M/s InCap Contract Manufacturing Services Pvt Ltd, Bangalore V. Assistant Commissioner of Income-Tax, Bangalore

ITA 697/BANG/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0112 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-12-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 27-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR BENGALURU
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Depreciation; Transfer pricing; International transaction; Additional evidence; Revised return; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 13; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER IT (TP) A NO. 697/BANG/2017 ASSESSMENT YEAR: 2012 - 13 M/S. INCAP CONTRACT MANUFACTURING SERVICES PVT. LTD., SUFIYA ELITE, 3 RD FLOOR, NO.18, CUNNINGHAM ROAD, BANGALORE 560 052. PAN: AABCI 6651H VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RE SPONDENT BY : SHRI PRADEEP KUMAR, CIT(DR)(ITAT) BENGALURU. DATE OF HEARING : 0 4 .12 .2019 DATE OF PRONOUNCEMENT : 30 .1 2 .2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER OF ASSESSMENT DATED 31.1.2017 PASSED BY THE ACIT, CIRCLE 3(1)(1), BANGALORE U/S. 143(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 [THE AC T] RELATING TO ASSESSMENT YEAR 2012-13. 2. GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE READS AS FOLLOWS:- IT(TP)A NO.697/BANG/2017 PAGE 2 OF 12 TRANSFER PRICING THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER. 1. THE LEARNED ASSESSING OFFICER (' LEARNED AO' ), LE ARNED TRANSFER PRICING OFFICER ('LEARNED TPO' ) AND THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') GROSSLY ERRED IN D ETERMINING AN ADJUSTMENT OF INR 1,45,40,935/- WITH RESPECT TO THE INTERNATIONAL TRANSACTION RENDERED BY THE TAXPAYER U/S 92CA OF THE INCOME-TAX ACT, 1961. 2. THE LEARNED AO/ LEARNED TPO/ 'HON'BLE DRP' ERRED I N CONCLUDING THAT THE ARM' S LENGTH PRICE (' ALP') WI TH RESPECT TO THE PAYMENTS MADE TOWARDS IT & MANAGEMENT SERVICES SEGMENT RECEIVED BY THE APPELLANT FROM ITS ASSOCIATED ENTER PRISE ( ' AE' ) TO BE ' NIL ' . 3. THE LEARNED AO/ LEARNED TPO/ 'HON'BLE DRP' ERRED IN NOT CONSIDERING THE ADDITIONAL EVIDENCES TO SUBSTANTIAT E THE RECEIPT OF SERVICES AND CORRESPONDING BENEFIT RECEIVED THRO UGH THE IT & MANAGEMENT SERVICES GROUND. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING OF UPS, INVERTORS, PCBA ASSEMBLY, ELE CTRONIC EQUIPMENTS, SUB-SYSTEMS, ETC. THE ASSESSEE MADE PAYMENT OF RS. 14,50,40,935 TO AN ASSOCIATED ENTERPRISE (AE) [NON-RESIDENT]. THE PAY MENT WAS CLAIMED TO HAVE BEEN MADE FOR PROVIDING IT AND MANAGEMENT SERV ICES BY AE TO THE ASSESSEE. SINCE THE PAYMENT WAS MADE TO AN AE, IT WAS AN INTERNATIONAL TRANSACTION AND ARMS LENGTH PRICE (ALP) OF THE PAY MENT IN QUESTION HAD TO BE DETERMINED IN VIEW OF THE PROVISIONS OF SECTION 92 OF THE ACT. IT WAS THE CLAIM OF ASSESSEE THAT THE AE PROVIDED IT SUPPO RT SERVICES LIKE TROUBLE SHOOTING, PERCEIVED THREATS OF DATA STORAGE, ASSIST ANCE IN ADDITIONAL SOFTWARE REPORTING STRUCTURE, ETC. THE ASSESSEE EN CLOSED EMAIL COPIES OF THE ASSISTANCE PROVIDED BY THE AE, INCAP FINLAND IN RESOLVING THE VARIOUS IT RELATED ISSUES. IT(TP)A NO.697/BANG/2017 PAGE 3 OF 12 4. THE TPO WAS OF THE FOLLOWING VIEW:- ONLY THE COPIES OF THE EMAILS OF ASSISTANCE REQUE STED BY THE TAXPAYER TO THE AE HAVE BEEN ANNEXED TO THE SUBMISS ION. ASSUMING BUT NOT CONCLUDING THAT EVEN IF THERE IS R ENDERING OF SERVICES, THE TAXPAYER HAS NOT BEEN ABLE TO PROVE T HE BENEFITS OF RECEIPT OF SUCH SERVICES. THE ACTUAL EXPENDITURE IN CURRED BY THE AE IN TERMS OF MAN HOURS SPENT BY ITS EMPLOYEES IN ATTENDING TO TAXPAYER'S VARIOUS NECESSITIES HAVE NOT BEEN SUBMIT TED. THERE SEEMS TO BE NO BASIS FOR ALLOCATION OF THE EXPENDIT URE OF THE TAXPAYER. 5. ACCORDING TO THE TPO, THE ASSESSEE FAILED TO PRO VE RENDERING OF ACTUAL SERVICES AND FURTHER FAILED TO JUSTIFY THE P RICE CHARGED BY THE AE AND THE BENEFIT WHICH THE ASSESSEE RECEIVED FROM SERVIC ES PROVIDED BY THE AE. THE TPO ACCORDINGLY CAME TO THE CONCLUSION THAT THE ALP OF THE TRANSACTION HAS TO BE REGARDED AS NIL AND THE ENTIR E PAYMENT MADE TO THE AE WAS TREATED AS AN ADJUSTMENT U/S. 92CA OF THE AC T AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. AGGRIEVED BY THE ACTION OF THE AO IN MAKING THE ADDITION OF ADJUSTMENT SUGGESTED BY THE TPO IN THE ORDER U/S. 9 2CA OF THE ACT, THE ASSESSEE PREFERRED OBJECTIONS BEFORE THE DRP. IN I TS OBJECTIONS, THE ASSESSEE SUBMITTED THAT THE ASSESSEE RECEIVED MANAG EMENT SERVICES FROM ITS AE WHICH INCLUDED GUIDANCE ON THE OVERALL OPERATIONS OF THE COMPANY, PROVIDING TRAINING TO THE EMPLOYEES, MEETI NG LOCAL VENDORS IN IDENTIFYING THE SUPPLIERS AND HAVING DISCUSSION WIT H THE CUSTOMERS FOR SUPPLY OF PRODUCTS. THE COST RELATING TO TRAVEL EXP ENSES AND VISA EXPENSES OF AE'S EMPLOYEES WHO VISITED CUSTOMER FOR BUSINESS DEVELOPMENT OF THE ASSESSEE WERE REIMBURSED BY THE ASSESSEE TO ITS AE AT COST WITHOUT ANY MARK-UP. IT WAS FURTHER SUBM ITTED THAT ACCOUNTING RELATED SERVICES PROVIDED BY THE AE TO THE ASSESSEE WAS REIMBURSED BY THE ASSESSEE TO ITS AE AT COST WITHOUT ANY MARKUP. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS MANUFACTURING ELECTRONIC AND ELECTRICAL PRODUCTS LIKE IT(TP)A NO.697/BANG/2017 PAGE 4 OF 12 PRINTED CIRCUIT BOARDS, POWER BACKUPS ETC. THE AS SESSEE RECEIVED SUPPORT SERVICES INCLUDING OPERATIONAL SUPPORT BY DEPUTA TION OF EMPLOYEES, IT SUPPORT, TECHNICAL ASSISTANCE AND SUPPORT IN BUSINE SS DEVELOPMENT BY MARKETING THE PRODUCTS MANUFACTURED BY THE ASSESSE E, SUPERVISION IN HUMAN RESOURCE, FINANCE, ADMINISTRATIVE MATTERS FRO M ITS AE IN CARRYING OUT ITS OPERATIONS. 7. THE ASSESSEE SUBMITTED THAT THERE WAS NO MARK-UP CHARGED BY THE AE AND THE ENTIRE IT AND MANAGEMENT CHARGES WERE RE IMBURSED AT COST TO COST. THE ASSESSEE HIGHLIGHTED THAT LIKE ANY OTHER ENTREPRENEURIAL ENTITY EVEN IT HAS TO INCUR CERTAIN COSTS LIKE HR, LEGAL, FINANCE ETC. COST IRRESPECTIVE OF THE AMOUNT OF BUSINESS IT UNDERTAKE S DURING THE YEAR. THE ONLY DIFFERENTIATING FACTOR IN THE CASE OF THE ASSE SSEE WHEN COMPARED TO A SIMILAR THIRD PARTY IS THAT THE ASSESSEE HAD AVAILE D THE SERVICES FROM ITS AE. HAD THE ASSESSEE AVAILED THE SERVICES FROM A THIRD PARTY, IT WOULD HAVE INCURRED SIMILAR EXPENSES. 8. THE DRP, HOWEVER, CONFIRMED THE ORDER OF AO HOLD ING THAT THE ASSESSEE FAILED TO PROVE THE NATURE OF SERVICES REN DERED BY THE AE. AGGRIEVED BY THE ORDER OF DRP WHICH WAS INCORPORATE D IN THE FINAL ORDER OF ASSESSMENT, THE ASSESSEE IS IN APPEAL BEFORE THE TR IBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTION TO AN APPLICATION FILED BY THE ASSESSEE U/S. RULE 29 OF T HE ITAT RULES, 1963, SEEKING TO FILE ADDITIONAL EVIDENCE BEFORE THE TRIB UNAL. HE BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAD FILED THE FOLLOWING EV IDENCE BEFORE THE TPO AND THE DRP AND HE NOW SEEKS TO FILE THE EVIDENCE L ISTED IN SL.NO.9 OF THE CHART GIVEN BELOW AS ADDITIONAL EVIDENCE :- IT(TP)A NO.697/BANG/2017 PAGE 5 OF 12 SI NO NATURE OF EXPENSES DOCUMENTARY EVIDENCE PAGE NUMBER 1 DOCUMENTARY PROOF EVIDENCING TRAVEL AND STAY EXPENSES OF JARI KOPPELO AND TEEMU POKELA VISITING INDIA TO MEET THE CUSTOMERS ON DIFFERENT DATES 1. DEBIT NOTE RAISED BY THE AE 2. TRAVEL TICKETS AND BOARDING PASS AS PROOF OF TRAVEL 3. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 141-168 2 DOCUMENTARY PROOF EVIDENCIN G TRAVEL AND STAY EXPENSES OF MS. RIITTA PONNIO VISITING INDIA TO PROVIDE TRAINING ON USEAGE OF A REPORTING SOFTWARE NAMED INTERNAL MANAGEMENT SYSTEM (IM S) FOR GENERATION OF REPORTS 1. DEBIT NOTE RAISED BY THE AE 2. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 169-172 3 DOCUMENTARY PROOF EVIDENCING TRAVEL AND STAY EXPENSES OF MR . THOMAS GRANDBERG VISITING INDIA TO ASSIST LNCAP INDIA IN DEVELOPMENT OF NEW PRODUCTS IN SAP SOFTWARE, DEVELOPMENT OF DOCUMENTATION MANAGEMENT IN SAP SOFTWARE, TASK ALLOCATION WITHIN THE TEAM, AND PROVIDING TRAINING TO THE EMPLOYEES OF LNCAP INDIA 1. DEBIT NOTE RAISED BY THE AE 2. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 173-176 4 DOCUMENTARY PROOF EVIDENCING TRAVEL OF MS. RIITTA PONNIO TO SUPERVISE THE QUALITY OF THE PRODUCTS, UPDATION OF JOB MATRIX OF THE EMPLOYEES OF LNCAP INDIA ETC. 1. DEBIT NOTE RAISED BY THE AE 2. TRAVEL TICKETS AND BOARDING PASS AS PROOF OF TRAVEL 3. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 177-184 5 DOCUMENTARY PROOF EVIDENCING TRAVEL OF MS. RIITTA PONNIO FOR INTERNAL AUDIT OF QUALITY MANAGEMENT SYSTEMS (QM S) ALONG WITH EXTERNAL AUDITORS ETC. 1. DEBIT NOTE RAISED BY THE AE 2. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 185-190 6 DOCUMENTARY PROOF EVIDENCING TRAVEL OF MR. MARKO TAPANONAHO VISITING INDIA FOR DEVELOPMENT OF THE ENGINEERING PROCESS FOR LNCA P INDIA 1. DEBIT NOTE RAISED BY THE AE 2. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 191-194 IT(TP)A NO.697/BANG/2017 PAGE 6 OF 12 7 DOCUMENTARY PROOF EVIDENCING TRAVEL OF MR. KIRSI HELLSTEN VISITING INDIA FOR SYMPA HUMAN RESOURCE IMPLEMENTATION SYSTEM 1. DEBIT NOTE RAISED BY THE AE 2. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 195-196 8 DOCUMENTARY PROOF EVIDENCING TRAVEL OF MR. MARKO TAPANONAHO VISITING INDIA FOR DEVELOPMENT OF THE ENGINEERING PROCESS FOR LNCAP INDIA 1. DEBIT NOTE RAISED BY THE AE 2. HOTEL BILLS AS PROOF OF STAY IN BANGALORE INDIA 197-198 9 EMAIL EVIDENCES FOR IT SUPPORT SERVICES RECEIVED BY LNCAP INDIA FROM LNCAP FINLAND SAMPLE COPY OF EMAILS FOR THE SERVICES RECEIVED ATTACHED AS ANNEXURE 10. IT WAS HIS SUBMISSION THAT THE EMAILS WHICH ARE ENCLOSED TO THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE WO ULD SHOW THAT THE SERVICES WERE IN FACT RENDERED BY THE AE. ACCORDIN G TO HIM, THE DRP/TPO DID NOT EXAMINE THE EVIDENCE, BUT MADE THE ADDITION IN QUESTION ON THE BASIS THAT NO EVIDENCE WAS FILED BY THE ASSESSEE TO SHOW THAT SERVICES WERE RENDERED BY THE AE FOR WHICH PAYMENT IN QUESTI ON WAS MADE BY THE AE. 11. THE LD. DR RELIED ON THE DIRECTIONS OF THE DRP. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE ISSUE HAS NOT BEEN EXAMINED IN THE PROPER PERSPECTI VE BY THE TPO AND DRP. THE EVIDENCE ALREADY FILED AS WELL AS THE ADD ITIONAL EVIDENCE FILED NOW NEED TO BE CONSIDERED TO SEE WHETHER THE PERSON S VISITING INDIA HAD IN FACT RENDERED SERVICES TO THE ASSESSEE AND WHETHER THE PAYMENT IN QUESTION MADE TO THE AE CAN BE REGARDED AS AT ARMS LENGTH. ADMITTEDLY THERE IS EVIDENCE TO SHOW THAT PERSONNEL TRAVELLED FROM OUTSIDE INDIA. THE EVIDENCE NOW FILED ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE WOULD SHOW WHAT TYPE OF SERVICES THEY RENDERED TO T HE ASSESSEE. THE LD. COUNSEL FOR ASSESSEE MADE SUBMISSION THAT THE ASSES SEE IS WILLING TO IT(TP)A NO.697/BANG/2017 PAGE 7 OF 12 PRODUCE SUCH OTHER EVIDENCE AS MAY BE INSISTED UPON BY THE TPO/AO IN THE SET ASIDE PROCEEDINGS, AS THE TYPE OF EVIDENCE THAT WOULD SATISFY THE REQUIREMENTS ON THE ISSUE ARE NOT KNOWN TO THE ASSE SSEE NOR SPELT OUT BY THE REVENUE AUTHORITIES. IN OUR VIEW, IT WOULD BE IN THE INTEREST OF JUSTICE TO SET ASIDE THE ORDER OF AO AND REMAND THE ISSUE FOR FRESH CONSIDERATION BY THE AO/TPO IN THE LIGHT OF EVIDENCE ALREADY AVAILAB LE ON RECORD AND ADDITIONAL EVIDENCE NOW FILED BEFORE THE TRIBUNAL. THE ASSESSEE WILL ALSO FILE SUCH OTHER EVIDENCE AS THE TPO MAY REQUIRE TO SHOW THAT THE PAYMENT IN QUESTION WAS MADE FOR SERVICES WHICH THE ASSESSE E RECEIVED FROM THE AE AND THAT THE PRICE PAID IS AT ARMS LENGTH. THE SE GROUNDS ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NOS.4 TO 7 RAISED BY THE ASSESSEE IS WIT H REGARD TO THE ACTION OF THE REVENUE AUTHORITIES IN DISALLOWING A SUM OF RS.53,83,644 FOR DEPRECIATION ON INTELLECTUAL PROPERTY RIGHTS IN THE FORM OF CUSTOMER RELATIONSHIP RIGHTS. AS FAR AS THESE GROUNDS ARE CONCERNED, THE FACTS ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE B USINESS OF PROVIDING COMPREHENSIVE CONTRACT MANUAL SERVICES TO EQUIPMENT MANUFACTURERS AND DEVELOPMENT OF RENEWABLE ENERGY LIKE SOLAR ENERGY, ENTERED INTO BUSINESS TRANSFER AGREEMENT WITH TVS ELECTRONICS LTD. ON 31. 5.2007 TO PURCHASE THE BUSINESS OF CONTRACT MANUFACTURING SERVICES [CMS] D IVISION AS A GOING CONCERN. THE ASSESSEE PAID A TOTAL CONSIDERATION O F RS.43.33 CRORES FOR ACQUIRING CMS DIVISION. THE ASSESSEE CLAIMED DEPRE CIATION IN AY 2009-10 WHICH WAS THE PREVIOUS YEAR IN WHICH CMS DIVISION W AS ACQUIRED BY THE ASSESSEE AS A GOING CONCERN. DEPRECIATION WAS CLAI MED ON A SUM OF RS.67.491 CRORES WHICH WAS VALUE ALLOCATED TO THE C USTOMER RELATIONSHIP RIGHTS ACQUIRED BY THE ASSESSEE UNDER THE BUSINESS TRANSFER AGREEMENT BY WHICH CMS DIVISION WAS TAKEN OVER AS A GOING CONCER N. 14. THE CLAIM OF ASSESSEE WAS NEGATED BY THE REVENU E AUTHORITIES. BUT IN AY 2009-10, THE TRIBUNAL IN ITA NO.1469/BANG/201 4 BY ITS ORDER DATED IT(TP)A NO.697/BANG/2017 PAGE 8 OF 12 9.3.2016 DIRECTED THE AO TO ALLOW THE CLAIM OF ASSE SSEE FOR DEPRECIATION ON CUSTOMER RELATIONSHIP RIGHTS WITH THE FOLLOWING OBS ERVATIONS:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL A S CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TRANSACTION OF PURCHASE OF CONTRACT MANUFACTURING SERVICE DIVISION OF TVS ELEC TRONICS LTD. BY THE ASSESSEE VIDE BTA DT.31.5.2007 IS SLUMP SALE AS THE CONSIDERATION WAS AGREED AND PAID IN LUMP SUM WITHO UT ASSIGNING ANY VALUE TO SPECIFIC ASSETS. THEREFORE AS PER THE AGREEMENT THE CONSIDERATION WAS PAID LUMP SUM WITHOUT GIVING ANY DETAILS OF PAYMENT FOR ANY SPECIFIC ASSETS. THE BUSINESS WAS P URCHASED BY THE ASSESSEE AND IT WAS TRANSFERRED BY THE TVS ELEC TRONICS AS AN ONGOING BUSINESS/DIVISION. HOWEVER, IN ITS BOOKS OF ACCOUNTS THE ASSESSEE HAS VALUED THE FIXED ASSET AND INTANGIBLES AS PER THE VALUATION MADE BY THE CONSULTANTS AS UNDER : THUS IT IS CLEAR THAT THE EXCESS AMOUNT PAID BY THE ASSESSEE OVER AND ABOVE THE VALUE ASSIGNED TO THE VARIOUS ASSETS HAD BEEN ASSIGNED TO TWO INTANGIBLES NAMELY CUSTOMER RELATI ONSHIP AND GOODWILL. THE ASSESSEE DID NOT CLAIM ANY DEPRECIA TION ON THE IT(TP)A NO.697/BANG/2017 PAGE 9 OF 12 VALUE OF RS.2.55 CRORES ASSIGNED TO THE GOODWILL AN D THEREFORE THE SAME WAS NOT AN ISSUE BEFORE THE AUTHORITIES BE LOW. THE ASSESSEE CLAIMED DEPRECIATION IN RESPECT OF THE AMO UNT OF RS.6.74 CRORES WHICH WAS ASSIGNED TO CUSTOMER RELATIONSHIP (INTANGIBLE). THE ASSESSEE TOOK A PLEA THAT THIS AMOUNT WAS PAID AS NON- COMPETE FEES AS THE SELLER HAS EXPRESSED, AGREED AN D UNDERTOOK NOT TO PARTICIPATE OR ENGAGE IN ANY JURISDICTION AS A OWNER OR PARTNER OR AS SHAREHOLDER OR IN ANY CAPACITY IN THE BUSINESS OF CONTRACT MANUFACTURING SERVICES WHICH WAS TRANSFERR ED TO THE ASSESSEE. THUS THE LEARNED AUTHORISED REPRESENTATIV E HAS REFERRED TO THE ARTICLE 11 OF BTA IN SUPPORT OF HIS CONTENTI ON THAT THE PAYMENT WAS MADE FOR NON-COMPETE FEES. HOWEVER, IN THE ABSENCE OF ANY AGREEMENT BETWEEN THE PARTIES FOR AN Y CONSIDERATION ON ACCOUNT OF NON-COMPETE FEES AS WEL L AS IN THE ABSENCE OF ANY SUCH VALUE ASSIGNED TO THE NON-COMPE TE FEES IN THE BOOKS OF ACCOUNTS, WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE SAID PAYMENT IS MADE AS NON-COMPETE FEES. THE ASSESSEE I N ITS BOOKS OF ACCOUNTS HAS ALLOCATED SUM TO THE INTANGIBLE BEI NG CUSTOMER RELATIONSHIP. THEREFORE, THOUGH THE SELLER HAS AGRE ED NOT TO ENGAGE IN ANY BUSINESS FOR A PERIOD OF THREE YEARS OR PARTICIPATE OR ENGAGE AS OWNER, PARTNER SHAREHOLDER, CONSULTANT , ADVISOR OR ANY OTHER CAPACITY SOLICIT THE EMPLOYEES OF THE CMS BUSINESS HOWEVER IN THE ABSENCE OF ANY INTENTION OF PARTIES TO PAY CONSIDERATION FOR SUCH RESTRICTIVE COVENANTS IN THE AGREEMENT THE PAYMENT IN QUESTION CANNOT BE REGARDED AS NON-COMPE TE FEES. THEREFORE, THE DECISION OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF INGERSOLL RAND INTERNATIONAL INDIA L TD. (SUPRA) WILL NOT HELP THE CASE OF THE ASSESSEE. AS REGARDS THE N ATURE OF PAYMENT IN QUESTION, AS TREATED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS BEING CUSTOMER RELATIONSHIP, THE ISSUE IS CLEARLY DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEM (SUPRA). HOWEVER, THIS CAN BE LOOKED FROM ANOTHER ANGLE BECAUSE THE A SSESSING OFFICER WHILE DENYING THE CLAIM OF DEPRECIATION HAS TAKEN A VIEW THAT THE CUSTOMER RELATIONSHIP RIGHTS ARE IN THE NA TURE OF GOODWILL AS UNDER : THE SUBMISSIONS MADE BY COMPANY ARE CON SIDERED. THE ASSESSEE HAS RELIED UPON SECTION 32(1)(II) OF T HE INCOME TAX ACT, STATING THAT THE WORDINGS ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE GIVES SCOPE TO MANY SUCH BUSINESS OR COMMERCIAL RIGHTS INCLUDING CUSTOMER RELATIONSHIP R IGHTS WHICH IT(TP)A NO.697/BANG/2017 PAGE 10 OF 12 ARE AS PER ASSESSEE ALMOST IN NATURE OF GOODWILL. H ENCE THERE IS NO DISPUTE THAT CUSTOMER RELATIONSHIP RIGHTS ARE IN NATURE OF GOODWILL. THEREFORE THE CLAIM OF THE ASSESSEE IS R EQUIRED TO BE CONSIDERED BY TREATING THE SAID PAYMENT AS GOODWILL . THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS RELIE D UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CI T VS. SMSIFS SECURITIES LTD. 348 ITR 302 AND SUBMITTED TH AT IN VIEW OF THE SAID JUDGMENT OF THE HON'BLE SUPREME COURT, GOO DWILL ELIGIBLE FOR DEPRECIATION AS PER THE SECTION 31(1)( II) OF THE ACT. SINCE THE ASSESSEE DID NOT CLAIM DEPRECIATION ON GO ODWILL IN THE RETURN OF INCOME AND EVEN NOT MADE ANY CLAIM BEFORE THE CIT (APPEALS). THEREFORE, THE ISSUE OF ALLOWING DEPRECI ATION ON GOODWILL HAS NOT BEEN EXAMINED BY THE AUTHORITIES B ELOW. 15. THE CLAIM MADE IN THE PRESENT ASSESSMENT YEAR H AS TO BE ALLOWED AS A CONSEQUENCE OF THE ACCEPTANCE OF THE ASSESSEE S CLAIM IN AY 2009- 10. THE REASON FOR THE AO AND THE DRP IN NOT ACCEP TING THE CLAIM OF ASSESSEE IS BASED ON THE BEST JUDGMENT ASSESSMENT I N AY 2009-10, WHICH NO LONGER REMAINS VALID. IN VIEW OF THE DECISION O F THE TRIBUNAL FOR AY 2009-10, WE ARE OF THE VIEW THAT THE CLAIM OF ASSES SEE FOR DEPRECIATION ON CUSTOMER RELATIONSHIP RIGHTS HAS TO BE ALLOWED. WE HOLD AND DIRECT ACCORDINGLY AND ALLOW GROUNDS NO.4 TO 7. 16. AS FAR AS GROUND NO.8 IS CONCERNED, THE SAME I S WITH REGARD TO DEPRECIATION ON GOODWILL. THE GOODWILL IN QUESTION WAS CLAIMED TO HAVE BEEN ACQUIRED AS A RESULT OF BUSINESS TRANSFER AGRE EMENT, WHEREBY CMS DIVISION OF TVS ELECTRONICS WAS TAKEN OVER AS A GOI NG CONCERN BY THE ASSESSEE. THIS ISSUE ALSO CAME UP BEFORE THE TRIBU NAL FOR AY 2009-10 ITA NO.1469/BANG/2014 AND THIS TRIBUNAL NOTICED THAT TH E CLAIM FOR DEPRECIATION ON GOODWILL WAS MADE BY WAY OF AN ADDI TIONAL GROUND AND ACCORDINGLY ADMITTED THE ADDITIONAL GROUND FOR ADJU DICATION BUT REMANDED THE ISSUE FOR FRESH CONSIDERATION BY THE AO. IN TH E PRESENT ASSESSMENT YEAR, A SIMILAR CLAIM WAS MADE BY THE ASSESSEE BEFO RE THE DRP, BUT THE DRP REFUSED TO ENTERTAIN THE CLAIM MADE BY THE ASSE SSEE BY HOLDING THAT IT(TP)A NO.697/BANG/2017 PAGE 11 OF 12 WITHOUT FILING A REVISED RETURN, THE ASSESSEE CANNO T MAKE ANY CLAIM AND IN THIS REGARD PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT DECISION IN THE CASE OF GOETZ (INDIA) LTD. V. COMMISSIONER OF INCOME TAX 12006] 157 TAXMAN 1(SC) . WE ARE OF THE VIEW THAT THE POWER OF THE APPELLATE AUTHORITIES INCLUDING THE DRP /CIT(A)/TRI BUNAL IS IN NO WAY CIRCUMSCRIBED BY THE DECISIONS REFERRED TO BY THE H ON'BLE DRP AND ARE APPLICABLE ONLY TO CLAIM MADE BEFORE THE AO. THIS LEGAL POSITION IS BY NOW WELL SETTLED. THE FOLLOWING DECISIONS MAY BE REFER RED TO IN THIS REGARD VIZ., COMMISSIONER OF INCOME-TAX, CHENNAI V. ABHINITHA FO UNDATION (P.) LTD. [2017] 83 TAXMANN.COM 100 (MADRAS) CIT V. PRABHU STEEL INDUSTRIES (P.) LTD [1988] 171 ITR 530 (BOMBAY) AND CIT V. PRUTHVI BROKERS & SHAREHOLDERS [2012] 23 TAXMANN.COM 23 (BOM.) .ACCORDINGLY, WE DIRECT THE AO TO EXAMINE THE CLAIM OF ASSESSEE FOR DEDUCTION O N ACCOUNT OF GOODWILL. 17. GROUND NO.9 RAISED BY THE ASSESSEE IS WITH REGA RD TO DISALLOWANCE OF PROVISION FOR EXPENSES. THE LD. COUNSEL FOR ASS ESSEE COULD NOT POINT OUT AS TO HOW THE EXPENDITURE WHICH WAS CLAIMED BY WAY OF PROVISION WAS ACTUALLY INCURRED OR ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR, HENCE WE FIND NO MERIT IN GROUND NO.9 RAISED BY THE ASSESSEE. 18. AS FAR AS GROUND NO.10 RAISED BY THE ASSESSEE W ITH REGARD TO STAMP DUTY AND ROC CHARGES PAID ON ACCOUNT OF INCREASE IN SHARE CAPITAL DURING THE RELEVANT PREVIOUS YEAR IS CONCERNED, IT WAS POI NTED OUT BY THE LD. COUNSEL FOR ASSESSEE THAT CONVERTIBLE DEBENTURES WE RE CONVERTED INTO EQUITY SHARES AND THEREFORE THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD . (225 ITR 792) AND BROOKE BOND INDIA LTD. (225 ITR 798) WILL NOT B E APPLICABLE. ACCORDING TO HIM, THE DECISION OF HON' BLE SUPREME COURT IN THE CASE OF CIT V. GENERAL INSURANCE CORPORATION (286 ITR 232) WHEREIN IT WAS HELD THAT WHEN BONUS SHARES ARE ISSUED, ANY EXPENDI TURE IN ISSUE OF BONUS SHARE SHOULD BE REGARDED AS REVENUE EXPENDITURE WIL L APPLY. ACCORDING TO IT(TP)A NO.697/BANG/2017 PAGE 12 OF 12 HIM, THERE WAS NO CHANGE IN THE CAPITAL BASE OF THE ASSESSEE AND THEREFORE THE EXPENDITURE IN QUESTION CANNOT BE REGARDED AS C APITAL EXPENDITURE. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL FOR ASSESSEE AND ARE OF THE VIEW THAT THE SAME IS NOT APPLICABLE. BY CONVE RSION OF DEBENTURES INTO EQUITY, THERE IS A CONVERSION OF LOAN INTO CAPITAL AND IN THAT SENSE THERE IS AN INCREASE IN OWN CAPITAL OF THE ASSESSEE. THEREF ORE, WE ARE OF THE VIEW THAT THERE WAS EXPANSION OF CAPITAL BASE(OWN CAPITA L) AND THEREFORE EXPENDITURE IN QUESTION WAS RIGHTLY TREATED BY THE REVENUE AUTHORITIES AS IN THE NATURE OF CAPITAL EXPENDITURE. WE ARE THEREFOR E OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.10 RAISED BY THE ASSESSEE. A CCORDINGLY THE SAME IS DISMISSED. 19. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF DECEMBER, 2019. SD/- SD/- ( D S SUNDER SINGH ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 30 TH DECEMBER, 2019. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.