2014 (4) TMI 527 - AT - Income Tax

Tribunal dismisses Revenue's appeals for assessment years 2005-08, partially allows assessee's appeals. AO directed to re-adjudicate.

The Tribunal dismissed the Revenue's appeals for the assessment years 2005-06, 2006-07, and 2007-08, and partially allowed the assessee's appeals and ... Applicability of Explanation 3 to section 43(1) of the Act – Claim of depreciation @ 25% - Actual cost of the copy rights and trademarks - Whether the CIT(A) erred in holding that Explanation 3 to Section 43(1) is not applicable with regard to claim of depreciation on the assets covered in the deed of assignment between the assessee and Bennett, Coleman & Co. Ltd. – Held that:- The goodwill can be in the form of copy rights, patent, trade mark, marketing rights, particular customers, franchisee, brand value, etc. - the assessee has only taken the part of the goodwill in the form of trade mark and copy right, however, that alone cannot be said to be a part of goodwill, especially when the assessee has acquired such a high end brand products in the form of one of the most popular magazine and right to organize mega events under such brand name - part of the acquisition cost can also be said to be for goodwill of the brand product - the manner in which the AO has adopted the value of the goodwill is absolutely incorrect and without any method, which is generally adopted for evaluating the goodwill - once there is no dispute that the total consideration for tangible and intangible assets is for '91 crores, which has also been accepted by the AO - then it is presumed that such consideration also includes goodwill on account of brand or product besides trade mark and copy rights. The decision in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] followed - the depreciation is to be allowed on such intangible assets which constitute goodwill - Once the depreciation allowable on goodwill at the same rate on which the assessee has claimed depreciation on trade mark and copy right, then it is immaterial to disallow the entire claim of depreciation made by the assessee on intangible assets - the depreciation is to be allowed on goodwill also as any other intangible asset - Thus, it will not make any difference to segregate the various intangible assets for the purpose or making any disallowance on account of depreciation – Decided against Revenue. Deletion on account of provision towards unsold magazines and discount on advertisement income –Computation u/s 115JB of the Act - Held that:- The AO has considered the provision of the month of March 2005 as eligible for deduction, then there is no reason for not allowing the remaining portion which pertains to the prior period to March 2005 - Once such scientific basis has been adopted for making the provisions in the earlier years, as well as in the subsequent years, there is no reason to uphold the reasoning given by the AO – thus, the order of the CIT(A) upheld – Decided against Revenue. Disallowance u/s 36(1)(va) of the Act - Deduction of EPF contribution – Held that:- The decision in CIT v/s Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] followed - if the employees' P.F. contribution is paid within the due date of filing of the return of income, the same is an allowable expenditure – Decided in favour of Assessee. Disallowance u/s 14A of the Act – Held that:- The decision in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - rule 8D is not applicable prior to the assessment year 2008-09 – thus, the order of the CIT(A) set aside and the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Issues Involved:1. Applicability of Explanation 3 to Section 43(1) regarding depreciation claims on assets.2. Deletion of addition related to provisions for unsold magazines and discount on advertisement income.3. Disallowance of deduction of employees' contribution to provident fund under Section 36(1)(va).4. Disallowance under Section 14A for exempt income.5. Levy of interest under Sections 234B and 234C.Issue-wise Detailed Analysis:1. Applicability of Explanation 3 to Section 43(1) Regarding Depreciation Claims on Assets:The primary issue is whether Explanation 3 to Section 43(1) applies to the depreciation claims on assets acquired by the assessee from Bennett, Coleman & Co. Ltd. (BCCL). The assessee, Worldwide Media Pvt. Ltd., acquired the business of magazines and events division of BCCL. The Assessing Officer (AO) questioned the valuation of intangible assets (trademarks and copyrights) and invoked Explanation 3 to Section 43(1), suggesting that the valuation was inflated to claim higher depreciation. The AO apportioned part of the consideration to goodwill and disallowed depreciation on it. However, the Commissioner (Appeals) and the Tribunal found that the transaction was between unrelated parties and the valuation was accepted by both parties and the stamp authorities. The Tribunal upheld the Commissioner (Appeals)'s decision, stating that the AO's estimation of goodwill was without basis and that depreciation should be allowed on the actual cost of copyrights and trademarks as per the valuation report.2. Deletion of Addition Related to Provisions for Unsold Magazines and Discount on Advertisement Income:The AO added back a provision of Rs. 7.02 lakhs made for unsold magazines and discounts on advertisement income, considering it an uncertain liability. The assessee argued that the provision was made based on a scientific method and past experience, and it had been consistently followed in previous years. The Commissioner (Appeals) accepted the assessee's contention, noting that the provision was an ascertained liability eligible for deduction. The Tribunal affirmed this decision, stating that the AO's disallowance lacked appreciation of the nature of the provision and that the provision was made on a scientific basis.3. Disallowance of Deduction of Employees' Contribution to Provident Fund Under Section 36(1)(va):The AO disallowed the deduction of employees' contribution to the provident fund amounting to Rs. 5,06,500 on the ground that the payment was made after the due date. However, the Tribunal noted that the payment was made within the due date of filing the return of income and cited the Supreme Court's decision in CIT v/s Alom Extrusions Ltd., which allows such deductions if paid within the due date of filing the return. Consequently, the Tribunal allowed the assessee's claim.4. Disallowance Under Section 14A for Exempt Income:The AO made a disallowance under Section 14A r/w Rule 8D for expenses attributable to earning exempt income (dividend). The Commissioner (Appeals) upheld this disallowance following the Mumbai Special Bench decision in Daga Capital Management Pvt. Ltd. However, the Tribunal noted that the Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT held that Rule 8D is not applicable prior to the assessment year 2008-09. Therefore, the Tribunal set aside the impugned order and directed the AO to re-adjudicate the issue based on reasonable basis after examining the accounts and providing the assessee an opportunity to explain its case.5. Levy of Interest Under Sections 234B and 234C:The issue of levy of interest under Sections 234B and 234C was admitted by both parties to be consequential in nature. The Tribunal directed the AO to give consequential effect in accordance with the law after considering the directions given in the judgment.Conclusion:The Tribunal dismissed the Revenue's appeals for the assessment years 2005-06, 2006-07, and 2007-08, and allowed the assessee's appeals and cross objections partially, directing the AO to re-adjudicate certain issues and give consequential effects as per the Tribunal's directions. The Tribunal's decisions were based on detailed examination of the facts, applicable laws, and judicial precedents.