ACIT 1(1), MUMBAI V. FAIR FIELD ATLAS LTD, MUMBAI

ITA 4872/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84496 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 02-12-2014
• Assessment Year: misc
• Appeal Filed On: 17-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Keywords: Depreciation
• Section: 32

Judgement Text

, , , , , ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.4872/MUM/2011 (AY: 2006-07) ACIT-1(1), ROOM NO.579, AAYKAR BHAVAN, MUMBAI-400020 ! ! ! ! / VS. M/S FAIR FIELD ATLAS LTD. 202/3, MARUTI MANSION, 17, R DADAJI STREET, FORT, MUMBAI-400001 (( # / // / REVENUE )) ( $%&' / RESPONDENT) P.A. NO.AAACA4439Q # ( ) ( ) ( ) ( ) / // / REVENUE BY SHRI PAWAN KUMAR BEERLA $%&' ( ) ( ) ( ) ( ) /RESPONDENT BY : MS. AARTI VISSANJI ! ( *+ / // / DATE OF HEARING : 02 /12 /2014 ,-. ( *+ / DATE OF PRONOUNCEMENT : 03/12/2014 / / / / / / / / O R D E R PER JOGINDER SINGH (JM) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 01/02/2011 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND THAT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION AMOUNT ING TO RS.17,79,845/- ON TECHNICAL KNOW-HOW. 2. AT THE TIME OF HEARING, SHRI PAWAN KUMAR BEERLA, LD. DR DEFENDED THE DISALLOWANCE OF DEPRECIATION MADE BY T HE ITA NO.4872/MUM/2011 FAIR FIELD ATLAS LTD. 2 ASSESSING OFFICER BY SUPPORTING THE ASSESSMENT ORDE R. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE MS. A ARTI VISSANJI DEFENDED THE CONCLUSION ARRIVED AT BY THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) BY INVITING OUR ATTENTION TO T HE VARIOUS PAGES OF THE PAPER BOOKS BY CONTENDING THAT THE NEC ESSARY DETAILS WERE DULY FURNISHED BEFORE THE ASSESSING OF FICER, THUS, THE FINDING IN THE ASSESSMENT ORDER THAT SUCH DETAI LS WERE NOT FILED BY THE ASSESSEE IS CONTRARY TO FACTS. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE, A PUBLIC LIMITED COMPANY, ENGAGE D IN MANUFACTURING OF GEARS AND GEAR SYSTEM FOR OEMS FOR DOMESTIC MARKET AS WELL AS FOR INTERNATIONAL MARKET, DECLARE D NIL INCOME IN ITS RETURN FILED ON 22/12/2006 WHICH WAS PROCESS ED U/S 143(1) OF THE ACT, 1961 (HEREINAFTER THE ACT). T HE ASSESSEE, PURSUANT TO NOTICE U/S 143(2) OF THE ACT, ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME WHICH WERE EXAMINED BY THE ASSESSING OFFICER. FROM THE BALANCE SHEET O F THE ASSESSEE, IT WAS NOTICED THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS.17,79,845/- ON TECHNICAL KNOW-HOW, WHICH WAS DENIED BY THE ASSESSING OFFICER. BROADLY ON THE GROUND THAT THE ASSESSEE DID NOT SUBMIT THE DETAILS OF TRIPS OF MR. PAUL PER EIRA WHO COLLECTED SUCH KNOW-HOW AND WHEN HE RETURNED TO IND IA ALONG WITH OTHER REASONS. 2.2. ON APPEAL, LD. COMMISSIONER OF INCOME TAX (A PPEALS) EXAMINED THE CLAIM OF THE ASSESSEE ALONG WITH THE S UBMISSIONS PREFERRED VIDE LETTER DATED 08/12/2009 GIVING JUSTI FICATION OF ITA NO.4872/MUM/2011 FAIR FIELD ATLAS LTD. 3 TECHNICAL KNOW-HOW AND THE AMENDED AGREEMENT DATED 25/11/2005. IT WAS FOUND BY THE LD. COMMISSIONER O F INCOME TAX (APPEALS) THAT THE CLAIMED TECHNICAL KNOW-HOW W AS ACTUALLY RECEIVED AND PUT TO USE ON 02/11/2005 AND MR. PAUL PEREIRA ALSO PROVIDED THE DETAILS OF FOREIGN TRIPS FOR COLL ECTING SUCH TECHNICAL KNOW-HOW ALONG WITH THE LIST OF QUALIFIED PERSONAL. THE RELEVANT FINDINGS OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS) ARE REPRODUCED HEREUNDER FOR READY REFERE NCE: 4.2. I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. HAVING CONSIDERED BOTH, I FIND MERITS IN THE ARGUMENTS OF THE APPELLANT. ON PERUSAL OF THE APPELLANTS A/R SUBMISSION, I FIND THAT THE APPELLANTS A/R HAS COMPLETELY GIVEN HIS JUSTIFICATION FOR ACCOUNTING TECHNICAL KNOW-HOW. IT APPEARS THAT TECHNICAL KNOW - HOW AGREEMENT WAS AMENDED BY SUPPLEMENTARY AGREEMENT DATED 25/11/2005. FURTHER I FIND THAT THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HENCE THE APPELLANT HAS ACCOUNTED THE TECHNICAL KNOW IN A.Y. 2006-07. IT IS ALSO SEE N THAT THE APPELLANT HAS SUBMITTED ALL THE NECESSARY EVIDENCES IN SUPPORT OF ITS CONTENTION THAT HOW THE TECHNICAL KNOW WAS ACTUALLY RECEIVED AND PUT IN TO USE ON 02/11/2005. THE APPELLANTS A/R HAS FILED RELEVANT DETAILS IN RESPECT OF A.O.S OBJECTION FOR DETAILS OF TRIPS OF MR. PAUL PAREIRA, WHO COLLECTED TECHNICAL KNOW-HOW. THUS TAKING NOTE OF THESE ITA NO.4872/MUM/2011 FAIR FIELD ATLAS LTD. 4 FACTS, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O. WAS NOT JUSTIFIED IN REJECTING THE CL AIM OF DEPRECIATION. 2.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R, LEADING TO DENIAL OF DEPRECIATION, CONCLUSION DRAWN IN THE IMP UGNED ORDER AND THE ASSERTIONS MADE BY THE LD. RESPECTIVE COUNS EL, IF, KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE LD. ASSESSING OFFICER DENIED CLAIMED DEPRECIATION AMOUNTING TO RS.1,13,75,761/- AT THE RATE OF 25% FOR ONE-HALF OF THE YEAR ON TECHNICAL KNOW-HOW ON THE GROUND THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, DID NOT SUBMIT DET AILS OF TRIPS OF MR. PAUL PEREIRA (WHO COLLECTED KNOW-HOW) ALONG WITH HIS DATE OF RETURN TO INDIA, DETAILS OF QUALIFIED PERSONS RE QUIRED FOR MANUFACTURE OF THE SAID PRODUCTS, DETAILS OF SAMPLE S SENT FOR APPROVAL, PRODUCT INVOLVING KNOW-HOW WERE NOT PRODU CED BY THE ASSESSEE. HOWEVER, WE NOTE FROM THE ASSESSMENT ORD ER ITSELF THAT THE ASSESSING OFFICER AT PAGE FIRST ITSELF MEN TIONED C.A. ATTENDED FROM TIME TO TIME AND SUBMITTED THE REQUIR ED DETAILS WHICH HAVE BEEN EXAMINED AND PLACED ON RECORD THEN HOW THE ASSESSING OFFICER IS BREATHING HOT AND COLD IN THE SAME BREATH? IT IS ALSO NOTED THAT THE ASSESSEE VIDE LETTER DATE D 08/12/2009 EXPLAINED ITS POSITION WHICH ALSO FINDS PLACE IN PA RA 3.2 (PAGE-3) OF THE ASSESSMENT ORDER ITSELF. THE SAID LETTER ME NTIONS SUPPLEMENTARY AGREEMENT, HANDING OVER OF TECHNICAL KNOW-HOW BY MR. PAUL PEREIRA ON 02/11/2005, SPECIFICALLY MEN TIONING THAT IMMEDIATELY AFTER RECEIPT OF TECHNICAL KNOW-HOW IT WAS PUT TO USE, THEREFORE, THE CONTENTION OF THE LD DR THAT TH E NECESSARY ITA NO.4872/MUM/2011 FAIR FIELD ATLAS LTD. 5 LETTER/DETAILS WERE NOT FURNISHED BY THE ASSESSEE I S NOT SUBSTANTIATED BY THE REVENUE. WE HAVE ALSO PERUSED THE PAPER BOOK FILED DURING ASSESSMENT/FIRST APPELLATE STAGE AND EVEN BEFORE THIS TRIBUNAL AND ARE SATISFIED THAT THE ASS ESSEE ACTUALLY RECEIVED/OBTAINED SUCH TECHNICAL KNOW-HOW AND WAS P UT TO USE ON 02/11/2005 (PAGE-2 OF THE PAPER BOOK). THE SECO ND OBJECTION RAISED BY THE REVENUE IS THAT THE DETAILS OF FOREIGN TRIPS UNDERTAKEN BY SHRI PAUL PEREIRA WERE NOT SUBM ITTED IS ALSO DEVOID OF ANY MERIT AS THE ASSESSEE VIDE LETTER DAT E 08/11/2009 DULY SUBMITTED THE DETAILS UNDERTAKEN ON 02/11/2005 FOR COLLECTING KNOW-HOW (PAGES 4 AND 5 OF THE PAPER BO OK). THE LIST OF QUALIFIED PERSONS IS AVAILABLE AT PAGES 16 TO 20 OF THE PAPER BOOK. THE EVIDENCES OF SAMPLES OF PRODUCTS MANUFAC TURED, USING THE TECHNICAL KNOW-HOW, WERE ALSO SUBMITTED ( PAGES 10- 16 OF THE PAPER BOOK). THE COPIES OF INVOICES SHOW ING SALE OF PRODUCTS, MANUFACTURED AS PER TECHNICAL KNOW-HOW WE RE ALSO PRODUCED (PAGES 21-24 OF THE PAPER BOOK). IT IS AL SO NOTED THAT AS PER THE SUPPLEMENTARY AGREEMENT DATED 25/11/2005 , THE COMMISSION @ 5% WAS NOT PAYABLE TO THE FOREIGN COMP ANY AND THUS WAS NOT PAID ON NEW PRODUCTS MANUFACTURED AND SOLD BY THE ASSESSEE. IN VIEW OF THESE FACTS, WE FIND NO JUSTIFICATION TO DENY THE BENEFIT OF TECHNICAL KNOW-HOW MORE SPECIFI CALLY WHEN THE ASSESSEE SUBMITTED NECESSARY DETAILS IN SUPPORT OF ITS CLAIM AND THE EXPLANATION OF THE ASSESSEE AS TO HOW IT RECEIVED/OBTAINED SUCH TECHNICAL KNOW-HOW AND PUT T O USE. 2.4. DEPRECIATION ALLOWANCE IS A CONCESSION GRANTED BY THE STATE IN COMPUTATION OF INCOME BASED ON MANY FACTOR S RELEVANT ITA NO.4872/MUM/2011 FAIR FIELD ATLAS LTD. 6 TO A WHOLESOME FISCAL ADMINISTRATION, THUS DEPRECIA TION ALLOWANCE U/S 32 IS A STATUTORY ALLOWANCE AS WAS HE LD IN CIT VS REFRIGERATION AND ALLIED INDUSTRIES LTD. 113 TAXMAN 103 (DEL.). THUS, DEPRECIATION IS ALLOWABLE ON TECHNICAL KNOW-H OW AS WAS HELD IN ANUP ENGINEERING VS CIT 192 ITR 633 (GUJ.) AND THE RATIO LAID DOWN IN AREVA T & D INDIA LTD. VS DCIT 2 08 TAXMAN 252 (DEL.), THUS, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WHILE DELETING THE DISALLOWANCE OF DEPRECIATION OF AMOUNTING TO RS. 17 ,79,845/- ON TECHNICAL KNOW-HOW, PUT IN TO USE FOR THE RELEVANT PERIOD IN A.Y. 2006-07. THUS, THE APPEAL OF THE REVENUE IS HAVING NO MERIT, CONSEQUENTLY, DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION O F THE HEARING ON 02 ND DAY OF DECEMBER, 2014 . / ( ,-. 0!1 02.12.2014 - ( 7 SD/- SD/- (SANJAY ARORA) (JOGINDER SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 0! DATED : 3 RD DECEMBER, 2014. F{X~{T? P.S/. !.. / ( $*8 98.* / ( $*8 98.* / ( $*8 98.* / ( $*8 98.*/ COPY OF THE ORDER FORWARDED TO : 1. &' / THE APPELLANT 2. $%&' / THE RESPONDENT. 3. : ( ) / THE CIT, MUMBAI. 4. : / CIT(A)- , MUMBAI ITA NO.4872/MUM/2011 FAIR FIELD ATLAS LTD. 7 5. 8=7 $*! , , / DR, ITAT, MUMBAI 6. 7> ? / GUARD FILE. /! /! /! /! / BY ORDER, %8* $* //TRUE COPY// @ @@ @/ // /A # A # A # A # (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI