TaxTMI 
TaxTMI 
2019 (4) TMI 2072
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....0.03.2017 for the assessment year (AY) 2012-13. 2. The Revenue raised the following grounds of appeal: "1. The order of the CIT(Appeals) is opposed to law on the facts and in the circumstances of the case. 2.1 The CIT(A) has erred in allowing the depreciation on Goodwill of Rs. 2,87,25,000/- even though the assessee company had only received the Goodwill as a result of succession of firm by it as per the provisions of section 47(xiii) of the I.T. Act. 2.2 The CIT(A) ought to have seen that there was no goodwill in the nature of commercial rights purchased by the assessee and this was only a book entry and another way of disclosing the intrinsic value of the fixed asset of the company, and since the assessee has not proved the purchase of goodwill, it is not entitled depreciation on goodwill. 2.3 The CIT(A) ought to have followed the decision of ITAT Mumbai Bench in the case of DCIT vs. Toyo Engineering India ltd. (2013)(33 taxman.com 560 (Mumbai -Trib.) and hence ought to have sustained the disallowance of depreciation on goodwill made by the A.O. 3.1 The CIT(A) has erred in deleting the addition of Rs. 52,85,248/- made on interest at....
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....ls within the ambit and scope of provisions of s. 47(xiii) of the Act as: 1. There is a transfer of entire assets and liabilities, including intangible assets from one entity to another as per the books of accounts of the seller as a going concern; 2. The net consideration for acquisition of the entire business undertaking by the buyer company is to be settled through allotment of equity shares in the same proportion in which such partners' capital account stood in the books of our firm on business transfer date and by no other means; 3. The partners of the seller to whom shares are allotted in the above manner shall ensure that the aggregate of their shareholding in the purchaser company shall not be less than fifty percentage of the ,total voting power in the purchaser company for a continuous period of five years from the business transfer date viz. 7th January, 2012. 3.3 The Assessing Officer was of the opinion that the goodwill created in the books of the firm seller does not involve any cost and therefore, the actual cost in the hands of the seller firm is nil and therefore, even in the hands of the successor company the actual cost continuous to....
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....com 560 (Mumbai-Trib.). As regards to, the claim for allowance of interest expenditure of Rs. 52,85,248/-, it is submitted that the same represents only book entries does not involve any actual flow of funds but based on the fictitious entries. 3.8 On the other hand, the ld. Counsel submitted that the goodwill knowhow acquired from the firm are intangible assets eligible for depreciation. The deeming provisions of s. 47 & 49 of the Act governing the cost of acquisition for the purpose of computation of capital gains are not applicable for the purpose of determining the actual cost of an asset for allowability of depreciation u/s. 32 of the Act. It is further submitted that the goodwill was purchased by the respondent-assessee company from the erstwhile firm and therefore, the depreciation on goodwill, knowhow is allowable placing reliance on the following decisions: CIT v. Smifs Securities 348 ITR 302 (SC) Hindustan Coca cola Beverages 331 ITR 192 (Del) B.Raveendran Pillai v. CIT 332 ITR 531(Ker.) Areva T&D 345 ITR 421 (Del.) Triune Energy Services P. Ltd. v. DCIT 237 Taxman 230 (Del.) Chow....
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....ets, eligible for depreciation and also claimed deduction of interest paid on the credit balances of the partners of the firm. 4.1 The Assessing Officer denied both the depreciation on the goodwill and knowhow as well as interest expenditure claimed on the partner's credit balances standing in the books of accounts of the company as liabilities. The reasons given by the Assessing Officer while denying the depreciation claim on the goodwill is that there is no cost in the hands of previous owner and therefore, placing reliance on the provisions of s. 49(1) of the Act held that even in the hands of the successor company i.e., respondent-assessee before us no cost was involved and therefore, denied the depreciation. As regards to the disallowance of claim for allowance of interest expenditure on the partners credit balances standing as liabilities in the books of the firm, the Assessing Officer is of the opinion that mere book entries do not create enforceable liability and disallowed the claim. 4.2 On appeal before the ld. CIT(A), he allowed both the claims accepting the contention of the appellant that goodwill is acquired by the assessee by paying consideration to the firm, t....
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....nder certain circumstances the cost of acquisition or the WDV in the hands of the transferor companies shall be the same as the WDV in the hands of the transferor companies. These explanations were inserted by the legislature with the intention of curbing the practice of inflating the cost of asset in order to claim higher depreciation. In the present case, admittedly there was no cost involved on the acquisition of goodwill, know-how in the hands of the firm. The goodwill, know-how was merely created by book entry by debiting the goodwill, know-how and crediting partners' accounts. This partners' account was not treated as a part of capital accounts of the partners' of the firm. Therefore, the question that arises is whether or not the act of creating goodwill, know-how is a colourable device adopted with the intention of inflating the cost in order to claim higher depreciation. It is important to note here that the seller firm as well as the successor company is owned and controlled by very same persons. No doubt, the respondent-assessee filed a report of valuation on goodwill, knowhow done by M/s. G.Sekar Associates, Charted Accountant Chennai, the said report does not contain r....
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....8......" (p. 404) The position was elaborated later in the same judgment as follows: "...The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirem....
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.... laid down by Lord Sterndale in the case of Alexander Von Glehn & Co. Ltd. ( supra) that it was not enough that the disbursement was made in the course of trade. It must be for the purpose of the trade. The purpose must be a lawful purpose. Moreover, it will be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute. In the instant case, if the deductions claimed are allowed, the penal provisions of FERA will become meaningless. It has also to be borne in mind that evasion of law cannot be a trade pursuit. The expenditure in this case cannot, in any way, be allowed as wholly and exclusively laid out for the purpose of assessee's business." 5.7 In the backdrop of the above legal position and facts, the action of the Assessing Officer in determining the actual cost at Nil in the hands of the successor company i.e., respondent-assessee cannot be found fault with. Merely because, the firm had recorded the value of goodwill, knowhow at certain price the same would not conclusively establish the correctness of the claim, if the Asse....
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....devise of incorporation was really a ploy adopted for committing illegalities and/or to defraud people." In the instant case M/s M Kantiulal & Co Ltd, the word "Pvt. Ltd" is not mentioned in incorporation certificate. The fact remains that all shareholders and directors belong to a single family and these family members have earned huge unaccounted income of Rs. 259 crores as assessed in the hands of company after taking into account the evidences gathered as a result of search & seizure operation. Evidence gathered during the search & seizure operation further fortifies the idea that this company has been used as a conduit for generating unaccounted wealth. Further, the assessee company has not offered to general public any share for subscription. All the shares are held by directors only." 5.8 In the light of above, the Assessing Officer had rightly exercised his duty by determining the actual cost of the goodwill, know-how at nil. 5.9 The ld. CIT(A) had not examined the issue in proper perspective, failed to examine the relevant provisions of the Act finally passed superficial order allowing claim of the respondent-assessee. Therefore, we reverse the order of ld. ....
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....irm and the company are two distinct legal entities but in substance one entity only. The provisions of s. 53 of the Partnership Act, 1932 expressly prohibits distribution of assets of firm to the partners. The Co-ordinate Bench of the Tribunal, Chennai in the case of Kali BMH Systems Pvt. Ltd. also held that "no partner can, during the subsistence of a firm, claim credit in respect of increased valuation (of any of the firm's assets) to any extent, as no partner can predicate his share in any of the assets of the firm" and "the withdrawal of 'capital attributable to a fixed asset, intended to be retained as part of the capital structure of the firm, amounts to its monetization by the partners for their personal purposes, and is clearly impermissible, both from the stand-point of credit to the partner's capital account (on revaluation) and its withdrawal, considered from any perspective - legal, accountancy, and also tax". Having regard to the above position of law in the absence of enforceable liability, the question of payment interest thereon does not arise. Further, the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) held that ....
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.... s. 47(xiii) of the Act. 6.4 Thus, viewed from any angle the interest paid on the credit balance of the partners of the seller firm is not allowable as a business deduction. The ld. CIT(A) had not examined the issue in proper perspective. Hence, we reverse the findings of ld. CIT(A) and restore the order of assessment. 6.5 In the result, ground of appeal No.3 filed by the Revenue is allowed. 7. In the result, appeal filed by the Revenue in ITA No.1621/Chny/2017 for AY 2012-13 is allowed. RMKV Silks Pvt. Ltd. bearing ITA Nos.1593/Chny/2017 & 1622/Chny/2017 for assessment years 2013-14 (Cross Appeals): 8. These cross appeals filed by the assessee-company as well as Revenue directed against the order of the learned Commissioner of Income Tax (Appeals)-3, Madurai (hereinafter called as 'CIT(A)') dated 10.03.2017 for the assessment year (AY) 2013-14. 8.1 Since, the identical facts and issues are involved in these appeals, we proceed to dispose the same vide this common order. 8.2 The brief facts of the case are as under: The assessee namely RMKV Silks Pvt. Ltd. is a private limited company incorporated under the provisions of Companies Act, 1956. The return of in....
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....eciated that there was no change in the method of valuation of closing stock viz cost or realizable value whichever is Less, in fact the method of arriving at realizable value was fine tuned to reflect the approximate realizable value of the product, based on the management's perception and experience. 2.4 The CIT(A) ought to have appreciated that the Assessee is valuing the closing stock on the basis of net realizable value for clothes having in mind the period for which the clothes have not been sold. The valuation of the stock by the assessee based on the experience cannot be rejected without any valid reason. 2.5 The CIT(A) ought to have appreciated that when the management realized that a substantial part of the old stock was lying as on 31st March, after a careful study of the realization of the old stocks, calibrated the closing stock valuation to peg the same at realizable value whenever it is estimated to fetch a price lower than the cost. 2.6 The CIT(A) ought to have appreciated that by coincidence the estimate of such realizable value of these stocks amounted to 50% and 25% of the original cost in the second year and third year respectively of ....
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....llowed [CIT Vs Vegetable Products - 88 ITR 192 (SC)] 3. Appellant craves leave to adduce additional evidence at the time of hearing." 9. Grounds of appeal No.1 & 3 are general in nature therefore, do not require any adjudication. Ground of appeal No.2 challenges the addition of ld. CIT(A) directing the Assessing Officer to delete the addition on account of under valuation of closing stock. 9.1 During the course of assessment proceedings, the Assessing Officer disputed the value of the closing stock adopted by the assesseecompany. The Assessing Officer observed that the assessee-company valued the closing stock adopting the following methodology: Ageing pattern of the stock Method of Valuation Items purchased and not sold within a year Valued at cost Items purchased and lying in stock between 1 and 2 years 75% of the cost Items purchased and lying in stock between 2 and 3 years 50% of the cost Items purchased and lying in stock for more than 3 years Notional value of Rs.100/- per unit. 9.2 The Assessing Officer is of the opinion that valuing the stock by adopting arbitrary percentage of the cost is against the method of valuation adopt....
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....CIT-DR placed reliance on the orders of lower authorities. 9.6 We heard the rival submission and perused the material on record. The issue in the present grounds of appeal revolves around in the valuation of closing stock. It is salutary principle of law that the closing stock should be valued at the cost of market price, whichever is less. It is the stated policy of the assessee in the present case that stock is valued in accordance with this principle. But the crux of the issue lies on the value to be adopted as a market price or realizable value. The assessee-company had adopted @75%, 50% and Rs. 100/- per piece as the case may be as a market price or realizable value of the sarees lying in the closing stock. There is no dispute as to the quantity involved in the closing stock. The dispute is only with regard to the value of closing stock. It is not demonstrated before the lower authorities or before us as to how the 75%, 50% and Rs. 100/- per piece is the realizable value of the sarees. There is nothing on record to prove that the stock has become obsolete and there is no demand for the stock or there are no buyers for the stock. It is for the assessee to establish that ther....
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....er years and Assessing Officer had failed to notice the defect in the valuation cannot be a bar to adopt the correct method of valuation in the current year. The ratio of decision of Hon'ble High Court of Delhi in the case of Dewan Steels Ltd. (supra) cannot be applied to the facts of the present case, inasmuch as, the arbitrary valuation cannot be accepted as one of the methods of valuation stock. Similarly, the ratio of the decision of Hon'ble High Court of Rajasthan in the case of Wolkem India Ltd. (supra) is not applicable as the question of factum of obsolescence is not established in the present case. As regards to the issue of following the decision of Co-ordinate Benches on the similar issue, we feel that it has no relevance since, our decision is premised on the well accepted principles of law and facts peculiar to the case followed the ration on decision of Hon'ble High Court of Madras and Allahabad High Court. Thus, we do not find any merit in the ground of appeal filed by the assessee. Accordingly, we dismiss the ground of appeal No.2 filed by the assessee. 9.9 In the result, appeal filed by the assessee in ITA No. 1593/Chny/2017 is dismissed. 10. Now we shall tak....
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....tific method adopted by the assessee to estimate the future visits and the purchase behavior of customers so as to justify creating of provision for such liability. 4.3 The CIT(A) failed to consider the decision of Hon'ble Delhi High Court in the case of Seagram Distilleris (P) Ltd Vs CIT-Ill, New Delhi (2015)(62 taxman.com 100 (Delhi) wherein it was held that the provision made for a contingent liability ought not to be allowed and the SLP filed by the assessee against the High Court's ruling was dismissed by the Hon'ble S.C (2016) 72taxmann.com334(SC) and also failed to consider the decision of Hon'ble S.C in the cases of Shree Sajjan Mills Ltd Vs CIT(sc) 156 ITR 585 and Indian Molasses Co. (P) Ltd Vs CIT (Sc) 37 ITR 66 wherein it was held that expenditure which is deductible for income-tax purposes is towards a liability actually existing at the time but setting apart money which might become expenditure on the happening of an event is not expenditure. 5.1 The CIT(A) failed to consider the fact that the assessee incurred the expenditure of Rs.6,49,09,981/- towards 'Gen. Store Changes, Additional Gondolas Fitting, Room alteration, Inside Mall new Frontage and Si....
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.... and is only a device adopted with an intention of avoiding payment of taxes. Accordingly, the interest paid on the balances standing credit of partners of erstwhile firm cannot be allowed as a deduction, while computing the income from profits of business. Accordingly, ground of appeal No.3 filed by the Revenue is allowed. 10.5 Ground of appeal No.4 challenges the decision of ld. CIT(A) allowing the provision for bonus card liability of Rs. 5,04,54,574/-. The assessee-company made a claim for deduction of provision for liability of unredeemed bonus points of Rs. 5,04,54,574/-. The facts of claim as stated by the assessee-company before the Assessing Officer are as under: "4.2 Any customer making a purchase, if he chooses to become a bonus card member and signs the membership form, is entitled for two points (Rs.1/-) for every Rs. 100 /- of his immediate previous purchases. The accumulated bonus points, earned on earlier purchases, are adjusted towards the future purchases on the date he chooses to redeem. The liability arises immediately after the customer becomes a member after a purchase. The customer is entitled to redeem the accumulated points at any time on his fu....
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....card in possession or the registered mobile number etc. at the time of making the second or subsequent purchase." 10.6 The Assessing Officer taking note of condition attached to the scheme that the assessee-company can withdraw the benefits conferred under the scheme exercising the absolute discretion vested with the company, held that the provision made for bonus points is only contingent nature hence, disallowed the claim. 10.7 Being aggrieved by the above addition, the assessee-company preferred an appeal before ld. CIT(A), who vide impugned order allowed the appeal following the decision of ITAT, Chennai in ITA No.1097 & 1098/Mds/2016 dated 08.02.2017. Being aggrieved by the above decision, the Revenue is in appeal before us in the present appeal. 10.8 The ld. CIT-DR submitted that the provision for bonus card liability cannot be allowed as a deduction as the ratio of decision of Hon'ble Supreme Court in the case of Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62 (SC) is not applicable to the facts of the present case. On the other hand, the ld. Counsel for the assessee Mr. Vijayaraghavan submitted that the provisions for bonus card liability is not a continge....
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....ese requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." 11.1 Applying this principle, the Hon'ble Supreme Court in the case of Rotork Controls India P. Ltd. (supra) held as follows: "11. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. 12. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g., product warranties or s....
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....ical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act as well as by the Accounting Standards which require accrual concept to be followed. In the present case, the Department is insisting on the first option which, as stated above, is erroneous as it rules out the accrual concept. The second option is also inappropriate since it does not reflect the expected warranty costs in respect of revenue already recognized (accrued). In other words, it is not based on matching concept. Under the matching concept, if revenue is recognized the cost incurred to earn that revenue including warranty costs has to be fully provided for. When Valve Actuators are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the circumstances, the third option is most appropriate because it fulfils accrual concept as well as the matching concept. For determining an appropriate historica....
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....o have interfered with the decision of the Tribunal in this case." 11.2 Applying these principles, the Hon'ble Supreme Court held that the provision for warranty expenditure is allowable as deduction provided a) an enterprise has a present obligation as a result of past event; b) it is probable that an outflow of resources will be required to settle the obligation; and c) a reliable estimate can be made of the amount of the obligation. 11.3 Applying the above parameters to the facts of the present case, when the customer earns bonus points, it is not the obligating event that creates an obligation, which results in outflow of the resources. The transactions of purchase and the consumer loyalty programme in terms of which the bonus points are earned by the customer are independent and distinct transactions. The object of introducing customer loyalty programme is only to increase customer base and attracting the customers again. The expenditure on bonus points is not necessary for the purpose of making sales, the revenue in respect of which was recognized. There is no co-relation between the sales and the expenses on redemption of the bonus points. The expenditure is required t....
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....f the period should be matched with the costs (expenses) of that period. In other words, income made by the business during a period can be measured only with the revenue earned during a period is compared with the expenditure incurred for earning that revenue. However, in cases of mergers and acquisitions, companies sometimes undertake to defer revenue expenditure over future years which brings in the concept of Deferred Tax Accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. As stated above, the object of AS 22 is to reconcile the matching principle with the Fair Valuation Principles. It may be noted that recognition, measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by provisions of the Companies Act." 11.4 It is only on the subsequent purchases, there is an obligation on the part of the assessee-company to redeem the ....
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....ure. 11.6 On appeal before ld. CIT(A), it came to be allowed as a revenue expenditure noting that the similar expenditure was allowed by ITAT as a revenue expenditure. 11.7 Being aggrieved, the Revenue is in appeal before us in the present appeal. 11.8 The ld. CIT-DR submitted that the ld. CIT(A) had granted relief in flagrant ignorance of provisions of Explanation 1 to s. 32 of the Act, which provides that when the assessee incurred any capital expenditure for the purpose of business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. On the other hand, the ld. Counsel for the assessee submits that the Explanation 1 to s. 32 of the Act is not applicable to an expenditure, which is in the nature of revenue expenditure and submits that renovation to the leased premises is a revenue expenditure and in support of this proposition relied on the following decisions: 1.Thiru Arooran Sugars Ltd. v. CIT 350 ITR 324 (Mad.) 2. Roger Enterp. v. Rises Pvt....
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....iod of occupation and therefore, the expenditure incurred cannot be treated as revenue expenditure. The Hon'ble Supreme Court in the case of Ballimal naval Kishore v. CIT 224 ITR 414 (SC) held that the expenditure incurred on renovation, refurbishing to the building result in enduring benefit by holding as under: "3. The expression used in section 10(2)(v) is 'current repairs' and not mere 'repairs'. The same expression occurs in section 30(a) (ii)and in section 31(i) of the Income-tax Act, 1961. The question is what is the meaning of the expression in the context of section 10(2) of the 1922 Act. In New Shorrock Spg. & Mfg. Co. Ltd., Chagla, C J., speaking for the Division Bench, observed that the expression 'current repairs' means expenditure on buildings, machinery, plant or furniture which is not for the purpose of renewal or restoration but which is only for the purpose of preserving or maintaining an already existing asset and which does not bring a new asset into existence or does not give to the assessee a new or different advantage. The learned Chief Justice observed that they are such repairs as are attended to as and when need arises and ....
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....s of this case, it will be evident that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. By no stretch of imagination, can it be said that the said repairs qualify as 'current repairs' within the meaning of section 10(2)(v). It was a case of total renovation and has rightly been held by the High Court to be capital in nature. Indeed, the finding of the High Court is that as against the sum of Rs. 17,000 for which the assessee had purchased the factory in 1937, the expenditure incurred in the relevant accounting year was in the region of Rs. 1,20,000." 12.1 The language of the Explanation 1 is very plain and clear and there was no scope to give a different meaning. It is the bounden duty of the Courts to give literal meaning to the expressions and phraseology used by the legislature in the absence of any ambiguity in the provisions. The decision relied upon by the ld. Counsel for the assessee i.e., CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 (Mad.) etc. are rendered prior to i....
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....Chny/2018 and the Revenue is in appeal on the grounds which are allowed in favour of the assessee in ITA No.759/Chny/2018 for AY 2014-15. 14. Now we shall take up the assessee's appeal in ITA No.613/Chny/2018 for AY 2014-15. 14.1 The assessee raised the following grounds of appeal: "1. The Order of the Commissioner of Income tax (Appeals) is contrary to Law, facts and circumstances of the case. 2. Valuation of Closing Stock: 2.1 The CIT (Appeals) erred in confirming the addition made by the assessing officer to the closing stock Rs. 3,99,44,986/-. 2.2 The CIT (A) should have accepted the valuation of closing stock as arrived at by the appellant which has consistently been at cost or realizable price whichever is Lower. 2.3 The CIT(A) ought to have appreciated that the Law itself permits the business entities to value the stock at its realizable price and hence the same should not be questioned unless such valuation Loses objectivity. 2.4 The CIT(A) ought to have appreciated that the Assessee is valuing the closing stock on the basis of net realizable value for clothes having in mind the period for which the clo....
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.... Tribunal which has been subsequently distinguished by the co-ordinate Bench in the case of M/s. Best Choice ITA Nos.1766 to 1768/Mds/2014 dt 05.08.2016 2.14 The CIT(A) erred in not appreciating when there are two views possible the view favorable to the assessee should be followed [CIT Vs Vegetable Products - 88 ITR 192 (SC)] 3. Appellant craves leave to adduce additional evidence at the time of hearing." 14.2 The only issue involved in the present appeal is addition on account of under valuation of closing stock. This issue was also dealt by us at length in the assessment year 2013-14 in assessee's own case in ITA No.1593/Chny/2017, wherein for the reasons given by us vide paras 9.6 to 9.8, this issue was decided against the assessee. For the parity of reasons given therein, this ground of appeal is decided against the assessee. 14.3 In the result appeal filed by the assessee in ITA No.613/Chny/2018 is dismissed. 15. Now we shall take up the Revenue's appeal in ITA No.759/Chny/2018 for AY 2014-15. The Revenue raised the following grounds of appeal: "1. The order of the CIT(Appeals) is opposed to law on the facts and in the circumstance....
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....e Delhi High Court in the case of Seagram Distilleris (P) Ltd Vs CIT-Ill, New Delhi (201 5)(62 taxman.com 100 (Delhi) wherein it was held that the provision made for a contingent liability ought not to be allowed and the SLP filed by the assessee against the High Court's ruling was dismissed by the Hon'ble S.C (2016) 72taxmann.com334(SC) and also failed to consider the decision of Hon'ble S.C in the cases of Shree Sajjan Mills Ltd Vs CIT(sc) 156 ITR 585 and Indian Molasses Co. (P) Ltd Vs CIT (sc) 37 ITR 66 wherein it was held that expenditure which is deductible for income-tax purposes is towards a liability actually existing at the time but setting apart money which might become expenditure on the happening of an event is not expenditure. 5.1 The CIT(A) failed to consider the fact that the assessee incurred the expenditure of Rs.4,27,08,600/- towards 'Gen. Store Changes, Additional Gondolas Fitting, Room alteration, Inside Mall new Frontage and Signs, Civil, Interior work, Supply of LED Down Lighters and Fixing of New CDMT' with a view to bringing an enduring benefit of the business. 5.2 The CIT(A) failed to consider the decision of Hon'ble Supreme Court in the c....
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....round of appeal filed by the Revenue is allowed. Ground of appeal No.4: 18. The ground of appeal No.4 challenges correctness of the decision of ld. CIT(A) allowing the provision towards unredeemed bonus points. This issue was also dealt by us in the assessee's own case for the assessment year 2013-14 in the Revenue appeal in ITA No.1622/Chny/2017, wherein for the reasons given therein vide paras11.1 to 11.4 decided the issue against the assessee and in favour of the Revenue. For the parity of reasons given therein, this ground of appeal is also decided against the assessee and in favour of the Revenue. Accordingly, this ground of appeal filed by the Revenue is allowed. Ground of appeal No.5: 19. The ground of appeal No.5 challenges correctness of the decision of ld. CIT(A) allowing the expenditure incurred on renovation and temporary wooden structures on leased premises as revenue expenditure. This issue was also dealt by us in the assessee's own case for the assessment year 2013-14 in the Revenue appeal in ITA No.1622/Chny/2017, wherein for the reasons given therein vide paras 11.9 to 12.2 decided the issue against the assessee and in favour of the Revenue. For the par....
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....nt of interest for the utilization of the above and hence ought to have sustained the addition made by the A.O. on account of disallowance of interest. 4. For these and such other grounds that may be adduced at the time of hearing, it is prayed the order of the CIT (A) may be reversed and that of the A.O restored." 22. The brief facts of the case are as under: The respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of wholesale cloth trade. The return of income for the assessment year 2012-13 was filed on 29.09.2012 disclosing total loss of Rs. 2,00,50,898/-. During the previous year relevant to the assessment year under consideration, the respondent-assessee acquired all assets and liabilities of one partnership firm namely RMKV Associates as they stood in the books of the said firm as on 08.01.2012 as per the business transfer agreement. The said firm had claimed the benefit of the provisions of s. 47(xiii) of the Act in respect of transaction sale of business. In the return of income, the respondent-assessee claimed depreciation on the intangible assets being goodwill, know-how of Rs. 6....
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....e return of income for the assessment year 2013-14 was filed on 26.11.2013 disclosing total income as nil. Against said return of income, the assessment was completed by Asst. CIT, Circle-1, Tirunelveli vide order dated 30.03.2016 passed u/s. 143(3) of the Act at total income of Rs. 1,67,34,837/-. While doing so, the Assessing Officer disallowed the depreciation on goodwill, know-how of Rs. 1,41,75,000/- and interest on credit balances of partners erstwhile firm of Rs. 77,76,000/-. 30.1 On appeal before ld. CIT(A), the ld. CIT(A) granted relief on both the issues. The Revenue is in appeal before us challenging the correctness of the order of ld. CIT(A). 30.2 The Revenue raised the following grounds of appeal in ITA No.1626/Chny/2017 for assessment year 2013-14: "1. The order of the CIT(Appeals) is opposed to law on the facts and in the circumstances of the case. 2.1 The CIT(A) has erred in allowing the depreciation on Goodwill of Rs. 1,41,75,000/- even though the assessee company had only received the Goodwill as a result of succession of firm by it as per the provisions of section 47(xiii) of the I.T.. Act. 2.2 The CIT(A) ought to have seen that th....
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....e is allowed. 34. In the result, ground of appeal No.3 filed by the Revenue is allowed. 35. In the result, appeal filed by the Revenue in ITA No.1626/Chny/2017 for assessment year 2013-14 is allowed. ITA No.761/Chny/2018 for assessment year 2014-15 (Revenue appeal): 36. The brief facts of the case are as under: The respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of wholesale cloth trade. The return of income for the assessment year 2014-15 was filed on 28.11.2014 disclosing total loss of Rs. 1,72,78,511. Against said return of income, the assessment was completed by Asst. CIT, Circle-1, Tirunelveli vide order dated 23.12.2016 passed u/s. 143(3) of the Act at total income of Rs. 11,28,789/-. While doing so, the Assessing Officer disallowed the depreciation on goodwill, know-how of Rs. 1,06,31,250/- and interest on the credit balances of partners erstwhile firm of Rs. 77,76,000/-. 36.1 On appeal before ld. CIT(A), the ld. CIT(A) granted relief on both the issues. The Revenue is in appeal before us challenging the correctness of the order of ld. CIT(A). 36.2 The Revenue raised the followi....
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..... In the result, ground of appeal No.2 filed by the Revenue is allowed. 39. Ground of appeal No.3 challenges the decision of ld. CIT(A) allowing the interest on the credit balance of erstwhile partners of the firm. This is third year of claim, since the claim for interest was held to be inadmissible in the first year of the claim in the Revenue's appeal for the assessment year 2012-13 in ITA No.1625/Chny/2017, the claim cannot be allowed in the subsequent years be consequential from the initial assessment year. Hence, this ground of appeal filed by the Revenue is allowed. 40. In the result, ground of appeal No.3 filed by the Revenue is allowed. 41. In the result, appeal filed by the Revenue in ITA No.761/Chny/2018 for assessment year 2014-15 is allowed. RMKV Fabrics Pvt. Ltd. in ITA No.1623/Chny/2017 for assessment year 2012-13 (Revenue's appeal): 42. This is an appeal filed by the Revenue directed against the order of the learned Commissioner of Income Tax (Appeals)-3, Madurai (hereinafter called as 'CIT(A)') dated 10.03.2017 for the assessment year (AY) 2012-13. 43. The brief facts of the case are as under: The respondent-assessee is a company incorporated un....
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....itled depreciation on goodwill. 2.3 The CIT(A) ought to have followed the decision of ITAT Mumbai Bench in the case of DCIT vs. Toyo Engineering India ltd. (2013)(33 taxman.com 560 (Mumbai -Trib.) and hence ought to have sustained the disallowance of depreciation on goodwill made by the A.O. 3.1 The CIT(A) has erred in deleting the addition of Rs. 1,08,01,000/- made on interest attributable to the portion of amount standing to the credit of Directors of the assessee company on account of revaluation of Goodwill. 3.2 The CIT(A) ought to have seen that the partners of the firm have brought self generated Goodwill by credit in their current account and the same was not in the form of either cash or deposit for payment of interest for the utilization of the above and hence ought to have sustained the addition made by the A.O. on account of disallowance of interest. 4. For these and such other grounds that may be adduced at the time of hearing, it is prayed the order of the CIT (A) may be reversed and that of the A.O restored." 46. Grounds of appeal No.1 & 4 are general in nature therefore, do not require any adjudication. The ground of appeal No.2....
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.... disallowances: 1. Disallowance of depreciation on goodwill Rs. 3,82,59,375/- 2. Disallowance of interest claim u/s. 36(1) & 37 Rs. 2,27,35,602/- 3. Bonus card Provision disallowed Rs. 3,53,87,903/- 4. Capital expenditure claimed as repair Rs.10,77,94,626/- 5. Under Valuation of closing stock Rs. 1,07,32,042/- 54. Being aggrieved by the above disallowances, an appeal was preferred before ld. CIT(A), who vide impugned order partly allowed the appeal by granting relief in respect of addition of disallowance of deprecation of goodwill and disallowance of interest following his predecessor's order for assessment year 2012-13 in assessee's own case. The ld. CIT(A) also granted relief in respect of provision for unredeemed bonus points expenditure of Rs. 3,53,87,903/- and disallowance of repairs incurred on leased premises. However, confirmed the addition on account of under valuation of closing stock. 55. Being aggrieved by that part of order of the ld. CIT(A), which is against the assessee, the assessee filed an appeal in ITA No.1594/Chny/2017 and the Revenue is in appeal on the grounds which are allowed in favour of the assessee in IT....
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....rejection of the same is unjustified. 2.8 The CIT(A) ought to have appreciated that valuation of stock wilt have the consequences of postponing the profit or toss to the year of sale of such stock which is inevitable and unavoidable depending upon whether the sate price realized is more or less than the estimated value of the closing stock. 2.9 The CIT(A) failed to appreciate the fact that according to principles of accountancy and prudent commercial practice, white it would be wise to provide for expected tosses it would not be prudent to book unrealized profit. 2.10 The CIT(A) ought to have appreciated that the valuation of closing stock as arrived by management is in accordance with the law and hence the same should not be questioned unless such valuation loses objectivity. 2.11 Cit failed to appreciate the fact that the stock of Rs. 49,19,68,876/- as on 31 .3.13 (valued at cost), stock to the tune of Rs. 98,28,940/- more than 4 years old was remaining in stock on 25.3.2016 at the time of assessment which has remote chance of reatisabitfty. Hence the cit is not justified the addition of Rs. 107,32,042/- by the assessing officer. 2.12 ....
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.... vs. Toyo Engineering India ltd. (2013)(33 taxman.com 560 (Mumbai -Trib.) and hence ought to have sustained the disallowance of depreciation on goodwill made by the A.O. 3.1 The CIT(A) has erred in deleting the addition of Rs. 2,27,35,602/- made on interest attributable to the portion of amount standing to the credit of Directors of the assessee company on account of revaluation of Goodwill. 3.2 The CIT(A) ought to have seen that the partners of the firm have brought self generated Goodwill by credit in their current account and the same was not in the form of either cash or deposit for payment of interest for the utilization of the above and hence ought to have sustained the addition made by the A.O. on account of disallowance of interest. 4.1 The CIT (A) has erred in deleting the addition of Rs.3,53,87,903/- made unde the head bonus redemption expenses. The CIT (A) failed to consider the fact that the liability incurred by the assessee was in the nature of contingent and fully dependent upon the uncertain future visit and at the option of the customers and hence was not a known liability. 4.2 The CIT (A) failed to consider the decision of the H....
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....ay of renovation or extension of or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.' 6. For these and such other grounds that may be adduced at the time of hearing, it is prayed the order of the CIT (A) may be reversed and that of the A.O restored." 60.1 Grounds of appeal No.1 & 6 are general in nature, which do not require any adjudication. Ground of appeal No.2 challenges the correctness of decision of ld. CIT(A) allowing the depreciation on goodwill, know-how of Rs. 3,82,59,375/-. This is the second year of claim. This issue being consequential from initial assessment year. In the first year of takeover of the business from the firm i.e., in assessment year 2012-13, in the appeal filed by the Revenue in ITA No. 1623/Chny/2017, it was held by us vide para 46 that no depreciation on goodwill and know-how is admissible as there was no actual cost incurred in acquiring the same. Accordingly, these grounds of appeal filed by the Revenue are allowed. 60.2 In the result, ground of appeal No.2 filed by the Revenue is allowed. 60.3 Ground of appeal No.3 challenges the cor....
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....nd issues are involved in these appeals, we proceed to dispose the same vide this common order. 63. The brief facts of the case are as under: The return of income for the assessment year 2014-15 was filed on 28.11.2014 disclosing total loss of Rs. 18,12,21,608 /-. Against the said return of income, the assessment was completed by the Asst. CIT, Circle-1, Tirunelveli vide order dated 23.12.2016 passed u/s. 143(3) of the Act at total loss of Rs.6,88,43,797/-. While doing so, the Assessing Officer made the following additions: 1. Disallowance of depreciation on goodwill, know-how of Rs. 2,86,94,531/-. 2. Disallowance of interest claimed on the outstanding balance standing in the name of Directors of Rs. 2,27,35,602/- 3. Disallowance of provision towards liability of bonus card Rs. 3,78,48,545/-. 4. Addition on account of closing stock of Rs. 2,30,99,133/-. 64. Being aggrieved by the addition, an appeal was preferred before ld. CIT(A), who vide impugned order deleted the addition on account of disallowance of depreciation on goodwill, know-how, interest expenditure, bonus card liability. However, confirmed the addition on account of un....
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....on of stock will have lie consequences of postponing the profit or loss to the year of sale of such stock ich inevitable and unavoidable depending upon whether the sale price realized is me o less than the estimated value of the closing stock. For RmKV fabrics Pvt. Ltd. 2.9 The CIT(A) failed to appreciate the fact that according to principles of accountancy and prudent commercial practice, while it would be wise to provide for expected Losses it would not be prudent to book unrealized profit. 2.10 The CIT(A) ought to have appreciated that the valuation of closing stock as arrived by management is in accordance with the Law and hence the same should not be questioned unless such valuation Loses objectivity. 2.11 The CIT(A) failed to appreciate the fact that there is no income escaping assessment since the actual sale value gets captured in the year of actual sale. 2.12 The CIT(A) erred in not following the order of the Tribunal favorable to the assessee in the following cases: i) M/s.RmK.Viswanatha PilLai & Sons in ITA Nos 1784 to 1787/Mds/2014 dt.01.06.2016 ii) Best Choice ITA Nos.1766 to 1768/Mds/2014 dt 05.08.2016. 2.....
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.... have seen that the partners of the firm have brought self generated Goodwill by credit in their current account and the same was not in the form of either cash or deposit for payment of interest for the utilization of the above and hence ought to have sustained the addition made by the A.O. on account of disallowance of interest. 4.1 The CIT (A) has erred in deleting the addition of Rs.3,78,48,545!- made under the head bonus redemption expenses. The CIT (A) failed to consider the fact that the liability incurred by the assesee was in the nature of contingent and fully dependent upon the uncertain future visit and at the option of the customers and hence was not a known liability. 4.2 The CIT (A) failed to consider the decision of the Ron'ble Supreme Court in the case of Bharath Earth Movers Vs CIT wherein it was held that 'what should be certain is the incurring of the liability'. But in the present case, the incurring of liability is uncertain and there is no reasonable scientific method adopted by the asessee to estimate the future visits and the purchase behaviour of customers so as to justify creating of provision for such liability 4.3 The CIT(A) fa....