TAJ SATS AIR CATERING LTD, MUMBAI V. ADDL CIT RG 2(3), MUMBAI

ITA 8790/MUM/2011

• Counselvise Citation: 879019914 RSA 2011
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 20-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAN VORA
• Assessee Lawyers: AJIT KU MAR JAIN; VIRENDRA OZHA
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Additional evidence; Question of law; Valuation report
• Section: 32; 143(3); 92; 234B; 14A; 260A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , / !' , # $ % BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 TAJ SATS AIR CATERING LIMITED, MANLIK HOUSE, MANDLIK ROAD, COLABA, MUMBAI - 400 001 / VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 2(3), MUMBAI. ( # ./ )* ./ PAN/GIR NO. : AABCT 4686P ( (+ / APPELLANT ) .. ( ,-(+ / RESPONDENT ) APPELLANT BY SHRI RAJAN VORA ASSESSEE BY : S/SHRI VIRENDRA OZHA & AJIT KUMAR JAIN . /# / DATE OF HEARING : 20/08/2013 01' . /# / DATE OF PRONOUNCEMENT : 20/08/2013 2 / O R D E R PER I.P.BANSAL, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST ASSESSMENT ORDER DATED 28/10/2011 PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (THE ACT) FOR ASSESSMENT YEAR 2007-08. GROUNDS OF APPEAL READ A UNDER: . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 2 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TAJ SATS AIR CATERING LIMITED (HEREINAFTER REFERRED TO AS THE APPELLANT OR TAJ SATS) RESPECTFULLY CRAVES TO PREFER AN APPEAL AGAINST THE ASSESSMENT ORDER ISSUED BY TH E ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE - 2(3), MUMBAI (HEREINAFTER RE FERRED TO AS THE ASSESSING OFFICER) UNDER SECTION 143(3) READ WITH ORDER OF T RANSFER PRICING OFFICES U/S 92 CA(3) AND AS PER DIRECTIONS OF DISPUTE RESOLUTION P ANEL UNDER SECTION 144C (13) OF THE INCOME-TAX ACT, 1961 (THE ACT), ON THE FOL LOWING GROUNDS: GROUND NO I - TRANSFER PRICING ADJUSTMENT: ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LEAR NED ASSESSING OFFICER PURSUANT TO THE ORDER OF THE LEARNED TRANSFER PRICI NG OFFICER: 1.1 ERRED IN LAW IN MAKING AN ADJUSTMENT OF RS.1,79 2,322 TO THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 92CA(3) OF THE ACT ON A CCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF CATERING SERVICES RENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE (AE). GROUND NO 2 - DISALLOWANCE U/S 14A: 2.1 THE LEARNED AC ERRED IN INVOKING PROVISIONS OF SECTION 14A AND HOLDING THAT THE APPELLANT HAS INCURRED INDIRECT EXPENDITURE IN EARNING EXEMPT INCOME. 2.2 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED ASS ESSING OFFICER ERRED IN DISALLOWING RS.247,521 UNDER SECTION 14A OF THE ACT BEING 10% OF REMUNERATION PAID TO CHIEF FINANCIAL OFFICER OF TAJ SATS AND SAL ARY OF TRAINEE ASSISTING THE CHIEF FINANCIAL OFFICER, BY HOLDING THE SAME IS ATT RIBUTABLE FOR EARNING EXEMPT INCOME. GROUND NO 3 - DEPRECIATION ON INTANGIBLE ASSETS: THE LEARNED AC: 3.1 ERRED IN NOT FOLLOWING THE DIRECTIONS GIVEN BY THE HONBLE INCOME-TAX APPELLATE TRIBUNAL IN TRUE SPIRIT FOR ALLOWING DEPRECIATION O N INTANGIBLE ASSETS IN APPELLANTS OWN CASE FOR AY 2003-04. 3.2 ERRED IN DISALLOWING THE CLAIM OF DEPRECIATION OF RS 58,333,395 ON VARIOUS INTANGIBLES GROUPS UNDER HEAD GOODWILL IN THE BOO KS, UNDER SECTION 32 OF THE ACT. 3.3 ERRED IN NOT CONSIDERING THE SUPPLEMENTARY VALU ATION REPORT, GIVING BREAK UP BY VALUING VARIOUS INTANGIBLE RIGHTS (IE. RIGHT TO USE TAJ BRAND NAME, CORPORATE PROCUREMENT AGREEMENT WITH IHCL, OPERATING AGREEMEN T WITH TMFK, LEASE AGREEMENT FOR DELHI KITCHEN, LICENSES TO OPERATE KI TCHENS, RECIPES, VALUABLE WORK FORCE AND GOODWILL) RECOGNIZED ON CONSOLIDATED BASI S OR GROUPED UNDER GOODWILL IN ACCOUNTS AT THE TIME OF TRANSFER OF BUSINESS. 3.4 WAS NOT JUSTIFIED IN NOT CONSIDERING THE FACT T HAT VARIOUS INTANGIBLE RIGHTS (AS PER SUPPLEMENTARY VALUATION REPORT SUBMITTED) HAS B EEN RECOGNIZED ON CONSOLIDATED BASIS AND GROUP UNDER GOODWILL IN AC COUNTS AND FURTHER ERRED IN NOT CONSIDERING ALLOWABILITY OF DEPRECIATION ON THE SE INDIVIDUAL INTANGIBLE RIGHTS UNDER SECTION 32 OF THE ACT. GROUND NO 4 - CREDIT FOR TAXES DEDUCTED AT SOURCE THE LEARNED AO ERRED IN GRANTING CREDIT FOR TAXES D EDUCTED AT SOURCE OF RS.28,80,930 AS) AGAINST RS 52,177,918 CLAIMED IN T HE RETURN OF INCOME. GROUND NO 5 - LEVY OF INTEREST UNDER SECTION 234C . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 3 THE LEARNED AO ERRED IN CHARGING INTEREST OF RS 325 ,004 UNDER SECTION 234C OF THE ACT. GROUND NO 6 - LEVY OF INTEREST UNDER SECTION 234B THE LEARNED AO ERRED IN CHARGING INTEREST OF RS 8,5 13,519 UNDER SECTION 234B OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT T HE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONORABLE MEMBERS TO DE CIDE THIS APPEAL ACCORDING TO LAW. 2. APROPOS GROUND NO.1; IT WAS SUBMITTED THAT THIS GROUND IS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2006-07. IT IS AN ORDER DATED 20/1 /2012 IN ITA 8500/MUM/2010. COPY OF THIS ORDER IS PLACED AT PAG ES 18 TO 36 OF THE PAPER BOOK. IT WAS SUBMITTED BY THE LD. AR THAT FACTS AN D CIRCUMSTANCES OF THE PRESENT CASE ARE SIMILAR WHEN THEY ARE COMPARED WI TH A.Y 2006-07. 3. LD. DR COULD NOT CONTROVERT SUCH SUBMISSION OF T HE ASSESSEE. HOWEVER, BRIEFLY STATED, THE FACTS AS APPLICABLE FOR PRESENT ASSESSMENT YEAR ARE THAT TP ADJUSTMENT OF RS.17,92,322/- IS MADE BY THE AO ON T HE BASIS OF TPOS ORDER IN RESPECT OF ARMS LENGTH PRICE OF INTERNATIONAL TRAN SACTION OF CATERING SERVICES RENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRI SE, NAMELY SINGAPORE AIRLINES. THE TPO WHILE EVALUATING SUCH TRANSACTIO N FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE HAS MADE COMPARISON OF INDIVIDUAL ITEMS WHICH GO TOWARDS MAKING A MEAL. AS AGAINST SUCH ACTION O F TPO, IT IS THE CASE OF THE ASSESSEE THAT COMPARISON SHOULD BE MADE WITH THE TO TAL PRICE OF THE MEAL AND FOR THIS PURPOSE ASSESSEE HAD FURNISHED FOLLOWING C OMPARISON: AIRLINE PASSENGER RATE (RUPEES) AIR INDIA 173.63 CATHAY PACIFIC 157.44 EMIRATES 161.20 MALAYSIAN AIRLINES 262.00 AIR MAURITIUS 217.11 . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 4 VIRGIN ATLANTIC 319.53 SINGAPORE AIRLINES 349.83 3.1 AS IT CAN BE SEEN FROM THE ABOVE CHART THAT PE R PASSENGER RATE CHARGED BY THE ASSESSEE FROM ITS ASSOCIATED ENTERPRISE IS H IGHER THAN THE RATE CHARGED BY OTHER AIRLINES. IN THE AFOREMENTIONED ORDER FOR A.Y 2006-07 SIMILAR CHART WAS SUBMITTED BY THE ASSESSEE WHICH READ AS UNDER: AIRLINE PASSENGER RATE (RUPEES) AIR INDIA 171 CATHAY PACIFIC 153 EMIRATES 167 AIR FRANCE 154 MALAYSIAN AIRLINES 294 VIRGIN ATLANTIC 292 SINGAPORE AIRLINES 323 ON THESE FACTS FOR ASSESSMENT YEAR 2006-07 THE CASE OF THE ASSESSEE WAS ACCEPTED WITH THE FOLLOWING OBSERVATIONS AND TP AD JUSTMENT OF RS.4,60,391/- WAS DELETED. 4.1 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. IN OUR OPINION, THE FOOD SUPPLIED IS A BASKET CONTAINING INDIVIDUAL ITEMS RATHER THAN SUPPLY OF THE ITEMS INDIVIDUALLY. THEREFORE THE ENTIRE TRANSACTION, IN OUR OPINION, HAS TO BE VIEWED AS A SINGLE TRANSACTION. FURTHER WE FIND FROM THE COMPARISON OF RATE PER PASSENGER FOR INDIVIDUAL AIRLINES THAT THE RATE FOR THE PASSENGER RATE FOR SINGAPORE AIRLINES IS TH E HIGHEST AND THE RATE FOR VIRGIN ATLANTIC IS THE THIRD HIGHEST. THEREFORE WE FIND ME RIT IN THE SUBMISSION OF THE ID. COUNSEL FOR THE ASSESSEE THAT THE TRANSACTIONS ARE AT ARMS LENGTH PRICE. IN THIS VIEW OF THE MATTER WE HOLD THAT THE A.O. WAS NOT JU STIFIED IN MAKING THE ADJUSTMENT OF RS. 460391/- U/S 92CA(3) OF THE ACT. WE THEREFORE DIRECT THE A.O. TO DELETE THE ADDITION. THE GROUND RAISED BY THE AS SESSEE IS ACCORDINGLY ALLOWED. 4. IN THIS VIEW OF THE SITUATION AFTER HEARING BOTH THE PARTIES, RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR A.Y 2006-07 WE DELETE THE ADDITION AND GROUND NO.1 IS ALLOWED. . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 5 5. APROPOS GROUND NO.2, THIS WAS ALSO STATED TO BE COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL, WHEREIN CO NSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITION MADE BY THE AO OF A SUM OF RS.2,05,950/- WAS RESTRICTED TO RS.1,50,000/-. IN THE PRESENT CASE IT IS THE CASE OF LD. AR THAT THE TOTAL INVESTMENT OF THE ASS ESSEE IN THE MUTUAL FUND HAS DECREASED FROM RS.21,11,54,000/- AS ON 31/3/2006 TO RS.11,07,23,000/- AS ON 31/3/2007. THEREFORE, THE ADDITION SHOULD BE R EDUCED ACCORDINGLY. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS EARNED EXEMPTED DIVIDEND INCOME OF RS.72,70,803/- OF WHICH A SUM OF RS.2,47,521/- IS DISALLOWED. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE DISALLOWANCE IS BASED ON THE PERC ENTAGE OF REMUNERATION PAID TO CHIEF FINANCIAL ADVISOR OF THE ASSESSEE COMPANY AND IT HAS NOT BEEN RELATED TO THE INVESTMENT OF THE ASSESSEE. THEREFORE, AFTE R HEARING BOTH THE PARTIES, RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUNAL, WE RESTRICT THE DISALLOWANCE TO A SUM OF RS.1,50,000/-. THE RE LEVANT OBSERVATION OF THE TRIBUNAL FROM THE AFOREMENTIONED ORDER FOR ASSESSM ENT YEAR 2006-07 IS REPRODUCED BELOW: 6.4 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS.4,968,000 FROM TATA MUTU AL FUND WHICH IS CLAIMED AS EXEMPT U/S 10(35) OF THE ACT. IN ABSENCE OF ANY EXP ENSES DISALLOWED BY THE ASSESSEE FOR EARNING SUCH TAX FREE DIVIDEND INCOME THE A.O. DISALLOWED AN AMOUNT OF RS. 2,05,950/- BEING 10% OF THE SALARY OF THE CFO U/S 14A OF THE ACT. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASS ESSEE THAT NO DISALLOWANCE SHOULD BE MADE U/S 14A OF THE ACT SINCE NO EXPENDIT URE HAS BEEN INCURRED IN RELATION TO EARNING OF SUCH DIVIDEND INCOME. IN HIS ALTERNATE CONTENTION THE ID. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SOME TOKEN DISALLOWANCE MAY BE MADE AS AGAINST DISALLOWANCE OF SALARY OF THE CFO ON PER CENTAGE BASIS. SINCE THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE FOR EARN ING TAX FREE DIVIDEND INCOME AND SINCE THE DISALLOWANCE MADE BY THE A.O. ON ADHO C BASIS APPEARS TO BE ON HIGHER SIDE, THEREFORE, IN OUR OPINION, A REASONABL E DISALLOWANCE OF RS.1,50,000/- UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE WILL MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY T HE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 6 THIS GROUND IS PARTLY ALLOWED. 7. APROPOS GROUND NO.3; THE DEPRECIATION CLAIMED ON GOODWILL WAS DISALLOWED BY THE AO FOLLOWING ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07. THE TRIBUNAL ALSO UPHELD THE ACTION OF AO VIDE ITS ORDER DATED 20/1/2012 IN ITA NO.8500/MUM/2010. AN APPEAL AGAINST THE SAID O RDER OF THE TRIBUNAL WAS ADMITTED BY HONBLE HIGH COURT WHICH HAS BEEN DECIDED VIDE ORDER DATED 5/9/2012 IN INCOME TAX APPEAL NO.743 OF 2012. COPY OF THIS IS PLACED AT PAGES 46 TO 50 OF THE PAPER BOOK. THEIR LORDSHIPS HAVE OBSERVED THAT DEPRECIATION ON GOODWILL IS ALLOWABLE AS PER RECENT DECISION OF HONBLE SUPREME COURT DATED 22/8/2012 IN CIT VS. SMIFS SECURITIES L TD. IN CIVIL APPEAL NO.5961 OF 2012, WHEREIN IT HAS BEEN HELD THAT GOODWILL WOU LD FALL UNDER EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILA R NATURE IN SECTION 32(1),EXPLANATION -3(B). HONBLE COURT ALSO NOTED THAT IN RESPECT OF ASSESSMENT YEAR 2003-04 THE MATTER WAS REMANDED BY THE TRIBUNA L TO THE FILE OF AO WHICH INCLUDE THE QUESTION OF ASCERTAINING THE CORRECTNES S OF BIFURCATION FURNISHED BY VALUATION REPORTS WHICH WERE RELIED UPON BY THE ASS ESSEE. TO AVOID ANY INCONSISTENCY THEIR LORDSHIPS DIRECTED THE AO TO FO LLOW SAME COURSE AS HE WILL ADOPT IN RESPECT OF A.Y.2003-04 FOR WHICH YEAR THE PROCEEDINGS WERE PENDING BEFORE AO. THEREFORE, THEIR LORDSHIPS SET ASIDE TH E ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 AND DISPOSED OF THE APPEAL AS PER ORDER OF THE TRIBUNAL DATED 28/5/2009 RENDERED IN RESPECT OF ASS ESSMENT YEAR 2003-04. IT WILL BE RELEVANT TO REPRODUCE THE SAID ORDER OF THE HONBLE HIGH COURT.: 1. THIS IS AN APPEAL UNDER SECTION 260A OF THE I NCOME TAX ACT, 1961 AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATE D 20.1.2012 IN ITA NO.8500/MUM/2010 PERTAINING TO THE ASSESSMENT YEAR 2006-2007. 2. THE APPEAL IS ADMITTED ON THE FOLLOWING SUBSTANT IAL QUESTION OF LAW :- (A) WHETHER THE HONBLE APPELLATE TRIBUNAL IS RIGH T IN HOLDING THAT DEPRECIATION IS NOT ALLOWABLE UNDER SECTION 32(1)(II) OF THE ACT ON VARIOUS INTANGIBLE ASSETS CLASSIFIED AS GOODWILL ON CONSOLIDATED BASIS? . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 7 QUESTIONS (B) TO (F) IN PARAGRAPH 35 OF APPEAL ARE ONLY FACETS OF THE ABOVE QUESTION OF LAW AND ARE COVERED BY THE SAME. MR.SHAH, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE APPELLANT STATES THAT THE APPELLANT, WITHOUT PREJUDICE TO ITS RIGHTS AND CONTENTIONS, DOES NOT PRESS THE ISSUE RAISED IN QUESTION (G) IN VIEW OF THE FAC T THAT THE TAX INCIDENCE IN RESPECT THEREOF IS MINIMAL. FOR THIS REASON ALONE, THE ISSU E SOUGHT TO BE RAISED IN PARAGRAPH 35(G) IS NOT PRESSED. 3. ON 1.10.2001, THE ASSESSEE PURCHASED THE CATERIN G BUSINESS ON SLUMP SALE BASIS FOR RS.206.40 CRORES FROM INDIAN HOTELS COMPA NY LIMITED. THE PURCHASE INCLUDE TANGIBLE AND INTANGIBLE ASSETS. VARIOUS ASS ETS OF THE VALUE OF RS.135.40 CRORES OUT OF THE TOTAL PURCHASE OF RS.206.40 CRORE S WERE IDENTIFIED. THE ASSESSEE OBTAINED A VALUATION REPORT OF ERNST & YOUNG TO APP ORTION THE CONSIDERATION. RS.71 CRORES WAS APPORTIONED TOWARDS GOODWILL AND B ALANCE RS.135 CRORES WAS APPORTIONED TOWARDS VARIOUS OTHER ASSETS. THE ASSES SEE ITSELF SHOWED THE VALUE OF GOODWILL AT RS.73,74,49,3431- IN ITS BALANCE-SHE ET FOR THE YEAR ENDING 31.3.2003. ACCORDINGLY FOR THE AY 2003-2004, THE AS SESSEE CLAIMED DEPRECIATION ON GOODWILL AT RS.18,43,62,335!- (25%). THE ASSESSI NG OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT DEPRECIATION WAS NOT ALLOW ABLE ON GOODWILL. THE CIT (A) CONFIRMED THE ORDER. 4. BEFORE THE TRIBUNAL, THE ASSESSEE PRODUCED ANOTH ER VALUATION REPORT FROM ERNST & YOUNG WHICH GAVE A FURTHER BREAK-UP OF RS.71 CROR ES. ACCORDING TO THE REPORT, THE SAID SUM INCLUDED THE VALUE OF INTANGIBLE ASSET S OTHER THAN GOODWILL AMOUNTING TO RS.49.60 CRORES. THE ASSESSEE THUS REV ALUED GOODWILL AT RS.21.40 CRORES. THE TRIBUNAL HELD AS UNDER IN RESPECT OF AY 2003-2004 :- 5. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE ADDITIONAL EVIDENCE IN QUESTION HAS TO BE ADMITTED AS THIS EVIDENCE IS NEC ESSARY TO ADJUDICATE THE CLAIM THAT THERE ARE A NUMBER OF INTANGIBLE ASSETS ALONG WITH GOODWILL AND ONLY GOODWILL WOULD NOT BE ELIGIBLE FOR DEPRECIATIO N. THIS EVIDENCE IN OUR HUMBLE OPINION GOES INTO THE ROOT OF THE MATTER. FR OM THE ASSESSMENT ORDER IT CAN BE CLEARLY SEEN THAT THE ASSESSING OFFICER H AD NOTICED FROM THE RECITALS IN THE BUSINESS TRANSFER AGREEMENT, THAT I NTELLECTUAL PROPERTIES WHICH ARE LISTED OUT IN ARTICLE 1, SUB CLAUSE B, HA VE BEEN TRANSFERRED ALONG WITH OTHER MOVABLE AND IMMOVABLE ASSETS. EVEN IN AR TICLE 2, SUB CLAUSES B, AND E, MENTION A LIST OF INTANGIBLE ASSETS, WHIC H HAVE BEEN AGGREGATED AND LOOSELY TERMED AS GOODWILL BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THUS THE FACT THAT THE SLUMP SALE CONSISTS OF MANY INTANGIBLE ASSETS ALONG WITH GOODWILL IS NOT IN DISPUTE. IT IS TRUE THAT NO DEPRECIATION IS ALLOWABLE ON GOODWILL. BUT AT THE SAME TIME, THE LEGISLATURE PROVIDES THAT DEPRECIATION SHOULD BE ALLOWED ON ALL OTHER INTANGI BLE ASSETS OTHER THAN GOODWILL. THE ASSESSEES ADDITIONAL EVIDENCE THROWS LIGHT ON THE VALUATION OF EACH OF THE INTANGIBLE ASSETS. SUCH EVIDENCE GOE S INTO THE ROOT OF THE MATTER FOR THE PURPOSE OF ARRIVING AT A DECISION AS TO WHETHER THE ASSESSEE IS ENTITLE FOR DEDUCTION U/S 32(1)(II) OF THE ACT A ND IF SO, THE QUANTUM OF DEPRECIATION THAT HE IS ENTITLED TO. THUS, WE ADMIT THIS ADDITIONAL EVIDENCE AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESS ING OFFICER FOR FRESH . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 8 ADJUDICATION IN ACCORDANCE WITH LAW. GROUNDS 1 TO 3 ARE DISPOSED OF ACCORDINGLY. 5. THIS BRINGS US TO THE ASSESSMENT YEAR IN QUEST ION IN THE PRESENT APPEAL VIZ. AY 2006-2007. THE APPELLANT RELIED UPON THE SAME RE PORTS. BY THE IMPUGNED ORDER, THE TRIBUNAL REFUSED TO FOLLOW THE EARLIER O RDER OF THE TRIBUNAL DATED 28.5.2009, PARAGRAPH 5 WHEREOF IS QUOTED ABOVE. THE IMPUGNED ORDER QUOTES THE ABOVE OBSERVATIONS OF THE ORDER OF THE TRIBUNAL IN RESPECT OF THE AY 2003- 2004 AND HOLDS THAT NO DEPRECIATION IS ALLOWABLE ON GOOD WILL. THE TRIBUNAL HOWEVER, REJECTED THE VALUATION REPORTS RELIED UPON BY THE A PPELLANT AND OBSERVED THAT DEPRECIATION HAS NEITHER BEEN CLAIMED NOR ALLOWED O N INTANGIBLE ASSETS IN THE PRECEDING YEARS AND THAT THE ASSESSEE CANNOT BE ALL OWED TO CLAIM DEPRECIATION IN THE ASSESSMENT ORDER IN QUESTION. THE TRIBUNAL THER EFORE, UPHELD THE ORDER OF THE AO DISALLOWING DEPRECIATION ON THE ENTIRE AMOUNT. I N OTHER WORDS, THE TRIBUNAL DID NOT FOLLOW THE EARLIER ORDER OF THE TRIBUNAL IN RESPECT OF THE AY 2003-2004. 6. THE SUPREME COURT AS RECENTLY AS 22.8.2012 IN CIT VS. SMIFS SECURITIES LIMITED, CIVIL APPEAL NO.5961 OF 2012, HELD THAT GO ODWILL WOULD FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN SECTION 32(1) EXPLANATION 3 (B). IT IS THEREFORE, CONTENDED ON BEHALF OF THE APPELLANT THAT IT IS ENTITLED TO DEPRECIATION IN RESPECT OF GOODWILL. 7. A PECULIAR SITUATION HAS THEREFORE, ARISEN. T HE ASSESSEE WOULD NOW IN FACT BE BENEFITED BY THE REJECTION OF THE TRIBUNAL OF THE V ALUATION REPORTS AND THE TRIBUNAL PROCEEDING ON THE BASIS THAT THE ENTIRE AMOUNT OF R S.71.OO CRORES IS ATTRIBUTABLE TO GOODWILL. ON THE OTHER HAND, AS FAR AS THE PROCE EDINGS IN RESPECT OF THE AY 2003-2004 ARE CONCERNED, THE MATTER STANDS REMANDED TO THE AO INCLUDING ON THE QUESTION OF ASCERTAINING THE CORRECTNESS OF THE BIFURCATION FURNISHED BY THE VALUATION REPORTS, RELIED UPON BY THE APPELLANT. TH IS COULD POSSIBLY LEAD TO CONTRADICTORY ASSESSMENTS FOR THE DIFFERENT ASSESSM ENT YEARS. IT IS NECESSARY TO ENSURE CONSISTENCY IN RESPECT OF THE SAME QUESTION FOR THE DIFFERENT ASSESSMENT ORDERS. 8. IN OUR VIEW, THE PROPER COURSE THEREFORE, WOULD BE TO FOLLOW THE SAME COURSE THAT HAS BEEN ADOPTED IN RESPECT OF THE AY 2003-200 4 PROCEEDINGS IN RESPECT WHEREOF THE PROCEEDINGS ARE PENDING BEFORE THE AO P URSUANT TO THE EARLIER ORDER OF THE TRIBUNAL FOR THE AY 2003-2004. 9. IN THE CIRCUMSTANCES, THE IMPUGNED ORDER IS SET- ASIDE. THE APPEAL IS DISPOSED OF IN TERMS OF THE ORDER OF THE TRIBUNAL DATED 28.5 .2009 IN RESPECT OF THE AY 2003- 2004. IT MAY BE MENTIONED HERE THAT AO HAS PASSED AN ORDE R GIVING EFFECT TO THE ORDER OF HONBLE HIGH COURT IN RESPECT OF ASSESSMENT YEAR 2003-04 IN WHICH THEIR LORDSHIPS HAVE HELD THAT DEPRECIATION ON GOODWILL I S ALLOWABLE. IT WILL BE APPROPRIATE IF TEXT OF THE SAID ORDER IS REPRODUCED BELOW: . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 9 ORDER GIVING EFFECT TO THE HONBLE HIGH COURTS ORD ER. CONSEQUENT TO THE HONBLE BOMBAY HIGH COURTS ORDER IN INCOME TAX APPEAL (LODGING) NO. 1096 OF 2012 DATED 03.09.2012, THE TO TAL INCOME OF THE ASSESSEE IS REVISED AS UNDER: AMOUNT (RS) TOTAL INCOME AS PER ORDER U/S. 143(3) R.W.S. 254 DT.26.10.2010 7,79,93,140 LESS RELIEF ALLOWED BY HONBLE HIGH COURT ON ACCOUNT OF DEPRECIATION ON GOODWILL 18,43,62 ,336 REVISED TOTAL INCOME /(LOSS) (-)10,63,69,196 COMPUTATION OF BOOK PROFIT U/S.115JB AMOUNT (RS.) BOOK PROFIT AS PER ORDER U/S. 143(3) R.W.S. 254 DT. 26.10.2010 16,37,79,005 8. REFERRING TO THE AFOREMENTIONED POSITION IT WAS SUBMITTED BY LD. AR THAT ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY T HE AFOREMENTIONED ORDER OF HONBLE HIGH COURT. 9. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY THE A.O. 10. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. THE ISSUE IS COVERED BY THE AFOREMENTI ONED DECISION OF HONBLE HIGH COURT. THE AO WILL CALCULATE DEPRECIATION AS HE WILL COMPUTE IN RESPECT OF A.Y 2003-04 AND 2006-07 AS PER AFOREMENTIONED ORD ERS OF HONBLE HIGH COURT. THE SAME COURSE WILL FOLLOW IN RESPECT OF T HIS YEAR ALSO. WE DIRECT ACCORDINGLY AND THIS GROUND OF THE ASSESSEE IS CONS IDERED AS ALLOWED IN THE MANNER AFORESAID. 11. APROPOS GROUND NO.4; THE SAME WAS NOT PRESSED AS CREDIT WAS STATED TO HAVE ALREADY GIVEN BY THE AO. THEREFORE, THIS GRO UND IS DISMISSED AS NOT PRESSED. 12. APROPOS GROUND NO.5; IT IS THE CASE OF LD. AR T HAT INTEREST UNDER SECTION 234C MAY BE DIRECTED TO BE LEVIED IN ACCORDANCE WI TH RETURNED INCOME. LD. . / ITA NO. 8790/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 10 DR DID NOT OBJECT TO SUCH SUBMISSION. THEREFORE, W E DIRECT AO TO COMPUTE INTEREST UNDER SECTION 234C ON RETURNED INCOME. 13. APROPOS GROUND NO.6; IT WAS SUBMITTED BY LD. AR THAT THE SAME IS CONSEQUENTIAL. THEREFORE, AFTER HEARING BOTH THE P ARTIES WE DIRECT THE AO TO RE- COMPUTE INTEREST LEVIED UNDER SECTION 234B ON THE INCOME COMPUTED AFTER GIVING EFFECT TO THIS ORDER. WE DIRECT ACCORDINGLY . THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFOR ESAID. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 20/08/2013 2 . 01' # 3 45 20 /08/2013 1 . 6 % SD/- SD/- ( !' / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) # / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 4 DATED 20 /08/2013 2 2 2 2 . .. . ,/78 ,/78 ,/78 ,/78 98'/ 98'/ 98'/ 98'/ / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. 8;6 ,/ , , / DR, ITAT, MUMBAI 6. 6< = / GUARD FILE. 2 2 2 2 / BY ORDER, -8/ ,/ //TRUE COPY// > >> > / ? ? ? ? ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS