, WHEN THE GOODWILL FIRST CAME INTO BOO KS OF THE ASSESSEE AND WHEN THE ASSESSEE CLAIMED IT AS A REVE NUE OUTGO ON AN AMORTIZED BASIS, LD. CIT(APPEALS) HAD GIVEN A DI RECTION TO THE A.O. TO EXAMINE WHETHER THE AMOUNT INCURRED WAS ACTUALLY FOR GOODWILL AND THEREAFTER TO ALLOW DEPRECIATION. ADMITTEDLY, NO APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A PPEALS) FOR ASSESSMENT YEAR 2001-02. IN THE FITNESS OF THE THI NGS, WE ARE OF THE OPINION THAT FOR THE IMPUGNED ASSESSMENT YEAR ALSO, THE ISSUE WHETHER THE CLAIM OF GOODWILL IS CORRECT, NEEDS TO BE VERIFIED BEFORE ANY DEPRECIATION IS ALLOWED. WE, THEREFORE, SET AS IDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING CLA IM OF DEPRECIATION ON GOODWILL, BACK TO THE FILE OF THE A.O. FOR CONSI DERATION AFRESH, IN ACCORDANCE WITH LAW. I.T.A. NOS. 3536 & 3537/MDS/09 9 13. APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003 -04 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14. NOW WE TAKE UP APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2005-06. 15. THERE ARE ONLY TWO EFFECTIVE GROUNDS RAISED BY THE ASSESSEE. ONE IS ON DISALLOWANCE OF PROVISION OF WARRANTIES A ND THE OTHER IS ON CLAIM OF CURRENT YEAR DEPRECIATION ON GOODWILL. 16. LEARNED A.R. SUBMITTED THAT INSOFAR AS CLAIM OF PROVISION OF WARRANTIES IS CONCERNED, THE ISSUE STOOD DECIDED AG AINST ASSESSEE IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2001-02 (SU PRA). 17. INSOFAR AS THE CLAIM OF DEPRECIATION ON GOODWIL L IS CONCERNED, LEARNED A.R. SUBMITTED THAT HE WAS NOT PRESSING IT SINCE SUCH A DEPRECIATION ALREADY STOOD GRANTED TO IT. 18. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2005- 06 IS DISMISSED. I.T.A. NOS. 3536 & 3537/MDS/09 10 19. TO SUMMARIZE THE RESULT, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003-04 IS PARTLY ALLOWED FOR STATI STICAL PURPOSES, WHEREAS, FOR ASSESSMENT YEAR 2005-06 IS DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 26 TH OF SEPTEMBER, 2013, AT CHENNAI. SD/- SD/- (S.S. GODARA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH SEPTEMBER, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-IV, NEW DELHI (4) CIT, DELHI-I, NEW DELHI (5) D.R. (6) GUARD FILE I.T.A. NOS. 3536 & 3537/MDS/09 11 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI (BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER) .. I.T.A. NOS. 3536 & 3537/DEL/2009 ASSESSMENT YEARS : 2003-04 & 2005-06 M/S ALSTOM T&D INDIA LTD., (ERSTWHILE AREVA T&D INSTRUMENT TRANSFORMERS INDIA PRIVATE LTD.), FSSC BUILDING, 19/1, GST ROAD, PALLAVARAM, CHENNAI - 600 043. (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), NEW DELHI. (RESPONDENT) CORRIGENDUM IN TRIBUNALS ORDER DATED 26 TH SEPTEMBER, 2013, IN THE ABOVE APPEAL, THE RESPONDENTS NAME MENTIONED IN THE CAUS E TITLE IS TO BE READ AS THE DEPUTY COMMISSIONER OF INCOME TAX (LTU), CHENNAI , INSTEAD OF THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), NEW DELHI. SD/- SD/- (S.S. GODARA) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH NOVEMBER, 2013. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/D.R./GUA RD FILE