TMI Blog2019 (1) TMI 1594X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is allowable. Assessee was entitled to the depreciation on the intangible assets on the cost incurred by it on its acquisition. There was no differentiation whether it is available to the industrial undertaking or otherwise. AO has limited the deduction of the depreciation in respect of know-how only concerning the industrial undertaking. More specifically the AO in the instant case concluded that the know-how used concerning industrial undertaking would be eligible for the depreciation. As per the AO industrial undertaking means the factory where the manufacturing activities are carried on by the assessee. We further observe that the assessee in the instant case has not acquired the factory of AFL. Accordingly, the AO was of the view that the assessee is not carrying out any industrial activity. AO also observed that AFL was also not carrying out any industrial activity on the ground that it was just engaged in the activity of stitching the fabrics which were manufactured by Arvind Mills Ltd. In view of the above, the AO was of the view that the assessee is not eligible for the depreciation on the technical know-how as discussed above. We disagree with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocedures taken by the assessee from AFL were used for the work assigned to such outside job workers. Therefore we are of the view that the design and technical know-how acquired by the assessee from AFL were used for its business activities. The assessee has made the payment to AFL for the intangible assets which were created by the AFL over a period of time. Therefore we are of the view that the consideration paid by the assessee is representing the benefits which it is going to use for its business purposes - The expenditures incurred by the assessee have to be allowed as a deduction in one or the other way. Thus assessee is eligible for the depreciation in respect of the intangible assets as discussed above - Decided in favour of assessee Depreciation on goodwill disallowed - claim made by the assessee 1st time before the Ld. CIT(A) - assessee did not claim the depreciation on goodwill in its income tax return as well as before the AO during assessment proceeding u/s 143(3) - HELD THAT:- Issue of depreciation on goodwill was subject to litigation at various courts. Therefore the same was not claimed by the assessee in the income tax return. However at the time of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts than in our considered view there was no need to examine the valuation report. In view of the above we are not impressed with the finding of Ld. AO. Hence we do not find any reason to interfere in the order of CIT(A) and direct the AO to delete the addition made by him Disallowance made in respect of registration charges in respect of lease deed - Revenue or capital expenditure - HELD THAT:- The assessee out of such expenditure has not acquired any capital assets. Therefore the same cannot be treated as capital in nature. Accordingly, we treat them as revenue expenses. See CINCEITA PRIVATE LIMITED [ 1982 (2) TMI 58 - BOMBAY HIGH COURT] from it is clear that the expenses incurred in relation to the property taken on lease cannot be treated as capital in nature. Thus the ground raised by the assessee in its CO is allowed. - ITA No. 1904/Ahd/2013 & Cross Objection No. 204/Ahd/2013 (in ITA No. 1904/Ahd/2013) - - - Dated:- 1-1-2019 - SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER For the Revenue : Smt Aparna M. Agarwal, CIT.D.R For the Assessee : Shri Dhinal Shah Snehal Sukhadia, A.R. ORDER ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06. 2.1 As per the agreement the assessee acquired the business of Arvind Fashion Ltd- a wholly owned subsidiary company of Arvind Mills Ltd as a going concern as slump sale for lump-sum consideration. The business acquired by the assessee from Arvind Fashion Ltd (for short AFL) was consisting of design, procurement, marketing, and management of the distribution of the appellant company for the branded products, in India, Srilanka, the Reunion Island, Seychelles, Madagascar, Mauritius, and the Maldives. 2.2 The business was acquired by the assessee for a lump sum consideration of ₹ 1816.53 million which was allocated to various assets taken over at fair value on the acquisition date. The assessee out of the total lump-sum consideration treated a sum of ₹ 1435/- million towards intangible assets. The details of the intangible assets and the value allotted to them are reproduced as under: Sr.No. Particulars of Intangible assets Value 1. Design and technical know-how 403.28 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred to the assessee. As such, AFL under the agreement with the assessee was under obligation to act as a job worker on behalf of the assessee. Therefore the AO was of the view that there was no transfer of any design and technical knowhow to the assessee for which there was no need to make any payment to AFL. It was also agreed between the assessee and AFL that in case there is underutilization of the capacity of the assessee then AFL would be free to undertake the activity of garment production on behalf of other parties. The depreciation is allowed when the capital assets are used for the purpose of the business. In the instant case, there was no utilization of intangible assets as required by the assessee. 2.4 In view of above the AO was of the view that the assessee is not entitled to depreciation on the intangible asset namely design and technical know-how. Vendor and customer relationship The AO observed that the vendor and customer relationship does not fall within the definitions of intangible assets. Therefore he was of the view that the depreciation on the intangible assets namely vendor and customer relations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led the list of the job workers. iv. The assessee has acquired the business activity of AFL after making the agreed payment. The payment to AFL was not limited to the business activities, but it also covered the intangible assets acquired by the assessee. Thus the assessee is entitled to depreciation on the cost incurred by it on the purchase of intangible assets along with the business assets acquired from AFL. v. As regards the vendor network relationship, the assessee submitted that it was paid to AFL for utilizing the network which was build up by AFL over a period of time. These vendors have been trained over a period of time by AFL and became capable of generating the quality products as per the specifications of the assessee. The assessee was able to save substantial time in developing the network of such vendors. vi. There were 87 job workers/ vendors of AFL which were transferred to the assessee. These job workers were in a position to provide the desired services to the assessee in time bound manner without compromising with the quality of the work. vii. There was an agreement between the assessee and the AFL whereby the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz knowhow, patents, copy rights, trade mark, licences and franchises. The appellant has correctly referred to various decisions which held that the appellant was entitled to depreciation on the assets skill and knowhow, business f information, trading reputation, marketing and distribution, territorial knowhow. Such decisions have held that any right which is obtained for carrying on business effectively is likely to fall within the meaning of intangible assets. It is brought to my notice that Delhi Tribunal in the case of Sarabhai Animal Health Ltd. has held that marketing rights acquired by the company were intangible right eligible for depreciation. Similarly ITAT, Ahmedabad in the case of Arvind Brand has accepted the claim of the assessee in respect of depreciation on intangible assets consisting of brand name, knowhow, licenses and marketing distribution net work which is a case similar that of the appellant. In this case of Arvind Brand Ltd. the assessee had claimed depreciation on brand name and marketing and distribution net work. The Tribunal in para 6 of the order being No. 1679/Ahd/2005 dated 24-10-2008 held as under: We have heard both the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration for transfer of Electrical Projects and Contracting f Division - Project consideration included cost of technical proprietary information and value of commercial/pre-qualification right - Assessee claimed depreciation on two items of intangible assets, viz., technical proprietary information and pre-qualification rights under section 32(l)(ii) Assessing Officer disallowed said claim on ground that those intangible assets would partake character of goodwill which was not eligible for depreciation under section 32(1 )(ii) - Assessing Officer also held that entire transaction was paper transactions in order to avail benefit of depreciation - However, on appeal, Commissioner (Appeals) allowed assessee's claim and set aside order of Assessing Officer - Whether pre-qualification rights and technical proprietary information could not be treated as 'goodwill1 - Held, yes - Whether transfer of pre-qualification rights and technical proprietary information by 'B' Ltd. was on account of genuine commercial considerations done, at arms length, based on business valuation report, given by a reputed firm of Chartered Accountants and without which assessee would not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation; business records; contracts; employees; and knowhow, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares Stocks Ltd. ( supra) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a license or akin to a license which is one of the items falling in Section 32(1)(ii) of the Act. 14. In view of the above discussion, we are of the view that the specified intangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Lease Agreements and also Distribution and Marketing Agreements, alongwith list of licenses and Permissions and List of various products, the name license and also the manufacturing know-how etc., along with list of employees are assets, Which are invaluable and instrumental in carrying on the business of Animal Health Care and Diagnostics Business Divisions acquired by the assessee from M/s. Ranbaxy Laboratories Ltd. as per the BPA. The acquisition of the above said items is a bundle of rights acquired by the assessee for which a lump sum price was fixed and no break up in the value of price was determined either by the assessee or by the auditors but the same constituted bundle of rights akin to a license or comparable to a license to carry on the (acquired) business .... The above said assets acquired by the assessee were the business or commercial rights or license acquired in order to carry on new business acquired by the assessee including list of employees and also various licenses owned by Ranbaxy Laboratories Ltd. Thus having regard to the ratio laid down in the above referred decisions, I agree with the appellant that the technical knowhow, design and ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory auditor of the company has commented on the allowability of the depreciation claim made by the assessee in respect of intangible assets. Accordingly, the AO has referred in his assessment order regarding the comment given by the statutory auditor of the company. However on perusal of the comment of the statutory auditor of the company we find that claim of the assessee has not been denied for the depreciation on the intangible assets. The auditor has mentioned that they are unable to comment on the claim of the assessee on the depreciation of intangible assets. The expression used by the statutory auditor of the company cannot be construed as if the depreciation claimed by the assessee was denied. The comment of the statutory auditor of the company reads as under: As per information and explanation