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The Deputy Commissioner of Income Tax Versus M/s Millennium Beer Industries Ltd. (Since Amalgamated With United Breweries Ltd.)

2016 (1) TMI 804 - ITAT BANGALORE

Depreciation on goodwill - Held that:- In the assessee's own case for AY: 2002-03, 2006-07 and 2007-08 we uphold the finding of the learned CIT(A) in directing the AO to allow the assessee's claim of depreciation on goodwill. - Decided in favour of assessee.

Disallowance u/s 40A(3) r.w. Rule 6DD - CIT(A) deleted the addition - Held that:- Before the learned CIT(A), the assessee inter-alia submitted that these payments were made as freight to truck drivers for duties of delivery of raw .....

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more than one truck, which sometimes is in excess of ₹ 20,000/- cannot be held to be unreasonable. We observe that revenue, except for raising the ground, has failed to bring on record any material evidence to controvert the findings of the learned CIT(A) on this issue and in this view of the matter, we uphold the finding of the learned CIT(A) on this issue. - Decided in favour of assessee.

Disallowance u/s 40A(2) - CIT(A) deleted the addition - Held that:- Following the decisi .....

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Dated:- 4-11-2015 - Vijay Pal Rao, JM And Jason P Boaz, AM For the Appellant : Shri G R Reddy, CIT-DR-I For the Respondent : Shri D Anand, Adv ORDER Per Shri Jason P Boaz, AM This appeal by the revenue is directed against the order of the CIT(A)-IX New Delhi dated 10-02-2014 for the assessment year 2009-10. 2. ORDER ON PETITION FOR CONDONATION OF DELAY IN FILING APPEAL; 2.1 Along with the appeal, revenue has filed an application for condonation of delay in filing this appeal before the Tribunal .....

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the CIT-II, New Delhi forwarded the order of the learned CIT(A) to the Bangalore office on 02-05-2014 and the same was received in the Office of CIT, Bangalore-III on 19-05-2014 only. It is prayed that delay in filing the appeal be condoned as it was neither willful nor intentional and was only due to the factual circumstances, laid out above surrounding the transfer of this case from New Delhi to Bangalore. 2.2 The learned AR for the assessee had no objection, if the delay in filing the appeal .....

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briefly, are as under; 3.1 The assessee, a company engaged in the manufacture and sale of Beer, filed its return of income for assessment year 2009-10 on 25-09-2009 declaring loss of ₹ 10,57,50,801/-. The return was processed u/s 143(1) of the IT Act, 1961 (in short 'The Act') and the case was subsequently taken up for scrutiny. The assessment as concluded u/s 143(3) of the Act vide order dated 30-12-2011 wherein the assessee's income/loss was determined at (-) ₹ 41,54,0 .....

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assessee partial relief. 4. Revenue being aggrieved by the order of the CIT(A)-IX, New Delhi dated 10-02-2014 for assessment year 2009-10, has preferred this appeal raising the following grounds; "1. The order of the ld.CIT(A) is opposed to law and facts of the case. 2. On the facts and circumstances of the case the learned CIT(A) erred in directing the AO to delete the disallowance of depreciation on goodwill without appreciating the fact that the same is not admissible as per the provisi .....

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nching findings of the AO in para-7.1 of his order wherein the AO has rightly concluded that the payment to the holding company is excessive and unreasonable in view of the sanctioned scheme by the BIFR and the responsibility of the holding company to revive the loss making subsidiary company. 5. On the facts and in the circumstances of the case the learned CIT(A) erred in allowing the payment of ₹ 10 Crores made by the assessee to the holding company M/s United Breweries Ltd. by wrongly p .....

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7 are general in nature and therefore, no adjudication is called for thereon. 6. Ground no.2 Depreciation on goodwill 6.1 In this ground the revenue assails the impugned order of the learned CIT(A), in deleting the disallowance of depreciation on goodwill without appreciating the fact that the same is not admissible as per the provisions of Section 32(1) of the Act, as goodwill is not defined as an intangible asset. The learned DR was heard in support of the grounds. 6.2 Per contra, the learned .....

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2007-08 in ITA Nos.1968 to 1970/Del/2012 dated 23-12-2013. 6.3.1 We have heard the rival contentions of both parties and perused and carefully considered the material on record, including the judicial pronouncements cited and placed reliance upon by the assessee. We find that this issue is covered in favour of the assessee by the decision of the ITAT Delhi Bench in the assessee's own case for assessment years 2002-03, 2006- 07 and 2007-08 in ITA Nos.1968 to 1970/Del/2012 dated 23-12-2013, wh .....

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ct, we have no hesitation in vacating the findings of the learned CIT(A) and accordingly , direct the AO to allow the claim of depreciation on goodwill in terms of aforesaid decision of the Hon'ble Apex Court. Consequently, ground no.3 and 4 in the appeal for the AY: 2004-05 and ground no.s.2 to 4 in the appeal for the AY: 2005-06 are allowed. Since we have allowed the claim of the assessee on merits in the AY: 2004-05, ground nos.1 & 2 relating to validity of reopening of the assessment .....

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allow the assessee's claim of depreciation on goodwill. Consequently, ground no.2 of the revenue's appeal is dismissed. 7. Ground no.3 - Disallowance u/s 40A(3) r.w. Rule 6DD 7.1 In this ground revenue assails the order of the learned CIT(A) in allowing the assessee's claim as being contrary to the provisions of Sec.40A(3) r.w. Rule 6DD in respect of cash payments in excess of ₹ 20,000/-. It is contended by the learned DR, that the AO had rightly made the disallowance u/s 40A(3 .....

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w.Rule 6DD in the facts and circumstances of the case. The learned AR reiterated submissions made before the learned CIT(A) and contended that except for raising this ground, the revenue has not been able to controvert the finding of the learned CIT(A) on this issue. 7.3.1 We have heard the rival contentions and perused and carefully considered the material on record. The disallowance of ₹ 5,83,758/-was made by the AO u/s 40A(3) r.w. Rule 6DD as he was of the view that the assessee was una .....

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g the nature of the assessee's business the explanation put forth by the assessee that freight charges are paid in cash to the truck drivers for expenses on road like diesel, food, minor repair and the balance to truck operators for freight sometimes for more than one truck, which sometimes is in excess of ₹ 20,000/- cannot be held to be unreasonable. We observe that revenue, except for raising the ground, has failed to bring on record any material evidence to controvert the findings o .....

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the AO, rightly rendering a finding that this payment is excessive and unreasonable in view of the sanctioned scheme by the BIFR by which it was the responsibility of the holding company to revive the assessee, which was its loss making subsidiary. It is also contended that the learned CIT(A), in allowing the said payment of ₹ 10.00 Crores by the assessee to its holding company M/s United Breweries Ltd. had wrongly placed reliance on the decision of the Hon'ble Apex Court in the case o .....

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t of its claim for these payment of ₹ 10.00 Crores to M/s United Breweries Ltd. ('UBL') to be allowed, the learned AR reiterated the submissions made before the learned CIT(A) and placed reliance on the decision of the ITAT Chennai Bench in the case of M/s Empee Breweries Ltd. in ITA No.1295/Mds/2012 dated 214-02-2013 wherein on similar facts payment of ₹ 4.00 Crores by the assesseee in that case to UBL, for provisions of technical and management advice and consultancy by whi .....

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ncy agreement for which the assessee submits it has received services and intangible benefits through its association with UBL such as, purchase of key materials, negotiation with bankers to get term loans at competitive rates, coordination with distributors to meet the demand and supply, designing of packing material, supply of imported items like hops/foils, co-ordination with engineers for optimum utilization of plant and machinery and attendant intangible benefits. According to the assessee, .....

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e payment. The assessee was in the business of manufacture and trading of Beer and there is no doubt that UBL, its holding company to whom the said payment was made for rendering of technical, management advisory and consultancy services, was a major player in this business. In this factual matrix, the claim of the assessee is that it has got tremendous benefits on account of its association with UBL, in terms of both service and intangible benefits. We find that the assessee had produced before .....

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ss making company, and therefore, we find that there is substance in the averments of the learned AR that if this transaction had not gone through, revenue would have been at a disadvantage. In this regard, we concur with the learned CIT(A)'s observation that this transaction between the assessee and the UBL, being tax neutral, both the assessee as well as UBL do not get any tax benefit therefrom and therefore, hold that the AO has not been able to establish in the order of the assessment th .....

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to UBL, we are of the view that this has been clearly established in the factual matrix of the case by the various benefits the business of the assessee received (Supra)as laid out above. We do not find merit in the AO's contentions to the contrary the view of the observations of the Hon'ble Apex Court in the case of S.A.Builders (288 ITR 1) (SC) , wherein it has been held that revenue could not sit in the chair of a businessman and decide that he is to carry out his business in a parti .....

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payments. We find from the order of assessment that the AO has not been able to prove that the payment of ₹ 10.00 Crores by the assessee to UBL was either unreasonable or that the quantum of payment was excessive and not commensurate with the services rendered to it by UBL. 8.3.4. In the context of the facts and circumstances of the case as discussed above, we have had occasion to peruse the order of the ITAT Chennai Bench of the Tribunal in the case of M/s Empee Breweries Ltd. in ITA No.1 .....

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at we notice is that the payment itself was not doubted. Assessee indeed paid a sum of ₹ 4.00 Crores to M/s UBL . As per assesee, it had received services and intangible benefits through its association with M/s UBL. Argument of the learned DR is that the payment made was not wholly and exclusively for the purpose of the business of the assessee. Admittedly, assessee was in the busi9ness of manufacturing and trading of liquor. There can be no doubt that M/s UBL, to whom the payment was mad .....

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iation with M/s UBL, before the CIT(A). However, in our opinion, these were at best corroborative evidence and were not stand alone evidence. Assessee had during the course of assessment proceeding produced before the AO details of the services rendered by M/s UBL. In our opinion, even dehors the records produced by the assessee before the learned CIT(A), it could reasonably demonstrate the business purpose behind its association with M/s UBL. Assessee might not have been able to produce before .....

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ffected. Further, learned CIT(A) has given a clear finding that the transaction was revenue neutral. M/s UBL had a returned interest income of ₹ 80,19,22,970/- on which it had paid tax at maximum marginal rate, as noted by the CIT(A). If the sum of ₹ 4.00 Crores was not received by it, tax payable by the said company would have only gone down. As against this, assessee had returned loss of ₹ 1.08 Crores and therefore, there is much strength in the argument of learned AR that if .....

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