KOCH CHEMICAL TECHNOLOGY GROUP (I) P. LTD( FORMERLY KNOWN ASM/S. GLITSCH INDIA P.LTD), MUMBAI v. ASST CIT 10(2), MUMBAI

CO 198/MUM/2011 | 2003-2004
Pronouncement Date: 29-03-2012 | Result: Dismissed

Appeal Details

RSA Number 19819923 RSA 2011
Assessee PAN AABCK3688G
Bench Mumbai
Appeal Number CO 198/MUM/2011
Duration Of Justice 3 month(s) 15 day(s)
Appellant KOCH CHEMICAL TECHNOLOGY GROUP (I) P. LTD( FORMERLY KNOWN ASM/S. GLITSCH INDIA P.LTD), MUMBAI
Respondent ASST CIT 10(2), MUMBAI
Appeal Type Cross Objection
Pronouncement Date 29-03-2012
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-03-2012
Assessment Year 2003-2004
Appeal Filed On 14-12-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (JM) AND SHRI N.K .BILLAIYA (AM) ITA NO.6908/MUM/2010 (ASSESSMENT YEAR:2003-04) THE ASSISTANT COMMISSIONER OF INCOME TAX 10(2) ROOM NO.432 4 TH FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI-400020. M/S KOCH CHEMICAL TECHNOLOGY GROUP (I) PVT.LTD. (FORMERLY KNOWN AS M/S KOCH GLITSCH INDIA P.LTD.) CORPORATE PARK-II 10TH FLOOR CTS NO.354 SION TROMBAY ROAD CHEMBUR MUMBAI-400071. PAN:AABCK3688G APPELLANT V/S RESPONDENT CROSS-OBJECTION NO.198/M/2011 (ARISING OUT OF ITA NO.6908/MUM/2010) (ASSESSMENT YEAR:2003-04) M/S KOCH CHEMICAL TECHNOLOGY GROUP (I) PVT.LTD. (FORMERLY KNOWN AS M/S KOCH GLITSCH INDIA P.LTD.) CORPORATE PARK-II 10TH FLOOR CTS NO.354 SION TROMBAY ROAD CHEMBUR MUMBAI-400071 PAN:AABCK3688G THE ASSISTANT COMMISSIONER OF INCOME TAX 10(2) ROOM NO.432 4 TH FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI-400020 . APPELLANT V/S RESPONDENT ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 2 ITA NO.6499/MUM/2010 (ASSESSMENT YEAR:2005-06) M/S KOCH CHEMICAL TECHNOLOGY GROUP INDIA PVT.LTD. 10 TH FLOOR CORPORATE PARK-II 10TH FLOOR CTS NO.354 SION-TROMBAY ROAD CHEMBUR MUMBAI-400071 PAN:AABCK3688G THEDY. COMMISSIONER OF INCOME TAX 10(2) ROOM NO.474 4 TH FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI-400020. . APPELLANT V/S RESPONDENT DATE OF HEARING : 15.3.2012 DATE OF PRONOUNCEMENT : 29.3.2012 REVENUE BY : SHRI PARTHISARTHI NAIK ASSESSEE BY : SHRI MILIN K.MEHTA O R D E R PER DINESH KUMAR AGARWAL (JM) THE APPEAL IN ITA NO.6908/MUM/2010 PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 27.7. 2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2003-04 AGAINST WHICH THE ASSESSEE HAS FILED CROSS-OBJECTION. THE APPEAL IN ITA NO.6499/MUM/2010 PREFERRED BY THE ASSESSEE IS D IRECTED AGAINST THE ORDER DATED 3.3.2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2005-06. BOTH THESE APPEALS AN D CROSS- OBJECTION ARE DISPOSED OF BY THIS COMMON ORDER FO R THE SAKE OF CONVENIENCE. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 3 ITA NO.6908/MUM/2010 (REVENUES APPEAL) 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE- COMPANY IS ENGAGED IN THE BUSINESS OF DESIGN MANU FACTURING SUPPLY INSTALLATION AND ERECTION OF MASS TRANSFER EQUIPMENTS. THE RETURN WAS FILED DECLARING THE LOSS OF RS.88 55 470/-. ORIGINAL ASSESSMENT UNDER SECTION 143(3) OF THE IN COME TAX ACT 1961 (THE ACT) WAS COMPLETED ON 20.3.2006 ASSE SSING TOTAL INCOME AT RS.1 32 36 720/-. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED U/S 147 OF THE ACT BY ISSU E OF NOTICE U/S 148 OF THE ACT DATED 16.2.2009. THE AO REOPENE D THE ASSESSMENT AFTER RECORDING THE FOLLOWING REASONS : THE ASSESSEE ACQUIRED A RUNNING BUSINESS UNIT FRO M M/S TOPAC INDUSTRIES VIDE AGREEMENT DATED 20.12.1999 F OR A TOTAL CONSIDERATION OF RS.15 77 34 000/- OUT OF T HAT ASSESSEE HAS APPORTIONED AN AMOUNT OF RS.13 30 31 000/- TOWARDS THE COST OF GOODWILL. DURING THE PREVIOUS YEAR ASSESSEE HAS CLAIMED DEPRECIATION OF RS.1 69 91 953/- ON GOODWILL. ON P ERUSAL OF THE AGREEMENT FOR THE PURCHASE OF BUSINESS IT I S SEEN THAT GOODWILL HAS NOT BEEN DEFINED AND DESCRIBED IN THE SAID AGREEMENT. THE COST OF GOODWILL REPRESENT THE DIFFERENCE BETWEEN THE PURCHASE CONSIDERATION AND N ET BOOK VALUE OF THE ASSETS ACQUIRED. THE DIFFERENCE BETWEEN THE COST OF ASSETS AND SALES CONSIDERATION DESIGNATED BY THE ASSESSEE AS COST OF GOODWILL CLEA RLY SHOWS THAT THERE WAS NO GOODWILL AS SUCH IN EXISTEN CE AT THE TIME OF ACQUISITION OF THE BUSINESS. MERELY DES CRIBING THE DIFFERENCE CANNOT GENERATE ANY ASSET WHATSOEVER . AS THERE WAS NO GOODWILL THERE IS NO QUESTION OF ALLO WANCE ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 4 OF DEPRECIATION ON IT. THE ASSESSEE HAS WRONGLY C LAIMED GOODWILL ON NON EXISTENCE ASSET VIZ. GOODWILL. MOREOVER GOODWILL AS SUCH MAY BE AN INTANGIBLE AS SET BUT IS NOT OF THE NATURE OF THE INTANGIBLE ASSET AS PROVIDED IN THE PROVISION OF CLAUSE (B) TO EXPLANA TION 3 TO SECTION 32 OF THE I.T.ACT WHICH READS AS UNDER : INTANGIBLE ASSETS BEING KNOWHOW PATENTS COPYRIGHTS TRADE MARKS LICENCES FRANCHISES OR AN Y OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE GOODWILL OF THE BUSINESS IS THE WHOLE ADVANTAGE OF REPUTATION AND CONNECTION WITH THE CUSTOMERS WHICH MAY BE EXPLOITED THROUGH KNOWHOW PATENTS COPYRIGHTS TRADE MARKS LICENSES AND FRANCHISES ETC. THE GOODWILL IS THE OUTPUT OF THE INPUTS LIKE KNOWHOW PATENTS COPYRIG HTS TRADE MARKS LICENSE AND OTHER FACTS. GOODWILL DOES NOT POSSESSES ANY OF THE CHARACTER ISTICS OF INTANGIBLE ASSETS AS ENUMERATED IN THE SECTION 32 BEING KNOWHOW PATENTS COPYRIGHTS TRADE MARKS LICENCES FRANCHISES. THESE ARE THE TOOLS OF THE B USINESS. GOODWILL IS NOT A RIGHT AT ALL AND HAVE NO SEPARAT E EXISTENCE OTHER THAN THE BUSINESS. AS A GOODWILL IS NOT A RIGHT IT IS NOT ELIGIBLE FOR DEPRECIATION. BY V IRTUE OF THE WRONG CLAIM BY THE ASSESSEE AND BY REASON OF ITS FA ILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS IN RESPECT OF GOODWILL INCOME OF RS.1 69 91 953/- ESCAPED ASSESSMENT. TO ASSESS SUCH ESCAPE INCOME PROCEEDINGS U/S 147 IS REQUIRED TO BE INITIATED. IN RESPONSE TO THE NOTICE ISSUED U/S 148 THE ASSES SEE STATED THAT THE RETURN ORIGINALLY FILED ON 28.11.2009 SHO ULD BE TREATED AS FILED IN RESPONSE TO THE NOTICE ISSUED U/S 148 O F THE ACT. THE ASSESSEE REQUESTED THE AO TO FURNISH THE COPY OF THE ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 5 REASONS RECORDED WHICH WERE SUBMITTED BY THE AO. THE ASSESSEE OBJECTED TO THE REOPENING OF THE ASSESSME NT. THE AO AFTER CONSIDERING THE SAME HAS PASSED A SEPARA TE SPEAKING ORDER ON 1.12.2009 REJECTING THE OBJECTI ONS RAISED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE DEPR ECIATION CLAIM ON GOODWILL SHOULD NOT BE DISALLOWED. THE AS SESSEE VIDE REPLY DATED 3.11.2008 INTERALIA SUBMITTED THAT TH E ASSESSEE HAD ACQUIRED RUNNING BUSINESS OF SAVLI UNIT FROM T OPACK UNIT INDUSTRIES ON 24.10.1999. OUT OF THE TOTAL CONSIDER ATION OF RS.15 77 34 000/- THE AMOUNT OF RS.13 30 31 000/- WAS ATTRIBUTABLE TOWARDS THE GOODWILL ACQUIRED ON WHICH THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.1 69 91 9 53/-. IT WAS FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SEC TION 32 OF THE ACT DEPRECIATION IS ALLOWABLE ON THE TANGIBLE A SSET AND INTANGIBLE ASSET. THE DEPRECIATION ON INTANGIBLE ASSET IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25% AS PRO VIDED UNDER RULE 5 OF THE INCOME TAX RULES 1962 READ WITH OL D APPENDIX-I AS APPLICABLE FROM THE ASSESSMENT YEAR 2 003-04 TO ASSESSMENT YEAR 2005-06 AND ACCORDINGLY THE DEPREC IATION ON GOODWILL WAS RIGHTLY CLAIMED. HOWEVER THE AO W AS NOT SATISFIED WITH THE ASSESSEES EXPLANATION. THE AO OBSERVED ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 6 THAT THE SAME ISSUE WAS THERE IN ASSESSEES OWN CAS E IN THE A.Y. 2005-06 IN WHICH THE THEN AO DISALLOWED THE A SSESSEES CLAIM OF DEPRECIATION ON GOODWILL. THE AO FURTHER OBSERVED THAT IN FACT THERE WAS NO SUCH GOODWILL AT THE TIM E OF PURCHASE OF BUSINESS BY THE ASSESSEE AND HENCE THERE WAS N O QUESTION OF ALLOWING DEPRECIATION ON SUCH FICTITIOUS ASSET. THE AO WITHOUT PREJUDICE ALSO HELD THAT THE GOODWILL MAY BE AN INTANGIBLE ASSET BUT IT WAS NOT ENTITLED FOR DEPRECIATION BECA USE IT WAS NOT A BUSINESS OR COMMERCIAL RIGHTS HAVING CHARACTERIST ICS OF OR SIMILAR TO KNOWHOW PATENT COPY RIGHT TRADE MARK S LICENCES FRANCHISE AND ACCORDINGLY HE AFTER DISALLOWING T HE SAME ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE OBJECTED TO THE REOPENING OF THE ASSESSMENT AND THE DISALLOW ANCE OF DEPRECIATION ON GOODWILL. THE LD. CIT(A) AFTER CON SIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE HELD TH AT THE REOPENING OF THE ASSESSMENT IS INVALID SINCE THE REOPENING WAS BASED ON MERE CHANGE OF OPINION AND MOREOVER T HERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS RELEVANT FOR THE ASSESSMENT AN D HENCE THE CONDITIONS PRESCRIBED UNDER PROVISO TO SECTION 147 WERE NOT FULFILLED. CONSEQUENTLY THE LD. CIT(A) QUASHED T HE ASSESSMENT ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 7 MADE U/S 147/148 OF THE ACT. ON MERITS THE LD. CIT(A) HELD THAT SINCE THE ASSESSMENT HAS BEEN QUASHED THE OTH ER GROUNDS OF APPEAL DO NOT SURVIVE AND ACCORDINGLY AL LOWED THE APPEAL. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING G ROUNDS OF APPEAL : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW THE CIT(A) HAS ERRED IN HOLDING THAT T HE REOPENING OF A COMPLETED ASSESSMENT IS NOT PERMISS IBLE UNDER THE ACT EVEN IF THE ASSESSMENT WAS REOPENED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THE SAME WAS REOPENED ONLY ON THE BASIS OF CHANGE OF OPINION AND CONSIDERING THE NOTICE ISSUE U/S148 AS INVALID. (I) THE APPELLANT PAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSI NG OFFICER BE RESTORED. 5. AT THE TIME OF HEARING THE LD. DR WHILE RELYIN G ON THE ORDER OF THE AO FURTHER SUBMITS THAT THE ASSESSMENT WAS RE- OPENED ON THE BASIS OF DISALLOWANCE OF DEPRECIAT ION ON GOODWILL MADE BY THE AO IN THE ASSESSEES OWN CAS E FOR THE ASSESSMENT YEAR 2005-06 AND FOR THIS PROPOSITION TH E RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF MULTISCREEN MEDIA PRIVATE L IMITED V/S UNION OF INDIA AND ANOTHER (2010) 324 ITR 54(BOM) WHEREIN IT HAS BEEN HELD THAT REASSESSMENT ON THE BASIS OF AD DITIONAL ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 8 MATERIAL DISCOVERED IN THE ASSESSMENT PROCEEDINGS O F SUBSEQUENT YEAR WAS JUSTIFIED. THE RELIANCE WAS ALS O PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF SOCIEDADE DE FORMENTO INDUSTRIAL (P) LTD V/S ACIT (2010) 235 CTR 322 (BOM); (2011) 339 ITR 0595 (BOM) WHEREIN IT HAS BEEN HELD THAT THE RESPONSIBILITY OF THE ASSESSEE I S NOT MERELY TO FULLY DISCLOSE ALL MATERIAL FACTS BUT TO DISCLOS E THEM FULLY AND TRULY. ACCORDING TO THE LD. DR SINCE THE ASSESSEE HAS NOT DISCLOSED ALL MATERIAL FACTS FULLY AND TRULY FOR CLAIMING DEPRECIATION ON GOODWILL THEREFORE THE AO WAS JU STIFIED IN REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT AND THEREFORE THE ORDER PASSED BY THE LD. CIT(A) IN QUASHING THE ASSESSMENT BE REVERSED AND THAT OF THE AO BE RESTORED. 6. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE SUBMITS THAT DURING THE ORIGINAL ASSESSMENT PROCEED INGS THE AO VIDE NOTICE U/S 143(2) READ WITH ANNEXURE TO NOT ICE U/S 142(1) DATED 4.10.2004 APPEARING AT PAGES 95-96 OF THE ASSESSEES PAPER BOOK VIDE QUERY NO.12 HAS SPECIFI CALLY ASKED THE ASSESSEE AS TO HOW THE DEPRECIATION IS ALLOWAB LE ON GOODWILL. IN RESPONSE THE ASSESSEE HAS FILED DETA ILED REPLY APPEARING AT PAGES 97 TO 104 OF THE ASSESSEES PA PER BOOK INTERALIA SUBMITTED THAT GOODWILL FORMS PART OF T HE BLOCK OF ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 9 INTANGIBLE ASSETS AND DEPRECIATION ON IT AT THE RATE OF 25% IS ALLOWABLE ON THE SAME WHILE DETERMINING THE TAXABLE PROFIT FOR THE CURRENT YEAR. HE FURTHER SUBMITS THAT THE AO AFTER CONSIDERING THE SAID DETAILED REPLY HAS PASSED THE ORIGINAL ASSESSMENT ORDER DATED 20.3.2006 U/S 143(3) OF THE ACT INTERALIA ACCEPTING THE ASSESSEES CLAIM OF DEPRECI ATION ON GOODWILL. HE THEREFORE SUBMITS THAT THE ASSESSEE HAS DISCLOSED ALL MATERIAL FACTS FULLY AND TRULY. HE F URTHER SUBMITS THAT FOR THE ASSESSMENT YEAR 2004-05 THE LD. CIT HAS INVOKED THE PROVISIONS OF SECTION 263 TO DISALLOW THE CLAIM OF DEPRECIATION ON GOODWILL AND AFTER HEARING THE ASSE SSEE THE LD.CIT HAS SET ASIDE THE ASSESSMENT ORDER WITH THE DIRECTION TO REFRAME THE ASSESSMENT AFTER TAKING INTO ACCOUNT TH E OBSERVATIONS AND FINDINGS GIVEN IN THE SAID ORDER A GAINST WHICH THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL IN KOCH CHEMICAL TECHNOLOGY GROUP INDIA PVT. LTD. (FORMERLY KOCH GLITSCH INDIA PVT.LTD) V/S DCIT IN ITA NO.2680/MUM/2009 (AY-2009-10) ORDER DATED 28.1.2011 FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH CO URT IN CIT VS HINDUSTAN COLA BEVERAGES PVT. LTD. 2011 - TIOL - 33 - HC - DEL- IT UPHELD THE PLEA OF THE ASSESSEE AND SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) U/S 263 OF THE ACT. THE RELIANCE WAS ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 10 ALSO PLACED ON THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF SUPREME TREVES PVT.LTD. V/S DCIT (2010) 323 ITR 323 (BOM) WHEREIN ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE IT HAS BEEN HELD THAT THE CLAIM OF DEPRECIATION ON GOODWILL HAD BEEN FULLY DISCLOSED BY THE PETITIONER REOPENING OF THE ASSESSMENT ON THE GROU ND THAT THE ASSESSEE HAD NOT DISCLOSED THE NATURE OF THE GOODWI LL WAS NOT VALID. HE THEREFORE SUBMITS THAT THE ORDER PASS ED BY THE LD. CIT(A) BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT I S ALSO NOT IN DISPUTE THAT THE AO AFTER COMPLETING THE ASSESSM ENT U/S 143(3) OF THE ACT ON 20.3.2006 HAS REOPENED THE A SSESSMENT U/S 147/148 ON 16.2.2009 I.E. AFTER 4 YEARS FROM T HE END OF THE RELEVANT ASSESSMENT YEAR. FROM THE COMBINED RE ADING OF THE REASONS RECORDED BY THE AO AND THE QUERY RAISED BY THE AO DURING THE ORIGINAL ASSESSMENT PROCEEDINGS WITH THE ASSESSEES EXPLANATION APPEARING AT PAGES 95-104 OF THE ASSES SEES PAPER BOOK WE OBSERVE THAT THE AO AFTER CONSIDERING THE SAME HAS PASSED THE ORIGINAL ASSESSMENT ORDER ACCEPTING THE CLAIM OF DEPRECIATION ON GOODWILL AS CLAIMED BY THE ASSES SEE. IT IS ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 11 FURTHER OBSERVED THAT NO NEW MATERIAL HAS COME TO T HE NOTICE OF THE AO TO INVOKE THE PROVISIONS OF SECTION 147 OF THE ACT THAT THE INCOME HAS ESCAPED ASSESSMENT. THE REVEN UE HAS PLACED NO MATERIAL ON RECORD TO SHOW THAT THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM THE ASSESSMENT. EVEN IN THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT THERE IS NO MENTIO NED ABOUT THE FACT THAT ON SAME ISSUE IN THE ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2005-06 THE SIMILAR DISALLOWAN CE OF GOODWILL WAS MADE. MERELY BECAUSE THE AO WANTS T O REVIEW HIS VIEWS SIMPLY RELYING UPON THE MATERIAL WHICH W AS ALREADY AVAILABLE BEFORE HIM AND CONSIDERED WHILE COMPLETI NG THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) DOES NO T MEAN THAT THE ASSESSEE HAS ESCAPED HIS INCOME. 8. IN MULTISCREEN MEDIA PRIVATE LIMITED (SUPRA) R ELIED ON BY THE LD. DR IT HAS BEEN HELD (HEADNOTE): HELD DISMISSING THE PETITION THAT THE ASSESSING OFFICER WHILE PASSING THE ORDER OF ASSESSMENT FOR ASSESSMEN T YEAR 2005-06 CAME TO THE CONCLUSION AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE THAT OF THE TOTAL EXPENSES THAT WERE INCURRED 18.75 PER CENT WOULD B E ALLOWED IN THE HANDS OF THE ASSESSEE WHILE THE BALA NCE WOULD BE HELD AS EXPENDITURE INCURRED ON BEHALF OF THE FOREIGN PRINCIPAL OF THE ASSESSEE AND WAS LIABLE TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE. ON THE BAS IS OF A DETAILED INQUIRY WHICH TOOK PLACE DURING THE COURSE OF ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 12 ASSESSMENT YEAR 2005-06 THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE ENTIRE EXPENSES WAS NOT ACCEPTED A ND DISALLOWANCE WAS MADE TO THE EXTENT OF EXPENDITURE INCURRED OVER AND ABOVE 18.75 PER CENT. THE ASSESSI NG OFFICER DID SO ON THE BASIS OF FRESH MATERIAL WHICH CAME BEFORE HIM IN VIEW OF THE NOTICE DATED NOVEMBER 26 2008 IN PURSUANCE OF WHICH THE ASSESSEE FILED A DET AILED REPRESENTATION ELUCIDATING THE RELEVANT PARTICULARS OF THE BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER DID HAVE TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT UNDER SE CTION 147. THE NOTICE OF REASSESSMENT WAS VALID. 9. WHEREAS IN THE CASE BEFORE US THE REASSESSMENT PROCEEDINGS WERE INITIATED AFTER FOUR YEARS FROM TH E END OF THE RELEVANT ASSESSMENT YEAR AND THERE IS NO MENTIONED IN THE REASONS RECORDED THAT THE ASSESSMENT HAS BEEN REOP ENED ON THE BASIS OF THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2005-06 WHEREIN THE AO HAS DISALLOWED THE DE PRECIATION ON GOODWILL. THUS THE DECISION RELIED ON BY THE L D. DR IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 10. IN SOCIEDADE DE FORMENTO INDUSTRIAL (P) LTD.(S UPRA) RELIED ON BY THE LD. DR IT HAS BEEN HELD (HEADNOT E OF 339 ITR PAGE 595): HELD DISMISSING THE WRIT PETITION THAT IT WAS A MOOT QUESTION WHETHER IN VIEW OF THE FAILURE TO MENTION THE FACTS THE DISCLOSURE COULD BE SAID TO BE A TRUE DI SCLOSURE EVEN ASSUMING THAT ALL THE FACTS PERTAINING TO THE SETTING UP OF THE NEW UNIT WERE DISCLOSED. THIS WOULD MORE ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 13 CONVENIENTLY BE DEALT WITH IN PROCEEDINGS UNDER THE ACT RATHER THAN IN A WRIT PETITION. 11. WHEREAS IN THE CASE BEFORE US THE NOTICE DID NO T STATE THAT THERE HAD BEEN ANY FAILURE ON THE PART OF TH E ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSA RY FOR ASSESSMENT. ABSENT THE EXISTENCE OF THE JURISDICT IONAL CONDITION PRECEDENT THE ASSESSMENT CANNOT BE RE-O PENED BEYOND A PERIOD OF 4 YEARS AFTER THE EXPIRY OF T HE RELEVANT ASSESSMENT YEAR. THEREFORE THE DECISION RELIED O N BY THE LD. DR IS DISTINGUISHABLE AND NOT APPLICABLE TO THE F ACTS OF THE PRESENT CASE. 12. IN CIT V/S KELVINATOR OF INDIA LTD. (2010) 32 0 ITR 561(SC) IT HAS BEEN HELD (PAGE 564): ON GOING THROUGH THE CHANGES QUOTED ABOVE MADE T O SECTION 147 OF THE ACT WE FIND THAT PRIOR TO THE DIRECT TAX LAWS (AMENDMENT) ACT 1987 REOPENING COULD BE DONE UNDER THE ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT BUT I N SECTION 147 OF THE ACT (WITH EFFECT FROM 1ST APRIL 1989) THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITION HAS REMAINED VIZ. THAT WHERE THE ASSESSING OFFICER H AS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSME NT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THER EFORE POST-1ST APRIL 1989 POWER TO REOPEN IS MUCH WIDER . HOWEVER ONE NEEDS TO GIVE A SCHEMATIC INTERPRETAT ION TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH WE ARE AFRAID SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASI S OF 'MERE CHANGE OF OPINION' WHICH CANNOT BE PER SE R EASON ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 14 TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUA L DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REV IEW ; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRECONDITIONS AN D IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED AS CONTE NDED ON BEHALF OF THE DEPARTMENT THEN IN THE GARB OF REOPENING THE ASSESSMENT REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS A N IN- BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSIN G OFFICER. HENCE AFTER 1ST APRIL 1989 THE ASSESSIN G OFFICER HAS POWER TO REOPEN PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. . 13. IN SATNAM OVERSEAS LTD & ANR. V/S ADDL.CIT ( 2010) 228 CTR (DEL) 121 IT HAS BEEN HELD THAT MERELY B ECAUSE THE AO FEELS THAT HE HAS FAILED TO DO WHAT HE OUGHT TO HAVE DONE CANNOT BE A VALID GROUND FOR SEEKING INITIATION OF REASSESSMENT UNDER SECTION 147; AO HAVING REOPENED THE ASSESSMEN TS SIMPLY RELYING UPON THE RECORD WHICH WAS ALREADY AV AILABLE BEFORE HIM WHILE COMPLETING THE ASSESSMENT PROCEEDI NGS UNDER SECTION 143(3) AND WERE CONSIDERED IN ALL ASPECTS REASSESSMENT PROCEEDING ARE NOT VALID. 14. IN SUPREME TREVES (P.) LTD. (SUPRA) IT HAS BE EN HELD (HEADNOTE): HELD ALLOWING THE PETITION THAT ALL THE FACTS RE LATING TO THE CLAIM OF DEPRECIATION ON GOODWILL HAD BEEN FULL Y DISCLOSED BY THE PETITIONER. REOPENING OF THE ASSES SMENT ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 15 ON THE GROUND THAT THE ASSESSEE HAD NOT DISCLOSED T HE NATURE OF THE GOODWILL WAS NOT VALID. 15. IN MULTISCREEN MEDIA P.LTD V/S UNION OF INDIA A ND ANOTHER (NO.1) (2010) 324 ITR 48 (BOM) IT HAS BEEN HELD (P AGE 53): THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER S ECTION 148 DOES NOT STATE THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATER IAL FACTS NECESSARY FOR THE ASSESSMENT FOR THE ASSESSMENT YE AR 2002-03. THE ASSESSMENT WAS SOUGHT TO BE REOPENED AFTER THE EXPIRY OF A PERIOD OF FOUR YEARS FROM TH E END OF THE RELEVANT ASSESSMENT YEAR. IN SUCH A CASE THE JURISDICTIONAL CONDITION PRECEDENT STIPULATED BY TH E PROVISO TO SECTION 147 IS A FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL F ACTS NECESSARY FOR ASSESSMENT FOR THAT ASSESSMENT YEAR CONSEQUENT UPON WHICH INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THAT HAS NOT BEEN FULFILLED. T HE NOTICE DOES NOT EVEN PURPORT TO STATE SO. THE GROU ND FURNISHED IN THE NOTICE FOR REASSESSMENT WOULD AT T HE HIGHEST INDICATE THAT ACCORDING TO THE ASSISTANT COMMISSIONER OF INCOME-TAX ALLOCATION OF EXPENSES AS BETWEEN THE PETITIONER AND THE FOREIGN PRINCIPAL O UGHT TO HAVE BEEN ORIGINALLY CONSIDERED BY THE ASSESSING OF FICER WHEN THE ORDER OF ASSESSMENT WAS PASSED UNDER SECT ION 143(3). THAT HOWEVER WOULD NOT GIVE A VALID REASON TO REOPEN THE ASSESSMENT BEYOND A PERIOD OF FOUR YEAR S EVEN ASSUMING THAT THE ASSESSING OFFICER HAD ERRED IN NOT DOING SO UNLESS THERE WAS A FAILURE ON THE PART O F THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. ABSENT THE EXISTENCE OF THE JURISDICTIONAL CONDITION PRECEDENT THE ASSESSMENT CANNOT BE REOPENED BEYOND A PERIOD OF FOUR YEARS AFTER TH E EXPIRY OF THE RELEVANT ASSESSMENT YEAR AS HAS BEE N DONE IN THE PRESENT CASE. IN THE CIRCUMSTANCES THE NOTICE FOR REASSESSMENT IS LIABLE TO BE QUASHED AN D SET ASIDE SOLELY ON THE GROUND THAT THE REVENUE HAS FA ILED TO ESTABLISH THE EXISTENCE OF THE JURISDICTIONAL CONDI TION PRECEDENT TO THE EXERCISE OF THE POWER TO REOPEN AN ASSESSMENT BEYOND A PERIOD OF FOUR YEARS OF THE EX PIRY OF THE RELEVANT ASSESSMENT YEAR. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 16 THE PETITION WOULD ACCORDINGLY HAVE TO BE ALLOWED .. 16. RECENTLY IN CIT V/S RAJ KUMAR MAHAJAN (2012) 20 5 TAXMAN 186 (DEL) IT HAS BEEN HELD (PARA 9 AT PAGE 189): 9. IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE LEARNED COUNSEL FOR THE REVENUE. WE HAVE QUOTED ABO VE THE QUESTIONNAIRE AND THE REPLY FURNISHED BY THE ASSESSEE. THE QUESTION OF DEDUCTIONS UNDER SECTION 80IA AND 80HHC WERE SPECIFICALLY EXAMINED AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS. THE RESPONDENT- ASSESSEE HAD JUSTIFIED THE CLAIM AND FURNISHED DOCUMENTARY EVIDENCE OR PROOF. THE QUANTIFICATION O F THE CLAIM WAS JUSTIFIED. THIS IS A CASE OF CHANGE OF OP INION AND THIS IS NOT PERMISSIBLE AS HELD IN CIT V. KELVI NATOR OF INDIA [2010] 320 ITR 561/ 187 TAXMAN 312 (SC) AND C IT V. KELVINATOR OF INDIA [2002] 256 ITR 1/ 123 TAXMAN 433 (DELHI). THE OPINION OF THE ASSESSING OFFICER MAY H AVE BEEN LEGALLY ERRONEOUS BUT THIS CANNOT BE A GROUND FOR INITIATION OF RE-ASSESSMENT PROCEEDINGS. AN ERRONEO US DECISION WHICH IS PREJUDICIAL TO THE REVENUE CAN BE REVISED BUT THE SAID OPTION WAS NOT EXERCISED. 17. APPLYING THE RATIO OF THE ABOVE DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE AND OTHER DECISIONS MENT IONED IN PARAGRAPHS 15 AND 16 OF THIS ORDER TO THE FACTS OF THE PRESENT CASE WE HOLD THAT IN VIEW OF THE QUESTIONNAIRE AND THE REPLY FURNISHED BY THE ASSESSEE THE ISSUE OF DEPRECIATI ON OF GOODWILL WAS SPECIFICALLY EXAMINED AT THE TIME O F ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS JUSTIFIED THE CLAIM AND FURNISHED ITS EXPLANATION WHICH WAS ACCEPTED B Y THE AO AFTER EXAMINATION/VERIFICATION. THE QUANTIFICATIO N OF THE CLAIM ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 17 WAS JUSTIFIED. IT IS A CASE OF CHANGE OF OPINION AN D NOT A CASE OF ESCAPEMENT OF INCOME. THERE IS NO TANGIBLE MATER IAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT AND HENCE THE PROCEEDINGS INITIATED BY THE AO U/S 148 HAS RIGHTLY BEEN QUASHED BY THE LD. CIT (A). THE ORDER PASSED BY THE LD. CIT(A) DOES NOT CALL FOR AN Y INTERFERENCE. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. CROSS-OBJECTION NO.198/M/2011 (BY ASSESSEE) 18. THE GROUNDS TAKEN BY THE ASSESSEE READ AS UNDE R: 1. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN NO T ADJUDICATING THE GROUND THAT THE AO HAD ERRED IN FACT AND IN LAW IN NOT ALLOWING DEPRECIATION AMOUNTING TO RS.1 69 91 953/- ON INTANGIBLES. 2. THE LD. CIT(A) HAS ERRED IN FACT AND IN LAW IN N OT DIRECTING THE AO NOT TO CHARGE INTEREST U/S 234B OF THE INCOME TAX ACT 1961 19. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN VIEW OF THE PLEA TAKEN BY HIM IN T HE REVENUES APPEAL FOR THE ABOVE ASSESSMENT YEAR 2003-04 HE DO ES NOT WANTS TO PRESS THE ABOVE GROUNDS TAKEN IN THE CRO SS-OBJECTION WHICH WAS NOT OBJECTED TO BY THE LD. DR. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 18 20. THAT BEING SO AND IN THE ABSENCE OF ANY OTHER S UPPORTING MATERIALS PLACED ON RECORD BY THE LEARNED COUNSEL F OR THE ASSESSEE THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE REJECTED BEING NOT PRESSED. ITA NO.6499/MUM/2010 (BY ASSESSEE ) 21. GROUND NO.1 TAKEN BY THE ASSESSEE READS AS UNDE R: 1. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN CONFI RMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION ON INTANGIBLE AMOUNTING TO RS.95 91 21 8/- ON THE GROUND THAT THE INTANGIBLE WHICH INCLUDED GO ODWILL IS NOT AN INTANGIBLE ASSET AS ENUMERATED IN THE SEC .32 OF THE ACT. 22. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT TH E AO OBSERVED THAT THE ASSESSEE ACQUIRED RUNNING BUSINE SS UNIT FROM M/S TOPAC INDUSTRIES VIDE AGREEMENT DATED 20 .12.99 FOR A CONSIDERATION OF RS.15.77 CRORE. OUT OF RS.15.77 CRORE THE ASSESSEE APPORTIONED AN AMOUNT OF RS. 13.30 CRORE A S COST OF GOODWILL. THE ASSESSEE CLAIMED DEPRECIATION OF RS. 95 91 218/- ON GOODWILL. THE A.O. NOTED THAT IN THE AGREEMENT F OR PURCHASE OF BUSINESS THE GOODWILL HAS NOT BEEN DEFINED AND DESCRIBED IN THE SAID AGREEMENT. THE A.O. INTENDED TO DISALLOW A SSESSEES CLAIM OF DEPRECIATION ON GOODWILL. DURING THE ASSES SMENT PROCEEDINGS ASSESSEE EXPLAINED THAT DEPRECIATION O N INTANGIBLE ASSET WAS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25%. THE ACT ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 19 DO NOT DEFINE THE TERM INTANGIBLE ASSETS RATHER I T PROVIDES A LIST OF ITEMS WHICH HAS BEEN CONSIDERED AS INTANGI BLE ASSETS SUCH AS KNOW HOW PATENTS COPYRIGHTS TRADE MARKS LICENCES FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE. IT WAS FURTHER SUBMITTED THAT IT HAD PAID LUMP SUM CONSIDERATION TO THE SELLER TO PURCHASE ITS UNITS WHICH INCLUDED BOTH TANGIBLE ASSETS LIKE PLANT AND MACHIN ERY AND VARIOUS INTANGIBLES INCLUDING GOODWILL ACQUIRED. T HOUGH THE GOODWILL IS NOT SPECIFICALLY INCLUDED IN THE LIST OF INTANGIBLE ASSETS IT FALLS UNDER THE RESIDUAL CLAUSE OF ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE BEING INTANG IBLE ASSETS. THE ASSESSEE SUBMITTED THAT GOODWILL WAS NOTHING B UT INTANGIBLE ASSET REPRESENTING DIFFERENCE BETWEEN TH E PURCHASE CONSIDERATION AND NET BOOK VALUE OF THE ASSETS ETC . THE ASSESSEE FURTHER EXPLAINED THAT BUSINESS OR COMMERC IAL RIGHTS HAS NOT BEEN DEFINED IN THE ACT BUT GOODWILL ENCOM PASSES MANY INSEPARABLE RIGHTS SUCH AS RIGHT TO REPRESENT VENDOR RIGHT AGAINST IMPAIRMENT ETC. RIGHT TO ENJOY ALL A DVANTAGES OF ESTABLISHED TRADE BUSINESS CONNECTIONS. THESE WERE COMMERCIAL BUSINESS RIGHTS. THE ASSESSEE RELIED ON THE CASE OF SKYLINES CATERERS-306 (AT) 369 (MUM) AND SUBMITTED THAT FAC TS OF ITS CASE ARE SIMILAR TO THAT CASE. THE ASSESSEE ALSO R ELIED ON AN ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 20 OPINION OF THE LEGAL COUNSEL. DURING ASSESSMENT PR OCEEDINGS THE ASSESSEE FURTHER SUBMITTED THAT THE AMOUNT PAI D FOR GOODWILL WAS QUALIFYING / ELIGIBLE FOR DEDUCTION U /S. 32 OF THE ACT. THE A.O WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. THE A.O OBSERVED THAT THE CLAIM OF ASSE SSEE THAT EXCESS OF CONSIDERATION PAID OVER THE VALUE OF NET INTANGIBLE ASSETS REPRESENTED GOODWILL WAS WITHOUT ANY BASIS. THE QUESTION WAS A BUSINESS SOLD ONLY AT THE AGGREGATE COST OF ITS ASSETS. WHETHER DIFFERENCE BETWEEN THE CONSIDERATI ON PAID AND NET VALUE OF THE ASSETS AUTOMATICALLY GENERATE GOOD WILL WHICH COULD BE TREATED AS INTANGIBLE ASSETS ELIGIBLE FOR DEPRECIATION. IT WAS A FACT THAT RUNNING BUSINESS WAS PURCHASED NOT AT THE NET VALUE OF THE ASSETS BUT AT THE MARKET VALUE OF RUNN ING BUSINESS WHICH ALWAYS EXCEED THE VALUE OF ITS NE T ASSETS. THE AO FURTHER OBSERVED THAT IN FACT THERE WAS NO SUCH GOODWILL AT THE TIME OF PURCHASE OF BUSINESS BY THE ASSESSEE A ND HENCE THERE WAS NO QUESTION OF ALLOWING DEPRECIATION ON S UCH FICTITIOUS ASSET. THE AO WITHOUT PREJUDICE ALSO HELD THAT THE GOODWILL MAY BE AN INTANGIBLE ASSET BUT IT WAS NOT ENTITLED FOR DEPRECIATION BECAUSE IT WAS NOT A BUSINESS OR COMME RCIAL RIGHTS HAVING CHARACTERISTICS OF OR SIMILAR TO KNOWHOW PATENTS COPY RIGHTS TRADE MARKS LICENCES FRANCHISES AND ACCO RDINGLY HE ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 21 DISALLOWED THE DEPRECIATION OF RS.95 91 218/-AND A DDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 23. ON APPEAL THE LD. CIT(A) AFTER CONSIDERING THE VARIOUS DECISIONS HELD THAT THE ASSET GOODWILL WAS NOT A BU SINESS OR COMMERCIAL ASSETS SIMILAR IN NATURE TO THOSE SIX ITEMS MENTIONED IN CLAUSE (II) OF SECTION 32 OF THE ACT . THEREFORE THE CONSIDERATION PAID BY THE APPELLANT (PART OF R S.13.30 CRORES SINCE THE ENTIRE AMOUNT OF RS.13.30 CRORES WAS NOT FOR COST OF GOODWILL) WAS NOT ELIGIBLE FOR DEPRECIATION AND ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY TH E AO. 24. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE AO AND THE LD. CIT(A) FURTHER SUBMITS THAT THE ASS ET KNOWN AS GOODWILL CONSISTS OF VARIOUS ITEMS AS MENTIONED IN THE EXTRACT OF SALE AGREEMENT APPEARING AT PAGE 94 OF THE ASSES SEES PAPER BOOK. THE LD. COUNSEL FOR THE ASSESSEE AFT ER RELYING ON THE SAME ARGUMENTS AS IN THE APPEAL FOR THE ASSESSM ENT YEAR 1993-94 FURTHER SUBMITS THAT THE ISSUE STANDS COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION IN ( A) M/S R.G.KESWANI V/S ACIT 2008-TIOL-682-ITAT-MUM (B) PIAGGIO VEHIC LE PVT.LTD. V/S DCIT 2009-TIOL-626-ITAT-PUNE (C) HINDUSTAN ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 22 COCA COLA BEVERAGES (P.) LTD. V/S DCIT (2009) 34 SO T 171(DEL); (D) BOSCH LTD. V/S CIT 2009-TIOL-736-ITA T-BANG (E) THE A.P. PAPER MILLS LTD. V/S ACIT (2010) 128 TTJ (HYD) 596 (F) CIT V/S HINDUSTAN COCA COLA BEVERAGES PV T.LTD. 2011-TIOL-33-HC-DEL-IT; (2011) 331 ITR 192 (DEL) A ND (G) B.RAVEENDRAN PILLAI V/S CIT (2011) 332 ITR 531 (KER). HE THEREFORE SUBMITS THAT THE DISALLOWANCE OF CLAIM O F DEPRECIATION ON GOODWILL BE DELETED. 25. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDE R OF THE AO AND THE LD. CIT(A). 26. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT THE FACTS ARE NOT IN DISPUTE. WE FURTHER FIND THAT THE DEPRECIATION ON GOODWILL WAS DISALLOWED BY THE AO O N THE GROUND THAT THE GOODWILL DOES NOT POSSESS ANY OF TH E CHARACTERISTICS OF THE INTANGIBLE ASSET AS INDICA TED IN SECTION 32 OF THE ACT BEING KNOWHOW PATENTS COPYRIGHTS T RADE MARKS LICENCES FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS AND HAV E NO SEPARATE EXISTENCE OTHER THAN THE BUSINESS. FURTHER AS GO ODWILL IS NOT A RIGHT IT IS NOT ALLOWABLE FOR DEPRECIATION. ON APPEAL THE LD. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 23 CIT(A) WHILE AGREEING WITH THE VIEWS OF THE AO CON FIRMED THE DISALLOWANCE MADE BY THE AO. 27. BEFORE WE ADVERT TO THE ISSUE OF DEPRECIATION ON GOODWILL IT IS APPROPRIATE TO REFER TO CERTAIN CI TATIONS WHICH ARE AS UNDER : 28. IN HINDUSTAN COCA COLA BEVERAGES PVT. LTD. (SUPRA) I T HAS BEEN HELD (HEAD NOTE): HELD THAT IT WAS CLEAR FROM THE ORDER PASSED BY T HE TRIBUNAL THAT THE DEPRECIATION WAS CLAIMED ON GOOD WILL BY THE ASSESSEE ON ACCOUNT OF PAYMENT MADE FOR THE MARKETING AND TRADING REPUTATION TRADE STYLE AND N AME MARKETING AND DISTRIBUTION TERRITORIAL KNOW-HOW INCLUDING INFORMATION OR CONSUMPTION PATTERNS AND H ABITS OF CONSUMERS IN THE TERRITORY AND THE DIFFERENCE BE TWEEN THE CONSIDERATION PAID FOR BUSINESS AND VALUE OF TA NGIBLE ASSETS. THE TRIBUNAL HAD TREATED IT TO BE VALUABLE COMMERCIAL ASSET SIMILAR TO OTHER INTANGIBLES MENTI ONED IN THE DEFINITION OF THE BLOCK OF ASSETS AND HENCE ELIGIBLE TO DEPRECIATION. IT HAD ALSO BEEN NOTED BY THE TRIB UNAL THAT THESE FACTS WERE STATED BY THE ASSESSEE IN THE AUDIT REPORT AND THE ASSESSING OFFICER HAD EXAMINED THE A UDIT REPORT AND ALSO MADE QUERIES AND ACCEPTED THE EXPLANATION PREFERRED BY THE ASSESSEE. THE ACCEPTAN CE OF THE CLAIM OF THE ASSESSEE BY THE ASSESSING OFFICER WOULD COME IN THE COMPARTMENT OF TAKING A PLAUSIBLE VIEW INASMUCH AS BASICALLY INTANGIBLE ASSETS WERE IDENTI FIABLE NON-MONETARY ASSETS THAT COULD NOT BE SEEN OR TOUCH ED OR PHYSICAL MEASURES WHICH WERE CREATED THROUGH TIM E AND / OR EFFORT AND THAT WERE IDENTIFIABLE AS A SEP ARATE ASSET. THEY COULD BE IN THE FORM OF COPYRIGHTS PAT ENTS TRADEMARKS GOODWILL TRADE SECRETS CUSTOMER LISTS MARKETING RIGHTS FRANCHISES ETC. WHICH EITHER ARI SE ON ACQUISITION OR WERE INTERNALLY GENERATED. GOODWILL CONVEYS A POSITIVE REPUTATION BUILT BY A PERSON/COMPANY/BUSINESS CONCERN OVER A PERIOD OF TI ME. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 24 THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT IF TWO V IEWS WERE POSSIBLE AND WHEN THE ASSESSING OFFICER HAD ACCEPTED ONE VIEW WHICH WAS A PLAUSIBLE ONE IT WAS NOT APPROPRIATE ON THE PART OF THE COMMISSIONER TO EXER CISE HIS POWER UNDER SECTION 263 SOLELY ON THE GROUND TH AT IN THE BOOKS OF ACCOUNT IT WAS MENTIONED AS GOODWILL A ND NOTHING ELSE. 29. IN B.RAVEENDRAN PILLAI (SUPRA) IT HAS BEEN HE LD (HEADNOTE): HELD ALLOWING THE APPEAL THAT IN FACT WITHOUT R ESORTING TO THE RESIDUARY ENTRY THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON THE NAME TRADE MARK AND LOGO UNDER THE SPECIFIC HEAD PROVIDED UNDER SECTION 32(1)(II) WHIC H COVERS TRADE MARK AND FRANCHISE. ADMITTEDLY THE HOS PITAL WAS RUN IN THE SAME BUILDING IN THE SAME TOWN IN THE SAME NAME FOR SEVERAL YEARS PRIOR TO PURCHASE BY TH E ASSESSEE. BY TRANSFERRING THE RIGHT TO USE THE NAME OF THE HOSPITAL ITSELF THE PREVIOUS OWNER HAD TRANSFERRED THE GOODWILL TO THE ASSESSEE AND THE BENEFIT DERIVED BY THE ASSESSEE WAS RETENTION OF CONTINUED TRUST OF THE PA TIENTS WHO WERE PATIENTS OF THE PREVIOUS OWNERS. WHEN THE GOODWILL PAID WAS FOR ENSURING RETENTION AND CONTIN UED BUSINESS IN THE HOSPITAL IT WAS FOR ACQUIRING A BU SINESS AND COMMERCIAL RIGHTS AND IT WAS COMPARABLE WITH TR ADE MARK FRANCHISE COPYRIGHT ETC. REFERRED TO IN THE FIRST PART OF CLAUSE (II) OF SECTION 32(1) AND SO MUCH SO GOODWILL WAS COVERED BY THE ABOVE PROVISION OF THE ACT ENTITLING THE ASSESSEE FOR DEPRECIATION. 30. THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ABOVE DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE HAVE ALSO TAKEN THE SIMILAR VIEW. 31. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE B ROUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ABOVE ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 25 JUDGMENTS AND THE CONSISTENT VIEW OF THE TRIBUNAL HOLD THAT SINCE THE ASSESSEE HAS MADE THE PAYMENT FOR ACQUIR ING THE BUSINESS AND COMMERCIAL RIGHTS IT WAS COMPARABLE W ITH THE TRADEMARK COPYRIGHTS ETC. REFERRED TO IN THE FIRST PART O F CLAUSE (II) OF SECTION 32(1) AND SO MUCH SO GOODW ILL IS COVERED BY THE PROVISIONS OF ACT ENTITLING THE ASSESSEE FOR DEPRECIATION AND ACCORDINGLY WE DELETE THE DISALLOWANCE OF DEPR ECIATION ON GOODWILL MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A). THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE ALL OWED. 32. GROUND NO.2 AND 2.1 TAKEN BY THE ASSESSEE READ AS UNDER : 2. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING EMPLOYEES CONTRIBUTION TO PF AMOUNTING TO RS.1 36 996/- U/S. 36(1)(VA) R.W.S. 2(24(X) OF THE INCOME TAX ACT 1961. 2.1 THE LEARNED ASSESSING OFFICER ERRED IN FACT AN D IN LAW IN MAKING THE ADDITION OF RS.1 36 996 DESPITE T HE FACT THAT THE APPELLANT HAD ALREADY DISALLOWED THE SAID SUMS WHILE COMPUTING THE TOTAL INCOME IN THE RETURN OF INCOME. THE ADDITION MADE BY THE AO AMOUNTS TO DOUB LE ADDITION AND THEREFORE REQUIRES TO BE DELETED. 33. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT TH E AO NOTED THAT EMPLOYEES CONTRIBUTION OF PF WAS DEPOSITED B Y THE ASSESSEE IN GOVERNMENT ACCOUNT AFTER EXPIRY OF DU E DATE AND ALSO AFTER GRACE PERIOD AS PRESCRIBED UNDER THE PRO VIDENT FUNDS ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 26 ACT AND ACCORDINGLY HE DISALLOWED A SUM OF RS.49 988/- DEPOSITED ON 24.5.2004 RS.30 556/- DEPOSITED ON 21 .9.04 AND RS.56 442/- DEPOSITED ON 29.11.04 AGGREGATING TO RS.1 36 996/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE AO CONFIRMED THE DISALLOWANCE MADE BY THE AO. 34. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REFERRING TO THE STATEMENT OF THE COMPUTATIO N OF INCOME AND DETAILS OF PAYMENT OF PF APPEARING AT PAGES 2 AND 25 OF THE ASSESSEES PAPER BOOK SUBMITS THAT IN THE RETUR N THE ASSESSEE HAS ALREADY DISALLOWED THE DELAYED PAYME NT OF EMPLOYEES CONTRIBUTION TO PF OF RS.1 90 818/- WH ICH INCLUDES THE DISALLOWANCE MADE BY THE AO THEREFORE THE D ISALLOWANCE MADE BY THE AO IS DOUBLE DISALLOWANCE AND THE SAME BE DELETED. 35. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDE R OF THE AO AND CIT(A). 36. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSES SEE THAT SINCE THE ASSESSEE HAS ALREADY ADDED THE PF AMOUNT OF ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 27 RS.1 90 818/- WHICH INCLUDES THE DISALLOWANCE MADE BY THE AO THEREFORE FURTHER DISALLOWANCE MADE BY THE AO OF THE SAME AMOUNT AMOUNTS TO DOUBLE DISALLOWANCE AND HENCE THE SAME IS DELETED. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE ALLOWED. 37. GROUND NO.3 TAKEN BY THE ASSESSEE READS AS UNDE R : 3. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING ENTRANCE FEES TO CLUB AMOUNTING TO RS.1 50 000/- ON THE GROU ND THAT THE SAME IS CAPITAL EXPENDITURE. 38. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO NOTED THAT THE ASSESSEE CLAIMED EXPENDITURE OF RS.1.5 LAKHS ON ACCOUNT OF ENTRY FEES TO GAIKWAD BARODA GOLF CLUB. ON BEI NG ASKED IT WAS EXPLAINED BY THE ASSESSEE THAT MEMBERSHIP WAS TAKEN FOR THE PURPOSE OF BUSINESS HENCE IT IS ALLOWABLE U/S 37 OF THE ACT. HOWEVER THE AO WHILE RELYING ON THE DECISIO N OF THE HONBLE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. V/S DCIT (2006) 157 TAXMAN 116; (2007) 29 4 ITR 559 (KER); DISALLOWED THE CLAIM OF THE ASSESSEE. 39. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT SUCH PAYMENT GAVE BENEFIT OF ENDURING NATURE TO THE AP PELLANT THEREFORE THE SAME IS CAPITAL IN NATURE CONFIRMED THE DISALLOWANCE MADE BY THE AO. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 28 40. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBU NAL IN BOMBAY BURMAH TRADING CORPN. LTD. V/S ACIT (2002) 8 2 ITD 531 (MUM.); (2002) 76 TTJ (MUM.) 983 THEREFORE T HE ISSUE MAY BE DECIDED IN FAVOUR OF THE ASSESSEE. 41. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORD ER OF THE AO AND THE LD. CIT(A). 42. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSES SEE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN HE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. V/S. CIT (1992) 195 ITR 682 (BOM.) AND THE CONSISTENT VIEW OF THE CO-ORDINATE BENCH OF THE TR IBUNAL. 43. IN DCIT V/S BANC OF AMERICA IN ITA NO.6011/MUM /2008 (AY-2004-05) ORDER DATED 9.9.2010 IN WHICH ONE OF US (JM) WAS PARTY THE TRIBUNAL AFTER CONSIDERING THE VARI OUS DECISIONS INCLUDING THE DECISIONS RELIED ON BY THE AO WHICH HAS BEEN DISTINGUISHED BY THE HONBLE DELHI HIGH COURT IN CIT V/S. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 29 SAMTEL COLOR LTD. (2009) 180 TAXMAN 82 (DELHI) HAS HELD VIDE PARAGRAPH 13 OF HIS ORDER AS UNDER : 13. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT AND THE TRIBUNA L IN THE ASSESSEES OWN CASE AND FOR THE REASONS AS MENTION ED IN PARA 5.3 IN THE CASE OF SAMTEL COLOR LTD. SUPRA WE ARE OF THE VIEW THAT ADMISSION FEES PAID TOWARDS CORPOR ATE MEMBERSHIP OF THE CLUB IS AN EXPENDITURE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND N OT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES SMO OTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE AND ACCORDINGLY WE ARE INCLINED TO UPHO LD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWA NCE OF RS.16.00 LACS MADE BY THE ASSESSING OFFICER. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECT ED. 44. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING TH E DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND THE CONS ISTENT VIEW OF THE TRIBUNAL HOLD THAT THE PAYMENTS TOWARDS ENTRY FEES OF THE CLUB MEMBERSHIP IS ESSENTIALLY MADE FOR DEVELOPING THE BUSINESS CONTACTS AND HENCE IT IS ALLOWABLE AS BUSI NESS EXPENDITURE AND ACCORDINGLY DISALLOWANCE MADE BY T HE AO AND UPHELD BY THE LD. CIT(A) IS DELETED. THE GROUND T AKEN BY THE ASSESSEE IS THEREFORE ALLOWED. 45. GROUND NO.4 TAKEN BY THE ASSESSEE READS AS UNDE R : 4. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN CONFI RMING THE ACTION OF THE ASSESSING OFFICER IN CHARGING INT EREST U/S. 234B OF THE ACT. ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 30 46. AT THE TIME OF HEARING BOTH THE PARTIES HAVE AGREED THAT THE CONSEQUENTIAL RELIEF ON THE LEVY OF INTER EST U/S 234B BE ALLOWED. 47. THAT BEING SO WE DIRECT THE AO TO ALLOW CONSEQ UENTIAL RELIEF IN RESPECT OF THE LEVY OF INTEREST U/S 234B. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE ALLOWED. 48. THE LAST GROUND IS IN RESPECT OF INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) AND GROUND NO.6 BEING GENERAL GROUND HAVE NOT BEEN PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE WHICH WAS NOT OBJECTED TO BY THE LD. DR THEREFORE THE SAME ARE REJECTED BEING PREMATURE AND NOT PRESS ED. 49. IN THE RESULT REVENUES APPEAL AND ASSESSEE S CROSS OBJECTION FOR THE ASSESSMENT YEAR 2003-04 ARE DISMI SSED AND THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2005 -06 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH MAR. 2012. SD SD (N.K.BILLAIYA) (DINESH KUMAR AGARWAL) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI 29TH MARCH 2012 SRL: ITA NO.6908/MUM/2010 CROSS-OBJECTION NO.198/M/2011 ITA NO.6499/MUM/2010) 31 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI