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2019 (9) TMI 720 - AT - Income TaxCapital gain arising on account of the succession of the firms - scheme of succession under section 47(xiii) - whether the assessee is entitled to the depreciation on the intangible assets acquired by it in the given facts and circumstances? - HELD THAT - there is no requirement under the provisions of section 47(xiii) of the Act that the firms should be converted into the company. It is sufficient if the existing company acquires all the assets and liabilities of the partnership firms in the manner as provided under section 47(xiii) of the Act to claim the exemption from the capital gain. Similarly, even if the valuation of the technical know-how and the trademark is determined at nil value, then also there would not be any violation of holding the shares in the proportion of the capital in the firm as stood immediately before succession as specified under section 47(xiii) of the Act. Further, there is no prohibition for the introduction of new partners in the partnership firms before the date of succession. As such, the introductions of the partners in the firm before the date of succession does not act as an estoppel on the operation of the exemption provided under section 47(xiii) of the Act. There was no violation of the provisions of section 47(xiii) - Benefit of scheme allowed. Claim of Depreciation - technical know-how and trademark - Held that - ITAT Mumbai Bench in the case of the DCIT versus Suyash Laboratories Ltd 2016 (1) TMI 977 - ITAT MUMBAI held that the depreciation on the revalued assets could not be disallowed in the hands of the assessee if acquired in the manner specified under section 47(xiii) of the Act. In the case on hand there was a valuation report furnished by the assessee certifying that all the assets and liabilities which were acquired at the book value in the manner provided under section 47(xiii) of the Act. All the conditions as specified under the provisions of section 47(xiii) of the Act has duly complied. - the assessee cannot be denied for the amount of depreciation claimed by it. Hence, we do not find any reason to interfere in the finding of the Ld. CIT-A. - Decided against revenue Addition on account of payment made to the persons specified under section 40A(2) - CIT-A deleted the addition - HELD THAT - AO has made the disallowance after treating the payment made by the assessee to the specified persons under section 40A(2) of the Act as excessive and unreasonable without bringing any comparative cases. In such cases, we are of the view that the expenses incurred by the assessee cannot be held excessive and unreasonable until and unless these are backed by some documentary evidence. Accordingly, we are of the view that the order of the Ld. CIT-A does not suffer from any infirmity. - Decided against revenue
Issues Involved:
1. Deletion of disallowance of ?1,98,37,500/- out of depreciation on intangibles (technical know-how and trademark). 2. Deletion of disallowance of ?16,78,636/- out of capital gain on transfer of land under the scheme of succession u/s.47(xiii) of the I.T. Act. 3. Deletion of addition of ?16,16,310/- on account of payment made to sister concerns u/s.40A(2) of the I.T. Act. Issue-wise Detailed Analysis: 1. Deletion of disallowance of ?1,98,37,500/- out of depreciation on intangibles (technical know-how and trademark): The assessee acquired two partnership firms, including their technical know-how and trademark valued at ?7,93,50,000/-, and claimed depreciation on these intangibles amounting to ?1,98,37,500/-. The AO disallowed this depreciation, arguing that the valuation of these intangibles was nil, based on the scrutiny assessment of one of the firms and the commonality of business activities, partners, and premises between the assessee and the firms. The assessee argued before the Ld. CIT-A that the valuation was based on a qualified chartered accountant's report and that all conditions under section 47(xiii) of the Act were met. The Ld. CIT-A agreed with the assessee, noting that the AO should have referred the valuation to a departmental valuation officer if unsatisfied, and deleted the disallowance. The Tribunal upheld the Ld. CIT-A's decision, emphasizing that the AO did not disbelieve the valuation report and should have referred the matter to a valuation officer if there were doubts. The Tribunal also referenced ITAT and High Court rulings supporting the depreciation claim on revalued assets acquired under section 47(xiii). 2. Deletion of disallowance of ?16,78,636/- out of capital gain on transfer of land under the scheme of succession u/s.47(xiii) of the I.T. Act: The assessee, a limited company, succeeded two partnership firms and acquired their assets, including land valued at ?27,00,000/-. The AO determined a capital gain of ?16,78,636/- on this transfer, arguing that the conditions under section 47(xiii) of the Act were not met, particularly regarding the shareholding proportion and the introduction of new partners before succession. The assessee contended before the Ld. CIT-A that all conditions under section 47(xiii) were fulfilled, including the transfer of all assets and liabilities, partners becoming shareholders in proportion to their capital accounts, and the partners receiving consideration only in the form of shares. The Ld. CIT-A agreed, noting that an existing company could acquire a partnership firm under section 47(xiii) and that the introduction of new partners was not prohibited. The Tribunal upheld the Ld. CIT-A's decision, stating that there was no violation of section 47(xiii) provisions and that the transfer of land was not chargeable to tax. 3. Deletion of addition of ?16,16,310/- on account of payment made to sister concerns u/s.40A(2) of the I.T. Act: The assessee made payments totaling ?80,81,548/- to sister concerns, which the AO found excessive and unreasonable, disallowing 20% of these expenses amounting to ?16,16,310/- under section 40A(2) of the Act. The Ld. CIT-A deleted the disallowance, noting that the assessee had obtained market quotations and compared them with the sister concerns' rates before awarding contracts, and that the AO had not demonstrated that the payments were higher than market rates. The Tribunal upheld the Ld. CIT-A's decision, emphasizing that the AO did not provide any comparative cases or documentary evidence to support the claim of excessive and unreasonable expenses. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT-A's decisions on all three issues, emphasizing compliance with section 47(xiii) provisions, the validity of the valuation report for intangibles, and the lack of evidence for excessive payments to sister concerns.
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