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2016 (2) TMI 706 - ITAT CHENNAI

2016 (2) TMI 706 - ITAT CHENNAI - TMI - Disallowance of depreciation on goodwill in connection with takeover of unit from Ashok Leyland Limited - Held that:- The assessee has paid over the value of net asset to the extent of ₹ 147.57 lakhs and claimed the same as cost of the goodwill. However, the Assessing Officer disallowed the claim of the assessee on the ground that the payment does not fall within the meaning of know-how, patent or copyright. The Assessing Officer has not considered t .....

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ders of the lower authorities. Accordingly, we set aside the orders of the lower authorities. The Assessing Officer is directed to allow depreciation at the applicable rate on the payment relatable to goodwill. - Decided in favour of assessee

Disallowance of expenditure which was capitalized in the books of account - expansion of the units - Held that:- Even though it is independent, because of the interconnection of management, financial, administrative and production aspects of each .....

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udur and Hyderabad as revenue expenditure.- Decided in favour of assessee

Assessee is eligible for additional depreciation

Depreciation on the amount paid to SIPCOT towards development of infrastructure - Held that:- The assessee has contributed to SIPCOT for creation of common facilities such as roads, bridges, electrical lines, drainage, etc. These facilities are owned by the SIPCOT / Government and not by the assessee. Merely because the assessee contributed for establis .....

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enities are tools for carrying out the business of the assessee. Unless and until the capital asset is used as a tool for carrying out the business of the assessee and the assessee becomes the owner, this Tribunal is of the considered opinion that the assessee may not be eligible for depreciation. - Decided against assessee - ITA Nos. 1590, 1591, 1592 & 1593/Mds/2015 - Dated:- 19-2-2016 - Shri N. R. S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : S .....

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ion is with regard to disallowance of depreciation on goodwill in connection with takeover of unit from Ashok Leyland Limited. 3. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the goodwill taken over by the assessee would include marketable, manufacturing right as well as trade name. Therefore, the surplus amount paid by the assessee would represent the payment made for commercial rights required by the assessee in connection with taking over of the unit from Ashok Leyla .....

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at the assessee purchased the unit called Ductron Castings Unit during the financial year 2005-06 relevant to assessment year 2006-07, as going concern from Ashok Leyland Limited, for a total consideration of ₹ 62 Crores. The assessee-company apportioned the said payment of ₹ 62 Crores between tangible and intangible assets. The assessee has apportioned ₹ 147.57 lakhs towards goodwill, other than net current asset of ₹ 2237.15 lakhs. All other items were taken as current .....

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counted by the assessee in its books of account. According to the Ld. D.R., the term goodwill includes variety of rights and things. Though all the items included in the goodwill are intangible items, however, everything is not automatically entitled for depreciation. Under the provisions of Income-tax Act, certain intangible assets are entitled for depreciation. They are: (1) know-how, (2) patents, (3) copyright, (4) trademark, (5) licence, (6) franchise (7) any other business or commercial rig .....

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cquired by the assessee would not fall within the expression of any other business or commercial rights which are in the nature similar to know-how, patent, copyright, etc. The Ld. D.R. further submitted that depreciation on intangible asset is allowable under Section 32(1)(ii) of the Act. However, the goodwill does not find place in the provisions of Section 32(1)(ii) of the Act. Hence, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. 6. We h .....

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ill is not an asset. However, the Apex Court found that the assessee had acquired a capital right in the form of goodwill because of which the market worth of the assessee-company stood increased. In those circumstances, the Apex Court found that the assessee is entitled for depreciation on the goodwill which is in the nature of commercial asset. In the case before us, it is not in dispute that the assessee has purchased Ductron Castings Unit from M/s Ashok Leyland Ltd. The assessee has paid ove .....

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business or commercial rights of similar nature in clause (b) of Explanation 3 indicates that goodwill will fall under the expression any other business or commercial rights of similar nature . In view of the above judgment of Apex Court in SMIFS Securities Ltd., we are unable to uphold the orders of the lower authorities. Accordingly, we set aside the orders of the lower authorities. The Assessing Officer is directed to allow depreciation at the applicable rate on the payment relatable to good .....

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el, the expenditure incurred by the assessee was towards salary, wages, professional and consultancy charges, travelling and conveyance expenses and loan processing fee. According to the Ld. counsel, the new unit set up by the assessee also engaged in the same business of iron castings. Therefore, the new unit set up by the assessee is only an expansion of existing business. The new unit is also under the same management. Therefore, the expenditure claimed by the assessee has to be allowed as re .....

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udur and Hyderabad are new industrial undertakings independent from the existing undertaking. The Ld. D.R. further clarified that the business of the existing unit of the assessee may be in the same line of business / manufacturing activity. However, the existing unit and new units are totally independent from each other. Once the new units at Sriperumbudur and Hyderabad came into operation, they will operate differently and their income will be a separate source of income being independent unde .....

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f 1/5th per year under Section 35D of the Act. According to the Ld. D.R., the expenditure said to be incurred by the assessee is not for the business of the assessee. It is for setting up of new industrial undertakings. The new units established by the assessee may earn profit in the future. Therefore, there is no provision in the Income-tax Act to allow the expenditure incurred by the assessee in connection with setting up of new industrial undertaking. According to the Ld. D.R., the expenditur .....

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cturing iron castings. The new unit said to be established by the assessee is also admittedly manufacturing iron castings. When the assessee set up a new unit for manufacturing the same production, whether the expenditure incurred by the assessee is for expansion of the existing business or not? This question was considered by the Madras High Court in Rane (Madras) Ltd. (supra). In the case before the Madras High Court, the assessee was engaged in the production of recirculating ball type steeri .....

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the High Court found that the production and manufacturing in the new unit was one and the same. The industry set up at Pondicherry is nothing but extension of existing business at Velacherry and Mysore. Therefore, even though it is independent, because of the interconnection of management, financial, administrative and production aspects of each expenditure has to be construed as revenue in nature and therefore, deductible while computing the taxable income. This judgment of Madras High Court w .....

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onnection with the expansion of the units at Sriperumbudur and Hyderabad as revenue expenditure. 11. For the assessment years 2007-08, 2009-10 and 2010-11, the assessee has raised one more ground with regard to additional depreciation. 12. We have heard Ld.counsel for the assessee and the Ld. Departmental Representative. It is not in dispute that new machinery was installed during the year under consideration and the Assessing Officer has allowed 10% of depreciation since the machinery was put i .....

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year in case the same cannot be allowed in the earlier year. In fact, the Cochin Bench has observed as follows:- 9. We have considered the rival submissions on either side and also perused the material available on record. Section 32(1)(iia) reads as follows: "32(1)(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any .....

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r (C) Any office appliances or road transport vehicles; or (D) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year." 10. We have also carefully gone through the Second Proviso to section 32(1)(ii) of the Act, which reads as follows: "Provided further that where an asset referr .....

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11. A bare reading of this section 32(1)(iia) clearly says that in case a new machinery or plant was acquired and installed after 31-03-2005 by an assessee, who is engaged in the business of manufacture or produce of article or thing, then, a sum equal to 20% of the actual cost of the machinery and plant shall be allowed as a deduction. It is not in dispute that the assessee has acquired and installed the machinery after 31-03- 2005. It is also not in dispute that the assessee is engaged in the .....

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al depreciation has to be allowed. It simply says that the assessee is eligible for additional depreciation equal to 20% of the cost of the machinery provided the machinery or plant is acquired and installed after 31-03-2005. Proviso to section 32(1)(iia) says that if the machinery was acquired by the assessing during the previous year and has put to use for the purpose of business less than 180 days, the deduction shall be restricted to 50% of the amount calculated at the prescribed rate. There .....

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e 50% shall be allowed in the next year since the eligibility of the assessee for claiming 20% of the additional depreciation cannot be denied by invoking Second Proviso to section 32(1)(ii) of the Act. 12. This issue was considered by the Delhi Bench of this Tribunal in the case of Cosmo Films Ltd (supra). The revenue has taken a similar ground as taken before this Tribunal that the assessee cannot carry forward the additional depreciation to be allowed in the subsequent assessment year. The De .....

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or installed new machinery or plant. The second proviso to section 32(1)(ii) restricts the allowances only to 50% where the assets have been acquired and put to use for a period less than 180 days in the year of acquisition. This restriction is only on the basis of period of use. There I no restriction that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year. Section 32(2) provides for a carry forward set up of unabsorbed dep .....

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tion and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance of 50% when the new machinery and plant were acquired and used for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new machinery and plant . It has been calculated @15% but restricted to 50% only on account of usage of these plant & mach .....

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ich has been earned and calculated in the year of acquisition but restricted for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of machinery and plant . In view of this matter, we set aside the orders of the authorities below and direct to extend the benefit. We allow ground no.2 of the assessee's appeal. Since we have decided ground no.2 in fa .....

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already been allowed by the AO in the asst.yr.2005-06, i.e. the immediately preceding assessment year. Therefore, obviously, the balance 50 per cent of the deduction is to be allowed in the current year, i.e. asst. yr. 2006-07. The learned CIT(A) has merely directed the verification of the contentions of the assessee and to allow the balance additional depreciation after such factual verification. Accordingly, finding no merit therein, ground No.3 raised by the Department is rejected." 14. .....

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the year under consideration. In view of the above, this Tribunal is of the considered opinion that the assessee is eligible for additional depreciation. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the additional depreciation. 13. The next issue arises for consideration is with regard to depreciation on the amount paid to SIPCOT towards development of infrastructure. This issue arises for consideration for the assessment years 200 .....

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eciation on the land. According to the Ld. counsel, the land development charges were paid for developing the area by laying roads, constructing culverts, providing electrical lines and other amenities required for setting up of industrial unit for which the land was allotted. According to the Ld. counsel, the roads, bridges, etc. are on par with the factory buildings, therefore, the assessee is eligible for depreciation at 10%. Therefore, according to the Ld. counsel, the assessee is eligible f .....

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ctural facilities for common use by the Government in the area so that the individual plots become fit for residential or industrial use, as the case may be. These infrastructural facilities like roads, electrical lines, drainage, etc. will not form part of any tangible or intangible assets in the hands of the assessee. These infrastructures created by the SIPCOT may facilitate the SIPCOT or other Government agency and provide common facilities to the assessee. Therefore, according to the Ld. D. .....

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