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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 ..... ee 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 appeals, during the course of scrutiny assessment relating to the years under consideration, the Assessing Officer noticed that heavy amounts were paid by Alkyl Finance & Trading Limited to various concerns on account of royalty, commission, services charges, etc. and that all the concerns to whom these payments were made fell und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound 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 in question exceeded the fair value of the services received. Accordingly, the disallowance of Rs. 18,79,106/- is directed to be deleted." 5 The Commissioner (Appeals) followed the order for assessment year 2005-06 in the appeals relating to assessment year 2001-02 and 2002-03. 6 The revenue went in appeal before the Tribunal in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 sister concerns and on payment of service charges, the assessee company had started making operational profits from assessment year 2001-02 onwards. The Commissioner (Appeals) observed that disallowance can be made under section 40A(2)(b) of the Act only where the expenditure in question can be shown to have been incurred which was either excessive or unreasonable. The Tribunal, for the reasons referred to herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Rs. 2,36,250/- for assessment year 2005-06 and Rs. 5,60,000/- for assessment year 2002-03. The Assessing Officer disallowed such claims by holding that all intangible assets cannot form part of section 32 of the Act and the assessee cannot claim depreciation in respect of all intangible assets. That depreciation under the Act is provided for wear and tear of the asset and therefore, the assessee was not entitled to get depreciation on goodwill. He, accordingly, disallowed the above claims in relation to depreciation on goodwill. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect 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 intangible assets under clause (b), the Supreme Court in the above decision has held that goodwill is an asset under Explanation 3(b) to section 32(1) of the Act. Under the circumstances, the controversy raised vide the second proposed question clearly stands concluded by the above decision. The Tribunal, therefore, did not commit any error in following the said decision. No question of law can, therefore, be said to arise in relation to the second g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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