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TMI Blog2018 (5) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate that the consideration through allotment of shares established that the intangibles necessarily formed an asset in the books of accounts on the date of succession. 3. On the facts and in the circumstances of the case and in law the learned CIT (A) failed to appreciate that the successor company paid full cost for assets acquired by allotting the shares to the partners of the firm. The denial of the claim for depreciation of Rs. 1,58,75,000/--on the ground of no cost was without any basis and not borne by facts. 4. On the facts and in the circumstances of the case and in law the learned CIT (A) ought to have granted the claim of depreciation of Rs. 1,58,75,0007-. The denial on the pretext of there being no cost of acquisition was an irrelevant consideration as the claim of depreciation was based on the ownership and user for intangibles. 5. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in denying the claim of depreciation of Rs. 1,58,75,000/- on intangibles. The learned CIT (A) failed to realize that conditions precedent being met for succession under 47(xiii) the claim for depreciation made on the assets on the date of success ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction was just a book entry and no consideration was paid- by the appellant company on account of the said intangible assets. In view of the aforesaid discussion, the claim of depreciation on goodwill and commercial rights and registration amounting to Rs. 1,58,75,000/- was disallowed and added back to the total income of the assessee company. In this regard, we may gainfully refer to the Assessing Officer's observation as under: 6.1 During the year the assessee Company has entered into Succession Agreement with M/s.Shy am Narayan & Bros., Regd. Partnership Firm. On perusal of the succession agreement and records it is evident that the partners of M/s. Shyam Narayan & Bros and Directors of the assessee Company are common and there is no other party involved in the said transaction. It is observed that out of the said transaction there was an intangible asset Goodwill/ Commercial Rights & Registration are created by the assessee Company. It is worthwhile to note that by definition depreciation shall be allowable on asset as per Provisions of Section u/s. 32 of tile I.T. Act, 1961. This transaction was just a book entry amongst the common parties and there can be no creation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on such intangibles. We therefore submit that the transaction of transfer needs to be looked as an independent transaction and linking it to the claim of depreciation would be reading more into the provisions which are not provided in the statute. We therefore submit that the claim of deprecation on these intangible assets needs to be allowed. We request your honour to consider it so and grant the claim of deprecation of Rs. 1,58,75,000/~. We shall be highly obliged for the same. We submit that the legislature has in appropriate cases provided for the values to be adopted for the purposes of transfer. We submit that the transfers in the case of slump sale, demergers the basis of transfer provides for the book value to be adopted while no such prescription is there for the purposes of transfer under 47(xiii). We submit that the legislature having permitted the transfer of assets and liabilities at values other than book values the same cannot be denied on the premise that no cost can be attributed to such intangibles. We therefore submit ihat the values of intangibles arising in the 'course of transfer under 47 (xiii) cannot be ignored for the purposes of claim of deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation on intangibles be allowed. We request your honour to grant it so. We shall be highly obliged for the same." 2.3.1. However the Ld. Commissioner of Income tax(Appeals) was not convinced. He upheld the action of the Assessing Officer by holding as under :- 5.3. I have considered the facts and circumstances of the case. The appellant has sought to justify its claim of depreciation on intangible assets by referring to the provisions under section 47 which provide for certain transactions which though are transfer within the meaning of transfer under 2(47) are not treated as transfer for the purposes of determination of capital gains. Attention was drawn to clause (xiii) of the said section which relates to the transfer of partnership business and succession by a private limited company.lt was contended that there is an express reference to the intangible assets in the said section which indicates that the possibility of intangibles being a part of assets and liabilities was envisaged by the legislature and that the express provision of intangibles covers the transfer of intangibles which in its case are that of commercial rights and registrations along with goodwill. I find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve submitted that there is no question of granting any depreciation on the asset which were never in existence. 2.6. We have carefully considered the submissions and perused the records. 2.7. We find that the ld. Commissioner of Income Tax (Appeals) in his order has given a clear finding that no tangible asset on account of goodwill and commercial rights and registration existed in the books of the firm before succession. This duly corroborates that the assessee has created artificially these assets after the succession of the firm. Apparently this is a colorable device to claim huge depreciation on this account. In this regard, we note that the assessee has submitted paper book before us which is running into 83 pages. On paper book no. 1, we note that there is a balance sheet of M/s. Shyam Narayan & Brothers, the firm which has succeeded as on 31.09.2009. In this balance sheet in fixed assets there is a mention of schedule E and F being details of business fixed asset and non business fixed asset respectively. However, we note that no such schedule has been attached. In this balance sheet there is no mention any where whatsoever about the existence of any goodwill or commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said allotment also shows share premium of Rs. 17,78,39,700/-. We find there is no mention whatsoever in the succession agreement for allotment of shares on premium. The ld. Counsel of the assessee submitted that he had no information or details as to how and on what account the share premium was arrived at and mentioned. 4. In the light of the above factual details and evidence we are of the considered opinion that ld. Commissioner of Income tax(Appeals) is quite correct in holding that there is no evidence whatsoever on record regarding the existence of goodwill and commercial right claimed to have been taken over from partnership firm either in the books of the said partnership firm or from documents submitted before the registrar of Companies. In such situation when no intangible asset on account of goodwill and commercial right and registration existed in the books of the partnership firm before succession, there is no question of the assessee company taking over the same and claiming depreciation their upon. In view of this factual finding the entire claim of the assessee regarding the reliance upon provisions of section 47(xiii) and the case laws doesn't support the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant had submitted copies of the Income Tax return, assessment order u/s 143(3} and audit report and balance sheet of the AOP, M/s SNBL& RCC JV. It is seen from the balance sheet of the AOP that there is a balance of Rs. 73,76,423/- in the capital account. In the Audit Report in Form No. 3CD, the profit sharing ratios of the members are shown at 97% and 3% for M/s Shyam Narayan & Bros and M/s Rajesh Construction Co. respectively. The appellant's name does- not figure as a member of the AOP in the Audit Report. Moreover, perusal of the appellant's balance sheet also shows no investment made in the said AOP. In view of all these facts, the action of the Assessing Officer in disallowing the share of profit of AOP claimed by the appellant I from its total income is upheld. The appellant's ground of appeal on this issue is dismissed." 10. We have heard both the counsel and perused the records. We find that the assessee has claimed as exempt share of profit from AOP, M/s. SNBL&RCC JV. This share in the said AOP has also been claimed to have taken over from the partnership firm which has been succeeded. However, as noted by the ld. Commissioner of Income Tax (Appeals) and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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