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TMI Blog2016 (8) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... ot making a fresh assessment, although the AO was directed to do so by the Commissioner of Income-tax, Central III. Mumbai ("the CIT"). 1.2. The CIT(A) erred in not appreciating that as the Order passed under section 143(3) of the Act ("Original Assessment Order") was passed after duly examining the relevant issues, the Original Assessment Order was not erroneous and prejudicial to the interest of the Revenue. The Appellant, therefore, prays that the impugned order passed by the AU be quashed and the Original Assessment Order he re-instated. Without prejudice to the above, 2. Launch Expenses 2.1. The CIT(A) erred in holding that the initial issue expenses of Rs. 13,52,00,000, borne by the Appellant, an Asset Management Company ("AMC"), should be amortized over a period of five years. 2.2. The CIT(A) erred in holding that an amendment in the SEBI Regulations was applicable to the assessee where it is held that the Asset Management Company has to obtain reimbursement of the initial issue expenses to the extent of 6% of the total fund raised and balance expenses though borne by the Asset Management company should be amortized over a period of five years. 2.3. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in computing the total income of the Appellant for the subject year. 5. Levy of interest under section 220(2) of the Act 5.1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the levy of interest of Rs. 84,27,813 Under section 220(2) of the Act, for the period from January 2008 to December 2010. 5.2. The CIT(A) erred in not appreciating that the demand in question entirely arose on account of the impugned order, received by the Appellant on 21 December 2010 and that prior to the same (considering the relief's obtained in appeal), there was no default of payment of tax on part of the Appellant. 5.3. The CIT(A) erred in not appreciating that liability to interest under section 220(2) of the Act in respect of the said demand would trigger only after the expiry of 30 days of the receipt of the impugned order, that is, from 19 January 2011. The Appellant prays that the AO be directed not to levy of interest under section 220(2) of the Act, in respect of the period prior to 19 January 2011. 6. Levy of interest under section 234D of the Act 6.1. The CIT(A) erred in not adjudicating on the ground relating to the levy of interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT passed an order u/s 263 dt 31.03.2010 wherein he directed the AO to make proper verification of the Launch Expenses. Thus, in pursuance to the order passed u/s 263, the AO passed an order u/s 143(3) r.w. section 263 dated 06.12.2010 wherein he disallowed the expenses on the ground as stated above. It was held by the AO that assessee should have amortised the initial expenses over a period of five year by referring to certain provisions of SEBI regulations. 4.2. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) wherein the disallowance was upheld on the ground that in view of SEBI regulations initial issue expenses to the extent of 6% of the total fund raised were reimbursable. It was further held by the Ld. CIT(A) that these were not allowable as revenue expenses being capital in nature. 4.3. Being aggrieved, the assessee filed an appeal before the Tribunal. 4.4. During the course of hearing before us, it was stated at the outset by the Ld. Counsel that the order passed u/s 263 was contested by the assessee before the Tribunal wherein the same was quashed by the Tribunal vide its order dated 27.01.2012 in ITA No.3858/M/2010. In view of the same, it was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. CIT [1983] 144 ITR 474, the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." (Underlining by us for emphasis) 25. As to whether the ratio laid down in the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the aforesaid expenses on the ground that the said assessee company had not carried out any regular business other than the sale/redemption of mutual fund from which it had earned Rs. 72,97,297/- as profit and offered to tax under the head 'income from business'. The AO of the said company finally determined the income of the erstwhile company under the head 'income from capital gains' and 'income from other sources' at total income of Rs. 81,37,246/-, and did not allow the benefit of any business expenses. 6.3. Being aggrieved, the erstwhile company (in short referred to as FTAMC) filed an appeal before the concerned CIT(A). In the appeal, the said company made exhaustive submissions to show that business of the said company was still in existence and AO of FTAMC had wrongly held on facts that no business activity was carried out during the year under consideration. The CIT(A) of FTAMC passed an appeal order in the hands of erstwhile company on 18.08.2010 wherein it was held by him that it cannot be held that there was no business nor it can be said that business activity had ceased during the year under consideration. The relevant para containing the observations of aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead the same in the manner as if disallowance has been confirmed by the CIT(A) (of FTAMC) in the order dated 18.08.2010 passed in the case of erstwhile company. 6.6. Before us, Ld. Counsel vehemently submitted that the facts have been totally misunderstood by the impugned order by Ld CIT(A). In fact, it was held in the case of erstwhile company by the then CIT(A) that the said company was actually carrying on business activities. Our attention was also drawn upon the subsequent orders passed by the AO wherein depreciation has been allowed in A.Y. 2007-08 as well as in subsequent years. 6.7. Per contra, Ld. DR relied upon the orders of the lower authorities. 6.8. We have gone through the orders passed by the lower authorities in the case of the assessee company as well as in the case of erstwhile company (FTAMC), which has been amalgamated into the assessee company. It is noted by us that the CIT(A) of erstwhile company (FTAMC) had clearly held that the said company was very much engaged in its business activities and thus it could not be said that business of the said company had ceased to exist. These findings of the then CIT(A) have been misunderstood by the present CIT(A) who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned subsidiary. The book value of Franklin Templeton AMC limited as at July 26, 2002 amount to Rs. 22,36,67,034/-. The difference between the cost of investment and book value amounting to Rs. 245,26,68,359 represents the value attributable to the management contracts and other intangible assets." 8.1. It was further submitted that as on 31st March 2008, the amount debited under the head management contracts and other intangible assets was reversed and was transferred to Goodwill account and thus Goodwill showed debit balance to the tune of Rs. 24,76,03,223/-. Our attention has been drawn upon Note-2(E) of Schedule XIV (Notes to the accounts appended with the Balance sheet as on 31.03.2008 wherein following particulars have been given with regard to Goodwill acquired as a result of amalgamation with the erstwhile company i.e. the difference between the cost of investment in FTAMCL of the company and the net book value of all assets and liabilities of FTAMCL as at July 26, 2002 transferred to the company have been adjusted against the balance in profit and loss account and share premium account of FTAMCL as at this date in accordance with the resolution passed by the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Triune Energy Services Private Limited vs DCIT 65 taxmann.com 288 (Delhi), wherein identical issue was involved, in similar facts and circumstances. Hon'ble Delhi High Court relied upon the judgment of Apex Court in the case of Smifs Securities Ltd., supra and held as under: "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. From an accounting perspective, it is well established that 'goodwill' is an intangible asset, which is required to be accounted for when a purchaser acquires a business as a going concern by paying more than the fair market value of the net tangible asset, that is, assets less liabilities. The difference in the purchase consideration and the net value of assets and liabilities is attributable to the commercial benefit that is acquired by the purchaser. Such goodwill is also commonly understood as the value of the whole undertaking less the sum total of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal time basis, it is noted by us that it is also well settled position of law that entry in the books of accounts is not determinative of real character of transactions under the income tax law. Reference in this regard can be made upon the recent judgment of Hon'ble Supreme Court in the case of Taparia Tools Ltd vs JCIT 372 ITR 605 (SC). Thus, we find that the assessee is prima facie entitled for the claim of depreciation on the amount of Goodwill acquired by the assessee on account of acquisition of erstwhile company (FTAMC). However, we find it appropriate that requisite facts in this regard should be verified by the AO. Therefore, we send this ground back to the file of the AO. The AO shall verify the factual assertion made by the assessee that depreciation has been allowed on this amount of Goodwill in subsequent years, as has been claimed before us. If it is found to be correct, then depreciation should be granted from the beginning. The assessee shall file requisite documents in support of its claim. The AO take into account all the documentary evidences and other submission as may be made available by the assessee on objective basis before deciding this issue afresh, but k ..... X X X X Extracts X X X X X X X X Extracts X X X X
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