DCIT 2(1)(1), MUMBAI V. ABBOTT HEALTHCARE P. LTD, MUMBAI

ITA 6494/MUM/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6375 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-09-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 12-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: LOKESH SHAH
• Keywords: Depreciation; Opportunity of being heard; Rule of consistency; Revenue expenditure; Set aside

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “A” Bench, Mumbai Shri B.R. Baskaran (AM) & Shri Pavan Kumar Jadale (JM) I.T.A. No.6494/Mum/2018 (A.Y. 2015-16) I.T.A. No.6493/Mum/2018 (A.Y. 2014-15) I.T.A. No. 5620/Mum/2019 (A.Y. 2016-17) DCIT/ACIT-2(1)(1) R.No. 561 5 th Floor Aayakar Bhavan M.K. Marg Mumbai-400 020. Vs.Abbott Healthcare P. Ltd Unit-3, Corporate Park Sion Trombay Road Chembur Mumbai-400071. (Appellant) (Respondent) C.O. No. 218/Mum/2019 (A.Y. 2014-15) C.O. No. 219/Mum/2019 (A.Y. 2015-16) C.O. No. 25/Mum/2020 (A.Y. 2016-17) I.T.A. No. 6643/Mum/2018 (A.Y. 2014-15) I.T.A. No.6644/Mum/2018 (A.Y. 2015-16) Abbott Healthcare P. Ltd Unit-3 Corporate Park Sion Trombay Road Chembur Mumbai-400 071. Vs.DCIT/ACIT-2(1)(1) Room No. 561 5 th Floor Aayakar Bhavan M.K. Marg Mumbai-400 020. (Appellant) (Respondent) PAN : AACK3935D Assessee by Shri Raghventra Singh & Shri Lokesh Shah Department by Smt Shailja Rai Date of Hearing 13.09.2022 Date of Pronouncement 16.09.2022 O R D E R PER BENCH : The revenue has filed appeals for AY 2014-15 to 2016-17. The assessee has filed appeals for AY 2014-15 and 2015-16. The assessee has also filed cross objections for AY 2014-15 to 2016-17. Since common issues are involved, all these appeals were heard together and are being disposed of by this common order, for the sake of convenience. Abbott Healthcare P. Ltd 2 2. The assessee is engaged in the business of manufacture and trading of pharmaceuticals, nutritional, dianostic and vascular products. 3. The only issue urged by the revenue in all the three years relate to the direction of Ld CIT(A) to treat “non-compete fees” as deferred revenue expenditure. 4. The facts relating to this issue are that the assessee had acquired the “Base Domestic Formulations” business from M/s Piramal Healthcare Limited, vide Business Transfer Agreement dated 21 st May 2010 on slump sale basis. The consideration paid by the assessee consisted of “non-compete fees” of Rs.513,54,60,000/-. The company capitalised the same and claimed depreciation thereon in all the three years. The AO held that the non-compete fees cannot be considered as “intangible right” and hence not eligible for depreciation. He also took the view that the above said payment is not allowable as revenue expenditure also as per the decision rendered by Hon’ble Delhi High Court in the case of Sharp Business System vs. CIT (ITA No.492/2012). The same view was taken by the AO in all the three years under consideration. 5. The Ld CIT(A) noticed that an identical issue has been considered by him in AY 2011-12, wherein he had held that the non-compete fee should be allowed as deferred revenue expenditure over the period of time when such non-compete agreement is valid. Following the same, the Ld CIT(A) held so in all the three years under consideration. Aggrieved, the revenue has filed these appeals before the Tribunal. 6. The assessee has filed cross objections in all the three years contending that the Ld CIT(A) should have allowed depreciation accepting the claim of the assessee that non-compete fee is an intangible asset eligible for depreciation. Abbott Healthcare P. Ltd 3 7. We notice that the appeal of the revenue filed for AY 2011-12 has been disposed of by the co-ordinate bench on 06.01.2020 in ITA No.711/Mum/2018, wherein the Tribunal has upheld the view taken by Ld CIT(A) that the non-compete fee should be allowed as deferred revenue expenditure over the period of time when such non-compete agreement is valid. We notice that the assessee had raised an additional ground in its appeal in ITA No.570/Mum/2018 claiming depreciation on the non-compete fee. Though the Tribunal had adjudicated the appeal of the assessee, vide its order dated 06-01-2020, it inadvertently omitted to adjudicate the additional ground raised by the assessee. Hence the Tribunal, vide its order 08-03-2021 passed in M A No.229/Mum/2020, recalled its order for the limited purpose of adjudicating the additional ground raised by the assessee. Subsequently, the Tribunal adjudicated the above said additional ground, vide its order dated 02-08-2022, wherein the Tribunal allowed the claim of depreciation by observing as under:- “12. In the present case payment of non-compete fee in accordance with terms of agreement between the assessee and Piramal Healthcare Ltd is not disputed by the Revenue. Ergo, in the light of the facts of case and the decision by Hon’ble Bombay High Court** referred above, we hold that the assessee is eligible for depreciation u/s 32 of the Act on Non-compete fees paid being an intangible asset. The additional grounds of appeal raised by the assessee are thus, allowed.” (**CIT vs. Piramal Glass Ltd – Order dated 11/06/2019 – Bombay High Court). 8. We noticed earlier that the Tribunal, vide its order dated 06-01- 2020 passed in appeal of the revenue has upheld the view of Ld CIT(A) that the non-compete fee should be allowed as deferred revenue expenditure during the tenure of non-compete agreement. However, while adjudicating the assessee’s appeal on the additional ground, the Tribunal has expressed the view that the depreciation is admissible on non-compete fees paid by it. Thus we notice that the Tribunal has expressed two different views on the very same issue, vide its order dated 06-01-2020 and 02-08-2022. Abbott Healthcare P. Ltd 4 9. With regard to these different decisions, the Ld A.R submitted that the original claim of the assessee before Ld CIT(A) was always to allow depreciation on non-compete fees. In the alternative, the assessee had claimed that the non-compete fee should be allowed as deferred revenue expenditure, if the claim of depreciation is not accepted. The Ld CIT(A) granted relief to the assessee by accepting the alternative claim. He submitted that the Tribunal has allowed the claim of depreciation in the appeal filed by the assessee in AY 2011-12, vide its order dated 02-08- 2022. He also submitted that the Tribunal has given two different decisions on the very same view. However, he submitted that, if the original claim of depreciation is allowed, then there was no necessity to consider alternative claim. The confusion has occurred only because the Tribunal had omitted to adjudicate the addition ground relating to claim of depreciation. Accordingly he submitted that the assessee’s claim of depreciation may be allowed and in that case, the question of allowing deduction as deferred revenue expenditure will not arise. 10. We notice that the Tribunal has accepted the payment of non- compete fee as an intangible asset in AY 2011-12, by following the decision rendered by the jurisdictional Hon’ble Bombay High Court in the case of Piramal Glass Ltd (supra). Accordingly, the Tribunal has held that the assessee is eligible for depreciation u/s 32 of the Act on Non-compete fees paid, being an intangible asset. When the original claim is allowed, as rightly pointed out by Ld A.R, there is no necessity to render decision on the alternative claim of allowing the non-compete fee as deferred revenue expenditure. 10. In view of the above, we allow the cross objections filed by the assessee in all the three years under consideration and hold that the assessee is eligible for depreciation on non-compete fee, as the same would fall under the category of intangible asset. We order accordingly. Hence the decision rendered by Ld CIT(A) in all the three years are reversed. Even though the decision rendered by the Ld CIT(A) has been Abbott Healthcare P. Ltd 5 reversed, since the cross objections filed by the assessee are allowed, the appeals filed by the revenue are also liable to be rejected as infructuous. 11. We shall now take up the appeals filed by the assessee for AY 2014-15 and 2015-16. The common issue urged in both the years relate to the treatment of foreign exchange loss arising on account of revaluation of amount payable in respect of acquisition of business from M/s Pirmal Health care Ltd. We noticed earlier that the assessee had acquired Base Domestic Formulations Business from M/s Piramal Healthcare Ltd. The total purchase price was US$ 3.8 billion, of which rupee equivalent of US$ 2.20 billion was paid by the assessee at the conclusion of transaction. The remaining amount of consideration was agreed to be paid in rupee equivalent of four installments of US$ 400 million beginning in 2011. At the end of each financial year, the assessee revalued the amount payable to M/s Piramal Healthcare Ltd. 12. In AY 2011-12, the revaluation resulted in foreign exchange gain. The AO applied the provisions of sec.43A of the Act and accordingly reduced the amount of foreign exchange gain from the value of assets, which resulted in corresponding reduction of depreciation. During the years relevant to AY 2014-15 and 2015-16, the revaluation resulted in foreign exchange loss. Even though the assessee had challenged the above said adjustment carried out by the AO in AY 2011-12, yet the assessee claimed before the AO that the foreign exchange loss should be added to the value of capital assets and enhanced amount of depreciation should be allowed. The AO rejected the said claim of the assessee on the reasoning that (a) the provisions of sec.43A shall be applicable only when the payment is actually made. (b) the assessee, being an Indian company, has acquired business of M/s Piramal Healthcare Ltd whose assets are located in India and hence provisions of sec.43A are not applicable. Abbott Healthcare P. Ltd 6 (c) The principle of res-judicata is not applicable to income tax proceedings 13. In the appellate proceedings, the Ld CIT(A) noticed that he had held in AY 2011-12 that the provisions of sec.43A are not applicable to the above discussed facts and accordingly allowed the ground of the assessee. Following the same, the Ld CIT(A) held in these two years also that the provisions of sec.43A are not applicable. Accordingly, he rejected the claim of enhanced depreciation. 14. Before the Tribunal, the assessee has challenged the decision of Ld CIT(A) on the ground that the enhanced depreciation should have been allowed under the principle of consistency. The assessee has also raised an additional ground claiming that the loss should be allowed as revenue expenditure. We are unable to understand as to how the assessee could press upon the Principle of Consistency, when it has not accepted the decision taken by AO in AY 2011-12. We notice that both the AO and the assessee has taken stands to suit their convenience in each of the years. Be that as it may, we notice that this issue has been examined by the co-ordinate bench in AY 2011-12 and this issue has been restored back to the file of Ld CIT(A) with the following observations:- “28. From the above we note that the above provision is special provision consequential to change in rate of exchange of currency. Learned CIT(A) has only referred to aspect that under section 43A its applicability depend upon the satisfaction of the criteria that the asset was acquired by the assessee from a country outside India. Hence, learned CIT(A) held that since this criteria is not fulfilled as person from whom business is acquired is also an Indian company hence, he has held that section 43A is not at all applicable. In this regard we note that learned CIT(A) in his adjudication has not considered the finding of the Assessing Officer that the asset involved in slump sale included areas of Nepal, Sri Lanka and other. In this view of the matter learned CIT(A)'s finding is not at all sustainable. Since learned CIT(A) has not considered all aspect of the reasoning given by the Assessing Officer for making the addition, we deem it appropriate to remit this issue to the file of learned CIT(A) to consider them afresh and pass a speaking order on this issue. Needless to add the assessee should be granted adequate opportunity of being heard.” Abbott Healthcare P. Ltd 7 Since the impugned with the issue considered by the Tribunal in AY 2011-12 and since it has been restored to the file of Ld CIT(A) in that year, we are of the view that the impugned issue contested by the assessee in both the years under consideration may also be restored to the file of Ld CIT(A) for taking appropriate decision in accordance with the law in all the years. Accordingly, we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and restore the same to the file of Ld CIT(A) for examining it afresh in the light of observations made by the Tribunal in AY 2011-12. The additional ground raised by the assessee in both the years are also restored to the file of Ld CIT(A) who shall adjudicate all the issues in accordance with law, after affording adequate opportunity of being heard to the assessee. 15. In the result, (a) All the three appeals filed by the revenue are dismissed. (b) All the three cross objections filed by the assessee are allowed. (c) The appeals filed by the assessee for AY 2012-13 and 2013-14 are treated as allowed for statistical purposes. Order pronounced in the open court on 16.09.2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 16/09/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai Abbott Healthcare P. Ltd 8 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai