Manish Borad, Accountant Member - This appeal of Revenue for Asst. Year 2010-11 is directed against the order of ld. CIT(A)-XIV, Ahmedabad dated 27.05.2013, vide appeal No.CIT(A)-XIV/DCIT.Cir.8(OSD)/283/2012-13, arising out of order u/s 143(3) of the IT Act, 1961 (in short the Act) framed on 31.01.2013 by DCIT (OSD), Circle-8, Ahmedabad. Revenue has raised following grounds of appeal :—
| (1) |
The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.87,959/- made on account of Foreign Expenses. |
(2) |
The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.11,,236/- made on account of prior period expenses. |
(3) |
The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 1,09,600/- made on account of treating the Trademark expenses as Capital expenses. |
(4) |
The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.2, 23,307/- made out of sales promotion expenses made u/s.40(a)(ia) of the Act. |
(5) |
The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs. 1,05,468/-made on account of depreciation on non-compete fees. |
(6) |
The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to allow the claim of the Assessee, amounting to Rs.7,19,01,743/- on account of depreciation on Goodwill arising on Amalgamation, which was never claimed in the Return of Income filed by the Assessee. |
(7) |
On the facts and in the circumstances of the case, the ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. |
(8) |
It is therefore, prayed that the order of the ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set aside and that of the order of the Assessing Officer be restored. |
2. Briefly stated facts of the case are that assessee is a limited company engaged in the business of manufacture and sale of neutraceuticals and trading in low calorie and cosmecueticals products. Assessee disclosed total income of Rs.71,60,49,078/- in the return of income filed on 16.9.2010. Case was selected for scrutiny assessment. Notices u/s 143(2) & 142(1) of the Act were issued and necessary details were called for and duly supplied by the assessee. Income was assessed at Rs.71,66,21,650/- after making various additions mainly relating to disallowance of expenditure under various heads totalling to Rs.5,72,570/-. Assessing Officer also denied assessee's claim of depreciation on goodwill made by way of filing revised computation of income during assessment proceedings post-judgment of Hon'ble. Supreme Court in the case of CIT v. Smifs Securities Ltd. [2012] 348 ITR 302/210 Taxman 428/24 taxmann.com 222.
3. Aggrieved assessee went in appeal before ld. CIT(A) against all the additions except the additions towards donation of Rs.11,000/-and disallowance u/s 40(a)(ia) of the Act of Rs.24,000/-. Ld. CIT(A) allowed assessee's appeal by deleting the disallowance and also allowing assessee's claim of depreciation on goodwill of Rs.7,19,01,743/-.
4. Aggrieved, Revenue is now in appeal before the Tribunal.
5. First we take up ground nos.1,3 & 4 raised by the Revenue against the order of ld. CIT(A) deleting the additions on account of foreign travel expenses of Rs.87,959/-, of trademark expenses of Rs.1,09,600/- and disallowances under section 40(a)(ia) of the Act of Rs.2,23,307/- incurred towards sales promotion.
6. At the outset ld. AR submitted that similar types of grounds raised in the case of assessee for Asst. Year 2009-10 have been adjudicated by the Tribunal and have been decided in favour of assessee.
7. Ld. DR could not controvert the submissions made by ld. AR.
8. We have heard the rival contentions and perused the facts and material placed before us. We observe that ld. Assessing Officer disallowed foreign travel expenses of Rs.87,959/- due to failure on the part of assessee to produce the details of persons/parties to whom they were made abroad for business promotion. ld. Assessing Officer also disallowed Rs.1,09,600/- treating them as capital in nature and disallowed Rs.2,23,307/- u/s 40(a)(ia) of the Act as the assessee failed to deduct TDS. Further we observe that similar issues have been decided in favour of assessee for Asst. Year 2009-10 by the Tribunal in ITA No.1674/Ahd/2012 vide its order dated 6.4.2016.
9. Co-ordinate Bench vide order dated 6.4.2016 in assessee's own case for Asst. Year 2009-10 deleted the disallowance on foreign travel expenses by observing as under :—
"15. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while deleting the addition had given a finding that the assessee had furnished complete details of employees who had travelled abroad, duration of visit, countries visited, nature and amount of expenses and purpose of travel. He has also noted that the evidences placed on record include the correspondences made with the travel agents and the expenses were reasonable as compared to the total turnover of the company. Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A). We, thus, find no reason to interfere with the order of ld. CIT(A). Thus, this ground of Revenue is dismissed."
10. We further find that the Co-ordinate Bench vide its order dated 6.4.2016 has deleted the disallowance on account of trademark expenditure by observing as follows :—
"19. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while deleting the addition on account of web designing charges has given a finding that no asset has been created but web designing is only a tool for facilitating the business of the assessee as it provides the means for managing the information about the assessee. With respect to trademark expenses, he has given a finding that the expenses did not create any asset or result into any advantage of enduring nature and the expenses were only incurred to avoid future litigation and therefore, expenses were revenue in nature. With respect to survey expenses, he has given a finding that the expenses have been incurred to improve efficiency of the business by finding out customers preferences for sugar substitute, market research for its product, evaluation of its product and the expenses are necessary in line of the business. Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A). We, thus, find no reason to interfere with the order of ld. CIT(A). Thus, this ground of Revenue is dismissed."
11. Similarly with regard to the issue of disallowance for non-deduction of TDS u/s 40(a)(ia) of the Act on sales promotion expenses, we find that Co-ordinate Bench vide its order dated 6.4.2016 held that the items that were purchased by the assessee were for sales promotion and were in the nature of ready goods and only logo of the company was printed on the items and the expenditure was not in the nature liable for deduction at source. While deciding so the Co-ordinate Bench observed as follows :—
"23. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while deleting the addition had noted that the items that were purchased by the assessee were for sales promotion, were in the nature of ready goods and only logo of the company was printed on the items and the logo was added to promote the business. He has further distinguished the decision of ITAT, Pune Bench in case of BDA Limited v. ITO 84 ITD 442, which was relied upon by the A.O. Revenue has not brought any material on record to controvert the finding of ld. CIT(A) nor has placed any contrary binding decision. We, thus, find no reason to interfere with the order of ld. CIT(A). Thus, this ground of Revenue is dismissed."
12. Respectfully following the decision of Co-ordinate Bench dt.6.4.2016 for Asst. Year 2009-10 in assessee's own case, we find that ground nos.1,3 & 4 raised by the Revenue are liable to be dismissed as they also relate to foreign travel expenses, trademark expenses and disallowance u/s 40(a)(ia) of the Act for sales promotion expenses. Further Revenue is unable to rebut the contentions of ld. AR and to differentiate the facts of the year under appeal with those for Asst. Year 2009-10. Thus we find no reason to interfere with the order of ld. CIT(A) and dismiss these three grounds.
13. Ground No.5 reads as under :—
| (5) |
"The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs. 1,05,468/-made on account of depreciation on non-compete fees." |
14. The Assessing Officer while framing the assessment denied the claim of depreciation of Rs.1,05,468/- made by assessee on the w.d.v. of intangible asset of Rs.4,21,875/-. Assessee carried the matter before ld. CIT(A). The same was decided in favour of assessee by following the decision of Co-ordinate Bench, Pune in the case ofSerum Institute of India Ltd. v. Addl. CIT [2012] 18 taxmann.com 305/135 ITD 69.
15. Aggrieved, Revenue is now in appeal before the Tribunal.
16. Ld. DR vehemently argued supporting the order of Assessing Officer and also relied on the judgment of Hon'ble Delhi High Court in the case of Sharp Business System v. CIT [2012] 27 taxmann.com 50/211 Taxman 576 wherein Hon'ble. Court decided a similar issue in favour of Revenue by observing that in the case of non-competition agreement, advantage is a restricted one in point of time and it does not confer any exclusive right to carry on primary business activity, therefore, amount paid as non-compete fee does not quality for depreciation under section 32(1)(ii) of the Act.
17. On the other hand ld. AR submitted that similar issue came up before the Tribunal in assessee's own case for Asst. Year 2009-10 and the same has been decided in favour of assessee vide its order in ITA No.1674/Ahd/2012, dated 6.4.2016. Further the decision of the Tribunal in assessee's own case has been pronounced in the year 2016 whereas the judgment of Hon'ble. Delhi High Court in the case of Sharp Business System (supra) was pronounced in November 5, 2012 and therefore, the decision of the Tribunal may please be applied for on the facts of the case; as it has been decided after considering various judicial pronouncements by various courts at the time of pronouncing the order. Ld. AR also submitted that assessee's claim of depreciation on the intangible value of non-compete fees has been allowed for Asst. Years 2007-08 and 2008-09. As far as Asst. Year 2009-10 is concerned, the Tribunal has decided the issue in favour of assessee. Therefore, the claim of depreciation may please be allowed on the non-compete fees on the principles of consistency.
18. We have heard the rival contentions and perused the material placed before us and gone through the facts and legal decision relied on by both the parties. Through this ground No.5 Revenue is aggrieved with the action of ld. CIT(A) deleting the disallowance of Rs.1,05,468/- made on account of depreciation on non-compete fees. We observe that assessee paid a sum of Rs.10,00,000/- as non-compete fees during the year 2006 and has claimed depreciation @ 25% since Asst. Year 2007-08. For the year under appeal assessee claimed depreciation of Rs.1,05,468/- @ 25% on w.d.v. of non-compete fees of Rs.4,21,875/-. Ld. Assessing Officer denied the claim of depreciation and added back to the income of assessee. Further we observe that ld. CIT(A) has allowed assessee's ground and deleted the disallowance of Rs.1,05,468/- on account of non-compete fees by observing as under :—
6.3 Decision:
"I have carefully considered the facts of the case and the submissions made by AR of the appellant. I have carefully perused the assessment order and the submissions given by the appellant. The appellant has submitted that non-compete fee was capitalized as an intangible asset in F. Y. 2006-07 and the depreciation was allowed in three earlier assessment years i.e. A.Ys. 2007-08, 2008-09 & 2009-10. Accordingly, the depreciation @ 25% was claimed in this year also. The appellant has also relied on the decision of Chennai Bench in the case of ITO v. Medicorp Technologies Pvt. Ltd. [122 TTJ 394 (Che.)] wherein it was held that non-compete fee wps an intangible asset and was covered by the provision of section 32 (1)(ii) of the Act. It has further relied on the recent decision of Serum Institute of India Ltd. [135 ITD 69(Pune)] dated 18/01/2012 wherein non-compete fee was held to be an intangible asset and the non-compete right acquired by the company was held to be eligible u/s. 32(1)(ii) of the Act. The A. O. on the other hand has relied on the judgment of Chennai Bench in the case of Srivatsan Surveyors Pvt. Ltd. [32 SOT 268] wherein it was held that no prescription for allowance of depreciation in respect of non-compete fee was there.
After considering the reasoning given by the A. O. and that of the appellant, I am inclined to agree with the submission made by the appellant. The appellant had paid Rs.10,00,000/- to the promoter of the company which was taken over as non-compete fee. The decision of ITAT, Pune Bench and Chennai Bench relied by the appellant appears to be quite logical as the payment of non-compete fee to another person to reduce the competition, tentamounts to a right and is, therefore, a capital asset which is intangible in nature. This asset is eligible for depreciation u/s. 32(1 )(ii) of the Act. Further, the claim of depreciation has been allowed in earlier two assessment years also. Respectfully following the decisions given by my predecessor in A. Y. 2009-10 vide order dated 28/05/2012, the disallowance made by the A. O. is directed to be deleted. The ground of appeal is accordingly allowed."
