2016 (12) TMI 1628 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions on Foreign Expenses & Amalgamation Goodwill Depreciation

DCIT (OSD), Circle-8, Ahmedabad Versus M/s Zydus Wellness Ltd.

The Tribunal upheld the CIT(A)'s decisions to delete additions on account of foreign expenses, prior period expenses, trademark expenses, sales promotion ... Addition of foreign travel expenses, trade mark expenses and disallowance u/s 40(a)(ia) for sales promotion expenses - Held that:- Respectfully following the decision of Co-ordinate Bench for Asst. Year 2009-10 [2016 (5) TMI 530 - ITAT AHMEDABAD] in assessee’s own case, we find that ground nos.1,3 & 4 raised by the Revenue are liable to be dismissed as they also relate to foreign travel expenses, trade mark expenses and disallowance u/s 40(a)(ia) of the Act for sales promotion expenses. Further Revenue is unable to rebut the contentions of ld. AR and to differentiate the facts of the year under appeal with those for Asst. Year 2009-10. Thus we find no reason to interfere with the order of ld. CIT(A) and dismiss these three grounds. Disallowance on account of depreciation on non-compete fees - Held that:- We find that both the views i.e. allowing/disallowing exist as regards the issue of claiming of depreciation on non-compete fees. However, in the given facts and circumstances of the case and looking to the consistency of allowability of depreciation on non-compete fees in the case of assessee for Asst. Year 2007-08, 2008-09 and for Asst. Year 2009- 10 decided by the Co-ordinate Bench pronounced in the year 2016, we are of the view that assessee’s claim of depreciation on noncompete fees has rightly been allowed by ld. CIT(A). We therefore, find no reason to interfere with the order of ld. CIT(A) and we uphold the same. This ground of Revenue is dismissed. Addition on account of prior period expenses - CIT-A deleted the addition - Held that:- There is no dispute to the fact that an amount of ₹ 11,236/- was paid to Central Depository Services Ltd. towards Custodial fees pertaining to the period F.Y.2008-09. However, as submitted by ld. AR that the Custodial fees is legitimate business expenditure and there is no dispute to it being a revenue in nature. We are, therefore, of the view that liability of the assessee of ₹ 11,236/- being Custodial fees crystallized during the F.Y.2009-10 and the same should not be treated as prior period expenditure as there is no postponement of liability. We, therefore, find no reason to interfere with the finding of ld. CIT(A). Accordingly, this ground of Revenue is dismissed. Depreciation on Goodwill arising on Amalgamation - claimed never in the Return of Income filed by the Assessee - Held that:- respectfully following the judgment of Hon. Apex Court in the case of CIT vs. Smiffs Securities Ltd. (2012 (8) TMI 713 - SUPREME COUR ), and CIT vs. Pruthvi Brokers and Shareholders (2012 (7) TMI 158 - BOMBAY HIGH COURT ) we are of the view that ld. CIT(A) has rightly allowed the justifiable & correct claim of depreciation on ‘goodwill’ made by the assessee through revised computation of income without filing revised return of income during the course of assessment proceedings. Therefore, no interference is called for in the order of ld. CIT(A) on this issue. Revenue appeal dismissed. Issues Involved:1. Deletion of addition on account of foreign expenses.2. Deletion of addition on account of prior period expenses.3. Deletion of addition on account of treating trademark expenses as capital expenses.4. Deletion of addition on account of sales promotion expenses under section 40(a)(ia) of the IT Act.5. Deletion of disallowance of depreciation on non-compete fees.6. Allowance of depreciation on goodwill arising on amalgamation.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Foreign Expenses:The Revenue challenged the deletion of Rs. 87,959/- on account of foreign travel expenses. The Tribunal observed that the Assessing Officer disallowed these expenses due to the assessee's failure to produce details of the persons/parties involved. However, the Tribunal noted that in the previous assessment year (2009-10), a similar issue was decided in favor of the assessee, where the CIT(A) found that the assessee had provided complete details of employees who traveled abroad, the duration of visits, countries visited, nature and amount of expenses, and the purpose of travel. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue did not bring any new material to controvert the CIT(A)'s findings.2. Deletion of Addition on Account of Prior Period Expenses:The Revenue contested the deletion of Rs. 11,236/- related to prior period expenses. The Tribunal noted that the assessee debited this amount as custodial fees paid to Central Depository Services India Ltd. for FY 2008-09, claiming that the liability crystallized during FY 2009-10. The CIT(A) deleted the disallowance, referencing the Bombay High Court's decision in CIT vs. Nagri Mills, which allows such expenses if they are genuine and there is no postponement of liability. The Tribunal upheld the CIT(A)'s decision, agreeing that the liability crystallized in FY 2009-10 and should not be treated as a prior period expense.3. Deletion of Addition on Account of Treating Trademark Expenses as Capital Expenses:The Revenue appealed against the deletion of Rs. 1,09,600/- treated as capital expenses for trademark expenditure. The Tribunal observed that in the previous assessment year (2009-10), the CIT(A) found that the trademark expenses did not create any asset or result in an enduring advantage and were incurred to avoid future litigation, thus being revenue in nature. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue did not provide new evidence to challenge the CIT(A)'s findings.4. Deletion of Addition on Account of Sales Promotion Expenses under Section 40(a)(ia) of the IT Act:The Revenue challenged the deletion of Rs. 2,23,307/- disallowed under section 40(a)(ia) for non-deduction of TDS on sales promotion expenses. The Tribunal noted that in the previous assessment year (2009-10), the CIT(A) found that the items purchased for sales promotion were ready goods with the company's logo printed, not requiring TDS deduction. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue did not provide new evidence to challenge the CIT(A)'s findings.5. Deletion of Disallowance of Depreciation on Non-Compete Fees:The Revenue contested the deletion of Rs. 1,05,468/- disallowed as depreciation on non-compete fees. The Tribunal noted that the CIT(A) allowed the depreciation following the Pune Tribunal's decision in Serum Institute of India Ltd., which held that non-compete fees are intangible assets eligible for depreciation under section 32(1)(ii). The Tribunal upheld the CIT(A)'s decision, referencing the principle of consistency as the depreciation was allowed in previous years (2007-08, 2008-09, and 2009-10).6. Allowance of Depreciation on Goodwill Arising on Amalgamation:The Revenue appealed against the allowance of Rs. 7,19,01,743/- as depreciation on goodwill, which was not claimed in the original return but was made during assessment proceedings following the Supreme Court's judgment in CIT vs. Smifs Securities Ltd. The Tribunal noted that the CIT(A) allowed the claim based on the Supreme Court's ruling that goodwill is an asset eligible for depreciation under section 32. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's judgment in CIT vs. Pruthvi Brokers and Shareholders, which allows claims for deductions made during assessment proceedings without filing a revised return.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions and allowances on all contested grounds, finding no reason to interfere with the CIT(A)'s well-reasoned decisions.