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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI G.S. PANNU, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 30.09.2016 passed by the Commissioner of Income Tax (Appeals) -2, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.
The revenue has raised the following grounds: - "1. Whether on the facts and in the circumstances of the case and in Law the Ld CIT(A) erred was justified in holding that rights acquired for acquisition of Customer Contracts falls within the expression "any other business
ITA No. 252/M/2017 A.Y.2012-13 or commercial rights of similar nature" as defined in Explanation 3 to Section 32{2){ii) of the Income Tax Act, 1961 and thus eligible for depreciation under Section 32 of the Income Tax Act 1961" 2. "Whether on the facts and in the circumstances of the case and in Law the Ld. CIT(A) was justified in allowing depreciation on amount paid by the assessee company for acquiring Customer Contracts even though such payment made by the assessee company could not be considered as purchase of goodwill or any other business or commercial right within the meaning of Section 32{1}(ii) of the Income Tax Act, 1961"
The brief facts of the case are that the assessee company filed its return of income on 28.09.2012 declaring a loss to the tune of Rs.(- )28,23,47,135/- under normal provisions of the Act and Book loss u/s 115JB of the Act to the tune of Rs.(-)15,96,78,868/-. The assessee filed the revised return of income on 05.04.2013 declaring the same loss under the normal provisions of the Act and Book loss u/s 115JB of the Act as per the return of the assessee filed on 28.09.2012. The return was again revised on 31.03.2014 declaring total loss to the tune of Rs.(-)32,45,14,894/- under the normal provisions of the Act and Book Loss u/s 115JB of the Act, 1961 of Rs.(-)15,96,78,868/-. The return was processed u/s 143(1) of the Act, 1961 on 11.09.2014. The refund was determined and issued. Thereafter, the case was selected for scrutiny hence notices u/s 143(2) & 142(1) of the Act, 1961 were issued and served upon the assessee. The assessee company was engaged in the business of providing the contractual services relating to the plumbing Project and fire-fighting Projects. The company was incorporated as a wholly owned subsidiary of Blue Star Ltd. on 22.06.2010. During the A.Y.2011-12, Blue Star Limited the holding company of the assessee company entered into a Business Purchase Agreement with D.S. Gupta
ITA No. 252/M/2017 A.Y.2012-13 Construction Pvt. Ltd. to acquire their plumbing and fire-fighting contract business for Rs.80 crores (including Rs.60 Crs. for Intangible Assets & Goodwill). Subsequently, the Blue Star Ltd. under a Deed of Adherence, assigned the business acquired from the DSGCPL to the assessee company. In the computation of income from the relevant assessment year, the assessee company claimed the depreciation on the intangible and goodwill acquired out of the aforesaid acquisition. The company accounted the customer contract valued at Rs.29,99,75,000/- as intangible asset in its books of account and claimed depreciation of Rs.5,62,45,313/- @ 25% on WDV of Rs.22,49,81,250/- in the instant year. The claim of the depreciation of the assessee was declined to the extent of amount of Rs.5,62,45,313/- and was added to the income of the assessee. The assessee also claimed the professional Fees paid to KPMG to the tune of Rs.25,47,500/- for availing legal services which was allowed to the extent of 1/5th in the year and remaining was extended of remaining 4 years. The total income of the assessee was assessed to the tune of Rs.26,87,79,080/-. Feeling aggrieved, the assessee has filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
ISSUE NOS. 1 & 2:- 4. Issue nos. 1 & 2 are inter-connected, therefore, are being taken up together for adjudication. Under these issues the revenue has challenged the allowance of the claim by the CIT(A) in connection with depreciation claim on customer contracts to the tune of Rs.5,62,45,313/-. The Ld. Representative of the revenue has argued that the claim of the depreciaio of ITA No. 252/M/2017 A.Y.2012-13 the assessee does not fall u/s 32 of the I.T. Act, 1961, therefore, in the said circumstances, the CIT(A) has wrongly allowed the claim of the assessee. However, on the other hand, the Ld. Representative of the assessee has relied upon the order passed by the CIT(A) in question and also argued that the finding of the CIT(A) has duly been covered by the decision of the Hon’ble ITAT Mumbai Bench in the case of India Capital Markets P. Ltd. Vs. DCIT (2013) 56 SOT 32 (Mum), Brembo Brake India (P.) Ltd. Vs. DCIT (2015) 68 SOT (Pune) & CIT Vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC). Before going further, we deemed it is necessary to advert the finding of the CIT(A) on record.:- “4.4 I have carefully considered the submission made on behalf of the appellant. As rightly pointed out by the appellant, this issue is covered in favour of the appellant in earlier year wherein CIT(A) in its order dated 29.07.2016 has held as under:- “In the instant case, the appellant has claimed depreciation on the customer contracts being intangible asset. Considering the relevant judicial decisions cited by the AR it is clear that the customer contract falls under the expression” any other business or commercial rights of similar nature as defined in Explanation 3 to sec. 342(1)(ii) and hence eligible for depreciation. Respectfully following jurisdictional ITAT Mumba- in the case of Indian Capital Markets P. Ltd. and also following the Hon’ble SC decision in the case of Smifs Securities 2012 348 ITR. I am of the considered the opinion that t6he customer contracts acquired by the appellant company is found to be intangible asset and therefore depreciation should be allowed and accordingly this ground of appeal is allowed. The aforesaid view is in accordance with the decision of jurisdictional Tribunal in the case of Indian Capital market (supra). Thus the appellant is eligible for depreciation and the addition ade by the AO is hereby deleted. This ground is thus allowed.” Respectfully following the aforesaid decision rendered in earlier year, this ground is allowed and appellant is eligible for ITA No. 252/M/2017 A.Y.2012-13 depreciation and the addition made by the AO is hereby deleted. This ground is thus allowed.”
5. On appraisal of the above said finding, we noticed that the CIT(A) has decided the matter of controversy on the basis of the decision of the CIT(A) in the earlier year order dated 29.07.2016 of the assessee which has been mentioned while passing the order and highlighted as italic above. The CIT(A) has decided the matter of controversy on the basis of decision in the case of India Capital Markets P. Ltd. Vs. DCIT (2013) 56 SOT 32 (Mum), Brembo Brake India (P.) Ltd. Vs. DCIT (2015) 68 SOT (Pune) & CIT Vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC). The relevant finding has been given in para no. 20 which is reproduced below.: -
20 It is not in doubt or dispute that purchase of the clientele business by the assessee from M/s. AFC is a right which can be used as a tool to carry on the business. It can also be seen from the angle of purchase of entire marketing net work by the assessee from M/s. AFC even if considered from this angle the assessee is eligible for depreciation as held by the Tribunal. In ITA.181/M/2008 in the case of M/s. Jyoti India Metal Industries P. Ltd. Vs. ACIT. The Hon’ble Supreme Court in the case of CIT Vs Smifs Securities Ltd. (2012) 24 Taxmann.com 222 has held that goodwill is an asset eligible for depreciation. After considering the entire gamut of facts of instant case, it was held that the assessee is entitled for depreciation on payment of Rs.2.50 crores at 25 percent which comes to Rs.62,50,000/- as claimed by the assessee. The AO is accordingly, directed to allow the depreciation Ground No.1 is accordingly allowed.
It is specifically held that the customer contract falls under the expression any other business or commercial right on similar nature as defined in explanation-3 to Section 32 (1)(ii) of the Act and hence eligible for depreciation. The factual position is also the same in the instant case also wherein the assessee company which is subsidiary of Blue Star Ltd.
ITA No. 252/M/2017 A.Y.2012-13 (including Rs.60 Crs. for Intangible Assets & Goodwill) from D.S. Gupta Construction Pvt. Ltd. and thereafter the Blue Star Ltd. under a Deed of Adherence, assigned the business to the assessee company and the assessee company claimed the depreciation on the intangible and goodwill acquired out of the aforesaid acquisition. Since the nature of the case and transaction are the same, therefore, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere at this appellate stage. Accordingly, this issue is being decided in favour of the assessee against the revenue.