ACIT 14(2)(1), MUMBAI vs. LAFARGE AGGREGATES & CONCRETE P. LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद"य लेखा सद"य,राजे"" के अनुसार लेखा सद"य लेखा सद"य राजे"" के अनुसार राजे"" के अनुसार/ -Per Rajendra,AM:- राजे"" के अनुसार Challenging the order dated 10/02/2015 of CIT(A)-21, Mumbai the Assessing officer (AO) has filed the present appeal.Assessee-company,engaged in the business of manufacturing and supply of ready mix concrete and aggregates filed its return of income on 30th Sept. 2009 and subsequently filed two revised return of income declaring total Loss at Rs.56.9 croress. The AO completed the assessment u/s.143(3) f the Act,determining its income at Rs.(-)9.53 croress. 2.First ground of appeal is about allowing the depreciation claim of Rs. 109.53 crores. During the assessment proceedings,the AO found that the assessee had acquired the RMC business of Larsen and Toubro(L&T) on a slum sale basis pursuant to an agreement dated 22/10/2008 for transfer of business, that as per the agreement the RMC plans spread across India, along with batching plants and all the current assets such as raw material, semifinished goods and finished goods along with space and tools were accrued to be acquired for an initial consideration of Rs.15,63,37,70,546/-, that after the final reconciliation with L&T on 29/06/ 2010,the purchase consideration was agreed at Rs.15,27,72,05, 176/-, that the assessee carried out an allocation of purchase price of the business based on valuation obtained from independent valuers, that in its books of accounts it recorded the intangible assets in form of Trademark and Non-compete Agreement on the basis of valuation, that inventory is, debtors, cash,that the receivables and current liabilities acquired were recorded at their respective 2783/M/15 Lafarge Aggregates & Concrete Pvt.Ltd. book values,that the excess of purchase consideration paid over the value of tangible assets, intangible assets and net current assets was recognised as goodwill.Vide its letter dated 9/11/2011, the assessee claimed depreciation on following intangible assets:

Particulars Value(Rs.in croress) Plant network 278 Trademark 10 Noncompete Agreement 71.90 Customer Contract and Customer Relationship 18.60 Leasehold Benefits 2.40 Assembled Workforce 4.90 Total 385.80 2.1.Vide its letter,dated 15/10/2012,the assessee lodged a the claim of Rs. 109.53 crores in respect of depreciation on goodwill in respect of purchase of RMC business.During the assessment proceedings, it submitted revised claim of depreciation (other than Goodwill which was not claimed in the return of income)to reconcile its depreciation claim with the amount appearing in the tax audit report.It revised the depreciation on intangible assets to Rs.13.30 crores from earlier claim of Rs.13.39crores in its second revised return.After considering the letters of the assessee, the AO held that it had not placed any claim in its return of income and the tax audit report with regard to depreciation on goodwill. He referred to the case of Goetz India Ltd. (157 taxman 1) and held that the assessee cannot make a fresh claim without filing revised return. So, he rejected the claim made by the assessee with regard to the depreciation on goodwill.

2.2.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions.After considering the available material, he held the Hon’ble Supreme Court had, in the case of Smifs Securities Private Limited (24 taxmann.com 222), held that depreciation on goodwill was allowable, he referred to the matter of Prithvi Brokers and Shareholders Private Ltd. of the Hon’ble Bombay High Court (ITA No 398 of 2010) and held that assessee was entitled to claim depreciation before the appellate authorities. 2.3. Before us,the Departmental Representative (DR) stated that assessee had not made the claim in the original return of income. The Authorised Representative (AR) supported the order of the FAA.We find that in the case of Prithvi Brokers and Shareholders Private Ltd.(supra)the Hon'ble Jurisdictional High Court has held that a fresh claim cannot be 2783/M/15 Lafarge Aggregates & Concrete Pvt.Ltd. accepted by the AO otherwise than a revised return and the appellate authorities can accept the new claim made by the assessees. So,in our opinion, he FAA had rightly allowed the depreciation on goodwill, following the judgment of the Hon'ble Supreme Court in the case of Smifs Securities Private Limited (supra).Accordingly, we decide first ground of appeal against the AO. 3.Second ground is about allowing a depreciation claim of the assessee totaling to Rs.12.22 crores on non-compete agreement, customer contract and customer relationship, assembled workforce and leasehold benefits.During the assessment proceedings, the AO found that assessee had claimed depreciation under section 32(1) (ii) of the Act,on above-mentioned four items in the letter of 15.10.2010. He held that no fresh claim could be made without filing a revised return. So, he disallowed the claim made by the assessee. 3.1.In the appellate proceedings,the FAA held that the assessee had claimed depreciation on various intangible assets, that the sets were valued by recognised valuers, that it had treated these items as intangible assets. Following his order, with regard to depreciation on goodwill, he reversed the order of the AO.He also made a reference to section 92B(2)(ii) of the Act. 3.2.Before us the DR and the AR made the same arguments that are mentioned at paragraph no.2.3. We have already decided the issue of depreciation on goodwill in the earlier part of the order. There is no doubt that the four items are part of intangible assets that were acquired by the assessee while purchasing the business from L&T. We find that the FAA has followed the judgments of the Hon'ble Bombay High Court and Hon'ble Supreme Court,while allowing the appeal of the assessee.In our opinion,there is no need to interfere with the order of the FAA, as it does not suffer from any legal or factual infirmity.So,confirming his order we decide the second ground of appeal against the AO. 4.Next ground of appeal is about deleting the disallowance of Rs.25.23 lakhs out of miscellaneous expenditure.During the assessment proceedings,the AO found that assessee had claimed expenditure under the heads security charges, meeting and conference expenses, postage and Courier expenses,safety campaign expenses amounting to Rs.2.52 crores, that the entire expenditure was claimed under the head miscellaneous expenditure in the financial statements.After examining the accounts he held that expenditure was capital in nature and disallowed 10% of the expenditure.

2783/M/15 Lafarge Aggregates & Concrete Pvt.Ltd.

4.1.In the appellate proceedings, before the FAA, the assessee made detailed submissions. He held that the expenses were incurred for business purposes and were revenue in nature, that the AO was not justified in making adhoc disallowance.

4.2.Before us, the DR stated that matter could be decided on merits. The AR supported the order of the FAA.We find that the AO had made the ad hoc disallowance without any basis and had held that the expenditure was of capital nature. He had not given any reason for treating the expenditure as capital.The expenses incurred by the assessee are for running the business and cannot be considered as capital expenditure.Therefore, confirming the order of the FAA,we dismiss third ground of appeal, raised by the AO. 5.Last ground of appeal is about deleting the disallowance of Rs.9.81 lakhs paid as reimbursement of expenses. During the assessment proceedings, the AO found that the holding company of the assessee had provided certain information technology support service to the assessee and invoice for the services provided. The assessee settled the account by making payment to the parent company.The AO disallowed the expenditure as it was not made in the original return of income. 5.1.During the appellate proceedings, the FAA held that reimbursement of expenses was claimed in a revised return of income, that payment was in the nature of expenses on cost to cost basis,that no income element existed in the payment made by it,that in case of reimbursement of expenses no tax was to be deducted at source. He allowed the appeal filed by the assessee.

5.2.The DR left the issue to the discretion of the Bench and the AR relied upon the order of the FAA.We find that the assessee had reimbursed the payment made by the parent company, that the claim was made in the revised return filed. As there was no element of income in the payment, so, the FAA had rightly allowed the appeal filed by the assessee. We see no reason to disturb his findings.Last ground of appeal is decided against the AO. As a result, appeal filed by the AO stands dismissed. फलतः िनधा"रती अिधकारी "ारा दािखल क" गई अपील नामंजूर क" जाती है. Order pronounced in the open court on 15th November , 2017. आदेश क" घोषणा खुले "यायालय म" "दनांक 15 नवंबर , 2017 को क" गई । (संदीप गोसांई /Sandeep Gosain) (राजे"" / RAJENDRA) "याियक सद"य / JUDICIAL MEMBER लेखा लेखा लेखा सद"य लेखा सद"य सद"य / ACCOUNTANT MEMBER सद"य मुंबई Mumbai; "दनांक/Dated : 15.11.2017. Jv.Sr.PS. 4 2783/M/15 Lafarge Aggregates & Concrete Pvt.Ltd.