19. We further observe that ld. DR has referred and relied on the judgment of Hon'ble. Delhi High Court in the case of Sharp Business System (supra) wherein Hon'ble Court has held that since in case of non-competition agreement advantage is a restricted one in point of time and it does not confer any exclusive right to carry on primary business activity, such amount paid as non-compete fees does not qualify for depreciation.
20. We further observe that the issue relating to depreciation relating to non-compete fees was adjudicated by the Co-ordinate Bench Chennai in the case of ITO v. Medicorp Technologies (P.) Ltd. [2009] 30 SOT 506 and the decision was held in favour of assessee by observing as under :—
"There is no dispute on the capital nature of the impugned 'non-compete fee' in view of the reported judgment of the Supreme Court in case of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602, which is adopted in the judgment in the case of Hari Shankar Bhartia v. CIT [2011] 203 Taxman 6 (Mag.)/15 taxmann.com 113 (Cal.). In any case, both the parties accepted the fact that the said fee is capital in nature. The issue is squarely covered by the decision of the Chennai Bench of the ITAT in the case of Asstt. CIT v. Real Image Tech (P.) Ltd. [2009] 177 Taxman 80 (Mag.) [Para 13]
From the decision of the Tribunal in Real Image Tech. (P.) Ltd. (supra), it is vivid that the, by payment of non-compete fee to another person to reduce the business or commercial competition for a period, the assessee acquires a right and it is a capital asset, which is a business or a commercial right. Such rights are intangible ones and they are covered by the provisions of clause (ii) of section 32(1). [Para 14]
In such circumstances, the assessee must win on this issue in view of the cited ratio in the case of Real Image Tech. (P.) Ltd. (supra). Further, it is a settled issue that the non-compete fee is intangible and depreciable asset. (para 15)"
21. We further observe that the Co-ordinate Bench Pune in the case of Serum Institute of India Ltd. (supra) has also held that non-compete right acquired by assessee company is eligible for depreciation, by observing as follows :—
"The words 'being intangible assets' appear in clause (ii) of section 32(1) by way of a nomenclature, to contradistinguish the items appearing in clause (ii) from those appearing in clause (i). One can also say that clause (ii) contains an 'inclusive' definition of 'intangible assets', for the purpose of section 32. [Para 19]
It was an admitted fact that the payment of Rs. 2 crores was made by the assessee-company to ward off competition in the export business which was acquired by it from MS. Therefore, it could be safely concluded, without any further discussion, that -what was acquired by the assessee by paying this amount of Rs. 2 crores was a business commercial right. [Para 21. 1]
Consequently, if the business/commercial right of a patent, copyright, trademark, license and franchise, fulfils the conditions of 'being intangible asset ', then surely the impugned business/commercial right acquired by the assessee also fulfilled that condition, by way of a logical corollary. [Para 29]
Therefore, the impugned 'non-compete right' acquired by the assessee-company, was eligible for depreciation under clause (ii) of section 32(1). The order of the Commissioner (Appeals) was, accordingly, upheld. [Para 31]."
22. From going through the above judgment/decisions, as mentioned in paragraphs 19,20 & 21 above we find that both the views i.e. allowing/disallowing exist as regards the issue of claiming of depreciation on non-compete fees. However, in the given facts and circumstances of the case and looking to the consistency of allowability of depreciation on non-compete fees in the case of assessee for Asst. Years 2007-08, 2008-09 and for Asst. Year 2009-10 decided by the Co-ordinate Bench pronounced in the year 2016, we are of the view that assessee's claim of depreciation on non-compete fees has rightly been allowed by ld. CIT(A). We therefore, find no reason to interfere with the order of ld. CIT(A) and we uphold the same. This ground of Revenue is dismissed.
23. Now we take up Ground No.2 which reads as under :—
| (2) |
"The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.11,,236/- made on account of prior period expenses." |
24. Brief facts relating to this ground are that assessee debited Rs.11,236/- as prior period expenditure in the profit and loss account incurred towards Custodial Fees paid to Central Depository Services India Ltd. for F.Y. 2008-09. Claim of assessee was that since the liability of the amount of Rs.11,236/- has been crystallized during the financial year under consideration i.e. 2009-10 the claim should be allowed; whereas ld. Assessing Officer disallowed treating it as prior period expenditure.
25. We have heard both the ld. representatives and gone through the material records placed before us. We observe that ld. CIT(A) has deleted this disallowance of Rs.11,236/- relating to prior period expenditure by observing as follows :—
"3.3 Decision:
I have carefully considered the facts of the case and the submissions made by AR of the appellant. The fact remains that the genuineness of expenditure has not been disputed. It is concluded by the AO that the expenditure should have been claimed in A. Y, 2009-10. However, as per facts there is no postponement of liability by the appellant. Having not claimed expenditure in A. Y. 2009-10, the appellant has paid more income tax in A. Y. 2009-10. In view of ratio laid down by Hon' ble Bombay High Court decision in the case of CIT v. Nagri Mills reported in 33 ITR 681 (Bom), the disallowance made by the AO is directed to be deleted and the ground of appeal is accordingly allowed."
26. We further observe that there is no dispute to the fact that an amount of Rs.11,236/- was paid to Central Depository Services Ltd. towards Custodial fees pertaining to the period F.Y.2008-09. However, as submitted by ld. AR that the Custodial fees is legitimate business expenditure and there is no dispute to it being a revenue in nature. We are, therefore, of the view that liability of the assessee of Rs.11,236/- being Custodial fees crystallized during the F.Y.2009-10 and the same should not be treated as prior period expenditure as there is no postponement of liability. We, therefore, find no reason to interfere with the finding of ld. CIT(A). Accordingly, this ground of Revenue is dismissed.
27. Ground No.6 reads as under :—
| (6) |
"The ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to allow the claim of the Assessee, amounting to Rs.7,19,01,743/- on account of depreciation on Goodwill arising on Amalgamation, which was never claimed in the Return of Income filed by the Assessee." |
28. Brief facts relating to this ground are that at the time of filing return of income for Asst. Year 2010-11 assessee did not make of depreciation in respect of "goodwill". After filing the return of income and during the course of assessment proceedings Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra), gave a land mark judgment stating that "goodwill" is an asset within the meaning of section 32 of the Act and depreciation on "goodwill" is eligible for deduction under the said section. On the strength of the judgment of Hon'ble Supreme Court, being the law of the land, assessee vide its submission dated 20.12.2012 revised computation of income making a fresh claim that a sum of Rs.7,19,01,743/- be allowed as depreciation on "goodwill". However, ld. Assessing Officer denied the claim for the very reason that assessee has not filed revised return of income for claiming such deduction and the assessee is not permitted to claim depreciation on 'goodwill'.
29. Aggrieved, assessee went in appeal before ld. CIT(A) and succeeded as ld. CIT(A) allowed the assessee's claim of depreciation on "goodwill" at Rs.7,19,01,743/- by observing as follows :—
7.3 Decision :
I have carefully considered the facts of the case and the submissions made by AR of the appellant. The controversy regarding allowability of depreciation on goodwill has recently been settled with the judgment by Supreme Court. In the case of CIT v.Smifs Securities Ltd. reported at 348 ITR 302 while allowing the claim of depreciation on goodwill it was held as under:
"Section 32 of the Income-tax Act, 1961 - Depreciation -Allowance/Rate of -Assessment year 2003-04 - Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1) -Held, yes - During relevant assessment year, one Y Ltd. amalgamated with assessee-company - According to assessee, excess consideration paid by it over value of net assets acquired of 'Y' ltd. amounted to goodwill on which depreciation was to be allowed - Authorities below recorded a finding that assets and liabilities of 'Y' Ltd. were transferred to assessee for a consideration; that difference between cost of an asset and amount paid constituted goodwill and that assessee-company in process of amalgamation had acquired a capital right in form of goodwill because of which market worth of assessee-company stood increased - Accordingly, assessee's claim was allowed - Whether since revenue could not rebut factual findings recorded by authorities below, impugned order passed by them was to be upheld - Held, yes [Para 8] [In favour of assessee]
II. Section 32 of the Income-tax Act, 1961 - Depreciation -Allowance /Rate of -Whether stock exchange membership card is an asset eligible for depreciation under section 32 -. Held, yes [Para 1] [In favour of assessee]"
The claim of the appellant can be entertained by CIT(A) in view of Hon'ble Bombay High Court's decision in the case of CIT v. Pruthvi Brokers & Shareholders [2012] 349 ITR 336/208 Taxman 498/23 taxmann.com 23. In view of Supreme Court's decision in the case of Smifs Securities Ltd. (supra), the contention of the appellant is accepted. The AO is directed to allow the depreciation on goodwill accordingly. The ground of appeal is allowed.
30. Aggrieved, Revenue is now in appeal before the Tribunal.
31. Ld. DR vehemently argued and supported the order of ld. Assessing Officer.
32. On the other hand ld. AR supporting the order of ld. CIT(A) submitted that post-judgment of Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) it is undisputed that assessee is eligible to claim depreciation on 'goodwill'. Further reason for not claiming the impugned depreciation on 'goodwill', the judgment of Hon'ble Apex Court was not available at the time of filing return of income Further assessee made a rightful claim for Asst. Year 2010-11 during the course of assessment proceedings post-judgment of Hon'ble Apex Court in the case of Smifs Securities Ltd. Ld. (supra) AR further submitted that the main reason for denial of claim by ld. Assessing Officer that assessee has not filed a revised return of income for claiming the depreciation, however, Hon'ble. Bombay High Court in the case of Pruthvi Brokers & Shareholders (supra) has been held that an assessee can raise such claim before the appellate authorities. Also Hon'ble Bombay High Court referred to the judgment of Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 wherein Hon'ble. Apex Court held that there is no bar to the power of Assessing Officer to entertain a claim of deduction otherwise than filing of revised return.
33. We have heard the rival contentions and perused the material placed before and gone through the legal decisions referred and relied on by both the parties. Through this ground Revenue has assailed the order of ld. CIT(A) for allowing assessee's claim of depreciation on 'goodwill ' of Rs.7,19,01,743/- which was made during the course of assessment proceedings by way of filing revised computation of income and ignoring the fact that revised return of income was not filed.
34. We observe that pursuant to the scheme of arrangement approved by Hon'ble Gujarat High Court in Asst. Year 2008-09 i.e. Zydus Wellness Ltd. acquired the Consumer Products Division of Cadila Healthcare Ltd. including the Brands 'Sugar-free' and 'Ever Youth' and related intangible assets of the said business, which came to be accounted for as "Goodwill" in the books of account of Zydus Wellness Ltd. The value of the said Goodwill, acquired at Rs.28.76 crores, stood duly reflected in the Annual Accounts of the Company for F.Y.2008-09 as the excess of the aggreegate face value of the Equity Shares issued over the excess of the Assets and Liabilities. At the time of filing of return income in Asst. Year 2010-11 the issue of claiming of depreciation on goodwill was debatable and uncertain. It was only after the judgment of Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) wherein Hon'ble. Court had an occasion to deal wih the issue of claiming depreciation on goodwill, similar to the case of assessee wherein goodwill was paid on account of amalgamation. Hon'ble Court held as under :—
"Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, 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 generis 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. "
35. Subsequent to the pronouncement of the judgment of Hon'ble Apex Court in the case of Smifs Securities Ltd. (supra) assessee put forward its rightful claim for depreciation of Rs.7,19,01,743/- being 25% value of assets of Rs.28.76 crores. Assessee's claim of depreciation on goodwill was denied by ld. Assessing Officer, however, ld. CIT(A) allowed assessee's claim by following the judgment of Hon'ble. Apex Court in the case of Smifs Securities Ltd. (supra).
36. Further we also observe that the main reason for denial of deduction by ld. Assessing Officer was that assessee has not filed revised return of income to make rightful claim. Ld. AR took us through the judgment of Hon'ble Bombay High Court in the case of Pruthvi Brokers and Shareholders (supra) wherein it has been categorically held that Assessing Officer is bound to entertain rightful claim of deduction made otherwise than by filing revised return. We find it pertinent to observe the ratio of the judgment of Hon'ble Bombay High Court in the case of Pruthvi Brokers and Shareholders (supra) wherein following observation was made :—
'A long line of authorities establish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims not made in the return filed by it. [Para 10]
In Jute Corpn. of India Ltd. [1991] 187 ITR 688 for the assessment year 1974-75 the appellant did not claim any deduction of its liability towards purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as it entertained a belief that it was not liable to pay purchase tax under that Act. Subsequently, the appellant was assessed to purchase tax and the order of assessment was received by it on 23rd November, 1973. The appellant challenged the same and obtained a stay order. The appellant also filed an appeal from the assessment order under the Income Tax Act. It was only during the hearing of the appeal that the assessee claimed an additional deduction in respect of its liability to purchase tax. The Appellate Assistant Commissioner (AAC) permitted it to raise the claim and allowed the deduction. The Tribunal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the Income Tax Officer. The Tribunal also refused the appellant's application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court.
The Supreme Court held as under:—
"5. In CIT v. Kanpur Coal Syndicate, a three Judge bench of this Court discussed the scope of Section 31(3)(a) of the Income-tax Act, 1922 which is almost identical to Section 251(l)(a). The court held - as under: (ITR p. 229)
"If an appeal lies, Section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under Section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to, make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do,"
6. The above observations are squarely applicable to the interpretation of Section 251(l)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of ' assessment passed by the Income Tax Officer." '
(B) It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction. [Para 11]
Further the observation of the Supreme Court in the case of Jute Corpn. of India Ltd. (supra) to the effect 'if the ground so raised could not have been raised at that particular stage when the return was filed or when the 'assessment order was made....' or 'that the ground became available on account of change of circumstances or law,' does not curtail the ambit of the jurisdiction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part viz., 'if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made....' clearly relate to cases where the ground was available when the return was filed and the assessment order was made but 'could not have been raised' at this stage. The words are 'could not have been raised' and not 'were not in existence'. Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz., where 'the ground became available on account of change of 'circumstances or law.'[Paras 12 and 13].
It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Ltd (supra). We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal Power Comp. Ltd. (supra). The question before the Court was whether the appellant-assessee could make a claim for deduction, other than by filing a revised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Comp. Ltd. (supra) contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held:—
"4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a ; claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the : assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs." (Para 22)
It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the Assessing Officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. (Para 23)"
The Appellant, therefore, prays that in any case, your Honour, as the first appellate authority is empowered to entertain the Appellant's claim for Depreciation on Goodwill, respectfully following the ratio of the Apex Court in the case of Smifs Securities Ltd. (supra).'
37. Respectfully following the judgment of Hon'ble Apex Court in the case of Smifs Securities Ltd. (supra), and the judgment of Hon'ble Bombay High Court in the case of Pruthvi Brokers and Shareholders (supra) we are of the view that ld. CIT(A) has rightly allowed the justifiable & correct claim of depreciation on 'goodwill' made by the assessee through revised computation of income without filing revised return of income during the course of assessment proceedings. Therefore, no interference is called for in the order of ld. CIT(A) on this issue. This ground of Revenue is dismissed.
38. Ground Nos.7 & 8 are of general nature, which need not be adjudicated.
39. In the result, appeal of Revenue is dismissed.