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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI NABIN KUMAR PRADHAN
Instant cross appeals are directed against the order dated 23rd August 2013, passed by the learned Commissioner (Appeals)–16, Mumbai, for the assessment year 2008–09.
./2013 – Assessee’s Appeal
In this appeal, the assessee has raised following grounds:–
The Learned Commissioner of Income Tax (Appeals) erred 1. in not admitting the ground of appeal No.2(a) in relation to deduction of expenditure incurred on work force. Without prejudice to the above, the Learned Commissioner 2. of Income Tax (Appeals) erred in rejecting the claim for Revenue Expenditure made by the Appellant Company, pursuant to Revised Computation of Income, filed as per letter dated 30th March 2011, in respect of the "Expenditure on Work Force" of Rs.4,60,00,000/-. Without prejudice to the above, the Learned CIT (A) has 3. erred in rejecting the alternative claim made by the Appellant Company, of Depreciation @ 25%, of Rs. 1,15,00,000/-, in respect of the "Expenditure on Work Force" capitalized in the books of account of Rs. 4,60,00,000/-.
3. However, at the very outset, learned counsel appearing for the assessee submitted that on the instructions of the assessee, he does not want to press these grounds. Accordingly, these grounds are dismissed as “not pressed”.
In the result, assessee’s appeal is dismissed.
3 M/s. DHL Lemuir Logistics P. Ltd.
./2013 – Revenue’s Appeal
In this appeal, the Revenue has raised four grounds pertaining to the common issue of allowance of assessee’s claim on goodwill.
Brief facts are, assessee a company engaged in the business of transportation as principal, agent, sub–contractor, broker, clearing agent, etc. For the assessment year under consideration, assessee had filed its return of income on 30th September 2008, declaring total income of ` 88,31,15,570. During the assessment proceedings, the assessee filed a revised computation of income claiming depreciation of ` 39,75,25,000 on payment made to Lee and Muirhead P. Ltd. on account of goodwill. The Assessing Officer, after examining the claim of the assessee, however, observed that the assessee has claimed the allowance on account of depreciation on goodwill not through his return of income or even by filing a revised return of income. As the assessee had claimed the deduction through a letter, the Assessing Officer relying upon the decision of the Hon'ble Supreme Court in Goetze India Ltd. v/s CIT, [2006] 284 ITR 323 (SC), held that there is no provision under the Act to amend the original return of income through an application without filing a revised return of income. Accordingly, he disallowed assessee’s claim of depreciation. Being
4 M/s. DHL Lemuir Logistics P. Ltd. aggrieved of the disallowance, assessee preferred appeal before the learned Commissioner (Appeals).
Before the first appellate authority, it was submitted by the assessee that it has entered into a business transfer agreement with Lee and Muirhead P. Ltd., under which assessee has paid agreed consideration of ` 159,01,00,000 on intangible assets in the nature of goodwill and claimed depreciation of ` 39,75,25,000. It was submitted, these payments were made during the financial year 2007–08, and the capitalization of amount paid was done during the year. It was submitted these being new item and new class of assets featuring in accounts of the company for the first time, depreciation claim on intangible asset could not be made through inadvertence and the official in–charge of tax compliance has left the employment of the company. It was submitted, the tax consultant of the assessee on verification of the return of income for assessment year 2008–09 and subsequent assessment year found the discrepancies accordingly advised the company to rectify the mistake. Thus, the company took immediate steps with the help of professional and filed the revised computation with an explanation in support of the claim of depreciation on intangible asset. To support its claim of depreciation on goodwill, the assessee relied upon a number of decisions. The learned Commissioner (Appeals), after considering the submissions of 5 M/s. DHL Lemuir Logistics P. Ltd.
the assessee and perusing the facts and material on record found that the Assessing Officer has disallowed assessee’s claim as it was not made through revised return by relying upon the decision of the Hon'ble Supreme Court in Goetze India Ltd. (supra). However, he observed, the Hon'ble Jurisdictional High Court in CIT v/s Prithvi Brokers & Shareholders Pvt. Ltd., 349 ITR 336 (Bom.), has held that tax payer is entitled to claim deduction and relief before the appellate authority which was not claimed in the original or revised return of income but was claimed during the assessment and appellate proceedings. Learned Commissioner (Appeals) observed, as far as claim of depreciation is concerned, in terms of Explanation–5 to section 32, it is required to be allowed by the Assessing Officer even if not claimed by the assessee. He further observed, as per section 32(1)(ii), depreciation is allowable on intangible asset being, knowhow trademark license, patent or any other business or commercial rights of similar nature. The learned Commissioner (Appeals) noted, in case of CIT v/s Smifs Securities Ltd., [2012] 348 ITR 302 (SC), the Hon'ble Supreme Court on analysing Explanation–3 to section 32(1) held that goodwill is an intangible asset, hence, eligible for depreciation. Thus, following the ratio laid down by the Hon'ble Supreme Court as aforesaid, the learned Commissioner (Appeals) directed the Assessing
6 M/s. DHL Lemuir Logistics P. Ltd.
Officer to allow depreciation on intangible assets as appearing in audited books of account of the assessee.
Learned Departmental Representative relied upon the grounds raised by the Department and observations made by the Assessing Officer.
Learned Authorised Representative supporting the order of the learned Commissioner (Appeals) submitted, the issue is squarely covered in favour of the assessee by virtue of decision of the Hon'ble Supreme Court in Smifs Securities Ltd. (supra). Learned Authorised Representative submitted, the assessee in the annual report has submitted all the details relating to intangible assets acquired by the assessee on purchase of business. In this context, he referred to Schedule–14 of the Profit & Loss account of the assessee. Learned Authorised Representative referring to the schedule of fixed assets submitted, addition to gross block on account of goodwill has been specifically mentioned in the schedule. Learned Authorised Representative submitted, as the assessee had inadvertently failed to claim depreciation on goodwill, in the course of assessment proceedings the assessee filed a revised computation claiming depreciation on goodwill. In this context, learned Authorised Representative drew the attention of the bench to the revised
7 M/s. DHL Lemuir Logistics P. Ltd. computation of income, copy of which is at Page–65 of the paper book. Thus, the learned Authorised Representative submitted, the claim of depreciation on intangible asset has been rightly allowed by the learned Commissioner (Appeals). As far as the contention of the Department that the assessee having not claimed depreciation on goodwill in the original return of income or by way of revised return of income the decision in Smifs Securities Ltd. (supra) would not be applicable, the learned Authorised Representative submitted, the issue has been settled by Hon'ble Jurisdictional High Court in Pruthvi Brokers and Shareholders Pvt. Ltd. (supra). With regard to the contention of the Department that by virtue of CBDT circular no.549 dated 31st October 1989, the income cannot be assessed at a figure lower then the return of income. Learned Authorised Representative submitted, the issue has been settled in favour of the assessee by various judicial precedents as under:– i) CIT v/s Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336; ii) CIT v/s Bakelite Hylam Ltd. 237 ITR 392; and iii) Gujarat Gas Co. v/s JCIT, 245 ITR 84.
In support of his contention that depreciation is allowable on intangible assets like goodwill, learned Authorised Representative relied upon the following decisions also.
8 M/s. DHL Lemuir Logistics P. Ltd. i) Viacom 18 Media v/s ACIT, ITA no.7336/Mum./2012, dated 29.1.2016; ii) SKS Micro Finance Ltd. v/s DCIT, ITA no.435/Hyd./2010 dated 21.6.2013 iii) Taj Sats Air Catering Ltd. v/s CIT, of 2012, dated 5.9.2012; and iv) Taj Sats Air Catering Ltd. v/s ACIT, ITA no.8790/Mum./2012, dated 20.8.2012.
