Trident Services Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 597/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1122 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 04-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Capital asset; Depreciation; Business expenditure; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.597/PN/2016 / ASSESSMENT YEAR : 2005-06 TRIDENT SERVICES PVT. LTD., A-1, TIRUPATI APT., SANEWADI, AUNDH, PUNE 411007 PAN : AACCT0173G . / APPELLANT V/S ACIT, CIRCLE - 7, PUNE . / RESPONDENT / APPELLANT BY : SHRI SUHAS P. BORA / RESPONDENT BY : SHRI P.L. KUREEL / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22-01-2016 OF THE CIT(A)-I, AURANGABAD RELATING TO THE ASSESSMENT YEAR 2005-06. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS UNDER : 1. THE LD.CIT(A)-5, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.10,00,000/- MADE BY THE AO ON AC COUNT OF DISALLOWANCE OF DEPRECIATION CLAIMED ON GOODWILL U/S. 32(1)(II) OF THE I.T. ACT, 1961 ON THE GROUND THAT GOODWILL IS NOT IN CLUDED IN SEC.32(1)(II) OF THE I.T.ACT, 1961. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH WAS ALLOTTED A DEALERSHIP FOR SALE AND SERVICE OF CUMMINS DG SET IN PUNE DISTRICT AREA. IT FILED ITS RETURN OF INCOME ON 19-10-2005 DECLARING TOTAL INCOME OF RS.12,67,2 79/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBS ERVED FROM THE SCHEDULE 4 TO THE BALANCE SHEET THAT THE ASSESSE E COMPANY HAS / DATE OF HEARING :09.08.2016 / DATE OF PRONOUNCEMENT:12.08.2016 2 ITA NO.597/PN/2016 CLAIMED GOODWILL ADDITION DURING THE YEAR AMOUNTING TO RS.40 LAKHS AND CLAIMED DEPRECIATION ON GOODWILL AT RS.10 LAKHS FOR THE CURRENT YEAR. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE A LLOWABILITY OF DEPRECIATION ON GOODWILL U/S.32 OF THE I.T. ACT. 4. THE ASSESSEE MADE A DETAILED SUBMISSION JUSTIFYING THE CLAIM OF DEPRECIATION ON GOODWILL. HOWEVER, THE AO WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THA T THE DEALERSHIP WAS OF CUMMINS WHICH IS A WELL KNOWN COMPANY FOR MANUFACTURING OF ENGINES AND THEREFORE IT HAS CHARGED SU CH AMOUNT FOR ITS GOODWILL FOR ITS REPUTATION MADE OVER THE YEARS. IT IS A CAPITAL EXPENDITURE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF INTANGIBLE ASSET AND THERE IS NO PROVISION TO ALLOW DEPRECIATION ON S UCH INTANGIBLE ASSET. THE AO ACCORDINGLY DISALLOWED THE CLAIM OF DEPRECIATION ON GOODWILL. 5. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT IN THE SUCC EEDING ASSESSMENT YEAR THE TRIBUNAL HAS ALLOWED DEPRECIATION ON GOODWILL IN ASSESSEES OWN CASE. WITHOUT PREJUDICE TO THE ABOVE , IT WAS SUBMITTED THAT IT HAD RECEIVED THE DEALERSHIP FROM CUMMINS DIESELS SALES AND SERVICE INDIA LTD. (CDSS) IT HAD APPLIED FOR DEALE RSHIP OF CDSS AS PER THEIR LETTER DATED 01-04-2004. THE ASSE SSEE WAS REQUIRED TO PAY SECURITY DEPOSIT OF RS.7,50,000/- AND AN AMOUNT OF RS.40 LAKHS TOWARDS GOODWILL. THE DEALERSHIP AGREEMENT WAS ENTERED INTO IN JUNE 2004. SINCE CDSS IN ITS LETTER HAD ST ATED THAT THE ASSESSEE HAD TO PAY RS.40 LAKHS TOWARDS GOODWILL THE ASSESSEE RECORDED THE SAID AMOUNT IN ITS BOOKS AS GOODWILL AND CLAIM ED DEPRECIATION THEREON. IT WAS SUBMITTED THAT EVEN THOUG H THE NOMENCLATURE USED IS GOODWILL BUT IN REALITY THE SAID PAYMEN T IS MADE FOR ACQUIRING BUSINESS RIGHTS, I.E. BASICALLY DEALERSHIP RIGHTS. 3 ITA NO.597/PN/2016 IF THE ASSESSEE HAD NOT PAID THE SAID AMOUNT OF RS.40 LAK HS AS PER THE LETTER OF CDSS DATED 01-04-2004 THE DEALERSHIP WOULD NOT HAVE BEEN GRANTED. THEREFORE, IT IS INCORRECT TO STATE THAT R S.40 LAKHS PAID IS ONLY ON ACCOUNT OF GOODWILL. IT WAS ARGUED THAT S UBSTANCE IS TO BE GIVEN MORE WEIGHTAGE AS AGAINST FIRM. RELYING ON VA RIOUS DECISIONS THE ASSESSEE ARGUED BEFORE THE CIT(A) THAT ASS ESSEE IS ENTITLED TO CLAIM DEPRECIATION OF RS.10 LAKHS ON THE GOODWILL. 6. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANATIO N GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE AO B Y OBSERVING AS UNDER: 4.2 I HAVE PERUSED THE MATERIAL ON RECORD AND THE SU BMISSION OF THE APPELLANT CAREFULLY. I FIND THAT THE APPELLANT HAS TRIED TO DEFEND ITS CASE FOR ALLOWING DEPRECIATION ON GOODWILL ON AN INCORRE CT PRESUMPTION AND MISINTERPRETATION OF THE PROVISIONS OF SEC. 32(1) OF TH E ACT. IT IS SEEN THAT THE APPELLANT HAD APPLIED FOR DEALERSHIP OF CUM MINS DIESEL SALES & SERVES (INDIA) LTD. (CDSS) AS PER THERE LATER DATED. 01.04.2004 FOR WHICH THE APPELLANT HAD TO PAY SECURITY DEPOSIT OF RS. 7,50,000/- AND DEPOSIT ON ACCOUNT OF GOODWILL OF RS. 40,00,000/-. FR OM THE PLAIN READING OF THE APPELLANT'S SUBMISSION, IT CAN BE CLEARL Y UNDERSTOOD THAT FOR ACQUIRING THE DEALERSHIP OF CDSS WHICH IS A REPUT ED COMPANY, HAVING IMMENSE GOODWILL IN THE MARKET, CERTAIN CONDI TIONS WERE REQUIRED TO BE FULFILLED WHICH WERE (A) TO PAY SECUR ITY DEPOSIT OF RS. 7,50,000/- AND (B) TO DEPOSIT TOWARDS GOODWILL OF THE SAID COMPANY OF RS. 40,00,000/-. THEREFORE, THE FACTUAL MATRIX FOR T HE SAID DEPOSITS WAS FOR CARRYING OUT THE BUSINESS OF THE APPELLANT COMPANY AND FURTHER, BEING THE INITIAL YEAR OF THE APPELLANT'S BUSINESS, TO ENSURE THAT THE TERMS & CONDITIONS FOR GETTING SUCH DEALERSHIP ARE PROP ERLY COMPLIED, THE APPELLANT HAD NO CHOICE BUT TO MAKE THESE DEPOSI TS. THERE WAS NO IOTA OF GOODWILL OF THE APPELLANT INVOLVED IN THE SA ID DEPOSIT, AS THE APPELLANT COMPANY WAS INCORPORATED ON 22.04.2004 AND NO BUSINESS WAS CARRIED OUT, TILL IT WAS GRANTED THE DEALERSHIP IN MAY,2004. THE BUSINESS ACTUALLY COMMENCED FROM JULY 2004. MERELY, BE CAUSE THE DEALERSHIP OF CDSS WAS TAKEN BY THE APPELLANT, BY DEP OSITING THE SECURITY DEPOSIT AND DEPOSIT ON ACCOUNT OF THE GOODWIL L OF CDSS COMPANY FOR GETTING THE DEALERSHIP AND CARRYING OUT THE BUSINESS, IN NO WAY, CREATES GOODWILL OF THE APPELLANT, WHICH REQUIR ES A LOT OF EXERCISE TO GENERATE THE SAME. THEREFORE, THE NATURE OF DEPOSI T MADE BY THE APPELLANT OF RS. 40,00,000/- AND THE PURPOSE THEREOF , CANNOT BE CONSTRUED AS GOODWILL GENERATED BY THE APPELLANT SO AS TO ALLOW THE APPELLANT TO CLAIM THE SAME AS AN AMOUNT ELIGIBLE FOR DEPRECIATION U/S 32(1) OF THE ACT. 4.3 WITHOUT PREJUDICE TO THE ABOVE, WHEREIN I HAVE HELD THAT THE AMOUNT GIVEN TO CDSS FOR THE 'GOODWILL' OF THE SAID COMPANY, FOR WHICH BUSINESS IN THE FORM OF DEALERSHIP WAS RECEIVED BY THE A PPELLANTS, WAS NOTHING BUT DEPOSIT GIVEN. THIS HAS BEEN WRONGLY CLAIM ED BY THE 4 ITA NO.597/PN/2016 APPELLANT AS EXPENDITURE. IT IS FURTHER HELD, THAT TH E APPELLANT THOUGH HAD CLAIMED THE SAME AS BUSINESS EXPENDITURE, IN FACT, I T HAD TAKEN THE SAID AMOUNT OF RS.40,00,000/- IN THE BALANCE SHEET, WI THOUT DEBITING THE ENTIRE AMOUNT IN THE INCOME & EXPENDITURE ACCOU NT. THE APPELLANT, THEREAFTER, CLAIMED DEPRECIATION ON SUCH AMOUNT STATI NG THE SAME AS GOODWILL AND INTANGIBLE ASSET AT THE RATE OF 25% AT R S.I0,00,000/-, INDICATING THE FACTS THAT, THE SAME WAS ACQUISITION OF CAPITAL ASSETS AND THE APPELLANT WAS ELIGIBLE FOR DEPRECATION AS CLAIMED . THE CLAIM OF DEPRECIATION, TREATING THE AMOUNT AS CAPITAL ASSET ACQ UIRED ON THE ONE HAND AND CLAIMING THE SAME AS EXPENDITURE ON GOODWIL L INCURRED, TO AVAIL THE DEALERSHIP OF A COMPANY WERE CONTRADICTORY CLAIMS OF THE APPELLANT, AND CANNOT BE CONSIDERED LEGAL WITHIN THE PROVISIONS OF THE ACT. THEREFORE, AS THE GOODWILL WAS NOT ACQUIRED BY W AY OF GENERATION BY THE APPELLANT ITSELF, AND AS THE BUSINESS WAS AT THE I NITIAL STAGE THE SAME COULD NOT BE TREATED AS A CAPITAL ASSET. THE EXPEN DITURE INCURRED FOR THE GOODWILL OF THE OTHER COMPANY, FOR ACQUIRIN G THE DEALERSHIP OF THE SAID COMPANY, THE SAME COULD ALSO NOT BE TREATED A S A BUSINESS EXPENDITURE. ON THIS GROUND ALSO, THE APPELLANT'S CLA IM OF ALLOWING THE DEPRECIATION DOES NOT STAND. 4.4 THE APPELLANT HAS FILED A COPY OF APPELLATE ORD ER OF HON'BLE ITAT PUNE IN ITS OWN CASE FOR A.Y 2006-07 VIDE ITA NO 1275 /PN/2009 & ITA NO 380/PN/2009 ( CROSS APPEAL BY ASSESSEE) WHEREIN THE H ON'BLE TRIBUNAL HAD ALLOWED THE ASSESSEE'S APPEAL BY ALLOWING DEPRECIATION ON GOODWILL, BASED UPON THE FINDINGS OF THE AO THAT NO DOUBTS THAT THE EXPENSE IN THE NATURE OF CAPITAL ASSETS' BUT AS THE SAME WAS NOT INTANGIBLE ASSETS COVERED, WITHIN THE SCOPE OF SECTION 32(1)(II) OF THE ACT. THE TRIBUNAL, FOLLOWING THE DECISION OF THE HON ORABLE SUPREME COURT IN THE CASE OF CIT V/S SMIFS SECURITIES LTD., VID E CIVIL APPEAL NO 5961 OF 2012 DATED 22.08.2012, WHEREIN IT WAS HELD T HAT GOODWILL IS AN ASSET WITHIN THE MEANING OF SECTION.32 (I) OF THE ACT AND DEPRECIATION ON THE SAME WAS ALLOWABLE. THE TRIBUNAL HELD THAT THE AO DID NOT DISPUTE THAT THE IMPUGNED EXPENDITURE IS IN RESPECT OF GOODWILL AND REPRESENTED A CAPITAL ASSETS. BY REFERRING SO THE APPELL ANT ARGUED FOR ALLOWING ITS CLAIM OF DEPRECIATION. 4.5 I HAVE ALREADY DECIDED ABOVE, THAT THE APPELLA NT HAD GIVEN THE AMOUNT OF RS. 40,00,000/- TO THE COMPANY CUMMINS (CDS S) FOR GETTING THE DEALERSHIP OF THE SAID REPUTED COMPANY AND FOR OB TAINING THE BUSINESS RIGHT OF THE SALE AND SERVICE OF CUMMINS DG SETS I N PUNE DISTRICT AREA AND FOR THE GOODWILL OF THE SAID COMPAN Y. IT WAS NOT GOODWILL OF THE APPELLANT COMPANY, SO THAT SUCH CAPIT AL ASSET WAS GENERATED AND ACQUIRED BY IT. I HAVE THEREFORE, HEL D, THAT THE SAID AMOUNT GIVEN BY THE APPELLANT TO THE SAID COMPANY AS DEPOSIT, FOR THE GOODWILL OF THE SAID COMPANY AND NOT FOR ACQUIRING O F THE APPELLANT'S OWN GOODWILL, FOR CREATING AN ASSET. I HAVE ALSO STATED , THAT THE SAME WAS ALSO NOT REVENUE EXPENDITURE, AS THIS WAS THE INITIA L YEAR OF GETTING THE DEALERSHIP, AS ALSO CARRYING OUT OF THE APPELLANT' S BUSINESS. NO SUCH TRADING ASSETS AS WELL AS CAPITAL ASSETS WERE ACQUIRED BY THE APPELLANT. THE FINDING OF THE AO IN THE ASSESSMENT ORDER, TREATING THE SAME AS CAPITAL EXPENDITURE HAS BEEN HELD BY ME FOR THE AFO RESAID REASONS AS NOT CORRECT. THE HON'BLE TRIBUNAL HAD SIMPLY GIVEN I TS FINDINGS BASED UPON THE WRONG FINDINGS OF THE AO IN THE SUBSEQUENT YE AR, HOLDING THAT, WHEN THE AO HAD TREATED IT AS CAPITAL ASSET ACQUIRED B Y THE APPELLANT BY INCURRING THE EXPENDITURE AND TREATED THE SAME AS GOO DWILL, THE COROLLARY EFFECT WAS TO TREAT IT AS AN INTANGIBLE ASSET AND IN PURSUANCE TO THE DECISION OF THE SUPREME COURT IN THE CASE OF C IT VS. SMIFTS 5 ITA NO.597/PN/2016 SECURITIES LTD., VIDE CIVIL APPEAL NO. 5961 OF 2012 DATED 22.08.2012, THE TRIBUNAL DIRECTED THE AO TO TREAT IT AS AN INTAN GIBLE ASSET, AS THE AO HAD ALREADY TREATED THE SAME AS A CAPITAL ASSETS ACQUIRE D BY THE APPELLANT. THE TRIBUNAL, ACCORDINGLY, FOLLOWING THE AFORESAID DECISION OF THE HON'BLE SUPREME COURT DIRECTED TO ALLOW THE DEP RECIATION. AS ALREADY STATED ABOVE, I HAVE DIFFERED WITH THE FINDI NGS OF THE AO GIVEN IN THE ASSESSMENT ORDER. I HAVE HELD, THAT THE AMOUNT O F RS. 40,00,000/- PAID TO THE COMPANY CDSS WAS NEITHER AN EXPENDITURE FOR ACQUIRING CAPITAL ASSET SO THAT DEPRECIATION COULD BE ALLOWED ON IT, NOR A REVENUE EXPENDITURE WHICH HAS ALSO NOT BEEN CLAIMED AS SUCH, BY THE APPELLANT SO THAT THE SAME COULD BE ALLOWED AS BUSINESS EXPENDITURE . I HAVE HELD, THAT THE SAID AMOUNT WAS A DEPOSIT MADE BY THE APPELLA NT TO THE COMPANY CDSS FOR OBTAINING THE DEALERSHIP AND ALSO EN JOYING THE GOODWILL OF THE SAID COMPANY. THIS CANNOT BE CONSIDERE D, FOR ALLOWING DEPRECIATION U/S 32(1) OF THE ACT, AS CLAIMED BY THE APPELLANT. THEREFORE, THE FACTS OF THE CASE WERE NOT PROPERLY AP PRECIATED BY THE AO IN A.Y. 2006-07 WHO HAD TAKEN THE VIEW THAT THE APPELLANT HAD ACQUIRED THE CAPITAL ASSET BY INCURRING THE EXPENDIT URE IN THE FORM OF GOODWILL, WHICH WAS NOT AN INTANGIBLE ASSET AND NOT E LIGIBLE FOR DEPRECIATION, WAS OVERRULED BY THE HON'BLE TRIBUNAL FOR THE SAID YEAR, ARE FULLY DISTINGUISHABLE IN THIS RELEVANT ASSESSMENT YEA R IN APPELLANT'S CASE FOR MY FINDINGS, AS GIVEN ABOVE. FOR THE AFORESAID REASONS, THE APPELLANT IS NOT ENTITLED TO DEPRECIATION CLAIMED BY IT OF RS.10,00,000/- AND THE ORDER PASSED BY THE AO DISALLOWING SUCH DEPREC IATION IS CONFIRMED, SUBJECT HOWEVER FOR A DIFFERENT REASON AS PER MY FINDINGS IN THE PRECEDING PARAS. GROUND NO.2 RAISED BY THE APPEL LANT IS ACCORDINGLY REJECTED. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE OR DER OF THE TRIBUNAL FOR A.Y. 2006-07 IN ASSESSEES OWN CASE, A COPY O F WHICH IS PLACED AT PAGES 15 TO 21 OF THE PAPER BOOK. HE DREW T HE ATTENTION OF THE BENCH TO PARA 3 TO 5 OF THE ORDER AND SUBMITTED T HAT THE TRIBUNAL IN THE SUBSEQUENT YEAR HAS ALLOWED DEPRECIATION O N GOODWILL. SINCE THE FACTS OF THE INSTANT CASE ARE IDENTICAL TO THE FACTS OF THE SUBSEQUENT YEAR WHICH HAS ALREADY BEEN DECIDED B Y THE TRIBUNAL, THEREFORE, THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF T HE CIT(A) BE SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE BE ALLOWED. 6 ITA NO.597/PN/2016 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 10. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FAC T THAT THE ASSESSEE HAD APPLIED FOR DEALERSHIP OF CUMMINS DIESELS SALES AND SERVICE INDIA LTD. (CDSS) AS PER THEIR LETTER DATED 01-04 -2004 FOR WHICH THE ASSESSEE HAD TO PAY SECURITY DEPOSIT OF RS.7,50 ,000/- AND DEPOSIT ON ACCOUNT OF GOODWILL OF RS.40 LAKHS. THE ASSESSE E CLAIMED AN AMOUNT OF RS.10 LAKHS AS DEPRECIATION ON SUCH GOODWILL . I FIND THE AO DISALLOWED THE CLAIM OF GOODWILL HOLDING THAT THE SAME IS CAPITAL EXPENDITURE ON ACCOUNT OF INTANGIBLE ASSET AND TH ERE IS NO PROVISION TO ALLOW DEPRECIATION ON SUCH INTANGIBLE ASSET AS PER THE PROVISIONS OF SECTION 32 OF THE I.T. ACT. I FIND IN APPEAL TH E LD.CIT(A) UPHELD THE ACTION OF THE AO. I FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIA TELY SUCCEEDING ASSESSMENT YEAR AND THE TRIBUNAL ALLOWED THE CLAIM OF DEPRECIATION ON THE WRITTEN DOWN VALUE OF RS.30 LAKHS U/S.3 2(1)(II) OF THE I.T. ACT. THE RELEVANT FACTS AND OBSERVATIONS OF TH E TRIBUNAL ARE AS UNDER : 3. THE RELEVANT FACTS ARE THAT DURING THE PRECEDING ASSESSMENT YEAR, ASSESSEE ACQUIRED THE DEALERSHIP OF CUMMINS DIESEL S ALES AND SERVICES INDIA LTD. (CDSS) FOR A SUM OF RS.40,00,000/ -, WHICH WAS CONSIDERED AS AN INTANGIBLE ASSET FALLING WITHIN THE SCO PE OF SECTION 32(1)(II) OF THE ACT. THE ASSESSEE HAD APPLIED FOR DEA LERSHIP OF CDSS AND AS PER THE TERMS AND CONDITIONS, IT WAS REQUIRED TO PAY A REFUNDABLE SECURITY DEPOSIT OF RS.7,50,000/- AND A FURTHER SUM OF RS.40,00,000/- TOWARDS GOODWILL. THE ASSESSEE ALSO EXPLAINED BEFORE THE ASSESSING OFFICER THE MANNER IN WHICH THE AMOUNT OF RS.40,00,0 00/- WAS ARRIVED AT FOR PAYMENT TOWARDS GOODWILL. THE ASSESSEE CLAIMED T HAT THE PAYMENT OF RS.40,00,000/- TOWARDS GOODWILL WAS A CAPIT AL EXPENDITURE FALLING WITHIN THE SCOPE OF SECTION 32(1) OF THE ACT. ACCORDINGLY, ON THE WDV OF RS.30,00,000/- BROUGHT FORWARD FROM THE PRECE DING ASSESSMENT YEAR, ASSESSEE CLAIMED DEPRECIATION OF RS.7,50,000/- U/S. 32(1)(II) OF THE ACT. 7 ITA NO.597/PN/2016 4. THE ASSESSING OFFICER IN PARA 2.1 OF THE ASSESSMENT ORD ER, HELD THAT NO DOUBT THAT THE EXPENSE IS IN THE NATURE OF A CAPITAL ASSET, BUT ACCORDING TO HIM, GOODWILL IS NOT AN INTANGIBLE ASSE T COVERED WITHIN THE SCOPE OF SECTION 32(1)(II) OF THE ACT. HENCE, HE DEN IED THE CLAIM OF DEPRECIATION AMOUNT OF RS.7,50,000/- WHICH HAS ALSO BE EN SUSTAINED BY THE CIT(APPEALS). 5. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. SMIFS SECURITIES LTD., VIDE CIVIL APPEAL NO.5961 OF 2012 D ATED 22.08.2012, WHEREIN IT HAS BEEN HELD THAT GOODWILL IS AN ASSET WITH IN THE MEANING OF SECTION 32 OF THE ACT AND DEPRECIATION ON THE SAME I S ALLOWABLE. IN THIS VIEW OF THE MATTER, THE PLEA OF THE ASSESSEE IS LIABLE TO SUCCEED. FACTUALLY SPEAKING, THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE IMPUGNED EXPENDITURE IS IN RESPECT OF GOODWILL AND RE PRESENTS A CAPITAL ASSET. THEREFORE, IN VIEW OF THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD. (SUPRA), THE ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THE ASSESSING OFFICER IS DIREC TED TO ALLOW THE CLAIM OF ASSESSEE FOR DEPRECIATION OF RS.7,50,000/- . THUS, ON THIS GROUND ASSESSEE SUCCEEDS. 11. SINCE THE TRIBUNAL HAS ALREADY TAKEN A VIEW ALLOWING T HE CLAIM OF DEPRECIATION ON GOODWILL IN ASSESSEES OWN CASE IN THE S UCCEEDING ASSESSMENT YEAR, THEREFORE, FOLLOWING THE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MA TERIAL BROUGHT TO MY NOTICE AGAINST THE ORDER OF THE TRIBUNAL, I SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE CLA IM OF DEPRECIATION. GROUND OF APPEAL NO.1 BY THE ASSESSEE IS AC CORDINGLY ALLOWED. 12. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER : 2. THE LD.CIT(A)-5, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.1,39,250/- TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF DISALLOWANCE OF CLAIM OF THE BAD DEBT ON THE GROUND THAT THE CLAIM IS PREMATURE AND THE DEBTS CLAIMED BY THE APPEL LANT AS BAD, HAD NOT BECOME BAD AND THEREFORE NOT ALLOWABLE AS DEDUCT ION U/S.36(1)(VII). 13. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING TH E COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMPA NY HAS CLAIMED BAD DEBT OF RS.1,39,250/-. FROM THE DETAILS FURNISH ED BY THE ASSESSEE HE OBSERVED THAT THE SAME RELATES TO 59 CUSTOMERS. 8 ITA NO.597/PN/2016 FURTHER, ALL THE PARTIES ARE SUCH PARTIES WITH WHOM THE A SSESSEE CARRIED ON THE BUSINESS IN FUTURE. THE AO FURTHER NOTED THAT THE PARTIES IN RESPECT OF WHOM DEBTS ARE WRITTEN OFF ARE FINANC IALLY SOUND AND REPUTED BUSINESS PERSONS OF THE CITY. RELYING ON TH E DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SUR GICAL COMPANY LTD. VS. ACIT REPORTED IN 287 ITR 62 THE AO RE JECTED THE CLAIM OF BAD DEBT AND ADDED RS.1,39,250/- TO THE TOTAL INCOME OF THE ASSESSEE. 14. BEFORE CIT(A) IT WAS SUBMITTED THAT SIMILAR DISALLOWANCE W AS ALSO MADE IN F.Y. 2005-06, I.E. RELEVANT TO A.Y. 2006-07 AND THE CIT(A)-III, PUNE HAS DELETED THE ADDITION MADE BY THE AO . ON APPEAL FILED BY THE REVENUE, THE TRIBUNAL HAS DISMISSED THE APPEAL FILED BY THE REVENUE AND ALLOWED THE CLAIM OF THE ASSESSEE BY REL YING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT REPORTED IN 35 DTR 156 AND THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF STAR CHEMICALS PVT. LTD. REPORTED IN 11 DTR 311. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTED T HAT THE ASSESSEE HAD WRITTEN OFF THE ENTIRE AMOUNT OF RS.1,39,250/- IN ITS BOOKS OF ACCOUNT. THERE ARE NUMBER OF PARTIES AND THE AMOUNT INVOLVED IN RESPECT OF EACH PARTY IS VERY SMALL. IT WAS SUBMITTED THAT THESE AMOUNTS ARE PENDING ON ACCOUNT OF SOME MINOR VARIATIONS AND THEREFORE THE ASSESSEE HAD WRITTEN OFF THE SAID AMOUNT A S BAD DEBT. FURTHER, THE ASSESSEE HAD OFFERED THE SAID INCOME TO TAX IN EARLIER YEARS. IT WAS SUBMITTED THAT THE ASSESSEE FULFILS THE CON DITIONS LAID DOWN AS PER THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2). R ELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THE ASSESSEE IS NOT REQUIRED TO PROVE THAT THE DEBT HAS BECOME BAD. 9 ITA NO.597/PN/2016 15. HOWEVER, THE CIT(A) ALSO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. DISTINGUISHING THE VARIO US DECISIONS CITED BEFORE HIM THE CIT(A) UPHELD THE ACTION OF TH E AO. SHE FURTHER OBSERVED THAT THE ASSESSEE COULD NOT DEMO NSTRATE BY FURNISHING ANY EVIDENCE THAT THE DEBTS WERE GENUINELY BA D DEBT AND NOT LIVING DEBTS. 16. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL 17. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y . 2006-07 AND SUBMITTED THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND SUBMITTED THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE WHEREIN TH E RELIEF GRANTED BY THE CIT(A) ON THIS ISSUE WAS CHALLENGED BY THE REVENUE AND THE TRIBUNAL VIDE ITA NO.380/PN/2009 ORDER DATED 31 -10-2012 HAS DISMISSED THE GROUND RAISED BY THE REVENUE. THEREFO RE, THIS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE THE ISS UE SHOULD BE DECIDED IN FAOVUR OF THE ASSESSEE. 18. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 19. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. I FIND THE ASSESSEE IN THE INST ANT CASE HAS CLAIMED BAD DEBT OF RS.1,39,250/-. THE AO DISALLOWED THE CLA IM OF BAD DEBT ON THE GROUND THAT THE ASSESSEE HAD CARRIED ON THE BUSINESS IN FUTURE WITH THE SAID PARTIES WHO ARE FINANCIALLY SOUND AND ARE REPUTED PARTIES. RELYING ON THE DECISION OF HON BLE MADRAS 10 ITA NO.597/PN/2016 HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL COMPANY LT D. (SUPRA) THE AO DISALLOWED THE CLAIM OF BAD DENT. I FIND IN AP PEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE COULD NOT DEMONSTRATE BY FURNISHING ANY EVIDENC E THAT THE DEBTS WERE GENUINELY BAD DEBTS AND NOT LIVING DEBTS AS HELD BY THE AO. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE ASSESSEE HAS WRITTEN OFF THE SAID AMOUNTS IN ITS BOOKS AS BAD DEBTS AND THE DEBT HAS BEEN CONSIDERED AS INCOME IN THE EARLIE R YEARS AND THUS THE ASSESSEE FULFILS THE CONDITIONS PRESCRIBED IN SECTIO N 36(1)(VII) R.W.S. 36(2) OF THE I.T. ACT. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA) AND THE DE CISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF STAR CHEMIC ALS PVT. LTD. (SUPRA) AND THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE THE ASSESSEE IS ENTITLED TO CLAIM BAD DEBT. I FIND MERIT IN THE ABOVE ARGUMENTS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE . THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 VIDE ITA NO.1275/PN/2009 AND ITA NO.1380/PN/2009 ORDER DATED 3 1-10- 2012 HAS UPHELD THE ORDER OF THE CIT(A) ALLOWING THE CLAIM O F BAD DEBT BY OBSERVING AS UNDER : 18. IN OUR CONSIDERED OPINION, THERE IS NO NEGATION TO THE FINDING OF THE CIT(APPEALS) THAT THE ASSESSEES CLAIM FOR BAD DEBTS I S COMPLIANT WITH THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. NOTABLY, THE BAD DEBTS HAVE BEEN WRITTEN OFF IN THE ACCOUNT B OOKS AS IRRECOVERABLE AND THE CORRESPONDING INCOME HAS ALSO BE EN SUBJECT TO TAX IN THE EARLIER YEARS, AS REQUIRED BY SECTION 36(2) OF THE ACT. CONSIDERING THE AFORESAID AND HAVING REGARD TO THE RA TIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA), THE OBJECTION OF THE ASSESSING OFFICER THAT ASSESSEE OUGHT TO HAVE PROVED THAT THE DEBTS HAD BECOME BAD, IS NOT SUSTAINAB LE. ACCORDINGLY, THE ACTION OF THE CIT(APPEALS) IS HEREBY AFFIRMED AN D THE REVENUE HAS TO FAIL ON THIS GROUND. 11 ITA NO.597/PN/2016 20. SINCE THE FACTS OF THE INSTANT CASE ARE IDENTICAL TO T HE FACTS ALREADY DECIDED BY THE TRIBUNAL, FOLLOWING THE ORDER OF THE TRIBUNAL, THEREFORE, IN ASSESSEES OWN CASE AND IN ABSENCE OF A NY CONTRARY MATERIAL BROUGHT TO MY NOTICE, I SET ASIDE THE ORDER OF T HE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE CLAIM OF BAD DEBT . GROUND OF APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12-08-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 12 TH AUGUST, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // // TRUE COPY // // $ % //UE &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - V, PUNE 4. THE CIT-V, PUNE 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.