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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
Per N.V. Vasudevan, Judicial Member
ITA No.672/B/14 is an appeal by the Revenue, while ITA No.705/B/14 is an appeal by the assessee. Both these appeals are directed against the order dated 28.2.2014 of CIT(Appeals)-III, Bangalore relating to assessment year 2008-09.
ITA No.672/B/14 (Revenue’s appeal)
The only issue that arises for consideration in this appeal is as to whether the CIT(Appeals) was justified in directing the AO to exclude the expenditure incurred in foreign currency such as salaries, travelling and conveyance, sub-contracting, software development charges, communication, etc. from the export turnover, without reducing the same from the total turnover also, while computing deduction u/s. 10B of the Act.
According to the AO, as per the definition of export turnover given in clause (iv) to Explanation 2, the expenses incurred for freight expenses attributable to the delivery of the product or software outside India should be reduced from the export turnover. However, the provisions of section 10B do not provide for exclusion of such expenditure from total turnover. In the absence of a definition for total turnover in section 10B, the normal definition of total turnover has to be adopted and as such the expenses
ITA No.705 & 672/Bang/2014 Page 3 of 9
which are reduced from the export turnover in accordance with the specific definition cannot be reduced from the total turnover.
On appeal by the assessee, the CIT(Appeals) following the decision of the Hon’ble High Court of Karnataka in the case of CIT v. Tata Elxsi
Ltd., 349 ITR 98 (Karn), held that whatever is excluded from the export
turnover, has also to be excluded from the total turnover.
Aggrieved by the order of the CIT(Appeals), the revenue is in appeal before the Tribunal.
The only grievance of the Revenue is that the decision of Hon'ble High Court of Karnataka in Tata Elxsi (supra) has not attained finality and
a SLP by the department is pending before the Hon'ble Supreme Court. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. We therefore hold that the order of CIT(A) does not call for any interference and accordingly the same is confirmed.
In the result, the appeal by the Revenue is dismissed.
ITA No.705/B/14 (Assessee’s appeal)
“1. That the order of the learned Commissioner of Income-tax (Appeals)-III [‘CIT(A)’] in so far as it is prejudicial to the interest of the appellant is bad in law and therefore not sustainable.
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That the learned CIT(A) erred in not admitting the additional ground submitted by the appellant in course of the appeal proceedings and deciding the same on merits. 3. That the learned CIT(A) has erred in not exercising her powers under section 250 of the Income- tax Act, 1961. 4. That the learned CIT(A) has erred in upholding the action of the AO in not granting depreciation on goodwill to the Appellant. 5. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal.”
The assessee is a company engaged in the business of development of software with ‘Samsung Electronics Company Ltd., Korea (SECL), the holding company. The assessee took over the business of Samsung India Software Operations (SISO), a branch of SECL w.e.f 1.12.2005, pursuant to the business transfer agreement. The total consideration (which was determined on the basis of valuation of the business as a going concern) paid to SISO for the transfer was Rs 30,42,60,000, out of which the price of net tangible assets acquired was Rs 17,32,24,951 and the balance was goodwill. The said goodwill acquired at Rs. 13,10,35,049 formed a part of the fixed assets of the assessee and duly appeared in the books of account of the company.
The assessee company had not claimed any depreciation on goodwill under the provisions of the Act during the assessment proceedings.
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After the conclusion of the Assessment proceedings, in the case of CIT vs Smiffs Securities Ltd (348 ITR 302), the Hon’ble Supreme Court
held that goodwill is an asset within the meaning of section 32 of the Act and hence, depreciation on goodwill is an allowable expense under the
said section. In view of this judgment of the Supreme Court, according to
the assessee, goodwill needs to be considered as an asset (in terms of sub clause (ii) to clause 1 of section 32 of the Act) which is entitled for
depreciation.
Therefore, according to the Assessee, a question of law has arisen
in the facts and circumstances of the present case whether the assessee is
entitled to depreciation on goodwill in the year under appeal.
Accordingly, the assessee, by relying on the above judicial
precedent which considered goodwill to be eligible for depreciation under
section 32(1)(ii) of the Act, raised an additional ground for allowability of depreciation on goodwill in the appeal filed before the CIT(Appeals).
Before the CIT(A), the assessee submitted that under the provisions of section 253(1) of the Act, the powers of the CIT(Appeals) are co-
terminus with that of the Assessing Officer and therefore he can do what
the Assessing Officer can do. Reliance was placed by the assessee on the decision of Hon’ble Supreme Court in CIT v. Kanpur Coal Syndicate (1964)
53 ITR 225) (SC) and Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC).
ITA No.705 & 672/Bang/2014 Page 6 of 9
The assessee also pointed out that it is only before the AO that the assessee cannot make a claim, which is not supported by a revised return
of income in view of the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) and that the said
prohibition does not extend to making a claim before the appellate
authorities under Act. For the above proposition, the assessee placed reliance on the decision of the Hon’ble Bombay High Court in CIT v. Prithvi
Brokers & Shareholders Pvt. Ltd. [TS-463-HC-2012(BOM)].
The CIT(Appeals), however, was of the view that take over of the
business by the assessee was w.e.f. 1.12.2005 and therefore the question
whether there was acquisition of goodwill and its valuation ought to have been examined only in A.Y. 2006-07. The assessee did not make a claim
in this regard even before the AO in the present assessment year. The assessee made a claim only because of the decision rendered by the
Hon’ble Supreme Court in the case of Smiffs Securities Ltd. (supra)
rendered on 22.8.2012, after the conclusion of the assessment proceedings. The CIT(A) was of the view that to admit an additional
ground, the facts required for adjudication of additional ground should be available on record. Since the facts are not available on the records of the
AO, the CIT(A) was of the view that additional ground cannot be admitted for adjudication. He also observed that the assessee has also filed an
application before the AO u/s. 154 of the Act making a claim for
depreciation on goodwill. The CIT(A) was of the view that since the matter
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was being pursued before the AO wherein the factual basis of the claim will be examined, the assessee’s grievance will be adequately redressed.
Even on that basis, the CIT(A) refused to admit the additional ground.
Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal.
We have heard the submissions of the ld. counsel for the assessee, who reiterated the submissions as were made before the CIT(A).
The ld. DR relied on the order of CIT(A).
We have given a careful consideration to the rival submissions. A
plain reading of the provisions of section 251 shows that the CIT(Appeals) has plenary powers in disposing of an appeal. His powers are co-terminus
with that of the AO. Judicial precedent on the issue viz., the judgment of the Hon’ble Supreme Court in the case of Kanpur Coal Syndicate (supra)
clearly lays down the scope of the powers of the CIT(Appeals). Exercise of the power by the CIT(Appeals) is not dependent on the existence of facts
being already on record. The assessee has placed the business transfer
agreement. The CIT(Appeals) has powers to consider the same after confronting it to the Assessing Officer for his comments. He could render a
finding as to whether there was any payment for acquisition of goodwill and if so, what is the quantum of such payment. The question as to whether
the ratio laid down by the Hon’ble Supreme Court in the case of Smiffs
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Securities Ltd. (supra) would apply to the case of the assessee is also a matter which could be investigated by the CIT(Appeals). In our view, the order refusing to admit the additional ground cannot be sustained. We are also of the view that since the claim has been made before the CIT(Appeals) for the first time and since the AO did not have an opportunity to examine the claim of assessee, it would be just and proper if the order of CIT(Appeals) on this issue is set aside and the issue is remanded to the AO for consideration de novo.
We accordingly set aside the order of CIT(Appeals) on this issue and remand the issue in question to the Assessing Officer for fresh consideration after affording opportunity of being heard to the assessee. Accordingly, the appeal of the assessee is treated as allowed for statistical purposes.
In the result, the appeal by the Revenue is dismissed, while the appeal by the assessee is treated as allowed for statistical purposes.
Pronounced in the open court on this 26th day of August, 2015.
Sd/- Sd/-
( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 26th August, 2015.
/D S/
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Copy to:
Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar / Senior Private Secretary ITAT, Bangalore.