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TMI Blog2019 (4) TMI 1471X X X X Extracts X X X X X X X X Extracts X X X X ..... t revenue - I.T.A. No. 2419/Ahd/2016 - - - Dated:- 27-3-2019 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For The Appellant : Rajesh Meena, Sr. DR. For The Respondent : Ankit Talsania, AR ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Revenue against the order of the CIT(A)-02, Ahmedabad ( CIT(A) in short ), dated 07.07.2016 arising in the assessment order dated 28.03.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act , 1961 (the Act) concerning A.Y. 2013-14. 2. The grievance of the Revenue as per its Grounds of Appeal reads as under: 1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 93,75,000/- made on account of depreciation on goodwill without properly appreciating the facts of the case and the material brought on record. 3. Briefly stated, the assessee company is stated to have dealership of Mercedes-Benz in Gujarat and Madhya Pradesh and as per the ongoing bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the balance payment of ₹ 7.50 crores for acquiring various business and commercial rights categorized under the right of the goodwill in the books of the appellant. The AO had not granted the depreciation for various reasons given in the assessment order. The same are briefly as under. 3.4. As per the AO, the appellant has not justified with any of the corroborative evidences to prove that it was worth paying such substantial amount of goodwill to M/s. Interkrafts Autocity Pvt. Ltd., Kolkata. Further observed by the AO that the appellant has paid substantial amount of goodwill to the company which does not have that much repute and standing as compared to Mercedes Benz. The substantial amount of goodwill paid to aforesaid company who was a franchise of a Mercedes Benz is not believable as it was the promoter of Mercedes Benz and the customers know M/s. Interkrafts Autocity Pvt. Ltd., Kolkata due to the brand name of Mercedes Benz. The AO also observed that in the balance sheet of Landmark Car Pvt. Ltd. who was a group company has shown the amount of ₹ 12 crore as short term loans and advances to the appellant for making the payment of the liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Further, with this market share of Landmark Cars Pvt. Ltd. and the appellant company was expected to increase its market share near to 12% of All India Mercedes Benz sale. Considering all the due diligence on the properties and business prospects, the appellant found it to meet its objective as it was able to get the ready business, rights to use substantial area perpetually without any competition, dealership in Eastern area of India with complete infrastructure for marketing, sales and servicing of vehicles which was different to the established by the appellant. The appellant company got the strategically located show room, service station franchised perpetually by the Interkraft and continuity in the business through the name of Interkraft only. 3.9. The total consideration of ₹ 12.84 crores was agreed for acquiring a ready to do business along with all requisite assets. The appellant company was allowed to use the name 'Interkraft' which enabled continuity of business and service. In the competitive business segment of luxury cars, it was essential that there is seamless transfer of business interest without impacting customers service le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f did not have any reputation. It is also out of place to mention that the amount of goodwill in respect of Mercedes Benz would be far more than what has been paid to the Interkraft, Kolkata. It is also noticed that the loans of ₹ 12 crores has been paid by Landmark Car Pvt. Ltd. to the appellant, and therefore, the same has been shown as loans and advances in the balance sheet of LCPL. Since no shares against such advance have been issued by the appellant, therefore, there was no question of showing the same as investment in the balance sheet of LCPL. Even this reason does not connect in any way for disallowance of the claim of depreciation on the goodwill. Thus, the AO's observation in this regard is untenable. 3.12. It has also been noticed that in the books of accounts of Interkraft, Kolkata, the book value of the goodwill has been shown at ₹ 1 crore, which itself shows that the Interkraft, Kolkata had the goodwill which has been recorded in the balance sheet. It Is a different thing that in the books of accounts, it has the value of ₹ 1 crore but the appellant has to pay ₹ 7.5 crore against the same since the AO has brought nothi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts along with the tangible assets, the assessee got the running business. 3.15. It has been noticed that in the assessment proceedings, the appellant has submitted the binding term sheet between the appellant and Interkraff, Kolkata dated 29/12/2012 and the interim receipt for payment for the transfer of assets and 12 separate invoices dated 07/03/2013. It has been noticed that through the aforesaid invoices, the appellant had purchased the various assets including the goodwill at ₹ 12,84,61,607/-. The details of the interim receipt is reproduced as under:- Invoice No. Date Description Amount VAT Total 1 02/02/2013 Air Conditioner 62,882 9,118 72,000 2 07/03/2013 Structural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,41,43,045 5,65,722 1,47,08,767 12,53,68,184 30,93,423 1 2,84,61,607/- 3.16. Since the AO has not doubted the other 11 invoices in respect of various assets, then there was no question to doubt the Invoice No. 11 dated 07/03/2013 to purchase the goodwill at ₹ 7.50 crore. Intact, through the aforesaid receipt the Interkraft Autocity Pvt. Ltd. had acknowledged the payment having made by the appellant towards the various liabilities of Interkraft directly paid to each of them and not to Inerkraft, Kolkata of which details are noted as under:- Sr. No. Name of the party and address Amount of payment Mode of payment Bank Name Cheque No. Date of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited 631,260 Cheque KVB 000631 29/03/2013 10 Kotak Mahindra Prime Limited 270,540 Cheque KVB 000632 29/03/2013 11 DPS Chennai 24,507,328 Cheque KVB 000111 31/03/2013 12 DFS- Chennai 5,437,927 Cheque KVB 000117 31/03/2013 13 Incentive of Edwin Aviet 42,129 E-Payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company acquired running business of a company for a lump sum consideration and it recorded book value of net tangible assets in balance sheet and balance part was allocated in balance sheet as goodwill, the assessee was entitled to depreciation on goodwill. ACIT Vs. Bharti Teletech Ltd. [2014] 46 Taxmann. com 26 ACIT (OSD) Vs. Sahitya Mudranalaya Pvt. Ltd.[2014] 33 ITR (Trib) 108] (Ahd) have held that depreciation on goodwill, which is an asset as per section 32 is allowable. Hon'ble ITAT, Mumbai in the case of ACIT Vs. Worldwide Media Pvt. Ltd. [2014] 43 Taxmann.com 18(Mum) has held that where assessee acquire business as ongoing concern, and claimed depreciation in respect of amount paid for acquiring intangible assets, the depreciation was allowable on goodwill like any other intangible asset. Hon'ble ITAT, Delhi in the case of Thyssen Kurup Elevators (1) Pvt. Ltd. Vs. ACIT [2014] 50 Taxmann.com, has held that where the assessee acquired business of another company on slump basis, excess consideration paid by assessee over and above value of net assets was to be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of the aforesaid concerned. It was contended that the assessee has paid ₹ 7.50 crores over and above the net value of the tangible assets which represents cost of goodwill which came to the assessee along with the going concern. The Ld. AR also pointed out that the aforesaid statement is self explanatory and no separate valuation of goodwill per se is required from any independent professional. The cost of goodwill is determined in commercial world to represent the extra consideration paid over the net value of assets acquired. The fact towards payment of extra consideration has not been disputed. Therefore, the cost of goodwill requires amortized over a period of time as per law. 7. The Ld. AR also pointed out that apart from the judicial precedents noted by the CIT(A), the issue is squarely covered by the decision of the Hon ble Supreme Court in the case of CIT vs. Smifs Securities Ltd. 348 ITR 302 (SC). 8. We have carefully considered the r ival submissions and the order of the authorities below. The essential controversy involves maintainability of claim of depreciation on cost of goodwill by the assessee. The assessee has clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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