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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: The Revenue filed this appeal against the order of the learned Commissioner of Income Tax (Appeals)-1, Chennai in ITA No.122/16- 17 dated 09.03.2018 for the assessment year 2012-13.
M/s. Emerald Jewel Industry India Ltd., the assessee, is engaged in the business of manufacture, purchase and sale of gold and diamond jewellery. While making assessment for the assessment year 2012-13, the AO found that the assessee carried on speculative
2 ITA No.1853/Chny/2018 transactions in gold derivatives through the Multi-Commodities Exchange (MCX), which resulted in losses of Rs.17,13,90,158/-. The assessee debited its purchase account with Rs.17,13,90,158/-, thus inflated its purchase to that extent. The AO was of the view that the transaction would not fall U/s.43(5)(e) of the Income Tax Act, 1961 (in short ‘the Act’). Specific provision, excluding the derivatives transaction, was introduced by the Finance Act, 2013 w.e.f. 01.04.2014 in Section 43(5)(e) of the Act. Therefore, he held that the provisions of Section 43(5)(e) of the Act is not applicable, the losses suffered by the assessee is in the nature of speculative transaction and hence disallowed the assessee’s claim. Further, the AO found that the assessee had purchased the brand name “Ishtaa” for Rs.8.28 crores from M/s. Ishtaa Gold Jewelry Pvt. Ltd., an associated concern of the assessee. The assessee claimed depreciation on the intangible assets on the brand “Ishtaa”. The AO found that the brand “Ishtaa” was owned by M/s. Ishtaa Gold Jewelry Pvt. Ltd., which was amalgamated with the assessee w.e.f.31.12.2009. As per the scheme of amalgamation, the Ld.AO found that intellectual property rights were also transferred to the assessee. The AO disallowed Rs.1,35,35,156/-, the depreciation on brand rights acquired during the previous year relevant to the assessment year 2010-11 on the ground that the
3 ITA No.1853/Chny/2018 assessee had not disputed it in appeal. The issue of depreciation in the earlier year i.e., 2011-12 was considered by the CIT(A) in ITA No.90/14-15 dated 12.05.2015 and the CIT(A) uphold the action of AO. Therefore, considering all of them, the AO disallowed the depreciation claim on the brand for this assessment year also. Aggrieved against that order, the assessee filed appeal before the CIT(A). The CIT(A) following the order of this Tribunal in ITA No.1811/Mds/2015 for the assessment year 2011-12 dated 07.10.2016 allowed the assessee’s appeal. Aggrieved against that order, the Revenue filed this appeal with following grounds:- 1. The order of the learned Commissioner of Income tax (Appeals)-I, Coimbatore is again facts and circumstances of the case.
The learned Commissioner of Income tax (Appeals)-I, Coimbatore has erred in allowing the assessee's claim of derivative loss as business loss when on the date of transaction, there was no existing provision in the statue in the shape of clause (e) of proviso to section -43(5) which is effected from 01.04.2014 and allowing the assessee's claim of depreciation on the brand 'Ishtaa' for the A.Y 20 I 1-12 when the disallowance made for the A.Y 2010-11 was accepted by the assessee and the disallowance of the said depreciation for the A. Y 2011-12 is a consequence of the disallowance of the depreciation for the A.Y 2010-11.
The learned Commissioner of Income tax (Appeals)-I, Coimbatore has erred to consider that the department has filed a an appeal before the Honble High Court or Chcnnai which is pending for decision.
The learned Commissioner of Income tax (Appeals)-I, Coimbatore, should have observed that the claim of assessee of derivative loss as business loss for the A.Y 2012-13 when there was no provision in the statue to give the benefit to the assessee in respect of transaction of
4 ITA No.1853/Chny/2018 commodities, which are ultimately settled otherwise than by actual delivery or transfer of the commodity as per section 43(5). And the assessee's claim of depreciation on the brand 'Ishtaa' for A.Y 2012-13 thus leading to two different results for two different A.ys on similar issue vis disallowance of depreciation far the A.Y 2010-11 and allowing the same for A.Y 2011-12 & 2012-13.
For these and other grounds that may be adduced at the time of hearing, the order of the learned Commissioner of Income tax (Appeals)- I, Coimbatore may be cancelled and that of the Assessing Officer restored.
The Ld.DR fairly conceded that the above issues have been decided in favour of the assessee by this Tribunal and the Revenue is on appeal before the Hon’ble Jurisdictional High Court which is pending for decision.
Per contra, the Ld.AR supported the order of the Ld.CIT(A) and pleaded that since the Ld.CIT(A) had followed the order of this Tribunal, the Revenue’s appeal may be dismissed.
We heard the rival submissions and gone through the relevant material. The relevant portion of the order of the ITAT, supra, is extracted as under issue-wise:-
5.1 On the issue of derivative loss as business loss
5 ITA No.1853/Chny/2018
“7. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claims depreciation on the brand “Ishtaa” claiming that it was purchased for a total consideration of `8.38 Crores. The details of payment made by the assessee are available at page 69 of the paper-book. In fact, the funds were transferred through banking channel. There is no dispute about the details of payment made by the assessee for acquiring the brand value “Ishtaa”. The assessee claims that the payments were made as follows:-
Details of Bank Payments for Brand rights Date Bank Amount ₹ 16/11/2009 State Bank of India – CC A/c 1,55,00,000 17/11/2009 State Bank of India – CC A/c 2,10,00,000 17/11/2009 State Bank of India – Current A/c 94,00,000 18/11/2009 State Bank of India – CC A/c 1,00,00,000 24/12/2009 State Bank of India – CC A/c 1,00,00,000 26/12/2009 HDFC Bank – Current A/c 1,00,00,000 30/12/2009 HDFC Bank – Current A/c 84,00,000 Total 8,38,00,000
Subsequently, M/s Ishtaa Gold Jewellery Pvt. Ltd. which owned the brand “Ishtaa”, was amalgamated with the assessee-company. Admittedly, M/s Ishtaa Gold Jewellery Pvt. Ltd. is the associate company of the assessee. Even though M/s Ishtaa Gold Jewellery Pvt. Ltd. is the associate company of the assessee, in the eye of law, the assessee is a separate and independent entity and M/s Ishtaa Gold Jewellery Pvt. Ltd. is also a different and distinct entity. Under the Income-tax Act, they are separate independent assessable unit. Therefore, for all practical purposes, the assessee as well as M/s Ishtaa Gold Jewellery Pvt. Ltd. has to be considered as independent and separate entity.
The assessee has paid about `8.38 lakhs by means of cheque as referred in the earlier part of this order. The Revenue disallowed the claim of the assessee on the intellectual property, namely, brand name “Ishtaa” that the owner of the brand name “Ishtaa” was subsequently amalgamated with assessee-company. The Assessing Officer has also observed that M/s Ishtaa Gold Jewellery Pvt. Ltd. is a loss making company and after amalgamation, the assessee itself claiming set off of
6 ITA No.1853/Chny/2018 losses against the profit earned by it. This Tribunal is of the considered opinion that the mere claiming set off of loss suffered by the amalgamated company cannot be a reason to disallow the claim of the assessee for depreciation. As rightly submitted by the Ld.counsel for the assessee, Explanation 3 to Section 32 specifically says that the brand name, the intangible asset is also one of the assets eligible for depreciation. The assessee demonstrated before this Tribunal that a sum of ₹8,38,00,000/- was paid through banking channel, which is not disputed by the Revenue. The only objection of the assessee appears to be that after amalgamation, the intellectual property right to the brand name should be transferred to the assessee. Therefore, the claim of the assessee that the brand name “Ishtaa” acquired outside the scheme of amalgamation is nothing but a colourable device. When the assessee claims that the brand name “Ishtaa” was acquired outside the scheme of amalgamation and the payment was also made, this Tribunal is of the considered opinion that the acquisition of brand name cannot be doubted especially when the payment was not in dispute.
The subsequent amalgamation made in respect of other intangible assets left out other than the brand name “Ishtaa”. M/s Ishtaa Gold Jewellery Pvt. Ltd. is also engaged in designing, manufacturing and sale of gold jewellery, it has several intangible assets apart from the brand name. Therefore, the intangible assets other than the brand name, might have been transferred during the course of amalgamation. This Tribunal is of the considered opinion that merely because there was subsequent amalgamation with effect from 31.12.2009 that cannot be construed as if the assessee has not acquired any brand name. When the assessee acquired the brand name by making payment through banking channel before amalgamation, this Tribunal is of the considered opinion that the assessee is eligible for depreciation as claimed.
The Ld. D.R. contended that during the assessment year 2010-11, a similar claim of the assessee was disallowed by the Assessing Officer on the ground that it was a colourable device. No doubt, no appeal was filed by the assessee against the order of the Assessing Officer. Therefore, the Assessing Officer has followed his order for assessment year 2010-11. As rightly submitted by the Ld.counsel for the assessee, each assessment year is separate and distinct. Moreover, the order of the Assessing Officer cannot be a bar on this Tribunal to appreciate the matter on merit. In other words, this Tribunal can go into the merit of the claim
7 ITA No.1853/Chny/2018 irrespective of the order of the Assessing Officer for assessment year 2010-11. Therefore, merely because the assessee has not filed any appeal against the order of the Assessing Officer for assessment year 2010-11 that cannot be a reason for rejecting the claim of the assessee by this Tribunal. Therefore, this Tribunal is of the considered opinion that the assessee is eligible for depreciation on the brand value acquired on payment of ₹8,38,00,000/-. Therefore, the Assessing Officer is not justified in disallowing the claim of the assessee.”
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5.2 On the issue of depreciation on brand
“16. We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the orders of both the authorities below. The Assessing Officer disallowed the claim of the assessee to the extent of ₹2,97,27,437/- on the ground that it is a loss arising out of speculative transaction. The main contention of the Assessing Officer appears to be that the transaction of the assessee would not fall under the provisions of Section 43(5)(a) of the Act. The specific provision, excluding the derivatives transaction, was introduced by Finance Act, 2013 with effect from 01.04.2014 in Section 43(5)(e). Therefore, the provisions of Section 43(5)(e) of the Act is not applicable for the year under consideration. Therefore, the Assessing Officer found that the loss suffered by the assessee is in the nature of speculative transaction. Therefore, it cannot be allowed to set off.
From the material available on record it appears that the assessee- company purchased the gold through Bank of Nova Scotia and corresponding sale of jewellery and bullion was made on the basis of Trade Settlement Advices with Multi Commodities Exchange. As and when the gold jewellery was manufactured, the assessee either makes Bank of Nova Scotia to take physical delivery or through booking with Multi Commodities Exchange. Hedging was resorted to when the funds position was not comfortable and the price of the gold was not beneficial in the spot market. The series of transactions made by the assessee with Bank of Nova Scotia and Multi Commodities Exchange are closely linked
8 ITA No.1853/Chny/2018 with the assessee’s business of manufacturing and sale of gold jewellery and purchase of gold. Therefore, the transaction of assessee is apparently for purchase of raw material, namely, the gold for manufacturing the gold jewellery and in order to safeguard the loss, the assessee was selling the jewellery through Multi Commodities Exchange. Therefore, this Tribunal is of the considered opinion that the transaction of the assessee would squarely fall under Section 43(5)(a) of the Act. Therefore, the contention of the Revenue that the transaction of the assessee would not fall under Section 43(5)(a) of the Act is not justified. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee and hence, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.”
Following the Co-ordinate Bench decision, supra, we do not find any reason to interfere with the order of the Ld.CIT(A) and hence the Revenue’s appeal is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced on the 10th July, 2019 at Chennai.
Sd/- Sd/- (धु�वु� आर एल रे�डी) ( एस जयरामन ) (Duvvuru R.L Reddy) (S. Jayaraman) �याियक सद�य/Judicial Member लेखा सद�य /Accountant Member चे�नई/Chennai, �दनांक/Dated 10th July, 2019 RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF