Income Tax Appellate Tribunal - Ahmedabad
Sujag Fine Chemicals Pvt.Ltd.,, Baroda vs Assessee on 15 October, 2015
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'सी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" C " BENCH, AHMEDABAD
ी अ नल चतुव द , लेखा सद य एवं ी कुल भारत, या यक सद य के सम ।
BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER And
SHRI KUL BHARAT, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.987/Ahd/2012
( नधा रण वष / Assessment Year : 2008-09)
Sujag Fine Chemicals P.Ltd. बनाम/ The Asst.CIT
42/6 & 7, GIDC Industrial Vs. Circle-4
Estate Baroda
At & Post Nandesari
Dist.Baroda
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AADCS 2989 J
(अपीलाथ% /Appellant) .. (&'यथ% / Respondent)
अपीलाथ% ओर से / Appellant by : Shri Sunil H. Talati
&'यथ% क) ओर से/Respondent by : Shri Dinesh Singh, Sr.DR
ु वाई क) तार ख /
सन Date of Hearing 08/10/2015
घोषणा क) तार ख /Date of Pronounce ment 15/10/2015
आदे श / O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-III, Baroda ['CIT(A)' in short] dated 13/02/2012 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:-
Your appellant being dissatisfied with the order passed by the Hon'ble CIT(A)-III, Baroda dated 13/02/12 presents this appeal against the said order on the following amongst other grounds:ITA No.987/Ahd/2012
Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -2-
1. The order passed by the learned AO is bad in law and be quashed. It be held so now.
2. The Hon'ble CIT(A)-III, Baroda has erred in confirming the action of AO for not granting the exemption amounting to Rs.60,01,695/- claimed u/s 10B of the Act despite the fact that the appellant filed Form 56G certified by Chartered Accountant as prescribed as per provisions of section 10B of the Act and further complied with all the conditions as prescribed. It is therefore submitted that the Hon'ble CIT(A)-III has erred in not granting the exemption as claimed. It be held so now and the AO be directed to allow the claim.
3. The Hon'ble CIT(A)-III, Baroda has erred in confirming the disallowance of depreciation on goodwill of Rs.61,768/-. Your appellant submits that the disallowance is made without considering the full facts of the case and law.
The AO be directed to allow the same as claimed.
Your appellant craves for leave to alter/amend/withdraw/modify any of the above grounds before disposal of appeal.
2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 21/12/2010; thereby the Assessing Officer (AO in short) disallowed the claim of deduction u/s.10B of the Act on the basis that the assessee has claimed deduction u/s.10B for the first time in AY 2008-09. The assessee has not formed by splitting up, or the construction, of a business already in existence. The assessee has not furnished complete details and relevant documentary evidences satisfying the conditions for the purpose of claim of exemption as provided in section 10B of the Act. The assessee being aggrieved by the assessment order, preferred an appeal before the ld.CIT(A), who after considering the submissions ITA No.987/Ahd/2012 Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -3- affirmed the finding of the AO and held that the assessee is not eligible for deduction u/s.10B of the Act. Aggrieved by this order, the assessee is further in appeal before us.
3. First ground of this appeal is general in nature needs no independent adjudication.
4. Second ground of appeal is against disallowing the claim of the assessee for exemption of Rs.60,01,6795/- claimed u/s.10B of the Act. The ld.counsel for the assessee submitted that the authorities below were not justified in not granting the exemption. He submitted that the exemption u/s.10B of the Act is available for 10 years from the initial years in which the undertaking beings manufacturing. It is submitted that the manufacturing was started in February-1999. The authorities below were not correct in holding that the manufacturing was started in AY 1998-99. He submitted that the period of 10 years is to be reckoned from AY 1999-2000, but not from AY 1998-99. The ld.counsel for the assessee submitted that the registration as 100% EOU was received on 05/04/2007 (AY 2008-09) and the exemption was claimed first time in the AY 2008-09. The ld.counsel for the assessee submitted that the assessee fulfilled all the conditions as envisaged u/s.10B(2) of the Act, since the undertaking manufactures Choline Dichloride and Pyridynyloxy Octyl acetate for export since February-1999. The undertaking was not ITA No.987/Ahd/2012 Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -4- formed by the splitting up, or the reconstruction, of a business already in existence. The undertaking was not formed by the transfer to a new business of machinery or plant previously used for any purpose.
4.1. On the contrary, ld.Sr.DR opposed the submissions of the ld.counsel for the assessee and submitted that the submissions of the ld.counsel for the assessee are not correct. He drew our attention towards the order of the ld.CIT(A), wherein he has recorded that as per balance-sheet of the firm, namely, Sujag Fine Chemicals as on 01/04/1998 shows that the total investment in fixed assets including plant and machinery was Rs.1,25,15,844/-, the total investment in fixed assets as on 18.02.1999 is Rs.1,47,03,122/-. Therefore, he submitted that the entire submissions of the assessee is misplaced. The undertaking had, in fact, commenced the commercial production even prior to its conversion into private limited company.
5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The only issue to be examined is whether the assessee is entitled for exemption u/s.10B of the Act for the year under appeal or not. For the sake of clarity, section 10B of the Act is reproduced hereunder:-
"Section-10B :- Special provisions in respect of newly established hundred per cent export-oriented undertakings.ITA No.987/Ahd/2012
Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -5- (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export for articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee:
[Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years :
[Provided [further] that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software;] Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the [1st day of April, [2012]] and subsequent years :
[Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139.] (2) This section applies to any undertaking which fulfils all the following conditions, namely :--
(i) it manufactures or produces any articles or things or computer software;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.ITA No.987/Ahd/2012
Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -6- Explanation : The provisions of Explanation 1 and Explanation 2 of sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section."
5.1. As per this provision, the exemption would be available for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be. As per section 10B(2)(iii), the exemption would not be available if there is a transfer to a new business of machinery or plant previously used for any purpose. As per the finding of the ld.CIT(A) that the machinery was used previously and the undertaking had commenced the commercial production prior to February-1999. This finding of the ld.CIT(A) is not controverted by the assessee by placing any contrary material on record. In our considered view, the assessee would be entitled to claim for deduction u/s.10B of the Act, for a period of 10 consecutive years from the date of commencement of its manufacture as envisaged in the section. In the case in hand, the assessee has not demonstrated the actual date of commencement of the commercial production. However, the AO and the ld.CIT(A) have given finding that the commercial production was commenced even prior to the period claimed by the assessee. Under these facts, we do not see any reason to interfere with the order of the ld.CIT(A) as the first requirement is the commencement of manufacturing or production of undertaking. We are supported of the judgement of Hon'ble High Court of Karnataka ITA No.987/Ahd/2012 Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -7- in the case of Sami Labs Ltd. vs. ACIT reported at (2012) 20 taxmann.com 785 (Kar.). Thus, ground No.2 of Assessee's appeal is rejected.
6. Third ground of this appeal is against confirmation of disallowance of depreciation on goodwill of Rs.61,768/-. At the outset, the ld.counsel for the assessee submitted that the issue is squarely covered in favour of assessee by the decision of the Tribunal (ITAT "C" Bench Ahmedabad) in assessee's own case in ITA No.2497/Ahd/2011 for AY 2006-07, order dated 12/06/2015 and the copy of the order placed at page Nos.47 to 49 of the paper-book.
7. The ld.Sr.DR fairly conceded that the issue is covered in favour of assessee by the decision of Tribunal passed in ITA No.2497/Ahd/2011 for AY 2006-09.
8. After hearing both the parties, we find that the Coordinate Bench of this Tribunal in ITA No.2497/Ahd/2011 for AY 2006-07 vide its order dated 12/06/2015 the issue has decided by observing as under:-
"6. On due consideration of the facts and circumstances, we find that issue in dispute is squarely covered by the order of ITAT passed in Assessment Year 2003-04. The discussion made by the Tribunal in Assessment Year 20034)4 on this issue reads as under: -
"6. We have heard both the sides. From the side of the Revenue, learned DR, Mr. O.K. Singh has argued that Section 32 ITA No.987/Ahd/2012 Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -8- prescribes that an asset is required to be acquired on or after 1st day of April 1998 in the nature of copy right, licences, know how etc. He has raised two arguments. The first argument was that "goodwill" is not In the nature of the assets as defined u/s. 32(1)(ii) of the IT Act. His second objection was that the asset in question, i.e., goodwill was not in existences when the assessee company had taken over the erstwhile firm. He has also placed reliance on Vyomit Shares, Stocks & Investments P. Ltd. Vs. DCI7, 106, ITD 408 (Mum).
7. On the 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 Filial 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 day of April, 1998 as required u/s. 32(1 )(ii) of the Act.
Now the only question left for our consideration is that whether goodwill can be considered for grant of depreciation. In this regard, a latest decision of Hon'ble High Court pronounced in ITA No.987/Ahd/2012 Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09 -9- the case of CIT Vs. SMIFS Securities, 348 ITR 302 is relevant wherein it was held as under:
"The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax, Act, 1961 ("the Act", for short).
We quote hereinbelow Explanation 3 to section 32(1) of the Act:
"Explanation 3- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean -
(a) tangible assets, being buildings, machinery, plant or furniture;
(b)intangible assets, being know-how, patents, copyrights, trade-
marks, licences, franchises or any other business or commercial rights of similar nature:"
Explanation 3 states that the expression "asset" shall mean an intangible asset, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. A reading the words "any other business or commercial rights of similar nature" in clause (b) of Explanation 3 indicates that goodwill would fall under the expression "any other business or commercial right of a similar nature:. The principle of ejusdem generic would strictly apply while interpreting the said expression which finds place in Explanation 3(b).
In the circumstances, we are of the view that "goodwill" is an asset under Explanation 3(b) to section 32 (1) of the Act."
9. Earlier in the case of B. Raveendran Pillai, 332 ITR 531 (Kerala), the Hon'ble High Court has also held that the goodwill is certainly comparable with trade mark, franchisee, copy right, etc., hence, entitled for the depreciation. Respectfully following these decisions wherein the doctrin of ejusdem generic is applied and held that the Goodwill is of like nature of intangible asset as ITA No.987/Ahd/2012 Sujag Fine Chemicals P.Ltd. vs. ACIT Asst.Year - 2008-09
- 10 -
prescribed, therefore, we hereby hold that under the totality of the facts and circumstances of the case the assessee is entitled for the claim of depreciation on the DWV of the goodwill for the year under consideration. Ground raised in this regard is hereby allowed."
7. There is no disparity on facts, therefore, we allow the appeal of the assessee on this issue and delete the disallowance. No other ground was pressed, hence all other grounds are rejected."
8.1. Since the facts of the case are identical to that of AY 2006-07 in assessee's own case, taking a consistent view, we hereby allow the ground of assessee's appeal for this year also and direct the AO to allow the depreciation on good will. Thus, ground No.3 of Assessee's appeal is allowed.
9. In the result, the appeal of the Assessee is partly allowed.
Order pronounced in the Court on Thursday, the 15th day of October, 2015 at Ahmedabad.
Sd/- Sd/-
(अ नल चतव
ु द ) (कुल भारत)
लेखा सद य या यक सद य
( ANIL CHATURVEDI ) ( KUL BHARAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 15/ 10 /2015
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
ITA No.987/Ahd/2012
Sujag Fine Chemicals P.Ltd. vs. ACIT
Asst.Year - 2008-09
- 11 -
आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :
1. अपीलाथ% / The Appellant
2. &'यथ% / The Respondent.
3. संबं4धत आयकर आयु6त / Concerned CIT
4. आयकर आय6 ु त(अपील) / The CIT(A)-III, Baroda
5. 7वभागीय & त न4ध, आयकर अपील य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड; फाईल / Guard file.
आदे शानुसार/ BY ORDER, स'या7पत & त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 08.10.2015 (dictation-pad 10+ Pages attached at the end of this File)
2. Date on which the typed draft is placed before the Dictating Member ... 12.10.2015
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......15.10.2015
7. Date on which the file goes to the Bench Clerk.....................15.10.2015
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................