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IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "E", MUMBAI
.. , , ,
Before Shri R.S.Syal, AM and Shri Sanjay Garg, JM
ITA No.3233/Mum/2010 : Asst.Year 2004-2005
ITA No.325/Mum/2009 : Asst.Year 2005-2006
ITA No.3234/Mum/2010 : Asst.Year 2006-2007
M/s.Bhilad Textile Industries Pvt.Ltd. The Dy.Commissioner of Income-tax
Centre Point, 7th Floor, 18th Road /
Circle 10(2)
Chembur, Mumbai 400 071. Mumbai.
PAN : AAACB1673P. Vs.
( /Appellant) ( /Respondent)
ITA No.5915/Mum/2009 : Asst.Year 2006-2007
ITA No.2342/Mum/2011 : Asst.Year 2007-2008
ITA No.3543/Mum/2011 : Asst.Year 2008-2009
M/s.Supreme Nonwovens Pvt. Ltd. The Dy.Commissioner of Income-tax
Centre Point, 7th Floor, 18th Road /
Circle 10(2)
Chembur, Mumbai 400 071. Mumbai.
PAN : AAACS5921R. Vs.
( /Appellant) ( /Respondent)
ITA No.3574/Mum/2011 : Asst.Year 2007-2008
The Dy.Commissioner of Income-tax M/s.Supreme Nonwovens Pvt. Ltd.
Circle 10(2) /
Centre Point, 7th Floor, 18th Road
Mumbai. Chembur, Mumbai 400 071.
( /Appellant) Vs. ( /Respondent)
/Revenue by : Shri Dipak Kumar Sinha
/Assessee by : Shri K. Gopal and Sh. Jitendra Singh
/ /
Date of Hearing : 08.04.2013 Date of Pronouncement : 09.04.2013
/ O R D E R
Per Bench :
These seven appeals by two different but connected assessee,
some of which are cross appeals, relate to assessment years 2004-
2 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
2005, 2005-2006, 2006-2007, 2007-2008 and 2008-2009. Since some
common issues are involved in these appeals, we are, therefore,
proceeding to dispose them off by this consolidated order for the sake
of convenience.
ITA No.3233/Mum/2010 : M/s.Bhilad Textile Industries Pvt.Ltd.
Assessment Year 2004-2005
2. This appeal by the assessee arises out of the order passed by the
Commissioner of Income-tax (Appeals) on 29.03.2010 in relation to
the assessment year 2004-2005.
3. Additional ground challenging the initiation of reassessment
was not pressed by the learned AR. The same is, therefore, dismissed.
4. The first ground is against the confirmation of disallowance of
`23,91,696 being depreciation on goodwill. Briefly stated the facts
of this ground are that the assessee acquired the business of
M/s.Dhariwal Nonwovens for a lumpsum consideration of `250 lakh
with effect from 01.04.2003. The net asset of M/s.Dhariwal
Nonwovens on the date of transfer were to the tune of `1,30,41,518.
The difference between the sale consideration and net asset
amounting to `1,19,58,402 was paid towards goodwill which was
capitalized in the books of account on which depreciation was
claimed at `29,89,620. The Assessing Officer disallowed the claim of
depreciation on goodwill. The learned CIT(A) upheld the assessment
order on this point.
3 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
5. After considering the rival submissions and perusing the
relevant material on record, we find that this issue is no more res
integra in view of the judgment of the Hon'ble Supreme Court in the
case of CIT v. Smifs Securities Ltd. [(2012) 348 ITR 302 (SC)] . In
that case also excess consideration paid by that assessee over the
value of net asset acquired by YSN Shares and Securities Private
Limited was considered as goodwill on which depreciation was
claimed. Such claim was not accepted by the revenue authorities.
The second question before the Hon'ble Supreme Court in that case
was : "Whether goodwill is an asset within the meaning of section 32
of the Income-tax Act, 1961, and whether depreciation on `goodwill'
is allowable under the said section?" The said question has been
answered in favour of the assessee. As the facts and circumstances of
the instant case are mutatis mutandis similar to those considered and
decided by the Hon'ble Supreme Court in the case of Smifs Securities
Ltd. (supra), in our considered opinion, the assessee's claim to
depreciation cannot be denied. We, therefore, hold that the goodwill
is an asset within the meaning of section 32 of the Act and
accordingly is eligible for depreciation.
6. Second ground of the appeal is against the confirmation of
disallowance of `6,49,159 made u/s 14A of the Act. Briefly stated the
facts of this ground are that the assessee earned exempt dividend
income of `83,81,265 on investment of `1.42 crore. No expenditure
was disallowed by the assessee voluntarily u/s 14A of the Act. The
4 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
Assessing Officer computed the disallowance u/s 14A as per Rule 8D
amounting to `6,49,159. The learned CIT(A) upheld the assessment
order.
7. We have heard the rival submissions and perused the relevant
material on record. We find that the assessment year involved before
us is 2004-2005. The Hon'ble jurisdictional High Court in the case of
Godrej & Boyce Ltd. Mfg. Co. v. DCIT [(2010) 328 ITR 81 (Bom)]
has held that the provisions of Rule 8D cannot be applied to any
assessment year prior to 2008-2009. Since the assessment year under
consideration is prior to assessment year 2008-2009, as such Rule 8D
cannot be invoked for the purposes of computing disallowance u/s
14A. We, therefore, vacate the finding given by the learned CIT(A)
in this regard. The matter is accordingly sent back to the AO for
working out the disallowance under this provision on some
`reasonable basis' as has been held by the Hon'ble High Court in
Godrej & Boyce Ltd. Mfg. Co. (supra).
8. Last ground of this appeal is against the confirmation of
disallowance of `1,80,137 u/s 145A being difference between the
Cenvat addition to opening and closing stock of raw material and
packing material. The facts apropos this ground are that during the
course of assessment proceedings the Assessing Officer observed that
the assessee was following `Exclusive method' of accounting for
valuing the inventory. Considering these facts, the Assessing Officer
made addition of `1,80,137, which came to be upheld in first appeal.
5 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
9. We have heard the rival submissions and perused the relevant
material on record. Section 145A was inserted by the Finance (No.2)
Act, 1998 with effect from 1.4.1999. It provides that the valuation of
purchase and sale of goods and inventory for the purposes of
determining the income chargeable under the head "Profits and gains
of business or profession" shall be in accordance with the method of
accounting regularly employed by the assessee and further adjusted to
include the amount of any tax, duty, cess etc. paid or incurred by the
assessee to bring the goods to the place of its location as on the date
of valuation. According to the prescription of this section, which is
applicable to the year under consideration, the amount of tax, duty,
cess etc. is liable to be included in the value of purchases, sales,
opening and closing stock. It is not appropriate to include the closing
CENVAT in the figure of closing stock without modifying the
figures of purchases, sales and opening stock. The Hon'ble
jurisdictional High Court in CIT Vs. Mahalaxmi Glass Works Pvt.
Ltd. [(2009) 318 ITR 116 (Bom.)] and the Hon'ble Delhi High Court
in CIT Vs. Mahavir Alluminium [(2008) 297 ITR 77 (Del.)] have held
to this extent. As the authorities below have not properly adjusted
other figures with the amount of tax, duty, cess etc., we set aside the
impugned order and restore the matter to the file of A.O. for deciding
it afresh in accordance with the afore-noted judgements and the
provisions of section 145A.
10. In the result, the appeal is partly allowed.
6 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
ITA No.325/Mum/2009 : M/s.Bhilad Textile Industries Pvt.Ltd.
Assessment Year 2005-2006
11. First ground of this appeal is against the confirmation of
disallowance of `23,91,696 being depreciation on goodwill.
12. Both the sides are in agreement that the facts and circumstances
of the instant ground are mutatis mutandis similar to those of the
similar issue considered and decided by us above for the assessment
year 2004-2005. Following the view taken hereinabove, we direct
that the goodwill be considered as eligible for depreciation. This
ground is allowed.
13. Two additional grounds involving single issue of disallowance
u/s 14A have been raised in this appeal. Since these grounds are
legal in nature and no fresh facts are required to be examined, we
admit the same. In fact, no serious objection was taken by the ld. DR
to the admission of such grounds.
14. By way of these additional grounds, the assessee has assailed
the sustenance of disallowance u/s 14A amounting to `4,95,000.
Similar issue has been considered and decided by us above. Both the
sides are in agreement that the facts and circumstances of the instant
grounds are mutatis mutandis similar to those of assessment year
2004-2005. Following the view taken hereinabove, we remit the
mater to the file of the AO for working out the disallowance under
7 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
this provision on some `reasonable basis' as has been held by the
Hon'ble High Court in Godrej & Boyce Ltd. Mfg. Co. (supra).
15. In the result, the appeal is partly allowed.
ITA No.3234/Mum/2010 : M/s.Bhilad Textile Industries Pvt.Ltd.
Assessment Year 2006-2007
16. First ground of this appeal is against the confirmation of
disallowance of `16,81,661 being depreciation on goodwill. As the
facts and circumstances of this ground are admittedly similar to the
similar ground disposed of by us for the A.Y. 2004-05, following the
view taken hereinabove, we allow this ground of appeal.
17. Second ground of the assessee's appeal is against the
confirmation of disallowance u/s 14A amounting to `11,69,778.
Similar issue has been considered and decided by us above in the
appeal for the assessment year 2004-2005. Following the same, we
remit the mater to the file of the AO for working out the disallowance
under this provision on some `reasonable basis' as has been held by
the Hon'ble High Court in Godrej & Boyce Ltd. Mfg. Co. (supra).
18. Third ground raised by the assessee is against the confirmation
of disallowance of `1,36,215 u/s 145A. Here again, both the sides are
in agreement that the facts and circumstances of the instant ground
are mutatis mutandis similar to those of assessment year 2004-2005.
Following the view taken hereinabove, we set aside the impugned
8 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
order and restore the matter to the file of A.O. for deciding it afresh
in accordance with the judgements in the case of Mahalaxmi Glass
Works Pvt. Ltd. (Bom.) and Mahavir Alluminium (Del.) and the
provisions of section 145A.
19. In the result, the appeal is partly allowed.
ITA No.5915/Mum/2009 : M/s.Supreme Nonwovens Pvt.Ltd.
Assessment Year 2006-2007
20. First ground of this appeal is against the confirmation of
disallowance of `9,70,917 being depreciation on goodwill.
21. Both the sides agree that the facts and circumstances of the
ground are mutatis mutandis similar to those of the similar issue
considered and decided by us for the assessment year 2004-2005 in
the case of M/s.Bhilad Textile Industries Pvt.Ltd. Following the view
taken hereinabove, we direct to consider the amount of Goodwill as
an asset eligible for depreciation.
22. The second ground of the assessee's appeal is against the
confirmation of disallowance u/s 14A amounting to `87,86,671. This
issue has been considered and decided by us above in the case of
M/s.Bhilad Textile Industries Pvt.Ltd. As the facts and circumstances
of the this ground are similar to those of assessment year 2004-2005
in the case of M/s.Bhilad Textile Industries Pvt.Ltd., following the
view taken hereinabove, we remit the mater to the file of the AO for
working out the disallowance under this provision on some
9 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
`reasonable basis' as has been held by the Hon'ble High Court in
Godrej & Boyce Ltd. Mfg. Co. (supra).
23. Third ground raised by the assessee is against the confirmation
of disallowance of `9,28,576 u/s 145A. Here again, both the sides are
in agreement that the facts and circumstances of the ground are
similar to those of assessment year 2004-2005 in the case of
M/s.Bhilad Textile Industries Pvt.Ltd. Following the view taken
hereinabove, we set aside the impugned order and restore the matter
to the file of A.O. for deciding it afresh in accordance with the
judgements in the case of Mahalaxmi Glass Works Pvt. Ltd. (Bom.)
and Mahavir Alluminium (Del.) and the provisions of section 145A.
24. In the result, the appeal is partly allowed.
M/s.Supreme Nonwoven Industries Pvt.Ltd. Asst.Year 2007-2008
ITA No.2342/Mum/2011 & ITA No.3574/Mum/2011
25. These two cross appeals one by the assessee and the other by
the Revenue arise out of the order passed by the Commissioner of
Income-tax (Appeals) on 28.02.2011 in relation to assessment year
2007-2008.
26. First ground raised in assessee's appeal is against the
confirmation of disallowance of `19,89,434 being depreciation on
goodwill.
10 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
27. Both the sides are unanimous that the facts and circumstances
of the ground case are mutatis mutandis similar to those of similar
issue considered and decided by us for the assessment year 2004-
2005 in the case of M/s.Bhilad Textile Industries Pvt.Ltd.
Respectfully following the view taken hereinabove, we direct to
consider the amount of goodwill as an item of asset eligible for
depreciation. This ground is allowed.
28. Second ground of the assessee's appeal and first ground of the
Revenue's appeal are in respect of section 14A. This issue has been
considered and decided by us above in the case of M/s.Bhilad Textile
Industries Pvt.Ltd. Both the sides are in agreement that the facts and
circumstances of the instant year are mutatis mutandis similar to
those of assessment year 2004-2005 in the case of M/s.Bhilad Textile
Industries Pvt.Ltd. Following the view taken hereinabove, we remit
the mater to the file of the AO for working out the disallowance
under this provision on some `reasonable basis' as has been held by
the Hon'ble High Court in Godrej & Boyce Ltd. Mfg. Co. (supra).
29. Second ground raised by the Revenue is against the deletion of
addition of `1,71,71,385 u/s 145A. Here again, both the sides are in
agreement that the facts and circumstances of the ground for this year
are mutatis mutandis similar to those of assessment year 2004-2005
in the case of M/s.Bhilad Textile Industries Pvt.Ltd. Following the
view taken hereinabove, we set aside the impugned order and restore
the matter to the file of A.O. for deciding it afresh in accordance with
11 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
the judgements in the case of Mahalaxmi Glass Works Pvt. Ltd.
(Bom.) and Mahavir Alluminium (Del.) and the provisions of section
145A.
30. In the result, both the appeals are partly allowed.
M/s.Supreme Nonwoven Industries Pvt.Ltd. Asst.Year 2008-2009
ITA No.3543/Mum/2011
31. First issue raised through first three grounds is against the
confirmation of disallowance of `14,92,075 being depreciation on
goodwill.
32. As it is a recurring issue, which has been considered and
decided by us for the assessment year 2004-2005 above in the case of
M/s.Bhilad Textile Industries Pvt.Ltd., we direct to consider the
amount of goodwill as an asset eligible for depreciation.
33. Second issue raised by the assessee is against the confirmation
of disallowance of `44,27,615 u/s 145A. Both the sides are in
agreement that the facts and circumstances of these grounds are
mutatis mutandis similar to those of assessment year 2004-2005 in
the case of M/s.Bhilad Textile Industries Pvt.Ltd. Following the view
taken hereinabove, we set aside the impugned order and restore the
matter to the file of A.O. for deciding it afresh in accordance with the
judgements in the case of Mahalaxmi Glass Works Pvt. Ltd. (Bom.)
and Mahavir Alluminium (Del.) and the provisions of section 145A.
12 ITA No.3233/Mum/2010 & Ors.
M/s.Bhilad Textile Industries Pvt.Ltd.
Supreme Nonwovens Pvt.Ltd.
34. In the result, the appeal is partly allowed.
Order pronounced on this 09th day of April, 2013.
Sd/- Sd/-
(Sanjay Garg) (R.S.Syal)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai; Dated : 09th April, 2013.
Devdas*
/
Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT, Mumbai.
4. / CIT(A)-21, Mumbai
5. , , / DR, ITAT, Mumbai
6. / Guard file.
/ BY ORDER,
//True Copy//
/ (Dy./Asstt.
/ Registrar)
, / ITAT, Mumbai
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