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TMI Blog2019 (9) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm before the date of succession does not act as an estoppel on the operation of the exemption provided under section 47(xiii) of the Act. There was no violation of the provisions of section 47(xiii) - Benefit of scheme allowed. Claim of Depreciation - technical know-how and trademark - Held that:- ITAT Mumbai Bench in the case of the DCIT versus Suyash Laboratories Ltd [ 2016 (1) TMI 977 - ITAT MUMBAI] held that the depreciation on the revalued assets could not be disallowed in the hands of the assessee if acquired in the manner specified under section 47(xiii) of the Act. In the case on hand there was a valuation report furnished by the assessee certifying that all the assets and liabilities which were acquired at the book value in the manner provided under section 47(xiii) of the Act. All the conditions as specified under the provisions of section 47(xiii) of the Act has duly complied. - the assessee cannot be denied for the amount of depreciation claimed by it. Hence, we do not find any reason to interfere in the finding of the Ld. CIT-A. - Decided against revenue Addition on account of payment made to the persons specified under section 40A(2) - CIT-A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in ground No. 2 is that the Ld. CIT-A erred in deleting the addition of ₹ 16,78,636/- representing the capital gain on the transfer of land treating the impugned transaction covered under the scheme of succession under section 47(xiii) of the Act. 2. The facts, in brief, are that the assessee in the present case is the limited company and engaged in the activity of Manufacturing of Machinery on a turn-key basis. There were two partnership firms namely M/s Neptune Equipment M/s Neptune Engineering Co., which were succeeded by the existing company (assessee) with effect from 20th September 2007. The assessee acquired the assets/liabilities from both the firms as stood in the balance sheet of the respective firms immediately before the date of succession, i.e. 19th September 2007 as detailed under; Assets Acquired from M/s.Neptune Equipment Rs. Acquired from M/s.Neptune Engineering Rs. Total Rs. Land 23,00,000/- 4,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xiii) of the Act which is unwanted. In view of the above, the AO determined the capital gain of ₹ 16,78,636.00 (₹ 14,35,636.00 + ₹ 2,43,000.00) in respect of the land acquired by it from the impugned partnership firms and added to the total income of the assessee. The aggrieved assessee preferred an appeal to the Ld. CIT-A. 3. The assessee before the Ld. CIT-A submitted that it had satisfied all the conditions as specified under the provisions of section 47(xiii) of the Act. i. All the assets and liabilities of the partnership firms as stood immediately before the date of succession have been transferred to the assessee. ii. Similarly, all the partners of the firm have become the shareholder of the company in the same proportion of their capital in the firm as stood immediately before the date of succession. iii. The partners of the firm received the consideration only in the form of allotment of shares. There was no other benefit directly or indirectly received by the partners of the firm from the company. iv. Similarly, the aggregate shareholding of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquires all the assets and liabilities of the partnership firms in the manner as provided under section 47(xiii) of the Act to claim the exemption from the capital gain. 5.2 Similarly, even if the valuation of the technical know-how and the trademark is determined at nil value, then also there would not be any violation of holding the shares in the proportion of the capital in the firm as stood immediately before succession as specified under section 47(xiii) of the Act. 5.3 We also note that there is no prohibition for the introduction of new partners in the partnership firms before the date of succession. As such, the introductions of the partners in the firm before the date of succession does not act as an estoppel on the operation of the exemption provided under section 47(xiii) of the Act. In view of the above, we hold that there was no violation of the provisions of section 47(xiii) of the Act and accordingly conclude that there cannot be any income on account of transfer of the impugned land to the assessee. Hence we uphold the finding of the Ld. CIT-A. The 1st issue raised by the Revenue is that the Ld. CIT-A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . iv. The assessee supplied these machinery to the common customers. v. Both the assessee and the firm are using the same logo of Neptune. vi. Both the assessee and the firms are operating from the same premises. vii. The valuation determined of the firms is based on the highly inflated figures of sales and presumption of certain expenses, a surplus of cash. viii. Similarly, the word Neptune cannot fetch any goodwill by the partnership firms. It is because the same word is used by the assessee as well. Moreover, the same word is commonly used in the market. In view of the above, the AO treated the value of the technical knowhow and trademark of both the partnership firms at nil. Accordingly, he disallowed the depreciation claimed by the assessee amounting to ₹ 1,98,37,500.00 and added to the total income of the assessee. The aggrieved assessee preferred an appeal to the Ld. CIT-A. 7. The assessee before the Ld. CIT-A submitted that it had incurred a cost of ₹ 7,93,50,000/- on the acquisition of impugned technical know-how and trademark from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is in appeal before us. 9. The Ld. DR before us submitted that the value of the technical knowhow is nil. Therefore, the assessee cannot be allowed any depreciation. The learned AR in support of his claim also relied on the judgement of Hon ble Gujarat High Court in the case of CIT versus Sandvik Chokshi Ltd. reported in 55 taxmann.com 45 fund and on the judgement of Hon ble Supreme Court in the case of Guzdar Kajora Coal Mines Ltd. Vs. CIT reported in 85 ITR 599. 10. On the other hand, the Ld. AR before us submitted that the AO has not pointed out any defect in the valuation report furnished by the qualified chartered accountant for the valuation of technical know-how/trademark. 11. Both the parties before us relied on the order of the respective authorities below as favourable to them. 12. We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the assessee has acquired certain intangible assets from the partnership firms in the manner provided under section 47(xiii) of the Act. However, the AO was of the view that the valuation of such inta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid provision of the Act. 12.3 We also note that the ITAT Ahmedabad in the case of DCIT Vs. Zydus Wellness Ltd. in ITA No. 529/AHD/2017 vide order dated 18-06-2018 has decided the issue in favour of the assessee by observing as under: 5. We have heard the Ld.representatives of the respective parties. We have perused relevant materials on record. We have also gone through the judgement of the Hon ble Gujarat High Court wherein the issue has been decided in favour of assessee in assessee s own case for AYs 2010-11, 2011-12 2012-13. The Hon ble Gujarat High Court while dismissing the appeal preferred by the Revenue against the order passed by this Ld.Tribunal in Tax Appeal No.346 of 2018, dated 16.04.2018 observed as follows:- 6. With respect to the claim of depreciation, the decision of Supreme Court in case of Smifs Securities Ltd. (supra) would squarely apply. There is no material referred to by the Assessing Officer to hold that the claim of depreciation was fictitious. If we read his entire expression in this respect, he seems to be suggesting that being an intangible asset acquisition thereof would not qualify for depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and. The ruling of the Hon ble Supreme Court in the case of Guzdar Kajora Coal Mines Ltd. (Supra) cannot be applied to the case on hand as it relates to the provisions of Indian income tax Act 1922 and it does not relate to the succession of the firm by the company. 12.5 Similarly the principles laid down by the Hon ble Gujarat High Court in the case of Sandvik Chokshi Ltd. (supra) is based on the slump sale and there was not assign the value to the assets acquired by the assessee. However, in the case on hand there was a valuation report furnished by the assessee certifying that all the assets and liabilities which were acquired at the book value in the manner provided under section 47(xiii) of the Act. 12.6 We also note that all the conditions as specified under the provisions of section 47(xiii) of the Act has duly complied. Therefore we are of the view that the assessee cannot be denied for the amount of depreciation claimed by it. Hence, we do not find any reason to interfere in the finding of the Ld. CIT-A. The last issue raised by the Revenue in the ground No. 3 is that the Ld. CIT-A erred in deleting the addition made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tli e contrary, the assessing officer has made adhoc disallowance of 20% of total payments made to the sister concerns, which is not acceptable as per the provisions of S.40A(2) of the Act. (c) Considering the binding decision of Ahmedabad Tribunal in the cae of Gujarat Aluminium Extrusion Pvt. Ltd. (supra), it legally settled that for applying provisions of S.40A(2) of the Act, without determining the market value of goods/services provided, the disallowance cannot be sustained. Being aggrieved by the order of the Ld. CIT-A, the Revenue is in appeal before us. 15. Both the parties before us relied on the order of the authorities below as favourable to them. 16. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the AO has made the disallowance after treating the payment made by the assessee to the specified persons under section 40A(2) of the Act as excessive and unreasonable without bringing any comparative cases. In such cases, we are of the view that the expenses incurred by the assessee cannot be held excessive and unreasonable until and unless these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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