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TMI Blog2019 (1) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 - SUPREME COURT] as held that the excess consideration paid over and net asset value of the business acquired shall be goodwill being ‘any other business or commercial rights of similar nature’ and will be entitled for depreciation u/s 32 - Decided in favour of assessee - I.T.A. No.4154/Mum/2015, C.O. No.147/Mum/2015, I.T.A. No.4337/Mum/2015 - - - Dated:- 3-1-2019 - Shri Mahavir Singh, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri. Sunil Motilala/Shri Jiger Saiya For the Revenue : Shri Manoj Kumar,DR ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: There are cross appeals filed by the assessee as well Revenue for the impugned assessment year 2007-08 before Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ). The assessee has also filed cross objections against the Revenue s appeal. The appeals before the tribunal has arisen against the appellate orders dated 06.04.2015 passed by learned Commissioner of Income-tax(Appeals)-56,Mumbai .The assessment order was framed by learned Assessing Officer( hereinafter called the AO ) vide assessment order dated 09.02.2011 passed u/s 143(3) read with Section 144C( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tmental appeals may be filed on merits before Income Tax Appellate Tribunal and High Courts and SLPs/ appeals before Supreme Court keeping in view the monetary limits and conditions specified below. 3. Henceforth, appeals/ SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder: S. No. Appeals/ SLPs in Income-tax matters Monetary Limit (Rs.) 1, Before Appellate Tribunal 20,00,000 2. Before High Court 50,00,000 3. Before Supreme Court 1,00,00,000 It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case. 4. For this purpose, tax effect' means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me assessed as per the general provisions been reduced by the amount of the disputed issues under general provisions; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC was reduced by the amount of disputed issues under the said provisions: However, where the amount of disputed issues is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. 7. In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Pr. Commissioner of Income-tax/ Commissioner of Income Tax shall specifically record that even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this Circular . Further, in such cases, there will be no presumption that the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere Revenue Audit objection in the case has been accepted by the Department, or (d) Where the addition relates to undisclosed foreign assets/ bank accounts. 11. The monetary limits specified in para 3 above shall not apply to writ matters and Direct tax matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute and rules. Further, in cases where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A/12AA of the IT Act, 1961 etc., filing of appeal shall not be governed by the limits specified in para 3 above and decision to file appeals in such cases may be taken on merits of a particular case. 12. It is clarified that the monetary limit of ₹ 20 lakhs for filing appeals before the ITAT would apply equally to cross objections under section 253(4) of the Act. Cross objections below this monetary limit, already filed, should be pursued for dismissal as withdrawn/ not pressed. Filing of cross objections below the monetary limit may not be considered henceforth. Similarly, references to High Courts and SLPs/ appeals bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before High Court 50,00,000/- 3 Before Supreme Court 10,000,000/- In the said circular vide para 13, it is stipulated that this instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in Hon ble High Courts/Tribunals. Thus, it is stipulated that pending appeals below the specified tax limits may be withdrawn/not pressed. The tax effect in this appeal filed by Revenue is undisputedly below ₹ 20 lacs and thus keeping in view CBDT circular no. 3/2018 dated 11-07-2018, we are inclined to dismiss this appeal filed by Revenue due to low tax effect involved in this appeal which is below ₹ 20 lacs . Moreover , it is not also brought to our notice by learned DR that this appeal is covered by any of the exceptions to said circular dated 11.07.2018 as notified by CBDT. Thus, since both the parties have concurred before the Bench that this appeal is covered by CBDT circular no. 3./2018 dated 11.07.2018, we are inclined to dismiss this appeal filed by Revenue on the grounds of tax effect being less than ₹ 20 lacs. While disposing of this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law., the learned CIT(A) has erred in confirming the disallowances made by the AO for provision for warranty and liquidated damages amounting to ₹ 78,33,288. 6. On facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the disallowances under section 40(a)(ia) of the Act amounting to ₹ 1,32,52,500/- by the AO on account of provision made for management fees. 6. At the outset learned counsel for the assessee has submitted before the Bench that the assessee does not want to persue ground no. 5 and 6 raised by assessee in memo of appeal filed with the tribunal and it is prayed that the same may be dismissed as not been pressed. The learned DR did not raise any objections if ground no. 5 and 6 are dismissed as not being pressed. After hearing both the parties, we are of the considered view that ground number 5 and 6 be dismissed as not being pressed. We order accordingly. 7. This leaves us with only one effective ground which concerns itself with claim of depreciation made by the assessee on intangible assets and goodwill, which are elaborated by the assessee in ground no. 1 to 4 raised by the assessee in memo of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of L T is before the tribunal. The assessee has placed its reliance on the decision of Hon ble Supreme Court in the case of CIT v. Smifs Securities Limited(supra). It was submitted that the assessee brought to the notice of learned CIT(A) the aforesaid decision of Hon ble Supreme Court in the case of CIT v. Smifs Securities Limited(supa) but the claim of the assessee for depreciation on goodwill was not allowed by learned CIT(A). It was submitted by learned counsel for the assessee that for AY 2010-11 , the AO itself has allowed the claim of the assessee. The assessment order passed by the AO for AY 2010-11 is placed on record and is now placed in file. It was submitted that consideration paid by the assessee over and above the net assets of Food and Pharma division of L T taken over by the assessee was infact goodwill which is in the form of commercial and business rights and depreciation is allowable on the said differential as held by Hon ble Supreme Court in the case of CIT v. Smifs Securities Limited(supra). The reliance was further placed by learned counsel for the assessee on the decision of Hon ble Delhi High Court in the case of Triune Energy Services Private Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue elaborately and then came to conclusion that the excess consideration paid over and net asset value of the business acquired shall be goodwill being any other business or commercial rights of similar nature and will be entitled for depreciation u/s 32 of the 1961 Act. The Hon ble Supreme Court elaborately discussed Explanation 3 to Section 32(1) of the 1961 Act in the case of CIT v. Smifs Securities Limited(supra), wherein Hon ble Supreme Court held as under: 2. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: Explanation 3.-- For the purposes of this sub-section, the expressions &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact referred to hereinabove. 8. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee. We have also observed that Hon ble Delhi High Court in the case of Triune Energy Services Private Limitred v. DCIT(supra) has also taken the similar view, by holding as under: 9. We have heard the learned counsel for the parties. 10. The issue whether depreciation is allowable on goodwill is no longer res integra. In Smifs Securities Ltd. (supra), the Supreme Court had answered the question Whether goodwill is an asset within the meaning of section 32 of the Income-tax Act, 1961, and whether depreciation on 'goodwill' is allowable under the said section in favour of the Assessee. 11. The Supreme Court had further held as under:- 'We quote hereinbelow Explanation 3 to section 32(1) of the Act: Explanation 3. - For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean- (a) tangible assets, being buildings, machinery, plant or furniture ; (b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten approval of Saipem, BJ and TPPL. A copy of each of the employment contracts for the employees listed in Appendix 5B shall be available by 22nd September, 2006. ** ** ** (9) Goodwill: Goodwill includes the goodwill in relation to the name associated to the Business. 13. Goodwill is an intangible asset providing a competitive advantage to an entity. This includes a strong brand, reputation, a cohesive human resource, dealer network, customer base etc. The expression goodwill subsumes within it a variety of intangible benefits that are acquired when a person acquires a business of another as a going concern. 14. In CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC), the Supreme Court had explained that:- Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v. Lye [1810] 17 Ves 335 that goodwill was nothing more than 'the probability that the old customers would resort to the old places' was expanded by Wood V. C. in Churton v. Douglas [1859] John 174 to encompass every positive advantage that has been acquired by the old firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10' issued by Accounting Standard Board which is applicable in United Kingdom and by Institute of Chartered Accountants of Ireland in respect of its application in the Republic of Ireland, explains that the accounting requirements for goodwill reflect the view that goodwill arising on an acquisition is neither an asset like other assets nor an immediate loss in value. Rather, it forms the bridge between the cost of an investment shown as an asset in the acquirer's own financial statements and the values attributed to the acquired assets and liabilities in the consolidated financial statements . 16. The abovementioned Financial Reporting Standard 10 also provides for accounting of purchased goodwill as the difference between the cost of an acquired entity and the aggregate of the fair values of that entity's identifiable assets and liabilities. Positive goodwill arises when the acquisition cost exceeds the aggregate fair values of the identifiable assets and liabilities. Negative goodwill arises when the aggregate fair values of the identifiable assets and liabilities of the entity exceed the acquisition cost. 17. At this stage, it is also relevant to refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amed is answered in the negative, that is, in favour of the Assessee and against the Revenue. The Assessee's appeal (ITA 40/2015) is, accordingly, allowed. We have observed that the assessee while acquiring Food and Pharma division of L T vide agreement dated 26.05.2005 had paid consideration in excess of net asset value of the said divisions of L T as on the date of takeover and consequently, the excess was reflected as Goodwill in the books of accounts of the assessee under the head Intangibles and we are of the considered view that the assessee will be entitled for claiming depreciation on the said excess consideration being Goodwill as the same being any other business or commercial rights of similar nature as defined in Explanation 3 to Section 32(1) of the 1961 Act , keeping in view ratio of decision of Hon ble Supreme Court in the case of CIT v. Smifs Securities Limited(supra). This disposes of ground no. 1 to 4 of the assessee s appeal. We order accordingly. 10. In the result appeal of the assessee in ITA no. 4337/Mum/2015 for AY 2007-08 is partly allowed as indicated above. 11. In the result appeal of the assessee in ITA no. 4337/Mum/2015 for AY 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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