TMI Blog2014 (4) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... rect and without any method, which is generally adopted for evaluating the goodwill - once there is no dispute that the total consideration for tangible and intangible assets is for '91 crores, which has also been accepted by the AO - then it is presumed that such consideration also includes goodwill on account of brand or product besides trade mark and copy rights. The decision in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] followed - the depreciation is to be allowed on such intangible assets which constitute goodwill - Once the depreciation allowable on goodwill at the same rate on which the assessee has claimed depreciation on trade mark and copy right, then it is immaterial to disallow the entire claim of depreciation made by the assessee on intangible assets - the depreciation is to be allowed on goodwill also as any other intangible asset - Thus, it will not make any difference to segregate the various intangible assets for the purpose or making any disallowance on account of depreciation – Decided against Revenue. Deletion on account of provision towards unsold magazines and discount on advertisement income –Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order. 3. We now proceed to dispose of the appeal preferred by the Revenue in ITA no.4573/Mum./2009, for assessment year 2005-06, the decision of which would be applicable mutatis mutandis to other appeals wherever identical issue has been raised. The grounds of appeal raised by the Revenue, are as under:- "1. Whether on the facts and circumstances of the case, the CIT(A) erred in holding that Explanation 3 to Section 43(1) is not applicable with regard to claim of depreciation on the assets covered in the deed of assignment between the assessee and Bennett, Coleman Co. Ltd. 2. Whether on the facts and circumstances of the case, the CIT( A) erred in directing the AO to allow depreciation @ 25% on the actual cost of the copy rights and trademarks as per the deed of assignment between the assessee and Bennett, Coleman Co. Ltd. 3. Whether on the facts and circumstances of the case, the CIT(A) erred in deleting the addition of Rs. 7.02 lakhs being provision towards unsold magazines and discount on advertisement income. 4. Whether on the facts and circumstances of the case, the CIT(A) erred in directing the AO not to add the provision of Rs. 7.02 lakhs while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and copy right at '64.08 crores. On this value, the assessee has claimed depreciation @ 25%. The Assessing Officer, on a perusal of the copy of assignment details of the copy right and trade mark and copy of valuation report for the said intangible asset, noted that while considering the valuation of business, the goodwill of the brands of the magazine which has been generated over the years has not been taken into consideration at all. Even the valuation report submitted by the assessee does not give any specific narration of method adopted for valuation of copy right and the trade mark. On this premise, he observed that the value assigned to the intangible assets, namely trade mark and copy right is merely an arrangement for claiming depreciation, whereby the liability of income tax can be reduced by claiming higher depreciation on the value of the enhanced cost of intangible assets. He also invoked the provisions of Explanation-3 to section 43(1) and held that such a huge value has been assigned to trade mark and copy right only for the purpose of reducing the liability of income tax by claiming depreciation with reference to enhanced cost. He estimated the value of goodwill a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Page-7 and 8 of the appellate order. The learned CIT(A)'s appreciated the assessee's contention and also the material placed on record and held that the amount of '25 crores considered as goodwill by the Assessing Officer is without any basis. The learned CIT(A)'s observations are as under:- "5.3. I have gone through the order passed by the AO and the arguments and submissions made by the AR. It is relevant to note that the appellant is a joint venture company between two independent and unrelated parties, namely Bennett, Coleman Co. Ltd. and BBC. The appellant had acquired the intangible assets by way of copyrights and trademarks pursuant to a Deed of Assignment dated 1st December, 2004. Prior to the Deed of Assignment, an independent valuer had valued the copyrights and trademarks at Rs. 64. 08 crores and Rs.21.36. crores respectively. The valuation arrived at by the valuer was accepted by both the independent parties to the transaction. The schedules to the Deed of Assignment also carry details of the trademarks that are being assigned and stamp duty has also been paid by the appellant on both the agreements. The stamp authorities have also accepted the valuation and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk and copy right by the assessee are no collusive and sham is not correct. The assessee has acquired the media division belonging to one of the joint venture partner i.e., BCCL which has 50% collaboration. Thus, such an arrangement and valuation of intangible assets puts under doubt. No method has been giver in the valuation report for valuing the trade mark and copy right. In such a purchase of on-going concern, which has an established brands and the products, there has to be goodwill associated with such business. The valuers have not given any comment or ascribed and value for the goodwill. Once the goodwill is also taken into consideration then the assessee's claim for depreciation of intangible assets will also get reduced. He strongly relied upon the reasons given by the Assessing Officer in the assessment order and submitted that Explanation 3 to section 41 has rightly been invoked because by assigning higher value to trade mark and copy right, the assessee s claiming depreciation on the enhanced cost of such asset. 8. The learned Counsel, on the other hand, on behalf of the assessee submitted that first of all, the valuation report of the on-going business concern and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, then depreciation cannot be allowed on goodwill simplicitor. In support of his contention, he relied upon the decision of the Tribunal, Mumbai, Bench, in ACIT v/s American Express Services India Ltd., ITA no.4106/Mum./2007, order dated 3rd February 2012. 10. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. The assessee has been formed in the ratio of 50:50, as a joint venture company between BBCL and BBC. It has acquired the business of magazine and event division of BCCL as an on-going concern on a slum sale basis. The business which was acquired, consisted of publication and distribution of popular magazine like "Famina" and "Filmfare" and also the organiser of mega events like "Filmfare awards". Before acquiring the business, valuation from professionals was obtained wherein, the total valuation of tangible and intangible assets were valued between '91 to 99 crores as on 31st March 2005. Based on such value, the agreement for transfer of business undertaking was executed between the parties. The case of the Revenue is that while valuing the intangible assets in the form of copy right and trade m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as only taken the part of the goodwill in the form of trade mark and copy right, however, that alone cannot be said to be a part of goodwill, especially when the assessee has acquired such a high end brand products in the form of one of the most popular magazine and right to organize mega events under such brand name. Therefore, part of the acquisition cost can also be said to be for goodwill of the brand product. However, the manner in which the Assessing Officer has adopted the value of the goodwill is absolutely incorrect and without any method, which is generally adopted for evaluating the goodwill. In this case, once there is no dispute that the total consideration for tangible and intangible assets is for '91 crores, which has also been accepted by the A.O., then it is presumed that such consideration also includes goodwill on account of brand or product besides trade mark and copy rights. 12. Now, the issue whether the depreciation can be allowed on such intangible asset in the form of goodwill also or not is no longer res integra, as the Hon'ble Supreme Court in Sniffs Securities Ltd. (supra) besides various other High Courts also, have held that the depreciation is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier are either reversed or increased. The provisions of '35.12 lakhs as on 31st March 2005 mainly comprises of provisions of unsold magazines for which the reports from the dealers were awaited. In view of the accounting practice followed by the assessee from the earlier years, the assessee has been debiting such provisions. It was also submitted that the closing balance of this provision relates not only to the month of March 2005, but also include provisions made in earlier months for which reports were still awaited. Further, the Assessing Officer has failed to appreciate that the differential provision of '7.02 lakhs pertained to provisions made for the months prior to March 2005 and is of the same nature as that of March 2005, which has been allowed by him as deduction. Reliance was also placed on the decision of the Hon'ble Supreme Court in Bharat Earth Movers v/s CIT, [2000] 245 ITR 428 (SC). The learned Commissioner (Appeals) accepted the assessee's contention and deleted the addition after observing and holding as under:- I have carefully considered the issue. The fact of the matter is that there is no reason for the A.O. to consider a portion or provision to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n there is no reason for not allowing the remaining portion which pertains to the prior period to March 2005 Once such scientific basis has been adopted for making the provisions in the earlier years, as well as in the subsequent years, we do not find any reason to uphold the reasoning given by the Assessing Officer. Thus, the findings of the learned Commissioner (Appeals) are hereby affirmed. Grounds no.3 and 4 raised by the Revenue are treated as dismissed. 19. In the result, Revenue's appeal for assessment year 2005-06 is treated as dismissed. 20. We now take up assessee's cross objection no.76/Mum./ 2010, which is arising out of the Revenue's appeal in ITA no.4573/ Mum./2009, for the assessment year 2005-06. 21. The sole issue raised by the assessee relates to disallowance of deduction of employees contribution of provident fund of '5,06,500 under section 36(1)(va). 22. The Assessing Officer has disallowed the said deduction on the ground that the assessee has made the payment after the due date. The relevant amount and the due date of the payments are as under:- Sr.no. Month Amount Due Date Date of Payment 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14A r/w Rule 8D. 32. Aggrieved, the assessee carried the matter before the first appellate authority, but without any success. The Commissioner (Appeals) confirmed the assessment order passed by the Assessing Officer following the decision of Mumbai Special Bench decision of the Tribunal in Daga Capital Management Pvt. Ltd. [2008] 119 TTJ (Mum.) 289 (SB). Being aggrieved, the assessee is in further appeal before the Tribunal. 33. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the material available before us, we find that the Commissioner (Appeals), while disposing off this issue, followed Mumbai Special Bench decision of the Tribunal rendered in ITO v/s Daga Capital Management P. Ltd. (supra). The Hon'ble Jurisdictional High Court in Godrej Boyce Mfg. Co. Ltd. v/s DCIT, (2010), 328 ITR 081 (Bom.), has partly reversed the decision of Mumbai Special Bench of the Tribunal in Daga Capital Management P. Ltd. (supra) and has held that rule 8D is not applicable prior to the assessment year 2008-09. Under these circumstances, we deem it appropriate to set aside the impugned order passed by the Commissioner (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ratio laid down by the Hon'ble Jurisdictional High Court in Godrej Boyce Mfg. Co. Ltd. that rule 8D will not be applicable prior to the assessment year 2008-09 and some reasonable basis has to be adopted after looking to the accounts of the assessee and giving proper opportunity of the assessee to explain its case. Consequently, in the present issue also, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer for denovo adjudication after providing due and effective opportunity of being heard to the assessee. Thus, this ground is treated as partly allowed for statistical purposes. 44. Ground no.2, relates to disallowance of deduction of employees' contribution to provident fund of '2,80,473 under section 36(1)(va) of the Act. 45. Both the parties admitted before us that the issue is covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in CIT v/s Alom Extrusions Ltd. [2009], 319 ITR 306 (SC), wherein it has been held that if the P.F. contribution is paid within the due date of filing of the return of income, the same is an allowable expenditure. Respectfully fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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