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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD&SHRI AMARJIT SINGH
PER AMARJIT SINGH - AM:
The appeal filed by the Assessee for A.Y. 2014-15, arise from order of the CIT(A)-1, Ahmedabad dated 29.05.2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The fact in brief is that assessment under Sec. 143(3) of the Act was finalised on 06.12.2016. During the course of assessment the AO has made various addition as mentioned in the ground of appeal
filed by the assessee. The relevant fact pertaining to the additions are discussed while adjudicating the specific grounds of appeal filed by the assessee as under:-
1. In law and in facts and circumstances of the appellant’s case, the Ld. CIT(A) has grossly erred in upholding disallowance u/s. 35D for Rs. 5,02,818/- when no such disallowance is called for. It may kindly be deleted.
2. In law and in facts and circumstances of appellant’s case, the Ld. CIT(A) has grossly erred in upholding disallowance for Rs. 2,129/- being employees’ contribution to ESI, when no such disallowance is called for. It may kindly be deleted.
3. In law and facts and circumstances of the appellant’s case, the Ld. CIT(A) has grossly erred in upholding disallowance of Rs. 1m81,33,969/- on account of depreciation on goodwill arising on demerger of Adani Energy Ltd. from appellant on the ground that since as per order of Hon’ble Gujarat High Court dated 09.12.2009, appointed date of demerger is 01.01.2007, depreciation on goodwill ought to have been claimed from appointed dated i.e. A.Y. 2007-08 and not from effective date i.e. A.Y. 2010-11. The Ld. Assessing Officer may be directed to allow full depreciation on goodwill amounting to Rs. 3,13,66m865/- as claimed in return of income. 3.1. In law and in facts and circumstances of the appellant’s case, the Ld. CIT(A) has grossly erred in upholding the disallowance of depreciation on goodwill without appreciating the fact that Appellant Company is being assessed at maximum marginal rate and even if it is held that appellant is entitled for depreciation from A.Y. 2007-08 and not A.Y. 2010-11, entire exercise of disallowance of depreciation on goodwill is tax natural and hence, uncalled for. 4. In law and in facts and circumstances of the appellant’s case, the Ld. CIT(A) has grossly erred in upholding disallowance u/s. 14A r.w.r. 8D to the tune of Rs. 2,74,658/- when no such disallowance is called for. The same may kindly be deleted.”
Ground No. 1:- Disallowance u/s. 35D for Rs. 5,02,818:- 3. During the course of assessment the AO noticed that assessee has written off preliminary expenses of Rs. 5,02,818/- under Sec. 35D of the Act. The AO has observed that assessee has deducted the aforesaid preliminary expenses incurred for increasing in authorised share capital. After referring various judicial pronouncements the AO has treated such expenses of capital in nature not to be allowed under Sec. 37 of the Act. Consequently, an addition of Rs. 5,02,818/- was made to the total income of the assessee.
Aggrieved assessee has filed before Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.
During the course of appellate proceeding before us the Ld. Counsel has contended that Co-ordinate Bench of the ITAT vide 2346
2797/Ahd/2015 has decided the identical issue in the case of the assessee itself on similar fact in favour of the assessee.
On the other hand Ld. DR has supported the order of lower authorities. With the assistance of the Ld. Representatives we have gone through the aforesaid order of the Co-ordinate Bench of the ITAT. The relevant part of the decision is reproduced as under:-
“19. The Ground No. 3 concerns disallowance of preliminary expenses amounting to Rs. 10,28,028/- claimed under Sec. 35D of the Act. It was pointed out that similar claim was made in the earlier year and similar controversy arose in the earlier year and adjudicated in favour of the assessee. For this purpose, the decision of the Co- ordinate Bench of the Tribunal concerning A.Y. 2008-09 in assessee’s own case in & 2516/Ahd/2011 order dated 18.01.2016 was referred. In view of the issue being covered in favour of the assessee by the order of the Co-ordinate Bench for earlier year, we find merit in the claim of the aforesaid amount under Sec. 35D of the Act. The assessment order is thus directed to be modified in respect of the aforesaid issue.”
Respectfully, following the decision of Co-ordinate bench in the case of the assessee itself on identical issue on similar facts as supra the appeal of the assessee is allowed.
Ground No. 2:- Disallowance of Rs. 2,129/- being employees’ contribution to ESI:-
The assessee has not pressed this ground of appeal. Therefore, the same is dismissed.
Ground No. 3:- Disallowance of Rs. 1,81,33,969 on account of depreciation:-
During the course of assessment on perusal of depreciation chart annexed with the Audit Report the AO noticed that assessee has claimed depreciation on goodwill @ 25% to the amount of Rs. 3,13,66,865/- W.D.V. of Rs. 12,54,67,458/-. On query the assessee explained that the assessee company was a resultant company out of the demerger of Adani Energy Ltd. The Hon’ble High Court of Gujarat approved the scheme of demerger and ordered appointed date as 01.01.2007. Meaning that the scheme of demerger was effective from appointed date, therefore, depreciation on goodwill was required to be allowed from A.Y. 2007-08 instead of A.Y. 2010-11. The assessee has explained that Hon’ble Gujarat High Court has sanctioned the scheme of demerger of gas distribution business of Adani Energy Ltd. in to the assessee company vide order dated 09.12.2009. It was further submitted that Hon’ble Gujarat High Court has approved the appointed date of 01.01.2007 as mentioned in the scheme of demerger and the order was passed only in F.Y. 2009-10. It is further submitted that the transfer of assets and liability from the demerged company to the assessee company took place in A.Y. 2010-11 and goodwill was recognised in assessee’s books of account in A.Y. 2010-11. Therefore, depreciation cannot be claimed on the same from A.Y. 2007-08 when the asset itself was created in A.Y. 2010-11. The AO has not accepted the explanation of the assessee. He was of the view that Hon’ble High Court of Gujarat has approved the scheme of demerger and order appointed date as 01.01.2007. Therefore, the claim of depreciation on goodwill to the amount of Rs. 1,81,33,969/- was disallowed and added to the total income of the assessee.
Aggrieved assessee has filed before Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.
During the course of appellate proceeding before us the Ld. Counsel has brought to our notice that Co-ordinate Bench of the ITAT has adjudicated the identical issue on identical fact in favour of the assessee in the case of the assessee itself vide 2346 and 2979/ahd/2015 for A.Y. 2009-10 to A.Y. 2013-14. Therefore, the Ld. CIT(A) is not justified in sustaining the disallowance made by the AO. On the other side Ld. DR has supported the decision of the lower authorities.
We have heard both the sides and perused the material on record. With the assistance of the Ld. Representative we have gone through the aforesaid decision of the Co-ordinate Bench of the ITAT and noticed that the similar issue on identical fact has been decided in favour of the assessee. The relevant part of the decision is reproduced as under:-
“21. We shall now advert to the additional ground raised by assessee as adjunct to its Cross Objection. The learned AR submitted that the additional ground raised by the assessee in its cross objection concerns eligibility of depreciation of goodwill arising on demerger. The learned AR submitted that additional ground concerning the issue does not require any fresh investigation of facts and therefore urged for admission of the same in the light of the decision of Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. vs. CIT (1998) 229 ITR 383 (SC): CIT vs. Sinhgad Technical Education Society [2017] 84 taxmann.com 290 (SC). Elaborating further, the learned AR referred para 7 of page no.33 to the assessment order passed under s. 143(3) of the Act concerning AY 2012-13 and submitted that the controversy has arisen because the scheme of the demerger was sanctioned by the order of the Hon’ble Gujarat High Court vide its order dated 09.12.2009 w.e.f. the appointed date of 01.01.2007 as mentioned in the draft scheme of demerger. The sanction was accorded by the Hon’ble High Court in FY 2009-10 i.e. AY 2010-11. The assessee claimed depreciation on the goodwill arising on the demerger in the AY 2010-11 as the order was received in FY 2009-10 relevant to AY 2010-11, the AO however complied depreciation on goodwill generated as a result of the demerger (Rs.33.98 Crore) w.e.f. FY 2006- 07 i.e. AY 2007-08 and consequently, calculated the WDV of the goodwill generated notionally after reducing the depreciation of the each year starting from AY 2006-07. Thus, whereas the assessee has claimed depreciation for the first time in FY 2009-10 relevant to AY 2010-11 on the amount of goodwill generated, the AO allowed the depreciation after reducing the depreciation for AY 2006-07 and 2007-
08. Consequently, the depreciation on goodwill was allowed at Rs.5,57,63,315/- as against claim of depreciation of Rs.8,80,01,481/- claimed by the assessee, the AO thereby disallowed the remaining claim of goodwill amount of Rs.3,22,38,166/- by revising the amount of goodwill carried forward owing to notional depreciation in AY 2006-07 and 2007-08. The learned AR referred to the tabulated statement worked out by the AO as reproduced in the assessment order concerning AY 2012-13 which is reproduced hereunder for easy reference and understanding of the subject: Particulars FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 Goodwill 339,890,680 297,404,345 223,053,259 167,289,944 125,467,458 94,100,594 generated Depreciation 42,486,335 74,351,086 55,763,315 41,822,486 31,366,865 23,525,148 Closing WDV 297,404,345 223,053,259 167,289,944 125,467,458 94,100,594 70,575,445
21.1 As stated on behalf of the assessee, the assessee company was formed as a resultant company out of the demerger of Adani Energy 5
Ltd. The order under s.394 of the Companies Act, 1956 was passed by the hon’ble Gujarat High Court on December 9, 2009 while the appointed date was fixed at 01.01.2007 as per the draft scheme of demerger. As a result of demerger, the assessee company has paid certain excess consideration to the demerged company over and above the assets acquired. Such excess consideration amounting to Rs.33,98,90,680/- was treated in the nature of goodwill by the assessee as a capital right. The assessee claimed depreciation thereon for the first time in AY 2010-11 being the year in which the order of the Hon’ble Gujarat High Court was received. Consequently, the depreciation of Rs.4,24,86,335/- (being 12.5% of the value of goodwill and demerger of Rs.33.98 Crore) was claimed in AY 2010-11. In the course of scrutiny assessment, however, the AO took a view that depreciation was allowable to the assessee on such goodwill from the date of sanction of the demerger scheme falling in AY 2007-08. The AO accordingly re-determined the gross block and WDV pertaining to depreciation of goodwill as a result the depreciation for AY 2007-08, 2008-09 and 2009-10 was artificially applied which was not claimed by the assessee at all in these years. The AO accordingly re-worked the WDV of the various FYs as tabulated above. 21.2 We are concerned with AY 2009-10 in question. The AO has assumed depreciation of Rs.5,57,63,315/- pertaining to the aforesaid assessment year while re-determining the quantum of eligible depreciation in AYs 2010-11, 2011-12. 2012-13 & 2013-14. As a result of such re-determination of quantum of goodwill, the following position emerges: Assessment Year Depreciation claimed by Depreciation computed by AO respondent 2007-08 4,24,86,335/- (Being 12.5% of value of goodwill on demerger i.e. Rs.33,98,90,680/-) 2008-09 - 7,43,51,086/- 2009-10 - 5,57,63,315/- 2010-11 4,24,86,335/- 4,18,22,486/- (Being 12.5% of value of goodwill on demerger i.e. Rs.33,98,90,680/-) 2011-12 7,43,51,086/- 3,13,66,865/-
2012-13 5,57,63,315/- 2,35,25,148/- 2013-14 4,18,22,486/- 1,76,43,861/-
21.3 The assessee in the captioned AY 2009-10 seeks claim of depreciation on goodwill amounting to Rs.5,57,63,315/- based on the working of the AO although not made any claim towards such depreciation on goodwill in this year. It is the case of the assessee by 6 way of additional ground that the eligibility of depreciation on goodwill is not in dispute. The AO has simply disputed the quantification of eligible depreciation spanning over various financial years on the ground that depreciation is eligible from the appointed date as sanctioned by the Hon’ble Gujarat High Court. Thus, on account of such re-working, the assessee has presented a new claim towards depreciation on goodwill in the impugned AY 2009-10 on the ground that all the relevant facts are available on record which are duly admitted by the Revenue. Therefore, the assessee cannot be deprived of the eligible depreciation as computed by the AO himself concerning AY 2009-10. 21.4 A legal issue also cropped up in the course of hearing as to whether additional ground could be raised in a cross objection filed by the assessee under s.253(4) of the Act. On being enquired on this aspect of the matter, it was submitted on behalf of the assessee that there is no perceptible distinction between the position of law qua cross objection in the matter of filing additional ground. It was submitted that a cross objection has all the trappings of a regular appeal more so in the light of language employed under s.253(4) of the Act. 21.5 We find ourselves in agreement with the propositions made on behalf of the assessee that in a cross objection, there is no bar to raise legal issues for the first time before ITAT. A cross objection is like an appeal. It has all the trappings of an appeal. It is filed in the form of memorandum and it is required to be disposed in same manner as an appeal. Even where the appeal is withdrawn or dismissed for default, cross objection may nevertheless be heard and determined. Cross objection is nothing but an appeal, a cross appeal at that. This apart, raising of additional ground would only enable the authority concern to correctly assess the tax liability of the assessee. Similar view has been expressed by the co-ordinate bench in the case of ITO vs. Jasjit Singh (Del) in cross objection Nos. 138 to 142/Del/2014 interim order dated 23.09.2014. We thus do not see any impediment in entertaining the additional grounds. The relevant facts are available on record. 21.6 In so far as the merits of the claim made in additional ground is concerned, we observe that where the AO has readjusted the quantum of depreciation in the subsequent assessment year, the assessee is within its legitimate rights to be granted depreciation in AY 2009-10 as per the figures worked by the AO himself. We do not see any perceptible reason for not admitting such claim of the assessee. We also find bonafides in the plea of the assessee for raising new claim on account of depreciation by way of additional ground at this belated stage. The order for the AY 2012-13 was passed on 29.03.2015. By virtue of this order, the assessee came to know about the revision in the claim of depreciation concerning AY 2012-13. By that time, the order of the CIT(A) dated 13.12.2013 was already passed. Therefore, the assessee was incapacitated to put forward such new claim towards depreciation on goodwill amounting to Rs.5,57,63,315/- for which relevant facts are duly available on record in the light of the decision
Hon’ble Supreme court in the case of Goetze (India) Ltd. vs. CIT [2006] 284 ITR 323 (SC) & NTPC vs. CIT 229 ITR 383 (SC).”
Respectfully, following the decision of the Co-ordinate Bench as cited in this order the appeal of the assessee on this issue is allowed.
Ground No. 4:- Disallowance u/s. 14A r.w.r. 8D of the Act:-
The major part of the disallowance made u/s. 14A r.w.r 8D is pertained to disallowance of administrative expenditure incurred towards earning exempt income. The Ld. CIT(A) has restricted the disallowance to the amount of Rs. 2,74,658/-. After perusal of the material on record we observe that it is not possible to earn huge volume of exempt income without incurring administrative expenses, therefore, we do not find any unreasonableness and infirmity in the decision of Ld. CIT(A). Accordingly, the appeal of the assessee on this issue is dismissed.
In the result, the appeal of the assessee is partly allowed.
This Order pronounced in Open Court on 12/07/2019