HUNTSMAN INTERNATIONAL (INDIA), NAVI MUMBAI V. ACIT 10(3), MUMBAI

ITA 8803/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3471 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 06-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KURDAM
• Assessee Lawyers: R C JAIN
• Keywords: Depreciation; Valuation report
• Section: 32

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL, MUMBAI - H BENCH. . , !' !' !' !' / #$%& #$%& #$%& #$%& , $ $ $ $ '( '( '( '( BEFORE S/SH. D.MANMOHAN,VICE-PRESIDENT & RAJEND RA,ACCOUNTANT MEMBER ./ ITA NO.8803/MUM/2010, ) / ASSESSMENT YEAR-2006-07 HUNTSMAN INTERNATIONAL (INDIA) PLOT NO. 1/1 TTC INDL AREA, THANE BELAPUR RD, P.O. NO.12, KOPARKHAIRANE NAVI MUMBAI 400709 PAN: AAACH9149HJ VS. ACIT 10(3) 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020 PAN: ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) *+ *+ *+ *+ . . . . $ $$ $ / APPELLANT BY : R.C. JAIN ,-*+ / . $ / RESPONDENT BY : A.K. KURDAM / // / 0 0 0 0 / DATE OF HEARING : 06.06.2013 1) / 0 / DATE OF PRONOUNCEMENT : 12.06.2013 , 1961 / // / 254(1) $ $$ $ %020 %020 %020 %020 '$3 '$3 '$3 '$3 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DT.11.12.2009 OF THE ASSESSIN G OFFICER (AO);PASSED U/S.143(3)R.W.S.144C (1)OF THE ACT; ASSESSEE HAS RAISED FOLLOWING GROUND S OF APPEAL: THE A.O. IN ACCORDANCE WITH DIRECTIONS OF DISPUTE RESOL UTION PANEL-I ERRED IN DISALLOWING DEPRECIATION OF RS. 23,93,528/-BASED ON DEPARTMENT S STAND IN EARLIER YEARS, THOUGH THE SAME STANDS ALLOWED BY THE 1 ST APPELLATE AUTHORITY AND CONFIRMED BY THIS HON TRIB UNAL. 2.THE A.O. IN ACCORDANCE WITH THE DIRECTION OF DISP UTE RESOLUTION PANEL-I HAS NOT ALLOWED DEPRECIATION ON GOODWILL AS CLAIMED BEFORE THE AO F OR THIS YEAR AS WELL AS FOR EARLIER YEARS. YOUR APPELLANT, THEREFORE, SUBMITS THAT DUE RELIEF BE ALLOWED. 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANUFA CTURING AND TRADING OF CHEMICALS, FILED ITS RETURN OF INCOME ON 11.11.2006 DECLARING TOTAL INCOME OF RS.15.41 CRORES.AO FINALISED THE ASSESSMENT ON 11.12.2009, DETERMINING THE TOTAL INC OME AT RS.15.65 CRORES. 2.1. FIRST GROUND OF APPEAL PERTAINS TO DISALLOWING DEPR ECIATION AMOUNTING RS. 23,93,528/-. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE COMPANY HAD PAID TOTAL CONSIDERATION OF RS.80,57,48,633/-FOR THE PURCHASE OF POLYURETHANE BUSINESS FROM M/S.ICI LIMITED IN THE EARLIER YEAR, THAT OUT OF THE TOTAL CONSIDERATION AN AMOUNT OF RS.12,61,23,500/- WAS CAPITALISED UNDER THE HEAD FIXED ASSETS, THAT SAID ASSETS HAD BEEN CAPITALIZED AT VALUE BASED ON THE CERTIFICATE OF THE VALUER / CONSULTANT , THAT IN THE BOOKS OF M/S.ICI LIMITED, THE WDV OF THE TRANSFERRED ASSETS WAS APPEARING AT RS.7 ,68,38,965/-,THAT DEPRECIATION CLAIMED ON THE DIFFERENTIAL VALUE WAS NOT ALLOWED IN THE EARLI ER YEAR. FOLLOWING THE ORDERS FOR THE EARLIER AYS., AO DISALLOWED EXCESS DEPRECIATION CLAIMED ON REVALUATION OF ASSETS AMOUNTING TO RS.23.93 LAKHS. 2.2. BEFORE US, AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT SIMILAR ISSUE HAD ARISEN IN EARLIER YEARS, THAT THE FIRST APPEAL AUTHORITY(FAA) HAD DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE ,THAT THE ITAT HAD UPHELD THE ORDER OF THE FAA. DEPARTMEN TAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT ISSUE OF DISALLOWANCE OF EXCESS DEPRECIATION WAS DISCUSSE D AND DECIDED BY THE G BENCH OF THE MUMBAI TRIBUNAL VIDE ITS ORDER DTD.27.02.2009 (ITA/ 4450/M/06, ITA/4462-63/M/06 AND ITA/019/M/06) FOR THE AY 2002-03 AND 2003-04 WHEN C ROSS APPEALS WERE FILED BY THE AOS AND THE ASSESSEE BEFORE THE TRIBUNAL. IN THE APPEALS FI LED BY THE AO ISSUE OF EXCESS DEPRECIATION WAS AGITATED BEFORE THE ITAT, AS FAA HAD REVERSED T HE ORDER OF THE AO. AMOUNTS INVOLVED UNDER THE HEAD EXCESS DEPRECIATION WERE RS.1.32. CR ORES AND RS.1.03 CRORES FOR THE AY 2002-03 AND 2003-04 RESPECTIVELY. TRIBUNAL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER: 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF T HE PARTIES AND PERUSED THE RECORD. THE ASSESSING OFFICER MADE OUT A CASE THAT THE ASSESSEE HAS SHOWN EXCESS VALUATION OF FIXED ASSETS FOR THE PURPOSE OF DEPRECIATION. THE ASSESSI NG OFFICER NOTED WDV SHOWN BY SELLER IS VERY LOW IN COMPARISON TO PRICE BIFURCATION SHOWN B Y THE ASSESSEE ON THE BASIS OF VALUATION REPORT. THE ASSESSING OFFICER WAS OF THE VIEW-: THA T VALUATION REPORT ON WHICH ASSESSEE RELIED UPON IS NOT AUTHENTICATED FOR DETERMINING ACTUAL CO ST OF THE ASSETS. THE CIT(A) EXAMINED EVERY ASPECT OF THE MATTER. HE FOUND THAT THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY HAS ACQUIRED THE ENTIRE BUSINESS AS GOING CONCERN. NO SEPARATE PRICE IS ASSIGNED TO THE VALUE OF INDIVIDUAL ASSETS. THE CIT(A) FURTHER NOTED THAT TH E ASSESSEE HAS PRODUCED VALUATION REPORT OF AN EXPERT WHO IS REGISTERED VALUER AND THAT IN A BSENCE OF ANY ULTERIOR MOTIVE BEING FOUND ASSESSING OFFICER WAS NOT RIGHT TO SUBSTITUTE ITS O WN VALUE. THE CIT(A) RELIED UPON THE JUDGMENT OF APEX COURT IN THE CASE OF JOGTA COAL CO ., 323 ITR 521 (SC) AND JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF ASHWIN VANASPATI INDUSTRIES LTD., 255 ITR 26(GUJ) WHEREIN IT HAS BEEN HELD THAT DUTY CAST UPON THE AS SESSING OFFICER BY THE PROVISIONS IS TO DETERMINE THE ACTUAL COST AND NOT TO SUBSTITUTE A V ALUERS OPINION. THE CIT(A) HELD THAT EXPLANATION 3 TO SECTION 43(1) IS NOT APPLICABLE IN THE INSTANT CASE. IN THE GROUND OF APPEAL THE REVENUE RAISED A FRESH CONTROVERSY THAT EXPLANA TION 4A TO SECTION 43(1) IS APPLICABLE. WE FIND THAT THE SAID PROVISIONS ARE VERY CLEAR, WHICH APPLICABLE IN CASE WHERE ASSESSEE ACQUIRES ASSETS ON LEASE, HIRE OR OTHERWISE. WHEREAS IN THE CASE UNDER CONSIDERATION, THE ASSESSEE PURCHASED WHOLE BUSINESS. THE BIFURCATION OF SALE C ONSIDERATION ON THE BASIS OF VALUATION REPORT. THE ASSESSING DID NOT FIND ANY CONTRARY MAT ERIAL WHERE ASSESSEES CLAIM IS SUPPORTED BY A REPORT OF TECHNICAL PERSON. MERELY ON SOME DIF FERENCE NOTED IN RESPECT OF COMPUTER IT CANNOT BE HELD THAT VALUATION REPORT IS INCORRECT P ARTICULARLY IN RESPECT OF COMPUTER VALUATION AS THERE ARE NUMBER OF FACTS EFFECT THE VALUATION. THE REVENUE HAS FAILED TO ESTABLISH THAT THE TRANSACTION WAS DONE ONLY FOR THE PURPOSE OF CLAIMI NG HIGHER DEPRECIATION. WE FIND THAT THIS IS A ROUTINE GENUINE TRANSACTION OF PURCHASE OF WHO LE BUSINESS. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). T HE ORDER OF CIT(A) IS CONFIRMED. RESPECTFULLY FOLLOWING THE SAME, WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE . 3. NEXT GROUND OF APPEAL IS ABOUT NOT ALLOWING DEPRECIATION ON GOODWILL FOR THIS YEAR AS WELL AS FOR THE EARLIER YEARS. DURING THE ASSESSMENT PRO CEEDINGS AO FOUND THAT CLAIM OF DEPRECIATION ON GOODWILL HAD BEEN DISALLOWED IN THE AY.2005-06 A ND EARLIER YEARS ALSO, THAT SAID DISALLOWANCE MADE BY THE AO WAS CONFIRMED BY THE FA A. FOLLOWING THE INSTRUCTIONS OF THE DRP-I,AO DID NOT ALLOW DEPRECIATION ON GOODWILL. 3.1. BEFORE US, AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT GOODWILL WAS COVERED BY THE EXPRESSION BUSINESS OR COPYRIGHT OF SIMILAR NATURE MENTIONED IN EXPLANATION 3 TO SECTION 32 OF THE ACT. HE RELIED UPON THE CASE OF SIMFS SECURITIE S LTD., DELIVERED BY THE HONBLE APEX COURT [2012]24TAXMANN.COM222.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT DRP HAS HELD THAT GOOD WILL IS NOT COVERED BY THE PROVI SIONS OF SECTION 32(3) OF THE ACT AND HENCE IS NOT ELIGIBLE FOR DEPRECIATION. IN OUR OPINION, AFTE R THE DECISION OF SIMFS SECURITIES(SUPRA) ISSUE OF DEPRECIATION ON GOODWILL IS COVERED IN FAVOUR OF TH E ASSESSEE .IN THAT MATTER QUESTION BEFORE THE HONBLE COURT WAS WHETHER GOOD WILL IS AN ASSET WIT HIN THE MEANING OF SECTION 32 OF ACT AND WHETHER DEPRECIATION ON GOODWILL IS ALLOWABLE UNDER THE SAID SECTION ? HONBLE SUPREME COURT, AFTER ANALYSING THE PROVISIONS OF THE SECTION 32(3) OF THE ACT, HELD THAT GOODWILL WAS AN ASSET UNDER EXPLANATION 3(B)TO SECTION 32(1) OF THE ACT . RESPECTFULLY FOLLOWING THE ABOVE MENTIONED JUDGMENT OF THE HONBLE APEX COURT, WE DE CIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. 6 07 60 / 89 / # 0 : . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE,2013 '$3 / 1) $ % ; <' 12 #9 , 2013 / 2 = SD/- SD/- ( . / D.MANMOHAN ) ( #$%& #$%& #$%& #$%& / RAJENDRA ) !' !' !' !' / VICE-PRESIDENT $ $ $ $ '( '( '( '( /ACCOUNTANT MEMBER / MUMBAI, <' /DATE: 12.06 . 2013 '$3 '$3 '$3 '$3 / // / ,0> ,0> ,0> ,0> ?$>)0 ?$>)0 ?$>)0 ?$>)0 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / *+ 2. RESPONDENT / ,-*+ 3. THE CONCERNED CIT (A) / @ A 4. THE CONCERNED CIT / @ A 5. DR H BENCH, ITAT, MUMBAI / >B 2 ,0 , . . % . 6. GUARD FILE/ 2 C - >0 ,0 //TRUE COPY// '$3 / BY ORDER, / # DY./ASST. REGISTRAR , /ITAT, MUMBAI