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TMI Blog2024 (1) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... ment comprising of protection and control consisting relays and control panels, high voltage and medium voltage switch gears, transformers and electrical distribution system. It was also engaged in the business of execution of turnkey projects involved in transmission and distribution of power. The assessee has filed its return of income for the assessment year 2009-10 on 29.09.2009, declaring a total income of Rs. 379,33,12,852/-. The case was selected for scrutiny and the assessment has been completed u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as "the Act") on 30.01.2013 and determined total income of Rs. 499,20,38,015/-. The assessee carried the matter in appeal before the first appellate authority and the ld. CIT(A) for the reasons stated in their appellate order dated 29.05.2014, partly allowed appeal filed by the assessee. Aggrieved by the CIT(A) order, the assessee and as well as, the revenue are in appeal before the Tribunal. 3. The first issue that came up for our consideration from ground no. 1 of assessee's appeal is addition towards disallowance of provision for warranty amounting to Rs. 6,61,04,000/-. The ld. Counsel for the assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as at Rs. 23.44 crores. From the above, it is abundantly clear that provision created by the assessee for warranty expenses is not scientifically recognized considering past trend and future liability required to settle warranty claims. Therefore, we are of the considered view that provision created by the assessee for warranty expenses is not in line with the ratio laid down by the Supreme Court in the case of M/s. Rotork Control India Pvt Ltd vs CIT (supra) and thus, in our considered view, there is no error in the reasons given by the ld. CIT(A) to sustain additions made towards disallowance of provision for warranty expenses. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the assessee. 3.3 In so far as alternative arguments of the ld. Counsel for the assessee that, at least the Assessing Officer may be directed to allow actual expenditure incurred towards warranty amounting to Rs. 4,71,12,000/-, we find that the appellant could not give any detail as to whether actual expenditure incurred during the year is out of provision created for the impugned year or out of opening balance brought forward from earlier financial year. In absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed as deduction. In fact, the ld. Counsel for the assessee fairly agreed that this issue is covered against the assessee. But, his only argument is that the Assessing Officer has made addition of Rs. 4,93,06,000/- being difference between amount released and opening balance instead of provision created minus amount released during the year. We find merit in arguments of the ld. Counsel for the assessee that addition can only be made towards net of provision minus amount released during the year because opening balance brought forward from earlier years cannot be added during the year. Therefore, we set aside the issue to the file of the Assessing Officer and direct the Assessing Officer to re-compute addition in accordance with our direction given herein above. 6. The next issue that came up for our consideration from ground no. 5 of assessee's appeal is disallowance of payment made towards use of trademark to the parent company. The appellant has debited an amount of Rs. 21,62,36,000/- towards payment made to parent company for use of trademark. The Assessing Officer disallowed trademark paid to parent company on the ground that the assessee could not establish nexus between tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reason given by the Assessing Officer is that the appellant could not furnish any evidences to prove registration of trademark under any international or domestic law. The second reason given by the Assessing Officer is that the assessee could not establish nexus between payment of trademark fee and business advantage. As regards first objection of the Assessing Officer, the ld. Counsel for the assessee filed necessary documents evidencing registration of trademark under Indian Law. The appellant has also explained how trademark helped the appellant company to generate business in India. Since, the Assessing Officer has disallowed trademark fee, on the ground that no documents has been filed to substantiate the payment, contrary to evidences on record, in our considered view, the issue needs to go back to the file of the Assessing Officer for further verification. Thus, we set aside the orders of the lower authorities on this issue and restore the issue back to the file of the Assessing Officer and direct the Assessing Officer to reexamine the issue in light of various evidences that may be filed by the assessee to justify payment of trademark fees to parent company. 7. The next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical services as per section 9(1)(vii) of the Act. Therefore, we are of the considered view that the Assessing Officer is erred in disallowing payment made to Kema Netherlands u/s. 40(a)(i) of the Act. Thus, we direct the Assessing Officer to delete additions made towards payment made to Kema Netherlands. Insofar as payment made to Henrich George GMBH towards installation and commissioning charges, the services are made available to appellant in India while providing installation and commissioning services. Therefore, in our considered view payment made to Henrich George GMBH is fees for technical services as defined u/s. 9(1)(vii) of the Act. But, fact remains that the definition for fees for technical service has been amended by insertion of Explanation 2 to section 9(2) by Finance Act, 2010 with retrospective effect from 01.04.1976. Although, said payments are brought within the ambit of FTS as per section 9(1)(vii) of the Act by way of an amendment, but when said payment was made, there was no clarity in respect of certain payments made to non-residents. Therefore, it is impossible for the assessee to perform which is impossible to perform and deduct TDS on payment made to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss the grounds taken by the revenue. 8. The next issue that came up for our consideration from ground no. 7 of assessee's appeal is disallowance of depreciation on goodwill. The assessee has claimed depreciation on goodwill for the first time before the CIT(A). The ld. CIT(A) rejected additional ground filed by the assessee on the ground that a similar issue has been considered for assessment year 2007-08 and rejected the claim of depreciation on goodwill. The ld. Counsel for the assessee, submitted that this issue is covered in favour of the assessee by the decision of ITAT, Chennai Benches in assessee's own case for assessment year 2007-08, in ITA No. 2090/Chny/2014, where the Tribunal decided the issue in favour of the assessee. 8.1 The ld. DR, on the other hand supporting order of the ld. CIT(A) submitted that, deprecation on goodwill is not allowable, because goodwill is not an intangible asset to be eligible for depreciation u/s. 32 of the Act. 8.2 We have heard both the parties, perused the material available on record an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te fee. The relevant findings of the Hon'ble High Court are as under: "5. The next issue related to disallowance of depreciation claimed under Section 32(1) of the Act in respect of 'non compete fee'. The assessee contended that the depreciation on 'non compete fee' related to one M/s. Areva T & D Instrument Transformer India Private Limited amounting to Rs. 52,43,007/- and that they claimed the same as deduction. The Assessing Officer rejected the claim on the ground that 'non compete fee' could not be classified as any of the businesses or commercial right as spelt out in Appendix I of the Income Tax Rules 1962 and therefore, not allowable. 6. The other issue was with regard to amalgamation of three companies with the assessee company and on amalgamation, the assets stood transferred to the assessee company with effect from 01.1.2006. The net excess value of the assets over the liability of the amalgamating company amounted to Rs. 54,26,56,000/- and had been adjusted against the general reserve of the assessee company. The assessee was called upon to explain as to why the said excess asset, which was taken over as liability during the current year, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt that the amount paid on account of surrender of tenancy rights being given by the assessee to the builder, there is no exchange of one property for the other. Hence, we have no hesitation in accepting the plea of the assessee, thereby rejecting the Revenue's contention raised in all these Tax Cases. Consequently, we hold that the assessee is entitled to depreciation." 10. In the light of the said decision of the Hon'ble Division Bench of this Court in the assessee's own case reported in (2012) 26 Taxmann.com 266, substantial question of law No. 1 is answered against the Revenue. 11. The second question is as to whether the non compete fee is an asset in the nature of patents, copyrights, trademark, licence, franchises or any other business or commercial right of similar nature and as to whether the assessee is eligible to claim depreciation under Section 32 of the Act. 12. The Tribunal took note of the decision of the High Court of Delhi in the assessee's own case for the assessment year 2005-06 in ITA.No. 315 of 2010 dated 30.3.2012 and allowed the appeal filed by the assessee thereby reversing the findings of the CIT(A). 13. Mrs. R. Hemalatha, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment was made. However, the Court in our respectful view, applied the test, which does not flow from the test laid down in Empire Jute Co. Ltd. (supra) by observing that the test is one of ascertaining whether from commercial angle and the advantage results in a capital field or it is the expenditure falls legitimately within the revenue field. Ultimately, the Court held that the arrangement for a period of 7 years is an enduring benefit. This in our respectful view, does not fulfil the test laid down by Empire Jute Co. Ltd. (supra) and in fact, the Court itself had pointed out that is not the conclusive test to determine whether expenditure is in capital field or revenue. Thus, for the above reasons, we are not in respectful agreement with the reasoning given by the Hon'ble Division Bench in Sharp Business System (supra). 39. It would be relevant to note that, in the case of Sharp Business System (supra), the Joint-venture company was incorporated in the assessment year 2001-02 and in the first year of business, with a view to warding off competition, it entered into agreement by paying a non-compete fee of Rs. 73 Crores to L & T Ltd., of setting-up or undertaking or ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. Accordingly, substantial question of law No.2 is answered against the Revenue." 9.2 In this view of the matter and by respectfully following the decision of Jurisdictional High Court of Madras in assessee's own case, we direct the Assessing Officer to allow depreciation on non-compete fee. 10. The next issue that came up for our consideration from ground no. 9 of assessee's appeal is rejection of additional depreciation in respect of additions made to plant and machinery in the second half of assessment year 2008-09. The ld. Counsel for the assessee, submitted that the assessee has made additions to plant and machinery in the second half of financial year 2007-08 relevant to assessment year 2008-09 and claimed 50% of actual depreciation. The balance amount of remaining 50% of additional depreciation was claimed in subsequent financial year. The Assessing Officer and CIT(A) denied deduction for remaining 50% of additional depreciation on the ground that additional depreciation can be claimed only in the year of addition to plant and machinery. 10.1 The ld. Counsel for the assessee, submitted that this issue is also covered in favour of the assessee by the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee." 10.4 In this view of the matter and by following the decision of co-ordinate bench of ITAT Chennai Benches in assessee's own case, we set aside the issue to the file of the Assessing Officer and direct the Assessing Officer to verify the claim of the assessee and thereafter decide the issue in accordance with the findings of the Tribunal given for the assessment year 2007-08. 11. In the result, appeal filed by the assessee is partly allowed for statistical purposes and appeal filed by the revenue is dismissed. ITA Nos: 2081 & 2094/Chny/2014 AY 2009-10: 12. These cross appeals filed by the assessee and as well as the revenue pertains to order passed by the CIT(A), LTU, against the order passed by the Assessing Officer u/s. 201(1) & 201(1A) of the Act holding the assessee in default for not deducting TDS u/s. 195 of the Act towards certain payments made to non-residents amounting to Rs. 5,08,27,882/- and demanding tax u/s. 201(1) of the Act & interest thereon u/s. 201(1A) of the Act. The Assessing Officer has computed short deduction of TDS u/s. 201(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciating fact that said payments are in the nature of fees for technical services u/s. 9(1)(vii) of the Act. 12.3 We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. The Assessing Officer has computed short deduction of TDS and interest thereon u/s. 201(1) & 201(1A) of the Act in respect of payments made to non-residents without deduction of tax at source u/s. 195 of the Act. The Assessing Officer had also disallowed said payments made to non-residents u/s. 40(a)(i) of the Act and added back to total income of the assessee. The assessee had challenged both orders passed by the Assessing Officer u/s. 143(3) of the Act and u/s. 201(1) & 201(1A) of the Act. The CIT(A), directed the Assessing Officer to restrict the demand only to the extent of interest charged u/s. 201(1A) of the Act in respect of payments made to Kema Netherlands towards certification/testing charges and Henrich George GMBH, Germany towards installation and commissioning, because above two payments have been confirmed by the CIT(A). Insofar as remaining payments made to non-residents, the ld. CIT(A) deleted said payments, on the ground that t ..... 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