DCIT, Circle 3(2), Hyderabad v. M/s Sri Krishna Drugs Ltd.,, Hyderabad

ITA 198/HYD/2011 | 2006-2007
Pronouncement Date: 16-12-2011

Appeal Details

RSA Number 19822514 RSA 2011
Assessee PAN AADCS4050Q
Bench Hyderabad
Appeal Number ITA 198/HYD/2011
Duration Of Justice 10 month(s) 9 day(s)
Appellant DCIT, Circle 3(2), Hyderabad
Respondent M/s Sri Krishna Drugs Ltd.,, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 16-12-2011
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 16-12-2011
Date Of Final Hearing 18-07-2011
Next Hearing Date 18-07-2011
Assessment Year 2006-2007
Appeal Filed On 07-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A' HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER I.T.A. NO. 198/HYD/2011 (ASSESSMENT YEAR : 2006-07) DY. COMMISSIONER OF INCOME-TAX CIRCLE 3(2) HYDERABAD VS. M/S. SRI KRISHNA DRUGS LTD. HYDERABAD PAN: AADCS4050Q APPELLANT RESPONDENT APPELLANT BY: SHRI V. SRINIVAS RESPONDENT BY: SHRI S. RAMA RAO DATE OF HEARING: 08.11.2011 DATE OF PRONOUNCEMENT: 16.12.2011 O R D E R PER CHANDRA POOJARI AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE OR DER OF THE CIT(A) GUNTUR DATED 14.10.2010 FOR THE ASSESSM ENT YEAR 2006-07. 2. THE FIRST EFFECTIVE GROUND RAISED BY THE REVENUE IS WI TH REGARD TO THE CIT(A) DELETING THE ADDITION OF RS. 2 41 6 33 IN RESPECT OF GRATUITY PAYMENT AS THE FUND WAS NOT RECOGNIS ED BY THE COMMISSIONER OF INCOME-TAX. 3. AFTER HEARING BOTH THE PARTIES WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2002-03 IN I.T.A. NO. 349/HYD/20 06. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE VIDE ITS ORDER DATED 15.2.2008 BY HOLDING AS FOLLOWS: I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 2 '4. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY THE GROUP GRATUITY SCHEME WAS NOT RECOGNISED BY THE COMMISSIONER OF INCOME- TAX. THIS FACT IS NOT IN DISPUTE. WE HAVE CAREFUL LY GONE THROUGH THE PROVISIONS OF SEC. 36(1)(V) OF THE INCOME-TAX ACT. SEC. 36(1)(V) READS AS FOLLOWS: '36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 .... (V) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND CREATED BY HIM FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDER AN IRREVOCABLE TRUST.' WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SEC. 37 OF THE INCOME-TAX ACT. SEC. 37 PROVIDES FOR DEDUCTION OF EXPENDITURE NOT BEING IN THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE OF THE ASSESSEE BUT LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION WHILE COMPUTING INCOME CHARGEABLE TO TAX. THE MAIN CONTENTION OF THE REVENUE IS THAT UNDER SEC. 36(1)(V) THE PAYMENT MADE BY THE ASSESSEE AS EMPLOYER COULD BE ALLOWED ONLY IN RESPECT OF APPROVED GRATUITY FUND. SINCE T HE GROUP GRATUITY SCHEME IS NOT APPROVED BY THE CIT ACCORDING TO THE REVENUE IT CANNOT BE ALLOWED. HOWEVER THE CONTENTION OF THE ASSESSEE IS THAT IN VIEW OF THE JUDGEMENT OF THE MADRAS HIGH COURT IN THE CASE OF PREMIER COTTON SPINNING MILLS LTD. (SUPRA) AND THE JUDGEMENT OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF WARNER HINDUSTAN LTD. (SUPRA) IT HAS TO BE ALLOWED. 5. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF WAR NER I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 3 HINDUSTAN LTD. (SUPRA). IN THE CASE BEFORE THE JURISDICTIONAL HIGH COURT THE PROVIDENT FUND WAS NOT APPROVED BY THE CIT. THE ANDHRA PRADESH HIGH COURT AFTER REFERRING TO THE JUDGEMENT OF THE BOMBA Y HIGH COURT IN TATA IRON & STEEL CO. LTD. V. D.V. BAPAT ITO (1975) 101 ITR 292 AND THE JUDGEMENT OF THE SUPREME COURT IN METAL BOX COMPANY OF INDIA LTD. VS. THE WORKMEN (1969) 73 ITR 53 HELD THAT THE AMOUNT PAID TOWARDS AN UNAPPROVED GRATUITY FUND CAN BE DEDUCTED UNDER SEC. 37 OF THE I.T. ACT THOUGH NOT UNDER SEC. 36(1)(V). IN VIEW OF THIS JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN OUR OPINION EVEN IF ANY PAYMENT IS MADE TO AN UNAPPROVED GRATUITY FUND IT HAS TO BE ALLOWED UNDER SEC. 37. BY RESPECTFULLY FOLLOWING THE BINDI NG JUDGEMENT OF ANDHRA PRADESH HIGH COURT IN THE CASE OF WARNER HINDUSTAN LTD. (SUPRA) WE UPHOLD THE ORDER OF THE CIT(A).' 4. IN VIEW OF THE ABOVE DISCUSSION WE DISMISS THE GROUN D TAKEN BY THE REVENUE. 5. THE NEXT GROUND RAISED BY THE REVENUE IS AS FOLLOWS: 'THE LEARNED CIT(A) SHOULD HAVE SUSTAINED THE ADDITION ON ACCOUNT OF EXCISE DUTY ON CLOSING STOCK AS THE PROVISION CREATED TOWARDS EXCISE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GOODS IS ONLY A CONTINGENT LIABILITY AND NOT AN ASCERTAINED LIABILI TY AS ON 31 ST MARCH OF THE ACCOUNTING YEAR.' 6. AFTER HEARING BOTH THE PARTIES WE ARE OF THE OPINION THAT THIS ISSUE IS DECIDED BY THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE CASE OF DCIT VS. SURYALATA SPINNING MILLS (P) LTD. IN I.T.A. NO. 618/HYD/2010 BY FOLLOWING THE JUDGEMENT OF MADHYA PRADESH HIGH COURT IN ACIT VS. D & H SECHERON ELECTRODES (P) LTD. (2008) 173 TAXMAN 188 WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS HELD THAT THE EXCISE DUTY PAYABLE SHOULD NOT BE ADDED TO THE CLOSING STOCK. ACCORDINGLY THIS GROUND OF THE REVENUE IS DISMISSED. I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 4 7. THE NEXT EFFECTIVE GROUND I.E. GROUND NO. 4 IS AS U NDER: ' THE CIT(A) ERRED IN ALLOWING THE ASSESSEE'S APPEAL WITH REGARD TO THE DISALLOWANCE OF PROPORTIONATE INTEREST ON THE INVESTMENTS MADE AND LOANS ADVANCED TO ITS SUBSIDIARY. ' 8. BRIEF FACTS OF THE ISSUE ARE THAT THERE WAS DISALLOWANCE OF INTEREST AT RS. 46 17 110 TOWARDS AMOUNT ADVANCED TO SIS TER CONCERN. IT WAS OBSERVED BY THE ASSESSING OFFICER TH AT THE ASSESSEE MADE INVESTMENT OF RS. 4 29 49 868 IN ITS S UBSIDIARY COMPANY M/S. ENSOLVIA INFOTECH LTD. IN THE FOLLOWING MANNER: SHARE CAPITAL RS. 2 51 35 000 UNSECURED LOANS RS. 1 78 14 868 ---------------------- TOTAL RS. 4 29 49 868 ============ THE ASSESSEE OFFERED NEITHER DIVIDEND INCOME ON THE INVESTMENT OR ANY INTEREST INCOME ON THE LOANS ADVANCES. AS THE ASSESSEE INCURRED INTEREST EXPENDITURE AT RS. 1 53 66 025 ON BORROWED FUNDS AND IN TURN THE ASSESSEE MADE INTER EST FREE ADVANCES TO THE SISTER CONCERN THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTEREST AT 10.7% PER ANNUM ON THE INVESTMENT WHICH WORKS OUT AT RS. 46 17 110. THE C IT(A) DELETED THE SAME ON THE REASON THAT THE ASSESSEE ADVANC ED FUND TO THE SISTER CONCERN FROM OUT OF ITS OWN RESOURCE S AND AS SUCH THE HYPOTHESIS OF THE ASSESSING OFFICER THAT SUCH LOANS WERE OUT OF INTEREST BEARING FUND IS NOT CORRECT. THE INVESTMENT MADE IN THE ASSESSMENT YEAR UNDER CONSIDERATI ON IS ONLY A CARRIED FORWARD INVESTMENT. AS SUCH THE CI T(A) DELETED THE ADDITION BY FOLLOWING THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN CASE IN I.T.A. NOS. 174/H/2006 41/H /2007 I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 5 487/H/2006 AND 537/H/2009 FOR THE ASSESSMENT YEARS 2 002- 03 TO 2005-06 ORDER DATED 30.9.2010. AGAINST THIS TH E REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS SEEN FROM THE ORDER OF THE C IT(A) SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS T RIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06 WHEREIN THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY HOLDING AS FOLLOWS: '6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IF THE ASSESSEE DIVERTED I TS INTEREST BEARING FUNDS TO THE SISTER CONCERN FOR AN Y PURPOSE OTHER THAN BUSINESS PURPOSE THEN THIS IMPUGNED INTEREST TO BE DISALLOWED. IN OTHER WORDS IF THE ASSESSEE USED THE SISTER CONCERN AS A CONDUI T TO DIVERT INTEREST BEARING FUNDS TO THE PERSONAL ADVANTAGE ANY DIRECTOR OR RELATIVE OF DIRECTORS OF THE ASSESSEE COMPANY THEN THIS INTEREST TO BE DISALLOWED. THE BURDEN IS ON THE ASSESSEE TO PROVE THAT THE PAYMENT OF INTEREST IS GENUINE. FURTHER ONCE IT IS BORNE OUT OF THE RECORD THAT THE ASSESSE E HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PA Y INTEREST IS BEING INCURRED AND ON THE OTHER HAND CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTEREST OR LESS INTEREST WITHOUT ANY BUSINESS PURPOSE THE INTEREST TO THAT EXTENT ADVANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED U/S 36(1)(III) OF THE ACT. SUCH BORROWINGS TO THAT EXTENT CANNOT POSSIBLY BE HELD FOR THE PURPOSE OF BUSINESS BUT FOR SUPPLEMENTING THE CASH DIVERTED WITHOUT DERIVING ANY BENEFIT OUT OF IT. IN SUCH CIRCUMSTANCES THE ASSESSEE WILL NOT BE ENTITLED TO CLAIM DEDUCTION OF INTEREST ON THE BORROWINGS TO TH E EXTENT THOSE ARE DIVERTED TO SISTER CONCERNS OR OTH ER PERSONS WITHOUT INTEREST. THE ESTABLISHMENT OF NEXUS OF FUNDS BORROWED VIS-A-VIS THE FUNDS DIVERTE D TOWARDS SISTER CONCERNS ON INTEREST FREE BASIS IS I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 6 CONCERNED IN OUR VIEW THAT THE ONUS OF PROVING T HE NEXUS OF FUNDS AVAILABLE WITH THE ASSESSEE WITH THE FUNDS ADVANCED TO THE SISTER CONCERN WITHOUT INTEREST IS ON THE ASSESSEE. THE PROVISIONS OF SEC . 36(1)(III) OF THE ACT PROVIDES FOR DEDUCTION OF INT EREST ON THE LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION HE BOOKS OF ACCOUNT THE ONUS WILL BE ON THE ASSESSEE TO SATISF Y THE ASSESSING OFFICER THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE THE SAME WERE USED FOR BUSINESS PURPOSE. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH DEDUCTION IT TRANSPIRES THA T THE ASSESSEE ADVANCED CERTAIN FUNDS TO ITS SISTER CONCERN AT NO INTEREST THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO BE DISCHARGED BEFORE THE ASSESSING OFFICER TO EFFECT THAT IN SPITE OF HEAVY INTEREST PAYABLE ON FRESH BORROWINGS AND PENDING LOANS ON WHICH THE ASSESSEE INCURRING INTEREST LIABILITY STILL THERE IS A JUSTIFICATION TO ADVANC E LOANS TO SISTER CONCERNS FOR NON BUSINESS PURPOSE AND ACCORDINGLY SUCH INTEREST PAYMENT CANNOT BE ALLOWED AS A DEDUCTION. HOWEVER IN THE PRESENT CASE AS SEEN FROM FINANCIAL STATEMENT OF ASSESSEES THERE IS AVAILABILITY OF OWN FUND AND RESERVE AND SURPLUS IN THE IMPUGNED ASSESSMENT YEARS. THESE FUNDS ARE MORE THAN SUFFICIENT TO MAKE INVESTMENT IN THE SUBSIDIARY COMPANY. THIS CAN BE SEEN FROM THE FOLLOWING TABLE: (A) FINANCIAL YEAR 2000-01 2001-02 2002-03 (B) FUNDS AVAILABLE FOR UTILIZATION AFTER CONSIDERING THE IMPUGNED INVESTMENT (RS. IN LAKHS) 151.21 135.66 29.27 (C) LOANS FROM BANKS 109.58 84.96 (D) INVESTMENT MADE IN FIXED ASSETS 236.38 179.7 4 18.94 (E) INVESTMENT MADE IN 195.00 56.35 M/S. SUVISION 7. IN OUR OPINION THE ASSESSEE USED ITS OWN NON INTEREST BEARING FUNDS AND THERE IS NO COST TO THE ASSESSEE AND IT IS A BUSINESS DECISION TAKEN BY THE ASSESSEE TO MAKE AN INVESTMENT IN SUBSIDIARY COMPANY AND THAT EVEN IF IT IS RESULTED IN NO INCOM E TO THE ASSESSEE THE NOTIONAL INTEREST CANNOT BE DISALLOWED ON THE REASON THAT THE ASSESSEE SHOULD I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 7 HAVE USED ITS NON INTEREST BEARING FUNDS FOR THE PURPOSE OF ITS OWN BUSINESS PURPOSE INSTEAD USING BORROWED FUNDS FOR ITS BUSINESS. THE ASSESSING OFFICER CANNOT SIT IN THE ARM CHAIR OF THE BUSINESS MEN AND DECIDE WHAT THE ASSESSEE HAS TO DO TO MAXIMIZE HIS PROFIT. IN OUR OPINION THE JUDGEMENT RELIED BY THE ASSESSEES COUNSEL IN THE CASE OF M/S SA BUILDER CITED SUPRA SUPPORTS THE ASSESSEES CLAIM. ACCORDINGLY THIS GROUND TAKEN BY THE ASSESSEE IS ALLOWED.' 10. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL THIS ISSUE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSES SEE. 11. THE LAST GROUND IN THIS APPEAL IS THAT THE CIT(A) ERRED IN ALLOWING THE DEPRECIATION ON THE GOODWILL (INTANGIBLE ASSETS). 12. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE CLAIMED DEPRECIATION ON INTANGIBLE ASSETS AT 25% WORKED OUT AT R S. 1 39 34 537 ON THE INTANGIBLE ASSETS OF RS. 5 57 38 14 7. IT WAS EXPLAINED BY THE ASSESSEE THAT IN THE RELEVANT ASSES SMENT YEAR M/S. ARANDY LABORATORIES LTD. AMALGAMATED TO THE ASSESSEE COMPANY VIDE ORDER CP NO. 84 OF 2005 DATED 31 ST MARCH 2006 OF THE ANDHRA PRADESH HIGH COURT. IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE PURCHASED 3 13 119 SHARES OF M/S. ARANDY LABORATORIES LTD. DIRE CTLY FROM THE SHAREHOLDERS OF THE ABOVE COMPANY AT A COST OF RS. 464.74 PER SHARE TOTAL COST WORKED OUT TO RS. 14 55 21 444. AFTER AMALGAMATION THE ASSESSEE ACCOUNTED THE PURCHASE OF ASS ETS BY APPORTIONING THE VALUE OF RESPECTIVE HEADS OF ASS ETS AND LIABILITIES. THE DIFFERENCE BETWEEN THE TOTAL ASSETS A ND TOTAL LIABILITIES IS CONSIDERED AS INTANGIBLE ASSETS CONSISTI NG THE VALUE OF TECHNICAL KNOW-HOW OF ALL BULK DRUGS VALU E OF LICENCES SALE AGREEMENT WITH MNC COMMERCIAL AND BUS INESS I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 8 RIGHTS AND THE SAME WAS CONSIDERED AS INTANGIBLE ASSETS/GOODWILL IN TERMS OF ACCOUNTING STANDARD-14 ISS UED BY THE INSTITUTE OF CHARTED ACCOUNTANTS OF INDIA (ICAI) LTD A ND CLAIMED DEPRECIATION AT 25% U/S. 32 OF THE INCOME-TAX A CT 1961. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE PURCHASED THE SHARES AND PAID PRICE MORE THAN THE NET W ORTH OF THE AMALGAMATED COMPANY AND THERE IS NO EVIDENCE OF PURCHASE OF INTANGIBLE ASSETS IN TERMS OF 5 TH PROVISO AND EXPLANATION 3 TO SECTION 32(1)(II) OF THE ACT AND THE A SSESSEE HAS NOT ACQUIRED ANY INTANGIBLE ASSETS TO GRANT DEPRECIA TION. ACCORDINGLY HE DENIED THE DEPRECIATION. ON APPEAL TH E CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. AGAINST THIS THE RE VENUE IS IN APPEAL BEFORE US. 13. THE LEARNED AR RELIED ON THE FOLLOWING DECISIONS: I) HINDUSTAN COCA COLA BEVERAGES (P) LTD. VS. DCIT 132 TTJ 602 (ITAT DELHI 'C' BENCH) II) KOTAK FOREX BROKERAGE LTD. VS. ACIT 131 TTJ 404 (MUM.) III) SKYLINE CATERERS (P) LTD. VS. ITO 118 TTJ 344 (MUM.) IV) B. RAVEENDRAN PILLAI VS. CIT 332 ITR 531 (KER.) V) CIT VS. HINDUSTAN COCA COLA BEVERAGES (P) LTD. 331 ITR 192 (DEL). 14. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF AP PAPER M ILLS LTD. VS. ACIT I.T.A. NO. 218/HYD/06 FOR A.Y. 2002-03 WHEREI N THE TRIBUNAL VIDE ITS ORDER DATED 4.11.2009 HELD AS FOLL OWS: '15. IN THE PRESENT CASE CONSEQUENT UPON AMALGAMATION OF CPL WITH APPM THE MARKET SHARE OF ASSESSEE COMPANY HAS INCREASED SUBSTANTIALLY AS SUBMITTED BY THE ASSESSEE COUNSEL IT WAS INCREASED FROM A LEVEL OF 98500 METRIC TONS OF 174000 MT PER ANNUM I.E. AN INCREASE OF 75 500 MT. FURTHER THE BRANDS OF THE CPL VIZ. (1) I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 9 AZURWOVE/AZURLAID (2) COLOR PRINTING (3) NEWSPRINT (4) MANILLA BOARD (5) KRAFT HAVE BECOME THE BRANDS OF THE ASSESSEE COMPANY. FURTHER ON AMALGAMATION UNIT APPM HAD COMMISSIONED A SINGLE STREET STATE OF ART TECHNOLOGY PULP MILL OF 550 MT PER DAY IN THE YEAR 2006. THE PULP MILL WAS OPERATING AT CAPACITY OF 425 TONS PER DAY BEFORE AMALGAMATION. AFTER MEETING THE CAPTIVE CONSUMPTION OF ABOUT 290 MT PER DAY IN UNIT APPM THE SURPLUS IS TRANSFERRED TO UNIT CP TO MANUFACTUR E VALUE ADDED PAPERS AND TO ELEVATE THE STATUS OF THE MILL FROM A B GRADE TO A GRADE ONE. FURTHER AS AN ENVIRONMENTALLY SOUND MEASURE TO DISPOSE OF BLACK LIQUOR GENERATED IN THE UNIT CP IN THE RICE STRAW PULPING PROCESS THE ASSESSEE TRANSFERRING THE CONCENTRATED BLACK LIQUOR TO UNIT APPM FOR FIRING I N THE CHEMICAL RECOVERY BOILER. SINCE UNIT APPM HAS THE INFRASTRUCTURE TO FIRE THE BLACK LIQUOR TO THE BOILER THE SPENT CHEMICAL ARE RECOVERED BACK AND STEEL IS ALSO GENERATED AS BY-PRODUCT TO MEET THE DEMAND OF PROCESS STEAM AT UNIT APPM. BY THIS PROCESS ANY POLLUTION GENERATED AT THE PULPING PROCESS IS ELIMINATED IN UNIT CP. FURTHER THE ASSESSEE GOT T HE LOYAL DOMESTIC CUSTOMERS LIKE SAKAL PAPERS (P) LTD. SHREE KRISHNA NEWSPRINT (EAST MEDIA) BHUBANESWAR INDO GLOBAL COMMERCIAL (P) LTD. NAGPUR AMBICA PAPERS (P) LTD. MUMBAI SK IMPEX KOLKATA AND EXPORT CUSTOMERS VIZ. ASSUDAMAL & SONS HK LTD. VITAL SOLUTIONS HIND EXPORTS KUNICK A HOLDINGS DINOWIC PTE. LTD. 15.1 FURTHER ASSESSEE GOT VARIOUS LICENSES ON ACCOUNT OF AMALGAMATION LIKE FACTOR LICENSE BOILER OPERATING LICENCE POLLUTION DISPOSAL PERMISSION VAT REGISTRATION EXCISE REGISTRATION EXPORT LICEN CE AND ALSO GOT ADVANTAGES DUE TO PROXIMITY OF LOCATION. FURTHER UNIT CPL IS LOCATED AT A DISTAN CE OF 18 KMS FROM UNIT APPM AND BECAUSE OF THAT VARIOUS ADVANTAGES ACCRUE TO THE ASSESSEE. 15.2 FURTHER THE ASSESSEE GOT VARIOUS INFRASTRUCTURAL ADVANTAGES LIKE CPL HAS ALMOST ALL INFRASTRUCTURE CAPABILITY LIKE CAPTIVE POWER PLANT OF 5.74 MW COAL FIRED BOILER DM PLANT EFFLUENT TREATMENT PLANT AND ALSO BENEFIT OF SALES TAX I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 10 DEFERMENT LOAN FOR 14 YEARS UP TO 30.6.2013. FURTHER THE ASSESSEE ACQUIRED ON OPERATING MILL N O GESTATION/STABILISATION PERIOD WAS REQUIRED WHEN COMPARED TO NEW GREEN FILED OR BROWN FIELD VENTURE. 15.3 FROM THE ABOVE ADVANTAGES ACCRUED BY THE ASSESSEE IS NOTHING BUT VARIOUS INTANGIBLE ASSETS AND BUSINESS ADVANTAGES THIS IS NOTHING BUT INTANGIBLE ASSET AS ENUMERATED IN S. 32 OF THE IT A CT AS PER THIS DEFINITION IT INCLUDES KNOW-HOW PATEN TS COPYRIGHTS TRADEMARKS LICENSES FRANCHISES ETC. ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THEREFORE ALL THE RIGHTS ARE SIMILAR TO TH E RIGHTS MENTIONED IN SECTION 32 OF THE IT ACT IS ACQUIRED BY THE ASSESSEE IN THIS CASE. THUS GOODWILL IS A BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE AND THE ASSESSEE IS BENEFITTED BY AMALGAMATION BY ACQUIRING THAT COMMERCIAL VALUE BEING INTANGIBLE ASSETS WHICH THE ASSESSEE HAS PAID ON AMALGAMATION I.E. EXCESS CONSIDERATION OVER THE ABOVE THE EXCESS OF ASSETS OVER LIABILITIES IS A GOODWILL WHICH IS AN ASSET ENTITLED FOR DEPRECIATIO N U/S. 32 OF IT ACT. AS SUCH ASSESSING OFFICER IS JUSTIFIED IN GRANTING THE DEPRECIATION ON GOODWILL WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE IT ACT AND CIT IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF S. 263 ON THIS ISSUE. FURTHER THE PROVISION OF S. 263 COULD BE INVOKED BY THE CIT IF THE CIRCUMSTANCES SPECIFIED THEREIN VIZ. (1) THE ORDER IS ERRONEOUS (2) BY VIRTUE OF THE ORDER BEING ERRONEOU S PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF THE REVENUE EXIST. FOR INVOKING THE PROVISION S. 263 BOTH THE CONDITIONS PRECEDENT FOR EXERCISING THE JURISDICTION ARE CONJUNCTIVE OR NOT DISJUNCTIVE. I N THE INSTANT CASE THE ASSESSING OFFICER FOLLOWED ONE COURSE OF ACTION WHICH IS PERMITTED BY LAW AND THAT IS RESULTED IN LOSS TO THE REVENUE THAT CANNOT BE SAID ERRONEOUS SO FAR AS PREJUDICIAL INTEREST OF TH E REVENUE. FOR THIS PURPOSE WE PLACE RELIANCE ON TH E JUDGEMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. GREEN WORLD CORPORATION (181 TAXMAN 111) (SC). FURTHER THE CIT CANNOT DIRECT THE ASSESSING OFFICER TO INITIATE THE PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE IT ACT SINCE HE HAS HIMSELF HAS NO POWER TO INITIATE THE PENALTY I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 11 PROCEEDINGS. IF THE ASSESSING OFFICER IS OF THE OPINION THAT PENALTY TO BE IMPOSED UNDER THIS PROVISION HE IS AT LIBERTY TO TAKE THE DECISION AN D THE CIT CANNOT PUT HIS WORDS IN THE MOUTH OF THE ASSESSING OFFICER. ACCORDINGLY WE UPHOLD THE ENTI RE ARGUMENTS OF THE LEARNED COUNSEL OF THE ASSESSEE ON THE FIRST GROUND RAISED BY THE ASSESSEE.' 15. WE HAVE HEARD BOTH THE PARTIES. IN THIS CASE THE ASSESSEE PURCHASED 3 13 119 SHARES OF M/S. ARANDY LABORATORIES LTD. FOR A COST OF RS. 14 55 21 444 THAT IS WORKED OUT TO RS. 464.74 PER SHARE. BY THIS THE ASSESSEE AC QUIRED THE ENTIRE ASSETS AND LIABILITIES OF THE ABOVE COMPANY. HOWEVER THERE WAS EXCESS OF LIABILITIES OVER THE ASS ETS WHICH WORKS OUT TO RS. 5 57 38 146. ACCORDING TO THE ASSESS EE THIS NOTHING BUT THE VALUE OF TECHNICAL KNOW-HOW OF BULK D RUGS VALUE OF LICENCES SALE AGREEMENT WITH MNC HELD BY T HE ASSESSEE AND OTHER BUSINESS AND COMMERCIAL RIGHTS WHI CH ARE INTANGIBLE ASSETS LIKE GOODWILL AND THE SAME IS CLASS IFIED AS GOODWILL IN THE BOOKS OF ACCOUNT AS PER THE PROVISIONS OF SECTION 32(1)(II) OF THE ACT. ACCORDING TO THE ASSESSI NG OFFICER THE ASSESSEE HAS NOT PRODUCED THE BREAK UP DETAILS OF THE INTANGIBLE ASSETS AND THE ASSESSEE NOT ACQUIRED ANY BU SINESS OR COMMERCIAL RIGHTS SIMILAR TO THAT OF TECHNICAL KNOWHO W PATENTS TRADEMARKS ETC. AND DENIED THE DEPRECIATION ON THE SAME. WE HAVE EXAMINED THE FACTS OF THE PRESENT CASE. IN THIS CASE THERE IS NO DISPUTE REGARDING ACQUISITION OF ALL THE ASSETS AND LIABILITIES OF THE ARANDY LABORATORIES LTD. AND THE LIABILITY OF THE ARANDY LABORATORIES LTD. IS EXCESS OVER THE ASS ETS OF THE SAID COMPANY. THE DIFFERENT BETWEEN THESE TWO IT EMS IS CALLED AS GOODWILL BY THE ASSESSEE. THIS REPRESENTS THE RIGHTS ACQUIRED BY THE ASSESSEE WHICH IS NOTHING BUT COMMERC IAL RIGHTS TECHNICAL KNOWHOW PATENTS LICENCES BUSINESS AND I.T.A. NO. 198/HYD/2011 M/S. SRI KRISHNA DRUGS LTD. ==================== 12 COMMERCIAL RIGHTS. THERE IS NO NOMENCLATURE GIVEN IN THE BOOKS OF ACCOUNT TO THE INTANGIBLE RIGHTS ACQUIRED BY TH E ASSESSEE IS IRRELEVANT FOR ASCERTAINING THE REAL NATUR E OF THE TRANSACTION. THE TRUE NATURE OF THE ASSETS WHICH ARE AC QUIRED BY THE ASSESSEE IS BUSINESS AND COMMERCIAL RIGHTS WH ICH IS NOTHING BUT GOODWILL ON WHICH THE ASSESSEE IS ENTITLED FOR DEPRECIATION U/S. 32(1)(II) OF THE ACT. THERE IS NO DISPUTE IN THIS CASE REGARDING THE PAYMENT OF RS. 14 55 21 444 AN D THE TOTAL VALUE OF THE TANGIBLE ASSETS IS LESSER THAN RS. 5 5 7 38 146 AND THIS IS NOTHING BUT INTANGIBLE ASSETS IN THE FORM OF TECHNICAL KNOWHOW COPY RIGHT TRADEMARK LICENCES FRANCHISEES AND THE CLAIM OF DEPRECIATION ON THESE IT EMS IS ADMISSIBLE AND IT FITS WITHIN THE DESCRIPTION OF SECTION 32(1)(II) OF THE ACT. OUR VIEW IS SUPPORTED BY THE VARIOUS JUDGE MENTS RELIED ON BY THE ASSESSEE'S COUNSEL. ACCORDINGLY TH IS GROUND OF THE REVENUE IS DISMISSED. 16. IN THE RESULT REVENUE'S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER 2011. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD DATED THE 16 TH DECEMBER 2011 COPY FORWARDED TO: 1. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-3(2) 7 TH FLOOR 'B' BLOCK IT TOWERS AC GUARDS HYDERABAD. 2. M/S. SRI KRISHNA DRUGS LTD. C-4 INDUSTRIAL AREA UPPAL HYDERABAD-500 039 3. THE CIT(A) GUNTUR. 4. THE CIT-III HYDERABAD. 5. THE DR A BENCH ITAT HYDERABAD TPRAO