given to us and based on the opinion obtained from the company s tax consultants, Company reckoned and claimed depreciation on the intangible assets acquired at the time of acquisition of business undertaking of Arvind Fashions Limited comprising of Design and Technical knowhow, vendor Relationship etc. The company is of the opinion that the payment made by the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made from India. It is a fact that amounts are paid abroad and the services are rendered abroad. Those companies who received the amounts have no permanent establishment in India or even the business connection in India. Therefore, the payments made to them abroad can not be brought to tax in India as the jurisdiction of IT Act extends only to territory of India where the payments have been made from India (sic), then it can be verified whether amounts can be brought to tax as per the provisions of I.T Act or whether Double T axation A voidance Agreement (DT AA) can be invoked so as to claim benefit. However, since the amounts are paid outside India to persons outside Indian territory , who does not have any tax liability as far as I.T . Act, 1961 is concerned, the amounts paid abroad cannot be considered as 'sums chargeable' under the provisions of this Act. Even though Explanation-2 clarifies the position that whether or not a non-resident person has a residence or place of business or business connection in India or any other persons in any other manner whatsoever in India, the Explanation cannot override the main provision of section 195 about 'sum chargeable' u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the purposes of this sub-section, the expression knowhow means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). 8.6 We note that depreciation on the intangible assets was brought under the statute by the Finance Act 1998 for the purposes as mentioned under: Depreciation to be allowed on intangible assets under the existing provisions, depreciation is allowable when building, plant, machinery or furniture is used by the assessee for the purposes of his business or profession. It is proposed to widen the scope of this section so as to provide that depreciation will also be allowed where intangible assets are owned wholly or partly by the assessee and are used by such assessee for the purposes of his business or profession. Intangible assets, such as know-how, patent rights, copyrights, trade marks, licences, franchises or any other business or commercial rights of the assessee will form a separate block of assets. As and when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o available even to the business activities where there was no manufacturing activity. In our considered view the AO has taken a narrow meaning of the technical knowhow on the basis of explanation 4 to section 32 of the Act. 8.11 The purpose for the depreciation on the intangible assets has been explained in the memorandum of the finance Act to 1998, and there was no such limitation provided for the allowability of the depreciation on technical know-how. Therefore we are not inclined to uphold the finding of the AO that the depreciation on the technical know-how is available only in relation to the industrial undertaking. 9. The 2nd question framed by the AO was that whether the assessee has acquired any design and technical know-how from AFL. In this regard, we find that the assessee claimed to have acquired designs and technical know-how from AFL as detailed under: 6.1 Design and Technical Know-How (TKH) Design refers to the. visual image that would be executed on a piece of cloth with the required technical know-how. Design : TKH has been valued together as they are complementary assets and together provide a bett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of the AO that there was no design and technical know-how acquired by the assessee. 10. The 3rd question framed by the AO was that whether the assessee has used technical know-how acquired from AFL. In this regard, we find that the assessee has acquired the factory of AFL on contract wherein it was agreed that the AFL should give priority to the work of the assessee assigned to it which will be executed under its supervision. The relevant clauses of the agreement are reproduced as under: AGREEMENT TO MANUFACTURE PRODUCTS This Agreement is entered into on the 1st day of September, 2006 By and Between 1. Arvind Fashions Limited, a company incorporated under the laws of India having its registered office at The Arvind Mills Naroda Road, Railwaypura Post Ahmedabad 380 025 India hereinafter referred sto as AFL (which term means and includes its successors and assigns) and 2. VF Arvind Brands Pvt. Ltd. a company incorporated under the laws of India and having its registered office at Arvind Mills Premises, Naroda Road, Ahmedabad 380025 hereinafter referred to as VFABPL (which means and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Products VFABPL hereby appoints AFL for manufacturing Products as per the Orders from the Factory, such appointment shall be from the effective Date for the entire term of this agreement for the consideration stipulated below. 4. Orders VFABPL shall periodically release Orders in favour of AFL stipulating therein the Products to be manufactured, rate and delivery schedule which when accepted by AFL shall be duly executed by AFL. 5. Obligations of AFL 5.1 AFL shall ensure the Factory is in good working condition at all times and that it complies with the VF Terms of Engagement a copy of which has been made available to and signed by AFL. 5.2 AFL shall make every effort to ensure that the Products manufactured are of the quality required by VFABPL. Further, AFL shall deliver all orders to such place as notified/ communicated by VFABPL to AFL. 5.3 AFL shall give first priority to Orders received from VFABPL and shall take on orders from third parties subject to the same. 5.4 AFL shall provide all direct and indirect labour for the operation of the Factory and shall take direction fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Silk Fashion Export 3,996,205 2% 7. Sree Shilpa Apparels 3,619,944 2% 8. Shoha Designs Pvt. Ltd. 3,517,318 2% 9. Sri Vinayaka Apparels 3,143,776 1% 10. Narayan Apparels Pvt. Ltd. 3,013,344 1% 11. White Horse Fashions 2,967,453 1% 12. Prathiba Fashions 2,371,271 1% 13. Sonetra Garments 2,191,295 1% 14. Amrutha Creation 1,612,715 1% 15. A. R. Kolor Kraft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vendor No s of Vendors (as transferred) Fabrics 58 Rims 77 6.2.3 Advertisement Vendors: Provide the service of advertising and promoting the products. Vendor No's of Vendors (as transferred) Advertisement 232 6.2.4 Of the above vendors, job workers hold a prominent position due to the nature of their involvement. In, many instances job-workers are dedicated to the parent company and conduct no other business. Hence their business, process, key people are aligned with the requirements of the parent company. While creating a pool of such contract manufacturers, the parent company invests a significant amount of time not just in selection and trials (as would be applicable for any group of vendors) but also in training, quality control, advise on technology, management, etc. In a business such as this, job workers are integral to the business of the parent company. Typically, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.3.2 Exclusive Brand Outlets (EBOs): EBO's are shops or outlets, whether leased or owned, that are created, run and operated, by AFL. EBO's are retail stores that exclusively sell products of VFABPL. It may be pertinent to mention that these EBOs were not transferred as part of business, but would act as franchisees of VFABPL in die future. Sales Channel No. of stores % contribution to sales EBO's 3 9 20% (For the year 2005-06) 6.3.3 Exclusive Outlet on Purchase (EOF): EOP's are franchisee's belonging to AFL that has been transferred as part of the business. These franchisees are exclusive to VFABL products brands. Sales Channel No. of stores % contribution to sales EOP's 51 16% (For the year 2005-06) 6.3.4 Key Accounts (KA): KA is a larger version of an MBO and form a major part in the retail segment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed the depreciation on 'goodwill' as claimed in the return vide order dated 28th December, 2007. The AO disallowed the claim of the assessee Company on two grounds, namely, (a) depreciation under Section 32(2)(ii) is not available on goodwill; (b) the assessee Company was unable to demonstrate that the amount of ₹ 16,58,76,000/- shown as goodwill in the books of accounts was in fact a payment made towards acquiring of certain business and commercial rights and therefore eligible for depreciation in tax as per Section 32(1)(ii) of the Act. Judgment 16. In these appeals, the ITAT, relying upon the decision in assessee's own case ITA No.336/Del/08 dated 6th July, 2009 pertaining to assessment year 2005- 06, held:- 5. On careful consideration of rival submission, we are of view that learned CIT(Appeals) has rightly allowed relief to the assessee after considering relevant facts and circumstances of the case. The assessee has not claimed depreciation on goodwill it acquired commercial rights to sell products under the trade name and paid consideration in dispute for acquiring marketing and territorial rights to sell th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 2005- 06 supported the impugned order of the Assessing Officer. The moot question that is to be decided whether the depreciation claimed on the intangible assets amounting to ₹ 12,03,12,500 which relates to these two assets in the names of Brand name Arvind and Marketing and distribution Network is allowable u/s.32(1)(ii) of the Income-tax Act, 1961. Going through the said section, it is very much clear that this section includes know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets. The Revenue is not disputing that the assessee has acquired these two intangible assets in question under an agreement. The items mentioned in Section 32(1)(ii) are wide enough so as to include these types of intangible assets under consideration. Therefore, in our considered view, the learned CIT(A) has rightly allowed the depreciation claimed by the assessee and as such, it needs no interference. 10.6 In addition to the above, we note that there is no dispute with regard to the acquisition of AFL by the assessee company as discussed above. Accordingly, the consideration was paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Mfg. Co.Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC). 20. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, the assessee had initially intended to make such an option. However, it abandoned the same before reaching the crucial stage, inasmuch as, in the income tax return filed by the assessee, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of semifs securities Ltd. reported in 348 ITR 302 wherein it was held as under: 4. 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). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. 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) ['CIT(A)', for short] has come to the conclusion that the authorised representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the opinion that the Delhi High Court judgment has been delivered on 5th November 2012 and the impugned order was passed on 15th June 2011. The Tribunal has essentially based its conclusion on the consistent stand of the Assessee and that of the Assessing Officer. In dealing with the shift in stand for the subject assessment year, the Tribunal found that this claim of depreciation was raised in the assessment year 2003-2004. The Assessee claimed that it is allowable as per the provisions of Income Tax Act on block of assets under the head intangible assets . The Assessing Officer allowed the claim for that assessment year by an order under Section 143(3) dated 28.03.2006. The Tribunal then, proceeds to hold that when the Assessing Officer had to allow depreciation on the written down value of the block of assets, then, it cannot in the present assessment year dispute the opening written down value of the block of assets nor can he examine the correctness or otherwise of the opening written down value brought forward from the earlier year. The order under Section 143(3) for the assessment year 2003- 2004 continues to operate and no proceedings under the Act were initiated to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities Ltd. reported at 348 ITR 302[SC]. The fact remains that any subordinate judicial authority has to follow the ratio laid down by the superior judicial authority. The claim now made by appellant is supported by recent decision of Hon ble Supreme Court, therefore, the A.O is directed to consider this claim in the light of the decision of Apex Court referred to above and pass a speaking order. The order of appeal is, therefore allowed. Being aggrieved by the order of Ld. CIT(A) both revenue and assessee are in appeal before us. 15. The revenue is in appeal against the direction of the Ld. CIT(A) whereas the assessee is in its CO against the direction of Ld. CIT(A) that he has not allowed the claim of the depreciation on goodwill. Both the parties before us relied on the order of authorities below as favorable to them. 16. We have heard the rival contentions and perused the materials available on record. It is the undisputed fact that the assessee did not claim the depreciation on goodwill in its income tax return as well as before the AO during assessment proceeding u/s 143(3) of the Act. The reason given by the assessee is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the appellate authority under section 251(1)(a). Even otherwise an appellate authority while hearing appeal against the order of subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appeared to be no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts. If the AAC is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the AAC should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion '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). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. 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) ['CIT(A)', for short] has come to the conclusion that the authorised 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 Private Limited 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made in the books of accounts as per accounting standard 2 issued by the ICAI. 20.1 The inventory was shown at the market price by creating the provisions in the books of accounts. 20.2 The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under: I have carefully considered the assessment order and the submission made by the appellant. The disallowance is mainly made on the ground that it is a contingent liability. However, it is noticed from the details furnished by the appellant that the appellant has made valuation of inventories and made the provision on a systematic basis. Considering that the finished goods are representing very old stock i.e. 3 to 4 seasons for which the appellant has made provision for reduction in the value. Similarly in respect of raw materials namely fabrics also the non-moving and sale moving material are provided for reduction in value. Thus it is a systematic way of valuing inventory for which details are furnished. As such it is not correct to say that it is contingent liability provided by the appellant. The appellant's claim is supported by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UFACTURING AND OTHER EXPENSES Employee Cost: Salaries, Bonus etc., [including provision for Leave Encashment ₹ 1,021 (2007: ₹ 72) 210,923 61,619 Contribution to Provident and other funds [Including Provision for gratuity ₹ 8,268 (2007: ₹ 1,892/-)] 19,677 7,032 Staff Welfare Expenses* 5,266 2,092 235,866 70,743 Job work Charges 216,354 85,685 Stores and spares Consumed 118 556 Power and Fuel* 5,327 1,863 Rent [Schedule 19, Note 17(b)]* 64,937 8,033 Rates and Taxes 28,834 18,228 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provision from the inventory shown in its financial statement. The relevant extract of the inventory shown in the financial statement by the assessee stands as under: SCHEDULE 7 INVENTORIES [Schedule 19, Note 1(v)] Raw Materials, Packing Materials and Accessories [Including in-transit: ₹ 7,340 (2007:₹ 2,054] 95,619 78,736 Work-in-Process 23,468 19,191 Finished Goods 45,773 155,589 Traded Items 316,918 105,804 481,778 359,320 13,874 1,700 Less: Provision for Obsolescence 4,67,904 357,620 23.2 Once the provision has been written off by the assessee in its books of accounts than in our considered view there was no need to exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed the sum of ₹ 3,19,476/- after depreciation @ 10% and added back to the total income of the assessee. 29. Aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the registration charges were incurred in respect of the buildings which were acquired on lease. As such these expenses do not represent any capital expenditure. Therefore the same should be allowed as revenue in nature. 29.1 The Ld. CIT-A after considering the submission of the assessee confirmed the addition made by the AO by observing as under: I have considered the assessment order and the above contentions. The registration charges though relate to property, the same are for registration of lease deed. However, the same having relation with the property acquired by the appellant on lease, the assessee is entitled to depreciation. Therefore disallowance is confirmed and the ground of appeal is dismissed. Being aggrieved by the order of Ld. CIT(A) assessee is in CO before us. 30. The learned DR before us vehemently supported the order of authorities below whereas the learned AR before us subm ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
