THE DY. CIT, CIRCLE-4(1)(2),, AHMEDABAD vs. M/S. TRIO ELEVATORS COMPANY (INDIA) LTD.,, AHMEDABAD

The captioned cross appeals have been filed by the assessee and Revenue against the order of the CIT(A)-8, Ahmedabad (‘CIT(A)’ in short), dated 19.01.2017 arising in the assessment order dated 20.01.2016 passed by the Assessing Officer under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning A.Y. 2013-14.

The substantive grounds of appeal

Ground No. 1 Concerns disallowance of Rs. 2,93,473/- under s. 2(24)(x) r.w.s. 36(1)(va) towards default in payment of employees’ contribution of PF and ESI within due date specified under respective laws. In view of the decision of Hon’ble Gujarat High Court in case of CIT vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170 Gujarat, we do not find any merit in the grievance of the assessee on this score. Ground No. 1 (supra) for the assessee’s appeal is dismissed. & 795/Ahd/2017 [Trio Elevators Company (India) Ltd. vs. DCIT] A.Y. 2013-14 - 3 -

Ground No. 2 concerns adjustment towards provision for maintenance and free services/warranty of Rs. 8,59,094/- while determining book profit under s. 115JB.

It is contended on behalf of the assessee that such provision towards maintenance/warranty etc. cannot be stated to be an unascertained liability so as to add it back in terms of clause (c) to Explanation 1 to section 115JB. We find ourselves in agreement with the aforesaid contention of the assessee that such liabilities cannot be regarded as contingent liability. What is certain is the incurring of liability notwithstanding estimation thereof with reasonable certainty. Although actual quantification may not be always be possible, the liability is in praesenti though it is likely to be discharged at a future date. Similar issue has come up before the Hon’ble Gujarat High Court in the case of DCIT vs. Inox Leisure Ltd. (2013) 351 ITR 314 (Guj.) where it was held that ascertained liabilities cannot be subjected to the adjustment under clause (c) to explanation 1 to section 115JB. Thus, we find merit in the grievance of the assessee on this score. Ground No. 2 of the assessee’s appeal as noted above is allowed.

In the result, assessee’s appeal is partly allowed.

We shall now turn to Revenue’s appeal in 795/Ahd/2017. The substantive grounds in Revenue’s appeal reads as under:- “1) “Whether the Ld. CIT(A) is right in law and on facts in deleting the disallowance of depreciation claimed on trademark of Rs. 65,88,665/-.” 2) “Whether the Ld. CIT(A) is right in law and on facts in allowing the depreciation at the rate of 60% on software being & 795/Ahd/2017 [Trio Elevators Company (India) Ltd. vs. DCIT] A.Y. 2013-14 - 4 -

Ground No. 1 concerns disallowance on account of depreciation towards goodwill.

On perusal of the assessment order and first appellate order it appears that assessee has claimed depreciation amounting to Rs. 65,88,665/- at the rate of 25% on opening value of goodwill at Rs. 2,63,54,659/-. It is contended by the assessee that the claim towards depreciation on goodwill is consequential to the earlier assessment years where such depreciation has been duly accepted. It was further pointed out that the goodwill arose on account of purchase of business operations of an entity namely Alps Technologies Ltd. on slump sale basis. The valuation and determination of goodwill appears at Para 4.3 of the assessment order.

We have carefully considered the rival submissions and the order of the authorities below on this issue. The essential controversy involves maintainability of claim of depreciation on cost of goodwill by the assessee. The assessee has claimed certain costs towards goodwill being extra consideration paid towards acquisition of net value of assets of Alps Technologies Ltd. on slump sale basis with a view to acquire its business operations. There can be no quarrel that extra consideration paid for acquisition of assets and the business of a concern represents cost of goodwill. This being so, the assessee would be entitled in law for claim of depreciation thereon in view of the decision of Hon’ble Gujarat High Court in the case of DCIT vs. TGB Banquets & Hotels Ltd. Tax Appeal No. 470 of 2012 dated 21.06.2016 (Guj.) and also the & 795/Ahd/2017 [Trio Elevators Company (India) Ltd. vs. DCIT] A.Y. 2013-14 - 5 - decision of Hon’ble Supreme Court in the case of Smiffs Securities Ltd. supra. Therefore, we find no infirmity in the conclusion drawn by the CIT(A) in favour of the assessee. Hence, we decline to interfere.

The second issue concerns claim of depreciation at the rate of 60% on software being customized license product. The CIT(A) has dealt with the issue as under:- “7. Ground No.4 is against the allowance of depreciation @ 25% on computer software instead of prescribed rate of 60% in Appendix to Income Tax Rules 1962. I have considered the facts of the case as stated by the appellant as well as the AO in his assessment order. I have also considered the submission of the appellant and the case laws referred by the AO as well as the appellant. The main ground of appeal is against application of Depreciation @ 25% instead of 60% claimed by the appellant on the computer and computer software. The AO applied the rate of 25% by staling that in the instant case it is :the license which has got more value and importance than the software and concluded that the application software being license are intangible assets and they are eligible for depreciation u/s.32 of the Act @25%. During the appellate proceedings the AR filed a detailed written submission in which stated that the depreciation rate of 60% has been provided for "Computer including computer software" in entry no 5 of part A III of Appendix to Income Tax Rules 1962. He also referred to the decision of ITAT Delhi in the case of Amway India Enterprises (ITAT special bench Delhi)(2008) 111 ITD 0112. The issue in dispute and submission of the appellant is considered. It is noticed that the Hon'ble ITAT, Ahmedabad also in the case of ACIT V. Voltamp Transformer Ltd (ITANo. 1676/Ahd/2012) confirmed the decision taken by the CIT(A) allowing the depreciation @ 60%. In this case CIT(A) decided as under: "After considering the explanation of the appellant, I am inclined to accept the view propounded by the appellant. The Income Tax Act does not make any difference between the system software and the application software. The schedule only provides the depreciation @60% on the computer software and the term 'computer software' has a/so been denied in the Appendix-I, The classification made by the Accounting Standards cannot overwrite the definition given in & 795/Ahd/2017 [Trio Elevators Company (India) Ltd. vs. DCIT] A.Y. 2013-14 - 6 -

We find that the CIT(A) has concluded the issue in favour of the assessee having regard to the provisions of the Act and the decision of the Coordinate Bench rendered in similar circumstances. The computer and computer software and licenses are not differentiated in the ‘table of depreciation’ as provided under the Income Tax Act. Thus, CIT(A) in our view has rightly recorded the findings in favour of the assessee. We decline to interfere therewith. Ground No. 2 of Revenue’s appeal is dismissed.

In the result, Revenue’s appeal is dismissed.