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

ITA 598/PUN/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6905 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGERWAL
• Keywords: Capital asset; Depreciation; Business expenditure; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 32; 148

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.598/PUN/2016 / ASSESSMENT YEAR : 2007-08 TRIDENT SERVICES PVT. LTD., A-1, TIRUPATI APT. SANEWADI, AUNDH, PUNE 411 007. PAN : AACCT0173G. . / APPELLANT V/S ASST. COMMISSIONER OF INCOME TAX, CIRCLE-7, PUNE. . / RESPONDENT ASSESSEE BY : SHRI SUHAS BORA. REVENUE BY : SHRI VIVEK AGGERWAL. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE U/S 253 OF THE INCO ME TAX ACT IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INC OME TAX (A) PUNE-5, DT.22.01.2016 FOR THE ASSESSMENT YEAR 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY WHO IS STATED TO BE DEALING IN SALE S AND SERVICE OF CUMMINS DG SET. ASSESSEE ELECTRONICALLY FILED ITS RETURN / DATE OF HEARING : 28.12.2017 / DATE OF PRONOUNCEMENT: 29.12.2017 2 OF INCOME FOR A.Y. 2007-08 ON 12.10.2007 DECLARING TOTAL INCOM E OF RS.85,44,331/-. NOTICE U/S 148 OF THE ACT DT.25.03.2009 WAS ISSUED AND SERVED ON THE ASSESSEE. THEREAFTER, NOTICE U/S 14 3(2) AND 142(1) OF THE ACT DT.16.07.2009 ALONG WITH QUESTIONNAIRE WAS ISSUED AND SERVED ON THE ASSESSEE. SUBSEQUENTLY, ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DT.10.12.2009 AN D THE TOTAL INCOME WAS DETERMINED AT RS.1,17,00,570/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A ), WHO VIDE ORDER DT.22.01.2016 (IN APPEAL NO. PN/CIT(A)-5/ACIT, CIR-7, PUNE/50/2009-10) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT APPEALS-5, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.562500/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION CLAIMED ON GOODWILL U/S 32(1)(II) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT GOODWILL IS NOT INCLUDED IN SEC.32(1)(II) OF THE INCOME TAX ACT , 1961. 2. THE LEARNED CIT APPEALS-5, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.1891587/- TO THE TOTA L INCOME OF THE APPELLANT ON ACCOUNT OF DISALLOWANCE OF CLAIM OF TH E BAD DEBT ON THE GROUND THAT THE CLAIM IS PREMATURE AND THE DEBT S CLAIMED BY THE APPELLANT AS BAD, HAD NOT BECOME BAD AND THEREF ORE NOT ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(VII). 3. FIRST GROUND IS WITH RESPECT TO THE DISALLOWANCE OF DEPRE CIATION CLAIMED ON GOODWILL. 3.1. AO NOTICED THAT ASSESSEE HAD CLAIMED DEPRECIATION ON GOODWILL AT RS.5,62,500/-. AO WAS OF THE VIEW THAT THE EXPENDITURE IS OF CAPITAL IN NATURE ON ACCOUNT OF INTANGIBLE ASSETS AND THER E IS NO PROVISION TO ALLOW DEPRECIATION ON SUCH INTANGIBLE ASSETS. H E 3 ACCORDINGLY DENIED THE CLAIM OF DEPRECIATION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 4.2 I HAVE PERUSED THE MATERIAL ON RECORD AND THE SUBMISS ION OF THE APPELLANT CAREFUL L Y. ON THE IDENTICAL FACTS OF THE APPELLANT'S OWN CASE FOR A . Y. 2005-06, I DECIDED THE ISSUE AGAINST THE APPELLA NT VIDE APPELLATE ORDER NO. PN/CIT(A)- 5/CIR7/57/09-10 OF E VEN DATED AFTER MAKING AN ELABORATE DISCUSSION HOLDING THAT THE AMO UNT OF RS. 40,00,000/- GIVEN TO THE CUMMINS DIESEL SALES & SERVICES (INDIA) LTD. (CDSS) FOR OBTAINING DEALERSHIP WAS NE ITHER A REVENUE EXPENDITURE FOR CARRYING OUT APPELLANT'S BUSINESS N OR SUCH EXPENDITURE WAS INCURRED FOR ACQUIRING A CAPITAL AS SETS IN THE FORM OF GOODWILL BUT THE SAME WAS A DEPOSIT FOR GETTING THE DEALERSHIP OF A REPUTED COMPANY FOR WHICH THE APPELLANT HAVE TO PAY BOTH SECUR I TY DEPOSIT OF RS.7 , 50,000/- AND ALSO DEPOSIT ON ACCOUNT OF USING THE GOODWILL OF THE SAID COMPANY OF RS.40,00,000/- . ACCORDINGLY , DISTINGUISHING THE FACTS IN APPELLANT'S OWN CASE FO R A . Y . 2006-07 WHEREIN HON'BLE PUNE TRIBUNAL RELYING ON THE FINDIN GS OF THE AO IN THE SAID ASSESSMENT YEAR HAD DIRECTED TO ALLOW DEPR ECIATION, UPHELD THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO FOR A.Y. 2005 - 06, IN FAVOR OF THE REVENUE AND AGAINST . THE ASSESSEE. THE FINDINGS GIVEN THEREIN BY ME IN THE SAID APPELLATE ORDER FOR A . Y.2005- 06 ARE REPRODUCED BELOW:- 4.1 I HAVE PERUSED THE MATERIAL ON RECORD AND THE SUBMISSION OF THE APPELLANT CAREFULLY. I FIND THAT THE APPELLA NT HAS TRIED TO DEFEND ITS CASE FOR ALLOWING DEPRECIATION ON GOODWI LL ON AN INCORRECT PRESUMPTION AND MISINTERPRETATION OF THE PROV I SIONS OF SEC. 32(1) OF THE ACT. IT IS SEEN THAT THE APPELLAN T HAD A P P L IED FOR DEALERSHIP OF CUMMINS DIESEL SALES & SERVES (INDIA ) LTD . (CDSS) AS PER THEIR L ATER DATED . 01.04 . 2004 FOR WHICH THE APPELLANT HAD TO PAY SECURITY DEPOS I T OF RS . 7 , 50,000/ - AND DEPOSIT ON ACCOUNT OF GOODWILL OF RS.40 , 00,000/ -. FROM THE PLAIN READING OF THE APPELLANT ' S SUBM I SSION, IT CAN BE CLEARLY UNDERSTOOD THAT FOR ACQUIRING THE DEALERSHIP OF CDS S WHICH IS A REPUTED COMPANY, HAVING IMMENSE GOODWILL IN TH E MARKET, CERTAIN CONDITIONS WERE REQUIRED TO BE FULF ILLED WHICH WERE (A) TO PAY SECURITY DEPOSIT OF RS. 7, 50 ,000/ - AND (B) TO DEPOSIT TOWARDS GOODWILL OF THE SAID COM PANY OF RS.40,00,000/- . THEREFORE, THE FACTUAL MATRIX FOR THE SAID DEPOSITS WAS FOR CARRYING OUT THE BUSINESS OF THE A PPELLANT COMPANY AND FURTHER, BEING THE INITIAL YEAR OF THE APPELLANT'S BUSINESS, TO ENSURE THAT THE TERMS & CONDITIONS FOR GETTING SUCH DEALERSHIP ARE PROPERLY COMPLIED, THE APPELLANT HAD NO CHOICE BUT TO MAKE THESE DEPOSITS. THERE WAS NO IOTA OF GOODWILL OF THE APPELLANT INVOLVED I N THE SAID 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 AC TUALLY COMMENCED FROM JULY 2004. MERELY, BECAUSE THE DEALE RSHIP OF CDSS WAS TAKEN BY THE APPELLANT, BY DEPOSITING T HE 4 SECURITY DEPOSIT AND DEPOSIT ON ACCOUNT OF THE GOOD WILL OF CDSS COMPANY FOR GETTING THE DEALERSHIP AND CARRYIN G OUT THE BUSINESS, IN NO WAY, CREATES GOODWILL OF THE AP PELLANT, WHICH REQUIRES A LOT OF EXERCISE TO GENERATE THE SA ME. THEREFORE, THE NATURE OF DEPOSIT MADE BY THE APPELL ANT OF RS. 40, 00,000/- AND THE PURPOSE THEREOF , CANNOT BE CONSTRUED AS GOODWILL GENE R ATED 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. 4.2 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 RECEIV ED BY THE APPELLANTS, WAS NOTHING BUT DEPOSIT GIVEN. THIS HAS BEEN WRONGLY CLAIMED BY THE APPELLANT AS EXPENDITURE. IT IS FURT HER HELD, THAT THE APPELLANT THOUGH HAD CLAIMED THE SAME AS BUSINE SS. EXPENDITURE, IN FACT, IT HAD TAKEN THE SAID AMOUNT OF RS.40,00,000/- IN THE BALANCE SHEET, WITHOUT DEBITI NG THE ENTIRE AMOUNT IN THE INCOME & EXPENDITURE ACCOUNT. THE APP ELLANT, THEREAFTER, CLAIMED DEPRECIATION ON SUCH AMOUNT STA TING THE SAME AS GOODWILL AND INTANGIBLE ASSET AT THE RATE OF 25% AT RS.10,00,000/-, 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 ACQUIRED ON THE ONE HAND AN D CLAIMING THE SAME AS EXPENDITURE ON GOODWILL INCURRED, TO AV AIL THE DEALERSHIP OF A COMPANY WERE CONTRADICTORY CLAIMS O F THE APPELLANT, AND CANNOT BE CONSIDERED LEGAL WITHIN TH E PROVISIONS OF THE ACT. THEREFORE, AS THE GOODWILL WAS NOT ACQUIRE D BY WAY OF GENERATION BY THE APPELLANT ITSELF, AND AS THE BUSI NESS WAS AT THE INITIAL STAGE THE SAME COULD NOT BE TREATED AS A CA PITAL ASSET. THE EXPENDITURE INCURRED FOR THE GOODWILL OF THE OTHER COMPANY, FOR ACQUIRING THE DEALERSHIP OF THE SAID COMPANY, THE S AME COULD ALSO NOT BE TREATED AS A BUSINESS EXPENDITURE. ON T HIS GROUND ALSO, THE APPELLANT'S CLAIM OF ALLOWING THE DEPRECI ATION DOES NOT STAND. 4.3 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 HON'BLE TRIBUNAL HAD ALLOWED THE ASSESSEE'S APPEAL BY ALLOWING DEPRECIATION ON GOODW ILL, BASED UPON THE FINDINGS OF THE AO THAT NO DOUBTS THAT T HE EXPENSE IN THE NATURE OF CAPITAL ASSETS' BUT AS THE SAME WAS N OT INTANGIBLE ASSETS COVERED, WITHIN THE SCOPE OF SECTION 32(1)(I I) OF THE ACT. THE TRIBUNAL, FOLLOWING THE DECISION OF THE HONORABLE S UPREME COURT IN THE CASE OF CIT V/S SMIFS SECURITIES LTD., VIDE CIVIL APPEAL NO 5961 OF 2012 DATED 22.08.2012, WHEREIN IT WAS HELD THAT GOODWILL IS AN ASSET WITHIN THE MEANING OF SECTION. 32 (I) OF THE ACT AND DEPRECIATION ON THE SAME WAS ALLOWABLE. THE TRI BUNAL HELD THAT THE AO DID NOT DISPUTE THAT THE IMPUGNED EXPEN DITURE IS IN RESPECT OF GOODWILL AND REPRESENTED A CAPITAL ASSET S. BY REFERRING SO THE APPELLANT ARGUED FOR ALLOWING ITS CLAIM OF D EPRECIATION. 4.4 I HAVE ALREADY DECIDED ABOVE, THAT THE APPELLAN T HAD GIVEN THE AMOUNT OF RS. 40,00,000/- TO THE COMPANY CUMMINS (CDSS) FOR GETTING THE DEALERSHIP OF THE SAID REPUTED COMPANY AND FOR 5 OBTAINING THE BUSINESS RIGHT OF THE SALE AND SERVIC E OF CUMMINS DG SETS IN PUNE DISTRICT AREA AND FOR THE GOODWILL OF THE SAID COMPANY. IT WAS NOT GOODWILL OF THE APPELLANT COMPA NY, SO THAT SUCH CAPITAL ASSET WAS GENERATED AND ACQUIRED BY IT . I HAVE THEREFORE, HELD, THAT THE SAID AMOUNT GIVEN BY THE APPELLANT TO THE SAID COMPANY AS DEPOSIT, FOR THE GOODWILL OF THE SA ID COMPANY AND NOT FOR ACQUIRING OF THE APPELLANT'S OWN GOODWI LL, FOR: CREATING AN ASSET. I HAVE ALSO STATED, THAT THE SAME WAS ALS O NOT REVENUE EXPENDITURE, AS THIS WAS THE INITIAL YEAR OF GETTIN G THE DEALERSHIP, AS ALSO CARRYING OUT OF THE APPELLANT'S BUSINESS. N O' SUCH TRADING ASSETS AS WELL AS CAPITAL ASSETS WERE ACQUIRED BY T HE APPELLANT. THE FINDING OF THE AO IN THE ASSESSMENT ORDER, TREA TING THE SAME AS' CAPITAL EXPENDITURE HAS BEEN HELD BY ME FOR THE AFORESAID REASONS AS NOT CORRECT. THE HON'BLE TRIBUNAL HAD SIMPLY GIVEN ITS FINDINGS BASED UPON THE WRONG FINDINGS OF THE AO IN THE SUBSEQUENT YEAR, HOLDING THAT, WHEN THE AO HAD TREA TED IT AS CAPITAL ASSET ACQUIRED BY THE APPELLANT BY INCURRIN G THE EXPENDITURE AND TREATED THE SAME AS GOODWILL, THE C OROLLARY EFFECT WAS TO TREAT IT AS AN INTANGIBLE ASSET AND IN PURSUANCE TO THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS . SMIFS SECURITIES LTD., VIDE CIVIL APPEAL NO. 5961 OF 2012 DATED 22.08.2012, THE TRIBUNAL DIRECTED THE AO TO TREAT I T AS AN INTANGIBLE ASSET, AS THE AO HAD ALREADY TREATED THE SAME AS A CAPITAL ASSETS ACQUIRED BY THE APPELLANT. THE TRIBU NAL, ACCORDINGLY, FOLLOWING THE AFORESAID DECISION OF TH E HON'BLE SUPREME COURT DIRECTED TO ALLOW THE DEPRECIATION. A S ALREADY STATED ABOVE, I HAVE DIFFERED WITH THE FINDINGS OF THE AO GIVEN IN THE ASSESSMENT ORDER. I HAVE HELD, THAT THE AMOUNT OF RS.40,00,000/- PAID TO THE COMPANY CDSS WAS NEITHER AN EXPENDITURE FOR ACQUIRING CAPITAL ASSET SO THAT DEP RECIATION COULD BE ALLOWED ON IT, NOR A REVENUE EXPENDITURE WHICH H AS 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 APPELLANT TO THE C OMPANY CDSS FOR OBTAINING THE DEALERSHIP AND ALSO ENJOYING THE GOODWILL OF THE SAID COMPANY, THIS CANNOT BE CONSIDERED, FOR ALLOWING DEPRECIATION U/S 32(1) OF THE ACT, AS CLAIMED BY TH E APPELLANT. THEREFORE, THE FACTS OF THE CASE WERE NOT PROPERLY APPRECIATED BY THE AO IN A.Y. 2006-07 WHO HAD TAKEN THE VIEW THAT THE APPELLANT HAD ACQUIRED THE CAPITAL ASSET BY INCURRING THE EXP ENDITURE IN THE FORM OF GOODWILL, WHICH WAS NOT AN INTANGIBLE ASSET AND NOT ELIGIBLE FOR DEPRECIATION. WAS OVERRULED BY THE HON 'BLE TRIBUNAL FOR THE SAID YEAR, ARE FULLY DISTINGUISHABLE IN THIS RE LEVANT ASSESSMENT YEAR 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 TH E ORDER PASSED BY THE AO DISALLOWING SUCH DEPRECIATION IS CONFIRME D, SUBJECT HOWEVER FOR A DIFFERENT REASON AS PER MY FINDINGS I N THE PRECEDING PARAS. GROUND NO.2 RAISED BY THE APPELLANT IS ACCOR DINGLY REJECTED. 4.3 FOR THE IDENTICAL REASONS AS ABOVE HELD IN A.Y. 2005-06, THE APPELLANTS CLAIM FOR ALLOWING DEPRECIATION ON GOOD WILL IN THIS RELEVANT ASSESSMENT YEAR IS REQUIRE TO BE DENIED. T HE DISALLOWANCE MADE BY THE. AO OF RS.5,62,500/- IS ACCORDINGLY CONFIRMED, SUBJECT HOWEVER ON A DIFFERENT REASONING THAN THE REASONS GIVEN BY THE AO IN THE ASSESSMENT ORDER. GR OUND NO. 2 RAISED BY THE APPELLANT IS ACCORDINGLY DISMISSED. 6 AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US. 4. BEFORE US, LD.A.R. SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.YS. 2005-06 AND 2006-07. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN A.Y. 2005-06 IN ITA NO.597/PN/2016 FOLLOWED THE ORDER OF TRIBUNAL IN A.Y. 2006-07 AND ALLOWED THE CLAIM OF THE ASSESSEE. HE PLACED ON RECORD T HE AFORESAID ORDERS OF HONBLE ITAT AND POINTED TO THE RELEVANT FINDIN GS OF ITAT. HE THEREAFTER SUBMITTED THAT SINCE THE FACTS OF THE CAS E IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THAT OF EARLIER YEARS AND THEREFORE FOLLOWING THE ORDER OF THE TRIBUNAL IN EARLIER YEAR S, THE ISSUE BE DECIDED. LD.D.R. DID NOT OBJECT TO THE SUBMISSION S MADE BY THE LD.A.R. BUT HOWEVER SUPPORTED THE ORDER OF LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPE CT TO DISALLOWANCE OF DEPRECIATION ON GOODWILL. WE FIND THAT IDENTIC AL ISSUE AROSE IN THE CASE OF ASSESSEE IN A.YS. 2005-06 AND 2006-07. THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE AP PEAL IN A.Y. 2005-06 FOLLOWING THE ORDER OF TRIBUNAL IN A.Y. 2006-07 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 10. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO T HE FACT THAT THE ASSESSEE HAD APPLIED FOR DEALERSHIP OF CUMMINS DIESE LS SALES AND SERVICE INDIA LTD. (CDSS) AS PER THEIR LETTER DATED 01-04-2004 FOR WHICH THE ASSESSEE HAD TO PAY SECURITY DEPOSIT OF R S.7,50,000/- AND DEPOSIT ON ACCOUNT OF GOODWILL OF RS.40 LAKHS. THE ASSESSEE CLAIMED AN AMOUNT OF RS.10 LAKHS AS DEPRECIATION ON SUCH GO ODWILL. I FIND THE AO DISALLOWED THE CLAIM OF GOODWILL HOLDING THAT TH E SAME IS CAPITAL EXPENDITURE ON ACCOUNT OF INTANGIBLE ASSET AND THER E IS NO PROVISION TO 7 ALLOW DEPRECIATION ON SUCH INTANGIBLE ASSET AS PER THE PROVISIONS OF SECTION 32 OF THE I.T. ACT. I FIND IN APPEAL THE LD .CIT(A) UPHELD THE ACTION OF THE AO. I FIND IDENTICAL ISSUE HAD COME U P BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR AND THE TRIBUNAL ALLOWED THE CLAIM OF DEPRECIATION ON THE WRITTEN DOWN VALUE OF RS.30 LAKHS U/S.32(1)( II) OF THE I.T. ACT. THE RELEVANT FACTS AND OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER : 3. THE RELEVANT FACTS ARE THAT DURING THE PRECEDIN G ASSESSMENT YEAR, ASSESSEE ACQUIRED THE DEALERSHIP O F CUMMINS DIESEL SALES AND SERVICES INDIA LTD. (CDSS) FOR A SUM OF RS.40,00,000/-, WHICH WAS CONSIDERED AS AN I NTANGIBLE ASSET FALLING WITHIN THE SCOPE OF SECTION 32(1)(II) OF THE ACT. THE ASSESSEE HAD APPLIED FOR DEALERSHIP OF CDSS AND AS PER THE TERMS AND CONDITIONS, IT WAS REQUIRED TO PAY A REFU NDABLE 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 TH E AMOUNT OF RS.40,00,000/- WAS ARRIVED AT FOR PAYMENT TOWARD S GOODWILL. THE ASSESSEE CLAIMED THAT THE PAYMENT OF RS.40,00,000/- TOWARDS GOODWILL WAS A CAPITAL EXPEN DITURE FALLING WITHIN THE SCOPE OF SECTION 32(1) OF THE AC T. ACCORDINGLY, ON THE WDV OF RS.30,00,000/- BROUGHT FORWARD FROM T HE PRECEDING ASSESSMENT YEAR, ASSESSEE CLAIMED DEPRECIA TION OF RS.7,50,000/- U/S.32(1)(II) OF THE ACT. 4. THE ASSESSING OFFICER IN PARA 2.1 OF THE ASSESSM ENT ORDER, HELD THAT NO DOUBT THAT THE EXPENSE IS IN THE NATU RE OF A CAPITAL ASSET, BUT ACCORDING TO HIM, GOODWILL IS NOT AN INTANGIBLE ASSET COVERED WITHIN THE SCOPE OF SECTIO N 32(1)(II) OF THE ACT. HENCE, HE DENIED THE CLAIM OF DEPRECIATION AMOUNT OF RS.7,50,000/- WHICH HAS ALSO BEEN SUSTAINED BY THE CIT(APPEALS). 5. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSES SEE RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN T HE CASE OF CIT VS. SMIFS SECURITIES LTD., VIDE CIVIL APPEAL NO .5961 OF 2012 DATED 22.08.2012, WHEREIN IT HAS BEEN HELD THAT GOO DWILL IS AN ASSET WITHIN THE MEANING OF SECTION 32 OF THE ACT A ND DEPRECIATION ON THE SAME IS ALLOWABLE. IN THIS VIEW OF THE MATTER, THE PLEA OF THE ASSESSEE IS LIABLE TO SUCCE ED. FACTUALLY SPEAKING, THE ASSESSING OFFICER HAS NOT DISPUTED TH AT THE IMPUGNED EXPENDITURE IS IN RESPECT OF GOODWILL AND REPRESENTS A CAPITAL ASSET. THEREFORE, IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITI ES LTD. (SUPRA), THE ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED 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 ALL OWING THE CLAIM OF DEPRECIATION ON GOODWILL IN ASSESSEES OWN CASE IN THE SUCCEEDING ASSESSMENT YEAR, THEREFORE, FOLLOWING TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO MY NOTICE AGAINST THE ORDER OF THE TRIBUNAL, I SET ASIDE THE ORDER OF THE CIT(A) AND D IRECT THE AO TO ALLOW THE CLAIM OF DEPRECIATION. GROUND OF APPEAL N O.1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 8 6. BEFORE US, REVENUE HAS NOT PLACED ANY DISTINGUISHING FEA TURE IN THE FACTS OF THE PRESENT CASE AND THAT OF EARLIER YEAR S. IT IS ALSO NOT PLACED ANY MATERIAL TO SHOW THAT THE DECISION OF TRIBU NAL IN ASSESSEES OWN CASE IN EARLIER YEARS HAS BEEN SET ASIDE OR STAYED BY HIGHER JUDICIAL FORUM. WE THEREFORE RESPECTFULLY FOLLOWING TH E ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL FOR EARLIER YEARS AND FOR SIMILAR REASONS HOLD THAT ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON GOODWILL. WE ACCORDINGLY DIRECT THE AO FOR ALLOWING THE CLAIM OF DEPRE CIATION. THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. SECOND GROUND IS WITH RESPECT TO DISALLOWANCE OF CLAIM OF BAD DEBTS. 7.1 AO NOTICED THAT ASSESSEE HAS CLAIMED BAD DEBTS OF RS.18,91,587/-. ON PERUSING THE DETAILS OF BAD DEBTS, AO NO TICED THAT ALL THE PARTIES WHOSE OUTSTANDING BALANCES HAVE BE EN WRITTEN OFF ARE SUCH PARTIES WITH WHOM THE ASSESSEE HAD CARR IED ON BUSINESS IN THE FUTURE AND THEY WERE FINANCIALLY SOUND. H E WAS OF THE VIEW THAT THE ASSESSEE FOR CLAIMING THE DEBT AS BAD DEBT SHOULD ESTABLISH THAT THE DEBTS HAVE BECOME BAD. HE THEREAFT ER FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF S OUTH INDIA SURGICAL CO., LIMITED VS. ACIT REPORTED IN (2006) 287 ITR 62 (MAD) DISALLOWED THE CLAIM OF ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO INTER-ALIA FOR THE REASONS THAT ASSESSEE COULD NOT DEMONSTRATE BY FURNISHING ANY EVIDENCE THAT THE DEBT WAS GENUINELY A BAD DEBT. 9 LD.CIT(A) WAS FURTHER OF THE VIEW THAT FOR DECIDING WHETHER THE DEBT IS A BAD DEBT, IT IS TO BE SEEN WHETHER THE ASSESSEE H AS SUFFICIENT INFORMATION TO REASONABLY CONCLUDE THAT THERE WAS NO RE ASONABLE LIKELIHOOD THAT THE DEBT WAS RECOVERABLE IN FUTURE OR AN Y RECOVERY ACTION HAS TO BE TAKEN. HE ACCORDINGLY UPHELD THE ORDE R OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US. 8. BEFORE US, LD.A.R. SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.YS. 2005-06 AND 2006-07 AND T HE ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR. HE POIN TED TO THE RELEVANT FINDINGS OF THE TRIBUNAL. 9. LD.A.R. FURTHER SUBMITTED THAT THE BAD DEBTS HAVE BEE N WRITTEN OFF IN THE ACCOUNT BOOKS OF ASSESSEE ARE IRRECOV ERABLE AND THE OBJECTION OF THE AO THAT ASSESSEE OUGHT TO PROVE THAT THE DEBTS HAVE BECOME BAD IS NOT SUSTAINABLE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LIMITED VS. CIT REPOR TED IN 323 ITR 97 (SC). HE FURTHER SUBMITTED THAT THE FACTS OF THE CASE IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THAT OF ASSESSE ES OWN CASE IN A.YS. 2005-06 AND 2006-07 AND THEREFORE THE GROUND OF THE ASSESSEE BE ALLOWED. LD.D.R. DID NOT CONTROVERT THE SUBM ISSIONS MADE BY LD.A.R. BUT HOWEVER SUPPORTED THE ORDER OF LOWER AUTHORITIES. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPEC T TO CLAIM OF 10 BAD DEBTS. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN THE PROFIT AND LOSS ACCOUNT. WE FIND TH AT IDENTICAL ISSUE OF WRITE OFF BAD DEBTS AROSE IN ASSESSEES OWN CAS E IN A.YS. 2005-06 AND 2006-07. THE CO-ORDINATE BENCH OF THE TRIB UNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 19. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I FIND THE ASSESSEE IN T HE INSTANT CASE HAS CLAIMED BAD DEBT OF RS.1,39,250/-. THE AO DISALLOWE D THE CLAIM OF BAD DEBT ON THE GROUND THAT THE ASSESSEE HAD CARRIE D ON THE BUSINESS IN FUTURE WITH THE SAID PARTIES WHO ARE FINANCIALLY SOUND AND ARE REPUTED PARTIES. RELYING ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL COMPANY L TD. (SUPRA) THE AO DISALLOWED THE CLAIM OF BAD DENT. I FIND IN APPE AL THE LD.CIT(A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE COULD NOT DEMONSTRATE BY FURNISHING ANY EVIDENCE THAT THE DEB TS WERE GENUINELY BAD DEBTS AND NOT LIVING DEBTS AS HELD BY THE AO. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS WRITTEN OFF THE SAID AMOUNTS IN ITS BOOKS AS BAD DE BTS AND THE DEBT HAS BEEN CONSIDERED AS INCOME IN THE EARLIER YEARS AND THUS THE ASSESSEE FULFILS THE CONDITIONS PRESCRIBED IN SECTI ON 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 OF HONBLE SU PREME COURT IN THE CASE OF TRF LTD. (SUPRA) AND THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF STAR CHEMICALS PVT. LTD. (SUPR A) 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 ASSES SEES OWN CASE FOR A.Y. 2006-07 VIDE ITA NO.1275/PN/2009 AND ITA NO.13 80/PN/2009 ORDER DATED 31-10- 2012 HAS UPHELD THE ORDER OF THE CIT(A) ALLOWING THE CLAIM OF BAD DEBT BY OBSERVING AS UNDER : 18. IN OUR CONSIDERED OPINION, THERE IS NO NEGATIO N TO THE FINDING OF THE CIT(APPEALS) THAT THE ASSESSEES CLA IM FOR BAD DEBTS IS COMPLIANT WITH THE PROVISIONS OF SECTION 3 6(1)(VII) R.W.S. 36(2) OF THE ACT. NOTABLY, THE BAD DEBTS HAVE BEEN WRITTEN OFF IN THE ACCOUNT BOOKS AS IRRECOVERABLE AND THE CORRE SPONDING INCOME HAS ALSO BEEN SUBJECT TO TAX IN THE EARLIER YEARS, AS REQUIRED BY SECTION 36(2) OF THE ACT. CONSIDERING T HE AFORESAID AND HAVING REGARD TO THE RATIO OF THE JUDGMENT OF T HE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA), THE OBJECTION OF THE ASSESSING OFFICER THAT ASSESSEE OUGHT TO HAVE P ROVED THAT THE DEBTS HAD BECOME BAD, IS NOT SUSTAINABLE. ACCOR DINGLY, THE ACTION OF THE CIT(APPEALS) IS HEREBY AFFIRMED AND T HE REVENUE HAS TO FAIL ON THIS GROUND. 20. SINCE THE FACTS OF THE INSTANT CASE ARE IDENTIC AL TO THE FACTS ALREADY DECIDED BY THE TRIBUNAL, FOLLOWING THE ORDE R OF THE TRIBUNAL, THEREFORE, IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO MY NOTICE, I SET ASIDE THE ORDER OF THE 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. 11 11. WE ALSO FIND THAT HONBLE SUPREME COURT IN THE CASE OF TRF LTD (SUPRA) HAS OBSERVED THAT AFTER THE AMENDMENT TO SEC.36(I)(VII) OF THE INCOME TAX ACT, 1961 W.E.F 01.04.1989, IN ORDER TO OB TAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOM E IRRECOVERABLE IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS RECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 12. BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY BINDI NG DECISION NOR HAS POINTED OUT ANY DISTINGUISHING FACTS IN TH E PRESENT CASE AS COMPARED TO EARLIER YEARS. IN VIEW OF THE AFORES AID FACTS AND FOLLOWING THE DECISION OF HONBLE APEX COURT IN THE CASE OF T RF LIMITED (SUPRA), WE ARE OF THE VIEW THAT THE ASSESSEE IS E LIGIBLE FOR CLAIM OF BAD DEBTS. THUS, WE DIRECT THE AO TO ALLOW THE SAME. THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON 29 TH DAY OF DECEMBER, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 29 TH DECEMBER, 2017. YAMINI 12 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-5, PUNE. PR.CIT-4, PUNE. '#$ %%&',) &', / DR, ITAT, PUNE; $*+,/ GUARD FILE. / BY ORDER , // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.