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2020 (10) TMI 653 - AT - Income TaxDeduction u/s 10AA - undertaking which is formed by splitting up or the reconstruction of business already in existence shall not be eligible for deduction under 10AA - Scheme of amalgamation of Noida SEZ unit and Nagpur SEZ units which amalgamated with the assessee company - assessee failed to submit satisfactory details and justification in respect of each unit that has claimed deduction u/s 10A - HELD THAT - Expenses which were added back while computing the unit-wise computation for determining the profit eligible for deduction under section 10AA - once the expenditure has been added back which claim has also been accepted by the AO in the order of assessment, then, this, in our opinion, becomes a non-issue. In our opinion, the allegation of the AO that the entire expenses have not been added back and it is a clear admission on the part of the assessee that resources of non-SEZ units have been used for earning of revenue in SEZ units is concerned, this also, is a vague finding without any basis. Mere add back of certain expenses from eligible profits of eligible unit which is accepted in the order of assessment cannot be a basis to assume that the resources of non-SEZ units have been used for earning the revenue in SEZ units. So far as the allegation of the CIT, DR that the assessee has failed to submit specific details to specific queries during the course of assessment proceedings is concerned, we find from the paper book that the assessee has in fact filed detailed reply before the AO to the queries raised point-wise. Therefore, this allegation of the ld. CIT, DR in our opinion is without any basis. The assessee has not claimed the loss of Hyderabad and Chennai unit while computing the income. In our opinion, once separate books of account have been maintained for each of the undertakings, there is no basis for the AO to allege that any of the expenses of non-SEZ units pertained to revenue of eligible units. Once such expenses has also not been claimed, the same is of no consequences. At best the AO could have reduced the net expenditure claimed from the deduction under section 10AA of the Act and nothing more but the same could not be a reason for the AO to deny the claim of deduction under section 10AA. Therefore, to suggest that there is fictitious arrangement and the entire resources of Chennai unit or Hyderabad unit have been utilised for earning tax free income of SEZ unit is not justified. Suspicion, surmises and conjectures however strong may be cannot be a basis for disallowing a claim of detection. In view of the above discussion, we do not find any infirmity in the order of the CIT(A) in deleting the disallowance of deduction claimed under section 10AA. Accordingly the ground raised by the revenue is dismissed. Addition on account of other income from 4 SEZ units - HELD THAT - Referring to many decisions the ld. CIT(A) has allowed the claim of deduction under section 10AA of the Act on the interest income and other income. CIT-DR could not distinguish the various decisions relied on by the ld. CIT(A). In view of the above discussion and in view of the detailed reasoning given by the CIT(A), while allowing the claim of the assessee for deduction under section 10AA interest income and other income, we do not find any infirmity in the same. Accordingly, the same is upheld and the ground raised by the revenue is dismissed. Depreciation claimed on goodwill - difference between the purchase price and the value of the assets in amalgamation - HELD THAT - In the light of the clear provision of Article II and III of the agreement, we do not find any merit in the aforesaid argument of the Revenue. We find in the case of CIT vs. Smifs Securities 2012 (8) TMI 713 - SUPREME COURT has held that excess consideration paid by the assessee over the value of net assets acquired by amalgamating company should be considered as goodwill arising on amalgamation and such goodwill is eligible asset for depreciation. Thus Excess consideration paid by the assessee over the value of net assets acquired of amalgamating company should be considered as goodwill arising of amalgamation and depreciation is allowable on such goodwill.
Issues Involved:
1. Deduction under Section 10AA of the IT Act. 2. Inclusion of 'Other Income' for deduction under Section 10AA. 3. Depreciation on Goodwill. Detailed Analysis: 1. Deduction under Section 10AA of the IT Act: The assessee claimed a deduction under Section 10AA for four SEZ units: Noida SEZ, Nagpur SEZ, Coimbatore SEZ, and Hyderabad SEZ. The AO disallowed the deduction, arguing that the business was formed by splitting up or reconstruction of existing businesses and that the resources of non-SEZ units were used for SEZ units. The CIT(A) allowed the deduction, stating that the AO's observations were factually incorrect and that once separate books of accounts are accepted, no disallowance can be made. The CIT(A) emphasized that the eligibility of units should be determined in the year of formation and that mere amalgamation or acquisition does not amount to splitting up or reconstruction of business. The Tribunal upheld the CIT(A)'s decision, noting that the AO's reasons for disallowance were not justified and that the deduction had been allowed in the initial year and subsequent years. 2. Inclusion of 'Other Income' for Deduction under Section 10AA: The AO excluded 'other income' of ?82,88,099 from the profits of SEZ units, arguing that it was not derived from the export of articles or services. The CIT(A) allowed the inclusion of this income, citing the rule of consistency and various judicial precedents that support the inclusion of interest income as business income eligible for deduction under Section 10AA. The Tribunal upheld the CIT(A)'s decision, noting that identical interest income had been allowed as eligible for deduction in the previous year and that the AO's exclusion was not justified. 3. Depreciation on Goodwill: The AO disallowed the depreciation on goodwill amounting to ?8,40,46,029, arguing that the excess of purchase consideration over tangible assets should be treated as non-compete fee. The CIT(A) allowed the depreciation, stating that the AO's finding was based on a misconception of facts. The CIT(A) cited the Supreme Court decision in CIT vs. Smifs Securities Ltd., which held that excess consideration paid over the value of net assets acquired should be considered as goodwill and eligible for depreciation. The Tribunal upheld the CIT(A)'s decision, noting that the agreement and valuation report did not support the AO's view that the excess consideration was for non-compete fee. Conclusion: The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions on all three issues. The Tribunal found that the AO's disallowances were not justified and that the assessee's claims for deduction under Section 10AA, inclusion of 'other income,' and depreciation on goodwill were valid and supported by judicial precedents.
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