M/s Controls & Switchgear Contactors Ltd., New Delhi V. DCIT, New Delhi

ITA 511/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7405 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 31-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V R SONBHA DRA SENIOR
• Keywords: Depreciation
• Section: 142(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE HONBLE VICE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.511/DEL./2011 (ASSESSMENT YEAR : 2007-08) M/S. CONTROLS & SWITCHGEAR VS. DCIT, CIRCLE 3 (1) , CONTRACTORS LTD., NEW DELHI. 222, OKHLA INDUSTRIAL ESTATE, NEW DELHI 110 020. (PAN : AAACT0682J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL BHALLA, CA REVENUE BY : SHRI V.R. SONBHADRA, SENIOR DR DATE OF HEARING : 08.06.2016 DATE OF ORDER : 22.06.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. CONTROLS & SWITCHGEAR CONTRACT ORS LIMITED (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 08.12.2010 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- VI, NEW DELHI QUA THE ASSESSMENT YEAR 2007-08. 2. PURSUANT TO ORDER DATED 04.10.2013 PASSED BY THE ITAT, DELHI BENCH E, NEW DELHI IN MA NO.331/DEL/2012 IN ITA ITA NO.511/DEL./2011 2 NO.511/DEL/2011 AY 200708 ORDER DATED 04.10.2013, T HE PRESENT APPEAL HAS BEEN LISTED TO DECIDE THE GROUND NO.4 WH ICH IS AS UNDER:- 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH OF FACTS AND IN LAW IN UPHOLDING THE ACTIONS OF THE LEARNED ASSESSING OFFICER IN DISALLOWING RS.3,44,531/- BEING DEPRECIATION ON GOODWILL ALLEGEDLY ON THE GROUND THAT THE SAME CANNOT BE TREATED AS INTANGIBLE ASSET AS PER THE PROVISIONS SECTION 32 OF THE INCOME TAX ACT, 1961. 3. BRIEFLY STATED THE FACTS OF THIS CASE ARE : DURI NG THE SCRUTINY PROCEEDINGS, NOTICE UNDER SECTION 143(2) AND 142(1) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER THE ACT) WERE ISSUED A ND IN RESPONSE THERETO, SHRI AMARJEET SINGH, CA FROM J.C. BHALLA & CO., MR. ANANDI PRASAD AND SUBODH KHANNA, ARS PUT IN APPEARA NCE, FILED NECESSARY DETAILS, BOOKS OF ACCOUNT AND ALSO DISCUS SED THE CASE. THE ASSESSEE COMPANY IS INTO THE BUSINESS OF MANUFA CTURING OF CONTROL GEARS AND SWITCHGEARS PRODUCTS USED IN REGU LATION AND CONTROL OF ELECTRICAL CURRENT FOR SAVING THE END EQ UIPMENT FROM THE FLUCTUATION IN VOLTAGE. 4. ASSESSEE CLAIMED DEPRECIATION ON GOODWILL AMOUNT ING TO RS.7,13,672/- (THE ACTUAL FIGURE OF DEPRECIATION IS RS.3,44,531/-) @ 25% ON RS.28,54,688/- SHOWN AS INTANGIBLE ASSETS. AO OBSERVED THAT AS PER ACCOUNTING STANDARD, GOODWILL IS NOT CO NSIDERED AS ITA NO.511/DEL./2011 3 INTANGIBLE ASSETS FOR THE PURPOSE OF AMORTIZATION A ND THEREBY DISALLOWED THE SAME BY MAKING ADDITION OF RS.7,13,6 72/-. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PR ESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) QUA GROUND NO.4 CONTENDED THAT ASSESSEES CASE IS SQUARELY COVERED BY THE JUDGMENT CITED AS AREVA T AND D INDIA LTD. VS. DCIT (2012) 345 ITR 421 (D ELHI). HOWEVER, ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY THE REVENUE AUTHORITIES BELOW. 8. ASSESSEE CLAIMED THE DEPRECIATION ON GOODWILL AM OUNTING TO RS.3,44531/- IN TERMS OF SECTION 32(1)(II) OF THE A CT, CONSISTING OF TYPE TEST CERTIFICATION FEES AND CUSTOMER APPROV AL FEES BUT CIT (A) HAS REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THIS SUBMISSION HAS NOT BEEN SUBSTANTIATED AND THE NATURE OF THE GOODWILL HAS NOT BEEN EXPLAINED BY THE DOCUMENT S. ITA NO.511/DEL./2011 4 9. NOW, THE SOLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS AS TO WHETHER TYPE TEST CERTIFICATION FEES AND CUSTOMER APPROVAL FEES CLAIMED BY THE ASSESSEE ARE ELIGIBLE FOR DEPRECIATION U/S 32 OF THE ACT? 10. HONBLE JURISDICTIONAL HIGH COURT IN JUDGMENT C ITED AS AREVA T AND D INDIA LTD. (SUPRA) EXAMINED THE IDENTICAL ISSUE, THE OPERATIVE PART OF WHICH IS REPRODUCED AS UNDER :- THE PRINCIPLE OF EJUSDEM GENERIS PROVIDES THAT WHE RE THERE ARE GENERAL WORDS FOLLOWING PARTICULAR AND SP ECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHALL BE CON FINED TO THINGS OF THE SAME KIND. FOR INTERPRETING THE EXPRESSION BUSINESS OR COMMERCIAL RIGHTS OF SIMILA R NATURE SPECIFIED IN SECTION 32(1)(II) OF THE ACT, SUCH RIGHTS NEED NOT ANSWER THE DESCRIPTION OF KNOWHOW, PATENTS, TRADEMARKS, LICENSES OR FRANCHISES BUT MU ST BE OF SIMILAR NATURE AS THE SPECIFIED ASSETS. ON A PE RUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIBL E ASSETS REFERRED IN SECTION 32(1)(II) OF THE ACT PRECEDING THE TERM BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, IT IS SEEN THAT THE INTANGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS BU SINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE HAVE BEEN ADDITIONALLY USED, CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIAT ION ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE N EITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMSTANCES, THE NATURE OF BUSINESS OR COMMERCIA L RIGHTS CANNOT BE RESTRICTED ONLY TO THE SIX CATEGO RIES OF ASSETS, VIZ., KNOWHOW, PATENTS, TRADEMARKS, COPYRIG HTS, LICENSES OR FRANCHISES. THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS CAN BE OF THE SAME GENUS IN WHIC H ALL THE SIX ASSETS FALL. ALL THE ABOVE FALL IN THE GENU S OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRA DE OF AN ASSESSEE FACILITATING SMOOTH CARRYING ON OF THE BUS INESS. ITA NO.511/DEL./2011 5 HELD, THAT IN THE CASE OF THE ASSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS; BUSINESS INFORMATION ; BUSINESS RECORDS; CONTRACTS; EMPLOYEES; AND KNOWHOW , WERE ALL ASSETS, WHICH ARE INVALUABLE AND RESULTED IN CARRYING ON THE TRANSMISSION AND DISTRIBUTION BUSIN ESS BY THE ASSESSEE, WHICH WAS HITHERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHOUT ANY INTERRUPTION. THE INTANGIBL E ASSETS WERE, THEREFORE, COMPARABLE TO A LICENSE TO CARRY O UT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR. IN THE ABSENCE OF THE INTANGIBLE ASSETS , THE ASSESSEE WOULD HAVE HAD TO COMMENCE BUSINESS FROM SCRATCH AND GO THROUGH THE GESTATION PERIOD WHEREAS BY ACQUIRING THE BUSINESS RIGHTS ALONG WITH THE TANGIB LE ASSETS, THE ASSESSEE GOT AN UP AND RUNNING BUSINESS . THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER THE SLUM P SALE AGREEMENT WERE IN THE NATURE OF BUSINESS OR COMMER CIAL RIGHTS OF SIMILAR NATURE SPECIFIED IN SECTION 32(1 )(II) OF THE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIAT ION UNDER THAT SECTION. IN THE CASE OF J THE COMMERCIAL RIGHTS ACQUIRED TO SELL PRODUCTS UNDER THE TRADE NAME AND THROUGH THE NETWORK CREATED BY THE SELLER FOR SALE IN INDIA WER E ENTITLED TO DEPRECIATION. 10. RATIO OF THE JUDGMENT CITED AS AREVA T AND D INDIA LTD. (SUPRA) DELIVERED BY THE HONBLE JURISDICTIONAL HIG H COURT SQUARELY APPLIES TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND WE ARE OF THE CONSIDERED VIEW THAT TYPE TEST CERTI FICATION FEES AND CUSTOMER APPROVAL FEES ARE CERTAINLY IN TANGIBLE ASSETS BEING BUSINESS CLAIMS, BUSINESS INFORMATION, CONTRACTS AND KNOW-HOW ETC., WHICH WERE INTANGIBLE AND WITHOU T WHICH THE ASSESSEE WOULD HAVE NO BUSINESS TO START WITH. THUS, RIGHTS ITA NO.511/DEL./2011 6 OF THE SIMILAR NATURE SPECIFIED IN SECTION 32(1)(II ) OF THE ACT ARE ELIGIBLE FOR DEPRECIATION. 11. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT CIT (A) HAS ERRED IN AFFIRMING THE ORDER PASSED BY AO IN DISALLOWING THE AMOUNT OF RS.3,44,5 31/- ON ACCOUNT OF DEPRECIATION ON GOODWILL. CONSEQUENTLY, GROUND NO.4 IS DETERMINED IN FAVOUR OF THE ASSESSEE AND PRESENT AP PEAL QUA GROUND NO.4 STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 22 ND DAY OF JUNE, 2016. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND DAY OF JUNE, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.