WADHAWAN FOOD RETAIL P.LTD, MUMBAI V. DCIT CIR 10(1), MUMBAI

ITA 4809/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4526 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJAY R SINGH
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Additional evidence; Cost of acquisition; Valuation report; Revenue expenditure; Capital expenditure
• Section: 143(3); 32

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4725 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) DCIT 10(1), 455,AAYAKAR BHAVAN, 4 TH FLOOR, M.K. MARG, MUMBAI 400 020 / V. M/S WADHWAN FOOD RETAIL PVT. LTD., GROUND FLOOR, DHEERAJ ARMA, A.K. MARG, BANDRA (E), MUMBAI 400 051. ./ PAN :AAACW6147R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 4809 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) M/S WADHWAN FOOD RETAIL PVT. LTD., GROUND FLOOR, DHEERAJ ARMA, A.K. MARG, BANDRA (E), MUMBAI 400 051. / V. DCIT 10(1), 455, AAYAKAR BHAVAN, 4 TH FLOOR, M.K. MARG, MUMBAI 400 020 ./ PAN : AAACW6147R ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SH RI ABANI KANTA NAYAK ASSESSEE BY : SHRI AJAY R. SINGH / DATE OF HEARING : 18-11-2015 / DATE OF PRONOUNCEMENT : 04-01-2016 ITA 4809/M/12 & ITA 4725/M/12 2 !' / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE COMPANY ARE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) 21, MUMBAI (HEREINAFTER CALLED THE CI T(A)) DATED 13.04.2012 PERTAINING TO THE ASSESSMENT YEAR 2008-09. THESE AP PEALS ARE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE O F CONVENIENCE AND BREVITY. 2. FIRSTLY, WE SHALL TAKE UP ASSESSEE COMPANYS APP EAL IN ITA NO. 4809/MUM/2012 WHEREIN THE FOLLOWING GROUNDS OF APPE AL HAVE BEEN RAISED BY THE ASSESSEE COMPANY IN MEMO OF APPEAL FILED WIT H THE TRIBUNAL:- 1) THE HON'BLE COMMISSIONER OF INCOME TAX (APPEAL) - 21, MUMBAI [CIT (A)] HAS ERRED IN LAW AND IN FACTS BY DISALLOW ING DEPRECIATION ON GOODWILL OF RS. 89,42,899/- ON ALLEGED GROUND THAT - (I.) THE GOODWILL IS NOT AN INTANGIBLE ASSET COVER ED BY THE PART B OF THE APPENDIX I OF THE INCOME TAX RULES, 1962 O R WITHIN THE MEANING OF THE SEC. 32(1)(II) AND THUS NOT ELIGIBLE FOR DEPRECIATION; AND (II.) HOLDING THAT THE EXCESS AMOUNT PAID BY THE AP PELLANT FOR THE PURCHASE OF BUSINESS OF 'SANGAM DIRECT' FROM HI NDUSTAN LEVER LTD., OVER THE BOOK VALUE OF THE ASSETS, IS N OT GOODWILL. 2) THE CIT(A) HAS FURTHER ERRED IN LAW AND IN FACTS BY DISALLOWING PRELIMINARY EXPENSES WRITTEN OFF OF RS. 14,00,000/- U/S. 35D OF THE INCOME TAX ACT, 1961, BY HOLDING THAT THE EXPENDITU RE INCURRED ON FEES PAID TO REGISTRAR OF COMPANIES FOR INCREASING THE A UTHORIZED SHARE CAPITAL AFTER COMMENCEMENT OF BUSINESS IS NOT COVER ED BY SUB CLAUSE 2(C)(IV) OF SECTION 35D OF THE INCOME TAX ACT, 1961 . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF RETAIL STORE AND TRADING BUSINESS O F STAPLES & FOOD PRODUCTS, HOME AND PERSONAL CARE PRODUCTS AND GENERAL MERCHAN DISE. THE ASSESSEE ITA 4809/M/12 & ITA 4725/M/12 3 COMPANY IS OPERATING THE RETAIL STORE CHAIN SPINAC H AND ALSO RUNNING THE SANGAM DIRECT DIRECT TO HOME NON-STORE HOME DELIV ERY SYSTEM. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S 143(3) REA D WITH SECTION 143(2) OF INCOME TAX ACT,1961(HEREINAFTER CALLED THE ACT) , THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) NOTICED THAT THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION OF RS. 89,42,899/- ON GOODWILL @ 25%. THE ASSESSEE COMPANY WAS ASKED TO EXPLAIN AS TO WHY THE CLAIM SH OULD NOT BE DISALLOWED AS GOODWILL IS NOT A DEPRECIABLE INTANGIBLE ASSET A S PER PART B OF APPENDIX I OF INCOME TAX RULES, 1962. IN REPLY , THE ASSESSEE CO MPANY EXPLAINED THAT THE ASSESSEE COMPANY HAS PAID EXCESS AMOUNT THAN THE VA LUE OF ASSETS AT THE TIME OF ACQUISITION OF ITS SUBSIDIARY. THE DIFFERE NCE BETWEEN THE ACQUISITION COST AND THE BOOK VALUE OF THE ASSETS IS REQUIRED T O BE TERMED AS GOODWILL OR CAPITAL RESERVE AS SPECIFIED IN ACCOUNTING STANDARD 21 - CONSOLIDATED FINANCIAL STATEMENT. THE SAID GOODWILL IS NOTHING BUT AN INTANGIBLE ASSET WHICH IS REQUIRED TO BE WRITTEN OFF SUITABLY IN THE BOOKS OF ACCOUNT WHICH IS MANDATORILY REQUIRED TO BE FOLLOWED BY ALL COMPANIE S AS PER THE SAID ACCOUNTING STANDARD W.E.F. 01.04.2001 . HENCE, THE ASSESSEE COMPANY SUBMITTED THAT IT HAS WRITTEN OFF IN THE BOOKS OF A CCOUNT THE GOODWILL BY CLAIMING DEPRECIATION U/S 32(1)(II) OF THE INCOME T AX ACT, 1961 WHICH IS ALLOWABLE ON GOODWILL AS DEDUCTION UNDER THE ACT. THE ASSESSEE COMPANY RELIED UPON THE FOLLOWING DECISIONS:- 1. KOTAK FOREX BROKERAGE LTD. VS. ACIT, ITAT MUMBAI 2. SKYLINE CATERERS P. LTD. VS. ITO WARD 8(3)(2) MUMBA I, 20 SOT 266 3. HINDUSTAN COCA COLA BEVERAGES P. LTD, DELHI TRIBUNA L. THE ABOVE SUBMISSIONS WERE NOT ACCEPTED BY THE A.O. AND THE AO REJECTED THE ASSESSEE COMPANYS CONTENTION BY HOLDING THAT GOODW ILL IS NOT A TANGIBLE ASSET COVERED UNDER PART A OF THE APPENDIX I OF THE INCOM E TAX RULES, 1962. THE INTANGIBLE ASSET AS PER PART B OF THE APPENDIX I TO INCOME TAX RULES,1962 ARE ITA 4809/M/12 & ITA 4725/M/12 4 KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSE S, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THUS , THE AO HELD THAT THE GOODWILL DID NOT FORM PART OF INTANGIBLE ASSET AS C OULD BE SEEN FROM THE DEFINITION OF INTANGIBLE ASSET AS DETAILED ABOVE UN DER THE ACT. THE A.O. ALSO HELD THAT THE DECISION RELIED UPON BY THE ASSESSEE COMPANY WERE NOT FINAL JUDGMENT ON THE ISSUE. THE A.O. RELIED UPON THE DEC ISION OF DELHI ITAT IN THE CASE OF ESQUIRE TECHNOLOGIES P. LTD. V. ITO (2008) 21 SOT 503, R.G. KESHWANI V. ACIT (2009) 116 ITD 133 (MUM.) AND SUPREME TRAVE LS P. LTD. V. DCIT (2009) 23 DTR (BOM) 215 AND HELD THAT GOODWILL IS N OT AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION. THUS, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE COMPANY FOR DEPRECIATION ON GOODWILL AMOUNTING TO R S. 89,42,899/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE COMPANY VIDE ASSESSMENT ORDERS DATED 06 TH MAY 2010 PASSED U/S 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 06 TH MAY 2010 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY PREF ERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE COMPANY HAD PAID EXCESS AMOUNT THAN THE VALUE OF THE ASSETS AT THE TIME OF ACQUISI TION OF THE BUSINESS OF SANGAM DIRECT FROM UNILEVER INDIA EXPORTS LTD. AN D ACCORDINGLY THE DIFFERENCE BETWEEN THE ACQUISITION COST AND THE BOO K VALUE OF THE ASSETS WAS REQUIRED TO BE TERMED AS GOODWILL OR CAPITAL RESER VE AS SPECIFIED IN THE ACCOUNTING STANDARD. THE ASSESSEE COMPANY SUBMITTE D THAT THE EXCESS AMOUNT PAID WAS TOWARDS USE OF BRAND NAME SANGAM, ITS REPUTATION BUILT UP IN THE MARKET AND TO EFFECTIVELY CARRY ON THE BU SINESS OF ACQUIRING COMPANY. THE VALUATION OF THE BUSINESS WAS CONDUCT ED BY A WORLD RENOWNED CONSULTANCY FIRM ERNST & YOUNG PVT. LTD. AND THE ANALYTICAL REPORT DATED 29.01.2007 WAS FILED BY THE ASSESSEE COMPANY DURING THE APPELLATE PROCEEDINGS BEFORE THE CIT(A). THE ASSESSEE COMPANY SUBMITTED THAT THE GOODWILL ARISING ON SUCH ACQUISITION BEING A VALUAB LE COMMERCIAL ASSET SIMILAR IN NATURE TO OTHER INTANGIBLE SPECIFIED IN THE DEFINITION OF BLOCK OF ITA 4809/M/12 & ITA 4725/M/12 5 ASSETS HAD BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT S OF THE ASSESSEE COMPANY WHICH WAS ALLOWABLE AS DEDUCTION BEING DEPRECIATION U/S 32(1)(II) OF THE ACT. THE ASSESSEE SUBMITTED THAT THE GOODWILL ACQUIRED A RE SIMILAR TO OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. TH E ASSESSEE COMPANY SUBMITTED THAT THE EXCESS AMOUNT PAID BY THE ASSESS EE COMPANY WAS TOWARDS USE OF REPUTATION BUILT UP IN THE MARKET , BRAND NA ME SANGAM AND TO EFFECTIVELY CARRY ON THE BUSINESS OF ACQUIRING COMP ANY. THE ASSESSEE COMPANY RELIED ON THE FOLLOWING DECISIONS BEFORE THE CIT(A ):- (I) CIT VS. HINDUSTAN COCA COLA BEVERAGES PVT.LTD. (2011-TIOL 33HC-DEL-IT, ITA NOS. 1391/2010,1394/201 0 AND 1396/2010, DELHI HC) (II) SKYLINE CATERERS PVT. LTD. VS. ITO 8(3)(2), MUMBAI (2007-TIOL-5174-ITAT-MUM, ITAT, MUMBAI) (III) KOTAK FOREX BROKERAGE LTD. VS. ACIT RG 3(2), MUMBAI (2009-TIOL-711-ITAT-MUM, ITAT, MUMBAI) (IV) DCIT LTU, BANGALORE VS. HEWLETT PACKARD INDIA SALES P. LTD. (2011-TIOL-224-ITAT-BANG, ITAT BANGALORE) (V) PIEM HOTELS LTD. (TAJ PRESIDENT) VS. DCIT RANGE 3(2 ), MUMBAI (2010-TIOL-541-ITAT-MUM, ITAT, MUMBAI) (VI) A P PAPER MILLS LTD. VS. ACIT CIRCLE 3(3), HYDERABA D (2009-TIOL-821-ITAT-HYD, ITAT, HYDERABAD) (VII) PIAGGIO VEHICLE PVT. LTD. VS. DCIT CIRCLE 1(2), PUN E (2009 TIOL-626-ITAT PUNE, ITAT PUNE). AND THE ASSESSEE COMPANY REQUESTED THE CIT(A) THAT THE DISALLOWANCE OF DEPRECIATION ON GOODWILL AMOUNTING TO RS.89,42,899/ - MADE BY THE A.O. SHOULD BE DELETED. ITA 4809/M/12 & ITA 4725/M/12 6 5. THE CIT(A) AFTER CONSIDERING THE FACTS OF THE C ASE AND SUBMISSION MADE BY THE ASSESSEE COMPANY OBSERVED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RETAIL STORE AND TRADING BUSINESS O F STAPLES AND FOOD PRODUCTS, HOME AND PERSONAL CARE PRODUCTS AND GENERAL MERCHAN DISE. THE ASSESSEE COMPANY IS DOING BUSINESS THROUGH RETAIL CHAIN STOR E IN THE NAME OF SPINACH. THE CIT(A) OBSERVED THAT UNILEVER INDIA EXPORT LIMITED WAS ALSO ENGAGED IN THE BUSINESS OF SALE OF GROCERY ITEMS UN DER DIRECT TO HOME FORMAT WHERE THE CUSTOMER PLACE ORDERS BY PHONE OR THROUGH THE WEBSITE AND COMPANYS NETWORK WAS DELIVERING SUCH ITEMS DIRECTL Y TO THE HOMES OF THE CUSTOMERS UNDER THE BRAND NAME SANGAM DIRECT . TH E CIT(A) OBSERVED THAT DURING THE PREVIOUS YEAR , THE ASSESSEE COMPANY HAS ACQUIRED BUSINESS OF SANGAM DIRECT FROM M/S UNILEVER INDIA EXPORT LIMI TED FOR AN AMOUNT OF (FIGURES NOT SUPPLIED BY THE ASSESSEE COMPANY (BEFO RE THE CIT(A)) ) AND THE ASSESSEE COMPANY CLAIMED THAT AMOUNT PAID IN EXCESS TO THE VALUE OF NET ASSET AT THE TIME OF ACQUISITION OF SUCH BUSINESS R EPRESENTS GOODWILL WHICH IS AN INTANGIBLE ASSET AND ELIGIBLE FOR CLAIM OF DEPRE CIATION U/S 32(1)(II) OF THE ACT AS CLAIMED BY THE ASSESSEE COMPANY . THE CIT(A) FORMULATED TWO QUESTIONS FOR DETERMINATION (A) WHETHER THE EXCESS AMOUNT PAID BY THE ASSESSEE WAS REPRESENTING GOODWILL AND (B) IF SO TH E GOODWILL WAS INTANGIBLE ASSET ELIGIBLE FOR DEDUCTION U/S 32(1)(II) OF THE A CT. THE FIRST QUESTION FOR CONSIDERATION BEFORE THE CIT (A) WAS WHETHER THE ASSESSEE COMPANY ACQUIRED ANY GOODWILL AND WHETHER THE EXCESS AMOUNT PAID BY ASSESSEE COMPANY WAS REPRESENTING GOODWILL. IN THIS REGARD, THE CIT(A) OBSERVED THAT THE ASSESSEE COMPANY HAS PURCHASED TH E BUSINESS OF SANGAM DIRECT FROM M/S HINDUSTAN LEVER LTD. THE VALUATI ON OF SUCH BUSINESS WAS MADE BY M/S ERNST & YOUNG P. LTD. THE COPY OF VALUA TION REPORT WAS DULY FILED BEFORE THE CIT(A) BY THE ASSESSEE COMPANY, WH ICH WAS DISCUSSED BY THE CIT(A) IN HIS ORDER DATED 13-04-2012 FROM PAGES 5 T O 7. THE CIT(A) AFTER CONSIDERING THE VALUATION REPORT PREPARED BY ERNST & YOUNG P. LTD. SUBMITTED ITA 4809/M/12 & ITA 4725/M/12 7 BY THE ASSESSEE COMPANY HELD THAT THE ASSESSEE COMP ANY HAS NOT ACQUIRED ANY GOODWILL OF SANGAM DIRECT BUSINESS FROM M/S H INDUSTAN UNILEVER LTD. BECAUSE THE BUSINESS OF SANGAM DIRECT WAS CONTINU OUSLY RUNNING IN LOSSES SINCE ITS INCEPTION/COMMENCEMENT FROM 2001. THEREFORE, ANY BUSINESS WHICH IS CONTINUOUSLY EARNING LOSSES CANNO T HAVE ANY POSITIVE REPUTATION WHICH COULD BE TERMED AS GOODWILL IN THE MARKET. THE CIT(A) REFERRED TO THE REPORT OF THE CONSULTANCY FIRM AND HELD THAT THE BRAND NAME SANGAM DIRECT WAS NOT POPULAR AMONG THE PUBLIC. THUS, THE CIT(A) HELD THAT, WITH REGARD TO QUESTION NO. (I) THAT THE ASSE SSEE DID NOT ACQUIRE ANY GOODWILL OF THE ACQUIRED BUSINESS OF SANGAM DIRECT SINCE THE SANGAM DIRECT BUSINESS HAD NO POSITIVE REPUTATION CALLED GOODWIL L AND THE AMOUNT PAID BY THE ASSESSEE COMPANY IN EXCESS OF THE BOOK VALUE OF THE ASSETS OF THE ACQUIRED BUSINESS SANGAM DIRECT DID NOT REPRESENT GOODWILL. THUS ASSESSEE COMPANYS CLAIM FOR DEPRECIATION WAS NOT ALLOWED. WITH RESPECT TO QUESTION NO.(II) FRAMED BY THE CIT(A) WHETHER THE GOODWILL W AS INTANGIBLE ASSET ELIGIBLE FOR DEDUCTION U/S 32(1)(II) OF THE ACT, THE CIT(A) OBSERVED THAT SECTION 32 OF THE ACT WAS AMENDED BY FINANCE ACT, 1998 W.E.F. 1.4 .1999, WHEREBY SUB CLAUSE (II) WAS INSERTED IN SECTION 32(1) MAKING AV AILABLE DEPRECIATION ON INTANGIBLE ASSETS SUCH AS KNOW-HOW, PATENTS, COPY R IGHTS, TRADE MARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHT OF SIMILAR NATURE BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER 1-4-1998. THE CIT(A) OBSERVED THAT VARIOUS JUDICIAL DECISIONS HAVE INTER PRETED THE TERM GOODWILL AS AN INTANGIBLE ASSET IN DIFFERENT MANNER AND AFTER C ONSIDERING THE SEVERAL DECISIONS, THE CIT(A) HELD THAT GOODWILL IS NOT LIS TED IN THE SIX ITEMS MENTIONED IN THE SECTION 32(1)(II) OF THE ACT. THE CIT(A) OBSERVED THAT THE ALLEGED ASSET ACQUIRED BY THE ASSESSEE COMPANY I.E. GOODWILL WAS NOT A BUSINESS OR COMMERCIAL RIGHTS SIMILAR IN NATURE TO KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSES AND FRANCHISES. TH E SIX ITEMS ARE USED IN THE BUSINESS AND THESE ITEMS GENERATES INCOME IN FUTURE YEARS AND THEREFORE THE CONSIDERATION PAID AGAINST THESE ITEMS COULD BE CON SIDERED ELIGIBLE FOR ITA 4809/M/12 & ITA 4725/M/12 8 DEPRECIATION. HOWEVER, IN THE CASE OF ASSESSEE COMP ANY THE ALLEGED GOODWILL AMOUNT WAS NEITHER PAID FOR THESE SIX ITEMS NOR FOR ANY BUSINESS OR COMMERCIAL RIGHT SIMILAR IN NATURE OF THESE SIX ITE MS WAS ACQUIRED BY THE ASSESSEE COMPANY. AS EXPLAINED ABOVE, THE ACQUIRED BUSINESS 'SANGAM DIRECT' WAS CONTINUOUSLY RUNNING IN LOSSES AND THER EFORE, WAS NOT HAVING ANY POSITIVE REPUTATION BUILT OVER A PERIOD OF TIME. SU CH NEGATIVE REPUTATION WAS HAVING NO COMMERCIAL VALUE. THE TRUE BASIS OF DEPRE CIATION ALLOWABLE IS CHARACTER OF ASSET AND NOT ITS DESCRIPTION. THE AMO UNT PAID BY ASSESSEE COMPANY FOR ALLEGED GOODWILL WAS NOT FITTING IN THE DESCRIPTION OF SIX ITEMS OF INTANGIBLE ASSETS OR ANY BUSINESS OR COMMERCIAL RIG HTS OF SIMILAR NATURE. THE CIT(A) ALSO HELD THAT WITHOUT PREJUDICE AMOUNT PAID FOR GOODWILL IS NOT ELIGIBLE FOR DEPRECIATION U/S 32 OF THE ACT. THUS THE CLAI M OF THE ASSESSEE COMPANY FOR DEDUCTION OF DEPRECIATION @25% ON GOODWILL , AM OUNTING TO RS.89,42,899/- WAS REJECTED BY THE CIT(A) VIDE ORDE R DATED 13-04-2012. 6.AGGRIEVED BY THE DECISION OF THE CIT(A) VIDE ORDE RS DATED 13-04-2012, THE ASSESSEE COMPANY IS IN FURTHER APPEAL BEFORE THE TR IBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMITT ED BEFORE US THAT THE ASSESSEE COMPANY HAS ACQUIRED BUSINESS SANGAM DIR ECT FROM UNILEVER INDIA EXPORTS LTD. THE ASSESSEE COMPANY SHOWED US , THE REPORT ON VALUATION ANALYSIS OF SANGAM DIRECT BUSINESS OF U NILEVER INDIA EXPORTS LIMITED PREPARED BY ERNST & YOUNG PRIVATE LIMITED A S AT DECEMBER 31, 2006 DATED JANUARY, 29, 2007 WHICH IS FILED IN THE PAPER BOOK BEFORE THE TRIBUNAL AT PAGE 81-139. THE LD. COUNSEL SUBMITTED THAT BAS ED UPON THE ABOVE SAID VALUATION ANALYSIS, THE ASSESSEE COMPANY HAS ACQUIR ED THE BUSINESS SANGAM DIRECT FROM UNILEVER INDIA EXPORTS LIMITED. THE LD COUNSEL OF THE ASSESSEE COMPANY MOVED BEFORE THE TRIBUNAL AN APPLICATION DA TED 02-09-2015 FOR FILING OF ADDITIONAL EVIDENCES UNDER RULE 29 OF THE INCOME TAX APPELLATE TRIBUNAL RULES , 1963 AND PRAYED FOR ADMISSION OF T HE SAID ADDITIONAL ITA 4809/M/12 & ITA 4725/M/12 9 EVIDENCES IN THE INTEREST OF JUSTICE AND SUBMITTED THAT THESE EVIDENCES WERE NEVER CALLED BY THE AO AND THE CIT(A) WHILE ADJUDIC ATING THE RELEVANT PROCEEDINGS AGAINST THE ASSESSEE COMPANY AND HENCE THERE WAS NO OCCASION BEFORE THE ASSESSEE COMPANY TO SUBMIT THESE EVIDENC ES BEFORE THE AO AND THE CIT(A). THESE DOCUMENTS WERE REFERRED TO BY THE ASS ESSEE COMPANY IN ITS SUBMISSIONS BEFORE THE AO AND THE CIT(A) BUT ARE SU BMITTED NOW AS THESE ADDITIONAL EVIDENCES GO TO THE ROOT OF THE MATTER A ND IT IS IMPORTANT AND CRUCIAL THAT THESE ADDITIONAL EVIDENCES BE ADMITTED IN THE INTEREST OF JUSTICE. THE LD. COUNSEL PRODUCED BEFORE US THE ADDITIONAL E VIDENCES BEING THE BUSINESS PURCHASE AGREEMENT , DEED OF ASSIGNMENT A LONG WITH NON-COMPETE AGREEMENT ALL THREE DATED 31-3-2007 ENTERED INTO BE TWEEN UNILEVER INDIA EXPORTS LIMITED/HINDUSTAN LEVER LIMITED AND ASSESSE E COMPANY WHICH ARE PLACED AT PAGE 177-250 OF PAPER BOOK. THE ASSESSEE COMPANY ALSO FILED AS AN ADDITIONAL EVIDENCE COPY OF MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE COMPANY, DETAILS OF PAYMENT MADE AND ASSET S TAKEN OVER IN CHART FORM FOR ACQUISITION OF BUSINESS OF SANGAM DIRECT ALONG WITH PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31-03-2009, WHICH ALL A RE PLACED IN PAPER BOOK AT PAGE 150-176. THE LD. COUNSEL SUBMITTED THAT THE AMOUNT IN EXCESS OF ASSETS ACQUIRED BY THE ASSESSEE REPRESENTS THE GOOD WILL PAID FOR ACQUIRING FOR SUCH ACQUISITION AND IT IS AN INTANGIBLE ASSET WITH IN THE MEANING OF SECTION 32(1)(II) OF THE ACT, HENCE, DEPRECIATION ON THE SA ME SHOULD BE ALLOWED U/S 32 OF THE ACT. THE LD. COUNSEL RELIED UPON THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF CIT V. SMIFTS SECURITIES LTD. (2012) 348 ITR 302 (SC) WHEREBY THE HONBLE SUPREME COURT HELD THAT GOODWIL L IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT AND DE PRECIATION IS ALLOWABLE ON GOODWILL. THE LD. COUNSEL SUBMITTED THAT THE CIT(A ) DOUBTED THE VALUATION REPORT AND HELD THAT NO GOODWILL IS ACQUIRED BY THE ASSESSEE COMPANY AS THE BUSINESS OF SANGAM DIRECT WHICH WAS ACQUIRED IS A LOSS MAKING BUSINESS AND IT CANNOT HAVE ANY GOODWILL. HE SUBMITTED THAT ALL THE AGREEMENTS WITH RESPECT TO SUCH ACQUISITION ARE FILED AS ADDITIONAL EVIDENCE BEFORE US AND THE ITA 4809/M/12 & ITA 4725/M/12 10 ASSESSEE COMPANY SUBMITTED THAT THE AMOUNT PAID IN EXCESS OF THE LUMPSUM PAYMENT MADE FOR THE ACQUISITION OF THE ASSETS IS G OODWILL PAID FOR THE ACQUISITION OF SUCH BUSINESS. THE DETAILS OF SUCH EXCESS AMOUNT PAID BY THE ASSESSEE COMPANY AS GOODWILL IS PLACED AT PAGE 176 OF THE PAPER BOOK WHEREIN IT SHOWS THAT AN AMOUNT OF RS. 3,57,71,594/ - WAS PAID TOWARDS GOODWILL OUT OF TOTAL AMOUNT OF RS. 13,54,26,077/- PAID FOR THE ACQUISITION OF THE BUSINESS OF SANGAM DIRECT. THE LD. COUNSEL A LSO RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT V. MANIPAL UNIVERSAL LEARNING PVT. LTD. (2013) 359 ITR 369 (KA RN.) TO CONTEND THAT THE EXCESS CONSIDERATION PAID OVER VALUE OF THE NET AS SETS ACQUIRED IS IN THE NATURE OF GOODWILL FOR FUTURE PROFIT AND DEPRECIATI ON HAS TO BE ALLOWED OF SUCH EXCESS PAYMENT. THE LD. COUNSEL ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF AREVA T&D INDIA LTD. V. D CIT (2012) 345 ITR 421 (DEL) TO CONTEND THAT THE PAYMENT OVER AND ABOVE TH E BOOK VALUE OF NET TANGIBLE ASSETS IS THE ACQUISITION OF GOODWILL. 8. THE LD. D.R., ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT IN THE LIGHT OF THE VARIOU S DECISIONS REFERRED TO BY THE LD. A.R. AND ADDITIONAL EVIDENCES SUBMITTED BY THE ASSESSEE COMPANY BEFORE THE TRIBUNAL, THE MATTER NEEDS TO BE SENT BA CK TO THE AUTHORITIES BELOW TO VERIFY THE CLAIM OF THE ASSESSEE COMPANY AS THE SAME HAS NOT BEEN VERIFIED BY THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMP ANY HAS ACQUIRED THE BUSINESS OF SANGAM DIRECT FROM UNILEVER INDIA EXP ORTS LTD. FOR A LUMPSUM CONSIDERATION OF RS. 13,54,26,077/- . THE ASSESSEE COMPANY HAS PAID EXCESS AMOUNT OVER THE ASSETS ACQUIRED WHICH THE ASSESSEE COMPANY IS CONTENDING TO BE GOODWILL FOR THE ACQUISITION OF THE SAID BUSI NESS , BUT THE CLAIM OF THE ASSESSEE COMPANY HAS NOT FOUND FAVOUR WITH THE AUTH ORITIES BELOW. THE ITA 4809/M/12 & ITA 4725/M/12 11 ASSESSEE COMPANY HAS RELIED UPON THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF SMIFTS SECURITIES LTD. (SUPRA) , CIT V. MANIPAL UNIVERSAL LEARNING PVT. LTD.(SUPRA) AND AREVA T &D INDIA LIMITED(SUPRA ). THE ASSESSEE COMPANY HAS FILED BEFORE US THE ADDITIONAL EVIDENCES IN TER MS OF RULE 29 OF INCOME TAX APPELLATE TRIBUNAL RULES, 1963 AND PRAYED FOR THE A DMISSION OF THE SAID EVIDENCES IN THE INTEREST OF JUSTICE , WHICH ARE MA INLY AGREEMENTS ENTERED BY THE ASSESSEE COMPANY WITH RESPECT TO THE ACQUISITIO N OF SANGAM DIRECT FROM UNILEVER INDIA EXPORT LIMITED ALONG WITH THE DETAIL S OF PAYMENTS MADE AND ASSETS ACQUIRED, WHICH IN THE OPINION OF THE ASSESS EE COMPANY GOES TO THE ROOT OF THE MATTER AND THE SAME WERE NEVER CALLED B Y THE AUTHORITIES BELOW. IN OUR CONSIDERED VIEW AND IN THE INTEREST OF JUSTICE, THE REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCES BY THE ASSESSEE COMPANY UNDER RULE 29 OF THE INCOME TAX APPELLATE TRIBUNAL RULES, 1963 NEED TO BE ACCEP TED AS THESE ADDITIONAL EVIDENCES SO FILED ARE VITAL AND CRUCIAL TO ADJUDIC ATE THE CLAIM OF THE ASSESSEE COMPANY THAT IT PAID GOODWILL FOR ACQUISITION OF TH E BUSINESS OF SANGAM DIRCET FROM UNILEVER INDIA EXPORTS LIMITED . IN OU R CONSIDERED VIEW, THE CLAIM OF THE ASSESSEE COMPANY NEEDS TO BE VERIFIED WITH REFERENCE TO THE AGREEMENTS AND OTHER DOCUMENTS WHICH HAS NOW BEEN F ILED AS ADDITIONAL EVIDENCE BEFORE US AND THE BOOKS OF ACCOUNT BY THE ASSESSEE COMPANY. AS SUCH, WE REMIT THE MATTER BACK TO THE FILE OF A.O. FOR DECIDING THE ISSUE AFRESH AFTER CONSIDERING THE AGREEMENTS ALONG WITH THE ASS ETS ACQUIRED , OTHER EVIDENCES AS SUBMITTED BY THE ASSESSEE COMPANY AND THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY TO ARRIVE AT THE CONCLUSION ON THE ISSUE IN THE LIGHT OF VARIOUS DECISIONS CITED BY THE ASSESSEE COMPANY IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNIT Y OF BEING HEARD SHALL BE GRANTED TO THE ASSESSEE COMPANY BY THE AO IN ACCORD ANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. WE MUST CLARIFY THAT WE HAVE NO T COMMENTED ON THE MERITS OF THE CLAIM OF THE ASSESSEE COMPANY ABOUT PAYMENT OF GOODWILL FOR ACQUISITIONS OF THE BUSINESS OF SANGAM DIRECT WHI CH SHALL BE ADJUDICATED BY THE AO ON MERITS AFTER CONSIDERING THE CONTENTIONS ALONG WITH EVIDENCES ITA 4809/M/12 & ITA 4725/M/12 12 SUBMITTED BY THE ASSESSEE COMPANY WITHOUT BEING IN FLUENCED BY OUR OBSERVATIONS IN THIS APPEAL. WE ORDER ACCORDINGLY. 10. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF PRE LIMINARY EXPENSES WRITTEN OFF OF RS. 14,00,000/- U/S 35D OF THE ACT. 11. DURING THE ASSESSMENT PROCEEDINGS, IT WAS OBSER VED BY THE A.O. THAT AN AMOUNT OF RS. 14,40,757/- WAS DEBITED BY THE ASSESS EE OUT OF WHICH RS. 14 LACS I.E. 1/5 TH OF THE TOTAL EXPENDITURE OF RS. 70 LACS INCURRED I N RESPECT OF INCREASE IN AUTHORIZED SHARE CAPITAL DURING THE YEA R UNDER CONSIDERATION WHICH WAS EXPENSES INCURRED BY THE ASSESSEE COMPANY TOWARDS INCREASE IN THE AUTHORIZED CAPITAL OF THE COMPANY , WHICH THE A SSESSEE COMPANY CLAIMED THAT THE SAME IS ALLOWABLE U/S 35D OF THE ACT BEING 1/5 TH OF THE EXPENSES IN ACCORDANCE WITH THE DECISION IN THE CASE OF CIT V. MULTIMETAL LTD., 188 ITR 151 (RAJ) AND ACIT V. FASCEL LTD. (2009) 34 SOT 8 (DEL). THE A.O. REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY BY HOLDING THAT THESE EXPENDITURE INCURRED ARE CAPITAL IN NATURE WHICH HAS GIVEN THE BENEFIT OF ENDURING NATURE TO THE ASSESSEE COMPANY. IN SUPPORT, THE A.O. RELI ED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE I NDUSTRIAL CORPORATION LTD. V. CIT, 265 ITR 792 (SC) IN HOLDING THAT EXPEN SES INCURRED ON INCREASE IN SHARE CAPITAL/SHARE ISSUE EXPENSES BY THE ASSESSEE COMPANY WERE CAPITAL EXPENDITURE. THE A.O. ALSO HELD THAT THE SAID EXPE NDITURE WAS NOT INCURRED FOR SETTING UP OF A NEW UNIT, THEREFORE, THE EXPEND ITURE WAS NOT COVERED BY THE PROVISIONS OF SECTION 35D OF THE ACT AND THE SAME W AS ADDED TO INCOME OF THE ASSESSEE COMPANY. 