TaxTMI 
TaxTMI 
2013 (8) TMI 589
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....e asset and purchase cost of goodwill is subject to provisions of depreciation u/s. 32 of the I.T. Act. 3.0 That the disallowance of Rs. 48,22,346/- u/s. 40A(2)(b) of the I.T. Act is bad in law. 3.1 That the Assessing Officer has grossly erred in invoking the provisions of section 40A(2)(b) of the I.T. Act and the Ld. Commissioner of Income Tax (A) has grossly erred in upholding the action of the Assessing Officer . 3.2 That without prejudice the Assessing Officer /Ld. Commissioner of Income Tax (A) ought to have identified as to what extent the professional charges paid are excessive or unreasonable within the meaning and context of section 40A(2)(b) of the I.T. Act. 4.0 That each ground of appeal is independent of and without prejudice to other grounds of appeal raised herein. The appellant-assessee prays that the relief as per grounds of appeal above may kindly be allowed to him and the appellant craves leave to add, amend, alter, chance, substitute, vary or raise any additional ground(s) of appeal if it becomes necessary to do so in the interest of justice either at the or before the date of hearing. 3. Apropos disallowance of Rs. 2,29,300/- on account of fee paid to the ....
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....ion of goodwill. The Assessing Officer noted that in financial year 2004-05, there was general business transfer agreement between Minda Industries Ltd. and the assessee for a consideration of Rs. 2,75,00,000/-. As per the agreement there was a transfer of assets however, goodwill as a separate intangible asset was not covered by the agreement. Before the Assessing Officer, the company did not produce any documents; it stated that there was a transfer of goodwill. The Assessing Officer observed that there are about 10 sister concerns which have Minda prefixed to their names, however, no such payment was made by any of the sister concern to Minda Industries Ltd. In light of this fact, the Assessing Officer was of the view that the payment on account of goodwill was made without any service being rendered. As regards the nature of asset, the Assessing Officer has made elaborate discussion of the nature of goodwill as in intangible asset. The Assessing Officer noted that goodwill remains insubstantial in form and nebulous in character. Distinguishing it from other intangible assets mentioned in section 2(11) comprising knowhow, patents, copyrights, trademarks, licenses, franchises or....
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.... of Kotak Forex Borkerage Ltd. vs. ACIT in I.T.A. No. 2692/Mum/2007 decided on August, 2009, wherein it was held that the goodwill is a business or commercial right of a similar nature referred to in clause (ii) of Section 32(1) of the Act and consequently depreciation is allowable on the same. However, the Ld. Commissioner of Income Tax (A) was not in agreement with the assessee's submission. He referred to the decision of the Mumbai High Court in the case of C.I.T. vs. Techno Share and Stocks Ltd. [2009] 184 Taxman 103 (Bom.). He further referred to the decision of ITAT, Ahmedabad in the case of Bharatbhai J. Vyas vs. Income Tax Officer [2005] 097 ITD 0248. Ld. Commissioner of Income Tax (A) referred to the decision of ITAT Mumbai in the case of R.G. Keswani vs. ACIT [2009] 116 ITD 133 and in the case of ACIT vs. Jagdish C. Sheth [2006] 101 ITD 0360. He observed that in both these judgements, ITAT held that strict construction has to be applied to the provisions of section 32(1)(ii) and goodwill does not come under the expression of any other business or commercial rights in the nature similar to knowhow, patents, copyright, etc. and, therefore, deprecation on the ground of goodw....
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...., which is categorized in the books of the buyer as goodwill and is paid for the business claim, business information, business records, contracts and skilled employee etc., the same falls in the category of "any other business or commercial rights of similar nature: as contained in section 32(1)(ii) of the I.T. Act; and is therefore, eligible for depreciation. 10.2 Ld. Counsel further submitted that Assessing Officer's reasoning on disallowance of depreciation that the goodwill is a separate asset and the same is not mentioned in the business transfer agreement is based on erroneous interpretation of terms of the business transfer agreement. He claimed that the facts of the judgement of the Delhi High Court as given above are identical to the facts of the assessee's case. Ld. Counsel further submitted that the Assessing Officer has relied upon the judgement of the Mumbai High Court in the case of C.I.T. Vs. Techno Shares and Stocks Ltd. He submitted that the said judgement of the High Court of Mumbai has been reversed by the Hon'ble Supreme Court as reported in 327 ITR 323. Therefore, the Ld. Counsel of the assessee submitted that the claim of depreciation made by the assessee we....
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....ess records, (iv) contracts, (v) skilled employees, (vi) know-how. The assessee-company while filing its return claimed depreciation under section 32(1)(ii) with respect to the aforesaid amount of Rs.16,58,76,000/- as being a price paid for acquisition of above mentioned intangible assets. The Assessing officer disallowed the depreciation on 'goodwill' as claimed in the return. The Assessing Officer disallowed the claim of the assessee- company on grounds, namely, (a) depreciation under section 32(2)(ii) is not available on goodwill; (b) the assessee was unable to demonstrate that the amount shown as goodwill in the books of account was in fact a payment made towards acquisition of 'certain business and commercial rights' and therefore eligible for depreciation in tax as per section 32(1)(ii)." The Hon'ble Delhi High Court has further held as under: - "Applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression 'business or commercial rights of similar nature' specified in section 32(1)....
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....ingly eligible for depreciation under that section. [Para 14}. 10.5 In light of the above case laws, we are in agreement with the submissions of the ld. Counsel of the assessee that the goodwill that has been recognized in this case represents various assets in the nature of goodwill. We find considerable cogency in the submissions of the Ld. Counsel of the assessee as mentioned above. Thus, we hold that the assessee's case is covered by the decision in the Hon'ble Delhi High Court as above. The case laws relied upon by the Ld. Departmental Representative are not applicable as they are Tribunal's decisions and Hon'ble Jurisdictional High Court takes a precedence over the same. 11. Apropos disallowance of Rs. 48,22,346/- 48,22,346/- u/s. 40A(2)(b) In this issue Assessing Officer noted that assessee company has paid the sister concern M/s Minda Industries Ltd. [covered u/s. 40A(2)(b)] professional charges of Rs. 48,22,346/-. The company was asked to justify the payments. Assessing Officer noted that only explanation or reply filed by the assessee company dated 20.8.2008 reads as under:- "The payment was made towards the management services such as corp. planning and fin. Departme....
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....any facts with regard to the total of such expenses incurred by M/s Minda Industries Ltd. the amount incurred for each of the services, the ratio in which it has been apportioned between all the sister concerns, the comparable markets, rates, the savings to the assessee by obtaining the services from the sister concern as against obtaining them from the market. Etc. Ld. Commissioner of Income Tax (A) further observed that by simply debiting 2% of sales as cost for services purported to have been rendered by the sister concern, it cannot be said that the assessee has discharged the responsibility to establish the genuineness and veracity of the expenses. He held that the payment was neither excessive nor unreasonable has not been established by the assessee. As the assessee has not produced any details either at the assessment stage or at the appellate stage, he found no reason to interfere with the findings of the Assessing Officer. 13. Against the above order the Assessee is in appeal before us. 14. We have heard the rival contentions and perused the records. Ld. Counsel of the assessee submitted that expense has been properly incurred. Ld. Counsel of the assessee placed relianc....