UNIFY ENTERPRISE COMMUNICATIONS P. LTD,MUMBAI vs. DCIT RG 7(2), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद� राजे� के अनुसार PER RAJENDRA, AM- Challenging the order of the Assessing Officer(AO),dtd.19.02.2014,completed u/s.143(3) r.w.s.144C(13)of the Act the assessee had filed the present appeal. Assessee-company,engaged in the business of distribution of communication equipments, filed its return of income on 30.09.2009,declaring total income of Rs.1.97 crores.During the assessment proceedings,the AO found that the assessee had entered into International Transactions(IT.s)with its Associated Enterprises (AE).So,he made a reference to the Transfer Pricing Officer (TPO) to determine the Arm’s length Price(ALP) of such transactions.After receiving the order of the TPO the AO issued a draft order to the assessee who challenged the same before the DRP.In persuance of the directions of the DRP,the AO passed completed the assessment determining the income of the assessee at Rs.10.13 Crores.Vide its letter dated 08.06.2015 the assessee had raised additional grounds and had made an application to admit the same.It was stated that during the year it had amortised goodwill in the books of accounts,that it had not claimed depreciation under the Act,while filing the return of

2.First effective ground of appeal,raised by the assessee is about Transfer Pricing(TP) adjustment made by the AO,amounting to Rs. 8.16 Crores.It was brought to our notice that the AO had not followed the directions of the DRP and had made the addition,that an application filed by the assessee u/s.154 of the Act in that regard was not dealt by him. Considering the seriousness of the situation the Departmental Representative (DR)was asked to inform the AO to pass necessary rectification order.We were informed that on 12.05.2016 the AO had passed order u/s.154 of the Act and had deleted the TP adjustments made. During the course of hearing before us, Representatives of both the sides stated that the first effective ground of appeal(GOA1-12)will not survive.Therefore, same is being treated as infructuous.

3.Ground No.13 is about not granting TDS credit of Rs.1.89 crores while arriving at net amount payable by the assessee. During the course of hearing before us, the AR stated that if the AO is directed to verify the tax credit the assessee would not have any grievance. Accordingly,we direct the AO to grant TDS credit after verification. Ground No.13 is partly allowed.

4.Ground no.14 dealing with levy of interest u/s.234 of the Act is consequential in nature.

1920/14-Unify ECPL 5.Ground no.15 pertains to levy of penalty.Holding it to be premature,we dismiss it.

6.Now,we will take Additional ground dealing with depreciation(GOA-16,17). The first ground was about not considering the depreciation on goodwill an extra ordinary non operating expenditure while computing the operating margin of the assessee.Addl. Ground No.1 was not pressed by the AR,during the course of hearing before us.Therefore,same stands dismissed as not pressed.

7.Last ground of appeal is about not granting depreciation on goodwill.It was brought to our notice,by the AR,that while deciding the appeals for the AY.s. 2008-09 and 2010-11the Tribunal had decided the issue in favour of the assessee.The DR in his written submission stated that that the definition of intangible property in Explanation (ii) below section 92 was very wide whereas the definition of intangible assets provided for in section 32(1)(ii) read with Explanation 3(b) was very restrictive,that spectrum of intangible properties was very large and wide,that the Legislature, while providing for depreciation under section 32(1)(ii) sought to restrict it only to specific categories of intangible assets although widening a bit by incorporating depreciation on any other business or commercial right of similar nature,that all intangible assets/ properties are not eligible for depreciation u/s.32(1)(ii),that for determining whether any intangible fell u/s.32(1)(ii) principle of ejusdem generis would be have to be examined on the factual matrix,that depreciation was not eligible on all assets,that in order to hold that goodwill was eligible for depreciation there had to be finding that they it was akin to one or more of the specified categories like know-how,patents,copyrights,trade-marks, licences. franchises.

8.We have considered the rival submissions.We are unable to understand as to what the DR wanted to argue.In our opinion,after the judgment of Hon'ble Apex 3

1920/14-Unify ECPL Court in the case of Smifs Securities Ltd.(348ITR302),there is no doubt about allowability of depreciation on goodwill.In the earlier year,the Tribunal has given a positive and emphatic ruling in that regard .It had referred to the matter of Smifs Securities Ltd.(supra).The DR could not throw light as to which of the facts for the year under consideration were different from the facts of last AY.2010-11.We would like to reproduce the relevant portion of the order for that AY.(ITA/790/ Mum/2015-dtd.22/12/2-15)and same reads as under: 4. Ground No. 1: depreciation on Goodwill under section 32 of the Act 4.1 At the outset, the learned A.R. for the assessee submitted that this ground relating to the issue of grant of depreciation under section 32 of the Act on Goodwill being an intangible asset is covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in assessee’s own case for A.Y. 2008-09 in dated 28.10.2015 wherein the Coordinate Bench followed the decision of the Hon'ble Apex Court in Smifs Securities Ltd. 348 ITR 302 (SC). 4.2.1.We have heard both the learned A.R. for the assessee and the learned D.R. for Revenue on this issue and have perused and carefully considered the material on record. We find that a Coordinate Bench of this Tribunal in its order in ITA No. 3799/Mum/2012 dated 28.10.2015 in assessee’s own case for A.Y.2008-09 has considered this issue of depreciation on Goodwill under section 32 of the Act and held in favour of the assessee. The relevant portion of the order of the Coordinate Bench at paras 11 and 12 thereof is extracted hereunder: - “11. Ground nos.11 and 12 raised by the assessee are relates to the Corporate Issues. Ground no.11 relates to the granting of the depreciation u/s 32 of the Act on the goodwill, being an intangible asset. In this regard, at the outset, Ld Representatives of both the parties agreed to the proposition that the said additional ground is legal in nature and the same is required to be adjudicated as per the ratio of Supreme Court laid down in the case of Smifs Securities Limited [348 ITR 302 (SC)] wherein it was held that the Goodwill constitutes an ‘asset’ under Explanation 3(b) to section 32(1) of the Act. Relevant portion from the said Supreme Court judgment reads as under: “8. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to section 32(1) of the Income Tax Act, 1961 (“the Act”, for short).

1920/14-Unify ECPL