WSA ENGINEERS INDIA P.LTD, MUMBAI V. ITO 7(3)(4), MUMBAI

ITA 4061/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9820 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 14-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN , ACCOUNTANT MEMBER ITA NO . 4061 /MUM. /2016 ( ASSESSMENT YEAR : 2009 10 ) WSA ENGINEERS INDIA PVT. LTD. 351, TARDEO AIR CONDITIONED MARKET TARDEO ROAD, MUMBAI 400 034 PAN AAACW3941M . APPELLANT V/S INCOME TAX OFFICER WARD 7(3)(4), MUMBAI . RESPONDENT ITA NO .4062/MUM./2016 ( ASSESSMENT YEAR : 2011 12 ) WSA ENGINEERS INDIA PVT. LTD. 351, TARDEO AIR CONDITIONED MARKET TARDEO ROAD, MUMBAI 400 034 PAN AAACW3941M . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 7(3), MUMBAI . RESPONDENT ASSESSE E BY : SHR I VIPUL JOSHI A/W SHRI KEYURI DESAI AND SHRI DINKLE HARIYA REVENUE BY : SHR I SAURABH KUMAR RAI DATE OF HEARING 12.06.2017 DATE OF ORDER 23.08.2017 O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL S BY THE ASSESSEE ARE AGAINST TWO SEPARATE ORDER S , BOTH DATED 31 ST MARCH 2016, PASSED BY THE LEARNED 2 WSA ENGINEERS INDIA PVT. LTD. COMMISSIONER (APPEALS) 14, MUMBAI, FOR THE ASSESSMENT YEAR S 2009 10 AND 20 11 12 . 2 . T HE SOLITARY ISSUE IN DISPUTE , WHICH IS COMMON IN BOTH THE APPEALS RELATES TO DISALLOWANCE OF DEPRECIATION CLAIMED ON COMMERCIAL RIGHTS. 3 . BRIEFLY STATED THE FACTS WHICH ARE MORE OR LESS COMMON IN BOTH THE APPEALS ARE , THE ASSESSEE A COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING CONSULTANCY SERVICES. DURING THE ASSESSMENT PROCEEDINGS, FOR ASSESSMENT YEAR 2009 10, THE ASSESSING OFFICER ON VERIFYING THE AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE FOUND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF ` 91,21,399 ON COMMERCIAL RIGHTS. THEREFORE, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH NECESSARY DETAILS OF COMMERCIAL RIGHTS AND JUSTIFY ITS CLAIM OF DEPRECIATION. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD SIGNED A CONTENT MARKETING AGREEMENT WITH SCHOLNET INDIA LTD. ON 28 TH SEPTEMBER 2002, WITH RIGHT TO MARKET THE SCHOLNET PRODUCT FOR A LUMPSUM CONSIDERATION OF ` 125 MILLION. IT WAS SUBMITTED, IN CONTINUATION TO THE SAID AGREEMENT, THE ASSESSEE HAS ENTERED INTO ANOTHER AGREEMENT WITH SCHOLNET FOR I.T. SERVICES AND FOR MARKETING FOR A LUMP SUM FEE OF ` 75 MILLION. AS PER THE SECOND AGREEMENT, SCHOLNET OFFERS RIGHTS TO ASSESSEE FOR MARKETING IDENTIFIED PACKAGES. ON EXAMINING THE TERMS OF THE CONTENT MARKETING AGREEMENT THE 3 WSA ENGINEERS INDIA PVT. LTD. ASSESSING OFFICER WAS OF THE VIEW THAT SCHOLNET HAS ONLY AUTHORIZE D THE ASSESSEE TO MARKET AND DISTRIBUTE SOME SPECIFIED PRODUCTS. THE OWNERSHIP OF THE ASSET REMAINS WITH SCHOLNET. PAYMENT MADE TO SCHOLNET IS IN THE N ATURE OF A DEPOSIT. FROM THE VOUCHERS SUBMITTED BY THE ASSESSEE THE ASSESSING OFFICER FOUND THAT THERE IS NO PAYMENT OF VAT OR SERVICE TAX ON SERVICE S CLAIMED TO HAVE BEEN RENDERED OR ON SALE OF PRODUCT. HE ALSO ALLEGED , BOOKS OF ACCOUNT INDICATING THE SAL ES TRANSACTIONS WERE NEVER PRODUCED. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS NOT CARRIED ON ANY ACTIVITY UTILIZING THE ASSETS CLAIMED TO HAVE BEEN ACQUIRED FROM SCHOLNET, HENCE, CLAIM OF DEPRECIATION CANNOT BE ALLOWED. ON IDENTICAL RE ASONING, THE ASSESSING OFFICER DISALLOWED DEPRECIATION CLAIMED OF ` 51,31,485, IN ASSESSMENT YEAR 2011 12 ALSO. BEING AGGRIEVED OF SUCH DISALLOWANCE, THE ASSESSEE PREFERRED APPEALS BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THOUGHT T H E ASSESSEE ADMITS THAT THERE WAS NO REALIZABLE VALUE OF THE COMMERCIAL RIGHTS AND THE ENTIRE VALUE OF COMMERCIAL RIGHT WAS WRITTEN OFF, HOWEVER, THE ASSESSEE STILL CLAIMS DEPRECIATION ON THE REASONING THAT IT CONTINUES TO HOLD THE ASSET. THEREFORE, THE LEARNED COMMISSIONER (APPEALS) HELD THAT WHEN THE ASSESSEE ITSELF DOES NOT HAVE REALIZABLE VALUE AND THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO INDICATE USE OF ASSET OR 4 WSA ENGINEERS INDIA PVT. LTD. PROSPECT OF USE OF ASSET IN FUTURE , THERE IS NO QUESTION OF ALLOWING DEPRECIATION ON SUCH ASSET. ACCORDINGLY, HE SUSTAINED DISALLOWANCE OF ASSESSEES CLAIM OF DEPRECIATION IN BOTH THE ASSESSMENT YEARS. 5 . LE ARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE ASSESSEE EXECUTED THE CONTENT MARKETING AGREEMENT IN THE YEAR 2003 AND IN PURSUANCE TO SUCH AGREEMENT THE ASSESSEE HAS ACQUIRED A RIGHT OVER THE PRODUCT OF SCHOLNET WHICH IS IN THE NATURE OF INTANGIBLE ASSET. HE SUBMITTED, THE ONLY REASON THE DEPARTMENTAL AUTHORITIES DISALLOWED ASSESSEES CLAIM OF DEPRECIATION IS , SUCH ASSET HA S NOT GENERATED CORRESPONDING INCOME. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, ONCE THE ASSET HAS ENTERED THE BLOCK , DEPRECIATIO N CANNOT BE DISALLOWED UNLESS THE ASSET IS SOLD OR THE BLOCK ITSELF CEASES TO EXIST. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE ASSESSEE FROM THE DATE OF ACQUIRING ASSET HAS CLAIMED DEPRECIATION RIGHT FROM ASSESSMENT YEAR 2003 04 AND WHILE COMPLE TING THE ASSESSMENT FOR THE SAID ASSESSMENT YEAR THE ASSESSING OFFICER HAS EXAMINED IN DETAIL ASSESSEES CLAIM OF DEPRECIATION ON COMMERCIAL RIGHT AND BEING SATISFIED WITH THE GENUINENESS OF ASSESSEES CLAIM HAD ALLOWED DEPRECIATION. HE SUBMITTED, IN SUBSE QUENT ASSESSMENT YEAR S ALSO ASSESSEES CLAIM DEPRECIATION ON COMMERCIAL RIGHT WAS ALLOWED. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2005 06. LEARNED AUTHORISED REPRESENTATIVE 5 WSA ENGINEERS INDIA PVT. LTD. SUBMITTED, IT IS NOT A FACT THAT THE ASSESSEE HAS NOT DERIVED ANY INCOME FROM UTILISATION OF THE ASSET. HE SUBMITTED, IN THE PR E CEDING ASSESSMENT YEARS ASSESSEE DERIVED INCOME FROM UTILISATION OF ASSET . O NLY IN THE IMPUGNED ASSESSMENT YEAR THERE WAS NO SALES, HOWEVER, THAT DOES NO T MEAN THAT ASSET WILL NEVER BE PUT TO USE IN FUTURE. HE SUBMITTED, ONCE THE ASSESSEE HAS ACQUIRED THE ASSETS AND THEY HAVE BEEN PUT TO USE , IT WOULD BE ELIGIBLE TO CLAIM DEPRECIATION. IN SUPPORT OF HIS CONTENTION, LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) DCIT V/S BOSKALIS DREDGING INDIA PVT. LTD., [2012] 53 SOT 17 (MUM.); II ) INDIA MEDTRONIC PVT. LTD. V/S DCIT, [2016] 66 TAXMANN.COM 218 (MUM.); AND III ) E CITY ENTERRTAINMENT (I) PVT . LTD., [2013] 24 ITR 73 (MUM.). 6 . LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 7 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED U PON. A PLAIN READING OF THE ASSESSMENT ORDER AND THE FIRST APPELLATE ORDER MAKES IT CLEAR THAT ASSESSEES CLAIM OF DEPRECIATION ON THE COMMERCIAL RIGHTS HAVE NOT BEEN ALLOWED FOR THE IMPUGNED 6 WSA ENGINEERS INDIA PVT. LTD. ASSESSMENT YEARS BASICALLY FOR THE REASON THAT NO INCOME WAS GEN ERATED BY UTILISING SUCH ASSETS . H OWEVER, IT IS A F A CT ON RECORD THAT ASSESSEE HAD ACQUI R ED THE COMMERCIAL RIGHTS FROM SCHOLNET INDIA LTD. BY ENTERING INTO A CONTENT DEVELOPMENT AGREEMENT AND THE TOTAL ONE TIME CONSIDERATION PAID BY THE ASSESSEE IS ` 20 CRORE . I T IS ALSO ON RECORD THAT IN ASSESSMENT YEAR 2003 04 FOR THE FIRST TIME ASSESSEE CLAIMED DEPRECIATION ON THE COMMERCIAL RIGHT BY TREATING IT AS AN INTANGIBLE ASSET. THE ASSESSING OFFICER AFTER THOROUGHLY EXAMIN ING ASSESSEES CLAIM OF DEPRECIATIO N ON COMMERCIAL RIGHT HAD ALLOWED THE SAME. IN FACT, ASSESSEES CLAIM OF DEPRECIATION ON COMMERCIAL RIGHT CONTINUED TO BE ALLOWED TILL ASSESSMENT YEAR 2008 09. THUS, THE AFORESAID FACTS CLEARLY PROVE THAT ASSESSEE HAS NOT ONLY ACQUIRED THE ASSET IN QUESTIO N BUT HAS UTILISED IT FOR THE PURPOSE OF BUSINESS. THE QUESTION, THEREFORE, IS WHETHER FAILURE TO GENERATE INCOME BY UTILIZING SUCH ASSET IN THE IMPUGNED ASSESSMENT YEAR WOULD DEBAR THE ASSESSEE FROM CLAIMING DEPRECIATION ON IT. IN THIS CONTEXT, ASSESSEES ARGUMENT IS TWO FOLD. FIRSTLY, ONCE THE ASSET HAS ENTERED THE BLOCK ASSESSEES CLAIM OF DEPRECIATION HAS TO BE ALLOWED UNLESS THE ASSET IS SOLD OR THE BLOC K CEASES TO EXIST. THE SECOND CONTENTION OF THE ASSESSEE IS , EVEN IF THE ASSET IS NOT USED FOR A PAR TICULAR PERIOD DUE TO SOME REASON OR OTHER , STILL DEPRECIATION IS ALLOWABLE. WE FIND, THOUGH, THE ASSESSEE HAS MADE THE AFORESAID SUBMISSIONS BEFORE THE LEARNED COMMISSIONER (APPEALS), HE HAS TOTALLY IGNORED SUCH SUBMISSIONS OF THE ASSESSEE AND 7 WSA ENGINEERS INDIA PVT. LTD. HAS SUSTAIN ED THE DISALLOWANCE BY MERELY OBSERVING THAT THERE IS NO EVIDENCE OF USE OF ASSET OR PROSPECT OF USE OF ASSET IN FUTURE. FURTHER, WE FIND THAT THE DECISION RELIED UPON BY THE LEARNED COMMISSIONER (APPEALS) TO ARRIVE AT HIS CONCLUSION IS NOT APPLICABLE TO T HE FACTS OF THE PRESENT CASE. THE ASSESSEE HAS NEITHER CLOSED DOWN ITS BUSINESS ACTIVITY NOR THERE IS A N Y CONCLUSIVE EVIDENCE BROUGHT ON RECORD BY THE REVENUE TO INDICATE TH AT ASSESSEE HAS PERMANENTLY STOPPED UTILIZING THE COMMERCIAL RIGHT . SINCE , THE SUBM ISSIONS MADE BY THE ASSESSEE HAVE NOT BEEN CONSIDERED EITHER BY THE LEARNED COMMISSIONER (APPEALS) OR BY THE ASSESSING OFFICER , WE ARE INCLINED TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH AFTER DULY CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE RATIO LAID DOWN IN THE DECISION S WHICH THE ASSESSEE MAY RELY UPON. NEEDLESS TO SAY, THE ASSESSING OFFICER MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. 8 . IN THE RESULT, ASSESSEES APPEAL S A RE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.2017 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 23.08.2017 8 WSA ENGINEERS INDIA PVT. LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI .