TaxTMI 
TaxTMI 
2013 (9) TMI 647
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....nd hence, reopening is not justified. It be held so now and the order passed by the learned AO be quashed." 2.1 On account of following reasons, the assessment proceedings for A.Y. 2003-04 were reopened as under :- "Sub:- Reasons for reopening of assessment u/s. 147 Asst. Year 2003-04 - regarding - Please refer to your letter dated nil received in this office on 20.4.2010 requesting to furnish the reasons for reopening of the assessment. The reasons for re-opening of the assessment is mentioned hereunder:- It is noted that the assessee has claimed and allowed depreciation on goodwill. Depreciation on goodwill is not allowable as the same is not a depreciable asset. In these circumstances, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Income-Tax Act, 1961." 2.2 Thereafter, a notice u/s. 148 was issued on 10th of March, 2010, stated to be duly served upon the assessee. In compliance, the assessee vide a letter dated 22nd of March, 2010 had asked to give a copy of the reasons recorded for reopening of the assessment. Accordingly, the assessee was handed over the ....
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....into tax had escaped assessment, therefore, the AO had a convincing reason to believe that the said income escaped assessment hence lawfully reopened the assessment. The objection raised in this regard are hereby dismissed. In the result, ground is dismissed. 4. Ground No. 3 is reproduced below: "The Hon'ble CIT(A) has erred in confirming the withdrawal of the depreciation on goodwill amounting to Rs. 2,60,289/-. It is submitted that the goodwill is eligible for depreciation as per provisions of section 32 of the Act, 1961 and judgments held by various courts. It be considered now and the AO be directed to allow the depreciation as claimed." 5. It was noted by the AO that the assessee has claimed depreciation of Rs. 2,60,289/- @ 25% on the WDV of the goodwill. According to the AO, as per the provision of Section 32 goodwill is not an "asset" on which depreciation is admissible. The AO has also placed reliance on Bharat T. Vyas, 97 ITD 248 (Ahd), wherein it was held that "goodwill" is not a right of similar nature as defined u/s. 32(1)(ii) of the Act. Resultantly, the claim of depreciation was disallowed. When the matter was carried before the first appellate auth....
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....he other hand, from the side of the respondent assessee, learned AR, Mr. Sunil Toloti appeared and placed reliance on SMIFS Securities, 348 ITR 302 (SC), B. Raveendran Pillai Vs. CIT, 332 ITR 531 (2011) (Ker) and CIT Vs. Hindustan Coca Cola Beverages (P) Ltd. (Delhi), 331 ITR 192 (2011). 8. Facts of the case have revealed that the assessee had taken over the business of a partnership firm, namely, Sujag Fine Chemicals. The assessee company was formed on 19.2.1999. In support a certificate of incorporation is placed on record. The goodwill was acquired by the assessee in the Assessment Year 1999-2000 when the firm, as a going concern, was taken over by the company/ appellant along with all the assets. At the time of acquisition, the goodwill as an asset was purchased from the firm for a consideration of Rs. 24,67,926/-. Thereafter for A.Y. 1999-00, 2000-01 and 2001-02, the assessee company had claimed depreciation @ 25% as informed by learned AR, Mr. Sunil Talati. The WDV for the year under consideration is Rs. 10,47,157/- over which the depreciation @ 25% amounting to Rs. 2,60,289/- was claimed. On account of these facts, we hereby hold that the goodwill was acquired after 1st d....
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....e Hon'ble CIT(A) has erred in confirming the disallowance of interest of Rs. 2,12,507/-, being interest @ 12% on advances made to sister concern amounting to Rs. 17,70,891/-. Your appellant submits that there is no provision in the Act to charge notional interest and hence, the CIT(A) is not justified to confirm such addition. It be held so now and the addition made be deleted. Without prejudice to the above your appellant submits that the rate of interest charged @ 12% p.a. is very harsh and same be considered at bank rate of 9% received by your appellant on FD from Union Bank of India." 10.1 On scrutiny of balance sheet, it was noted that the assessee had advanced a sum of Rs. 17,70,891/- to its sister concern without charging any interest. On the other hand, the assessee had paid interest of Rs. 8,32,472/- on the secured and unsecured loans. The AO has calculated the interest @ 12% and added a sum of Rs. 2,12,507/- in the total income of the assessee by following the case of State Bank of Trovance, 158 ITR 102 (SC) and Western India Oil Distributing Co., 206 ITR 359 (Bom). When the matter was carried before the first appellate authority, the action of the AO was ....
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....d that there was a direct nexus of interest free funds, viz-a-viz, interest free advance. But the fact is that no such account is placed before us through which it could be proved that the interest free funds available with the assessee have been directly handed over to the sister concern. On the contrary, the allegation of the Revenue Department is that the assessee had failed to prove the direct nexus between the interest free funds available and that those very funds were advanced to the sister concern. The assessee has only proved that the interest free funds were available but whether those were actually advanced is not emerging from the facts of the case. In our considered opinion, if the assessee is relying upon the theory of direct nexus then the onus is on the assessee to establish the same. Merely by stating that the funds are available, no practical purpose is served unless and until through bank statements it is established that the interest free funds have actually been disbursed to the sister concern. In certain precedents, even the Courts have held that if the assessee has sufficient interest free bank balance, other than interest bearing funds, then he has to prove ....