KOTAK POLYCHROME GRAPHICS INDIA P. LTD ( SINCE MERGED WITH KOTAK INDIA P. LTD FROM 1-4-08), MUMBAI v. DCIT 10(2), MUMBAI

ITA 1832/MUM/2009 | 2002-2003
Pronouncement Date: 03-12-2010 | Result: Allowed

Appeal Details

RSA Number 183219914 RSA 2009
Assessee PAN AABCK1644C
Bench Mumbai
Appeal Number ITA 1832/MUM/2009
Duration Of Justice 1 year(s) 8 month(s) 14 day(s)
Appellant KOTAK POLYCHROME GRAPHICS INDIA P. LTD ( SINCE MERGED WITH KOTAK INDIA P. LTD FROM 1-4-08), MUMBAI
Respondent DCIT 10(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 03-12-2010
Assessment Year 2002-2003
Appeal Filed On 20-03-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 1832/MUM/2009. ASSESSMENT YEAR : 2002-03. M/S KODAK POLYCHROME GRAPHICS INDIA DY. COMMISSIONER OF PVT. LTD. VS. INCOME-TAX 3 RD FLOOR KALPATURU SYNERGY RANGE-10(2) MUMBAI. SANTACRUZ (EAST) MUMBAI. PAN AABCK1644C APPELLANT. RESPONDENT. APPELLANT BY : SHRI M.M. GOLAVALA. RESPONDENT BY : SHRI S.S. RANA. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-VI MUMBAI DATED 14-01-2009. 2. FACTS IN BRIEF : THE ASSESSEE IS IN THE BUSINESS OF GRAPHIC ART PR ODUCTION. IT FILED ITS RETURN OF INCOME ON 30-10-2002 DECLARING A TOTAL INCOME AT RS.5 34 50 000/-. THE 2 ASSESSMENT WAS COMPLETED U/S 143(3) ON 25-02-2005. THE AO STATES THAT ON PERUSAL OF RECORDS IT WAS SEEN THAT THE ASSESSEE H AD CLAIMED DEPRECIATION OF RS.16 42 000/- AT THE RATE OF 25% ON THE INTANGIBLE ASSETS DESCRIBED IN THE FINAL ACCOUNTS AS GOODWILL AND VALUED AT RS.65 69 062/-. HE REOPENED THE ASSESSMENT U/S 147. THEREAFTER FOR THE VARIOUS REASONS GIVEN IN T HE ASSESSMENT ORDER HE DISALLOWED THE CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS BEING GOODWILL. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST AP PELLATE AUTHORITY CONFIRMED THE ORDER OF THE AO. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS : BEING AGGRIEVED BY THE ORDER PASSED BY THE CIT(APP EALS)-VI MUMBAI YOUR APPELLANT SUBMITS THE FOLLOWING GROUNDS OF APP EAL FOR YOUR SYMPATHETIC CONSIDERATION. 1. THE ASSESSING OFFICER HAS ERRED IN INITIATING PROCE EDINGS U/S 148 OF THE INCOME TAX ACT 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT( A) HAS ERRED IN DISALLOWING A SUM OF RS.16 42 266/- ALLOWABLE DEDUC TION BEING DEPRECIATION ON INTANGIBLE ASSETS ACQUIRED AS COMME RCIAL RIGHTS U/S 32. 3. THE LEARNED COUNSEL FOR THE ASSESSEE MR. M.M. GO LAVALA SUBMITTED THAT REOPENING IS BAD IN LAW AS THE AO HAS DURING THE CO URSE OF ORIGINAL ASSESSMENT PROCEEDINGS RAISED A SPECIFIC QUERY ON THIS ISSUE AND THE ASSESSEE REPLIED THE SAME AND ON BEING SATISFIED THE AO ALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION. WHILE SO THE REASONS FOR REOPENING WERE ONLY ON A CHANGE OF OPINION AND THAT THIS IS BAD IN LAW. HE RELIED ON THE FOLLOWING CASE LAWS : CARTINI INDIA LIMITED VS. ADDL.CIT 313 ITR 275 (BO M). CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561 (SC). THE SECOND PROPOSITION CANVASSED BY MR. GOLAVALA IS THAT THE DEPRECIATION WAS INITIALLY CLAIMED TWO YEARS AGO I.E. IN THE ASSESSM ENT YEAR 1999-2000 AND THAT IT 3 HAD ENTERED THE BLOCK OF ASSETS IN THAT YEAR AND HE NCE NO DISALLOWANCE CAN BE DONE IN THIS YEAR FROM THE BLOCK OF ASSETS. HE SUBMITTED THAT THE ONLY WAY THAT AN ASSET CAN BE REMOVED FROM THE BLOCK OF ASSETS IS ONLY IN CASE WHERE THERE IS SALE OR DISCARDING DEMOLITION OR DISTRUCTION. HE RELIED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN ITA NO. 6807/MUM/06 AND ITA NO.6 223/MUM/07 ORDER DATED 10 TH SEPT. 2009. ON MERITS HE SUBMITTED THAT THE ASSES SEE HAS ALL ALONG POINTED OUT TO THE AO THAT THE AMOUNT PAID FOR TRANSFER OF BUSI NESS WAS MAINLY FOR TRANSFER OF MARKETING DATABASE USE OF NET WORK AND TRANSFER OF HUMAN RESOURCES EXPERIENCED IN THE BUSINESS. HE SUBMITTED THAT THE AMOUNT CAN B E TERMED AS ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE BEIN G INTANGIBLE ASSETS ACQUIRED AFTER 1 ST APRIL 1996. HE SUBMITTED THAT THOUGH THE AMOUNT IS DEBITED IN THE BOOKS OF ACCOUNT AS GOODWILL THERE IS NO ELEMENT OF GOOD WILL AND HENCE DEPRECIATION IS CLAIMED ON THE SAME. 4. THE LEARNED DR MR. S.S. RANA ON THE OTHER HAND CONTROVERTED THE SUBMISSIONS OF THE ASSESSEE AND POINTED OUT THAT TH E ASSESSEE HAS ILLEGALLY CLAIMED DEPRECIATION ON GOODWILL. HE POINTED OUT THAT THE C LAIM IS PATENTLY WRONG AND UNDER THOSE CIRCUMSTANCES THE AO HAS FORMED A REAS ON TO BELIEVE THAT INCOME ASSESSABLE TO TAX IS ESCAPED ASSESSMENT. HE RELIED ON THE ORDER OF THE AO AS WELL AS THE CIT(APPEALS) ON MERITS. 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS. 6. THE ORIGINAL RETURN OF INCOME WAS FILED ON 30-10 -2002. THE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS ISSUED A QUESTIONER ON 8 TH NOV. 2004 WHEREIN QUESTION NO. 18READS AS FOLLOWS : 4 18. PLEASE GIVE JUSTIFICATION ON THE CLAIM OF DEPR ECIATION ON INTANGIBLE ASSETS OF RS.16 42 266/- THE ASSESSEE VIDE ITS LETTER DATED 24 TH NOV. 2004 REPLIED ON THE ISSUE AS FOLLOWS: 10. NOTE ON CLAIM OF DEPRECIATION ON INTANGIBLE A SSETS (PAGE NO.38-48). IN THE NOTE IN QUESTION IT WAS STATED AS FOLLOWS : NOTE ON AMOUNT OF RS.1 00 10 122 PAID BY KODAK POLYCHROME GRAPHIC INDIA PVT. LTD. TO KODAK INDIA LIMITED. 1. M/S KODAK POLYCHROME GRAPHICS INDIA PVT. LTD. AND KODAK INDIA LIMITED ENTERED INTO AN AGREEMENT DATED 29 TH OCT. 1999 FOR TRANSFER OF BUSINESS VIZ. OF GRAPHIC ART PRODUCTS. 2. UNDER THIS AGREEMENT KODAK INDIA LIMITED HAS TRANSF ERRED THE BUSINESS OF GRAPHIC ART PRODUCTS ALONG WITH ASSETS AND LIABI LITIES OF BUSINESS AND INTANGIBLE ASSETS AS A GOING BUSINESS CONCERN VIZ. OF GRAPHIC ART FILMS PAPERS CHEMICALS ETC. TO KODAK POLYCHROME GRAPHIC INDIA PVT. LTD. 3. THE COMPONENT OF THE SUCH TRANSFER AS THE PARA 2 ON PAGE 2 OF THE SAID AGREEMENT IS AS FOLLOWS : A. EQUIPMENT SET FORTH IN ANNEXURE 1 ATTACHED HERETO B Y DELIVERY. B. INVENTORY ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES AS ON THE EFFECTIVE DATE AS PER ANNEXURE 2 ATTACHED HERETO. C. INTANGIBLE ASSETS. D. LIABILITIES MENTIONED IN ANNEXURE 3 TO THE AGREEMEN T FOR THE CUSTOMER REBATE OR INCENTIVE ACCRUED. 4. KODAK POLYCHROME GRAPHIC INDIA PVT.LTD. PAID A SUM OF RS 1 00 10 22 AND DEBITED TO GOODWILL ACCOUNT IN FIXED ASSETS. IT ALSO PAID A SUM OF RS.9 32 23 151 TOWARDS VALUE OF NET ASSETS ON 1 ST NOVEMBER 1999. 5. THE AMOU7NT PAID FOR TRANSFER OF BUSINESS WAS MAINL Y FOR TRANSFER OF MARKETING DATE BASE USE OF NETWORK AND TRANSFER OF HUMAN RESOURCES EXPERIENCED IN SUCH BUSINESS. THE SAID AMOUNT CAN B E TERMED AS ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATUR E BEING INTANGIBLE ASSETS ACQUIRED AFTER 1 ST APRIL 1996. 5 6. ALTHOUGH THE AMOUNT IS DEBITED IN THE BOOKS OF ACCO UNTS AS GOODWILL THE SAME IS CLAIMED UNDER DEPRECIATION SCHEDULE FOR TAX AS INTANGIBLE ASSETS. AS THE AGREEMENT BETWEEN KODAK INDIA LTD. AND KODAK POLYCHROME GRAPHICS INDIA PVT. LTD. CLEARLY SHOWS THAT THERE IS NO ELEMENT OF GOODWILL BUT ELEMENT OF TRANSFER OF DATA USE OF N ET WORK AND TRANSFER OF HUMAN RESOURCES. 7. COPY OF THE AGREEMENT BETWEEN KODAK INDIA AND KODAK POLYCHROME GRAPHICS INDIA PVT. LTD. IS ENCLOSED HEREWITH. 8. CLAUSE 2 OF THE AGREEMENT DATED 29 TH OCT. 1999 BETWEEN KODAK INDIA LTD. AND KODAK POLYCHROME GRAPHICS INDIA P. LTD. READS A S FOLLOWS : 2. ASSUMPTIONS OF ASSETS AND LIABILITIES OF THE B USINESS. I. FROM THE EFFECTIVE DATE THE ASSIGNOR AGREES TO TRA NSFER AND ASSIGN TO THE ASSIGNEE THE FOLLOWING ASSETS OF THE BUSINESS: (A) EQUIPMENT SET FORTH IN ANNEXURE 1 ATTACHED HER ETO BY DELIVERY. (B) INVENTORY ACCOUNTS RECEIVABLE AND OTHER RECEI VABLES AS ON THE EFFECTIVE DATE AS PER ANNEXURE 2 ATTACHED HERE TO. THE INVENTORY WILL BE TRANSFERRED BY DELIVERY. (C) INTANGIBLE ASSETS. 9. AFTER CONSIDERING ALL THESE SUBMISSIONS THE AO IN HIS ASSESSMENT ORDER PASSED U/S 143(3) ON 25-02-2005 CHOSE NOT TO DISAL LOW THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON INTANGIBLE ASSETS. 10. LATER A NOTICE U/S 154 OF THE ACT DATED 05-12 -2005 WAS ISSUED WHEREIN UNDER THE HEAD PARTICULARS OF MISTAKE PROPOSED TO BE RECTIFIED IT WAS GIVEN AS FOLLOWS : 6 NO DEPRECIATION IS ADMISSIBLE ON GOODWILL HENCE D EPRECIATION CLAIMED OF RS.1642266/- SHOULD BE DISALLOWED. THE ASSESSEE GAVE A DETAILED REPLY AND CONTENDED AS FOLLOWS : THE ASSESSEE WHILE FILING THE SUBMISSIONS AT THE TIME OF SCRUTINY ASSESSMENT HAD SUBMITTED VARIOUS DETAILS. IN SUBMI SSION DATED NOVEMBER 24 2004 WHICH WAS GIVEN TO THE ASSESSING OFFICER ON 25/11/2004 A NOTE ON CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS (REFE R PAGE NO. 38 TO 48) THE ASSESSEE ALSO ENCLOSED COPY OF THE AGREEMENT O N THE BASIS OF WHICH PAYMENT OF INTANGIBLE ASSETS WAS MADE TO KODAK INDI A LTD. AS EXPLAINED IN THAT NOTE WHICH IS REPRODUCED BELOW IT WAS CLEARL Y DISCLOSED TO THE INCOME TAX OFFICER THAT THE SAID PAYMENT ALTHOUGH SHOW AS GOODWILL IN THE ANNUAL ACCOUNT IS NOTHING ELSE BUT THE PAYMENT IS IN THE FORM OF TRANSFER OF DATA USE OF NETWORK AND TRANSFER OF HUMAN RESOURCES. THE ASSESSING OFFICER AFTER DULY CONSIDERING THE SAID SUBMISSIONS HAS ALLOWED T HE ASSESSEE THE DEPRECIATION UNDER THE HEADING INTANGIBLE ASSETS. T HIS IS THE CASE OF A CHANGE OF OPINION AND WE OBJECT TO BEING PROCESSED U/S 154 AS A MISTAKE APPARENT FROM RECORD. THE AO DROPPED THE PROCEEDINGS U/S 154 AND ISSUED N OTICE U/S 148 ON 30-03-2007. THE REASONS FOR REOPENING OF ASSESSMENT ARE RECORDE D AS FOLLOWS : ON VERIFICATION OF THE CASE RECORDS IT IS SEEN T HAT ASSESSEE COMPANY HAS CLAIMED DEPRECIATION ON GOODWILL OF RS.16 42 26 6/- BEING 25% ON GOODWILL VALUED AT RS.65 69 062/-. SINCE GOODWILL I S NOT AN INTANGIBLE ASSET ASSESSEE COMPANY IS NOT ENTITLED FOR CLAIMING THE D EPRECIATION. HENCE I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX FOR A.Y. 2002-03 HAS ESCAPED ASSESSMENT FOR FAILURE ON THE PART OF THE A SSESSEE COMPANY TO 7 DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS REQ UIRING FOR ASSESSMENT FOR A.Y. 2002-03. 11. ON A PERUSAL OF ALL THESE CORRESPONDENCE WE AR E OF THE CONSIDERED OPINION THAT THE REOPENING IN QUESTION IS BAD IN LAW FOR T HE REASON THAT REASONS FOR REOPENING HAVE BEEN FORMED ON A CHANGE OF OPINION. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CHARTINI INDIA LTD. VS. ADDL. CIT 314 ITR 275 (BOM) HELD AS UNDER : WHERE THE MATERIAL ON RECORD HAS ALREADY BEEN CON SIDERED AND ADJUDICATED UPON IT WOULD NOT BE OPEN TO THE ASSES SING OFFICER TO DISAGREE WITH THE VIEW ALREADY TAKEN ON THE MATERIAL ON RECO RD. IN SUCH A CASE REOPENING OF THE ASSESSMENT BASED ON THE MATERIALS ALREADY CONSIDERED AND ADJUDICATED WOULD AMOUNT TO REVIEWING THE ASSESSME NT ORDER BY REAPPRECIATING THE MATERIAL ON RECORD WHICH IS NOT CONTEMPLATED UNDER SECTION 147 OF THE ACT. IT IS NOT THE CASE OF THE R EVENUE THAT THE REOPENING OF THE ASSESSMENT IS COVERED UNDER EXPLANATION 2(C) TO SECTION 147 OF THE ACT BASED ON ANY MATERIAL OTHER THAN THE MATERIAL CONSI DERED BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT UNDER SECTION 143 (3) OF THE ACT. THEREFORE IN THE FACTS OF THE PRESENT CASE WHERE THE MATERIA LS ON RECORD HAVE ALREADY BEEN CONSIDERED AND CONCLUSIVELY DECIDED IN THE RE GULAR ASSESSMENT WE ARE CLEARLY OF THE OPINION THAT THE PRIMA FACIE OPINION TO THE CONTRARY FORMED BY THE ASSESSING OFFICER ON THE BASIS OF THE VERY SAME MATERIAL WOULD BE MERE CHANGE OF OPINION AND THEREFORE THE REOPENING OF THE ASSESSMENT BASED ON MERE CHANGE OF OPINION CANNOT BE SUSTAINED. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KE LVINATOR OF INDIA LTD. 320 ITR 561 (SC) HELD THAT REOPENING CANNOT BE MADE ON A MERE CHANGE OF OPINION. ONCE THE AO HAS FORMED AN OPINION THAT THE ASSET IN QUESTION IS NOT GOODWILL BUT 8 AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION THE NOTICE GIVEN U/S 148 ON A CHANGE OF OPINION CANNOT BE SUSTAINED. THUS WE ALLOW GROUND N O.1 OF THE ASSESSEES APPEAL AND HOLD THAT THE REOPENING IS BAD IN LAW AND QUASH THE ASSESSMENT. THUS WE DEEM IT NECESSARY NOT TO ADJUDICATE THE OTHER GROUNDS OF APPEAL AS IT WOULD BE AN ACADEMIC EXERCISE. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DEC.. 2010. SD/- SD/- (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI DATED: 3 RD DEC. 2010. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR A-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI B ENCHES M UMBAI.