2016 (1) TMI 804 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions for Revenue's Appeal on Assessment Year 2009-10

The Deputy Commissioner of Income Tax Versus M/s Millennium Beer Industries Ltd. (Since Amalgamated With United Breweries Ltd.)

The Tribunal dismissed the revenue's appeal for the assessment year 2009-10, upholding the CIT(A)'s decisions on all contested grounds, including the ... Depreciation on goodwill - Held that:- In the assessee's own case for AY: 2002-03, 2006-07 and 2007-08 we uphold the finding of the learned CIT(A) in directing the AO to allow the assessee's claim of depreciation on goodwill. - Decided in favour of assessee. Disallowance u/s 40A(3) r.w. Rule 6DD - CIT(A) deleted the addition - Held that:- Before the learned CIT(A), the assessee inter-alia submitted that these payments were made as freight to truck drivers for duties of delivery of raw materials to the brewery at odd hours i.e. late night or early morning and as they would not accept payments through cheque. After considering the explanation put forth by the assessee we agree with the view of the learned CIT(A) that considering the nature of the assessee's business the explanation put forth by the assessee that freight charges are paid in cash to the truck drivers for expenses on road like diesel, food, minor repair and the balance to truck operators for freight sometimes for more than one truck, which sometimes is in excess of ₹ 20,000/- cannot be held to be unreasonable. We observe that revenue, except for raising the ground, has failed to bring on record any material evidence to controvert the findings of the learned CIT(A) on this issue and in this view of the matter, we uphold the finding of the learned CIT(A) on this issue. - Decided in favour of assessee. Disallowance u/s 40A(2) - CIT(A) deleted the addition - Held that:- Following the decision of the ITAT Chennai Bench in the case of M/s Empee Breweries Ltd. (2013 (2) TMI 716 - ITAT CHENNAI) wherein on similar facts payment by the assesseee in that case to UBL, for provisions of technical and management advice and consultancy by which it had received services and intangible benefits by association with UBL, was held to be allowable, thus we uphold the decision of the learned CIT(A) in deleting the disallowance made by the AO.- Decided in favour of assessee. Issues Involved:1. Condonation of delay in filing the appeal.2. Depreciation on goodwill.3. Disallowance under Section 40A(3) read with Rule 6DD.4. Disallowance under Section 40A(2) concerning payment to the holding company.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The revenue filed an application to condone a 44-day delay in filing the appeal, attributing the delay to the transfer of the case from New Delhi to Bangalore. The respondent had no objection to the condonation. The Tribunal, after considering the reasons and circumstances, deemed it a fit case for condonation and admitted the appeal for hearing.2. Depreciation on Goodwill:The revenue challenged the CIT(A)'s decision to delete the disallowance of depreciation on goodwill, arguing it is not admissible under Section 32(1) as goodwill is not defined as an intangible asset. The respondent countered by citing ITAT Delhi Bench decisions in the assessee's favor for previous assessment years. The Tribunal upheld the CIT(A)'s decision, referencing the consistent judicial pronouncements that recognized goodwill as an asset eligible for depreciation under Explanation 3(b) to Section 32(1). Consequently, this ground of the revenue's appeal was dismissed.3. Disallowance under Section 40A(3) read with Rule 6DD:The revenue contended that the CIT(A) erred in allowing cash payments exceeding Rs. 20,000, contrary to Section 40A(3) read with Rule 6DD. The respondent justified the cash payments as freight charges to truck drivers delivering raw materials at odd hours, which was not feasible through cheques. The Tribunal agreed with the CIT(A) that the nature of the business necessitated such payments and found no material evidence from the revenue to counter this explanation. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing this ground of the revenue's appeal.4. Disallowance under Section 40A(2) concerning Payment to the Holding Company:The revenue disputed the CIT(A)'s deletion of the disallowance of Rs. 10 Crores paid to the holding company, arguing it was excessive and unreasonable per the sanctioned scheme by BIFR. The respondent defended the payment as justified by the technical and management services received, which benefited the business. The Tribunal found that the payment was acknowledged by the holding company, which paid taxes on it, making the transaction tax-neutral. It noted that the AO failed to provide comparables or benchmarks to prove the payment's excessiveness. The Tribunal also referenced a similar case (M/s Empee Breweries Ltd.) where such payments were deemed allowable. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's grounds on this issue.Conclusion:The Tribunal dismissed the revenue's appeal for the assessment year 2009-10, upholding the CIT(A)'s decisions on all contested grounds. The order was pronounced in the open court on 4.11.2015.