GODREJ GOLD COIN AQUAFEED LTD, MUMBAI V. DCIT 10(2), MUMBAI

ITA 7154/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8560 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 27-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 21-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Keywords: Depreciation; Valuation report
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 7154/MUM/2011 (ASSESSMENT YEAR: 2008-09) M/S. GODREJ GOLD COIN AQUAFEED LTD., C/O. KALYANIWALLA & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148, M.G. ROAD, MUMBAI -400 001 PAN: AACCG 7748 N VS DEPUTY COMMISSIONER OF INCOME-TAX, RANGE - 10(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AKRAM KHAN RESPONDENT BY : SHRI AMAR DEEP DATE OF HEARING: 27-09-2012 DATE OF PRONOUNCEMENT: 10-10-2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL EMANATES FROM THE ORDER OF THE CIT(A) 21, MUMB AI, DATED 03.08.2011. THE SOLITARY ISSUE IN THE FIVE GROUNDS OF APPEAL, AS TAKEN BY THE ASSESSEE PERTAIN TO THE DISALLOWANCE OF DE PRECIATION ON GOODWILL CLAIMED AT RS. 13,23,438. 2. THE FACTS IN BRIEF ARE, THAT THE APPELLANT WAS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF AQUA FEEDS. FROM THE DEPRECIA TION CHART, THE AO NOTICED THAT UNDER THE HEAD INTANGIBLE ASSET THE APPELLANT HAD SHOWN GOODWILL OF RS. 52,93,750/- AND HAD CLAIMED DEPREC IATION OF RS. 13,23,438/- ON SUCH GOODWILL. THE AO ASKED THE APP ELLANT TO JUSTIFY ITS CLAIM OF DEPRECIATION ON SUCH INTANGIBLE ASSET. THE M/S. GODREJ GOLD COIN AQUAFEED LTD. ITA NO. 7154/MUM/2011 2 ASSESSEE, VIDE ITS LETTER DATED 27.10.2010, FILED JUSTIFICATION A LONG WITH THE COPIES OF BUSINESS TRANSFER AGREEMENT, VALUATION REPORT ETC. 3. THE AO, AFTER CONSIDERING THE REPLY, FOUND HIMSELF, NOT SATISFIED WITH THE REPLY OF THE ASSESSEE, AND OBSERVED, . WITHOU T PREJUDICE TO ABOVE, THE CLAIM OF DEPRECIATION ON GOODWILL WAS NOT ALLOWABLE AS PER PROVISIONS OF THE ACT. THE PROVISIONS OF SEC. 32(1)(II) PROVIDES FOR DEPRECIATION ON INTANGIBLE ASSETS DESCRIBED AND ENUMERAT ED IN CLAUSE (B) TO THE EXPLANATION 3 TO SECTION 32 WHICH DOES NOT INCLU DES GOODWILL. SINCE THE GOODWILL HAS NOT BEEN CLASSIFIED UNDER TH E INTANGIBLE ASSETS, THE CLAIM OF DEPRECIATION ON THE SAME WAS NOT ALLOWABLE TO THE APPELLANT. THE AO RELIED ON THE BOMBAY ITA T DECISION IN THE CASE OF R.G. KESHWANI 116 ITD 133 AND DISALLOWED AP PELLANTS CLAIM OF DEPRECIATION AT RS. 13,23,438/-. 4. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM IT SUBMITTED: DURING THE APPELLATE PROCEEDINGS, THE APPELLANT EX PLAINED THAT IT ACQUIRED THE AQUAFEED BUSINESS OF GODREJ AQUAFEE D LTD. W.E.F. 16.11.2006 IN THE PREVIOUS YEAR RELEVANT TO A.Y. 20 07-08 FOR A TOTAL CONSIDERATION OF RS. 40,38,53,000/- AS PART O F THE SAID BUSINESS. THE APPELLANT ACQUIRED GOODWILL OF THE BU SINESS FOR RS. 60,50,000/-. THE APPELLANT FURTHER EXPLAINED TH AT IN THE AY 2007-08, IT HAD BEEN ALLOWED DEPRECIATION ON GOODWI LL VIDE ORDER U/S 143(3) DATED 18.12.2009. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE AO ERRONEOUSLY DISALLOWED CLAIM OF DEPRECIATION ON SUCH GOODWILL. THE APPELLANT FURTHE R ARGUED THAT THE AO ERRONEOUSLY HELD THAT THE APPELLANT DID NOT ACQUIRE ANY GOODWILL AS PART OF THE ACQUIRED. THE APPELLANT ARG UED THAT IT HAD ACQUIRED THE ENTIRE BUSINESS ALONGWITH GOODWILL OF THE BUSINESS AS MENTIONED AT TWO PLACES IN THE BUSINESS TRANSFER AGREEMENT AS UNDER:- I. AT PAGE 4 PARA 3 OF THE BUSINESS TRANSFER AGREEMENT , IT HAS BEEN STATED THAT THE SELLER I.E. M/S GODREJ AQU AFEED LTD. WISHES TO TRANSFER THE AGRICULTURE FEED BUSINE SS ALONGWITH GOODWILL , ASSETS ETC. II. AT PAGE 6 AS PART OF DEFINITION OF INTANGIBLE PROPE RTY RIGHTS ACQUIRED GOODWILL HAS BEEN SPECIFICALLY MENT IONED. THE APPELLANT FURTHER ARGUED THAT THE AO INCORRECTL Y HELD THAT APPELLANTS CLAIM OF DEPRECIATION ON GOODWILL WAS N OT ALLOWABLE ON THE GROUND THAT GOODWILL HAS NOT BEEN CLASSIFIED AS AN INTANGIBLE ASSET U/S 32. IN THIS RESPECT, THE APPE LLANT SUBMITTED THAT GOODWILL IS AN INTANGIBLE ASSET ENTITLED TO DE PRECIATION U/S M/S. GODREJ GOLD COIN AQUAFEED LTD. ITA NO. 7154/MUM/2011 3 32OF THE ACT, AS HELD BY THE COURT AND TRIBUNALS IN THE FOLLOWING CASES:- A) B. RAVEENDRAN PILLAI VS. CIT 47 ITR 8 (KER) B) SKYLINE CATERS P. LTD. VS. ITO 306 ITR (AT) 369(MUM) C) KOTAK FOREX BROKERAGE LTD. 33 SOT 237 (MUM) D) HINDUSTAN COCA COLA BREVERAGES (P) LTD. 34 SOT 171 (ITAT DELHI) AFFIRMED BY THE DELHI HIGH COURT 331 ITR 192 IN VIEW OF THE ABOVE SUBMISSIONS AND ARGUMENTS, THE APPELLANT SUBMITTED THAT GOODWILL REPRESENTED BUNDLE OF RIGHT S, MATERIAL CONTRACTS, INTANGIBLE ASSETS AND TRADING NAME AND S TYLE OF THE BUSINESS ACQUIRED BY THE APPELLANT IN THE INSTANT C ASE. THE AO FAILED TO CONSIDER THAT GOODWILL FORMED PART OF BLO CK OF ASSETS AND THAT HE WAS REQUIRED TO ALLOW DEPRECIATION ON T HE OPENING WDV. THE APPELLANT RELIED ON THE DECISION OF BOMBA Y TRIBUNAL IN THE CASE OF GODREJ AGROVET LTD. ITA NO.6807/M/06 AND 6223/M/07. 5. THE CIT (A), AFTER CONSIDERING THE SUBMISSIONS MADE BY T HE ASSESSEE, HELD, I HAVE CONSIDERED THE FACTS OF THE CASE. IT HAS BE EN HELD BY THE VARIOUS COURTS THAT THE GOODWILL IS AN INTANGIBLE A SSET. BUT ALL INTANGIBLE ASSETS DO NOT QUALIFY FOR DEPRECIATION. THE DISPUTE WAS STILL THAT WHETHER DEPRECIATION WAS ALLOWABLE O N GOODWILL BECAUSE THE TERM GOODWILL WAS NOT MENTIONED IN SE CTION 32(1)(II) OF THE ACT. THIS WAS ALSO MATTER OF CONSI DERATION /DISPUTE WHETHER ANY OTHER BUSINESS OR COMMERCIAL R IGHTS OF SIMILAR NATURE WILL INCLUDE GOODWILL OR NOT. IN THE FOLLOWING CASES IT HAS BEEN HELD THAT THE DE PRECIATION IS NOT ALLOWABLE ON GOODWILL:- I PIAGGIO VEHICLES PVT. LTD. VS. DCIT (2007) 209 ITR 377 (BOM) II ESQUIRE TECHNOLOGIES PVT. LTD. VS. ITO(2008) 21 SOT 503 (DEL) III BORKAR PACKAGING (P) LTD. VS. ACIT(2010) 40 DTR (PANAJI TRIB) IV MODULAR INFOTECH (P) LTD. VS. DCIT (2010) 40 DTR (PUNE TRIB)172 V OSRAM INDIA (P) LTD. VS. DCIT (2011) 51 DTR(DEL)(TRIB)297 VI CHOWGULE & CO. (P) LTD. VS. ACIT(PANAJI) 274 VII R.G. KESHWANI VS. ACIT (2009) 116 ITD 133 (MUM) IN THE FOLLOWING CASES, IT WAS HELD THAT DEPRECIATI ON IS ALLOWABLE ON THE ASSET GOODWILL: I KOTAK FOREX BROKERAGE LTD. VS. ACIT (2009) 33 SOT 237 (MUM) II HINDUSTAN COCO COLA BREVERAGES LTD. VS. DCIT(2009) 34 SOT 171 (DEL) III THE A.P. PAPER MILLS LTD. LTD. VS. ACIT(2010) 33 DTR (HYD.) TRIB)148 IV KOTAK FOREX BROKERAGE LTD. VS. ACIT 41 DTR (MUM M/S. GODREJ GOLD COIN AQUAFEED LTD. ITA NO. 7154/MUM/2011 4 TRIB)387 V B. RAVINDRAN PILLAI VS. CIT 47 DTR (KER) 81 VI CIT VS. HINDUSTAN COCO COLA BREVERAGES PVT. LTD. (DEL HIGH COURT) IN THE ABOVE CASES IN WHICH THE TRIBUNALS AND COURT S HAVE ALLOWED DEPRECIATION ON THE ASSET GOODWILL, THE T RIBUNALS AND COURTS HAVE LAID DOWN CERTAIN PARAMETERS FOR EXAMIN ING AS TO WHETHER THE GOODWILL IS AN INTANGIBLE ASSET OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. HOWEVER, IN THE CASE UNDER CONSIDERATION, THE ASSET GOODWILL ACQUIRED BY APPELLANT WAS NOT A BUSINESS OR COMMERC IAL RIGHT. THE OBTAINING OF THE ASSET GOODWILL DID NOT HELP THE APPELLANT IN MORE EFFECTIVELY CARRYING ON BUSINESS AND COMMER CE (CIT VS. HINDUSTAN COCO COLA DELHI HIGH COURT). BY ACQUIR ING THE ASSET GOODWILL THE APPELLANT DID NOT DERIVE ANY BUS INESS ADVANTAGE OR BENEFIT OF COMMERCIAL VALUE. THUS, IN THE CASE OF APPELLANT THE ASSET GOODWILL WAS NOT A BUSINESS OR COMMERCIAL RIGHTS SIMILAR IN NATURE TO SIX ITEMS MENTIONED IN SECTION 32(1) OF THE ACT. IN THE FACTS AND CIRCUMSTANCES, THE APPEL LANT WAS NOT ENTITLED FOR DEPRECIATION ON THE ASSET GOODWILL. 6. THE CIT(A), THEREFORE, DENIED THE CLAIM OF THE ASSESSEE AND SUSTAINED THE ORDER OF THE AO ON THIS ISSUE. 7. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 8. BEFORE US, THE AR POINTED OUT THAT THE ASSESSEE ACQU IRED GODREJ AQUAFEED LTD. ON 16.11.2006 AS A GOING CONCERN, WHICH FELL IN ASSESSMENT YEAR 2007-08 AND ACQUIRED ITS GOODWILL AT RS. 60,50,000 ON WHICH, IT CLAIMED DEPRECIATION. THE ASSESSMENT FOR ASSESS MENT YEAR 2007-08 WAS ALSO SUBJECTED TO SCRUTINY AND NO DISALLOWAN CE WAS MADE ON THIS ISSUE. IN RESPONSE TO THE QUERY FORM THE BENCH , THAT WHETHER THERE WAS ANY ACTION TAKEN BY THE DEPARTMENT IN ASSE SSMENT YEAR 2007-08 ON THIS ISSUE, IT WAS INFORMED THAT NO ACTION WHAT SO EVER HAS BEEN TAKEN AS A CONSEQUENCE OF THIS YEARS DISALLOWANCE I.E. THE SUBSEQUENT YEARS DISALLOWANCE. 9. THE AR PLEADED THAT THE ISSUE IS NOW COVERED BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS SMIFS SECU RITIES LTD. (COPY OF THE ORDER PLACED BY THE AR AT THE TIME OF HEAR ING), WHEREIN THE HONBLE SUPREME COURT OF INDIA WHILE ANSWERING THE QUESTION, M/S. GODREJ GOLD COIN AQUAFEED LTD. ITA NO. 7154/MUM/2011 5 WHETHER GOODWILL IS AN ASSET WITHIN THE MEANING OF SECTION 32 OF THE INCOME TAX ACT, 1961, AND WHETHER DEPRECIATI ON ON GOODWILL IS ALLOWABLE UNDER THE SAID SECTION? THE HONBLE SUPREME COURT HELD, IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT GOO DWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF TH E 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 GOOD WILL. THIS IS A FACTUAL FINDING. THE COMMISSIONER OF INCOME TAX ( APPEALS) [CIT (A), FOR SHORT] HAS COME TO THE CONCLUSION T HAT THE AUTHORIZED REPRESENTATIVES HAD FILED COPIES OF THE ORDERS OF THE HIGH COURT ORDERING AMALGAMATION OF THE ABOVE TWO C OMPANIES; THAT THE ASSETS AND LIABILITIES OF M/S YSN SHARES A ND SECURITIES PRIVATE LIMITED WERE TRANSFERRED TO THE ASSESSEE FO R A CONSIDERATION; THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMOUNT PAID CONSTITUTED GOODWILL AND THAT T HE ASSESSEE-COMPANY IN THE PROCESS OF AMALGAMATION HAD ACQUIRED A CAPITAL RIGHT IN THE FORM OF GOODWILL BECAUSE OF WHICH THE MARKET WORTH OF THE ASSESSEE-COMPANY STOOD INCREASE D. THIS FINDING HAS ALSO BEEN UPHELD BY INCOME TAX APPELLAT E TRIBUNAL [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 ITAT, THE REVENUE HAD PREFERRED AN APPEAL TO THE HIGH COURT IN WHICH IT HAD RAISED ONLY THE QUESTION AS TO WHETHER GOODWILL IS AN ASSET UNDER SECTION 32 OF TH E ACT. IN THE CIRCUMSTANCES, BEFORE THE HIGH COURT, THE REVENUE D ID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREIN ABOVE. FOR THE AFORE-STATED REASONS, WE ANSWER QUESTION NO .[B] ALSO IN FAVOUR OF THE ASSESSEE. 10. THE AR, THEREFORE, PLEADED THAT THE CLAIM OF DEPARTMENT ON GOODWILL BE ALLOWED. 11. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 12. AFTER HEARING THE AR AND TAKING INTO ACCOUNT THE CAS E LAW PLACED BEFORE US, WHERE THE HONBLE APEX COURT HAS VERY LUCIDLY HELD THAT GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) O F THE ACT. WE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT AS CITED BY THE AR AND EVEN ON THE DOCTRINE OF CONSIST ENCY, HOLD THAT THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION ON GOODWILL. M/S. GODREJ GOLD COIN AQUAFEED LTD. ITA NO. 7154/MUM/2011 6 13. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW DEPRECIATION ON GOODWILL, AS CLAIMED BY THE ASSESSEE. 14. THE APPEAL FILED BY THE ASSESSEE IS, THUS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 10/10/2012. SD/- (P.M. JAGTAP) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 10/10/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-21, MUMBAI. 4) THE CIT, M.C. -X, MUMBAI, 5) THE D.R. G BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN