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TMI Blog2015 (12) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is made. As noticed hereinabove, the Commissioner (Appeals) has recorded a categorical finding of fact to the effect that the Assessing Officer has not brought any material on record to show that the payments in question exceeded the fair value of the services received. Insofar as the legitimate needs of such services etc. is concerned, the Commissioner (Appeals) has found as the matter of fact that as a result of utilising the employees of its sister concerns and on payment of service charges, the assessee company started making operational profits from assessment year 2001-02. Under the circumstances, it cannot be said that the services were not availed for any legitimate need. The Tribunal has concurred with the aforesaid findings of fact recorded by the Commissioner (Appeals). Essentially, therefore, the conclusion arrived at by the Tribunal is based upon findings of fact to the effect that there is no material to show that the payments made exceed the fair market value and that the services have been availed for legitimate needs of the assessee company. On behalf of the appellant nothing has been pointed out to show that the Tribunal has placed reliance upon any irrelevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als: Whether on facts and under the circumstances and in law, ITAT has erred in deleting the disallowance made under section 40A(2)(b) of the Income Tax Act by not appreciating the facts brought out by the assessing officer, who has rightly invoked the provisions of section 40A(2)(b) of the Income Tax Act, since assessee failed to justify its payment, which was on higher side? The following question of law is common in Tax Appeals No.657 of 2015 and 658 of 2015: Whether on facts and under the circumstances and in law, ITAT has erred in allowing depreciation on goodwill by relying upon decision rendered by Hon'ble Supreme Court in the case of CIT v. Smifs Securities Limited, reported in (2012) 24 taxmann.com 222 (SC) without appreciating that facts of that case were totally different from those of the case under consideration? 3. The assessment years are 2001-02, 2002-03 and 2005-06 respectively. The assessee-Diamines Chemicals Limited is a company engaged in the business of manufacturing chemicals. A company called Alkyl Finance and Trading Limited was amalgamated with the assessee company. In relation to the first question which is common in each of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in point of time, wherein, after appreciating the material on record, he held thus: 5.4 I have considered the submissions of the ld. A.R. and the facts of the case. I find from a perusal of the assessment order for AY 01-02 (when this issue was brought up for the first time) that the disallowance u/s 40A(2)(b) was made on the ground that the assessee had made payments to its sister concerns, which were all loss making entities, and thereby causing loss of revenue. However, it is seen from the details of the income returned by each of them over a period of years that firstly, not all the companies were loss making and secondly, the assessee itself was a loss making company. As a result of utilising the employees of its sister concerns and on payment of service charges, the assessee company started making operational profits from AY 2001-02 onwards. The disallowance can be made u/s 40A(2)(b) only where the expenditure in question can be shown to have been incurred which was either excessive or unreasonable. On the facts, in my opinion, the payment of service charges was justified by the results obtained. Further, no material has been brought on record to show that the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical know-how in consideration of which the royalty was paid. The Tribunal further noted that in respect of sale commission and supervision charges, no material was brought on record by the Assessing Officer to controvert the claim of the assessee that the same was paid for the services received or to show that the payments were more than the fair market value of such services and accordingly, did not find any reason to interfere with the order of the Commissioner (Appeals). 8 From the facts as emerging from the record it is apparent that the Commissioner (Appeals) after appreciating the evidence on record has found, as a matter of fact that payment of service charges was justified by the results obtained by the assessee and further that no material had been brought on record to show that the payments in question exceeded the fair market value of the services received. The Commissioner (Appeals), from the details of the income returned by each of the sister concerns over a period of years, has further found that firstly, not all the companies were loss making and secondly, the assessee itself was a loss making company and that as a result of utilising the employees of its s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has concurred with the aforesaid findings of fact recorded by the Commissioner (Appeals). Essentially, therefore, the conclusion arrived at by the Tribunal is based upon findings of fact to the effect that there is no material to show that the payments made exceed the fair market value and that the services have been availed for legitimate needs of the assessee company. On behalf of the appellant nothing has been pointed out to show that the Tribunal has placed reliance upon any irrelevant material or that any relevant material has been ignored. No contrary material has been brought to the notice of the court so as to dislodge the findings of fact recorded by the Tribunal. Under the circumstances, the conclusions arrived at by the Tribunal being based upon findings of facts recorded by it after appreciating the evidence on record, do not give rise to any question of law, much less, a substantial question of law warranting interference. 10 As regard the second question of law which arises in two of the appeals, the assessee claimed depreciation on goodwill of ₹ 2,36,250/- for assessment year 2005-06 and ₹ 5,60,000/- for assessment year 2002-03. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cates 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). 9. In the circumstances, we are of the view that goodwill is an asset under Explanation 3(b) to Section 32(1) of the Act. 13 Section 32 of the Act provides for the deductions to be allowed in respect of depreciation of - (a) buildings, machinery, plant or furniture, being tangible assets; and (b) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets being acquired on or after the 1st day of April, 1998. Explanation 3 to section 32 provides that for the purposes of that 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. (a) While goodwill has not been specifically mentioned in the category of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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