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2015 (9) TMI 286 - AT - Income TaxDisallowance of depreciation on the intangible assets viz. , material supply contracts, distribution network and right to brand usage - Held that:- The assessee had acquired Textile Effect(TE) Business from CIBA-India and DDCL as a going concern on a lump sale basis, that manufacturing facilities of both the entities were not transferred as part of slump sale, that as a part of slump sale the entire distribution channel was handed over to the assessee including the customer, dealers, marketing people, marketing plans, laboratory, supply-chain and the warehouses, that the services of textile effects employees was transferred to the assessee, that it had entered into agreement with CIBA-India and DDCL for material supply and for supply of chemical products to the newly acquired TE business, that it regarded the fixed assets and intangible assets of acquired TE business at fair market value as determined by an independent valuer. By entering into MCS and getting distribution network, the assessee had acquired business/commercial rights that were of the similar nature as mentioned in sec. 32 (1) (ii) of the Act. Same is the case about use of brand name. The assessee had assigned value to various assets namely Fixed assets (Rs. 6. 68 crores), Intangible assets (Rs. 54. 94 crores), Goodwill (41. 87crores). We are of the opinion that by relying upon the valuation report of an expert the assessee had not contravened any of the provisions of the Act. We have already held that business right, distribution network and brand usage fall in the same category of commercial rights mentioned in Section 32 of the Act. Therefore, we hold that assessee was entitled to claim depreciation on the intangible assets. - Decided in favour of assessee. Disallowance of expenditure on payment basis u/s. 43 B - Held that:- If a business, along with its assets and liabilities, is transferred by one owner to another, a debt so transferred would be entitled to the same treatment in the hands of the successor. The recovery of the debt is a right transferred along with the numerous other rights comprising the subject of the transfer. If the law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account, the same right should be recognised in the transferee. It is merely an incident flowing from the transfer of the business, together with its assets and liabilities, from the previous owner to the transferee. It is a right which should, on a proper appreciation of all that is implied in the transfer of a business, be regarded as belonging to the new owner - See T. Veerbhadra Rao case [1985 (7) TMI 2 - SUPREME Court] - Decided in favour of assessee. Transfer pricing adjustments - Held that:- DRP has not mentioned anything about the documents submitted by the assessee, as stated earlier. In para 5. 2. 2 the DRP has issued directions but we are not aware as how far same were followed by the officers concerned. The assessee has specifically alleged that the directions of the DRP were not carried out. In next para i. e. para 5. 2. 3 the DRP mentions that the TPO had rightly rejected the TP Study but reasons have not been given for agreeing with the views of the TPO especially when the assessee had made extensive submissions stating that as how the stand taken by the TPO was flawed. Similar is the position of the next paragraph. The DRP has endorsed the views of the TPO in a very mechanical way without giving any reasoned finding on the arguments taken by the assessee. Therefore, in the interest of justice we are remitting back the matter to the file of the DRP who would adjudicate the issues raised by the assessee in grounds no. 2 to 5 of by passing a speaking and reasoned order and after affording a reasonable opportunity of hearing to the assessee. The additional evidences produced by the assessee before the DRP have to be taken in to consideration during fresh adjudication proceedings. - Decided in part in favour of assessee by way of remand. Disallowance of depreciation on intangibles and goodwill - Held that:- the assessee is entitled to claim depreciation u/s 32(1) (ii) of the Act with regard to MSC, DN and Brand usage. Similar is the position about Goodwill in light of the judgment of the Hon'ble Supreme Court delivered in the case of Smifs Securities [2012 (8) TMI 713 - SUPREME COURT] - Decided in favour of assessee.
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