The DyCIT., Ahmedabad Circle-1,, Ahmedabad v. Arvind Fashion Ltd.,, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND N. S. SAINI A M) ITA NO.2916/AHD/2007 A. Y.: 2001-02 THE D. C. I. T. CIRCLE-1 3 RD FLOOR JITENDRA CHAMBERS R.B.I. LANE ASHRAM ROAD AHMEDABAD VS ARVIND FASHIONS LTD. ARVIND MILLS PREMISES NARODA ROAD AHMEDABAD PA NO. AABCA 2402L (APPELLANT) (RESPONDENT) C.O. NO.210/AHD/2007 (IN ITA NO.2916/AHD/2007) ARVIND FASHIONS LTD. ARVIND MILLS PREMISES NARODA ROAD AHMEDABAD PA NO. AABCA 2402L VS THE D. C. I. T. CIRCLE-1 3 RD FLOOR JITENDRA CHAMBERS R.B.I. LANE ASHRAM ROAD AHMEDABAD (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY SHRI C. K. MISHRA DR ASSESSEE BY SHRI VIJAY RANJAN AR O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST ORD ER OF THE CIT(A)-V AHMEDABAD DATED 27-04-2007 FOR ASSESSMENT YEAR 200 1-02. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS THE CROSS OBJECTIONS AND SOUGHT PERMISSION TO WITHDRAW THE SA ME. THE LEARNED CIT(A) ALSO NOTED THAT THE ISSUE OF LESSER DEDUCTIO N U/S 80 IB OF THE IT ITA NO.2916/AHD/2007 AND CO NO.210/AHD/2007 ARVIND FASHIONS LTD. 2 ACT IS NOT ARISING OUT OF THE IMPUGNED ORDER U/S 15 4 OF THE IT ACT WHICH IS NOW RAISED IN THE CROSS OBJECTION. ACCORDINGLY THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS WITHDRAWN. 4. THE REVENUE IN ITS APPEAL CHALLENGED THE ORDER O F THE LEARNED CIT(A) IN DIRECTING TO DELETE THE ADDITION MADE ON ACCOUNT OF EXCESS DEPRECIATION ALLOWED OF RS.30 64 062/- BY RECTIFYIN G THE EARLIER ORDER MADE U/S 143(3)/250 OF THE IT ACT. 5. BRIEFLY THE FACTS OF THE CASE ARE THAT THE AO P ASSED THE IMPUGNED ORDER U/S 154 OF THE IT ACT ON 20-11-2006. THE SAME READS AS UNDER: 1. ORDER U/S. 154 OF THE INCOME TAX ACT61 IN THIS CASE THE ASSESSMENT WAS COMPLETED U/S. 143( 3) OF THE I. T. ACT ON 30.3.2004 DETERMINING THE TOTAL INCOME OF RS.3 89 12 566/- IN WHICH ADDITION OF RS.49.78 LAKH WAS MADE. THE CIT(A) HAS DELETED THE ADDITION MADE BY T HE ASSESSING OFFICER VIDE HIS ORDER DTD. 7.1.2005. AS A RESULT OF PASSING OF ORDER GIVING EFFECT U/S. 250 ON 21.3.200 5 THE INCOME WAS REDUCED FROM RS.3 89 12 566/- TO RS.3 39 34 672/-. THEREAFTER ORDER U/S. 154 WAS PAS SED ON 20.11.2006 TO WITHDRAW EXCESS DEDUCTION ALLOWED U/S . 80 IA OF RS.14 93 368/- AND ACCORDINGLY THE INCOME WAS RE VISED TO RS.3 54 28 040/-. SCRUTINY OF THE RECORDS REVEALED THAT THE ASSESSEE ENTERED INTO AGREEMENT WITH WRANGLER APPAR EL CORPON. USA (AMERICA) FOR OBTAINING A TECHNICAL KNO W-HOW. AS PER THE TERMS OF AGREEMENT (ARTICLE-5) THE ASSESSE E WAS TO INITIAL START UP FEE OF RS.5 LAKH U.S. DOLLAR ($). THE AGREEMENT WAS SIGNED ON 21.12.2000 I.E. F. Y. 2000-01 (AY 2001-02). THE PAYMENT WAS TO BE MADE WITHIN 10 DAYS OF EXECUT ION OF THE AGREEMENT. ACCORDINGLY PAYMENT OF RS.2 45 12 5 00/- (5 LAKH US DOLLAR). THE ASSESSEE CAPITALIZED THE PAYME NT AS INTANGIBLE ASSET AND WAS ALLOWED DEPRECIATION AT 25 % OF RS.61 28 125/- AS AGAINST ADMISSIBLE DEPRECIATION A T 12.5% OF RS.30 64 062/- AS THE ASSET WAS PUT TO USE FOR L ESS THAN 180 DAYS (AFTER SEPTEMBER). THIS HAS RESULTED IN UN DER ASSESSMENT OF INCOME TO THE EXTENT OF RS.30 64 062/ - WITH CONSEQUENTIAL SHORT LEVY OF TAX OF RS.16 69 304/-. ITA NO.2916/AHD/2007 AND CO NO.210/AHD/2007 ARVIND FASHIONS LTD. 3 2. THE MISTAKE BEING APPARENT FROM RECORDS A SHOW CAUSE NOTICE U/S 154 WAS ISSUED ON 19.10.2006 WHICH WAS S ERVED ON THE ASSESSEE ON 27.10.2006 ASKING TO SHOW CAUSE WHY ACTION U/S. 154 SHOULD NOT BE TAKEN. IN RESPONSE TH ERETO THE ASSESSEE HAD NOTHING TO SAY. THEREFORE THE ORDER I S PASSED U/S. 154 OF THE ACT TO RECTIFY THE APPARENT MISTAKE AS UNDER. PENALTY PROCEEDINGS U/S. 271 (1) ( C ) ARE ALSO SEP ARATELY INITIATED FOR CONCEALMENT/FURNISHING OF INACCURATE PARTICULARS OF INCOME/SUPPRESSING OF INCOME:- TOTAL INCOME AS PER ORDER U/S. 154 DTD. 7.11.2006 RS.3 54 28 040 ADD: EXCESS DEPRECIATION ALLOWED IN THE ORDER ON INTANGIBLE ASSET I.E. TECHNICAL KNOW HOW AS DISCUSSED RS. 30 64 062 REVISED TOTAL INCOME .. RS.3 34 92 102 I.E. .. RS.3 34 92 100. THE ASSESSEE CHALLENGED THE ORDER U/S 154 OF THE IT ACT BEFORE THE LEARNED CIT(A) AND IT WAS PRECISELY SUBMITTED THAT THE ASSESSEE HAD ENTERED IN TO THE AGREEMENT WITH WRANGLER APPAREL C ORPORATION (USA) FOR TECHNICAL KNOW-HOW DATED 21-12-2000 ACCORDING TO W HICH THE ASSESSEE HAD PAID INITIAL START UP FEES OF RS.5 LAC DOLLAR. THE ASSESSEE HAD CLAIMED DEDUCTION BY WAY OF DEPRECIATION AT 25% I.E. RS.61 28 125/- AND IT WAS ALLOWED. THE AO HAS STATED THAT AS THE AGREEMENT WA S AFTER SEPTEMBER 2000 THE DEPRECIATION WAS ADMISSIBLE AT 12.5% AND HENCE NOTICE U/S 154 OF THE IT ACT WAS ISSUED. IT WAS SUBMITTED THAT THE ASSESSEE FILED REPLY BEFORE THE AO DATED 28-10-2006 IN WHICH THE A SSESSEE RAISED OBJECTION BUT THE AO DID NOT CONSIDER IT IN THE ORD ER U/S 154 OF THE IT ACT. IT WAS FURTHER SUBMITTED THAT IT WAS EXPLAINED BEFORE THE AO THAT THE SAID AGREEMENT WAS EFFECTIVE FROM 01-01-2000 AND TH E ASSESSEE COMPANY WAS PROVIDED THE USE OF TECHNICAL KNOW-HOW BY WRANG LER APPAREL CORPORATION FROM 01-01-2000. COPY OF THE SAME IS AL SO FILED BEFORE THE AO. THEREFORE THERE IS NO JUSTIFICATION FOR PRESUM PTION THAT THE TECHNICAL KNOW-HOW WAS USED AFTER 21 ST DECEMBER 2000. IT WAS FURTHER SUBMITTED THAT THE ENTIRE DETAILS WERE FILED AT THE ORIGINAL ASSESSMENT STAGE ALONG WITH BOOKS OF ACCOUNT WITH AUDITORS REPORT AND THE AO ALLOWED DEPRECIATION TO THE ASSESSEE ACCORDINGLY. IT WAS FU RTHER SUBMITTED THAT ITA NO.2916/AHD/2007 AND CO NO.210/AHD/2007 ARVIND FASHIONS LTD. 4 THE AO WRONGLY PRESUMED THAT DEPRECIATION IS WRONGL Y CLAIMED IN THIS CASE WHICH IS A DEBATABLE ISSUE AND AS SUCH THE AO WAS NOT JUSTIFIED IN PASSING THE ORDER U/S 154 OF THE IT ACT. THE ASSESS EE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F VOLCART BROTHERS 82 ITR 51. IT WAS FURTHER SUBMITTED THAT THE ISSUE OF ROYALTY HAS BEEN CONSIDERED BY THE AO AND THE LEARNED CIT(A) DELETED THE ADDITION. IT WOULD SHOW THAT THE AGREEMENT WAS IN EXISTENCE AND WAS CONSIDERED BY THE AO. THEREFORE THE AO WAS NOT JUSTIFIED IN PASS ING THE IMPUGNED ORDER U/S 154 OF THE IT ACT. THE LEARNED CIT(A) CON SIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIALS ON RE CORD DELETED THE ADDITION MADE U/S 154 OF THE ACT. HIS FINDINGS IN P ARA 3.2 ARE REPRODUCED AS UNDER: 3.2 I HAVE CAREFULLY CONSIDERED THE ISSUE. PERUSAL OF THE AGREEMENT SHOWS THAT THE AGREEMENT WAS SIGNED ON 21/12/2000 BUT AS PER ARTICLE 1.7 THE FIRST CONTRA CT PERIOD WAS W. E. F. 1/4/2000 TO 31/12/2001. THUS THE AGRE EMENT WAS OPERATIVE FOR THE ENTIRE YEAR. IT IS ALSO SEEN THAT AS PER ARTICLE 5.1 ASSESSEE WAS TO PAY AN INITIAL START U P FEE OF US $ OF 5 LACS AND A CONTINUED ROYALTY FEE AT THE RATE O F 5% OF SALES IN RESPECT OF WRANGLER JEANS. IT IS ALSO SEEN THAT SALE OF WRANGLER JEANS STARTED FROM 15/9/2000 WHEN THE FIR ST LOT WAS COMPLETED AND EVEN ROYALTY PAYMENT WAS MADE WIT H EFFECT FROM SALES MADE FROM 15/9/2000. IT IS ALSO S EEN THAT ROYALTY PAYMENT WAS ALLOWED AS REVENUE EXPENDITURE BY THE AO EXCEPT FOR 1/4 TH PORTION WHICH WAS TREATED AS CAPITAL EXPENDITURE EVEN THIS DISALLOWANCE WAS DELETED BY CIT(A). THUS IF THE ISSUE IS SEEN IN ITS TOTALITY IT GOES TO SHOW THAT ROYALTY WAS PAID AS PER THE AGREEMENT W. E. F. 15/9 /2000 AND GOES TO SHOW THAT ROYALTY WAS PAID AS PER THE A GREEMENT W. E. F. 15/9/2000 AND SAME HAS BEEN ALLOWED ALSO. THUS THIS SHOWS THAT THE ASSET WAS IN USE FOR MORE THAN 180 DAYS. APART FROM THAT WHEN THE AGREEMENT CLEARLY MENTIONS THAT IT WAS OPERATIVE FROM 1 ST OF APRIL THEN IT CANNOT BE SAID THAT THERE WAS ANY MISTAKE APPARENT FROM RECORD WHICH CO ULD BE RECTIFIED U/S. 154 OF THE ACT BECAUSE THE ISSUE WOU LD BE HIGHLY DEBATABLE BOTH LEGALLY AS WELL AS FACTUALLY BECAUSE FACTS ITSELF SUGGEST THAT IT WAS OPERATIVE FROM 15/9/2000 ITSEL F. IN THESE CIRCUMSTANCES I FIND THAT ACTION U/S. 154 WAS NOT PERMISSIBLE ITA NO.2916/AHD/2007 AND CO NO.210/AHD/2007 ARVIND FASHIONS LTD. 5 IN THE EYES OF LAW. ACCORDINGLY ADDITION MADE BY T HE AO IN ORDER U/S. 154 IS DELETED. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. HOWEVER THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FILED COPY OF THE REPLY F ILED BEFORE THE AO U/S 154 OF THE IT ACT AS WELL AS COPY OF THE AGREEMENT IN QUESTION TO SHOW THAT RELEVANT AGREEMENT WAS EFFECTIVE FROM 01-04-20 00 AND AS SUCH THE ASSESSEE WAS ENTITLED FOR DEPRECIATION. IT WAS ACCO RDINGLY ALLOWED BY THE AO AT THE ORIGINAL ASSESSMENT PROCEEDINGS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. HONBLE SUPREME COUR T IN THE CASE OF VOLCART BROTHERS 82 ITR 51 HELD THAT MISTAKE MUST BE OBVIOUS AND PATENT. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS COM PUTER GRAPHICS 285 ITR 84 AND IN THE CASE OF CIT VS ADYAR GATE HOTEL LTD. 294 ITR 155 HELD THAT RECTIFICATION CANNOT BE DONE ON DEBATABLE ISSUE. CONSIDERING THE ABOVE PRINCIPLE IN MIND IT IS CLEAR THAT THE AO CONSIDERED THE MATTER U/S 154 OF THE IT ACT WHICH IS HIGHLY DE BATABLE AND PASSED UPON RE-APPRECIATION OF THE FACTS AND CLAUSES MENTI ONED IN THE RELEVANT AGREEMENT. THE ASSESSEE SPECIFICALLY PLEADED BEFORE THE AUTHORITIES BELOW THAT THOUGH AGREEMENT WAS HAVING THE LATER DATE BUT IT WAS EFFECTIVE FROM 01-04-2000. THEREFORE THE MATERIAL ON RECORD WAS V ERY SPECIFIC IN FAVOUR OF THE ASSESSEE TO PROVE THAT THE ASSESSEE RIGHTLY CLAIMED DEPRECIATION ON THE MATTERS IN ISSUE. THE AO ALSO ON CONSIDERATION OF THE MATERIAL ON RECORD ORIGINALLY ALLOWED THE CLAIM OF THE ASSESSEE . THEREFORE ON WRONG RE-APPRECIATION OF MATERIAL AND EVIDENCE ON RECORD THE AO WAS NOT JUSTIFIED IN PASSING THE IMPUGNED ORDER U/S 154 OF THE IT ACT. EVEN THE LEARNED CIT(A) WHILE CONSIDERING THE ISSUE OF ROYAL TY CONSIDERED THE SAME MATERIAL ON RECORD AND DELETED THE ADDITION ON MERI T. THE RECORD AVAILABLE ON RECORD CLEARLY REVEALS THAT THE ASSETS WERE USED FOR MORE THAN 180 DAYS. THE LEARNED CIT(A) ON THE BASIS OF M ATERIAL ON RECORD ITA NO.2916/AHD/2007 AND CO NO.210/AHD/2007 ARVIND FASHIONS LTD. 6 RIGHTLY CAME TO THE CONCLUSION THAT THERE WAS NO MI STAKE APPARENT ON RECORD AND THAT THE ISSUE IS HIGHLY DEBATABLE ON FA CTS. THEREFORE THE AO SHOULD NOT HAVE PASSED THE ORDER U/S 154 OF THE IT ACT. THE LEARNED DR HAS NOT PRODUCED ANY MATERIAL ON RECORD TO CONTRADI CT THE FINDINGS OF THE LEARNED CIT(A). CONSIDERING THE FACTS NOTED ABOVE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE AD DITION BY CANCELING THE ORDER PASSED U/S 154 OF THE IT ACT. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). WE CONFIRM THE SAME AN D DISMISS THE DEPARTMENTAL APPEAL. 8. AS A RESULT THE DEPARTMENTAL APPEAL IS DISMISSE D. 9. IN VIEW OF THE ABOVE FINDINGS THE DEPARTMENTAL APPEAL AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 07-05-2010 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 07 - 05-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD