Dy.Commissioner of Income Tax-6, Kanpur V. M/s J.K Cement Ltd, Kanpur

ITA 668/LKW/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2016 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-09-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 14-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Question of law; Cost of acquisition; Capital receipt
• Section: 32

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.499/LKW/2010 ASSESSMENT YEAR 2007-08 M/S J.K. CEMENT LTD. KAMLA TOWER, DWARIKADHEESH ROAD, KANPUR PAN AABCJ 0355 R VS DY. COMMISSIONER OF INCOME TAX-6, KANPUR ITA NO.247/LKW/2011 ASSESSMENT YEAR 2008-09 M/S J.K. CEMENT LTD. KAMLA TOWER, DWARIKADHEESH ROAD, KANPUR PAN AABCJ 0355 R VS DY. COMMISSIONER OF INCOME TAX-6, KANPUR ITA NO.180/LKW/2012 ASSESSMENT YEAR 2009-10 M/S J.K. CEMENT LTD. KAMLA TOWER, DWARIKADHEESH ROAD, KANPUR PAN AABCJ 0355 R VS DY. COMMISSIONER OF INCOME TAX-6, KANPUR ITA NO.570/LKW/2012 ASSESSMENT YEAR 2010-11 M/S J.K. CEMENT LTD. KAMLA TOWER, DWARIKADHEESH ROAD, KANPUR PAN AABCJ 0355 R VS DY. COMMISSIONER OF INCOME TAX-6, KANPUR 2 ITA NO.668/LKW/2014 ASSESSMENT YEAR 2011-12 M/S J.K. CEMENT LTD. KAMLA TOWER, DWARIKADHEESH ROAD, KANPUR PAN AABCJ 0355 R VS DY. COMMISSIONER OF INCOME TAX-6, KANPUR (RESPONDENT) (APPELLANT) SHRI A.K. SINGH, CIT.DR APPELLANT BY SHRI AJAY VOHRA, ADVOCATE RESPONDENT BY 0 4 /0 9 /2015 DATE OF HEARING 30 / 10 /2015 DATE OF PRONOUNCEMENT O R D E R PER SUNIL KUMAR YADAV, JM. THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A)-KANPUR ON COMMON GROUNDS. THEREFORE, THE SE APPEALS WERE HEARD TOGETHER AND THE SAME ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER, EXCEPT APPEAL NO. 247/LKW/2011 AND IN ALL THESE APPEALS, T HE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) MAINLY ON TWO GROUNDS; ONE IS W ITH REGARD TO DEPRECIATION ON GOOD WILL CLAIMED BY THE ASSESSEE AND OTHER IS WITH REGARD TO THE NATURE OF SUBSIDY RECEIVED BY THE ASSESSEE. 2. SO FAR AS FIRST ISSUE/GROUND RELATING TO DEPRECI ATION ON GOOD WILL IS CONCERNED, IT WAS CONTENDED BEFORE US THAT THIS ISSUE IS SQUAR ELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2005-06 & 2 006-07 IN WHICH THE TRIBUNAL HAS CATEGORICALLY HELD THAT ASSESSEE IS ENTITLED FO R DEPRECIATION ON GOOD WILL. THE COPY OF THE ORDER OF THE TRIBUNAL IS PLACED ON RECO RD ON PAGES 268 TO 279 OF THE COMPILATION OF THE ASSESSEE. THE RELEVANT OBSERVATI ONS OF THE TRIBUNAL IN THIS REGARD ARE EXTRACTED HEREUNDER:- 3 10. OUR ATTENTION WAS ALSO INVITED TO EXPLANATION 3 BELOW SECTION 32(1) OF THE ACT. WHILE ALLOWING THE CLAIM OF THE ASSESS EE, THE LD. CIT(A) HAS HELD THAT ISSUANCE OF SHARES FOR RS.7.44 CRORES WAS A PART PAYMENT OF PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION OF CEMENT UNDERTAKING, THEREFORE, THE COST OF SHARES ISSUED TO THE SHAREHO LDER OF JKSL IS ELIGIBLE FOR DEPRECIATION AND THE LD. CIT(A) HAS ALSO HELD T HAT EVEN IF IT IS CONSIDERED TO BE THE COST OF GOODWILL OF JKSL, STIL L THE ASSESSEE IS ENTITLED FOR DEPRECIATION. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. D.R. HAS PLACED EMPHASIS THAT THIS COST OF SHARES ISSUED TO JKSL IS NOT PART OF PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION OF CEMENT UNDERTAKING BUT IT IS A COST OF GOODWILL AND IS NOT ELIGIBLE FO R DEPRECIATION. THERE IS NO QUARREL ON THE PROPOSITION OF LAW THAT IF THE COST OF SHARES ALLOTTED TO THE SHAREHOLDERS OF JKSL IS CONSIDERED AS THE PAYMENT O F PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION TO THE CE MENT UNDERTAKING, THEN THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION OF THE SA ID COST. THE DISPUTE WAS RAISED THAT IT IS NOT A PART OF PAYMENT OF PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION OF CEMENT UNDERTAKING. IT WAS RATHER CALLED TO BE THE COST OF GOODWILL WHICH WAS TRANSFERRED TO THE ASSES SEE. IN THIS REGARD, WE HAVE CAREFULLY PERUSED THE JUDGMENTS REFERRED TO BY THE PARTIES. 11. IN THE CASE OF R.G. KESWANI VS. ACIT (SUPRA) AN D DCIT VS. TOYO ENGINEERING INDIA LTD. (SUPRA), THE MUMBAI BENCHES OF THE TRIBUNAL HAVE TAKEN A VIEW THAT NO DEPRECIATION WOULD BE ALLOWED ON GOODWILL, BUT THE CONTROVERSY WITH REGARD TO THE ALLOWANCE OF DEPRECI ATION ON GOODWILL HAS BEEN SET AT REST BY THE HON'BLE APEX COURT IN THE C ASE OF CIT VS. SMIFS SECURITIES LTD. (SUPRA) IN WHICH THEIR LORDSHIPS HA VE HELD THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND AMOUNT PAID CONSTITUTED GOODWILL AND THAT THE ASSESSEE-COMPANY IN THE PROCE SS OF AMALGAMATION HAD ACQUIRED A CAPITAL RIGHT IN THE FORM OF GOODWIL L BECAUSE OF WHICH THE MARKET WORTH OF THE ASSESSEE-COMPANY STOOD INCREASE D. THEREFORE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE SAID G OODWILL. THE RELEVANT OBSERVATIONS OF THE HON'BLE APEX COURT ARE EXTRACTE D HEREUNDER IN ORDER TO UNDERSTAND THE LEGAL PROPOSITION AND CONTROVERSY RAISED THEREIN:- WE QUOTE HEREINBELOW EXPLANATION 3 TO SECTION 32(1 ) OF THE ACT: 'EXPLANATION 3.FOR THE PURPOSES OF THIS SUB-SECTIO N, THE EXPRES SIONS 'ASSETS' AND 'BLOCK OF ASSETS' SHALL MEAN (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PL ANT OR FURNITURE ; (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE :' EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' SH ALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGH TS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF 4 SIMILAR NATURE. AREADING THE WORDS 'ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRES SION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRE TING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 'GOOD WILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. IN THE PRE SENT CASE, THE ASSESSING OFFICER, AS A MATTER OF FACT, CAME TO THE CONCLUSION THAT NO AMOUNT WAS ACTUALLY PAID ON ACCOUNT OF GOODWILL. THIS IS A FACTUAL FINDING. THE COMMISSIONER OF INCOME-TAX (APPEALS) ( 'THE CIT(A)', FOR SHORT) HAS COME TO THE CONCLUSION THAT THE AUTH ORISED REPRESENTATIVES HAD FILED COPIES OF THE ORDERS OF T HE HIGH COURT ORDERING AMALGAMATION OF THE ABOVE TWO COMPANIES ; THAT THE ASSETS AND LIABILITIES OF M/S. YSN SHARES AND SECUR ITIES P. LTD. WERE TRANSFERRED TO THE ASSESSEE FOR A CONSIDERATION ; T HAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMOUNT PAID CO NSTITUTED GOODWILL AND THAT THE ASSESSEE-COMPANY IN THE PROCE SS OF AMALGAMATION HAD ACQUIRED A CAPITAL RIGHT IN THE FO RM OF GOODWILL BECAUSE OF WHICH THE MARKET WORTH OF THE ASSESSEE-C OMPANY STOOD INCREASED. THIS FINDING HAS ALSO BEEN UPHELD BY THE INCOME-TAX APPELLATE TRIBUNAL ('THE ITAT', FOR SHORT). WE SEE NO REASON TO INTERFERE WITH THE FACTUAL FINDING. ONE MORE ASPECT WHICH NEEDS TO BE MENTIONED IS THAT , AGAINST THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL, THE REVENUE HAD PREFERRED AN APPEAL TO THE HIGH COURT IN WHICH IT H AD RAISED ONLY THE QUESTION AS TO WHETHER GOODWILL IS AN ASSET UNDER S ECTION 32 OF THE ACT. IN THE CIRCUMSTANCES, BEFORE THE HIGH COURT, T HE REVENUE DID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREINABOVE. FOR THE AFORESTATED REASONS, WE ANSWER QUESTION NO. (B) ALSO IN FAVOUR OF THE ASSESSEE. 12. IN THE CASE OF AREVA T AND D INDIA LTD. VS. DCI T (SUPRA), THE HON'BLE DELHI HIGH COURT HAS EXAMINED THIS ISSUE IN THE LIGHT OF LEGAL PROVISIONS OF THE ACT AND VARIOUS JUDGMENTS OF THE HON'BLE APEX COURT AND FINALLY CONCLUDED THAT SPECIFIED INTANGIBLE ASS ETS ACQUIRED UNDER SLUMP SALE AGREEMENT WERE IN THE NATURE OF 'BUSINES S OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN SECTION 32(1 )(II) OF THE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIATION. THEIR LORDS HIPS HAS FURTHER HELD THAT EVEN IN THE ALTERNATIVE THE ASSESSEE IS ENTITLED FO R DEPRECIATION. THE FACTS OF THAT CASE ARE QUITE SIMILAR TO THE FACTS OF THE PRESENT CASE AND WE EXTRACT THE FINDINGS OF THE HON'BLE DELHI HIGH COUR T IN THIS CASE AS UNDER:- 5 IN THE PRESENT CASE, IT IS SEEN THAT THE ASSESSEE , VIDE SLUMP SALE AGREEMENT DATED JUNE 30, 2004, ACQUIRED, AS A GOING CONCERN, THE TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANS FEROR COMPANY WITH EFFECT FROM APRIL 1, 2004. AS A RESULT THEREOF, THE RUNNING BUSINESS OF TRANSMISSION AND DISTRIBUTION WAS ACQUIRED BY THE T RANSFEREE LOCK, STOCK AND BARREL MINUS THE TRADE MARK OF THE TRANSF EROR WHICH WAS RETAINED BY THE TRANSFEROR, FOR LUMP SUM CONSIDERAT ION OF RS. 44.7 CRORES. IT IS FURTHER SEEN THAT THE BOOK VALUE OF T HE NET TANGIBLE ASSETS (ASSETS MINUS LIABILITIES) ACQUIRED WAS RECO RDED IN THE BALANCE- SHEET OF THE TRANSFEROR AS ON THE DATE OF TRANSFER AS RS. 28.11 CRORES. THE SAID ASSETS AND LIABILITIES WERE RECORDED IN TH E BOOKS OF TRANSFEREE AT THE SAME VALUE AS APPEARED IN THE BOO KS OF THE TRANSFEROR. THE BALANCE PAYMENT OF RS. 16,58,76,000 OVER AND ABOVE THE BOOK VALUE OF NET TANGIBLE ASSETS, WAS ALLOCATE D BY THE TRANSFEREE TOWARDS ACQUISITION OF BUNDLE OF BUSINESS AND COMME RCIAL RIGHTS, CLEARLY DEFINED IN THE SLUMP SALE AGREEMENT, COMPEN DIOUSLY TERMED AS 'GOODWILL' IN THE BOOKS OF ACCOUNT, WHICH COMPRI SED, INTER ALIA, THE FOLLOWING : (I) BUSINESS CLAIMS, (II) BUSINESS INFORMATION, (III) BUSINESS RECORDS, (IV) CONTRACTS, (V) SKILLED EMPLO YEES, (VI) KNOW- HOW. IT IS ALSO OBSERVED THAT THE ASSESSING OFFICER ACCEPTED THE ALLOCATION OF THE SLUMP CONSIDERATION OF RS. 44.7 C RORES PAID BY THE TRANSFEREE, BETWEEN TANGIBLE ASSETS AND INTANGIBLE ASSETS (DESCRIBED AS GOODWILL) ACQUIRED AS PART OF THE RUNNING BUSINE SS. THE ASSESSING OFFICER, HOWEVER, HELD THAT DEPRECIATION IN TERMS O F SECTION 32(1)(II) OF THE ACT WAS NOT, IN LAW, AVAILABLE ON GOODWILL. THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME-TAX APPELLAT E TRIBUNAL APPROVED THE REASONING OF THE ASSESSING OFFICER THE REBY HOLDING DISALLOWANCE OF DEPRECIATION ON THE AMOUNT DESCRIBE D AS GOODWILL. IT WAS THUS ARGUED ON BEHALF OF THE ASSESSEE-COMPANY T HAT SECTION 32(1)(II) WOULD MEAN RIGHTS SIMILAR IN NATURE AS TH E SPECIFIED ASSETS, VIZ., INTANGIBLE, VALUABLE AND CAPABLE OF BEING TRA NSFERRED AND THAT SUCH ASSETS WERE ELIGIBLE FOR DEPRECIATION. ON BEHA LF OF THE RESPONDENT IT WAS ARGUED THAT APPLYING THE DOCTRINE OF NOSCITUR SOCIIS THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RI GHTS OF SIMILAR NATURE' USED IN EXPLANATION 3(B) TO SECTION 32(1) H AS TO TAKE COLOUR FROM THE PRECEDING WORDS 'KNOW-HOW, PATENTS, COPYRI GHTS, TRADE MARKS, LICENCES, FRANCHISES'. IT WAS URGED THAT THE SUPREME COURT HAD CLEARLY HELD IN TECHNO SHARES AND STOCKS LTD. [ 2010] 327 ITR 323 (SC) THAT 'OUR JUDGMENT SHOULD NOT BE UNDERSTOO D TO MEAN THAT EVERY BUSINESS OR COMMERCIAL RIGHT WOULD CONSTITUTE A 'LICENCE' OR A 'FRANCHISE' IN TERMS OF SECTION 32(1)(II) OF THE 19 61 ACT'. IN THE PRESENT CASE, APPLYING THE PRINCIPLE OF EJUS DEM GENERIS, WHICH PROVIDES THAT WHERE THERE ARE GENERAL WORDS FOLLOWI NG PARTICULAR AND SPECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHA LL BE CONFINED TO 6 THINGS OF THE SAME KIND, AS SPECIFIED FOR INTERPRET ING THE EXPRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' S PECIFIED IN SECTION 32(1)(II) OF THE ACT. IT IS SEEN THAT SUCH RIGHTS N EED NOT ANSWER THE DESCRIPTION OF 'KNOW-HOW, PATENTS, TRADE MARKS, LIC ENCES OR FRANCHISES' BUT MUST BE OF SIMILAR NATURE AS THE SP ECIFIED ASSETS. ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECI FIC INTANGIBLE ASSETS REFERRED TO IN SECTION 32(1)(II) OF THE ACT PRECEDING THE TERM 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT IS SEEN THAT THE AFORESAID INTANGIBLE ASSETS ARE NOT OF THE SAME KIN D AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAVE BEEN ADDITIONALLY USED, CLEARLY DEMONSTRATES T HAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIAT ION ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSETS BUT ALSO TO OTHER CA TEGORIES OF INTANGIBLE ASSETS, WHICH WERE NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMSTANCES, THE N ATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTE D TO ONLY THE AFORESAID SIX CATEGORIES OF ASSETS, VIZ., KNOW-HOW, PATENTS, TRADE MARKS, COPYRIGHTS, LICENCES OR FRANCHISES. THE NATU RE OF 'BUSINESS OR COMMERCIAL RIGHTS' CAN BE OF THE SAME GENUS IN WHIC H ALL THE AFORESAID SIX ASSETS FALL. ALL THE ABOVE FALL IN TH E GENUS OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRADE OF AN AS SESSEE FACILITATING SMOOTH CARRYING ON OF THE BUSINESS. IN THE CIRCUMST ANCES, IT IS OBSERVED THAT IN THE CASE OF THE ASSESSEE, INTANGIB LE ASSETS, VIZ., BUSINESS CLAIMS ; BUSINESS INFORMATION ; BUSINESS R ECORDS ; CONTRACTS; EMPLOYEES ; AND KNOW-HOW, ARE ALL ASSETS, WHICH ARE INVALUABLE AND RESULT IN CARRYING ON THE TRANSMISSION AND DISTRIBU TION BUSINESS BY THE ASSESSEE, WHICH WAS HITHERTO BEING CARRIED OUT BY T HE TRANSFEROR, WITHOUT ANY INTERRUPTION. THE AFORESAID INTANGIBLE ASSETS ARE, THEREFORE, COMPARABLE TO A LICENCE TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANS FEROR. IN THE ABSENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASS ESSEE WOULD HAVE HAD TO COMMENCE BUSINESS FROM SCRATCH AND GO THROUG H THE GESTATION PERIOD WHEREAS BY ACQUIRING THE AFORESAID BUSINESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT AN UP AND RUNNING BUSINESS. THIS VIEW IS FORTIFIED BY THE RATIO OF TH E DECISION OF THE SUPREME COURT IN TECHNO SHARES AND STOCKS LTD. [201 0] 327 ITR 323 (SC) WHEREIN IT WAS HELD THAT INTANGIBLE ASSETS OWN ED BY THE ASSESSEE AND USED FOR THE BUSINESS PURPOSE WHICH EN ABLES THE ASSESSEE TO ACCESS THE MARKET AND HAS AN ECONOMIC A ND MONEY VALUE IS A 'LICENCE' OR 'AKIN TO A LICENCE' WHICH I S ONE OF THE ITEMS FALLING IN SECTION 32(1)(II) OF THE ACT. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEME NT WERE IN THE 7 NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN SECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGL Y ELIGIBLE FOR DEPRECIATION UNDER THAT SECTION. IN VIEW OF THE ABOVE, IT IS NOT NECESSARY TO DECIDE THE ALTERNATIVE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT GOOD WILL PER SE IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) O F THE ACT. IN THE CIRCUMSTANCES, THE SUBSTANTIAL QUESTION OF LAW IS D ECIDED IN THE AFFIRMATIVE AND THIS APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THE IMPUGNED ORDER IS SET A SIDE. 13. THIS JUDGMENT OF THE HON'BLE DELHI HIGH COURT W AS APPROVED BY THE HON'BLE APEX COURT AS THE SLP FILED BY THE DEPARTME NT WAS DISMISSED ON MERIT ALSO. 14. SIMILAR VIEW WAS EXPRESSED BY THE HON'BLE KARNA TAKA HIGH COURT IN THE CASE OF CIT VS. MANIPAL UNIVERSAL LEARNING PVT. LTD. (SUPRA) BY HOLDING THAT EXPLANATION 3 TO SECTION 32(1) OF THE ACT DEFINES EXPRESSION ASSET TO INCLUDE INTANGIBLE ASSET LIKE GOODWILL A ND GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT, THEREFORE, DEPRECIATION IS ALLOWABLE EVEN ON THE GOODWILL. 15. AGAIN IN THE CASE OF CIT VS. HINDUSTAN COCA-COL A BEVERAGES (P) LTD., 331 ITR 192, THE HON'BLE DELHI HIGH COURT HAS EXAMINED THE ISSUE OF DEPRECIATION ON GOODWILL IN DETAIL AND FINALLY CONC LUDED THAT GOODWILL IS A VALUABLE COMMERCIAL ASSET SIMILAR TO OTHER INTANGIB LE ASSETS MENTIONED IN THE DEFINITION OF BLOCK OF ASSETS AND HENCE ELIGIBL E FOR DEPRECIATION. THE VIEW TAKEN BY THE HON'BLE DELHI HIGH COURT IN THE C ASE OF CIT VS. HINDUSTAN COCA-COLA BEVERAGES (P) LTD. (SUPRA) WAS APPROVED BY THE HON'BLE APEX COURT. 16. IN THE LIGHT OF THIS LEGAL PROPOSITION, WE ARE OF THE VIEW THAT FIRST OF ALL THE COST OF SHARES ALLOTTED TO THE SHAREHOLDERS OF JKSL IS PART OF PAYMENT OF PURCHASE CONSIDERATION TOWARDS THE COST OF ACQUISITION OF CEMENT UNDERTAKING ON WHICH ASSESSEE IS ELIGIBLE FO R DEPRECIATION. EVEN IN THE ALTERNATIVE, IF THE COST OF SHARES ALLOTTED TO THE SHAREHOLDERS OF JKSL IS CONSIDERED TO BE THE COST OF GOODWILL ACQUIRED B Y THE ASSESSEE, AS IT WAS SHOWN AS PART OF MEANS OF FINANCE, EVEN THEN IT IS ELIGIBLE FOR DEPRECIATION IN THE LIGHT OF THE AFORESAID JUDGMENT S OF THE HON'BLE HIGH COURT AND THE HON'BLE APEX COURT. THEREFORE, WE AR E OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY ADJUDICATED THE ISSUE AND WE DO NOT FIND ANY INFIRMITY THEREIN. ACCORDINGLY WE CON FIRM HIS ORDERS IN BOTH THE YEARS. 3. DURING THE COURSE OF HEARING, THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDER OF THE AO ON THIS ISSUE, WHEREAS THE LD. COUNSEL FO R THE ASSESSEE HAS PLACED HEAVY 8 RELIANCE UPON THE AFORESAID ORDER OF THE TRIBUNAL. SINCE NO CONTRARY VIEW HAS BEEN BROUGHT BEFORE US BY THE REVENUE, WE FIND NO JUSTIF ICATION TO DIFFER FROM EARLIER VIEW TAKEN BY THE TRIBUNAL ON THIS ISSUE, WE ACCORDINGLY FOLLOWING THE ORDER OF THE TRIBUNAL DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE . CONSEQUENTLY, THE ORDER OF THE CIT(A) IN THIS REGARD IS CONFIRMED. 4. THE NEXT GROUND IN THESE APPEALS RELATE TO THE N ATURE OF INTEREST SUBSIDY RECEIVED BY THE ASSESSEE. THE FACTS BORN OUT FROM T HE RECORDS ARE THAT THE ASSESSEE COMPANY, M/S J.K. CEMENT HAS PURCHASED CEMENT DIVIS ION OF J.K. SYNTHETICS LTD. THE ASSESSEE COMPANY HAS TAKEN LOAN FROM VARIOUS FINANC IAL INSTITUTIONS IN ORDER TO BUY CEMENT DIVISION, WHICH ARE ALREADY ENGAGED IN PRODU CTION OF CEMENT. AS PER THE SCHEME OF THE RAJASTHAN GOVERNMENT KNOWN AS RAJ INV ESTMENT PROMOTION POLICY- 2003, ASSESSEE HAS APPLIED FOR SUBSIDY AND RAJASTHA N GOVERNMENT HAS GRANTED 5% INTEREST SUBSIDY AND 50% EXEMPTION FROM ELECTRICITY DUTY. THE EXEMPTION GRANTED FOR ELECTRICITY DUTY HAS DECLARED AS REVENUE RECEIP T WHEREAS INTEREST SUBSIDY WAS DECLARED AS CAPITAL RECEIPT. THE INTEREST SUBSIDY H AS BEEN GRANTED BY THE RAJASTHAN GOVERNMENT AGAINST 50% PAYMENT OF RST/CST AND VAT P AID BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS UTILIZED THE INTE REST SUBSIDY IN PAYMENT OF LOAN TAKEN FROM FINANCIAL INSTITUTIONS. THE ASSESSEE HAS TREATED RECEIPT OF INTEREST SUBSIDY AS CAPITAL RECEIPT BUT THE ASSESSING OFFICER WAS NO T CONVINCED WITH TREATMENT GIVEN BY THE ASSESSEE AND HE WAS OF THE VIEW THAT SUBSIDY HAS BEEN GRANTED AS INCENTIVE TO THE ASSESSEE COMPANY TO RUN THE BUSINESS OF MANU FACTURING OF CEMENT IN THE STATE OF RAJASTHAN. HE ACCORDINGLY TREATED THE INTE REST SUBSIDY RECEIVED BY THE ASSESSEE AS A REVENUE RECEIPT. 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSION THAT ASSESSEE COMPANY HAS ACQUIRED THE CEMENT UNDERTAKIN G FROM SICK COMPANY J.K. SYNTHETIC LTD. AGAINST A TOTAL COST OF RS.475.39 CR ORES. THE ASSESSEE HAS TAKEN LOAN AMOUNTING TO RS.497 CRORES FROM VARIOUS BANKS AND A T THE TIME OF LOAN FROM BANKS, THE ASSESSEE COMPANYS DEBT EQUITY RATIO WAS SUBSTA NTIALLY HIGH AT 10 IS TO ONE. THE GOVERNMENT OF RAJASTHAN HAS CONSIDERED THE CASE OF THE ASSESSEE COMPANY FOR 9 SUBSIDY UNDER THE AFORESAID SCHEME OF GOVERNMENT OF RAJASTHAN KEEPING IN VIEW THAT CEMENT UNIT DID NOT BECOME SICK AND SUSPEND TH EIR OPERATIONS DUE TO HIGH DEBT. PURSUANT TO THE SCHEME, THE ASSESSEE COMPANY BECAME ENTITLED INTERALIA FOR 5% INTEREST SUBSIDY. AS PER THE ELIGIBILITY CERTIFICAT E, THE MAXIMUM AMOUNT OF INTEREST SUBSIDY WAS NOT TO EXCEED 50% OF THE STATE AND CENT RAL SALE TAX PAID BY THE COMPANY IN ANY YEAR. THE BASIS FOR CALCULATION OF T HE SUBSIDY UNDER SCHEME OF CORRELATE WITH THE INTEREST LIABILITY PAYABLE ON TH E OUTSTANDING BANKS LOANS TAKEN BY THE ASSESSEE COMPANY FROM TIME TO TIME. IT WAS FURT HER CONTENDED THAT ONE OF THE MAIN CONDITION OF THE SCHEME OF RAJASTHAN INVESTMEN T PROMOTION SCHEME 2003 IS THAT THE AMOUNT OF SUBSIDY IS TO BE UTILIZED FOR RE PAYMENT OF LOAN ONLY AND THE ASSESSEE COMPANY HAD TO REPAY THE INSTALLMENT OF LO ANS ON DUE DATE AND THERE SHOULD BE NO DEFAULT AS SUCH FOR REPAYMENT BY ASSES SEE-COMPANY. IT WAS FURTHER CLARIFIED THAT IF ANY PART OF THE SUBSIDY IS NOT UT ILIZED FOR THE REPAYMENT OF LOAN IT SHALL BE DISALLOWED. THE COPY OF RAJ INVESTMENT POL ICY 2003 ISSUED BY THE GOVERNMENT OF RAJASTHAN WAS PLACED BEFORE THE CIT(A ). THE ASSESSEE HAS PLACED RELIANCE ON VARIOUS TRIBUNAL ORDERS BEFORE THE CIT( A), IN SUPPORT OF HIS CONTENTION THAT SINCE THE SUBSIDY WAS RECEIVED FOR THE REPAYME NT OF THE LOANS OBTAINED FOR ACQUIRING THE CAPITAL ASSETS IT SHOULD BE TREATED T O BE CAPITAL RECEIPT. THE CIT(A) HAS REEXAMINED THE ISSUE IN THE LIGHT OF DETAILED SUBMI SSION OF THE ASSESSEE. BEING CONVINCED WITH IT, THE CIT(A) HAS TREATED THE RECEI PT OF INTEREST SUBSIDY AS CAPITAL RECEIPT. ACCORDINGLY, THE ADDITION MADE BY THE AO W AS DELETED. THE RELEVANT OBSERVATIONS OF THE CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: LL.L AFTER HAVING CONSIDERED THE MATTER AND HAVING PERUSED THE VARIOUS JUDGMENTS, THE SCHEME AS PRONOUNCED BY THE RAJASTHA N GOVT. ETC., I AM OF THE VIEW THAT THE AO HAS FAILED TO CORRECTLY APPLY THE RATIO-DECIDENDI OF THE HON. SC IN THE CASE OF PONNI SUGARS (SUPRA). IT HAS BEEN RIGHTLY ARGUED BY THE APPELLANT THAT IT WOULD MAKE NO DIFFERENCE IF T HE UNIT WAS A SUGAR UNIT OR A CEMENT UNIT. ONE SHOULD EXAMINE THE SCHEME UNDER WHICH THE SUBSIDY IS GRANTED. IF THE PURPOSE OF THE SCHEME OF SUBSIDY IS TO GIVE BY WAY OF ASSISTANCE TO THE ASSESSEE IN CARRYING ON OF HIS TR ADE OR BUSINESS, IT HAS TO BE TREATED AS TRADING RECEIPT. HOWEVER, IF THE PURP OSE WAS TO HELP THE ASSESSEE SET UP ITS BUSINESS OR COMPLETE A PROJECT, THE MONIES MUST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOS ES. IN THE INSTANT INCASE, 10 IT IS AN ADMITTED POSITION THAT THE APPELLANT WAS N OT HAVING ANY MANUFACTURING UNIT IT ACQUIRED THESE SICK UNITS TH ROUGH THE SCHEME OF THE BIFR AND TO ACQUIRE SUCH UTYITS, THE IPPELLANT HAD ADMITTEDLY MADE CONSIDERABLE BORROWINGS (ON WHICH IT WAS PAYING INT EREST). AS I HAVE UNDERSTOOD THE SCHEME OF SUBSIDY (FORMULATED BY THE GOVT. OF RAJASTHAN), ONE OF THE ELIGIBILITY CONDITIONS IN THE SCHEME IN THE INSTANT CASE WAS THAT THE THERE HAS BEEN NO DEFAULT IN REPAYMENT OF DUES AGAINST TERM LOAN OF CONCERNED FINANCIAL INSTITUTION(S) AND/OR BANK(S). THIS FACT HAS BEEN WHICH HAS WRITTEN TO THE ASSESSEE : ' PLEASE ENSURE THAT THE SUBSIDY AMOUNT IS UTILIZED FOR REPAYMENT OF LOANS AND THERE IS NO DEFAULTS IN REPA YMENT OF DUES TO THE BANKS IN RESPECT OF THESE LOANS IN T ERMS OF CLAUSE 9(B) (VII) OF RIPS 2003,' 11.2 IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO E NABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY, THEN THE RECEIPT WAS ON REVENUE ACCOUNT; ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UND ER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP OR ACQUIRE A N EW UNIT OR TO EXPAND ITS EXISTING UNITS, IT WOULD BE CLEARLY ON CAPITAL ACCO UNT. THE FORM OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRR ELEVANT. THE AO HAS ALSO CONFIRMED IN THE ASSESSMENT ORDER THAT THE IMP UGNED SUBSIDY AMOUNT HAD BEEN UTILIZED FOR REPAYMENT OF LOANS TAKEN FROM FINANCIAL INSTITUTIONS. BASED ON THE LEGAL PRONOUNCEMENTS AND CONSIDERING T HE FACTS OF THE CASE, IT CAN BE CONCLUDED THAT THE ASSESSEE COMPANY'S CLAIM TO TREAT THE SUBSIDY RECEIVED BY IT FROM GOVERNMENT OF RAJASTHAN AS CAPI TAL RECEIPT IS JUSTIFIED. THE ADDITION MADE IS, THEREFORE, DELETED. 5. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL. LD. DR SIMPLY PLACED RELIANCE UPON THE ORDER OF THE AO WHE REAS THE LD. COUNSEL FOR THE ASSESSEE BESIDES PLACING HIS RELIANCE UPON THE ORDE R OF THE CIT(A) HAS CONTENDED THAT THE MAIN OBJECT OF THE SUBSIDY WAS TO ASSIST T HE ASSESSEE IN THE REPAYMENT OF LOAN. HE HAS ALSO INVITED OUR ATTENTION TO VARIOUS CLAUSES OF THE SCHEMES, WHICH WERE REPRODUCED BY THE CIT(A) IN HIS ORDER AND FROM THESE CLAUSE LD. COUNSEL FOR THE ASSESSEE HAS TRIED TO DEMONSTRATE THAT THE OBJ ECT OF THE SUBSIDY WAS TO ASSIST THE ASSESSEE IN ACQUIRING THE CAPITAL ASSETS. THERE FORE, THE NATURE OF SUBSIDY IS A CAPITAL RECEIPT IN THE LIGHT OF THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF SAHNEY STEEL WORKS LTD. VS. CIT REPORTED IN 228 ITR 253 (S.C.) AND IN THE CASE OF 11 PONNI SUGARS AND CHEMICALS LTD. VS. CIT REPORTED IN 306 ITR 392 (SC). BESIDES LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACED RELIANCE U PON THE FOLLOWING JUDICIAL PRONOUNCEMENTS OF WHICH COPIES ARE PLACED ON RECORD : I) ACIT VS. SHREE CEMENT LTD. ITA NO.614, 615& 635/ JP/2010. II) DCIT VS. SUTLEJ TEXTILES AND INDUSTRIES LTD. IT A NO. 5142/DEL/2013 III) SUTLEJ TEXTILES AND INDUSTRIES APPEAL NO.386/1 1-12 IV) SHREE BALAJI ALLOYS VS. CIT REPORTED IN 198 TAX MAN 122 V) CIT VS.SHAM LAL BANSAL ITA NO. 472 OF 2010 VI) CIT VS. BIRLA VXL LTD. 215 TAXMAN 117 VII) MARUTI SUZUKI INDIA LTD. VS. ACIT ITA NO. 5120 /DEL/2010 6. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES, IN THE LIGHT OF RIVAL SUBMISSION, WE FIND THAT AS PER RAJ INVESTMEN T POLICY 2003 APPEARING AT PAGE NOS. 38 TO 49 OF THE COMPILATION OF THE ASSESSEE, T HE SCHEME WILL BE APPLICABLE TO ALL NEW INVESTMENTS AND INVESTMENTS MADE IN THE EXISTIN G UNITS AND ENTERPRISES FOR MODERNIZATION/EXPANSION/DIVERSIFICATION, SUBJECT TO THE CONDITION THAT SUCH UNITS COMMENCE COMMERCIAL PRODUCTION/OPERATIONS OWING TO SUCH INVESTMENT DURING THE OPERATIVE PERIOD OF THE SCHEME. AS PER CLAUSE 3 AN D 7 THE SUBSIDY SHALL BE AVAILABLE TO THE INVESTORS FOR SEVEN YEARS FROM THE DATE OF F IRST REPAYMENT OF INTEREST IN CASE OF INTEREST SUBSIDY AND FIRST PAYMENT OF WAGES/EMPL OYMENT IN CASE OF WAGE EMPLOYMENT SUBSIDY. VARIOUS CONDITIONS ARE SPELT OU T IN THE SCHEME WHICH ARE REQUIRED TO BE FULFILLED BY THE ASSESSEE FOR CLAIMI NG THE SUBSIDY. WE ALSO FIND THAT SCHEME WAS LAUNCHED TO ASSIST TO THE CORPORATE SECT OR IN ACQUIRING OR EXPENDING THEIR UNITS. CERTAIN CONDITIONS ARE ALSO MADE IN TH IS SCHEME, WHICH ARE REQUIRED TO BE FULFILLED BY THE CORPORATE SECTOR IN ORDER TO AVAIL THE BENEFIT OF SUBSIDY. OUR ATTENTION WAS ALSO INVITED TO ELIGIBILITY CERTIFICATE ISSUED BY THE GOVERNMENT OF RAJASTHAN, COPY WHICH IS AT PAGE NO. 51 OF THE COMPILATION IN WHICH THE GOVERNMENT HAS IMPOSED PRE CONDITION FOR OFFERING THE BENEFIT OF SUBSIDY. THE CONDITION IS THAT THE SUBSIDY AMOUNT IS UTILIZED FOR REPAYMENT OF LOANS AND THERE SHOULD NOT BE ANY DEFAULTS IN 12 REPAYMENT OF DUES TO THE BANKS IN RESPECT OF THESE LOANS, IN TERMS OF CLAUSE 9B(VIII) OF THE RIPS, 2003. OUR ATTENTION WAS ALSO INVITED TO THE JUDGMENT OF A PPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION (AAIFR) IN WHICH THE ASSESSEE HAS PROPOSED TO OBTAIN A LOAN FROM THE BANK IN ORDER TO ACQUIRE THE CEMENT DIVISION OF THE JK SYNTHETIC LTD. A COPY OF THIS ORDER IS PLACE D ON PAGES 52 TO 73 OF THE COMPILATION OF THE ASSESSEE. FROM THIS AFORESAID DO CUMENTS, IT HAS BEEN EMERGED THAT THE ASSESSEE HAS OBTAINED A LOAN FROM THE FINA NCIAL INSTITUTIONS TO ACQUIRE A CEMENT DIVISION AS A CAPITAL ASSETS FROM THE JK SYN THETIC LTD. AND THE REPAYMENT OF LOAN WAS FACILITATED BY GRANT OF SUBSIDY BY THE RAJ ASTHAN GOVERNMENT TO ASSIST THE ASSESSEE IN THE REPAYMENT OF LOAN TO THE FINANCIAL INSTITUTIONS. 7. WE HAVE ALSO CAREFULLY PERUSED THE JUDGMENT OF T HE APEX COURT IN THE CASE OF SAHNEY STEEL WORKS LTD. VS. CIT (SUPRA) AND IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD. VS. CIT (SUPRA) AND WE FIND THAT IN THE CASE OF SAHNEY STEEL WORKS LTD. CHARACTER OF THE SUBSIDY IN THE HANDS OF THE R ECIPIENT-WHETHER REVENUE OR CAPITAL WILL HAVE TO BE DETERMINED HAVING REGARD TO THE PUR POSE FOR WHICH THE SUBSIDY IS GIVEN. THE SOURCE OF THE FUND IS QUITE IMMATERIAL. IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR TO COMPLETE A PR OJECT, THE MONIES MUST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOSE. BUT I F THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEMENT OF PRODUCTION, SUCH S UBSIDIES MUST BE TREATED AS ASSISTANCE FOR THE PURPOSE OF THE TRADE. IN THE CAS E OF PONNI SUGARS AND CHEMICALS LTD. THEIR LORDSHIP HAS HELD THAT THE NATURE OF SUB SIDY IS TO BE DETERMINED IN RESPECT OF PURPOSE FOR THE SUBSIDY IS GRANTED. THE CHARACTE R OF SUBSIDY IS TO BE DETERMINED WITH RESPECT TO SUBSIDY IS GRANTED. IN OTHER WORDS ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME AS SUBSIDY PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL IF THE OBJECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS OF REVENUE RECEIPT. ON THE OTHE R HAND, OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE TO SETUP A NEW UNIT OR TO EXPEND AN EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY IS A RECEIPT IN CAPITAL ACCOUNT. THEIR LORDSHIP HAS FURTHER HELD THAT AFTER REVERSING THE JUDGMENT OF THE HIGH COURT THAT 13 MAIN ELIGIBILITY CONDITION IN THE SCHEMES WAS THAT THE INCENTIVE HAD TO BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SETUP N EW UNITS OR FOR SUBSTANTIAL EXPANSION OF AN EXISTING UNIT. THEIR LORDSHIP ACCOR DINGLY HELD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS NOT IN THE COURSE OF T RADE BUT WAS OF CAPITAL NATURE. 8. WE HAVE ALSO CAREFULLY PERUSED THE ORDERS OF THE TRIBUNAL REFERRED BY THE ASSESSEE AND WE FIND THAT IN THE CASE OF ACIT VS. S HREE CEMENT LTD ITA NO. 614, 615 & 635/JP/2010 AN IDENTICAL FACT THAT THE INTERE ST SUBSIDY WAS CONSIDERED TO BE THE CAPITAL SUBSIDY. THEREFORE, IN THE LIGHT OF AFO RESAID JUDGMENTS, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY TREATED THE INTERE ST SUBSIDIES AS A CAPITAL RECEIPT AS IT WAS RECEIVED ONLY FOR REPAYMENT OF LOAN ACQUIRED FOR ACQUISITION OF CAPITAL ASSETS. ACCORDINGLY, THE REVENUE FAILS ON THIS ISSUE. ITA NO. 247/LKW/2011 (A.Y. 2008-09) 9. BESIDES AFORESAID GROUNDS THE REVENUE HAS ASSAIL ED THE ORDER OF CIT(A) ON ONE MORE GROUND IN THIS APPEAL THAT THE CIT(A) HAS ERRED IN LAW ON FACTS NOT APPRECIATING THE FACT THAT THE EXPENSES INCURRED BE FORE COMMENCEMENT OF THE BUSINESS WAS COVERED BY THE PROVISIONS U/S 35D OF T HE ACT. IN THIS REGARD, THE FACTS BORN OUT FROM THE ORDERS OF THE LOWER AUTHORITIES A RE THAT THE AO HAS OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASS ESSEE COMPANY HAS DEBITED A PRELIMINARY OR PRE-OPERATIVE EXPENSES TO THE EXTENT OF RS.4,20,000/- IN THE P&L ACCOUNT. IN REPLY THERETO, IT WAS STATED THAT THE S AID AMOUNT WAS WRITTEN OFF BEING 1/5 TH OF THE EXPENSES ON ACCOUNT OF EXPENSES INCURRED FO R MAKING THE COMPANY. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED AND AO ACCORDINGLY MADE DISALLOWANCE OF RS.4,20,000/-, AGAINST WHICH AN APPEAL WAS FILED BEFORE THE CIT(A) WITH THE SUBMISSION THAT AN IDENTICAL ISSUE WAS EXAMINED BY THE CIT(A) IN EARLIER YEARS AND ALLOWED THE RELIEF TO THE ASSESSEE THEREFORE, NO DI SALLOWANCE IS CALLED FOR. 10. THE CIT(A) HAS MADE A REFERENCE OF HIS ORDER FO R THE AY 2005-06 AND ALLOWED THE CLAIM OF THE ASSESSEE. NOW, THE REVENUE IS IN A PPEAL BEFORE THE TRIBUNAL AND 14 SIMILAR ARGUMENT WAS RAISED BY THE ASSESSEE BEFORE US. IN SUPPORT OF HIS CONTENTION, HE HAS FILED THE ORDER OF THE CIT(A) FOR THE AY 200 5-06, WHICH IS APPEARING AT PAGE 250 OF THE COMPILATION OF THE ASSESSEE. IT WAS FURT HER CONTENDED THAT THE ORDER OF THE CIT(A) WAS ACCEPTED BY THE REVENUE AS NO APPEAL WAS PREFERRED ON THIS GROUND BEFORE THE TRIBUNAL. COPY OF THE GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL IS ALSO PLACED ON RECORD AT PAGE NO. 263 AND FROM THE CAREF UL PERUSAL OF THE ORDER OF THE CIT(A) AND GROUNDS OF APPEAL FILED BEFORE THE TRIBU NAL, WE ARE OF THE VIEW THAT THE CIT(A) HAS SET ASIDE THE ADDITION FOLLOWING ITS EAR LIER ORDER AND THE SAID ORDER WAS ACCEPTED BY THE REVENUE. WE, THEREFORE, FIND NO FOR CE IN THE SUBMISSION OF THE LD. DR. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A). 11. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED. SD/- SD/- (A.K. GARODIA ) (SUNIL KUMAR Y ADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/10/2015 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR