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TMI Blog2012 (8) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of depreciation is thus warranted - against assessee. Disallowance of claim of cessation of liability - Held that:- Provisions of sec. 41(1) will apply when the liability provided has ceased and assessee gets benefit whereas in this case in the amounts were provided as a liability to pay rent in respective assessment years as a ‘provision’ and the assessee has not paid the amounts due to disputes with the land owner and it was informed that no deduction was claimed/allowed in the respective years. Therefore, question of addition u/s 41 does not arise - as the amount has to be considered in AY 2008-09 as the relevant date on which the liability will crystallized and the liability does not pertain to the year under consideration - against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... has been treated in the nature of commercial rights and depreciation has been claimed under section 32(1)(iii) of the Act. 17. The additional facts we need to state is that the assessee has, prior to the year 1995, invested an amount of Rs.4,72,15,000, for purchase of 1,500 equity at a face value of Rs.1,000 each. In other words, the assessee company purchased share of a total face value of 15,000 shares @ Rs31,476 each share and declared them as investments in its balance sheet. It was holding 60% of the share capital. Thereafter, in the financial year 2000-01, it purchased another 1,000 shares by investing further amount of Rs.3,09,57,000. The cost of share paid was Rs 30,957 each for a total face value of Rs.10,00,000. This 1,000 equity shares was the remaining 40% of the share holding and the CGEL became 100% subsidiary of the assessee company. Thus, it is clear that the assessee is having investment in the CGEL, which shares were valued above Rs. 30,000 per share. 18. Now we would consider the order dated 14th October 2003 of the Hon'ble Jurisdictional High Court which approved the scheme of amalgamation of Casablances Gannon Engineering Ltd. with the assessee company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, cash or other assets. In determining the value of the consideration, an assessment is made of the fair value of its elements. A variety of techniques is applied in arriving at fair value. For example, when the consideration includes securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values. 15. Many amalgamations recognise that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognized as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Goodwill Arising on Amalgamation 19. Goodwill arising on amalgamation represents a payment made in anticipation of future inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been considered. If the assessee had paid more than the fair market value of assets minus the fair market value of liabilities, then the company would have a case to claim that certain amounts were incurred for goodwill. In the absence of such an exercise, we are of the considered opinion that there is no goodwill in the nature of commercial rights purchase by the assessee. This is only a book entry and it is only another way of disclosing the intrinsic value of the fixed asset of the company. 22. Coming to the claim that the scheme has been approved by the High Court, we find that this issue was never before the High Court and, hence, this argument does not come to the help of the assessee. 23. Coming to the decision relied upon by the assessee i.e., the judgment of Hon'ble Delhi High Court in Hindustan Coco Cola Beverages P. Ltd., decision of Hyderabad Bench of the Tribunal in The A.P. Paper Mills Ltd. (supra) and other case laws, they do not help the case of the assessee, as that was a case where there was purchase of goodwill which is in the nature of a commercial right. In the case on hand, the very purchase of goodwill is not proved by the assessee. Consequently, grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d consequent to the orders of Hon'ble High Court and since the liability has crystallized, the assessee validly claimed the amount in the year under consideration. He also explained that this issue was also considered in AY 2004-05 by the Assessing Officer and pending crystallization of demand considered it as income in assessment year 2004-2005 as 'cessation of liability' u/s 41(1) as assessee was carrying the provision year after year. He also referred to the order of the CIT (A) in that assessment year wherein the CIT (A) deleted the amount for AY 2004-05 stating that the amount should be brought to tax for AY 2008-09. 9. Learned DR relied on the orders of the AO and CIT (A). 10. We have considered the issue and examined the records. First of all we must observe the confusion caused by referring to sec. 41(1) by the Assessing Officer and also claim by the assessee under that section. Provisions of sec. 41(1) will apply when the liability provided has ceased and assessee gets benefit. In case the amounts were allowed as expenditure in an earlier year(s) and no longer payable, generally, the provisions of sec. 41(1) are invoked. In this case, the amounts were provided as a liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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