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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
Consolidated Appeals (9)
IN THE INCOME TAX APPELLATE TRIBUNAL “ B ” BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER Sl. ITA No(s) Assessment Appeal(s) by Nos. Year (s) Appellant vs. Respondent Appellant Respondent 1. 1990/Ahd/2015 2008-09 Bright Autoplast Ltd. The ACIT (Previously known as Circle-1(1)(1) Bright Autoplast Ahmedabad- Pvt.Ltd.) 15 7th Floor, Abhijeet (Revenue) Building Mithakali Six Roads Ellisbridge Ahmedabad-380 007 PAN: AADCB 1921F (Assessee) 2 1991/Ahd/2015 2009-10 By Assessee Add.CIT Range-1(1) 3 1992/Ahd/2015 2009-10 By Assessee By Revenue 4. 2102/Ahd/2015 2009-10 The DCIT By Assessee Circle-1(1)(1), Ahmedabad 5. 2103/Ahd/2015 2010-11 By Revenue By Assessee 6. 1182/Ahd/2016 2012-13 By Revenue By Assessee 7. 2018/Ahd/2015 2010-11 By Assessee By Revenue 8. 2101/Ahd/2015 2008-09 By Revenue By Assessee 9. 2774/Ahd/2016 2013-14 By Revenue By Assessee 10. 1148/Ahd/2016 2012-13 By Assessee By Revenue 11. 2168/Ahd/2015 2011-12 By Revenue By Assessee Revenue by : Shri Milin Mehta, AR Assessee by : Ms. Sonia Kumar Sr.DR, Shri Alok Singh CIT-DR सुनवाई क� तार�ख/ Date of Hearing 27/06/2019 घोषणा क� तार�ख /Date of Pronouncement 28/06/2019 आदेश / O R D E R PER BENCH:
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 2 - The captioned appeals have been filed at the instance of the Assessee as well as Revenue against the separate orders of the Commissioner of Income Tax (Appeals)–1, Ahmedabad [CIT(A) in short]. In Assessee’s appeal, i.e., ITA No.1990/Ahd/2015 vide appeal no.CIT(A)-VI/Addl.CIT R-1/288/2011-12 Now 164/CIT(A)-1 dated 21/04/2015 arising in the assessment order passed under s.143(3) r.w.s.147 of the Income Tax Act, 1961(from now on referred to as "the Act") dated 28/12/2010 relevant to Assessment Year (AY) 2008-09.
Since all these appeals are inter-connected, therefore these are being disposed of by way of this consolidated order for the sake of convenience.
First, we take up ITA No. 1990/Ahd/2015 – AY 2008-09. The assessee has raised the following grounds of appeal:
All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Depreciation on Technical Know-how: 1. The learned Commissioner of Income Tax (Appeals)-1, Ahmedabad [“the CIT(A)”] erred in fact and in law in confirming the action of the Assistant Commissioner of Income Tax, Circle-1, Ahmedabad (“the AO”) in valuing the Technical Know-how at Rs.4,02,89,018/- interest of Rs.12,83,83,923/- considered by the Appellant. 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in restricting the claim of depreciation on Technical Know-how at Rs.50,36,127/- instead of Rs.1,60,47,865/- claimed by the Appellant and thereby making addition of Rs.1,10,11,738/- to the income of the Appellant. 3. Without prejudice to Grounds No.1 & 2, the learned CIT(A) erred in fact and in law in attributing the differential amount of Rs.8,80,93,905/- (i.e. difference of Rs.12,83,83,923 – Rs.4,02,89,018) to Goodwill.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 3 - 4. The learned CIT(A) erred in fact and in law in not allowing depreciation on Goodwill. Other Additions: 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing sum of Rs.7,20,500/- claimed u/s.35D of the Income Tax Act, 1961 (of the Income Tax Act, 1961 (hereinafter referred to as "the Act")). 6. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing expenses incurred for documentation charges, processing fees and stamp duty expenses amounting to Rs.5,24,820/- treating it as capital expenditure. 7. Without prejudice to Ground No.6, the learned CIT(A) erred in fact and in law in not allowing depreciation on the sum of Rs.5,24,820/- treated as capital expenditure for acquisition of assets. Interest: 8. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234B of the Act. 9. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234C of the Act. 10. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234D of the Act. Penalty: 11. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s.271(1)(c) of the Act. 12. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.
The 1st issue raised by the assessee in ground Nos. 1 to 4 is that the learned CIT (A) erred in restricting the addition of the depreciation for ₹1,10,11,738 only out of the total depreciation claimed by it at Rs.1,60,47,865.00 only on the technical know-how.
Briefly stated facts are that the assessee in the present case is a limited company and engaged in the manufacturing business of automotive
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 4 - components. The assessee in the year under consideration has acquired the business of bright brothers Ltd (for short BBL) as a going concern on the slum sale basis on a consideration of Rs. 1489.00 million only. The assessee, while purchasing the business as discussed above, has not assigned the value to the individual assets acquired by it. Accordingly, the assessee after the acquisition of the business has recorded the assets and the liabilities acquired in the slump sale after assigning the values to individual assets and liabilities based on the valuation report. The assessee among other assets has also recorded intangible assets at ₹ 12,83,82,923.00 and claimed depreciation thereon at ₹ 1,60,47,865.00 only.
2.1 However, the AO during the assessment proceedings observed certain facts as detailed under: i. There was no specific intangible asset acquired by the assessee from the company. As such, the seller company did not own any registered intellectual property rights. ii. There was no evidence available with the assessee regarding the acquisition of the technology by BBL from Cannon Shelly. As such the BBL has acquired machines and equipment from Cannon Shelly. iii. There was no mention in the valuation report about the acquisition of the technology by the assessee from BBL. Moreover, the valuation report was not obtained by the assessee from the approved valuer.
iv. The valuer in his statement furnished under section 131 of the Act has also denied in question No. 19 that the assessee provided no detail for the acquisition of any patents, intellectual property rights, or similar rights.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 5 -
v. The assessee was provided the opportunity for the cross- examination against the statement recorded under section 131 of the Act of the valuer but the assessee denied to avail the same.
2.2 In view of the above, the AO concluded that the assessee had not acquired any technical know-how as claimed by it. Accordingly, in the absence of any technical know-how, the assessee cannot claim the depreciation thereon. The AO accordingly valued the block of technical know-how at nil. Thus the depreciation claimed by the assessee for ₹ 1,60,47,865.00 on technical know-how was denied and accordingly added to the total income of the assessee.
The aggrieved assessee preferred an appeal to the learned CIT (A).
The assessee before the learned CIT (A) submitted that it had acquired technical know-how from BBL as evident from the clause 13.20.5 of schedule 1L of the business transfer agreement.
3.1 The assessee also claimed that all the details for the acquisition of the technical know-how were furnished before the AO during the assessment proceedings.
3.2 The assessee also claimed that the valuation was done by the Government approved valuer, and accordingly, the report furnished by him cannot be rejected.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 6 -
3.3 The learned CIT (A) after considering the submission of the assessee observed that the assessee had acquired machines with the technologies which were not valued by BBL separately in its books of accounts. But there was the reference which has been mention in the business transfer agreement in the clause 13.20.5 of schedule 1L as discussed above.
3.4 Accordingly, the learned CIT (A) worked out the value of the machines and the technologies for the use of such machines separately by observing as under:
“(C).6 In the case of appellant as far as two technology “Back Foaming Technology” and “Gas Assist injection moulding” are concerned, the same were though held to be in built in this “ Cannon Shelly power foam PF 2212 machine” but acquired by M/s.BBL from M/s.Cannon Shelly in 1997 and M/s.BBL was reaping the monopoly of same technology at the time of transfer of automotive division. The same technology valued separately by appellant as “Technical KnowHow” though in the books of M/s.BBL no such separate technical KnowHow or IPR was mentioned. As per the ratio of case laws relied on by appellant, there can be much technical Know How or IPR in the bundle of “good will” if fixed assets are valued separately and intangible assets are valued separately. The specialized machine so acquired with such technique with qualified trained staff, such technology get transferred to appellant and can be valued separately. This left with the question now to be adjudicated that when such technology is part & parcel of any machine and such machine is valued separately and such technology valued separately then how the valuation of such machine is done i.e. whether such valuation is with such technique or such software, micro processor etc. or not? Another technical question which required consideration is whether such technical knowhow can be used independently or separately from such machines? It is in this regard, I am inclined with A.O. that as per statement of valuer, the process of valuation of “Technical knowhow” is based on the premium derived by appellant at Rs.102/- for ten years by using both machine as well as such techniques. The valuation of Technical knowhow is Rs.12,83,82,923/- but the same cannot be without use of such specialized machine and hence, the valuation of technical knowhow can only be attributed as total value of such technical knowhow reduced by value of bare machines. It is therefore the appropriate valuation of “technical knowhow” on account of acquisition of “cannon shelley machine” with such two specialized techniques can be of Rs.4,02,89,018/- only. The appellant claimed and granted depreciation on value of machine at Rs.88093905/-. The appellant did not claim depreciation on good will either of Rs.6,38 crores or Rs.53.24 crore as discussed above. It is therefore, the appellant can only be granted depreciation
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 7 - on “Technical knowhow” of Rs.40289018/-, while the balance value out of total ‘Technical Knowhow’ of Rs.128383923/- i.e. Rs.88093905/- will go into “Good will”. “
Being aggrieved by the order of the learned CIT (A), both the assessee and the Revenue are in appeal before us. The assessee is in appeal before us against the confirmation of the disallowance of the depreciation in part amounting to Rs. 1,10,11,738.00 whereas the Revenue is in an appeal against the deletion of the disallowance of the depreciation amounting to Rs. 50,36,127.00 only.
The ground of appeal of the Revenue (in ITA No.2101/Ahd/2015 – AY 2008-09) reads as under:
(1) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on non-complete fee u/s.32(1)(ii) of the Act. (2) The ld. CIT(A) has erred in law and on facts in partly deleting the disallowance of depreciation of know-how u/s.32(1)(ii) of the Act. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The learned AR before us filed a paper book running from pages 1 to 554 and submitted that as under:
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 8 - The technical knowhow could not be rejected merely on the ground that no separate payment was made by the Assessee, since the fixed assets as well as the intangible assets were acquired by the Assessee, as a part of slump sale, by making a lump sum payment, and a separate valuation of the knowhow was carried out by the Assessee. The valuation report for the technical know-how was placed on record. The AO had failed to point out any technical error in the valuation report. The Assessing Officer also failed to place on record any other comparable valuation report so as to reject the valuation report submitted by the Assessee. The valuation methodology and procedure was explained by the valuer, Shri Paresh S.Shah which was not controverted by the AO. It is submitted that since it has already been held that the differential sum represents goodwill, depreciation is allowable on the same u/s.32 of the Act. We rely on CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC).
Even if it is held that depreciation on the goodwill has not been claimed by the Assessee, the same shall be available as deduction u/s.32 in accordance with Explanation 5 to section 32 of the Act which states that depreciation is to be allowed to the Assessee whether or not it has been claimed while computing total income. Refer decision in the case of Rakesh Singh vs ACIT [2012] 139 ITD 128 (Bangalore), wherein it has been held that deduction of depreciation u/s.32 shall be available despite the same is not claimed by the Assessee in its return of income. Further, the additional claim of depreciation is to be allowed even where the same is not claimed in the return of income by the Assessee and is arising as a result of findings of the CIT(A). In the case of National Thermal Power Co. Ltd. [1998] 229 ITR 383, the Apex Court held that Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the lower authorities and has bearing on the tax liability of the Assessee. Therefore, depreciation should be allowed to the Appellant on the total value of Goodwill as determined by the CIT(A).
On the contrary, the learned DR before us submitted that the assessee had not taken the plea before the authorities below that the amount of
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 9 - technical know-how should be treated as goodwill in the event it is held that there was no technical know-how acquired by it. Accordingly, the learned DR before us pleaded that the matter should be restored to the file of the learned CIT (A) for fresh adjudication.
The learned AR in his rejoinder agreed to restore to the file of the learned CIT(A) for fresh adjudication as per the provisions of law.
We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates whether the assessee has acquired any technical know-how from BBL or not. If there is no acquisition of technical know-how, then there is no question of claiming the depreciation on the technical know-how as discussed above.
8.1 From the preceding discussion, we note that the total consideration paid by the assessee on the acquisition of the business of BBL as going concern on slump sale basis has not been disputed by the authorities below. Thus it can be inferred that the assessee is entitled to the deduction of the payment made by it on the acquisition of the business of BBL as discussed above as per the provisions of law. It is an undisputed fact that the assessee has made the payment for ₹12.84 arose which is in dispute whether it represents the payment towards technical know-how. In our considered view once the payment has been admitted by the authorities below, then the assessee is entitled to the deduction for the same by way of the depreciation either on the technical know-how or the goodwill in the given facts & circumstances. But this aspect has not been adjudicated by the learned CIT
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 10 - (A). Therefore in the interest of justice and fair play, we are restoring this issue to the file of the learned CIT (A) for fresh adjudication as per the provisions of law.
8.2 Similarly, we note that the ground of appeal raised by the Revenue is inter-connected to the ground of appeal raised by the assessee as discussed above. Therefore the issue raised by the Revenue also needs to be restored back to the file of the learned CIT (A) for fresh adjudication as per the provisions of law. Hence, the ground of appeal of the assessee and the revenue are allowed for statistical purposes.
The 2nd issue raised by the assessee in ground No. 5 is that learned CIT (A) erred in confirming the order of the AO by disallowing the deduction under section 35D of the Act for Rs. 7,20,500.00 only.
The assessee in the year under consideration has incurred certain expenses as detailed under:
Sr.No. Particulars of expenses Amount (in Rs) 1 Fees paid for the incorporation of 10,000 the Company 2 ROC fees for increase in 31,02,500 Authorized Share Capital 3 Stamp Duty on share certificate for 5,00,000 issue of shares Total 36,12,500
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 11 - 9.1 The assessee further claimed that such expenditures are eligible for deduction under section 35D of the Act and accordingly claimed a 1/5th deduction of such expenditure.
9.2 However, the AO was of the view that such expenditures are capital in nature, and therefore, these are not eligible for deduction under section 35D of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee.
The aggrieved assessee preferred an appeal to the learned CIT (A) who has confirmed the order of the AO by observing as under:
“I am inclined with A.O. that in view of specific expenditure as detailed by appellant and in view of ratio of Hon’ble Supreme Court order in the case of Brook Bond India and Hon’ble Gujarat High Court in the case of M/s.Vareli textile ltd. such expenditure cannot be allowed as deduction u/s.35D(2)(iv) of the Act. With due regard, the facts of the cases as relied on the appellant are distinguishable hence not applicable. The addition so made therefore upheld and confirmed. This ground is dismissed.”
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us submitted as under:
The Expenses incurred by the Appellant are in nature of Stamp duty payment and ROC fees for issue of the additional capital which is expenditure as stated in Section 35D(2)(c)(iv).
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 12 -
The Appellant relies on the following judgements wherein it has been held that ROC Filing fees and stamp duty are in nature of expenditures allowable u/s.35D of the Act.
1) CIT vs. Muti Metals Ltd. (1991) 188 ITR 151 (Raj) 2) ACIT vs. Fascel Ltd. (2009) 120 TTJ 289 (Delhi)
The learned Assessing Officer & CIT(A) relied upon the Apex Court decision of Brooke Bond India Ltd. vs. CIT (1997) 225 ITR 798 and disallowed the claim of preliminary expenditure claimed by the Appellant. It is submitted that question raised before the Hon’ble SC was whether the expenditure incurred on expansion of capital base is capital or revenue in nature. The SC did nto consider the question whether preliminary expenses u/s.35D of the Act were allowable or not.
Therefore, the amortization of the expenditure over the period of 5 years is as per the provisions of Section 35D of the Act.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates whether the assessee is entitled to claim the deduction of the expenditure incurred by it in connection with the enhancement of the share capital under section 35D of the Act.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 13 - At this juncture, we find it important to refer to the provisions of section 35D of the Act which reads as under: Amortisation of certain preliminary expenses. 7035D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),— XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :— (a) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (b) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (c) where the assessee is a company, also expenditure— (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; (d) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
A perusal of the above provision reveals that the expenditures incurred in connection with the issue of shares are eligible for the deduction under section 35D(2)(c)(iv) of the Act. In holding so, we find support and guidance from the order of Delhi Tribunal in the case of ACIT Vs. Fascel Ltd. reported in 120 TTJ 289 wherein it was held as under:
“18. We have heard the rival submissions. The learned Departmental Representative relied on the decision of the Hon'ble Supreme Court in the cases of Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792ftn1Asstt. CIT v. Fascel Ltd..htm (SC) and Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798ftn2Asstt. CIT v. Fascel Ltd..htm (SC). Section 35D(2) clause (c)( iv) allows 1/10th of expenditure incurred in connection with issue for public subscription of shares in or debentures of a company. The Rajasthan High Court in the case of Multi Metals Ltd. (supra) had considered the fee paid to RoC as falling within the ambit
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 14 - of section 35D(2)(c)( iv) of the Act. The Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. (supra) and Brooke Bond India Ltd. (supra) was, however, dealing with a different situation, namely, as to whether the fee paid to RoC is a capital expenditure or revenue expenditure. We, therefore, see no conflict between the decision of the Hon'ble Supreme Court and the Rajasthan High Court in the case of Multi Metals Ltd. (supra). The CIT(A) has followed decision of the Hon'ble Rajasthan High Court and had allowed the claim of the assessee. We confirm the order of the CIT(A) and dismiss this ground of appeal of the Revenue also.”
13.1 The facts of the case on hand are identical to the facts of the case, as discussed above. Therefore, respectfully following the same, we reverse the order of the authorities below and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
13.2 The learned counsel did not press the issues raised in ground No. 6 and 7 by the assessee. Therefore, we dismiss the same as not pressed.
13.3 The issues raised in ground No. 8, 9 & 10 are consequential, the issue raised in ground No. 11 is premature to decide and the issue raised in ground No. 12 is general. Therefore we dismissed all of them as infructuous.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Coming to the ITA 2101/AHD/2015 – AY 2008--09 The Revenue has raised the following grounds of appeal:
(1) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on non-complete fee u/s.32(1)(ii) of the Act.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 15 - (2) The ld. CIT(A) has erred in law and on facts in partly deleting the disallowance of depreciation of know-how u/s.32(1)(ii) of the Act. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance made by the AO for the amount of rupees 62,50,000.00 on account of the depreciation on the non-compete fee paid by the assessee.
The assessee in the year under consideration has paid a non-compete fee to the promoters of BBL whereby it was agreed that the promoters of BBL would not compete with the assessee in the business acquired by it for certain time as per the agreement dated 6th September 2007. The assessee on the payment of non-compete fee claimed the depreciation for ₹ 62,50,000 under section 32(1)(ii) of the Act treating the same as intangible assets.
14.1 However, the AO disallowed the claim of the depreciation by observing that there is no provision under the Act for treating such non- compete fee payment as intangible assets. Accordingly, the AO disallowed the same and added to the total income of the assessee.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 16 - 15. The aggrieved assessee preferred an appeal to the learned CIT (A) who has deleted the addition made by the AO.
Being aggrieved by the order of the learned CIT (A) Revenue is in appeal before us.
Both the parties before us relied on the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the Hon’ble Gujarat High Court has settled the issue raised by the Revenue in the case of PCIT Vs. Piramal Glass Limited in tax appeal no. 556 of 2017 wherein it was held as under:
“2. We notice that before the Tribunal there was Cross Appeal filed by the Revenue. From the Revenue's Appeal disposed of by the Tribunal, following two additional questions are framed in this Appeal: "(i) Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in deleting the ground raised by the revenue on write off of non compete fees ofRs.18 Crores over a period of 18 years without discussing the issue on merits ? (ii) Whether on the facts and in the circumstances of the case and in law, non-compete fee ofRs.18 Crores paid by the assessee can be written off in 18 years in a manner granted by the CIT(A) ? " 3. Question No. (a) noted above pertains to the decision of the Tribunal to grant depreciation on the Assessee's payment of non-compete fees. According to the Revenue, this being an intangible asset, no depreciation under Section 32 of the Income Tax Act, 1961 ('the Act' for short) was available.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 17 - 4. We however notice that similar issue has been considered by the different High Courts and held in favour of the Assessee. A reference can be made to the 1 decision of the Division Bench of the Gujarat High Court in the case of Principal Commissioner of Income Tax v. Ferromatice Milacron India (P.) Limited. It was also the case where the Assessee had incurred expenditure pursuant to the non-compete agreement and claimed depreciation on such asset. While dismissing the Revenue's Appeal against the Judgment of the Tribunal, following observations were made:
"We may recall the Assessing Officer does not dispute that the expenditure was capital in nature since by making such expenditure, the assessee had acquired certain enduring benefits. He was, however, of the opinion that to claim depreciation, the assessee must satisfy the requirement of Section 32(1)(ii) of the Act, in which Explanation 3 provides that for the purpose of the said sub-section the expression "assets" would mean ( as per clause (b) ) intangible assets, being known-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights, of similar nature. In the opinion of the Assessing Officer, the non-compete fee would not satisfy this discrimination. Going by his opinion, no matter what the rights acquired by the assessee through such non-compete agreement, the same would never qualify for depreciation in section 32(l)(ii) of the Act as being depreciable intangible asset. This view was plainly opposed to the well settled principles. In case of Techno Shares & Stocks Limited (supra) the Supreme Court held that payment for acquiring membership card of Bombay Stock Exchange was intangible assets on which the depreciation can be claimed. It was observed that the right of such membership included right of nomination as a license which was one of the items which would fall under Section 32(1)(ii). The right to participate in the market had an economic and money value. The expenses incurred by the assessee which satisfied the test of being a license or any other business or commercial right of similar nature In case of Areva T & D India Limited (supra) Division Bench of Delhi High Court had an occasion to interpret the meaning of intangible assets in context of section 32(l)(ii) of the Act. It was observed that on perusal of the meaning of the categories of specific intangible assets referred to in section 32(l)(ii) of the Act preceding the term "business or commercial rights of similar nature" it is seen that intangible assets are not of the same kind and are clearly distinct from one another. The legislature thus did not intend to provide for depreciation only in respect of the specified intangible assets but also to other categories of intangible assets which may not be possible to exhaustively enumerate. It was concluded that the assessee who had acquired commercial rights to sell products under the trade name and through the network created by the seller for sale in India were entitled to deprecation. In the present case, Mr.Patel was erstwhile partner of the assessee. The assessee had made payments to him to ward off competence and to protect its existing business. Mr.Patel, in turn, had agreed not to solicit contract or seek business from or to a person whose business relationship is with the assessee. Mr. Patel would not solicit directly or indirectly any employee of the assessee. He would not disclose any confidential information which would include the past and current plan, operation of the existing business, trade secretes lists etc.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 18 -
It can thus be seen that the rights acquired by the assessee under the said agreement not only give enduring benefit, protected the assessee’s business against competence, that too from a person who had closely worked with the assessee in the same business. The expression "or any other business or commercial rights of similar nature" used in Explanation 3 to sub-section 32(1)(ii) is wide enough to include the present situation."
No question of law in this respect therefore arises.”
In view of the above, we hold that the assessee is entitled to the depreciation on the payment of a non-compete fee to the party. Accordingly, we do not find any reason to interfere in the order of the learned CIT (A). The ground of appeal of the Revenue is dismissed.
The 2nd issue raised by the revenue is that the learned CIT (A) erred in deleting the disallowance of the depreciation in part made by the AO for Rs. 50,36,127.00 on the technical know-how.
At the outset, we note that the issue raised by the Revenue has already been adjudicated along with the ground of appeal raised by the assessee in ITA No. 1990/Ahd/2015 vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the Revenue for statistical purposes.
In the result, the appeal of the Revenue in ITA No.2101/Ahd/2015 for AY 2008-09 is partly allowed for statistical purposes.
Coming to ITA No. 1991/AHD/2015 for the AY 2009-10
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 19 -
The assessee has raised the following grounds of appeal:
All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Depreciation on Technical Know-how: 1. The learned Commissioner of Income Tax (Appeals)-1, Ahmedabad [“the CIT(A)”] erred in fact and in law in confirming the action of the Additional Commissioner of Income Tax, Range-1, Ahmedabad (“the AO”) in valuing the Technical Know-how at Rs.4,02,89,018/- instead of Rs.12,83,83,923/- considered by the Appellant. 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in restricting the claim of depreciation on Technical Know-how at Rs.88,13,223/- instead of Rs.2,80,83,765/- claimed by the Appellant and thereby making addition of Rs.1,92,70,542/- to the income of the Appellant. 3. Without prejudice to Grounds No.1 & 2, the learned CIT(A) erred in fact and in law in attributing the differential amount of Rs.8,80,93,905/- (i.e. difference of Rs.12,83,83,923 – Rs.4,02,89,018) to Goodwill. 4. The learned CIT(A) erred in fact and in law in not allowing depreciation on Goodwill. Other Additions: 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing sum of Rs.7,20,500/- claimed u/s.35D of the Income Tax Act, 1961 (of the Income Tax Act, 1961 (hereinafter referred to as "the Act")). Interest: 6. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234B of the Act. 7. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234C of the Act. 8. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234D of the Act. Penalty: 9. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s.271(1)(c) of the Act.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 20 - 10. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.
The 1st issue raised by the assessee in ground Nos. 1 to 4 is that the learned CIT (A) erred in restricting the addition of the depreciation in part whereas the assessee is entitled to the full depreciation on the technical know-how.
At the outset, we note that the issues raised by the assessee in ground nos. 1 to 4 are identical to the issues raised by the assessee in ITA No. 1990/Ahd/2015 for AY 2008-09 (supra) which we have restored to the file of the learned CIT (A) for the fresh adjudication as per the provisions of law vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee for the statistical purposes.
The 2nd issue raised by the assessee in ground No. 5 is that learned CIT (A) erred in confirming the order of the AO by disallowing the deduction under section 35D of the Act for Rs. 7,20,500.00 only.
At the outset, we note that the issue raised by the assessee in ground 5 is identical to the issues raised by the assessee in ITA No. 1990/AHD/2015 which we have allowed in favour of the assessee and against the Revenue vide Para number 10 of this order. For the detailed discussion, please refer
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 21 - to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Coming to ITA No. 2102/AHD/2015 for the AY 2009-10
The Revenue has raised the following grounds of appeal: (1) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on non-complete fee u/s.32(1)(ii) of the Act. (2) The ld. CIT(A) has erred in law and on facts in partly deleting the disallowance of depreciation of know-how u/s.32(1)(ii) of the Act. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance made by the AO on account of the depreciation on the non-compete fee paid by the assessee.
At the outset, we note that the issue raised by the Revenue in ground no. 1 is identical to the issue raised by it in ITA No. 2101/AHD/2015 which we have decided against the Revenue and in favour of the assessee vide Para number 14 of this order. For the detailed discussion, please refer to the
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 22 - relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the Revenue.
The 2nd issue raised by the revenue is that the learned CIT (A) erred in deleting the disallowance of the depreciation in part made by the AO on the technical know-how.
At the outset, we note that the identical issue raised by the Revenue has already been adjudicated along with the ground of appeal raised by the assessee in ITA No. 1990/AHD/2015 vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the Revenue for statistical purposes.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Coming to ITA No. 2018/AHD/2015 for the AY 2010-11
The assessee has raised the following grounds of appeal:
All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Depreciation on Technical Know-how: 1. The learned Commissioner of Income Tax (Appeals)-1, Ahmedabad [“the CIT(A)”] erred in fact and in law in confirming the action of the Additional Commissioner of Income Tax, Circle-1, Ahmedabad (“the AO”) in valuing the Technical Know-how at Rs.4,02,89,018/- interest of Rs.12,83,83,923/- considered by the Appellant.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 23 - 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in restricting the claim of depreciation on Technical Know-how at Rs.66,09,917/- instead of Rs.2,10,62,824/- claimed by the Appellant and thereby making addition of Rs.1,44,52,907/- to the income of the Appellant. 3. Without prejudice to Grounds No.1 & 2, the learned CIT(A) erred in fact and in law in attributing the differential amount of Rs.8,80,93,905/- (i.e. difference of Rs.12,83,83,923 – Rs.4,02,89,018) to Goodwill. 4. The learned CIT(A) erred in fact and in law in not allowing depreciation on Goodwill. Other Additions: 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing sum of Rs.7,20,500/- claimed u/s.35D of the Income Tax Act, 1961 (of the Income Tax Act, 1961 (hereinafter referred to as "the Act")). Interest: 6. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234B of the Act. 7. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234C of the Act. 8. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234D of the Act. Penalty: 9. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s.271(1)(c) of the Act. 10. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.
The 1st issue raised by the assessee in ground No. 1 to 4 is that the learned CIT (A) erred in restricting the addition of the depreciation whereas the assessee is entitled to the full depreciation on the technical know-how.
At the outset, we note that the issues raised by the assessee in ground nos. 1 to 4 are identical to the issues raised by the assessee in ITA No. 1990/AHD/2015 which we have restored to the file of the learned CIT (A)
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 24 - for the fresh adjudication as per the provisions of law vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee for the statistical purposes.
The 2nd issue raised by the assessee in ground No. 5 is that learned CIT (A) erred in confirming the order of the AO by disallowing the deduction under section 35D of the Act for Rs. 7,20,500.00 only.
At the outset, we note that the issue raised by the assessee in ground 5 is identical to the issues raised by the assessee in ITA No. 1990/AHD/2015 which we have allowed in favour of the assessee and against the Revenue vide Para number 10 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Coming to ITA No. 2103/AHD/2015 for the AY 2010-11
The Revenue has raised the following grounds of appeal:
(1) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on non-complete fee u/s.32(1)(ii) of the Act. (2) The ld. CIT(A) has erred in law and on facts in partly deleting the disallowance of depreciation of know-how u/s.32(1)(ii) of the Act.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 25 - On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance made by the AO in part on account of the depreciation on the non-compete fee paid by the assessee under section 32(1)(ii) of the Act.
At the outset, we note that the issue raised by the Revenue in ground no. 1 is identical to the issue raised by it in ITA No. 2101/AHD/2015 which we have decided against the Revenue and in favour of the assessee vide Para number 14 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the Revenue.
The 2nd issue raised by the revenue is that the learned CIT (A) erred in deleting the disallowance of the depreciation in part made by the AO on the technical know-how.
At the outset, we note that the identical issue raised by the Revenue has already been adjudicated along with the ground of appeal raised by the assessee in ITA No. 1990/AHD/2015 vide Para number 8 of this order. For
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 26 - the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the Revenue for statistical purposes.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Coming to ITA No. 1992/AHD/2015 for the AY 2011-12
The assessee has raised the following grounds of appeal:
All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Depreciation on Technical Know-how: 1. The learned Commissioner of Income Tax (Appeals)-1, Ahmedabad [“the CIT(A)”] erred in fact and in law in confirming the action of the Deputy Commissioner of Income Tax, Circle-1, Ahmedabad (“the AO”) in valuing the Technical Know-how at Rs.4,02,89,018/- interest of Rs.12,83,83,923/- considered by the Appellant. 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in restricting the claim of depreciation on Technical Know-how at Rs.49,57,438/- instead of Rs.1,57,97,118/- claimed by the Appellant and thereby making addition of Rs.1,08,39,680/- . 3. Without prejudice to Grounds No.1 & 2, the learned CIT(A) erred in fact and in law in attributing the differential amount of Rs.8,80,93,905/- (i.e. difference of Rs.12,83,83,923 – Rs.4,02,89,018) to Goodwill. 4. The learned CIT(A) erred in fact and in law in not allowing depreciation on Goodwill. Other Additions: 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing sum of Rs.7,20,500/- claimed u/s.35D of the Income Tax Act, 1961 (of the Income Tax Act, 1961 (hereinafter referred to as "the Act")). 6. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing payment of employees contribution to PF amounting to
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 27 - Rs.14,67,120/- on the ground that the payment was not made within the stipulated period despite the fact that the Appellant has made payment before the due date of filing the return of income. Interest: 7. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234B of the Act. 8. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234C of the Act. 9. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s.234D of the Act. Penalty: 10. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s.271(1)(c) of the Act. 11. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.
The 1st issue raised by the assessee in ground No. 1 to 4 is that the learned CIT (A) erred in restricting the addition of the depreciation whereas the assessee is entitled to the full depreciation on the technical know-how.
At the outset, we note that the issues raised by the assessee in ground nos. 1 to 4 are identical to the issues raised by the assessee in ITA No. 1990/AHD/2015 which we have restored to the file of the learned CIT (A) for the fresh adjudication as per the provisions of law vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee for the statistical purposes.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 28 - The 2nd issue raised by the assessee in ground No. 5 is that learned CIT (A) erred in confirming the order of the AO by disallowing the deduction under section 35D of the Act for Rs. 7,20,500.00 only.
At the outset, we note that the issue raised by the assessee in ground 5 is identical to the issues raised by the assessee in ITA No. 1990/AHD/2015 which we have allowed in favour of the assessee and against the Revenue vide Para number 10 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee.
The 3rd issue raised by the assessee in ground No. 6 is that the learned CIT (A) erred in upholding the disallowance of ₹ 14,67,120.00 on account of late deposit of the PF and ESIC.
We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the assessee has delayed in making the payment of employee’s contribution of PF/ ESI as specified under the relevant Act. Therefore, the disallowance was made by the AO u/s 36(1)(va) r.w.s. 2(24)(x) of the Act. The Ld. CIT-A subsequently confirmed the view taken by the AO. The Ld. AR before us has not challenged the proposition laid down by the Hon’ble Gujarat High Court in the case of CIT Vs. GSRTC reported in 366 ITR 170, wherein it was held as under: “In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 29 - of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees' account in the relevant fund or funds on or before the "due date" mentioned in explanation to section 36(1)(va).Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.”
However, the Ld. AR before us has submitted that the Hon’ble Supreme Court has admitted the SLP against the order of the Hon’ble Gujarat High Court as discussed above. Accordingly, the ld. AR before us prayed to restore the matter before the AO with the direction to wait until the verdict of the Hon’ble Supreme Court and apply the same to the case on hand.
30.1 However, we note that impugned is covered against the assessee by the judgment of the Hon’ble High Court as discussed above. The ld. AR has also not moved an application under the provisions of section 158A of the Act to avoid the repetitive appeals. Therefore, we are not inclined to entertain the plea of the ld. AR for the assessee. Hence the ground of appeal of the assessee is dismissed.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 30 - Coming to ITA No. 2168/AHD/2015 for the AY 2011-12
The Revenue has raised the following grounds of appeal:
(1) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on non-complete fee u/s.32(1)(ii) of the Act. (2) The ld. CIT(A) has erred in law and on facts in partly deleting the disallowance of depreciation of know-how u/s.32(1)(ii) of the Act. (3) The ld.CIT(A) has erred in law and on facts in deleting the addition made of Rs.13,26,163/- on account of unutilized CENVAT Credit u/s45A of the Act. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance made by the AO on account of the depreciation on the non-compete fee paid by the assessee.
At the outset, we note that the issue raised by the Revenue in ground no. 1 is identical to the issue raised by it in ITA No. 2101/AHD/2015 which we have decided against the Revenue and in favour of the assessee vide Para number 14 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the Revenue.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 31 - The 2nd issue raised by the revenue is that the learned CIT (A) erred in deleting the disallowance of the depreciation in part made by the AO on the technical know-how.
At the outset, we note that the identical issue raised by the Revenue has already been adjudicated along with the ground of appeal raised by the assessee in ITA No. 1990/AHD/2015 vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the Revenue for statistical purposes.
The 3rd issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 13,26,163/- on account of unutilized CENVAT credit u/s 145A of the Act.
The assessee during the assessment proceedings claimed that it has been following the exclusive method of accounting. Therefore, the opening stock, purchases, sales, and closing stock of the goods were recorded in the books of accounts without including the amount of CENVAT/VAT.
33.1 However, the Assessing Officer observed that it is mandatory to value the closing stock as per the provisions of section 145A of the Act, i.e. after including the element of the taxes. Accordingly, the Assessing Officer found that there was a closing balance of CENVAT as on 31/03/2011 for Rs. 13,26,163/- only which needs to be included in the closing stock of the goods. Hence, the Assessing Officer was of the view that the assessee has
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 32 - undervalued its closing stock by the amount of Rs. 13,26,163/- and accordingly, the same was added to the total income of the assessee.
The aggrieved assessee preferred an appeal to the Ld. CIT(A) who has deleted the addition made by the Assessing Officer by observing that the entire exercise to include the CENVAT credit to the closing stock is tax neutral.
Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us.
Both the parties before us relied on the orders of the authorities below as favorable to them.
We have heard the rival contentions and perused the materials available on record. The allegation of the Assessing Officer in the instant case is that the assessee while valuing the closing stock of its goods as on 31/03/2011 has not included the amount of CENVAT which is contrary to the provisions of section 145A of the Act. Therefore, the closing stock of the assessee was enhanced by the amount of CENVAT credit of Rs.13,26,163/- as attributable to the closing stock of the assessee.
36.1 However, the Ld. CIT(A) deleted the addition made by the Assessing Officer by observing that the assessee has been following its method of valuation consistently and there was no dissatisfaction of the Assessing
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 33 - Officer about the correctness/completeness of the books of accounts of the assessee.
36.2 From the preceding discussion, we note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of CENVAT consistently. Thus, if the inventory of closing stock is enhanced by the amount of CENVAT credit attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of the closing stock without giving effect to the purchases. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of Pr.CIT vs. Gujarat Gas Company Ltd. In Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:-
“3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of Rs. 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note that with respect to modvat receivable account, there is corresponding less debit to the purchase account and hence to that extent there is already income offered for tax. If that be so, there was no question of further adding modvat/cenvat credit to the income of the assessee for the year under consideration. Under the circumstances, we see no reason to interfere with the impugned judgement and order passed by the learned tribunal so far as confirming the order passed by the learned CIT(A) deleting the addition made by the A.O. on account of unutilised modvat/cenvat credit of Rs. 56,08,089/-. We are in complete agreement with the view taken by the learned tribunal.”
36.3 There is no ambiguity that the assessee has been following the exclusive method of accounting. In view of the above, we concur with the
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 34 - view of the Ld. CIT(A) and accordingly decline to interfere in his order. Hence, the ground of appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Coming to ITA No. 1148/AHD/2016 for the AY 2012-13
The assessee has raised the following grounds of appeal: All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Section 35D: 1. The learned Commissioner of Income Tax (Appeals)-1, Ahmedabad [“the CIT(A)”] erred in fact and in law in confirming the action of the deputy Commissioner of Income Tax, Circle -1(1)(1), Ahmedabad [“the Assessing Officer”] in disallowing expenditure u/s.35D of the Income Tax Act, 1961 (“the Act”) amounting to Rs.7,20,500. 2. The learned CIT(A) erred in fact and in law in confirming the disallowance despite the fact that the conditions mentioned in section 35D for claiming deduction of Rs.7,20,500 were duly satisfied. Contribution to PF and ESI : 3. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing Employee’s contribution to provident fund and ESI amounting to Rs.16,59,547. Depreciation on Technical Know-how: 4. The learned CIT(A) erred in fact and in law in confirming the action of the AO in valuing the Technical Know-how at Rs.4,02,89,018/- interest of Rs.12,83,83,923/- considered by the Appellant. 5. The learned CIT(A) erred in fact and in law in restricting the claim of depreciation on technical know-how at Rs.37,18,078 instead of Rs.1,18,47,838 as claimed by the Appellant in the return of income and thereby confirming the addition to the extent of Rs.81,29,760 to the income of the Appellant.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 35 - 6. Without prejudice to Grounds No.4 & 5, the learned CIT(A) erred in fact and in law in not allowing depreciation on Goodwill in the current year despite the fact that the differential amount of Rs.8,80,93,905 (Rs.12,83,83,923 – Rs.4,02,89,018) was treated as Goodwill in AY 2008-09. 7. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.
The 1st issue raised by the assessee in ground Nos. 1 & 2 is that learned CIT (A) erred in confirming the order of the AO by disallowing the deduction under section 35D of the Act for Rs. 7,20,500.00 only.
At the outset, we note that the issue raised by the assessee in ground 5 is identical to the issues raised by the assessee in ITA No. 1990/AHD/2015 which we have allowed in favour of the assessee and against the Revenue vide Para number 10 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee.
The 2nd issue raised by the assessee in the ground No. 3 is that the learned CIT (A) erred in upholding the disallowance of ₹ 16,59,547.00 on account of late deposit of the PF and ESIC.
At the outset, we note that the impugned issues raised by the assessee is identical to the issues raised by the assessee in ITA No. 1992/AHD/2015 for the AY 2011-12 which we have decided against the assessee vide Para number 36 of this order. For the detailed discussion, please refer to the
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 36 - relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the assessee.
The 3rd issue raised by the assessee in ground No. 4 to 6 is that the learned CIT (A) erred in restricting the addition of the depreciation whereas it is entitled to the deduction of the depreciation at the appropriate rate at the full amount on the technical know-how.
At the outset, we note that the issues raised by the assessee in ground nos. 1 to 4 are identical to the issues raised by the assessee in ITA No. 1990/AHD/2015 which we have restored to the file of the learned CIT (A) for the fresh adjudication as per the provisions of law vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the assessee for the statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Coming to ITA No. 1182/AHD/2016 for the AY 2012-13
The Revenue has raised the following grounds of appeal:
The CIT(A) has erred in law and in facts in deleting the disallowance of unutilized CENVAT credit of Rs.3,52,044/-. 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on non-complete fee of Rs.46,14,258/-.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 37 - 3. The ld. CIT(A) has erred in law and in facts in deleting the disallowance on technical “know how” of Rs.1,57,97,118/-. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 3,52,044.00 on account of unutilized CENVAT credit.
At the outset, we note that the impugned issues raised by the Revenue is identical to the issues raised by it in ITA No. 2168/AHD/2015 for the AY 2011-12 which we have decided against the Revenue vide Para number 42 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the Revenue.
The 2nd issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance made by the AO on account of the depreciation on the non-compete fee paid by the assessee.
At the outset, we note that the issue raised by the Revenue in ground no. 1 is identical to the issue raised by it in ITA No. 2101/AHD/2015 which we have decided against the Revenue and in favour of the assessee vide Para
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 38 - number 14 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the Revenue.
The 3rd issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance of the depreciation in part made by the AO on the technical know-how.
At the outset, we note that the identical issue raised by the Revenue has already been adjudicated along with the ground of appeal raised by the assessee in ITA No. 1990/AHD/2015 vide Para number 8 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the Revenue for statistical purposes.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Coming to ITA No. 2774/AHD/2016 for the AY 2013-14
The Revenue has raised the following grounds of appeal:
(1) That the Ld.CIT(A) erred in law and on facts in deleting the addition of Rs.34,60,693/- made on account of disallowance of depreciation of Non- compete fees. (2) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.88,85,878/- made on account of disallowance of depreciation of Technical Know-how.
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 39 - (3) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.7,05,000/- made on account of disallowance of interest u/s.36(1)(iii) of the I.T.Act. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance made by the AO on account of the depreciation on the non-compete fee paid by the assessee.
At the outset, we note that the issue raised by the Revenue in ground no. 1 is identical to the issue raised by it in ITA No. 2101/AHD/2015 which we have decided against the Revenue and in favour of the assessee vide Para number 14 of this order. For the detailed discussion, please refer to the relevant paragraph. Accordingly, we dismiss the ground of appeal raised by the Revenue.
The 2nd issue raised by the revenue is that the learned CIT (A) erred in deleting the disallowance of the depreciation in part made by the AO on the technical know-how.
At the outset, we note that the identical issue raised by the Revenue has already been adjudicated along with the ground of appeal raised by the assessee in ITA No. 1990/AHD/2015 vide Para number 8 of this order. For
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 40 - the detailed discussion, please refer to the relevant paragraph. Accordingly, we allow the ground of appeal raised by the Revenue for statistical purposes.
The 3rd issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 7,05,000.00 on account capitalization of interest under section 36(1)(iii) of the Act.
The assessee in the year under consideration claimed to have capitalized an amount of Interest Expenses for ₹682.84 lakhs in respect of capital work in progress. However, the AO was of the view that the assessee was required to capitalize the interest on the capital work in progress amounting to ₹689.89 lakhs only. As such the assessee has capitalized short amount of interest expenses by ₹7.05 lakhs. On a question by the AO, the assessee failed to produce the supporting evidence. Therefore the AO disallowed the amount of ₹7.05 lakhs by holding the same as capital in nature and added to the total income of the assessee.
The aggrieved assessee preferred appeal to the learned CIT (A).
The assessee before the learned CIT (A) submitted that it had furnished the requisite details of the capital work in progress and the amount of interest which was capitalized therein. The auditor of the company duly verified such amount of capital work-in-progress and the interest expenses.
46.1 The AO without pointing out any specific defect in the working of the assessee regarding the capital work in progress and the interest expenses has
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 41 - worked out the amount of interest based on an average rate of interest, i.e. 12.50% without any basis.
46.2 The assessee also filed the details of the loan utilized in the capital work-in-progress as detailed under:
Opening Addition Amt Net Interest Processing Total Closing Balance to CWIP Transferred Balance debited fees Finance Balance as on to Assets before CWIP Cost as on April interest March 13 2012 cost 7,439.53 1808.67 3729.05 5519.15 882.84 117.07 999.91 6519.06
46.3 The learned CIT (A) deleted the addition made by the AO by observing that the AO made a similar disallowance in the assessment year 2012-13, which was deleted by the learned CIT-A. Accordingly, the learned CIT (A) also deleted the addition made by the AO for the year under consideration.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
Both the parties before us vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that there was no appeal
ITA No.1990/Ahd/2015 & ten others Bright Autoplast Ltd. vs. ACIT Circle-1(1)(1) Asst.Year – 2008-09 & Ors. - 42 - preferred by the Revenue in respect of the deletion made by the learned CIT (A) for the year pertaining to the assessment year 2012-13. Therefore, we hold that the order of the learned CIT (A) has reached its finality for the assessment year 2012-13.
48.1 Similarly, we also note that the assessee has furnished the necessary details of the capital work in progress and the amount of interest capitalized therein. But the learned DR before us has not brought any iota of evidence contrary to the finding of the learned CIT-A. Hence we do not find a reason to interfere in the order of the learned ITA. Hence the ground of appeal of the revenue is dismissed.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
In the combined result, all the appeals of the Revenue and Assessee are partly allowed for statistical purposes.
This Order pronounced in Open Court on 28/06/2019
-Sd- -Sd- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 28/06/2019 manish