TRIO ELEVATORS COMPANY (INDIA) LTD.,AHMEDABAD vs. THE DY.CIT.,CIRCLE-4(1)(2), AHMEDABAD

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ITA 291/AHD/2015Status: DisposedITAT Ahmedabad22 September 2017AY 2011-124 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal remitted the issue of provision for doubtful debt and advances to the Assessing Officer for fresh adjudication. The Tribunal allowed depreciation on goodwill, following the Supreme Court's decision in SMIFS Securities Limited.

What were the facts?

The assessee claimed a provision for doubtful debt and advances, which was disallowed by the lower authorities. The assessee also claimed depreciation on goodwill, which was also disallowed.

What were the issues?

Whether provisions for doubtful debts and advances are allowable expenses, and whether depreciation is allowable on goodwill.

Which sections of the Income-tax Act were involved?

Section 32,Section 143(3)

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Income Tax Appellate Tribunal, AHMEDABAD “D BENCH, AHMEDABAD

ITA No. 291/Ahd/2015 Trio Elevators Co. (India) Ltd vs. DCIT Assessment year: 2011-12 Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D BENCH, AHMEDABAD [Coram: Pramod Kumar AM and Rajpal Yadav JM] ITA No. 291/Ahd/2015 Assessment year: 2011-12 Trio Elevators Company (India) Ltd .......…………......Appellant 404, Shivam Complex, Bhuyangdev Cross Road, Sola Road, Ghatlodiya, Ahmedabad - 380061 [PAN: AACCT 4923 E] Vs. The Deputy Commissioner of Income-tax .......................Respondent Circle-4(1)(2) Ahmedabad Appearances by: SN Soparkar & Parin Shah for the appellant VK Singh for the respondent Date of concluding the hearing : 21.09.2017 Date of pronouncing the order : 22.09.2017 O R D E R Per Pramod Kumar, AM: 1. This is an appeal filed by the assessee appellant and is directed against the order dated 08.12.2014 passed by the CIT(A)-8, Ahmedabad in the matter of assessment under Section 143(3) of the Income-tax Act, 1961 for the Assessment Year 2011-12. 2. Ground no. 1 is general and it does not call for any specific adjudication. It is dismissed as such.

3.

In ground no. 2, the assessee-appellant has raised the following grievance:-

“The Learned Commissioner (Appeals) erred in confirming the disallowance of the claim of provision for doubtful debt of Rs.31,57,448/- and provision for doubtful advances of Rs.5,57,805/- on ground that it is just provision and not admissible as expenses.”

4.

At the time of hearing before us, the ld. Counsel for the assessee submitted that this matter may be remitted to the file of the Assessing Officer for fresh adjudication in the light of Hon’ble jurisdictional High Court’s full bench decision in the case of CIT vs. Vodafone Essar Gujarat Ltd in Tax Appeal No.749 of 2012.

ITA No. 291/Ahd/2015 Trio Elevators Co. (India) Ltd vs. DCIT Assessment year: 2011-12 Page 2 of 4 Learned Departmental Representative did not object to the same. In view of above, with the consent of the parties, the matter is remitted back to the file of the Assessing Officer for fresh adjudication in the light of Hon’ble Gujarat High Court’s full bench decision cited supra. This ground is thus allowed for statistical purposes.

5.

In ground no. 3, the assessee-appellant has raised the following grievance:-

“The Learned Commissioner (Appeals) erred in not allowing the depreciation on the goodwill of Rs.1,56,17,576/- on the ground that goodwill is not covered under explanation 3 to Section 32(1) of the Income-tax Act, 1961 even though the issue has been decided by Hon’ble Supreme court in favour of the assessee in case of SMIFS Securities Limited, reported at 348 ITR 302.”

6.

Learned representatives fairly agree that the above grievance is covered, in favour of the assessee, by the decision dated 09.12.2016 of the Co-ordinate Bench of this Tribunal in assessee’s own case for the assessment year 2007-08 wherein the Tribunal has, inter alia, observed as follows:- “3. We have given a thoughtful consideration to the contentions of the ld. Senior Counsel. We find that in the case of Smifs Securities Ltd. (supra), the Hon’ble Supreme Court was, interalia, seized with the following question of law.

“Question No. (b)

"Whether goodwill is an asset within the meaning of Section 32 of the Income Tax Act, 1961, and whether depreciation on' goodwill' is allowable under the said Section.”

Answer:

6.

In the present case, the assessee had claimed deduction of Rs.54,85,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under:

"In accordance with the scheme of amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares & Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen i n the books of the company."

7.

It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited (amalgamating company) should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele.

ITA No. 291/Ahd/2015 Trio Elevators Co. (India) Ltd vs. DCIT Assessment year: 2011-12 Page 3 of 4

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).

9.

We quote hereinbelow Explanation 3 to Section 32(1) of the Act

"Explanation 3.- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean—

[a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature."

Explanation 3 states that the expression 'asset’ shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).

In the circumstances, we are of the view that 'Goodwill1 is an asset under Explanation 3(b) to Section 32(1) of the Act.

One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income-tax (Appeals) ("the CIT(A)", for short) has come to the conclusion that the authorized representatives had filed copies of the orders of the High Court ordering amalgamation of the above two companies; that the assets and liabilities of M/s. YSN Shares and Securities Pvt. Ltd. were transferred to the assessee for a consideration ; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-company stood increased. This finding has also been upheld by the Income-tax Appellate Tribunal ("the ITAT", for short). We see no reason to interfere with the factual finding.

One more aspect which needs to be mentioned is that, against the decision of the Income-tax Appellate Tribunal, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under section 32 of the Act.

ITA No. 291/Ahd/2015 Trio Elevators Co. (India) Ltd vs. DCIT Assessment year: 2011-12 Page 4 of 4 In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the aforestated reasons, we answer question No. (b) also in favour of the assessee.

4.

A perusal of the afore-stated decision of the Hon’ble Supreme Court shows that the impugned issue is no more res integra. Therefore, respectfully following the afore-stated decision of the Hon’ble Supreme Court, the A.O. is directed to allow the claim of depreciation on ‘goodwill’ acquired by the assessee duly supported by Valuation Report.”

4.

We see no reason to take any other view of the matter than the view so taken by the co-ordinate bench. Respectfully following the same, we uphold the grievance of the assessee and direct the Assessing Officer to allow the claim of depreciation on ‘goodwill’ acquired by the assessee in the light of aforesaid decision of co-ordinate bench.

5.

In the result, the appeal is allowed for statistical purposes. Pronounced in the open court today on the 22nd day of September, 2017.

Sd/- Sd/-

Rajpal Yadav Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 22nd day of September, 2017 **bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order

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