12. AGGRIEVED BY THE DECISION OF A.O. VIDE ASSESSME NT ORDERS DATED 06-05- 2010 PASSED U/S 143(3) OF THE ACT, THE ASSESSEE COM PANY PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE EXPENDITU RE WAS INCURRED TO PAY FEES TO REGISTRAR OF COMPANIES FOR INCREASING THE A UTHORIZED CAPITAL OF THE ITA 4809/M/12 & ITA 4725/M/12 13 ASSESSEE COMPANY AND ARE ELIGIBLE FOR DEDUCTION UND ER THE PROVISIONS OF SUB- SEC.2(C)(IV) OF SECTION 35D OF THE ACT. THE CIT(A) OBSERVED THAT THE ASSESSEE COMPANY HAS ADMITTEDLY MADE PAYMENT TO REGISTRAR OF COMPANIES AFTER THE COMMENCEMENT OF BUSINESS FOR THE PURPOSE OF INCREAS E IN AUTHORIZED CAPITAL AND SPECIFIC EXPENSES INCURRED AFTER COMMENCEMENT O F BUSINESS ARE ALLOWED TO BE AMORTISED U/S 35D OF THE ACT WHICH HAVE SPECI FICALLY BEEN INCURRED IN CONNECTION WITH EXTENSION OF UNDERTAKING OR SETTING UP OF NEW UNIT. THE CIT(A) HELD THAT ANY EXPENDITURE INCURRED BEFORE TH E COMMENCEMENT OF BUSINESS IN CONNECTION WITH THE ISSUE FOR PUBLIC SU BSCRIPTION OF SHARES OR DEBENTURES ARE ALLOWED TO BE AMORTIZED U/S 35D OF T HE ACT AND SUCH EXPENDITURE INCURRED AFTER COMMENCEMENT OF BUSINESS ARE NOT COVERED UNDER THE PROVISION OF THE SECTION 35D OF THE ACT. THE L D. CIT(A) HELD THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE A.O. WAS JUSTIFIED IN DISALLOWING THE ASSESSEES CLAIM OF DEDUCTION OF RS. 14 LACS U/S 35 D OF THE ACT VIDE ORDERS DATED 13-04-2012. 13. AGGRIEVED BY THE ABOVE DECISION OF THE CIT(A) VIDE ORDERS DATED 13-04- 2012, THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 14. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMIT TED THAT THE AUTHORITIES BELOW HAVE DISALLOWED THE CLAIM OF THE ASSESSEE COMPANY OF RS. 14 LACS, WHICH IS INCURRED AFTER COMMENCEMENT OF BUSIN ESS BY HOLDING THAT THE SAID EXPENDITURE ARE CAPITAL IN NATURE. HE SUBMITT ED THAT THESE EXPENSES ARE INCURRED FOR INCREASE IN AUTHORIZED CAPITAL AS THE ASSESSEE COMPANY HAS UNDERTAKEN EXTENSION OF BUSINESS WHEREBY NEW BUSINE SS IS TO BE SET UP AT NEW PLACE. THE ASSESSEE COMPANY SUBMITTED THAT AS PER THE AUDIT REPORT AND DIRECTORS REPORT OF THE ASSESSEE COMPANY FOR FINAN CIAL YEAR 2007-08 , THE ASSESSEE COMPANY HAS ACQUIRED NEW BUSINESS AND HENC E, THE CAPITAL WAS ENHANCED AND THESE EXPENSES WERE INCURRED TOWARDS F EES TO THE REGISTRAR OF COMPANIES. THE ASSESSEE COMPANY ALSO SHOWED THE AU DIT REPORT/DIRECTORS ITA 4809/M/12 & ITA 4725/M/12 14 REPORT TO CLAIM THAT ASSESSEE COMPANY HAS ACQUIRED DURING PREVIOUS YEAR HOME STORES (INDIA) LTD. AND SMART RETAIL PVT. LTD . THE LD. COUNSEL ALSO RELIED ON THE DECISION OF CIT V. MULTI METALS LTD. (1991) 188 ITR 151 (RAJ.) AND PRAYED THAT THESE EXPENDITURE SHOULD BE ALLOWED U/S 35D OF THE ACT. 15. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT THE ASSESSEE COMPANY HAS NEVER TAKEN THE PLEA BEFORE THE AUTHORITIES BEL OW THAT THESE EXPENDITURE WERE INCURRED TOWARD EXTENSION OF THE BUSINESS/UNDE RTAKING AND THIS IS THE FIRST TIME THAT THE ASSESSEE COMPANY IS TAKING THIS PLEA BEFORE THE TRIBUNAL THAT THESE EXPENSES ARE INCURRED FOR EXTENSION OF U NDERTAKING. NO ADDITIONAL EVIDENCE HAS BEEN FILED BY THE ASSESSEE COMPANY TO SUBSTANTIATE THE SAME AND THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED (SUPRA) AND BROOKE BOND INDIA LTD. (1997) 91 TAXMAN 26 (SC) IS DIRECTLY APPLICABL E TO THIS CASE THAT THESE ARE CAPITAL EXPENDITURE AND NOT ALLOWABLE AS REVENU E EXPENDITURE. 16. WE HAVE CONSIDERED THE RIVAL CONTENTION AND PER USED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS INCURRED AN AMOUNT OF RS. 70 LACS TOWARDS INCREASE IN AUTHORIZE D SHARE CAPITAL, OUT OF WHICH 1/5 TH OF SUCH EXPENSES I.E. RS. 14 LACS WAS CLAIMED AS D EDUCTION U/S 35D OF THE ACT. THE ASSESSEE COMPANY HAS TAKEN THI S PLEA BEFORE US FOR THE FIRST TIME THAT THESE EXPENSES ARE RELATABLE TO EXT ENSION OF UNDERTAKING WHICH HAS NOT BEEN VERIFIED BY THE AUTHORITIES BELOW. WE ARE ALSO AWARE THAT THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND IN DIA LTD.(SUPRA) AND PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIM ITED(SUPRA) HAS HELD THAT THESE EXPENSES INCURRED FOR INCREASE IN AUTHOR IZED CAPITAL ARE CAPITAL EXPENDITURE. THIS CLAIM OF THE ASSESSEE COMPANY THA T THESE EXPENSES INCURRED FOR INCREASE IN AUTHORIZED CAPITAL ARE REL ATABLE TO THE EXTENSION OF UNDERTAKING NEEDS TO BE VERIFIED BY THE AUTHORITIE S BELOW AND ACCORDINGLY WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTO RE THE MATTER BACK TO THE ITA 4809/M/12 & ITA 4725/M/12 15 FILE OF A.O. FOR NECESSARY VERIFICATION AND DECIDE THE ISSUE AFRESH ON MERITS AFTER CONSIDERING THE EVIDENCES FILED BY THE ASSESS EE COMPANY. NEEDLESS TO SAY THE ASSESSEE COMPANY BE GRANTED SUFFICIENT OPPO RTUNITY OF BEING HEARD BY THE AO IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUS TICE. THE AO SHALL RE- ADJUDICATE THE MATTER AFRESH ON MERITS UN-INFLUENCE D BY OUR OBSERVATIONS IN THIS APPEAL. WE ORDER ACCORDINGLY. ITA NO. 4725/MUM/2012 (REVENUES APPEAL) 17. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN ALLOWING THE LOSS OF STOCK BEING THE DIFFE RENCE BETWEEN THE BOOK STOCK AND PHYSICAL INVENTORY EVEN THOUGH NO DETAILS OF STOCK WRITTEN OFF NEITHER ANY EVIDENCES AND DETAILS IN SUPPORT OF THE DIFFERENCE BETWEEN BOOK STOCK AND PHYSICAL INVENTORY WERE SUBMITTED. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 18. THE BRIEF FACTS OF THE ISSUE ARE THAT IT WAS OB SERVED BY THE A.O. IN THE P&L ACCOUNT FILED BY THE ASSESSEE COMPANY THAT STOC K WRITE OFF OF RS. 20,10,927/- IS CLAIMED BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY WAS CALLED UPON TO EXPLAIN THE SAME. IN REPLY, THE ASSE SSEE COMPANY SUBMITTED THAT THE DIFFERENCE IN BOOK STOCK AND PHYSICAL INVE NTORY IS WRITTEN OFF AS IS A STANDARD PRACTICE MANDATORILY TO BE FOLLOWED BY THE COMPANIES AS PER ACCOUNTING STANDARD 2 OF ICAI. IT WAS SUBMITTED THA T THE DIFFERENCE IS DUE TO PILFERAGE, PERISHABLE, WASTAGE, BREAKAGES ETC. AND IS ALLOWABLE AS REVENUE EXPENDITURE. THE ASSESSEE COMPANY, HOWEVER, DID NOT SUBMITTED DETAILS OR EVIDENCES WITH RESPECT TO WRITE OFF OF STOCK. THE A .O. OBSERVED THAT THE ASSESSEE COMPANY HAS NOT SUBMITTED RELEVANT DETAILS /EVIDENCES. THE A.O. ITA 4809/M/12 & ITA 4725/M/12 16 HELD THAT THE ONUS IS ON THE ASSESSEE COMPANY TO PR OVE THE GENUINENESS AND CORRECTNESS OF THE CLAIM, WHICH HAS NOT BEEN DISCHA RGED BY THE ASSESSEE COMPANY. IN SUPPORT, RELIANCE WAS PLACED IN THE CA SE OF CIT V. CALCUTTA SALES AGENCIES LTD. 19 ITR 191(SC) BY THE AO. THE A.O. A CCORDINGLY DISALLOWED THE ASSESSEE COMPANYS CLAIM OF STOCK WRITTEN OFF OF RS . 20,10,927/- IN THE ABSENCE OF EVIDENCES AND DETAILS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE COMPANY VIDE ASSESSMENT ORDERS DATED 0 6-05-2010 U/S 143(3) OF THE ACT. 19. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 06-05- 2010 PASSED U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY PREFERRED AN APPEAL BEFORE THE CIT(A) AND EXPLAINED THAT THE ASSESSEE COMPANY WAS DEALING IN SUPPLY OF FMCG, STAPLES & GENERAL MERCHANDISE, ETC. AND THE NATURE OF SUCH STOCK WAS THAT IT WAS PRONE TO PILFERAGE, PERISHABLE, WASTAGE, BREAKA GES, DAMAGES, ETC. . EVERY YEAR THE PHYSICAL INVENTORY WAS TAKEN BY ASSESSEE C OMPANY AND THE SAME WAS VERIFIED WITH BOOK STOCK. BASED ON THE REPORT O F SUCH PHYSICAL VERIFICATION, THE DIFFERENCE BETWEEN SUCH PHYSICAL STOCK AND THE BOOK STOCK WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. THIS WAS STANDARD ACCOUNTING PRACTICE WHICH WAS TO BE MANDATORILY FOLLOWED IN AC CORDANCE WITH ACCOUNTING STANDARD-2 ISSUED BY ICAI. IN SUPPORT OF ITS CLAIM OF NECESSITY OF FOLLOWING ACCOUNTING STANDARD, THE ASSESSEE RELIED ON THE DEC ISION IN THE CASE OF MADHU RANI MEHRA V. CIT (2011-TIOL-160-HC-DEL-IT), RAJASTHAN HIGH COURT IN THE CASE OF WOLKEM INDIA LTD. (2009-TIOL-102-HC- RAJ). THE ASSESSEE COMPANY EXPLAINED THAT SUCH DISCREPANCY TO THE TUNE OF RS.20,10,927/- WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS VALUE OF ST OCK HAD GONE DOWN TO THAT EXTENT AS ON 31.03.2008. THIS FACT HAD ALSO BEEN HI GHLIGHTED IN THE AUDITED BOOKS OF ACCOUNTS. THE ASSESSEE COMPANY RELIED ON T HE DECISION OF VARIOUS COURTS AND TRIBUNALS ON THIS ISSUE. THE CIT(A) AF TER CONSIDERING THE SUBMISSION AND OTHER CASE LAWS RELIED UPON BY THE A SSESSEE COMPANY ALLOWED THE CLAIM OF THE ASSESSEE COMPANY BY OBSERVING AS U NDER:- ITA 4809/M/12 & ITA 4725/M/12 17 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE A PPELLANT COMPANY WAS DEALING IN SUPPLYING OF FMCG STAPLES, G ENERAL MERCHANDISE, ETC. THE APPELLANT WAS DOING ITS BUSIN ESS THROUGH ITS OUTLETS AT VARIOUS PLACES. THE NATURE OF ITEMS DEALT WITH WERE PRONE TO PILFERAGE, WASTAGE, BROKERAGE AND DAMAGES, ETC. THERE IS NO DISPUTE THAT VARIOUS ITEMS DEALT WITH BY THE APP ELLANT WERE PERISHABLE IN NATURE SPECIALLY FRUITS, VEGETABLES, LIQUID ITEMS, ETC. WHICH COULD NOT HAVE BEEN SOLD TO THE CUSTOMERS AFT ER DATE OF EXPIRY. AFTER DATE OF EXPIRY THOSE ITEMS COULD NOT BE SOLD TO THE PUBLIC. THUS THERE EXISTS ELEMENT OF LOSS IN THE BU SINESS OF APPELLANT ON ACCOUNT OF PILFERAGE, WASTAGE, BROKERA GE AND PERISHABLES. THE APPELLANT HAS MADE CLAIM OF SUCH L OSSES AFTER CARRYING OUT A PHYSICAL VERIFICATION OF INVENTORY B Y THE EMPLOYEES, STAFF AND OFFICERS OF THE COMPANY. THERE IS NO METH ODS/PROCEDURE PRESCRIBED OR AVAILABLE TO KNOW THE ACTUAL DAMAGES CAUSED ON THESE ACCOUNTS. HOWEVER, IT IS UNDISPUTED FACT THAT THERE EXISTS ELEMENT OF LOSS ON THESE ACCOUNTS. THEREFORE, THE C LAIM MADE BY APPELLANT IS REQUIRED TO BE ACCEPTED AS CORRECT AND GENUINE ONE PREPARED AFTER PHYSICAL INSPECTION OF THE STOCK. TH E DISALLOWANCE MADE BY A.O. IS THEREFORE, DELETED. THIS GROUND OF APPEAL IS ALLOWED. AGGRIEVED BY THE ABOVE DECISION OF THE CIT(A) VIDE ORDERS DATED 13-04-2012, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TR IBUNAL. 20. THE LD. D.R. RELIED UPON THE ORDER OF A.O. AND SUBMITTED THAT THIS WRITE OFF OF STOCK CANNOT BE ALLOWED AS NO EVIDENCE IS PR ODUCED BEFORE THE A.O. TO SUBSTANTIATE ITS CLAIM OF DIFFERENCE BETWEEN PHYSIC AL STOCK AND BOOK STOCK. 21. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMIT TED THAT THE ASSESSEE COMPANY IS DEALING IN SLOW MOVING ITEMS AND DIFFERE NCE BETWEEN PHYSICAL STOCK AND BOOK STOCK WAS WRITTEN OFF IN THE BOOKS O F ACCOUNT AS PER THE ACCOUNTING STANDARD PROCEDURES. THE LD. COUNSEL SUB MITTED THAT AN APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE IS MOVED BEFORE THE TRIBUNAL UNDER RULE 29 OF INCOME TAX APPELLATE TRIBUNAL RULE S, 1963 FOR ADMISSION OF ADDITIONAL EVIDENCE BY WAY OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31-03- ITA 4809/M/12 & ITA 4725/M/12 18 2009 TO CONTEND AND SUBSTANTIATE THAT THE WRITE OFF OF STOCK IS FOLLOWED REGULARLY BY THE ASSESSEE COMPANY AND IN SUPPORT SU BSEQUENT YEAR PROFIT AND LOSS ACCOUNT IS ENCLOSED AS ADDITIONAL EVIDENCE , W HICH APPLICATION IS PLACED AT PAPER BOOK PAGE 171-176 . THE ASSESSEE COMPANY A LSO FILED RECONCILIATION STATEMENT BETWEEN PHYSICAL STOCK AND BOOK STOCK WHI CH IS PLACED AT PAPER BOOK PAGE 144-149. THE LD. COUNSEL RELIED UPON THE DECISION IN THE CASE OF CIT V. INDIAN RARE EARTHS LTD. (2015) 121 DTR 151 ( BOM.) WHEREIN IT WAS HELD THAT WRITE OFF OF SLOW MOVING ITEMS WAS JUSTIFIED. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY IS DEALING IN SLOW MOVING ITEMS WHICH ARE PRONE TO PILFERAGE, WASTAGE, BREAKAGE AND DAMAGES ETC. . THE ITEMS DEALT WITH THE ASSESSEE COMPANY AR E PERISHABLE IN NATURE SPECIALLY FRUITS, VEGETABLES, LIQUID ITEMS ETC. WHI CH COULD NOT HAVE BEEN SOLD TO CUSTOMERS AFTER THE DATE OF EXPIRY AS THESE ITEMS H AVE LIMITED LIFE. THE ASSESSEE COMPANY IS STATED TO HAVE CLAIMED THE WRIT E OFF OF SUCH STOCK BASED ON APPLICABLE ACCOUNTING STANDARDS WHICH ARE MANDAT ORY IN NATURE BUT FAILED TO SUBMIT DETAILS OF DIFFERENCES BETWEEN PHYSICAL S TOCK AND BOOK STOCK BEFORE THE AUTHORITIES BELOW , WHICH IS FILED BEFORE US B UT THE SAME NEED VERIFICATION BY THE AUTHORITIES BELOW. IN OUR CONSIDERED OPINION AND IN VIEW OF THE INTEREST OF JUSTICE , THIS MATTER NEED TO BE RESTORED TO THE FILE OF A.O. FOR THE LIMITED PURPOSE OF VERIFICATION OF THE GENUINENESS OF THE C LAIM OF LOSSES ON ACCOUNT OF SLOW MOVING PERISHABLE ITEMS BETWEEN PHYSICAL STOCK AND BOOK STOCK AS CLAIMED BY THE ASSESSEE COMPANY. THE ASSESSEE COMPA NY IS DIRECTED TO PRODUCE THE NECESSARY EVIDENCES IN SUPPORT ITS CLAI M BEFORE THE A.O. WITH RESPECT TO DIFFERENCE BETWEEN PHYSICAL STOCK AND BO OK STOCK AS ON 31-03-2008 WHICH WILL BE VERIFIED BY THE AO ON MERITS. NEEDLES S TO SAY THAT THE A.O. SHALL PROVIDE SUFFICIENT OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE COMPANY IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE. THE GROUND RAISED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPO SES. ITA 4809/M/12 & ITA 4725/M/12 19 23. IN THE RESULT, APPEALS FILED BY THE ASSESSEE CO MPANY AS WELL AS THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH JANUARY, 2016. !' # $% &! ' . ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 8 MUMBAI ; &! DATED 04.01.2016 [ .>../ R.K. R.K. R.K. R.K. , EX. SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. ? / CIT- CONCERNED, MUMBAI 5. BC( >>DE , DE , $ 8 / DR, ITAT, MUMBAI H BENCH 6. (GH I / GUARD FILE. ' / BY ORDER, B > //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 8 / ITAT, MUMBAI