DCIT 1(3)(1), MUMBAI V. SUMITOMO CHEMICAL P.LTD, MUMBAI

ITA 3915/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7804 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 24-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ALPESH GANDHI; SHARDHA KOTHARI
• Keywords: Capital asset; Depreciation; Rule of consistency; Additional depreciation; Revenue expenditure
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 3915/MUM/2015 (ASSESSMENT YEAR: 2009-10) DY. C I T 1(3)(1) VS. M/S. SUMITOMO CHEMICAL P. LTD. ROOM NO. 564, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 6 TH FLOOR, MOTI MAHAL 195, J. TATA ROAD, CHURCHGATE MUMBAI 400020 PAN AAECS3750L APPELLANT RESPONDENT APPELLANT BY: SHRI SAURABH KUMAR RAI RESPONDENT BY: SHRI ALPESH GANDHI & MS. SHARDHA KOTHARI DATE OF HEARING: 01.03.2017 DATE OF PRONOUNCEMENT: 15.03.2017 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF THE CIT(A)-8, MUMBAI DATED 27.03.2015 FOR A.Y. 2009-10. 2. THE FACTS OF THE CASE, BRIEFLY STATED, ARE AS UNDER : - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN HOUSEHOLD INSECTICIDES AND PESTICIDE S, FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 30.09.2009 DECLARING LO SS OF ` 1,53,42,442/-. BOOK LOSSES UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') WAS COMPUTED AT ` 7,68,06,987/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THE CASE WAS SU BSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SE CTION 143(3) OF THE ACT VIDE ORDER DATED 22.04.2013 WHEREIN THE TOTAL I NCOME OF THE ASSESSEE AS PER NORMAL PROVISIONS OF THE ACT WAS DETERMINED AT ` 1,92,65,840/- IN VIEW OF THE FOLLOWING ADDITIONS/DISALLOWANCES: - (I) T.P. ADJUSTMENT UNDER SECTION 92CA(3) ` 2,80,96,447/- (II) DISALLOWANCE OF DEDUCTION UNDER SECTION 35D ` 10,77,727/- ITA NO. 3915/MUM/2015 M/S. SUMITOMO CHEMICAL P. LTD. 2 (III) DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION ` 54,34,110/- 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 22.0 4.2013 FOR A.Y. 2009- 10, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A)-8, MUMBAI. THE LEARNED CIT(A) DISPOSED OFF THE APPEAL VIDE THE IMP UGNED ORDER DATED 27.03.2015, ALLOWING THE ASSESSEE PARTIAL RELIEF. 3. REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT(A) -8, MUMBAI, HAS PREFERRED THIS APPEAL RAISING THE FOLLOWING GROUNDS : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALL OWANCE OF EXCESS CLAIM OF DEPRECIATION OF RS.54,34,110/- WITH OUT APPRECIATING THE FACT THAT THE ISSUE IS CLEARLY FOU ND TO BE COVERED UNDER EXPLANATION 4A OF SECTION 43(1) OF THE INCOME TAX ACT AND EVEN THE TAX AUDITORS, IN THEIR REPORT IN FORM NO. 3D, HAVE ALSO NOTED THAT THE PROVISIONS OF EXPLANATION 4A TO SECT ION 43(1) ARE APPLICABLE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF DEPRECIATION ON GOODWILL WITHOUT APPRECIATING THE FACT THAT THE DECISION IS NOT APT IN TERMS OF PROVISO TO RULE 11 OF THE INCOME TA X RULES, 1963 AND THE ISSUE INVOLVED OF DEPRECIATION ON GOODWILL AS REVENUE EXPENDITURE HAS NEVER BEEN EXAMINED? 4. GROUND NO. 1 DISALLOWANCE ON ACCOUNT OF DEPRECIAT ION ` `` ` 54,34,110/- 4.1 IN THIS GROUND (SUPRA), REVENUE ASSAILS THE IM PUGNED ORDER OF THE LEARNED CIT(A) AS BEING ERRONEOUS IN DELETING THE D ISALLOWANCE MADE ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION AMOUNTING T O ` 54,34,110/- WITHOUT APPRECIATING THE FACT THAT THE TAX AUDITORS IN REPO RT IN FORM NO. 3CD HAVE ALSO NOTED THAT THE PROVISIONS OF EXPLANATION 4A TO SECT ION 43(1) OF THE ACT ARE APPLICABLE. THE LEARNED D.R. WAS HEARD IN SUPPORT O F THIS GROUND AND PLACED STRONG RELIANCE ON THE DECISION OF THE ASSESSING OF FICER (AO) ON THIS ISSUE. 4.2 PER CONTRA, THE LEARNED A.R. OF THE ASSESSEE AT THE VERY OUTSET DREW THE ATTENTION OF THE BENCH TO THE ORDERS OF THE COO RDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 3077 /MUM/2012 DATED 25.03.2015 FOR A.Y. 2007-08 AND SUBMITTED THAT AN I DENTICAL ISSUE WAS CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCH, FOLLOWING THE ORDER OF ANOTHER COORDINATE BENCH IN THE ASSESSEES OWN CASE FOR A.Y. 2006-07 IN ITA NO. 3078/MUM/2012 DATED 28. 03.2014. ITA NO. 3915/MUM/2015 M/S. SUMITOMO CHEMICAL P. LTD. 3 4.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS REFERRED TO AND RELIED UPON (SUPRA). WE FIND THAT T HE COORDINATE BENCH OF THIS TRIBUNAL HAS DECIDED THE IDENTICAL ISSUE IN FA VOUR OF THE ASSESSEE IN ITS ORDER IN ITA NO. 3077/MUM/2012 DATED 25.03.2015 IN THE ASSESSEES OWN CASE FOR A.Y. 2007-08, WHEREIN IT HAS FOLLOWED AN E ARLIER TRIBUNAL ORDER IN THE ASSESSEES OWN CASE FOR A.Y. 2006-07 (SUPRA), H OLDING AS UNDER A PARAS 5 AND 6 THEREOF: 5. GROUND NO.2 RELATES TO THE DISALLOWANCE OF DEPRECIATION OF RS. 88,49,218/- CLAIMED AS INCIDENTAL EXPENDITURE INCUR RED ON ACQUIRING OF ASSETS FROM BILAG. IN THIS REGARD, AT THE VER Y OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ORDER OF THE TRIBUNAL FOR THE AY 2006-07 (SUPRA) AND MENTIONED THAT AN IDENTI CAL ISSUE WAS DECIDED BY THE TRIBUNAL VIDE GROUND NO.3 OF THE SAI D ORDER OF THE TRIBUNAL DATED 28.3.2014. PARAS 21 TO 33 OF THE SA ID TRIBUNALS ORDER ARE RELEVANT IN THIS REGARD. AFTER HEARING BOTH TH E PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL (SUPRA), WE FIND THE TRIBUNAL HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE AS SESSEE. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE RELEVANT PA RAS 31 TO 33 OF THE SAID TRIBUNALS ORDER ARE EXTRACTED WHICH READ AS U NDER: 31. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED T HE DETAILS AS APPENDED IN THE APB. THE ACQUISITION OF THE MACH INERY FROM BILAG IS NOT DISPUTED, IT IS ALSO NOT DISPUTED THAT THE MACHINERY IS A CAPITAL ASSET AND WHATEVER EXPENSE IS INCURRED ON SUCH OUTLAY, IT SHALL BEAR THE CHARACTER OF CAPITAL AND ADDED TO THE COST. SINCE THIS IS A FACT, THEN APPLYING THE RATIO LAID DOWN B Y HONBLE BOMBAY HIGH COURT IN THE CASE OF CIBA OF INDIA LTD. VS CIT, REPORTED IN 70 TAXMAN 505 (BOM), WHEREIN IT HAS BEE N HELD THIS BEING SO, THIS AMOUNT WOULD FORM PART OF THE COST OF THE ASSESSMENT FOR THE PURPOSE OF DEPRECIATION 32. IN SUCH A CASE, THE ADDITIONAL DEPRECIATION, CL AIMED BY THE ASSESSEE ON BILAG MACHINERY IS TO BE ALLOWED. WE AL SO ACCEPT THAT THE ACTION OF THE ASSESSEE DID NOT SUFFER FROM ANY INFIRMITY. 33. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT( A) AND DIRECT THE AO TO ALLOW THE DEPRECIATION ON THE MACHINERY T HAT HAD BEEN ACQUIRED FROM BILAG, AND ALSO INCLUDE INCIDENTAL EX PENSES INCURRED ON ACQUISITION OF ASSETS, AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIBA (SUPRA). THIS WOULD ALSO INCLUDE LEGAL AND PROFESSIONAL EXPENSES OF RS. 53,88,637/- AS INCIDENTAL EXPENSES, RAISED AS AN ADDITIONAL GOA. 6. CONSIDERING THE ABOVE AS WELL AS RESPECTFULLY FO LLOWING THE DECISION OF THE COORDINATE BENCH, THE CLAIM OF THE ASSESSEE IS ALLOWED. ACCORDINGLY, GROUND NO.2 IS ALLOWED. ITA NO. 3915/MUM/2015 M/S. SUMITOMO CHEMICAL P. LTD. 4 4.3.2 RESPECTFULLY FOLLOWING THE DECISIONS OF THE C OORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2006-0 7 (SUPRA) AND 2007-08 (SUPRA), WE UPHOLD THE ORDER OF THE LEARNED CIT(A) DELETING THE DISALLOWANCE ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION AMOUNTIN G TO ` 54,34,110/-. CONSEQUENTLY, GROUND NO. 1 OF REVENUES APPEAL IS D ISMISSED. 5. GROUND NO. 2 DEPRECIATION ON GOODWILL 5.1 IN THIS GROUND, REVENUE ASSAILS THE ORDER OF TH E LEARNED CIT(A) IN ALLOWING THE CLAIM OF DEPRECIATION ON GOODWILL. THE LEARNED D.R. WAS HEARD IN SUPPORT OF THE GROUNDS RAISED. 5.2 PER CONTRA, THE LEARNED A.R. OF THE ASSESSEE SU PPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A) IN ALLOWING THE ASSESSE ES CLAIM OF DEPRECIATION ON GOODWILL. THE LEARNED A.R. DREW THE ATTENTION OF THE BENCH TO THE ORDERS OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 3077/MUM/2012 DATED 25.03.2005 FOR A.Y. 2007-08 AND SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED AN D DECIDED IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCH, FOLLOWING THE ORDER OF THE ASSESSEES WON CASE FOR A.Y. 2006-07 IN ITA NO., 3078/MUM/2012 DATED 28.03.2014. 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON (SUPRA). WE FIND THA T THE COORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER IN ITA NO. 3077/MUM/2 012 DATED 25.03.2015 IN THE ASSESSEES OWN CASE FOR A.Y. 2007-08 HAS DEC IDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE WHEREIN, FOLLOWING THE DE CISION OF THE HON'BLE APEX COURT IN THE CASE OF SMIFS SECURITIES LTD. (34 8 ITR 302) AND OF ASSESSEES OWN CASE FOR A.Y. 2006-07 (SUPRA), IT HA S HELD AS UNDER AT PARAS 7 AND 8 THEREOF: - 7. BEFORE US, ASSESSEE RAISED AN ADDITIONAL GROUND RELATING TO THE GRANTING OF DEPRECIATION OF GOODWILL ACQUIRED IN AY 2006-2007. THE ASSESSEE MADE A FORMAL REQUEST VIDE HIS LETTER DATE D 5.5.2014 INFORMING THAT ACQUIRING GOODWILL FROM BILAG INDUST RIES PRIVATE LIMITED IN THE AY 2006-2007. THE GOODWILL WAS ORIGINALLY N OT CLAIMED IN THE RETURN. HOWEVER, THE SAME WAS CLAIMED BY WAY OF R AISING ADDITIONAL GROUND IN THE APPEAL FOR THE AY 2006-2007 AND THE S AME WAS ADMITTED AND ADJUDICATED IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE ORDER OF TH E TRIBUNAL IN THE ITA NO. 3915/MUM/2015 M/S. SUMITOMO CHEMICAL P. LTD. 5 ASSESSEES OWN CASE FOR THE AY 2006-07 (SUPRA) AND BROUGHT OUR ATTENTION TO PARA 3 OF THE SAID ORDER OF THE TRIBUN AL (SUPRA) WHEREIN THE ADDITIONAL GROUND WAS CONSIDERED, ADMITTED AND ADJUDICATED. PARAS 45 TO 47 ARE RELEVANT IN THIS REGARD WHEREIN THE TRIBUNAL ALLOWED THE CLAIM OF DEPRECIATION ON GOODWILL RELYI NG ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF SMIFS SECURITIES L TD REPORTED IN 348 ITR 302. AFTER HEARING BOTH THE PARTIES, WE HAVE P ERUSED THE SAID PARA 44 TO 47 AND FOR THE SAKE OF COMPLETENESS OF T HIS ORDER, THE SAME ARE EXTRACTED AS UNDER: 44. THE ASSESSEE HAD ALSO FILED ANOTHER ADDITIONAL GOA TO ALLOW DEPRECIATION ON GOODWILL AND NON COMPETE FEE. 45. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY TH E ASSESSEE AND WE FIND THAT THE ISSUE OF GOODWILL STA NDS COVERED BY THE HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD REPORTED IN 348 ITR 302, WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT INTANGIBLES LIKE GOODWI LL ARE ELIGIBLE FOR DEPRECIATION. 46. HOWEVER IN SO FAR AS NON COMPETE FEE IS CONCERN ED, THE NATURE OF THIS PAYMENT IS NOW COVERED U/S 28(VA) OF THE INCOME TAX ACT, 1961 HENCE, IT WOULD BE REVENUE IN NATURE. 47. WE, THEREFORE, DIRECT THE AO TO ALLOW THE DEPRE CIATION ON GOODWILL AS PER LAW AND CONSIDER THE PAYMENT OF NON COMPETE FEE, IN TERMS OF SECTION 28(VA), TO CONSIDE R TO ALLOW RS. 3,05,40,600/- AS REVENUE EXPENDITURE. 8. CONSIDERING THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AS WELL AS FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTE D AND ADJUDICATED IN FAVOUR OF THE ASSESSEE. 5.3.2 RESPECTFULLY FOLLOWING THE DECISIONS OF THE H ON'BLE APEX COURT IN THE CASE OF SMIFS SECURITIES LTD. (348 ITR 302) AND OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2 006-07 (SUPRA) AND 2007-08 (SUPRA), WE UPHOLD THE DECISION OF THE LEAR NED CIT(A) IN ALLOWING THE ASSESSEES CLAIM FOR DEPRECIATION ON GOODWILL. CONSEQUENTLY, GROUND NO. 2 OF THE REVENUES APPEAL IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2009-10 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 2017. SD/ - SD/ - (SANJAY GARG) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 15 TH MARCH, 2017 ITA NO. 3915/MUM/2015 M/S. SUMITOMO CHEMICAL P. LTD. 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -8, MUMBAI 4. THE CIT - 3, MUMBAI 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.