Indus Mobile Distribution P Ltd., CHENNAI V. ACIT Central Circle 1(1), CHENNAI

ITA 968/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4754 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Depreciation; Transfer pricing; Cost of acquisition; Bad and doubtful debts; Difference of opinion; Commercial expediency; Change of opinion; Reassessment proceedings; Set aside
• Section: 37(1); 43

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , , $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NOS.967, 968 & 969/CHNY/2019 % % /ASSESSMENT YEARS: 2007-08, 2008-09 & 2015-16 M/S.INDUS MOBILE DISTRIBUTION P.LTD., NO.281, TTK ROAD, ALWARPET, CHENNAI-600 018. [PAN: AABCI 6304 D] VS. THE ASST. COMMISSIONER- OF INCOME TAX, CENTRAL CIRCLE-1(1), CHENNAI. ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR. B.RAMAKRISHNAN, FCA )*( + /RESPONDENT BY : MR. S.BHARATH, CIT + /DATE OF HEARING : 20.11.2019 + /DATE OF PRONOUNCEMENT : 18.02.2020 / O R D E R PER S. JAYARAMAN , ACCOUNTANT MEMBER : THE ASSESSEE FILED THESE APPEAL AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS)-18, CHENNAI, I N ITA NOS.754 & 755/16-17 DATED 04.02.2019 FOR THE AYS 2007-08 & 20 08-09, AND IN ITA NO.289/17-18 DATED 04.02.2019 FOR THE AY 2015-16, R ESPECTIVELY. 2. THE LD.AR SUBMITTED THAT THE AO MADE DISALLOWANC E ON ADVERTISING EXPENSES AND PROFESSIONAL EXPENSES INCLUDING BRANDI NG EXPENSES, WHILE MAKING THE ASSESSMENTS FOR THE AYS 2007-08 & 2008-0 9 RESPECTIVELY, ITA NOS.967-969/CHNY/2019 :- 2 -: WHICH WAS UPHELD BY THE LD.CIT(A). IN THIS REGARD, LD.AR SUBMITTED THAT THIS ISSUE IS ALREADY COVERED IN THE ASSESSEES OWN CASE IN ITS FAVOUR FOR THE AY 2009-10 IN ITA NO.675/CHNY/2018 DATED 09.10. 2019. 3. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS EXTRACTED AS UNDER: 3. DURING THE COURSE OF HEARING, IT IS SUBMITTED THAT ASSESSEE MADE A CLAIM FOR DEDUCTION FOR ADVERTISEMENT EXPENDITURE OF 6,71,96 ,585/- WHICH INCLUDES SUM OF 5,02,00,000/- TOWARDS BRANDS EXPENDITURE. IT IS STATED BEFORE US THAT BRANDING EXPENDITURE INCURRED BY M/S. UNIVERCELL TELECOMMUN ICATIONS (P) LTD ARE PAID BY ASSESSEE. NECESSITY OF INCURRING BRAND EXPENDITURE AS EXPLAIN ED BY THE ASSESSEE IS AS UNDER:- AS WE OPERATE IN A VERY COMPETITIVE DYNAMIC MARK ET, THESE ARE NEW ENTRANTS IN THE MARKET LIKE OTHER TELECOM SPECIALIZED STORES. OPERATORS ARE ENTERING THE MOBILE RETAINED SPACE AND MANUFACTURERS LIKE SAMSUNG HAVE ENTERED INTO THESE BUSINESS. IN ADDITION, ONLINE SPACE IS GROWING DAY BY DAY WIT H BIG BRANDS LIKE FLIPKART AND AMAZON DOMINATING AND CUSTOMERS GET BETTER DEALS ON LINE. IT IS SETTLED PRINCIPLE OF LAW THAT THE ASSESSING OFFICER IS NOT EXPECTED TO QUESTION THE NECESSITY OF THE EXPENDITURE. THE BRAND EXPENDITUR E IS NOTHING BUT BUSINESS PROMOTION EXPENDITURE WHICH IS REVENUE IN NATURE AND WHICH I S CLEARLY ALLOWED AS DEDUCTION. THUS, GROUNDS OF APPEAL NO.6 FILED BY THE ASSESSEE IS ALL OWED. SINCE THE FACTS AND CIRCUMSTANCES HAVE NOT CHANGED , FOLLOWING THE ABOVE ORDER, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, CORRESPONDING GROUNDS OF APPEAL FOR THE AYS 2007-08 & 2008-09 ARE ALLOWED. 4. THE LD.AR SUBMITTED THAT WHILE MAKING THE ASSESS MENT FOR THE AY 2015-16 THAT THE AO DISALLOWED THE EMPLOYEES CONTRI BUTION TOWARDS PF WITHOUT APPRECIATING THE FACT THAT THE SAME HAD BE EN REMITTED BEFORE THE DUE DATE OF FILING OF THE RETURN U/S.139(1). HOWEV ER, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE. IN THIS REGARD, THE LD .AR SUBMITTED THAT THIS ITA NOS.967-969/CHNY/2019 :- 3 -: ISSUE IS COVERED BY THE ORDER OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LT D., IN ITS FAVOUR IN TCA NO.585 & 586 OF 2015 DATED 24.07.2015. 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. FOLLOWING THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT, IT IS HELD THAT THE DISALLOWANCE IS NOT WARRANTED. WE ALLOW THE ASSESSEES APPEAL ON THIS ISSUE. 6. THE LD.AR SUBMITTED THAT THE AO MADE DISALLOWANC E OF DEPRECIATION ON TRADE MARK. ON APPEAL, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE. IN THIS REGARD, THE LD.AR SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR THE AYS 200 7-08 TO 2009-10 IN ITA NOS.673-675/CHNY/2018 DATED 16.05.2019. 7. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. THE RELEVANT PORTION OF THE ORDER RELIED ON BY THE ASSESSEE IS EXTRACTED AS UNDER: 6. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY M/S. INDUS MOBILE DISTRIBUTION PVT. LTD IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF WHOLESALE TRADING AND DISTRIBUTION OF MOBILE PHONES AND ACCESSORIES. THE RETURN OF INCOME FOR THE AY 2007-08 WAS FILED ON 26.10.2007 DISCLOSI NG TOTAL INCOME OF RS. 17,58,080/-, AND THE SAME WAS REVISED ON 29.10.2013 AT A LOSS OF RS. 1,01,33,182/-. AGAINST THE SAID RETURN OF INCOME, THERE WAS NO SCRUTINY ASSESSMENT PROCEED INGS. SUBSEQUENTLY, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2010- 2011, LD. ASSESSING OFFICER FOUND THAT THE CLAIM OF DEPRECIATION ON INTANGIBLE ASSET WAS N OT CORRECT AND THEREFORE INITIATED THE REASSESSMENT PROCEEDINGS BY ISSUING NOTICE U/S.148 O F THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON 13.03.2013 TO THE APPELLANT. IN RESP ONSE TO NOTICE U/S.148 OF THE ACT, THE APPELLANT HAD FILED REPLY VIDE LETTER DATED 11.04.2 013 STATING THAT TO TREAT THE INCOME ORIGINALLY FILED AS RETURN IN RESPONSE TO NOTICE IS SUED U/S.148 OF THE ACT. SUBSEQUENTLY, ASSESSEE HAD SOUGHT REASONS FOR REOPENING THE ASSES SMENT AND THE SAME WAS PROVIDED BY L ITA NOS.967-969/CHNY/2019 :- 4 -: ASSESSING OFFICER THROUGH HIS LETTER DATED 08.07.201 3. FINALLY ASSESSMENT WAS COMPLETED AT A TOTAL LOSS OF RS.57,83,182/- BY DISALLOWING THE D EPRECIATION ON INTANGIBLE ASSETS BEING TRADE MARK ACQUIRED FROM M/S. UNIVERCELL TELECOMMU NICATIONS INDIA PVT. LTD AT A COST OF RS. 3,48,00,000/-. WHILE DENYING THE CLAIM FOR DEPR ECIATION ON INTANGIBLE ASSETS, LD. ASSESSING OFFICER HAD QUESTIONED THE GENUINENESS OF AGREEMENT OF ASSIGNMENT OF TRADE MARK RIGHT ENTERED BETWEEN THE APPELLANT AND THE M/S . UNIVERCELL TELECOMMUNICATIONS INDIA PVT. LTD DATED 01.02.2007. THE GENUINENESS OF THE AGREEMENT IS DOUBTED ON THE GROUND THAT THE AGREEMENT WAS ON THE POST DATED STA MP PAPER WHICH IS DATED 09.07.2007 AND ALSO THE AGREEMENT IS SIGNED BY ONE SHRI. D. SA TISH BABU IN ALL CAPACITIES I.E. ASSIGNOR, ASSIGNEE AND CONFIRMING PARTY AND ALSO QUESTIONED T HE NECESSITY OF PROCURING THE TRADE MARK AND AGAIN GIVING BACK TO THE SAME PARTY FOR A CONSIDERATION OF 0.01% OF THE TURNOVER. BASED ON THESE FACTS, LD. ASSESSING OFFICER INFERRED THAT THE TRANSACTION WERE MALAFIDE AND DISALLOWED THE CLAIM FOR DEPRECIATION. 7. BEING AGGRIEVED BY THE LD. ASSESSING OFFICER ORDE R, ASSESSEE FILED AN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONTENDING THAT THE VERY REOPENING THE ASSESSMENT IS NOT VALID IN LAW, IN AS MUCH AS, REOPENING IS BA SED ON CHANGE OF OPINION ON THE SAME SET OF FACTS WHICH ARE IN EXISTENCE AND ALSO CONTENDING THAT ASSESSING OFFICER HAD NO POWER TO QUESTION THE NECESSITY TO ENTER INTO TRANSACTION AN D ALSO FINDING FAULT WITH THE CONCLUSION REACHED BY THE ASSESSING OFFICER THAT THE TRANSACTIO N IS MALAFIDE AND TRANSACTION BETWEEN ASSESSEE AND M/S. UNIVERCELL TELECOMMUNICATIONS IND IA PVT. LTD IS BASED ON IRRELEVANT MATERIAL. HOWEVER, LD. COMMISSIONER OF INCOME TAX ( APPEALS) DISMISSED THE APPEAL BOTH ON THE REOPENING AND MERITS OF THE ISSUE. 8. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFO RE US IN THE PRESENT APPEAL. LD. AUTHORISED REPRESENTATIVE MR. B.RAMAKRISHNAN, SUBMI TTED THAT THE CONCLUSION REACHED BY THE ASSESSING OFFICER THAT IT IS AN ATTEMPT BY THE P ARTIES TO CLAIM HIGHER DEPRECIATION IN ORDER TO EVADE TAXES, IT IS BASED ON THE IRRELEVANT MATERIAL AS MUCH AS APPELLANT COMPANY HAD BEEN INCURRING LOSSES AND M/S. UNIVERCELL TELECO MMUNICATIONS INDIA PVT. LTD IS MAKING PROFITS. FURTHER LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT ASSESSING OFFICER AS WELL AS LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD FAILED TO C ONSIDER THE FACTS THAT THE AGREEMENT TO PURCHASE M/S. UNIVERCELL TELECOMMUNICATIONS INDIA PVT. LTD IS REACHED ON 01.02.2007 WHICH IS EVIDENCED BY PASSING OF THE CONSIDERATION STATEMENT IN AGREEMENT DATED 01.02.2007 AND THE ADDENDUM DATED 02.02.2007 WAS EN TERED IN ORDER TO REDUCE THE TERMS AND CONDITIONS INTO WRITING AND TO ENSURE THE CLARI TY OF THE AGREEMENT. THEREFORE, THE DATE OF THE STAMP PAPER HAS NO RELEVANCE, IN AS MUCH AS, THE SUBSTANCE OF THE TRANSACTION REMAINING THE SAME, THEREFORE HE SUBMITTED THAT THE ORDERS OF THE LOWER AUTHORITIES CANNOT BE SUSTAINED. 9. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRE SENTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SHORT ISSUE INVOLVED IN THIS APPEAL IS WHETHER OR NOT THE TRANS ACTION OF PURCHASE OF TRADEMARK FROM ONE SHRI. D. SATISH BABU FOR A CONSIDERATION OF RS.3,48 ,00,000/- IS GENUINE. THERE IS NO DISPUTE THAT SHRI. D. SATISH BABU IS A OWNER OF TRADEMARK UNIVERCELL AS THE TRADEMARK UNIVERCELL IS REGISTERED UNDER THE NAME OF SHRI . D. SATISH BABU BY THE GOVERNMENT OF INDIA AND THIS TRADEMARK WAS PURCHASED BY THE APPEL LANT FOR A CONSIDERATION OF RS. 3,48,00,000/- , AND THE SAID CONSIDERATION WAS PAID ON 15.02.2007. LD. ASSESSING OFFICER HAD DOUBTED THE GENUINENESS OF THE TRANSACTION PRIM ARILY FOR FOLLOWING REASONS NAMELY:- (I) THE AGREEMENT ENTERED BETWEEN THE PARTIES ON 01. 02.2007 WAS ON STAMP PAPER WHICH IS POST DATED. (II) IT IS A DEVICE ADOPTED BY THE PARTIES TO EVADE THE TAXES (III) THERE IS NO NECESSITY OF BUYING THE TRADE MAR K AND AGAIN ALLOWING M/S. UNIVERCELL TELECOMMUNICATIONS INDIA PRIVATE LIMITED TO USE THIS TRADEMARK FOR A CONSIDERATION OF 0.01% ON THE SALES TURNOVER. THE ASSESSING OFFICER HAD NOT DISPUTED, IN PRINCIPLE , THE ELIGIBILITY OF TRADEMARK FOR DEPRECIATION NOR THE COST OF ACQUISITION OF TRADEMA RK, BUT DISALLOWED THE CLAIM DOUBTING THE ITA NOS.967-969/CHNY/2019 :- 5 -: GENUINENESS OF THE TRANSACTION. NOW WE SHALL DWELL UPON EACH OF THE REASONS ASSIGNED BY THE ASSESSING OFFICER. 11. THERE IS NO REQUIREMENT UNDER LAW THAT AN AGREE MENT TO PURCHASE TRADEMARK SHOULD BE IN WRITING ON A STAMP PAPER. AN AGREEMENT IN WRITIN G IS ENTERED IN ORDER TO REDUCE THE AGREED TERMS AND CONDITIONS IN WRITING SO AS TO AVO ID ANY MISUNDERSTANDING IN FUTURE. THEREFORE, THE FACT THAT THE AGREEMENT IS ENTERED O N POST DATED STAMP PAPER IS IMMATERIAL AND NOT GERMANE TO DECIDE WHETHER OR NOT TRANSACTIO N IS GENUINE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT SUBSTANCE OF THE TRANSACTION IS SOMETHING ELSE. THEREFORE THE REASONING OF THE ASSESSING OFFICER, AS WELL AS LD. C OMMISSIONER OF INCOME TAX (APPEALS) THAT THE AGREEMENT IS ENTERED ON POST DATED STAMP P APER, TRANSACTION IS NOT GENUINE CANNOT BE SUSTAINED. 12. AS REGARDS TO THE ALLEGATION THAT IT IS ADOPTED TO AVOID EVADING THE TAXES, FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR THAT E VEN AFTER DISALLOWANCE OF CLAIM FOR DEPRECIATION ON THE TRADEMARK STILL THE ASSESSMENT RESULTED IN LOSSES. IT IS AN ADMITTED FACT THAT PAYEE HAD DISCLOSED THIS INCOME IN HIS HANDS A ND THEREFORE THERE IS NO MOTIVE OF EVASION OF TAXES, THAT CAN BE ATTRIBUTE TO THIS TRA NSACTIONS. FINALLY NECESSITY OF ENTERING INTO AGREEMENT, IT IS A SETTLED PROPOSITION OF LAW THAT IT IS NOT OPEN TO THE ASSESSING OFFICER TO QUESTION THE NECESSITY OF INCURRING AN EXPENDITURE AND HE CANNOT STEP INTO THE SHOES OF THE ASSESSEE AS HOW TO CONDUCT THE BUSINESS OF THE ASSE SSEE. IN THIS CONNECTION, RELIANCE CAN BE PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EASTERN INVESTMENTS LTD. VS. CIT, 20 ITR 1. RECENTLY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD, 345 ITR 241 AFTER REFERRING THE ABO VE SAID JUDGMENT OF SUPREME COURT, WHEREIN IT WAS HELD AS FOLLOWS: 19. THERE IS NO REASON WHY THE OECD GUIDELINES SHO ULD NOT BE TAKEN AS A VALID INPUT IN THE PRESENT CASE IN JUDGING THE ACTION OF THE TRANSFER PRICING OFFICER. IN FACT, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS R EFERRED TO AND APPLIED THEM AND HIS DECISION HAS BEEN AFFIRMED BY THE TRIBUNAL. THESE GUIDELINES, IN A DIFFERENT FORM, HAVE BEEN RECOGNIZED IN THE TAX JURISPRUDENCE OF OUR COUNTRY EARLIER. IT HAS BEEN HELD BY OUR COURTS THAT IT IS NOT FOR THE REVE NUE AUTHORITIES TO DICTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINESS A ND IT IS NOT FOR THEM TO TELL THE ASSESSEE AS TO WHAT EXPENDITURE THE ASSESSEE CAN IN CUR. WE MAY REFER TO A FEW OF THESE AUTHORITIES TO ELUCIDATE THE POINT. IN EASTER N INVESTMENTS LTD. V. CIT [1951] 20 ITR 1 (SC) IT WAS HELD BY THE SUPREME COURT THAT (PAGE 6) 'THERE ARE USUALLY MANY WAYS IN WHICH A GIVEN THING CAN BE BROUGHT ABO UT IN BUSINESS CIRCLES BUT IT IS NOT FOR THE COURT TO DECIDE WHICH OF THEM SHOULD HA VE BEEN EMPLOYED WHEN THE COURT IS DECIDING A QUESTION UNDER SECTION 12(2) OF THE INCOME-TAX ACT'. IT WAS FURTHER HELD IN THIS CASE THAT 'IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EAR NED'. IN CIT V. WALCHAND AND CO. P. LTD. [1967] 65 ITR 381 (SC), IT WAS HELD BY THE S UPREME COURT THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING W HETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. IT WAS FURTHER OBSERVED THAT THE RULE THAT EXPENDITURE CAN ONLY BE JUSTIFIED IF THERE IS CORRESPONDING INCREASE IN THE PROFITS WAS ERRONEOUS. IT HAS BEEN CLASSICALLY OBSERVED BY LORD THANKERTON IN HUGHES ( INSPECTOR OF TAXES) V. BANK OF NEW ZEALAND [1938] 6 ITR 636 (HL) THAT 'EXPENDITURE I N THE COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONE THE LESS A PROPER D EDUCTION, IF WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSES OF TRADE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE CREDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE'. THE QUESTION WHETHER AN EXPENDITURE CAN BE ALLOWED AS A DEDUCTIO N ONLY IF IT HAS RESULTED IN ANY INCOME OR PROFITS CAME TO BE CONSIDERED BY THE SUPR EME COURT AGAIN IN CIT V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC), AND I T WAS OBSERVED AS UNDER (PAGE 523): 'WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTH ERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDI TURE MUST BE DEBI TED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAI N REQUIREMENT OF PROPER ACCOUNTING AND THE INTERPRETATION OF SECTION 57(III) CANNOT BE DIFFERENT. THE DEDUCTION OF THE ITA NOS.967-969/CHNY/2019 :- 6 -: EXPENDITURE CANNOT, IN THE CIRCUMSTANCES, BE HELD T O BE CONDI TIONAL UPON THE MAKING OR EARNING OF THE INCOME.' IT IS NOTEWORTHY THAT THE ABOVE OBSERVATIONS WERE M ADE IN THE CONTEXT OF SECTION 57(III) OF THE ACT WHERE THE LANGUAGE IS SOMEWHAT NA RROWER THAN THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT. THIS FACT IS RECOGNISED IN THE JUDGMENT ITSELF. THE FACT THAT THE LANGUAGE EMPLOYED IN SECTION 37(1 ) OF THE ACT IS BROADER THAN SECTION 57(III) OF THE ACT MAKES THE POSITION STRONG ER. 20. IN THE CASE OF SASSOON J. DAVID AND CO. PVT. LT D. V. CIT [1979] 118 ITR 261 (SC), THE SUPREME COURT REFERRED TO THE LEGISLATIVE HISTORY A ND NOTED THAT WHEN THE INCOME-TAX BILL OF 1961 WAS INTRODUCED, SECTION 37(1) REQUIRED THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY, NECESSARILY AND EXCLUSIVELY' FOR THE PURPOSES OF BUSINESS IN ORDER TO MERIT DEDUCTION. PURSUANT TO PUBLIC PROTEST, THE WORD 'NE CESSARILY' WAS OMITTED FROM THE SECTION. 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITURE IN CURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSE E TO SHOW THAT ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HI M HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUB SEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED 'WHO LLY AND EXCLUSIVELY' FOR THE PURPOSE OF BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THA T, INTER ALIA, FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. THUS LAW IS SETTLED TO THE EXTENT THAT IT IS OUTSID E THE DOMAIN OF THE LD. ASSESSING OFFICER TO QUESTION THE NECESSITY OF INCURRING AN EXPENDITURE. THUS THE REASONS ASSIGNED BY THE ASSESSING OFFICER THAT THE TRANSACTION FOR PURCHASE OF TRADEMARK ARE NOT GENUINE CANNOT STAND TEST OF THE LAW. FURTHERMORE, IT IS AN SETTLE D PRINCIPLE OF LAW THAT INTANGIBLE ASSETS SUCH AS TRADEMARK, GOODWILL ARE ALSO QUALIFIES FOR DEPRECIATION AT PRESCRIBED RATES. THEREFORE WE DO NOT CONCUR WITH THE VIEWS OF THE LO WER AUTHORITIES IN DISALLOWING THE CLAIM FOR DEPRECIATION ON TRADEMARK. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE GROUNDS OF APPEAL FILED BY THE ASSESS EE. HENCE GROUNDS OF APPEAL 3 TO 5 FILED BY THE ASSESSEE ARE ALLOWED. SINCE, THE FACTS ARE SAME FOR THIS AY, FOLLOWING T HE ABOVE ORDER IN THE ASSESSEES OWN CASE, THIS ISSUE IS ALLOWED IN T HE ASSESSEES FAVOUR. 8. THE NEXT ISSUE IS THAT THE AO FOUND THAT M/S.ROC KY MARKETING (CHENNAI) PVT. LTD., HAD WRITTEN OFF ` 6,30,40,743/- BEING TRADE RECEIVABLE FROM THE ASSESSEE. THE ASSESSEE HAD STOPPED MAKING ANY PAYMENT AS WELL AS STOPPED SOURCING MOBILE PHONE FROM THE ABOV E COMPANY SINCE JULY, 2015; THE ABOVE AMOUNT HAVING BEEN CLAIMED AS BAD DEBT WAS ALLOWED IN THE HANDS OF THE ABOVE COMPANY; AND HEN CE HE ADDED THE SAID AMOUNT IS A CESSATION OF LIABILITY U/S.41(1) STAT ING THAT THE SUM OF ITA NOS.967-969/CHNY/2019 :- 7 -: ` 6,30,40,743/- UNILATERALLY WRITTEN OFF AS BAD DEBTS BY M/S.ROCKY MARKETING (CHENNAI) PVT. LTD. SHALL BE DEEMED TO BE THE BUSINESS PROFITS IN THE HANDS OF THE DEBTOR, THE ASSESSEE AS PER CLA USE(A) OF SEC.41(1) OF THE IT ACT, 1961. 9. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE TH E LD.CIT(A). THE LD.CIT(A) HELD THAT THE AO HAS SPECIFICALLY POINTE D OUT THAT IN THE ASSESSMENT OF THE CREDITOR VIZ ROCKY MARKETING (CHE NNAI) PVT LTD WHICH IS ALSO ASSESSED BY THIS SAME AO, WHO HAS HELD THAT TH E CLAIM OF THE SAID DEBTOR IN RESPECT OF THE DEBTS DUE FROM THE APPELLA NT HAS BEEN WRITTEN OFF AND HAS ALLOWED THE SAME. FURTHER, IT IS RELEVANT T O MENTION THAT M/S. ROCKY MARKETING (CHENNAI) PVT LTD HAS WAIVED OFF TH E LIABILITY. THUS THE AO'S ACTION IN APPLYING SEC. 41(1) IS CORRECT AND I S IN ACCORD WITH THE INTENT AND PROVISIONS OF SEC. 41(1) THAT WAS INTROD UCED WITH A VIEW TO PREVENT CONFERMENT OF DOUBLE BENEFIT TO CREDITORS L IKE THE APPELLANT IN THE FORM OF NON-REQUIREMENT OF PAYMENT OF LIABILITIES A ND CONTINUING TO KEEP THE SAID LIABILITY IN THE BOOKS OF ACCOUNT. IN VIEW OF THE RATIO IN THE CASES OF SHAILESH D. SHAH, MUMBAI VS DEPARTMENT OF INCOME TAX ITA 7012/M/10 AND CHIPSOFT TECHNOLOGY (P) LTD (DEL), 21 0 TAXMAN 173 (DELHI) THERE IS CESSATION OF LIABILITY BY OPERATIO N OF LAW AS THE CREDITOR ASSESSED BEFORE THE SAME ASSESSING OFFICER HAS WRIT TEN OFF THE DUES FROM THE APPELLANT. THE APPELLANT HAS NOT MADE OUT A CAS E THAT THE LIABILITY IS TO BE DISCHARGED EXCEPT SAYING THAT THE LIABILITY HAS NOT BEEN WRITTEN BACK. HERE, THE ASSESSING OFFICER, AFTER HAVING ALLOWED T HE BAD DEBTS WRITTEN OFF ITA NOS.967-969/CHNY/2019 :- 8 -: BY THE DEBTOR HAS NOT CHOSEN TO KEEP QUIET AND HAS TAKEN ACTION IN THE CASE OF THE CREDITOR I.E THE APPELLANT. IN THE CIRC UMSTANCES, I AM OF THE VIEW THAT NO INTERFERENCES IN THE AO'S ACTION IN IN VOKING S 41(1) OF THE ACT IS CALLED FOR. THE APPELLANT'S GROUND IS DISMISSED . 10. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILE D THIS APPEAL. THE LD.AR SUBMITTED THAT THIS ISSUE COVERED BY THE ORDE R OF THE HONBLE ITAT KOLKATA IN THE CASE OF JASHOJIT MUKHERJEE REPORTED IN [2018] 93 TAXMANN.COM 366 (KOLKATA-TRIB) DATED 04.05.2018. 11. PER CONTRA, THE LD.DR SUPPORTED THE ORDER OF TH E LD.CIT(A). FURTHER, HE INVITED OUR ATTENTION TO EXPLANATION-1 TO SEC.41(1), WHICH IS EXTRACTED AS UNDER: EXPLANATION-1 FOR THE PURPOSES OF THIS SUB-SECTI ON, THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIAB ILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUDE THE REMISSION OR CESSATION O F ANY LIABILITY BY A UNILATERAL ACT BY THE FIRST-MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCE SSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB-SECTION BY WAY OF WRITING OFF SUCH LIABILI TY IN HIS ACCOUNTS. 12. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. IT IS CLEAR FROM THE ABOVE THAT THE VERY SAME AO ALLOWED THE WRITE OFF OF M/S.ROCKY MARKETING (CHENNAI) PVT. LTD ., IN ITS HANDS. THEREFORE, M/S.ROCKY MARKETING (CHENNAI) PVT. LTD., HAS WAIVED OFF THE LIABILITY FROM THE ASSESSEES HAND. AS PER THE EXP LANATION EXTRACTED, SUPRA, THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT, IS COVERED U/S.41(1) AND HENCE, WE DO NOT FIND ANY REA SON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). THEREFORE, CORRESPONDI NG GROUNDS OF THE ASSESSEE FAIL. ITA NOS.967-969/CHNY/2019 :- 9 -: 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE IN ITA NOS.967 & 968/CHNY2019 FOR THE AYS 2007-08 & 2008-09 ARE ALLO WED AND ITA NO.969/CHNY/2019 FOR THE AY 2015-16 IS PARTLY ALLOW ED. ORDER PRONOUNCED ON THE 18 TH FEBRUARY, 2020, IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) ( S. JAYARAMAN ) /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 18 TH FEBRUARY, 2020. TLN + )23 43 /COPY TO: 1. ( /APPELLANT 4. 5 /CIT 2. )*( /RESPONDENT 5. 3 ) /DR 3. 5 ( ) /CIT(A) 6. % /GF