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  • provisions of the Income Tax Act, 1961 (for short the Act)
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Smart Summary

Tribunal Judgment Summary — PepsiCo India Holdings (P) Ltd — Assessment Year 2008-09

Factual and Procedural Background

The assessee, M/s PepsiCo India Holdings (P) Ltd, engaged in manufacturing and trading of snacks and beverage products (including exports), filed its return for assessment year 2008-09 showing nil total income after setting off brought forward depreciation/losses. A revised return was filed subsequently. The assessment was completed by order dated 30/12/2011 under section 143(3) of the Income Tax Act, 1961, which made several additions. Relevant additions for these appeals included a disallowance under section 14A read with Rule 8D (aggregating to Rs. 4,67,23,766 as assessed), adjustments to book profits under section 115JB (MAT) on account of provisions for leave encashment and gratuity, disallowance of certain expenses relating to the Tropicana Beverages merger (treatment as capital/amalgamation expense), disallowance of excess depreciation on certain assets (computer peripherals), disallowance of depreciation on non‑compete fees, and an apparent discrepancy in depreciation related to the Tropicana merger.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], which granted partial relief and sustained certain additions. Both the assessee and the Revenue appealed to the Tribunal (common disposal), resulting in the present decision pronounced on 14 January 2020.

Legal Issues Presented

  1. Whether disallowance under section 14A of the Act read with Rule 8D of the Rules (under normal provisions) was correctly computed and whether the disallowance can exceed the amount of tax‑exempt income (dividend income of Rs. 37,13,348).
  2. Whether a disallowance under section 14A read with Rule 8D can be added back while computing book profits under section 115JB (i.e., MAT computation).
  3. Whether provisions for leave encashment and gratuity — calculated on the basis of actuarial valuation — are to be treated as ascertained liabilities (and hence excluded while computing book profits under section 115JB) or are to be disallowed.
  4. Whether the expenses claimed in relation to Tropicana Beverages Company (post‑merger) were correctly treated as amalgamation/capital expenses under section 35DD or as deductible business expenses under section 37.
  5. Whether certain items (UPS, printer, projector and similar) qualify as computer peripherals and are entitled to 60% depreciation (i.e., whether the assessing officer's classification and disallowance of depreciation was correct).
  6. Whether depreciation on capitalised non‑compete fees is allowable when earlier years' returns/assessments accepted depreciation on the same (i.e., whether the assessing officer was justified in disallowing depreciation in 2008‑09).
  7. Whether discrepancies in depreciation arising from use of original vs revised tax audit reports (in connection with the Tropicana merger) were correctly rectified by the CIT(A).

Arguments of the Parties

Assessee's Arguments

  • For section 14A/Rule 8D disallowance (normal computation): The assessee had not incurred expenditure in relation to dividend income; the total exempt dividend income was Rs. 37,13,348 and the disallowance cannot exceed the exempt income. Relied on Joint Investments (Delhi High Court) and Tribunal decisions (including assessee's own precedents).
  • For MAT computation under section 115JB: Relying on the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd, contended that disallowance under section 14A/Rule 8D should not be added when computing book profits under section 115JB because Explanation 2 to that section does not specifically mention section 14A.
  • Regarding provisions for gratuity and leave encashment: Claimed provisions were created on actuarial valuation basis and constituted ascertained liabilities; relied on Supreme Court decisions (Bharat Earth Movers and Metal Box Co. of India Ltd) and earlier Tribunal remands in the assessee's own cases.
  • Regarding Tropicana expenses: Argued the amounts related to day‑to‑day operations of Tropicana prior to merger and represented expenses incurred on behalf of the transferor; hence deductible under section 37 and disclosed in profit & loss and schedule 16.
  • Regarding depreciation on certain assets: Admitted that cabinet and air conditioner were not computer peripherals but contended that UPS, printer and projector are computer peripherals and entitled to 60% depreciation; relied on decisions such as Birlasoft and BSES Rajdhani Powers.
  • Regarding non‑compete depreciation: Pointed out depreciation for earlier years had been accepted by Revenue; therefore disallowance in 2008‑09 was not justified.
  • Regarding depreciation discrepancy due to merger: Contended the assessing officer mistakenly relied on original tax audit report rather than the revised one; CIT(A) correctly directed verification and allowance as per merger tax audit report.

Revenue's Arguments

  • For section 14A/Rule 8D: The assessing officer computed disallowance under various sub‑clauses of Rule 8D (including rule 8D(2)(ii) and 8D(2)(iii)) and made additions to the assessee's income accordingly; Revenue sustained those additions before the Tribunal in part.
  • For provisions for gratuity/leave encashment: The assessing officer contended actuarial valuation is based on estimates and conditions and does not convert contingent or unascertained liabilities into ascertained liabilities that can be directly charged; therefore the amounts should be brought to tax rather than allowed as exclusion.
  • For Tropicana expenses: The assessing officer considered these expenses to be incurred for the purpose of amalgamation and therefore capital in nature to be capitalised under section 35DD (only 1/5 allowed), disallowing the remainder.
  • For computer peripherals depreciation: The assessing officer reclassified several items as office equipment/furniture (not eligible for 60% depreciation) and disallowed depreciation accordingly.
  • For non‑compete fees: The assessing officer contended the non‑compete payment is for a right in personam (not intellectual property) and hence not covered by clause for depreciation under section 32; disallowed depreciation for AY 2008‑09 despite earlier acceptances.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Joint Investments Private Limited vs. CIT (2015) 59 taxmann.com 295 (Delhi High Court) Held that section 14A read with Rule 8D disallows expenditure incurred in relation to tax‑exempt income and the disallowance cannot, by interpretation, be made so as to disallow the entire tax‑exempt income; where an assessee voluntarily disallowed expenditure, AO must have reasons to reject that claim. The Tribunal respectfully followed this High Court decision and held that the disallowance under section 14A/Rule 8D cannot exceed the exempt income (dividend of Rs. 37,13,348), allowing the assessee's grounds 1, 2 and 4 to 6 accordingly.
ACIT vs. Vireet Investment (P) Ltd (2017) 82 taxmann.com 415 (Delhi‑Tribunal Special Bench) Held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation under section 14A read with Rule 8D — implying that disallowance under section 14A/Rule 8D should not be added while computing book profits for MAT. The Tribunal followed this Special Bench decision and answered the MAT issue in favour of the assessee: no disallowance under section 14A/Rule 8D is to be added while computing book profits under section 115JB.
Bharat Earth Movers vs. CIT, 245 ITR 428 (Supreme Court) Authority cited by assessee in support of the proposition that actuarial valuation can render certain employee benefits liabilities as ascertained liabilities (for tax/accounting treatment). The assessee relied on this Apex Court authority in arguing that provisions for gratuity/leave encashment, prepared on actuarial basis, are ascertained liabilities. The Tribunal accepted part of this approach in respect of leave encashment (upheld CIT(A)) but remitted the gratuity issue for verification of the actuarial valuation by the AO.
Metal Box Company of India Ltd vs. Their Workmen (1969) 73 ITR 53 (Supreme Court) Authority relied upon in relation to characterization of liabilities/payments (used by assessee to support actuarial valuation being treated as establishing liability). Relied on by the assessee in support of the contention that actuarial valuation gives rise to ascertained liabilities; Tribunal relied on prior Tribunal practice and remanded gratuity verification while upholding leave encashment treatment.
CIT vs. M/s Birlasoft Ltd (Appeal No. 2645/2012) Authority used to support that items like UPS, printer, projector qualify as computer peripherals and attract higher rate (60%) of depreciation. The Tribunal relied on this authority (as cited in the order) to conclude that UPS, printer and projector are computer peripherals and directed the AO to recompute depreciation at 60% for those items.
CIT vs. BSES Rajdhani Powers Ltd (Delhi High Court) ITA No. 266/2010 Authority cited in support of classifying certain items as computer peripherals eligible for higher depreciation rate. The Tribunal referred to this High Court decision in supporting its direction that UPS, printer and projector be treated as computer peripherals and that depreciation on these items be recomputed at 60%.
Tribunal decisions in assessee's own earlier cases (examples cited in text) Used to show consistent Tribunal practice: (i) ITA No. 3461/Del/2013 order dated 02/06/2016 (AY 2006‑07) on section 14A/Rule 8D issues; (ii) ITA No. 834/Del/2010 (AY 2002‑03), ITA No. 936/Del/2012 (AY 2003‑04), ITA No. 822/Del/2004 (AY 2005‑06) in relation to actuarial valuation verification and treatment of provisions. The Tribunal noted these earlier orders: followed the approach that disallowance under section 14A cannot exceed exempt income (per coordinate benches) and, regarding employee benefit provisions, remitted the gratuity issue to the AO for verification of actuarial valuation while upholding treatment of leave encashment as an ascertained liability in line with earlier years.

Court's Reasoning and Analysis

The Tribunal adopted a stepwise analytical approach, following higher and coordinate authorities cited in the record and applying them to the facts before it:

  1. Section 14A / Rule 8D (Normal computation): The Tribunal observed there was no dispute about the quantum of dividend income (Rs. 37,13,348). It followed the Delhi High Court decision in Joint Investments (and coordinate Tribunal decisions including the assessee's own precedent) that the scope of section 14A read with Rule 8D is to disallow expenditure incurred in relation to tax‑exempt income and that the disallowance cannot be interpreted to exceed the exempt income. The Tribunal therefore answered the related grounds in favour of the assessee and allowed grounds No. 1, 2 and 4 to 6 of the assessee's appeal.
  2. Section 14A / Rule 8D (MAT / section 115JB): On the point whether section 14A disallowance could be added while computing book profits under section 115JB, the Tribunal followed the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd, which held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resort to the computation under section 14A read with Rule 8D. The Tribunal therefore held in favour of the assessee on this MAT issue.
  3. Provisions for leave encashment and gratuity (MAT computation): The assessing officer had accepted that the actuarial basis was scientific but maintained that actuarial estimates do not necessarily convert liabilities into actual/ascertained liabilities. The Tribunal considered earlier decisions in the assessee's case and other Tribunal practice: it upheld CIT(A)'s finding that provision for leave encashment is an ascertained liability (and thus not to be added back), but remanded the gratuity issue to the assessing officer for verification of the actuarial valuation (consistent with prior Tribunal practice and earlier years' orders). The Tribunal therefore dismissed the Revenue ground in respect of these matters (ground 3 of Revenue appeal was dismissed in light of the discussion).
  4. Tropicana furnishing expenses (section 35DD vs section 37): The assessing officer treated the expenses as amalgamation/capital expenses to be capitalised under section 35DD (allowing only 1/5), whereas the assessee argued the expenses were day‑to‑day operational expenses of Tropicana that were incurred on behalf of the transferor and properly disclosed in the P&L and schedule 16. The Tribunal examined the disclosures (schedule 16 and notes) and agreed with CIT(A) that there was no basis to treat the expenses as amalgamation expenses; instead they represented expenses incurred on behalf of Tropicana and disclosed in the accounts. The Tribunal found no perversity in CIT(A)'s finding and dismissed Revenue's ground on this issue.
  5. Excess depreciation on computer peripherals: The assessing officer excluded certain items from the higher rate depreciation block and disallowed depreciation. The assessee conceded that cabinet and air conditioner were not peripherals, but maintained that UPS, printer and projector were computer peripherals eligible for 60% depreciation. Having reviewed the asset details and relying on authorities such as Birlasoft and BSES Rajdhani Powers, the Tribunal held that UPS, printer and projector are computer peripherals and directed the AO to recompute depreciation on these three items at 60%, thus allowing the assessee's claim in part.
  6. Depreciation on non‑compete fees: Although the assessing officer argued that the non‑compete fee gave a right in personam and not an intellectual property right under section 32, the Tribunal observed that depreciation on the capitalised non‑compete fee had been accepted by Revenue in earlier years (with specified depreciation amounts for prior years). No change of circumstances was shown by the assessing officer to justify a departure from the earlier treatment. Accordingly, the Tribunal found no illegality in CIT(A)'s approach to follow earlier consistent treatment and dismissed Revenue's ground on this issue.
  7. Depreciation discrepancy relating to Tropicana merger: The Tribunal found that the assessing officer had relied on the original tax audit report instead of the revised report (the latter being the one filed pursuant to the merger). CIT(A) reviewed both original and revised reports and directed the AO to verify records and allow depreciation as per the tax audit report filed pursuant to the merger. The Tribunal found no reason to interfere, noting that CIT(A) rectified an apparent mistake rather than deleting an addition.

Holding and Implications

Holding: In the result the Tribunal issued the following dispositive orders: Assessee's appeal (ITA No. 4077/Del/2015): ALLOWED.
Revenue's appeal (ITA No. 4102/Del/2015): ALLOWED IN PART for statistical purpose.

Immediate consequences and practical implications (as reflected in the opinion):

  • The disallowance under section 14A read with Rule 8D (normal computation) was constrained by the principle that such disallowance cannot exceed the exempt income (dividend) — the Tribunal answered related grounds in favour of the assessee and reduced the impact of that addition accordingly.
  • For computation of book profits under section 115JB (MAT), the Tribunal followed the Special Bench in Vireet Investment and held that disallowance under section 14A/Rule 8D is not to be added while computing MAT book profits.
  • Provision for leave encashment was accepted as an ascertained liability for the purposes of computing book profits (CIT(A)'s finding upheld); the gratuity provision question was remitted to the assessing officer for verification of the actuarial valuation.
  • Expenses in relation to Tropicana (post‑merger) were held to represent operating expenses incurred on behalf of Tropicana (disclosed in P&L), not amalgamation expenses that must be capitalised under section 35DD; Revenue's addition on this point was dismissed.
  • Depreciation disallowance for UPS, printer and projector was disallowed by the assessing officer in error; the Tribunal directed recomputation at 60% for those items (following Birlasoft and BSES Rajdhani authorities).
  • Depreciation on capitalised non‑compete fees for AY 2008‑09 was not disallowed by the Tribunal (CIT(A)'s approach of following earlier years' acceptance was sustained).
  • The apparent discrepancy in depreciation figures arising from reliance on an original (rather than revised) tax audit report was corrected by CIT(A) and the Tribunal declined to interfere with that corrective direction.
  • No new legal principle was laid down by the Tribunal; the decision applied and followed existing High Court, Special Bench and coordinate Tribunal precedents to resolve the issues in dispute. The decision's primary practical effect is the favoring of the assessee on the listed points and remanding of the gratuity valuation for further factual verification by the assessing officer.

Pronounced in open court on 14 January 2020. Members: G.S. Pannu (Vice President) and K. Narasimha Chary (Judicial Member).

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    M/s. PepsiCo India Holdings Pvt. Ltd., Gurgaon v. DCIT, New Delhi

    PER K. NARASIMHA CHARY, J.M. Aggrieved by the order dated 20/3/2015 in appeal No. 439/11-12 passed by the learned Commissioner of Income Tax (Appeals)-7, Delhi (Ld. CIT(A)), for the assessment year 2008-09, in the case of M/s PepsiCo India Holdings (P) Ltd (the assessee), both the assessee and Revenue preferred these appeals. Since these appeals emanate from the same order, we find it just and convenient to dispose of by way of this common order.

    2. Brief facts of the case are that assessee is in the business of manufacturing and trading of snacks, aerated and non-aerated beverage products and export and trading of such products. For the assessment year 2008-09 it had filed its return of income on 30/9/2008 showing the total income as nil after setting off brought forward depreciation/loss of Rs. 1,01,40,76,789/-under the normal provisions of the Income Tax Act, 1961 (for short the Act) and Rs. Nil under section 115 JB of the Act after setting off lower of the brought forward depreciation/business loss, profits. Assessee revised the return on 1/9/2009 declaring a total income of nil after setting off brought forward depreciation/loss of Rs.104,75,87,646/-and also nil under section 115JB of the Act. Assessment was complete by order dated 30/12/2011 under section 143(3) of the Act after making several additions which includes, for the purpose of these appeals, Rs. 4,67,23,766/-under section 14A of the Act read with Rule 8D of the Income Tax Rules1962 (the Rules), disallowance on account of provision for leave encashment and provision for gratuity while computing the book profits u/s. 115JB of the Act, disallowance on account of furnishing expenses of Tropicana beverage merger, disallowance of excess depreciation on computer peripherals, disallowance of depreciation on non-compete fees under normal computation and the disallowance of depreciation on account of merger with the Tropicana beverage company under normal computation.

    3. Aggrieved by such additions assessee preferred appeal before the Ld. CIT(A). Ld. CIT(A) by way of impugned order gave partial relief to the assessee while sustaining certain additions. Hence, both the assessee and the Revenue are in these appeals before us. ITA 4077/del/2015

    4. Though the assessee preferred several grounds, at the time of arguments submitted that grounds No. 7 and 8 are not pressed. Grounds No. 1, 2, 4, 5 and 6 related to the disallowance under section 14A of the Act read with Rule 8D of the Rules under normal provisions of the Act; whereas ground No. 3 is the challenge to such a disallowance under section 14A of the Act read with Rule 8D of the Rules under section 115JB of the Act.

    5. Insofar as the addition under section 14A of the Act read with Rule 8D of the Rules under normal provisions of the Act is concerned, the submission on behalf of the assessee is that the assessee had not incurred any expenditure in relation to dividend income, but sue moto the assessee had disallowed a sum of Rs. 1,01,36,427/-under rule 8D(2)(iii) of the Rules, whereas the learned Assessing Officer made an addition under rule 8D(2)(ii) of the Rules also to the tune of Rs.4,49,72,528/-and under rule 8D(2)(iii) of the Rules to the tune of Rs.1,18,87,665/-which came to Rs. 5,68,60,193/-. By reducing such an amount by the sue moto disallowance of the assessee, learned Assessing Officer assessed the total disallowance to the tune of Rs. 4,67,23,766/-. It is further submitted that the Ld. CIT(A) in the impugned order deleted the disallowance under rule 8D(2)(ii) of the Rules but sustained the disallowance under rule 8D(2)(iii) of the Rules.

    6. Ld. AR further submitted that during the year the total exempt income earned by the assessee was only Rs.37,13,348/-. According to the Ld. AR the disallowance cannot exceed the exempt income. For this proposition Ld. AR placed reliance on the decision of the Honble jurisdictional High Court in the case of Joint Investments Private Limited vs. CIT (2015) 59 taxmann.com 295 (Delhi) and also the Tribunals decision in assessees own case for the assessment year 2006-07 in ITA No. 3461/del/2013 by order dated 02/06/2016.

    7. There is no dispute as to the quantum of the dividend earned during the year and it is Rs.37,13,348/-. In Joint Investments Private Limited (supra), Honble jurisdictional High Court held that where the assessee declared tax-exempt income and voluntarily disallowed a certain expenditure under section 14A, in the absence of any reason why the assessees claim for disallowance under section 14A had to be rejected, learned Assessing Officer was not justified in computing the disallowance. It is further held that by no stretch of imagination can section 14A of the Act read with Rule 8D of the Rules be interpreted so as to mean that the entire tax exempt income is to be disallowed, the window for disallowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income, and this proportion are portion of the tax exempt income surely cannot swallow the entire amount.

    8. Further in assessees own case, a coordinate Bench of this Tribunal held that the disallowance in any case cannot exceed the exempt income. Ld. DR does not dispute this proportion of law as laid down by the Honble High Court and in a number of decisions by the coordinate benches of this Tribunal. We, therefore, while respectfully following the same answer the issue in favour of the assessee and allow ground No. 1,

    2 and 4 to 6.

    9. By way of ground No. 3, assessee challenged the disallowance under section 14A of the Act read with Rule 8D of the Rules. While computing the profits under section 115JB of the Act and while placing reliance on the decision of the special Bench of this Tribunal in the case of ACIT vs. Vireet Investment (P) Ltd reported in (2017) 82 taxmann.com

    415 (Delhi-Trib.) (SB) it is submitted by the Ld. AR that the disallowance under section 14A of the Act read with Rule 8D of the Rules cannot be added while computing profit as per section 115JB as Explanation 2to that section does not specifically mentions section 14A of the Act, and therefore, no disallowance can be made under section 14A of the Act while computing book profits under MAT provisions.

    10. InVireet Investment (P) Ltd (supra), the Special Bench dealt with this aspect at length and held that the computation under clause (f) of explanation 1 to section 115 JB (2) is to be made without resorting to the computation as contemplated under section 14A of the Act read with Rule 8D of the Rules. There is no dispute on this proposition. We therefore, while respectfully following the said decision answer the issue in favour of the assessee. ITA No. 4102 /Del/ 2015 (Revenues appeal)

    11. In Revenues appeal, grounds No. 1 and 8 are general in nature. Ground No. 2 relates to the deletion of the disallowance on account of provision for leave encashment and provision for gratuity while computing the profits under section 115 JB of the Act.

    12. It could be seen from the assessment order that during the year under consideration the assessee created provision for gratuity to the tune of Rs. 11,30,68,439/-and for leave encashment to the tune of Rs.64,21,504/-and submitted that the provision for gratuity and leave encashment was created scientifically on the basis of actuarial valuation and were, therefore, in the nature of ascertained liability and placed reliance on the decision of the Honble Apex Court in the case of Bharat Earth movers vs. CIT 245 ITR 428 (SC) and a Metal Box Company of India Ltd vs. Their Workmen (1969) 73 ITR 53 (SC).

    13. Learned Assessing Officer however was of the opinion that the assessee had equated an unascertained liability with contingent liability and actuarial valuation relied upon by the assessee to calculate the liability on account of gratuity is subject to a number of conditions and is largely based on estimates and presumed figures, the basis of calculation might be scientific but this does not make it an actual/ascertained liability. According to the learned Assessing Officer even if an amount is at all required to be set-aside for meeting liabilities in future, the same can be done by creating a reserve rather than creating a provision which is directly charged to the taxable profit. Learned Assessing Officer, therefore, brought these amounts to tax.

    14. At the outset, Ld. AR submitted that the Assessing Officer had accepted that the basis of calculation was scientific, but it was still held that the same is not an actual/ascertained liability. He submitted that a similar issue had arisen in assessees own case for the assessment year 2002-03 in ITA No. 834/del/2010 and 2003-04 in ITA No. 936 /Del/ 2012; that the matter was restored back to the learned Assessing Officer to verify actuarial valuation, and the learned Assessing Officer after verifying the actuarial valuation report allowed the claim of the assessee. He further submitted that similar was the case in respect of the assessment year 2005-06 in ITA No. 822/del/2004 when the coordinate Bench of this Tribunal remanded the issue to the file of the learned Assessing Officer.

    15. This fact is not controverted. We have gone through the orders are cited by the Ld. AR. In assessees own case for the assessment year 2005-

    06 in ITA No. 822/del/2004 also the Tribunal dealt with this issue in the light of the view taken for the earlier years to remand issue to the file of the learned Assessing Officer for verification of the actuarial valuation. Relevant observations of the Tribunal read thus,- We find that in Assessment Year 2000-01, the Hon'ble Tribunal vide its order dated 16.07.2009 vide para 17 had held that provisions for leave encashment was ascertained liability and, therefore, it had allowed the same for not including the same for calculation of book profits. However it upheld the inclusion of gratuity provisions for purpose of calculation of minimum profits. ..in view of above facts and circumstances, we following the order of Tribunal in Assessment Year 2000-01 and 2001-02, partly allow the appeal of Revenue by holding that the provisions for leave encashment is ascertained liability. As regards provisions for gratuity, the argument of Ld. A.R. that in subsequent years Ld. CIT(A) has allowed the relief and Revenue has not filed appeals, therefore, order of Ld. CIT(A) should be upheld, do not hold much force as we do not know as to whether there were defects in actuarial report in those years or not. Therefore, following Assessment Year 2001-02, we remit back the issue of gratuity to the office of A.O. for readjudication who will readjudicate on the basis of fresh actuarial report if any to be filed by assessee. In the facts and circumstances of the case, this issue is covered by the view taken by the Tribunal in the earlier assessment years like 2002-03, 2003-04 and 2005-06. We, therefore, while respectfully following the same, while upholding the findings of the Ld. CIT(A) in respect of the provision for leave encashment, remand the issue relating to the verification of the actuarial valuation in respect of gratuity, to the file of the learned Assessing Officer.

    16. Ground 3 of Revenues appeal is covered by our discussion on grounds No. 1, 2 and 4 to 6 of assessees appeal and in view of the same we dismiss the Revenues ground.

    17. Ground No. 4 of Revenues appeal related to the disallowance on account of unfurnished expenses of Tropicana Beverage Manager. It could be seen from the impugned assessment order that during the year M/s Tropicana Beverages Company (TBC) has merged with/amalgamated with the assessee company w.e.f. 1/4/2007 and while filing the original return of income a sum of Rs.15,37,72,000/-was claimed towards expenses relating to TBC and added back, whereas in the revised income the same was not so added back. Assessing officer was of the opinion that such an expenditure pertains to/incurred for the purpose of amalgamation/merger of the two entities, and therefore, the same has to be capitalised and only 1/5 thereof has to be allowed as per the provisions of section 35DD of the Act. On this premise learned Assessing Officer added back the 4/5ths of Rs.15,37,72,000/-which comes to Rs.12,30,17,600/-to the income of the assessee.

    18. According to the assessee these expenses related to the operation of M/s Tropicana Beverages Company and after the merger, the assessee claimed the same as a deduction under section 37 of the Act. Assessee submits that this expenditure was not, as held by the learned Assessing Officer, incurred for the purpose of amalgamation. The counsel argued that pursuant to the merger, profits made by the Tropicana beverages were included in the profits of the assessee and true disclosure thereof was made in scheduled 16 of the financials. He further submitted that the expense disallowed by the Assessing Officer represent the expense incurred by the assessee on behalf of Tropicana Beverages and was so disclosed in the P&L Account, but the learned Assessing Officer wrongly concluded that these expenses are in the nature of amalgamation expenses.

    19. On this aspect, Ld. CIT(A) while dealing section 35DD of the Act gave a finding that unless and until the expenditure was incurred wholly and exclusively for the purpose of amalgamation, such a section has no application. He further recorded that without giving any finding as to the nature of expenditure to say that it was pertaining to the amalgamation/merger and was not a regular business expenditure, invocation of the provisions of section 35DD of the Act is bad.

    20. Before usalso, the assessee argued that the expenditure was for day-to-day business activities as could be seen from the financials of the assessee. Our attention is drawn to schedule 16: notes to the accounts at page No. 57 of the paper book where it is stated that the transactions including income and expenses for the year ended 31 of March 2008, when the transferor company was being run and managed in trust by the transferee company has also been incorporated in these accounts. The details of such income and expenditure are shown. On a perusal of the details we are of the considered opinion that the sum of Rs.12,30,17,600/-does not relate to the amalgamation expenses and on the other hand they represent the expenses incurred by the assessee on behalf of Tropicana Beverages and were disclosed in the profit and loss account. We, therefore, do not find any perversity in the findings of the Ld. CIT(A) and, accordingly, decline to interfere with the same on this aspect. Ground No. 4 of Revenue is accordingly dismissed.

    21. Ground number 5 of Revenues appeal involves the disallowance of excess depreciation on computer peripherals. During the assessment proceedings learned Assessing Officer noticed that a number of items like project, Cabinet, battery, RSA token EPBAX, air conditioner, photocopier, switch, UPS, storage, printer etc were added to the block of assets and the depreciation was claimed it 60% though they form part of their office equipment/furniture and fittings. Learned Assessing Officer therefore disallowed the claim of depreciation to the tune of Rs. 42,24,297/-in respect of such items the value of which was 93, 87, 327/-.

    22. While inviting our attention to page No. 71 of the paperbook, it is submitted by the Ld. AR that the assessee originally claimed the depreciation in respect of UPS, printer, project, Cabinet and air conditioner to the tune of Rs. 48,71,847/-but the Assessing Officer considered the UPS, printer, projector and the Cabinet worth Rs. 35,61,885/- as office equipment whereas the assessee sue moto admitted Cabinet and air conditioner to be the part of office equipment and its value is Rs. 1,05,870/-in respect of which a disallowance of Rs. 47,642/-alone could be made.

    23. On a perusal of the details furnished as to the additions made in the block of computers and computer peripherals, we find that such addition was in respect of UPS, printer, projector, Cabinet and air conditioner, out of which the assessee sue moto admits that Cabinet and air conditioner do not form part of the computer peripherals whereas other items, namely, UPS, printer and projector are certainly computer peripherals and admissible for 60% depreciation in view of the decisions of the Honble Apex Court in the case of CIT vs. M/s Birlasoft Ltd in appeal No. 2645/2012 and the decision of the Honble jurisdictional High Court in the case of CIT vs. BSES Rajdhani powers Ltd (Delhi High Court) in ITA No. 266/2010.

    24. In the circumstances we uphold the contention of the assessee that UPS, printer and projector form part of the computer peripherals and direct the Assessing Officer to recomputed the depreciation in respect of these 3 items at 60%. Ground number 5 is answered accordingly.

    25 Ground No. 6 of Revenues appeal relate to the disallowance of depreciation on the noncompete fees paid by the assessee. Ld. CIT(A), as a matter of fact, observed that depreciation on the capitalized noncompete fee was allowed in the earlier years and therefore the same cannot be disallowed in this year.

    26. We have gone through the details of the noncompete fees incorporated at page No. 70 of the paper book which clearly reveals that for the earlier years, namely, 2005-06 to 2007-08 the Revenue accepted the depreciation claimed at Rs. 63,54,176/-, Rs. 47,65,632/-, and Rs.35,74,224/-, but in respect of the assessment year 2008-09 the depreciation on the capitalised noncompete fee claimed that Rs.26,80,668/-was disallowed. Reasoning given by the Assessing Officer to disallow this claim is that the issue hinges around the interpretation of the phrase business or commercial rights of similar nature used in clause (ii) of section 32, and a careful reference to the language of the provisions in section 32 makes it clear that all the specific awards that a preceding general words business or commercial rights of similar nature are related to a class of rights which are intellectual property rights whereas the alleged payment is for noncompete fee. Further, according to the learned Assessing Officer the right to noncompete acquired by the assessee is only a right in personam and therefore the assessee is not entitled to claim depreciation on the noncompete fee. Learned Assessing Officer does not refer to any change of circumstances from the earlier years so as to deviate from the view that was taken for earlier years. We therefore do not find anything illegality or irregularity in the Ld. CIT(A) following the view taken for the earlier years under identical circumstances. Ground No. 6 is accordingly devoid of merits and is dismissed.

    27. Ground No. 7 relates to the disallowance of depreciation on account of merger with the Tropicana Beverages Company under normal computation. On this aspect, Ld. AR submitted before the Ld. CIT(A) that this is an inadvertent mistake crept into record because instead of considering the amount of depreciation appearing in the revised tax audit report learned Assessing Officer relied on the original tax audit report for computing the depreciation amount under the provisions of the Act. Ld. CIT(A) considering the revised tax audit report, directed the Assessing Officer to verify the record and allow depreciation as per the tax audit report filed pursuant to merger of Tropicana Beverages Company with the assessee.

    28. From the impugned assessment order, we find that on noticing the chart of depreciation as per income Tax Act, 1961 duly certified by the auditor which shows the amount of depreciation at Rs. 1 22, 63, 09, 689/- as against the amount of depreciation of Rs. 1 22, 82, 86, 789/-directed in the revised computation of income, learned Assessing Officer brought the difference of depreciation to tax. Ld. CIT(A) considered the original tax audit report and the revised tax audit report and directed the Assessing Officer to verify from the records and allow depreciation as per the tax audit report that was filed pursuant to the merger of Tropicana Beverages Company with the assessee. We do not find any reason for grievance of the Revenue on this aspect, because the Ld. CIT(A) did not delete addition and on the other hand she rectified the apparent mistake committed by the learned Assessing Officer. We therefore decline to interfere with the findings of the Ld. CIT(A) and dismiss ground No. 7.

    29. In the result, appeal of the assessee in ITA No. 4077/Del/2015 is allowed and appeal of the Revenue in ITA No. 4102/Del/2015 is allowed in part for statistical purpose. Pronounced in open court on 14 January, 2020. Sd/- Sd/- (G.S. PANNU) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER Dated: 14/01/2020

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