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Income Tax Appellate Tribunal, MUMBAI BENCHES “A” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned appeals filed by the assessee relate to assessment year 2009-10 & 2010-11. These are directed against the order of the Commissioner (Appeals) – 4, Mumbai and arise out of the order under section 143(3) of the Income Tax Act, 1961 (the “Act’’). As common issues are involved, these are heard together and disposed of by a common order for brevity and convenience.
The 1st ground raised by the assessee in these appeals is that the learned CIT(A) erred in confirming the disallowance of Rs. 29,56,464/- for the A.Y. 2009-10 and Rs. 22,17,348/- for the A.Y. 2010-11 on account of depreciation on brands u/s 32(1)(ii) by not considering the decision of the Hon'ble Supreme Court in the case of Techno Shares & Stocks vs. CIT (2010) 193 TAXMAN 248 (SC) and the decision of ITAT (Mumbai Bench) in the case of KEC International Ltd. vs. ACIT (2010) 41 SOT 43 (Mum). 2.1 The AO noted that the assessee-company had acquired a brand for Rs. 13,50,00,180/- in the year 1999-2000 from Namah Shivay Enterprise. The AO followed the assessment order passed for the A.Y. 2005-06 and disallowed the claim of depreciation of Rs. 29,56,464/- in the A.Y. 2009-10 and Rs. 22,17,348/- in the A.Y. 2010-11. 2.2 The assessee preferred an appeal before the learned CIT(A) against the above order of the AO. We find that the learned CIT(A) followed the order of his predecessor-in-office and confirmed the disallowances made by the A.O. 2.3 We have heard the rival submissions and perused the relevant material on record. We find that in the case of assessee for the A.Y. 2005-06 (ITA No. 6358/M/2012), the Tribunal has held as under: “ The Ld. A.R., at the outset, has brought our attention to the decision of the Hon’ble Bombay High Court in the case of “CIT vs. Glen Mark Pharmaceuticals Ltd.” (2013) 30 taxman.com 167 (Bom.) wherein the Hon’ble Bombay High Court, in para 7 of the order, has held that the assessee is entitled to depreciation on the amount of royalty fees as the same is a part of the consideration paid for acquiring the brand and would be entitled to depreciation under section 32 of the Act as part of the brand. Even the Hon’ble Bombay High Court, in the case of “CIT vs. Techno Shares and Stocks Ltd.” (2009) 184 taxman 103 (Bom.), which authority has been heavily relied upon by the Ld. D.R. also, in para 23 of the order has held that franchising is kind of business where franchiser grants a license to franchisee to use franchisor’s intellectual property rights such as knowhow, trade marks, brand name etc. to market the franchisor’s product or services for consideration. The Hon’ble Bombay High Court has held that the expression ‘Licenses’ is a very wide term and it includes the permission to carry on any trade business, profession etc. including the right to acquire the intellectual property. The co-ordinate bench of the Tribunal, in the case of “KEC International Ltd. vs. ACIT” (2010) 41 SOT 43 (Bom.), while relying upon the said decision of the Hon’ble Bombay High Court has held that brand name is an intellectual property right similar to knowhow, patents, trademarks and therefore the same is eligible for depreciation under section 32(1)(ii). The Ld. A.R. has further brought our attention to the fact that in earlier assessment years right from the year 2002- 03 up to A.Y. 2005-06, the assessee has been consistently been allowed depreciation on the brand name. In view of this, we do not find any justification on the part of authorities in disallowing the claim of depreciation
on the brands for the year under consideration. This issue is accordingly decided in favour of the assessee.’’ 2.4 As the facts are same for the impugned assessment year, the AO is directed to allow the claim of depreciation made by the assessee of Rs. 29,56,464/- for the A.Y. 2009-10 and Rs. 22,17,248/- for the A.Y. 2010-11. The 2nd ground raised by the assessee in these appeals is that 3. the learned CIT(A) erred in confirming disallowance of Rs. 17,47,107/- for the A.Y. 2009-10 and Rs. 1,52,633/- for the A.Y. 2010-11 u/s 14A r.w.r. 8D. It is further stated that (i) nothing has been brought on record by the AO to establish the nexus between expenses incurred with the earning of exempt income, (ii) the amount invested in mutual funds are not from the overdraft / cash credit account which have been used towards working capital requirements, (iii) no expense has been incurred to earn exempt income & (iv) no notional expenditure can be apportioned for the purpose of earning exempt income unless there is an actual expenditure in relation to earning the tax free income. 3.1 The AO noticed that during the A.Y. 2009-10, the assessee- company had received dividend of Rs. 41,38,923/- and profit on sale of mutual fund of Rs. 11,59,168/- which were claimed as exempt. In the A.Y. 2010-11, the assessee company has received dividend of Rs. 15,16,328/- which was claimed as exempt. The AO has given the reasons in his assessment order for invoking section 14A of the Act. Then he worked out the disallowance as per rule 8D and it comes to Rs. 17,47,107/- for the A.Y. 2009-10 and Rs. 1,52,633/- for the A.Y. 2010-11. 3.2 The assessee preferred an appeal before the learned CIT(A) against the above disallowances made by the AO. The learned CIT(A) noted that the assessee had not given any details to work out the direct nexus of the interest expenditure related to the exempt income which was not included in the total taxable income. The learned CIT(A) also came to a finding that the assessee could not establish the nexus between the entire capital being invested in securities. Therefore, he confirmed the disallowances made by the A.O. 3.3 Before us, the learned counsel of the assessee relied on the order of the ITAT ‘’D’’ Bench Mumbai in the case of Ramkumar Venugopal Investments Pvt. Ltd. vs. ACIT (ITA No. 6324/Mum/2012) for the A.Y. 2009-10. 3.4 The learned DR supported the order passed by the learned CIT(A) upholding the disallowances made by the AO. 3.5 We have heard the rival submissions and perused the relevant material on record. We find that the learned counsel of the assessee has not filed the relevant documents to prove his points that the amount invested in mutual funds are not from the overdraft / cash credit account which have been used towards working capital requirements. The learned counsel has also not filed the relevant documents to prove his points that no expenses has been incurred to earn the exempt income. Even a copy of the balance sheet has not been filed by him before the Tribunal to establish his argument. We also find that the learned CIT(A) has noted that the assessee had not given any details to work out the direct nexus of the interest expenditure related to the exempt income which was not included in the taxable income. Further it is found that during the A.Y. 2007-08, the AO had made addition on similar ground which was deleted by the learned CIT(A) and the ITAT in favour of the assessee. However, Rule 8D was notified by the IT (Fifth Amdt.) Rules, 2008 w.e.f. 24-03-2008. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. Dy. CIT [2010] 194 Taxman 203 (Bom) has held that Rule 8D is applicable w.e.f. 2008-2009. We are concerned here with the A.Y. 2009-10 and 2010-11. 3.6 In view of the reasons given at para 3.5, we set aside the order of the learned CIT(A) on disallowance made u/s 14A r.w.r. 8D and restore the same to the file of the AO to make a fresh assessment as per the provisions of the Act after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to file before the AO the relevant details. Thus the 2nd grounds in the above appeals are allowed for statistical purposes.
In the result the appeal is partly allowed.
Order pronounced in the open court on 05/01/2017