We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Undisputed facts are, the assessee during the relevant previous year, had purchased the business of Lee and Muirhead P. Ltd. for a total consideration of ` 181,50,05,880. The purchase consideration has been apportioned between movable asset and net current asset. The difference between the purchase consideration and the value apportioned to fixed assets and net current asset has been recognised as goodwill in the nature of intangible asset and the assessee had claimed depreciation both on tangible and intangible assets. As it appears, in the original return of income the assessee claimed depreciation on all other fixed assets except the intangible asset viz. goodwill. In the course of assessment proceedings, the assessee filed a revised computation of income claiming depreciation @ 25% amounting to ` 39,75,25,000 on intangible asset of ` 159.01 crore. On a perusal of assessment order, it is observed, the only reason for 9 M/s. DHL Lemuir Logistics P. Ltd.
which the Assessing Officer disallowed assessee’s claim of depreciation on goodwill is the claim has not been made through revised return of income. Undisputedly, the Assessing Officer has not disputed assessee’s claim of depreciation on other fixed assets which were acquired under the business transfer agreement. The dispute is only confined to claim of depreciation on intangible asset. The Hon'ble Jurisdictional High Court in Prithvi Brokers and Shareholders Pvt. Ltd. (supra) after taking note of the ratio laid down by the Hon'ble Supreme Court in Goetze India Ltd. (supra) has held that even assuming that the Assessing Officer is not entitled to grant a deduction on the basis of a letter requesting an amendment to the return filed, the appellate authority is entitled to consider the claim and to adjudicate the same. The Hon'ble Court referring to a number of decision of the Hon'ble Supreme Court including the decision of Goetze India Ltd. (supra) ultimately held that the appellate authority has jurisdiction to deal not merely with additional ground which become available on account of change of circumstances or law but with additional grounds which were available when the return of income was filed. The Hon'ble Jurisdictional High Court ultimately concluded that in Goetze India Ltd. (supra), the Hon'ble Supreme Court did not restrict the jurisdiction of appellate authority to entertain a claim not made by way of revised return of income. Thus, if we read the 10 M/s. DHL Lemuir Logistics P. Ltd. aforesaid decision of the Hon'ble Jurisdictional High Court in conjunction with ratio laid down by the Hon'ble Supreme Court in Goetze India Ltd., it becomes clear that the appellate authority can entertain a fresh claim of deduction by assessee, if the facts relating to such claim are available on record. If we examine the facts relating to assessee’s claim of depreciation on intangible asset, it is apparent that all facts relating to the payment made towards goodwill are available in the annual report of the assessee submitted along with the original return of income. In fact, goodwill appears in the schedule of fixed assets. Thus, it is obvious that due to inadvertent mistake, the assessee could not claim depreciation on goodwill. Therefore, in the course of assessment proceedings, the assessee filed a revised computation claiming depreciation on goodwill. In our view, the depreciation claimed by the assessee on goodwill cannot be rejected merely for the reason that it is not made through a revised return of income. Further, the contention of the Department that by virtue of CBDT circular no.549 dated 31st October 1989, the assessed income cannot be less than the returned of income is also not acceptable in view of the decision of the Hon'ble Andhra Pradesh High Court in Bakelite Hylam Ltd. (supra) and the decision of Hon'ble Gujarat High Court in Gujarat Gas Co. (supra).
11 M/s. DHL Lemuir Logistics P. Ltd.
Having held so, now we have to consider whether goodwill is an intangible asset under section 32, hence, eligible for claim of depreciation. In our view, this issue is no more res integra in view of the decision of Hon'ble Supreme Court in Smifs Securities Ltd. (supra) where the Hon'ble Supreme Court has held that goodwill is in the nature of any other business or commercial rights as provided under Explanation–3(b) of section 32(i) r/w section 32(1)(ii). The other decisions of the Tribunal relied upon by learned Authorised Representative also express similar view. Therefore, respectfully following the ratio laid down in the decision referred to above, we uphold the order of the learned Commissioner (Appeals) on the issue. Accordingly, grounds raised by the Department are dismissed.
In the result, appeal stands dismissed.
To sum up, both the appeals are dismissed. Order pronounced in the open Court on 24.08.2016