FEDEX EXPRESS TRANPORTATION AND SUPPLY CHAIN SERVICES (INDIA) P.LTD, MUMBAI V. PR CIT 9, MUMBAI

ITA 3621/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8564 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 03-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 25-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Keywords: Depreciation; Transfer pricing; Revised return; Revenue expenditure
• Section: 139(5); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.3621/M/2016 ASSESSMENT YEAR: 2011-12 FEDEX EXPRESS TRANSPORTATION AND SUPPLY CHAIN SERVICES (INDIA) PRIVATE LIMITED BOOMERANG, UNIT NO.801, WING-A, 8 TH FLOOR, CHANDIVALI FARM ROAD, ANDHERI (EAST) MUMBAI - 400072 PAN: AABCF6516A VS. THE PRINCIPAL COMMISSIONER OF INCOME TAX 9 ROOM NO.214, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JITENDRA JAIN REVENUE BY : SHRI S. PADMAJA (CIT-DR) DATE OF HEARING : 15.09.2017 DATE OF PRONOUNCEMENT : 17.11.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE ABOVE TITLED APPEAL HAS BEEN PREFERRED BY THE A SSESSEE AGAINST THE ORDER DATED 21.02.2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS) 9, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2011-12. 2. THE ONLY GROUND IS CHALLENGING THE JURISDICTION U/S.263 OF THE ACT. 3. THE CIT(A) ERRED ON MISCONCEIVED BASIS, IN HOLDI NG THAT THE GOODWILL ACQUIRED SHOULD BE APPORTIONED BETWEEN THE APPELLAN T AND THE INTERNATIONAL AFFILIATES OF THE APPELLANT. 4. THE SHORT FACTS OF THE CASE ARE AS UNDER:- THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 30.0 9.2011 DECLARING TOTAL LOSS OF (-)RS.13,21,13,466/- AND SUBSEQUENTLY FILED A PURPO RTED REVISED RETURN DECLARING TOTAL LOSS OF (-) RS.62,71,22,057/-. AS PER SECTION 139( 5) OF THE ACT, IF ANY PERSON HAVING FURNISHED A RETURN UNDER SUB SECTION (1) DISCOVERS ANY OMISSION OR WRONG STATEMENT THEREIN. THE ASSESSING OFFICER FAILED TO SEEK ANY EXPLANATION WITH REGARD TO THE ITA NO3621/M/16 A.Y.2011-12 2 FACT THAT THERE WAS VARIATION IN THE CONTENTS OF TH E ORIGINAL AND REVISED RETURN COULD NOT BE ATTRIBUTED TO ANY OMISSION OR WRONG STATEMEN T AS REFERRED TO ABOVE AND FAILED TO APPRECIATE THAT THE SUBSEQUENT RETURN MAY NOT QU ALIFY AS A REVISED RETURN. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ACQU IRED THE WAREHOUSING, TRANSPORTATION SERVICES AND EXPRESS DELIVERY UNDERT AKING OF AFL PVT. AND TRANSPORTATION SERVICES UNDERTAKING OF UNIFREIGHT I NDIA PVT. LTD. AS A GOING CONCERN ON SLUMP SALE BASIS. THE ASSESSEE HAS SHOWN GOODWI LL AMOUNTING TO RS.3,96,00,68,730/- IN THE AUDITED STATEMENT AND HA S CLAIMED DEPRECIATION THEREON OF RS.52,28,95,318/-. IN FORM NO.3 CD IS RS.3,21,29,2 04/- THE ADDITION MADE TO FIXED ASSETS DURING THE YEAR AS A PROVISION WERE ENCLOSED IN ANNEXURE 2A AND THE CLAIM OF DEPRECIATION ALLOWABLE AS THE PROVISION OF THE INCO ME TAX ACT WAS MENTIONED IN ANNEXURE 2 OF FORM NO.3CD. ON THE ADDITIONS MADE U NDER VARIOUS BLOCK OF ASSETS DURING THE YEAR, THE DEPRECIATION DETERMINED TO BE ALLOWED IN FORM NO.3 CD IS RS.3,21,29,204/-. THE ASSESSING OFFICER HAS COMPLE TELY FAILED TO MAKE ANY WORTHWHILE ENQUIRY WITH REGARD TO THE AFORESAID ACQ UISITIONS, THE NATURE OF GOODWILL, MANNER IN WHICH IT HAD BEEN VALUED, THE ADMISSIBILI TY OF NON-COMPETE FEES AS REVENUE EXPENDITURE AND THE ELIGIBILITY OF HUGE CLA IM OF DEPRECIATION PARTICULARLY WHEN SUCH CLAIM IS AT VARIANCE WITH THE DEPRECIATIO N COMPUTED IN FORM NO.3CD. THE COMMISSIONER WAS OF A VIEW THAT THE ASSESSING O FFICER DID NOT MAKE PROPER ENQUIRY, THEREFORE, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AND AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE COMMISSI ONER WAS OF A VIEW THAT THE ORDER IS PASSED MECHANICALLY AND WITHOUT APPLICATION OF M IND AND ON THE BASIS OF REVISED RETURN, WITHOUT APPRECIATING THE FACT THAT CONTRARY IN ORIGINAL AND REVISED RETURN OF INCOME. THEREFORE, COMMISSIONER HAS DIRECTED THE A O TO CONFIRM A FRESH ASSESSMENT ORDER IN ACCORDANCE WITH LAW PROVISION S TATUE AND CONSIDERING THE JUDICIAL DECISION AND PASS THE ORDER AS PER LAW. 5. THE LEARNED AR HAS FILED THE RETURN SUBMISSION A ND ORALLY ALSO ARGUED THE MATTER. THE WRITTEN SUBMISSION IS ON THE RECOR D. THE LEARNED AR SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER C AN BE REVISED NOT ONLY TO BE ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF R EVENUE. IT WAS ALSO SUBMITTED THAT IF THE ISSUES ARE EXAMINED IN THE COURSE OF AS SESSMENT PROCEEDINGS AND A PLAUSIBLE VIEW IS TAKEN WHICH IS IN ACCORDANCE WITH THE PRECEDENTS THEN THE ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF THE ITA NO3621/M/16 A.Y.2011-12 3 REVENUE. MERELY BECAUSE THERE MAY NOT BE A DETAILE D DISCUSSION IN THE ASSESSMENT ORDER THEN THE ORDER CANNOT BE TREATED A S ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE SINCE THE ASSESSMEN T PROCEEDINGS ARE NOT ADVERSARIAL PROCEEDINGS. THE LEARNED AR SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE FILED REPLY AND CL AIM WAS ACCEPTED BY THE AO. THE LEARNED AR SUBMITTED THAT COMMISSIONER WAN TED TO MEET TO REVISE THE ORDER WHEREIN NO ENQUIRY AT ALL ON THE ISSUES. THE ORDER IS PASSED AS PER SECTION 119 OF THE ACT. THE LEARNED AR SUBMITTED T HAT ORIGINAL RETURN E-FILED ON 30.09.2011 WAS BASED ON UNAUDITED ACCOUNTS. IN THE SAID RETURN DEPRECIATION OF RS.2.78 CRORE WAS CLAIMED. IN THE SAID E-FILED RETURN THE ASSESSEE HAD TO GIVE AUDIT INFORMATION, SINCE THE A SSESSEE WAS LIABLE FOR TAX AUDIT UNDER SECTION 44AB, WITHOUT WHICH THE RETURN COULD NOT HAVE BEEN UPLOADED. THE ASSESSEE GAVE THE AUDIT INFORMATION DETAILS IN THE E-FILED RETURN BUT HOWEVER SINCE THE AUDIT WAS NOT DONE THE INFORM ATION RELATING TO DATE OF AUDIT WAS NOT FILED. HOWEVER, THE RETURN COULD NOT BE UPLOADED UNLESS THIS INFORMATION WAS GIVEN AND THEREFORE THE ASSESSEE WA S COMPELLED TO PUT THE DATE SO THAT RETURN COULD BE FILED IN TIME AS REQUIRED B Y SECTION 139(3) READ WITH 139(1) OF THE ACT. IN THE INSTRUCTIONS ISSUED FOR FILING FORM ITR 6 IT IS SPECIFICALLY MENTIONED THAT IF THE ITEMS SPECIFIED IN FORM NO.6 IS NOT FILED THEN THE RETURN WILL BE TREATED AS INVALID. ON 28.05.20 11 THE ACCOUNTS WERE AUDITED UNDER THE COMPANIES ACT, 1956 AND UNDER SECTION 44A B OF THE ACT. THE REVISED RETURN OF INCOME ON 21.11.2012 BASED ON THE AUDITED ACCOUNTS. THE ASSESSEE CLAIMED DEPRECIATION ON GOODWILL IN THE RE VISED RETURN BEING THE DIFFERENCE BETWEEN THE CONSIDERATION PAID AND TANGI BLE ASSETS ACQUIRED ON ACCOUNT OF PURCHASE OF BUSINESS FROM AFL AND UFL. THE GOODWILL FIGURE WAS ARRIVED AT AS STATED HEREIN AND WAS CERTIFIED BY TH E AUDITORS IN THE AUDITED ACCOUNTS READ WITH THE VALUERS REPORT. THEREFORE, THE DIFFERENCE BETWEEN THE LOSS CLAIMED IN THE ORIGINAL RETURN OF INCOME AND T HE REVISED RETURN OF INCOME IS ON ACCOUNT OF CLAIM IN RESPECT OF DEPRECIATION O N GOODWILL. IN THE AUDITED ITA NO3621/M/16 A.Y.2011-12 4 ACCOUNTS, THE AUDITOR RECORDED THE GOODWILL UNDER T HE HEAD INTANGIBLE ASSETS AT RS.396 CRORES BUT DID NOT CLAIM DEPRECIATION ON THE SAME. THE SAID FIGURE OF RS.396 CRORES IS ARRIVED AT BASED ON THE VALUERS R EPORT AND RS.397 CRORES I.E. RS.1 CRORE IS ON ACCOUNT OF POST CLOSING ADJUSTMENT S. THE LEARNED AR SUBMITTED THAT AO HAS MADE A SPECIFIC QUERY REGARDI NG REVISING THE INCOME AND ASSESSEE HAS FILED THE REPLY. IN THE ORIGINAL ASSESSMENT ORDER AO HAS EXAMINED AND ACCEPTED THE RETURN AFTER TAKING CONSI DERATION THE SAID REVISED RETURN OF INCOME. THEREFORE, THE ORDER IS NOT ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LEARNED AR SUBMITTED T HAT AS PER SECTION 139C, 139D AND RULE 12(2) OF THE IT RULES READ WITH CIRCU LAR NO.9/2006 DATED 10.10.2006 (ANNEXURE 5) AND INSTRUCTIONS IT DOES NO T PROVIDE FOR ANY PROVISION TO HOLD RETURN FILED ON UNAUDITED ACCOUNTS AS INVAL ID RETURN. THE ASSESSEES RETURN IS FIRST YEAR OF INCORPORATION, THE ASSESSEE UNDER THE COMPANIES ACT COULD HAVE GOT ITS ACCOUNTS AUDITED IN ACCORDANCE W ITH SECTION 166 READ WITH SECTION 210 OF THE COMPANIES ACT, 1956. 6. THE LEARNED AR RELIED UPON THE DECISION OF CIT V S. NIRAV MODI 241 TAXMANN 255, CIT VS. DESIGN AND AUTOMATION ENGINEER S 323 ITR 632, CIT VS.FINE JEWELLERY (I) LTD. 372 ITR 303, VANSHREE BU ILDERS & DEVELOPERS (P) LTD. VS. CIT 63 SOT 30, ESCORTS MAHLE LTD. VS. DCIT 119 ITD 119 (DELHI), ACIT VS. PRATAP RAJASTHAN SPECIAL STEELS LIMITED 99 TTJ 67 (JAIPUR). 7. THE LEARNED DR SUBMITTED THAT THE AO PASSED THE ORDER MECHANICALLY WITHOUT APPLICATION OF MIND ON THE BASIS OF REVISED RETURN INCOME WITHOUT APPRECIATING THAT CONTRADICTORY INFORMATION HAS BEE N GIVEN IN ORIGINAL AND REVISED RETURN. THE LD. D.R. SUBMITTED THAT THE AO COMPLETELY FAILED TO ENQUIRE WITH REGARD TO ACQUISITION OF AFL AND UFL M ADE DURING THE YEAR. THE BASIS OF VALUATION OF GOODWILL AND VALIDITY OF CLAI M OF DEPRECIATION THEREON FAILED TO CALL FOR EXAMINATION OF RELEVANT AGREEMEN T AND WORKING OF NETT WORTH OF ASSETS PARTICULARLY SUCH NETT WORTH WAS A NEGATI VE FIGURE AND GOODWILL WAS ITA NO3621/M/16 A.Y.2011-12 5 SUBSTANTIALLY MORE THAN THE CONSIDERATION PAID FOR ACQUISITION. THEREFORE, THIS IS A CASE OF NON APPLICATION OF MIND BY AO. THEREF ORE, SECTION 263 IS VALID. 8. THE LD. D.R. SUBMITTED THAT ASSESSEE HAS FILED T HE ORIGINAL RETURN OF LOSS OF RS.13,21,13,466/- AND SUBSEQUENTLY FILED THE REV ISED RETURN DECLARING LOSS OF RS.62,71,22,057/-. THEREFORE, THE AO MUST MAKE THE ENQUIRY. THEREFORE, THE LD. A.R. RELIED UPON THE DECISION OF HONBLE HIMACH AL PRADESH HIGH COURT IN THE CASE OF HIMACHAL PRADESH STATE FOREST CORPORATI ON LTD. VS. DCIT [1998] 231 ITR 556 (HP) AND IN THE CASE OF SUNANDA RAM DEK A VS. CIT [1994] 210 ITR 988 (GAU). IN REJOINDER, THE LD. A.R. SUBMITTE D THAT THE PRESENT CASE IS GOVERNED BY PROVISIONS OF E-FILING WHICH WAS NOT IN THE CASE OF THE DECISION CITED BY LD. D.R. ONE OF THE REASONS FOR REVISING T HE RETURN WAS A CLAIM OF DEPRECIATION ON GOODWILL BASED ON THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF SUMMIT SECURITIES LTD. (2012) 19 TAXMAN N.COM 102 (MUM) (SB) WHICH WAS NOT AVAILABLE AT THE TIME OF FILING THE R ETURN. THE TAX AUDITOR, IN THE SUBSEQUENT YEAR, BASED ON THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF SUMMIT SECURITIES LTD. (SUPRA) HAS CERTIFIED THE CLAIM OF DEPRECIATION ON GOODWILL. THEREFORE, THIS JUDGMENT IS NOT APPLICAB LE. IN RESPECT OF NON COMPETE FEE, THE LD. A.R. RELIED UPON THE DECISION OF CIT VS. ANDHRA FUELS (P) LTD. 70 TAXMAN 271 AND ACIT VS. CLARIANT CHEMICALS (I) LTD. 53 TAXMAN 284. 9. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE P ARTIES. WE HAVE PERUSED THE PAPER BOOK FILED BY THE ASSESSEE BASED AND CASE LAWS FILED BY THE ASSESSEE. THE ASSESSEE AND REVENUE HAS FILED THE BRIEF WRITTE N SUBMISSION WHICH WE HAVE PASSED. 10. WE PROPOSE TO DEAL WITH GROUND NO.1 WHILE DEALI NG WITH OTHER 3 GROUNDS. 11. WE NOW TAKE UP GROUND NO.2 WHICH PRIMARILY DEAL S WITH THE FINDINGS OF THE CIT AND THE DIRECTIONS ISSUED BY THE CIT TO TREAT RETURN FILED UNDER ITA NO3621/M/16 A.Y.2011-12 6 SECTION 139(1) AS INVALID AND THEREFORE CANNOT BE R EVISED UNDER SECTION 139(5) OF THE ACT. THE CIT HAS DEALT WITH THIS ISSU E IN HIS ORDER AT PG 9 ONWARDS. THE CIT HAS EXERCISED HIS JURISDICTION ON THE GROUND THAT THE ISSUE OF VALIDITY OF RETURN AND THE REVISED RETURN HAS NO T BEEN EXAMINED BY THE AO AND THEREFORE THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS CONNECTION IT IS I MPORTANT TO NOTE THAT THE ASSESSING OFFICER HAD RAISED A SPECIFIC QUERY VIDE LETTER DATED 25 TH NOVEMBER 2013 AND 17 TH FEBRUARY 2014 CALLING UPON THE ASSESSEE TO FURNISH AUDIT REPORT, BALANCE SHEET, PROFIT AND LOS S ACCOUNT AND A SPECIFIC QUERY WITH RESPECT TO REASON FOR REVISING THE RETUR N. THE ASSESSEE IN HIS SUBMISSIONS TO THE AO VIDE LETTER DATED 26 TH FEBRUARY 2014 AND 14 TH FEBRUARY 2014 GAVE A DETAILED EXPLANATION WITH RESP ECT TO REASONS FOR REVISING THE RETURN OF INCOME THE REASON BEING DELA Y IN FINALIZING THE BOOKS OF ACCOUNTS DUE TO ACQUISITION BY THE ASSESSE E OF TRANSPORTATION BUSINESS OF AFL AND UFL. THE ASSESSEE ALSO STATED T HAT THE ORIGINAL RETURN WAS BASED ON DRAFT UNAUDITED BOOKS OF ACCOUNTS AND THE RETURN WAS FILED BASED ON UNAUDITED ACCOUNTS TO PROTECT ITS CLAIM OF CARRY FORWARD LOSSES UNDER SECTION 80 OF THE ACT. THE ASSESSEE ALSO FILE D A LETTER DATED 14 JANUARY 2014 GIVING REASONS FOR REVISING THE RETURN. THE RE ASON BEING THE ACCOUNTS BEING AUDITED AND THE SUBSEQUENT DECISION OF THE SU PREME COURT IN THE CASE OF SMIFS SECURITIES WHEREBY THE SUPREME COURT UPHEL D THE CLAIM OF DEPRECIATION ON GOODWILL AND BASED ON THIS THE RETU RN WAS REVISED ALONG WITH OTHER REASONS. THE ASSESSEE HAVE GOT THEIR ACC OUNTS AUDITED ON 28 TH MAY 2012 WHICH IS WITHIN THE TIME LIMITS SPECIFIED UNDER SECTION 166 READ WITH SECTION 210 OF THE COMPANIES ACT, 1956 AND TIL L THAT TIME THE TAX AUDIT COULD NOT HAVE BEEN DONE. THE ASSESSEE ALSO FILED D ETAILED LEGAL SUBMISSIONS ON THE VALIDITY OF THE REVISED RETURN A ND RELIED UPON VARIOUS DECISIONS OF THE HIGH COURT AND THE TRIBUNAL IN ITS SUBMISSIONS. FURTHERMORE, THE ASSESSEE IN ITS RETURN UPLOADED ON 30 TH SEPTEMBER 2011 ITA NO3621/M/16 A.Y.2011-12 7 HAD IN COLUMNS RELATING TO AUDIT INFORMATION STATED THAT THE AUDIT WAS DONE ON 29 TH SEPTEMBER 2011 WHEN, IN FACT, IT WAS NOT SO. THE A SSESSEE HAS EXPLAINED THE REASON WHY THIS WAS DONE. THE REASON BEING UNLESS THIS COLUMN WAS FILLED UP THE RETURN COULD NOT HAVE BEEN UPLOAD ED WHICH WOULD HAVE RESULTED INTO THE CLAIM OF CARRY FORWARD OF LOSS BE ING LOST. THE SITE OF THE REVENUE REQUIRING C-FILING DID NOT HAVE THE MECHANI SM OF UPLOADING THE RETURN IT A PARTICULAR COLUMN IS NOT FILLED. THIS R EASON HAS NOT BEEN CONTROVERTED BY THE REVENUE TILL TODAY. IT WAS UNDE R THESE CIRCUMSTANCES THAT THE ASSESSEE WAS COMPELLED TO FILL A WRONG DATE WHI CH WAS SUBSEQUENTLY RECTIFIED IN THE REVISED RETURN ALONG WITH THE ACTU AL DATE OF AUDIT ALONG WITH OTHER REASONS MENTIONED BY THE ASSESSEE FOR RE VISING THE RETURN. IN THE LIGHT OF THESE FACTS IT CANNOT BE SAID THAT THE ISS UE OF VALIDITY OF REVISED RETURN HAS NOT BEEN EXAMINED BY THE AO IN THE COURS E OF THE ASSESSMENT PROCEEDINGS. THE AO HAD RAISED A SPECIFIC QUERY WHI CH WAS FOLLOWED BY A DETAILED RESPONSE OF THE ASSESSEE AND SINCE SAME WA S ACCEPTED AFTER DUE APPLICATION OF MIND SAME DID NOT FIND PLACE IN THE ASSESSMENT ORDER. THE ASSESSEE HAS RELIED UPON THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF ESCORTS AND JAIPUR TRIBUNAL IN THE CASE OF PRATAP R AJASTHAN SPECIAL STEELS LTD. IN ITS SUBMISSIONS. THE SAID 2 DECISIONS STATE THAT ORIGINAL RETURN CAN BE FILED BASED ON UNAUDITED ACCOUNTS AND SUCH A RETURN CAN L ATER ON BE REVISED AFTER GETTING THE ACCOUNTS AUDITED. THE DECISION RELIED U PON BY THE REVENUE IN THE CASE OLL-TIMACHAL PRADESH STATE FOREST CORPORATION REPORTED IN 231 ITR 556 AND GAUHATI HIGH COURT DECISION IN CASE OF SUNANDA RAM DEKA 210 ITR 988 ARE DISTINGUISHABLE ON FACTS. THE SAID 2 DE CISIONS DID NOT DEAL WITH E-FILING OF RETURN AND FURTHERMORE THE ASSESSEE IN THOSE DECISIONS DID NOT FILE THE AUDIT REPORT AT ALL. THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF FINE JEWELLERY REPORTED IN 372 ITR 303 HAS HELD THA T MERELY BECAUSE A PARTICULAR ITEM DOES NOT FIND MENTION IN THE ASSESS MENT ORDER, IT CANNOT BE SAID THAT THE AO HAS NOT APPLIED HIS MIND IF A QUERY IS RAISED ANDREPLIED TO BY THE I ITA NO3621/M/16 A.Y.2011-12 8 ASSESSEE. THEREFORE IN OUR VIEW THE JURISDICTION EX ERCISED BY THE CIT ON THE ISSUE OF VALIDITY OF REVISED RETURN CANNOT BE UPHEL D. IN VIEW OF ABOVE, THE CIT WAS NOT JUSTIFIED IN EXERCISING JURISDICTION UN DER SECTION 263 OF THE ACT ON THIS ISSUE. 12. WITH RESPECT TO GROUND NO.3 DEALING WITH DEPRE CIATION ON GOODWILL, ASSESSEE IN THE COURSE OF THE HEARING BROUGHT TO OU R NOTICE THE ORDER GIVING EFFECT TO 263 ORDER PASSED BY THE AU ON 30 TH DECEMBER 2016 WHEREIN THE AU HAS ACCEPTED THE VALUATION OF THE GOODWILL AND A LSO ACCEPTED THE CLAIM OF DEPRECIATION ON THE GOODWILL. IN THE LIGHT OF THESE SUBSEQUENT FACTS, WHAT SURVIVES TO THE ADJUDICATED IS WHETHER THE CIT WAS JUSTIFIED IN GIVING A DIRECTION IN PARA 10.5 OF HIS ORDER ON APPORTIONMENT OF GOODWILL BETWEEN THE ASSESSEE AND ITS AFFILIATES. THE ASSESSEE RELIED UPON THE DECISION OF THE BOMBAY HIG H COURT IN THE CASE OF HERDILLIA CHEMICALS REPORTED IN 221 ITR 194 AND BAS ED ON THIS DECISION SUBMITTED THAT SINCE THERE IS A SPECIFIC DIRECTION ON MERITS BY THE CIT TO THE AU, THE TRIBUNAL OUGHT TO ADJUDICATE THIS ISSUE. ON PERUSAL OF THE CITS ORDER AND APPLYING THE DECISION OF THE JURISDICTION AL HIGH COURT, THE ASSESSEE IS JUSTIFIED IN RAISING THIS ISSUE BEFORE US. THE DIRECTION OF THE CIT ON THIS ISSUE IS WITHOUT ANY MATERIAL ON RECORD AND BASED ON SURMISES AND CONJECTURES. THE AGREEMENT FOR ACQUIRING THE BU SINESS OF AFL AND UFL IS BETWEEN THE ASSESSEE AND AFL/LJFL. NONE OF T HE AFFILIATES OF THE FEDEX GROUP ARE A PARTY TO THIS AGREEMENT. THEREFOR E, IT CANNOT BE SAID THAT THE AFFILIATES HAVE ACQUIRED THE GOODWILL ALON G WITH THE ASSESSEE. PROVISIONS OF SECTION 43(1) WHICH DEFINES 'COST' AL SO DO NOT PROVIDE FOR SUCH AN APPORTIONMENT OF COST. SECTION 38 OF THE IN COME TAX ACT WHICH EMPOWERS THE REVENUE TO DISALLOW ITEMS SPECIF IED THEREIN ALSO DOES NOT DEAL WITH APPORTIONMENT OF COST. IT IS ALSO IMP ORTANT TO NOTE THAT GOODWILL IS NOT COVERED BY PROVISIONS OF SECTION 38 (2) OF THE ACT. THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTER NATIONAL REPORTED IN ITA NO3621/M/16 A.Y.2011-12 9 341 ETR I AT PG 34 HAS IN DETAIL EXPLAINED THE RELA TIONSHIP BETWEEN PARENT AND SUBSIDIARY AND ITS ECONOMIC INDEPENDENCE. THE H ON'BLE SUPREME COURT HAS CATEGORICALLY STATED THAT PARENT AND SUBS IDIARY ARE TOTALLY INDEPENDENT TAX PAYERS AND THEY ARE SUBJECTED TO IN COME TAX ON STANDALONE BASIS IRRESPECTIVE OF THEIR ACTUAL DEGREE OF ECONOM IC INDEPENDENCE AND REGARDLESS OF WHETHER PROFITS ARE RESERVED OR DISTR IBUTED TO SHAREHOLDERS. 13. THE HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI REPORTED IN 381 ITR 117 WHILE DEALING WITH TRANSFER PRICING ADJ USTMENT ON AMP EXPENSES INCURRED BY INDIAN COMPANY HAS NEGATIVE THE CONTENT ION THAT SUCH EXPENSES, IN THE ABSENCE OF ANY UNDERSTANDING WITH AE EMPOWER TH E REVENUE TO MAKE ADJUSTMENT. IT IS ALSO IMPORTANT TO NOTE THAT IF THERE ARE ANY TRANSACTIONS BETWEEN THE ASSESSEE AND ITS AFFILIATES THAT WOULD BE A SUBJECT MATTER OF TRANSFER PRICING REGULATION. IN OUR VIEW, THE CIT W AS NOT JUSTIFIED IN GIVING A DIRECTION FOR APPORTIONMENT OF GOODWILL AND THE SAI D DIRECTION IS WITHOUT ANY MATERIAL OR ANY BASIS AND THEREFORE THE DIRECTIONS GIVEN BY THE CIT ON APPORTIONMENT OF GOODWILL BETWEEN THE ASSESSEE COMP AN Y AND ITS AFFILIATES ARE CONTRARY TO LAW AND HENCE SUCH A FIN DING IS QUASHED. 14. WITH RESPECT TO GROUND NO.4 DEALING WITH NON- COMPETE FEES, THE ASSESSEE IN ITS SUBMISSIONS TO THE AO VIDE LETTER D ATED 25 TH NOVEMBER 2013 AND 17 TH FEBRUARY 2014 BROUGHT TO THE NOTICE OF THE AO ABOUT THE NON- COMPETE FEES AND DEDUCTION OF TDS THEREON. THE ASSE SSEE FILED THE ACCOUNTS WITH THE AO WHEREIN IN THE ACCOUNTS DEPRECIATION WA S CLAIMED ON NON- COMPETE FEES AS INTANGIBLE ASSET. THE ASSESSEE VI DE LETTER DATED 14 TH JANUARY 2013 ALSO SUBMITTED TO THE AO THE REASON FO R ITS CLAIM OF NON- COMPETE FEES BEING ALLOWED AS REVENUE EXPENDITURE S INCE IT DID NOT RESULT IN ANY BENEFIT OF ENDURING NATURE. THE ASSESSEE RELIED UPON THE DECISION OF KARNATAKA HIGH COURT IN SUPPORT OF ITS CLAIM FOR DE DUCTION AS REVENUE EXPENDITURE. THE ASSESSING OFFICER ACCEPTED THE CLA IM OF THE ASSESSEE IN THE ASSESSMENT ORDER AND THEREFORE THERE WAS NO REA SON FOR HIM TO MAKE A ITA NO3621/M/16 A.Y.2011-12 10 MENTION OF IT AND MERELY BECAUSE LIE HAS NOT MENTIO NED OR DISCUSSED IN THE ASSESSMENT ORDER SAME CANNOT BE TREATED AS ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF FINE JEWELLERY (SUPRA). FURTHERMORE THE ASS ESSEE HAS RELIED IN ITS SUBMISSIONS ON VARIOUS DECISIONS ON THIS ISSUE WHER EIN CONFLICTING VIEWS ARE TAKEN BY VARIOUS COURTS/TRIBUNALS. THERE ARE RULINGS WHICH HAVE ALLOWED THE PAYMENT OF NON-COMPETE FEES AS REV ENUE EXPENDITURE AND THERE ARE ALSO RULINGS WHICH HAVE TREATED THE N ON- COMPETE FEES AS INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION AND THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF SUPREME COURT IN THE CASE OF MAD RAS INDUSTRIAL INVESTMENT CORPORATION LTD. REPORTED IN 225 ITR 802 FOR THE PROPOSITION THAT SINCE THE PERIOD OF NON-COMPETE IS 3 YEARS THE CLAI M ALTERNATIVELY SHOULD BE ALLOWED OVER A PERIOD OF 3 YEARS. IN OUR VIEW, THE ISSUE OF NON-COMPETE FEES WAS EXAMINED BY THE AO AND ACCEPTED IN THE COU RSE OF THE ASSESSMENT PROCEEDINGS AND THEREFORE THE CIT WAS NO T JUSTIFIED IN EXERCISING JURISDICTION OIL ISSUE. FURTHERMORE, THE AO HAS ACCEPTED ONE OF THE POSSIBLE VIEWS AND SUCH AN ACTION CANNOT BE TREATED BY CIT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS CONNECTION WE ARE SUPPORTED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. REPORTED IN 243 ITR 83 AND MAX INDIA LTD. REPORTED IN 295 ITR 282. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.11.2017. SD/- SD/- (RAJESH KUMAR) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17.11.2017. * MP . ITA NO3621/M/16 A.Y.2011-12 11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / ( THE CIT(A) ) 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI