M/s Samsung R & D Institute India Bangalore Private Limited, Bangalore V. Addl.C.I.T., Bangalore

ITA 705/BANG/2014

• Counselvise Citation: 70521114 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANURAG SAHAY CITIIIDR
• Assessee Lawyers: K R PRADEEP
• Keywords: Depreciation; Opportunity of being heard; Revised return
• Section: 10B; 32; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.705/BANG/2014 ASSESSMENT YEAR : 2008-09 M/S. SAMSUNG R&D INSTITUTE INDIA BANGALORE PVT. LTD., (FORMERLY SAMSUNG INDIA SOFTWARE OPERATION PVT. LTD.), # 2870, PHOENIX BUILDING, BAGMANE CONSTELLATION BUSINESS PARK, OUTER RING ROAD, DODDANEKUNDI CIRCLE, MARATHHALLI POST, BANGALORE-560037. PAN : AAICS 6290F VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 12, BANGALORE. APPELLANT RESPONDENT ITA NO.672/BANG/2014 ASSESSMENT YEAR : 2008-09 THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 12, BANGALORE. VS. M/S. SAMSUNG R&D INSTITUTE INDIA BANGALORE PVT. LTD., (FORMERLY SAMSUNG INDIA SOFTWARE OPERATION PVT. LTD.), BANGALORE-560037. PAN : AAICS 6290F APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. PRADEEP, CA RESPONDENT BY : SHRI ANURAG SAHAY, CIT-III(DR) DATE OF HEARING : 19.08.2015 DATE OF PRONOUNCEMENT : 26.08.2015 ITA NO.705 & 672/BANG/2014 PAGE 2 OF 9 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.672/B/14 IS AN APPEAL BY THE REVENUE, WHIL E ITA NO.705/B/14 IS AN APPEAL BY THE ASSESSEE. BOTH THE SE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 28.2.2014 OF CIT(A PPEALS)-III, BANGALORE RELATING TO ASSESSMENT YEAR 2008-09. ITA NO.672/B/14 (REVENUES APPEAL) 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN DIRECTING THE AO TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY SUCH AS SA LARIES, TRAVELLING AND CONVEYANCE, SUB-CONTRACTING, SOFTWARE DEVELOPMENT C HARGES, COMMUNICATION, ETC. FROM THE EXPORT TURNOVER, WITH OUT REDUCING THE SAME FROM THE TOTAL TURNOVER ALSO, WHILE COMPUTING DEDUC TION U/S. 10B OF THE ACT. 3. ACCORDING TO THE AO, AS PER THE DEFINITION OF EX PORT TURNOVER GIVEN IN CLAUSE (IV) TO EXPLANATION 2, THE EXPENSES INCURRED FOR FREIGHT EXPENSES ATTRIBUTABLE TO THE DELIVERY OF THE PRODUCT OR SOFT WARE OUTSIDE INDIA SHOULD BE REDUCED FROM THE EXPORT TURNOVER. HOWEVER, THE PROVISIONS OF SECTION 10B DO NOT PROVIDE FOR EXCLUSION OF SUCH EXPENDITUR E FROM TOTAL TURNOVER. IN THE ABSENCE OF A DEFINITION FOR TOTAL TURNOVER IN S ECTION 10B, THE NORMAL DEFINITION OF TOTAL TURNOVER HAS TO BE ADOPTED AND AS SUCH THE EXPENSES ITA NO.705 & 672/BANG/2014 PAGE 3 OF 9 WHICH ARE REDUCED FROM THE EXPORT TURNOVER IN ACCOR DANCE WITH THE SPECIFIC DEFINITION CANNOT BE REDUCED FROM THE TOTAL TURNOVE R. 4. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) FOLL OWING THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD., 349 ITR 98 (KARN) , HELD THAT WHATEVER IS EXCLUDED FROM THE EXPORT TURNOVER, HAS ALSO TO BE EXCLUDED FROM THE TOTAL TU RNOVER. 5. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE DE CISION OF HON'BLE HIGH COURT OF KARNATAKA IN TATA ELXSI (SUPRA) HAS NOT ATTAINED FINALITY AND A SLP BY THE DEPARTMENT IS PENDING BEFORE THE HON'B LE SUPREME COURT. WE ARE OF THE VIEW THAT AS OF TODAY, LAW DECLARED B Y THE HON'BLE HIGH COURT OF KARNATAKA WHICH IS THE JURISDICTIONAL HIGH COURT IS BINDING ON US. WE THEREFORE HOLD THAT THE ORDER OF CIT(A) DOES NOT CA LL FOR ANY INTERFERENCE AND ACCORDINGLY THE SAME IS CONFIRMED. 7. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED. ITA NO.705/B/14 (ASSESSEES APPEAL) 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-III [CIT(A)] IN SO FAR AS IT IS PREJUDI CIAL TO THE INTEREST OF THE APPELLANT IS BAD IN LAW AND THEREFORE NOT SU STAINABLE. ITA NO.705 & 672/BANG/2014 PAGE 4 OF 9 2. THAT THE LEARNED CIT(A) ERRED IN NOT ADMITTING THE ADDITIONAL GROUND SUBMITTED BY THE APPELLANT IN COU RSE OF THE APPEAL PROCEEDINGS AND DECIDING THE SAME ON MERITS. 3. THAT THE LEARNED CIT(A) HAS ERRED IN NOT EXERCI SING HER POWERS UNDER SECTION 250 OF THE INCOME- TAX ACT, 19 61. 4. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN NOT GRANTING DEPRECIATION ON GOODWILL TO THE APPELLANT. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/O R TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN BELOW OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 8. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF DEVELOPMENT OF SOFTWARE WITH SAMSUNG ELECTRONICS C OMPANY LTD., KOREA (SECL), THE HOLDING COMPANY. THE ASSESSEE TOOK OVE R THE BUSINESS OF SAMSUNG INDIA SOFTWARE OPERATIONS (SISO), A BRANCH OF SECL W.E.F 1.12.2005, PURSUANT TO THE BUSINESS TRANSFER AGREEM ENT. THE TOTAL CONSIDERATION (WHICH WAS DETERMINED ON THE BASIS OF VALUATION OF THE BUSINESS AS A GOING CONCERN) PAID TO SISO FOR THE T RANSFER WAS RS 30,42,60,000, OUT OF WHICH THE PRICE OF NET TANGIBL E ASSETS ACQUIRED WAS RS 17,32,24,951 AND THE BALANCE WAS GOODWILL. THE SAID GOODWILL ACQUIRED AT RS. 13,10,35,049 FORMED A PART OF THE FIXED ASSETS OF THE ASSESSEE AND DULY APPEARED IN THE BOOKS OF ACCOUNT OF THE COMPAN Y. 9. THE ASSESSEE COMPANY HAD NOT CLAIMED ANY DEPRECI ATION ON GOODWILL UNDER THE PROVISIONS OF THE ACT DURING THE ASSESSMENT PROCEEDINGS. ITA NO.705 & 672/BANG/2014 PAGE 5 OF 9 10. AFTER THE CONCLUSION OF THE ASSESSMENT PROCEEDI NGS, IN THE CASE OF CIT VS SMIFFS SECURITIES LTD (348 ITR 302) , THE HONBLE SUPREME COURT HELD THAT GOODWILL IS AN ASSET WITHIN THE MEANING O F SECTION 32 OF THE ACT AND HENCE, DEPRECIATION ON GOODWILL IS AN ALLOWABLE EXPENSE UNDER THE SAID SECTION. IN VIEW OF THIS JUDGMENT OF THE SUPR EME COURT, ACCORDING TO THE ASSESSEE, GOODWILL NEEDS TO BE CONSIDERED AS AN ASSET (IN TERMS OF SUB CLAUSE (II) TO CLAUSE 1 OF SECTION 32 OF THE ACT) W HICH IS ENTITLED FOR DEPRECIATION. 11. THEREFORE, ACCORDING TO THE ASSESSEE, A QUESTIO N OF LAW HAS ARISEN IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WHETHER THE ASSESSEE IS ENTITLED TO DEPRECIATION ON GOODWILL IN THE YEAR UN DER APPEAL. 12. ACCORDINGLY, THE ASSESSEE, BY RELYING ON THE AB OVE JUDICIAL PRECEDENT WHICH CONSIDERED GOODWILL TO BE ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT, RAISED AN ADDITIONAL GROUND FOR ALLOWABILITY OF DEPRECIATION ON GOODWILL IN THE APPEAL FILED BEFORE THE CIT(APPEALS). 13. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT UNDER THE PROVISIONS OF SECTION 253(1) OF THE ACT, THE POWERS OF THE CIT (APPEALS) ARE CO- TERMINUS WITH THAT OF THE ASSESSING OFFICER AND THE REFORE HE CAN DO WHAT THE ASSESSING OFFICER CAN DO. RELIANCE WAS PLACED BY THE ASSESSEE ON THE DECISION OF HONBLE SUPREME COURT IN CIT V. KANPUR COAL SYNDICATE (1964) 53 ITR 225) (SC) AND JUTE CORPORATION OF INDIA LTD. V. CIT (1991) 187 IT R 688 (SC) . ITA NO.705 & 672/BANG/2014 PAGE 6 OF 9 14. THE ASSESSEE ALSO POINTED OUT THAT IT IS ONLY B EFORE THE AO THAT THE ASSESSEE CANNOT MAKE A CLAIM, WHICH IS NOT SUPPORTE D BY A REVISED RETURN OF INCOME IN VIEW OF THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (2006) 284 ITR 323 (SC) AND THAT THE SAID PROHIBITION DOES NOT EXTEND TO MAKING A CLAIM BEFOR E THE APPELLATE AUTHORITIES UNDER ACT. FOR THE ABOVE PROPOSITION, T HE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT V. PRITHVI BROKERS & SHAREHOLDERS PVT. LTD. [TS-463-HC-2012(BO M)] . 15. THE CIT(APPEALS), HOWEVER, WAS OF THE VIEW THAT TAKE OVER OF THE BUSINESS BY THE ASSESSEE WAS W.E.F. 1.12.2005 AND T HEREFORE THE QUESTION WHETHER THERE WAS ACQUISITION OF GOODWILL AND ITS V ALUATION OUGHT TO HAVE BEEN EXAMINED ONLY IN A.Y. 2006-07. THE ASSESSEE D ID NOT MAKE A CLAIM IN THIS REGARD EVEN BEFORE THE AO IN THE PRESENT AS SESSMENT YEAR. THE ASSESSEE MADE A CLAIM ONLY BECAUSE OF THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF SMIFFS SECURITIES LTD. (SUPRA) RENDERED ON 22.8.2012, AFTER THE CONCLUSION OF THE ASSESSMENT PROCEEDINGS. THE CIT(A) WAS OF THE VIEW THAT TO ADMIT AN ADDITIONAL GROUND, THE FACTS REQUIRED FOR ADJUDICATION OF ADDI TIONAL GROUND SHOULD BE AVAILABLE ON RECORD. SINCE THE FACTS ARE NOT AVAIL ABLE ON THE RECORDS OF THE AO, THE CIT(A) WAS OF THE VIEW THAT ADDITIONAL GROU ND CANNOT BE ADMITTED FOR ADJUDICATION. HE ALSO OBSERVED THAT THE ASSESS EE HAS ALSO FILED AN APPLICATION BEFORE THE AO U/S. 154 OF THE ACT MAKIN G A CLAIM FOR DEPRECIATION ON GOODWILL. THE CIT(A) WAS OF THE VI EW THAT SINCE THE MATTER ITA NO.705 & 672/BANG/2014 PAGE 7 OF 9 WAS BEING PURSUED BEFORE THE AO WHEREIN THE FACTUAL BASIS OF THE CLAIM WILL BE EXAMINED, THE ASSESSEES GRIEVANCE WILL BE ADEQU ATELY REDRESSED. EVEN ON THAT BASIS, THE CIT(A) REFUSED TO ADMIT THE ADDITIONAL GROUND. 16. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASS ESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 17. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE, WHO REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE CIT(A). 18. THE LD. DR RELIED ON THE ORDER OF CIT(A). 19. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. A PLAIN READING OF THE PROVISIONS OF SECTION 251 SHOW S THAT THE CIT(APPEALS) HAS PLENARY POWERS IN DISPOSING OF AN APPEAL. HIS POWERS ARE CO-TERMINUS WITH THAT OF THE AO. JUDICIAL PRECEDENT ON THE ISS UE VIZ., THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KANPUR COAL SYNDICATE (SUPRA) CLEARLY LAYS DOWN THE SCOPE OF THE POWERS OF THE CI T(APPEALS). EXERCISE OF THE POWER BY THE CIT(APPEALS) IS NOT DEPENDENT ON T HE EXISTENCE OF FACTS BEING ALREADY ON RECORD. THE ASSESSEE HAS PLACED T HE BUSINESS TRANSFER AGREEMENT. THE CIT(APPEALS) HAS POWERS TO CONSIDER THE SAME AFTER CONFRONTING IT TO THE ASSESSING OFFICER FOR HIS COM MENTS. HE COULD RENDER A FINDING AS TO WHETHER THERE WAS ANY PAYMENT FOR ACQ UISITION OF GOODWILL AND IF SO, WHAT IS THE QUANTUM OF SUCH PAYMENT. THE QU ESTION AS TO WHETHER THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SMIFFS ITA NO.705 & 672/BANG/2014 PAGE 8 OF 9 SECURITIES LTD. (SUPRA) WOULD APPLY TO THE CASE OF THE ASSESSEE IS ALSO A MATTER WHICH COULD BE INVESTIGATED BY THE CIT(APPEA LS). IN OUR VIEW, THE ORDER REFUSING TO ADMIT THE ADDITIONAL GROUND CANNO T BE SUSTAINED. WE ARE ALSO OF THE VIEW THAT SINCE THE CLAIM HAS BEEN MADE BEFORE THE CIT(APPEALS) FOR THE FIRST TIME AND SINCE THE AO DI D NOT HAVE AN OPPORTUNITY TO EXAMINE THE CLAIM OF ASSESSEE, IT WOULD BE JUST AND PROPER IF THE ORDER OF CIT(APPEALS) ON THIS ISSUE IS SET ASIDE AND THE ISS UE IS REMANDED TO THE AO FOR CONSIDERATION DE NOVO . 20. WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(APPEA LS) ON THIS ISSUE AND REMAND THE ISSUE IN QUESTION TO THE ASSESSING O FFICER FOR FRESH CONSIDERATION AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED, WHILE THE APPEAL BY THE ASSESSEE IS TREATED AS ALLOWED FOR ST ATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 26 TH AUGUST, 2015. /D S/ ITA NO.705 & 672/BANG/2014 PAGE 9 OF 9 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.