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TMI Blog2022 (2) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of goodwill and deduction claimed u/s. 35(2AB). As prior 1-7-2016 form 3CL had not legal sanctity and it is only w.e.f. with the amendment to rule 6(7a)(b) that quantification of the weighted deduction u/s. 35(2AB) of the act has significance. Similarly, ITAT Bangalore in the case of Provici Animal Nutrition India Pvt. Ltd. [ 2020 (12) TMI 177 - ITAT BANGALORE ] has held that prior 11-06-2016 form 3CL granting approval by prescribed authority in relation to quantification of weighted deduction u/s. 35(2AB) had no legal sanctity and it was only w.e.f. 1-7-2016 with amendment to rule 6(7a)(b) that quantification of weighted deduction u/s. 35(2AB) has significance. After perusal of the material on record made by the AO submission of the assessee and judicial finding, we observed that the above said judicial finding was available when the impugned revision order was passed u/s. 263 of the act, meaning there was possible views with regard to the question as to whether furnishing of form 3CL is mandatory or not for claiming deduction u/s. 35(2AB) of the act and the AO has followed one of the possible views in which case, the impugned assessment order cannot be framed as prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal:- "1. The Ld. PCIT has erred in law and on facts in passing the order u/s. 263 of the Act by holding in Para 25 on Page 57 that" the assessment order u/s. 143(3) of the Act dated 19.12.2018 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(a) below section 263(1) of the Act. Accordingly the impugned assessment order is set aside with a direction to the Assessing Officer to make requisite inquiries and proper verification with regard to the issue mentioned above and redo the assessment de-novo after due consideration of the facts and law in this regard". 2. The Ld. PCIT has erred in law and on facts in making an observation in Para 14 on Page 35 of the order that " The contention of the assessee that it has followed the purchase method of accounting for amalgamation as also mentioned in the order of Hon'ble High Court and the claim of amalgamation is not sufficient evidence in this regard. It is evident from the document filed by the assessee that as per the claim of amalgamation, all the conditions provided in the accounting standards with regard to pooling of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired in view of the Amalgamation relying on the decision of Hon'ble Apex Court in the case of Commissioner of Income-tax, Kolkata v, Smifs Securities Ltd. [2012] 24 taxmann.com 222 (SC). The appellant company has also taken into consideration while claiming the depreciation on the acquired Goodwill as per purchase Method of Accounting Standard 14 of the Institute of Chartered Accountants of India being cost incurred for acquiring the Goodwill on amalgamation was worked out at ₹ 342,71,92,8557- and depreciation thereon of ₹ 85,67,98,2147- was claimed. 5. The appellant humbly submit that the order passed by the Ld. AO was neither erroneous nor prejudicial to the interest of revenue. All the issues raised in the show cause notice u/s. 263 had already been examined by the Ld.AO and detailed enquiries were conducted at the time of assessment proceedings as such the proceedings u/s. J263 are not legally valid. 6. The Ld. PCIT has erred in law and on facts in making an observation in Para 24 on Page 57 of the order that " it is apparent from the assessee's submission that the approval given by the DSIR was only limited to ₹ 588.42 lacs and in the gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed order u/s. 263 of the Act on 31st March, 2021. The ld. Pr. CIT stated that on scrutiny of assessment record for assessment 2017-18 it is found from Schedule DOA of return of income and annexure G of serial no. 18 of tax audit report that the assessee company has claimed depreciation on goodwill for assessment year 2016-17. It is further noticed from the record that the goodwill has been recognized on amalgamation of erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. subsequently, known as Troikaa Pharmaceuticals Ltd. It is stated that:- "Pursuant to the Composite Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956 for amalgamation of erstwhile Troikaa Pharmaceuticals Limited with The Company as sanctioned by the Hon'ble High Court of Gujarat on 30th April, 2016 (effective date) all the residual assets and liabilities of the erstwhile Troikaa Pharmaceuticals Limited were transferred to and vested in The Company with effect from 1st April, 2015, the appointed date." 5.1 The transfer of assets and liabilities from the erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. to the resulting company took place w.e.f. 1-4- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either acquired by the amalgamating entity nor resulting entity. So, there was no actual cost incurred by either of the entities with regard to these assets as no cash flow was involved. The Pr. CIT was of the view that goodwill appeared in the balance sheet of the assessee company was purely for the purpose of claiming depreciation and the same is to be disallowed. Therefore, the Pr. CIT stated that depreciation was not allowable on goodwill in assessee's case created by virtue of amalgamation, under the existing provisions of the Income Tax Act, 1961 viz, 6th proviso to section 32(1), section 49(1)(iii)(e), explanation 7 to section 43(1)/and/or explanation 2(b) to section 43(6)(c) and section 55(2)(a)(i). The Pr. CIT has further stated while finalizing the assessment, the Assessing Officer has neither made disallowance on wrong claim of depreciation on goodwill nor called for any explanation from the assessee. The written down value of goodwill in the books of amalgamated company was nil prior to amalgamation and hence the cost of goodwill in the hands of the resultant company i.e. assessee shall be nil and no depreciation can be allowed where the cost of any asset was nil. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets taken over during the process of amalgamation. The Pr. CIT has not accepted the submission of the assessee stating that in the books of amalgamating company i.e. erstwhile Troikaa Pharmaceuticals Ltd and Troikaa Export Pvt. Ltd. no goodwill was existed but the same has been created in the books of the resulting company. The Pr. CIT has stated that the claim of the assessee that goodwill was created in view of amalgamation is required to be examined in view of the provision of the income tax act and also the accounting standard. The ld. Pr. CIT after giving reference of accounting standard AS-14 has also stated that as per accounting standard 14 no goodwill is generated in case of pooling of interest method and in this method the difference between the purchase consideration and net value of the asset is adjusted against reserves. The ld. Pr. CIT has also referred various judicial pronouncements in respect of application of accounting standard -14 of the purpose of accounting in the cases pertaining to amalgamation scheme to decide whether in a particular case of amalgamation goodwill will arise or not. These cases are briefly discussed as under:- (i) DCIT vs. Toyo Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion during the course of assessment proceedings to justify the claim of depreciation in accordance with the provision of law. The Pr. CIT was also of the view that Assessing Officer had not verified at all whether the assessee has followed purchase method or pooling of interest method. The assessee had contended that it had followed the purchase method of accounting as such goodwill was incorporated in the books of account at the time of amalgamation. The assessee has also contended that such goodwill was eligible for claim of depreciation under the provision of I.T. Act. However, the Pr. CIT has not agreed with the submission of the assessee stating that Assessing Officer had not examined this issue at the time of assessment proceedings. Therefore, the Pr. CIT has held that the order passed on this issue by the Assessing Officer was erroneous and prejudicial to the interest of revenue. 6. Regarding claim of deduction u/s. 35(2AB) of the act, the relevant part of the show cause notice issued by the Ld. Pr. CIT to the assessee is reproduced as under:- "5 Further, on verification of "Computation of Income" and "Annexure-H" of Sr. 19(1) of tax audit report(For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r during the course of assessment proceedings. Briefly, the assessee also stated that it has claimed weighted deduction u/s. 35(2AB) of the act of ₹ 19,70,97,094/- as per the certificate of the statutory auditor dated 24th October, 2018 on the basis of books of account maintained for expenditure incurred for in house approved R & D Centre and on the basis of expenditure incurred on the clinical trial expenditure conducted outside the approved facility which was filed along with the application made to the DSIR for issuance of form no. 3CL. The assessee has submitted that as against the claim of weighted deduction u/s. 35(2AB) of the act as claimed in the return of income the DSIR in Form 3CL dated 16-03-2017 (copy of which was attached) as per which the weighted deduction u/s. 35(2AB) of the act works out to ₹ 1176.84 lacs. However, the DSIR while issuing form no. 3CL have not given the working as to why they have arrived at the said figure in form no. 3CL as against figure stated in the application made to the DSIR for obtaining form no. 3CL. The assessee company is making a follow up with the DSIR to have break up of the working of figure stated in the form 3CL in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss deduction u/s. 35 (2AB) and, therefore, the order passed by the Assessing Officer on this issue also was erroneous as much as it was prejudicial to the interest of the revenue. Accordingly, the assessment order u/s. 143(3) dated 19th December, 2018 was set aside with a direction to the Assessing Officer to make de-novo assessment. 7. During the course of appellate proceedings before us, the ld. counsel referred page no. 116 of the paper book no. 1 and submitted that vide letter dated 22nd March, 2021 the ld. Pr, CIT has issued show cause notice u/s. 143(3) of the act and proposed revision of order u/s. 143(3) dated 30th March, 2019 stating that the same was erroneous and prejudicial to the interest of revenue. In response to the show cause notice, assessee company has filed its submission vide letter dated 30th March, 2021 placed at page 120 of the paper book no. and submitted that during the course of original assessment proceedings carried out u/s. 143(3) of the act it had already provided the detail related to goodwill including claim of depreciation on goodwill vide reply dated 24-09-2018 and 16-11-2018 also the justification relating to the claim of expenditure of research ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en. It is also mentioned that the amalgamation has been accounted for under the purchase method as prescribed under accounting standard-14 at page no. 59 of the paper book no. 1. The assessee has given the working of goodwill arises on amalgamation of Troikaa Pharmaceutical Ltd. He also referred page no. 60 of the paper book-1 as per which the detail of consideration to be paid by issuing of shares in terms of composite scheme of arrangement was given. The ld. counsel has also taken us to page no. 312 to 367 of the paper book no. II pertaining to the copies of valuation and certificates issued by the registered valuer of valuation of various assets as per the terms and conditions of the composite scheme. He also referred page no. 362 of the paper book II pertaining to fair market value of the different fixed asset acquired on account of merger of Troikaa Pharmaceutical Ltd. with the assessee company. The ld. counsel has also taken us to page no. 73 to 114 of the paper book no. I comprising auditor's report u/s. 44AB along with various annexure and accounting notes with detail of various assets and liabilities of the Troikaa Pharmaceutical Ltd. The ld. counsel has also referred page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vikas Polymers (2003) 341 ITR 537 (HC Delhi) 7.1 During the course of appellate proceedings before us on the issue of depreciation on assets it was submitted that this issue was also duly considered during the course of original assessment proceedings in the reply of the assessee dated 24th Sep, 2018. The reconciliation chart with respect to assets pre-amalgamation i.e. Troika Pharmaceutical Ltd. as on 31st March, 2015 and post amalgamation with Troika Exports Pvt. Ltd. as on 31st March, 2015 with opening WDV as on 1-4-2016 were submitted. The assessee has enclosed the same as per annexure B vide its submission dated 17th August, 2021. As per annexure B enclosed in the submission, the assessee has given the detail of assets along with written down value of the assets as on 31st March, 2015 and opening figure of the same as on 1st April, 2016 in the case of Troika Pharmaceutical Ltd. showing it has taken the same figure as per the written down value of the assets as on 31st March, 2015 for the purpose of further claim of depreciation. 7.2 On the other hand, the ld. Departmental Representative contended that assessment order was passed without any inquiry. It is cryptic order wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has referred the case law mentioned by the Pr. CIT in the order passed u/s. 263 pertaining to DCIT vs. Toyo Engineering Pvt. Ltd. ITA 3279/Mum/2008 and decision of SC Johnson Pvt. Ltd. vs. ACIT Delhi High Court. The ld. Departmental Representative has also referred the different pages of the order of the Pr. CIT u/s. 263 of the act and stated that no specific query has been raised. He also referred the decision of Jalgaon People Co-operative Bank (2021) 127 taxmann.com 243 of ITAT Pune. The judgment of Hon'ble High Court vide ITA 987/2017 in the case of Brahmdev Gupta and G.Vee Enterprises 991 ITR 375 (Delhi), Rampyari Devi Sarogi (1968) 671 ITR 84 (SC) and Sify Software Ltd. of ITA Chennai 80 taxmann.com 273. The ld. Departmental Representative has also referred the decision of Abhishri Packaging Pvt. Ltd. of ITA Mumbai ITA No. 6485/Mum/2018. In respect of second ground pertaining to claim of deduction u/s. 35(2AB) of the act, the ld. Departmental Representative has contended that no re-conciliation of research and development expenditure has been carried out and the expenditure claimed were not approved by DSIR. He also submitted that Assessing Officer has allowed the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hennai Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. (xi) Fibres & Fabrics International (P) Ltd. Vs. DCIT, Circle-11(3), Bangalore [2016] 72 taxmann.com 87 (Bangalore Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. (xii) DCIT, OSD-1(1) Vs. Worldwide Media (P.) Ltd. [2014] 43 taxmann.com 18 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump. (xiii) ST. Angelo's Computers Ltd Vs. ITO- 9(3)(2), Mumbai [2017] 88 taxmann.com 376 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. The ld. Departmental Representative has also given his comments on the case laws relied upon by the ld. counsel as per part B of the paper book. In the case of Adani Gas Ltd. vs. Pr.CIT-1 (ITA No.1252/Ahd/2016) (ITAT Ahmedabad) , the ld. Departmental Representative contended that facts of this case are different from assessee's case as it pertained only to claim of claimed goodwill. In the case of M/s. MTANDT Rentals Ltd. vs. ITO (ITANo.2410/CHNY/2017) (ITAT Chennai), the ld. Departmental Representative contended that the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of assessment proceedings the assessee has also made compliance with all the notices and the detailed submission has been placed in the paper book. Regarding on the comments of the Departmental Representative that Assessing Officer passed cryptic order the ld. counsel has stated that the case of the assessee was transferred from ACIT to the ITO, Wd the detailed submission and detailed verification made by the ACIT Circle were transferred to the ITO Ward and the internal matter between the Assessing Officer were continued for 15 months. The first hearing was taken place on 3rd March, 2017 and last hearing was taken place on 6th December, 2008. Total five notices were issued and the hearing was taken place on 8 times. He has further submitted that Assessing Officer after due verification and after considering the detailed finding of the judicial pronouncement has passed the order u/s. 143(3) of the act. The ld. counsel has further submitted that purchase method was followed as per the order of the High Court. In respect of short order, the ld. counsel has stated that once the Assessing Officer issued numerous notices and conducted 8 hearings it cannot be said that the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamated company by virtue of explanation 2 to section 43(6) shall be the written down value of the block of asset as in the case of the transferor/amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. The intangible assets which were owned/held by the Troikaa Pharmaceutical Ltd., prior to amalgamation with erstwhile Troikaa Pharmaceutical Ltd. and Troikaa Export Pvt. Ltd. was nil, the cost, in the hands of the erstwhile Troikaa Pharmaceutical Ltd. and Troikaa Export Pvt. Ltd. for such goodwill shall be nil only. The ld. Pr. CIT in the order u/s. 263 of the act has also held that the Assessing Officer while finalizing the assessment neither made disallowance of wrong claim on deprecation of goodwill nor called for any explanation from the assessee company. The Pr. CIT also observed that the Assessing Officer has failed to examine whether the assessee has followed purchase method or pooling of interest method to justify its claim that goodwill was rightly accounted for. 8.1 The Pr. CIT further on verification of tax audit (form 3CD) found that assessee company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. The ld. counsel has also placed in the paper book the copy of submission giving the details of written down value of the assets as on 31st March, 2015 in the books of Troikaa Pharmaceutical Ltd. (transferor company) and the assets accounted for in the transferee company Troikaa Pharmaceutical Ltd. (name converted into Troikaa Pharmaceutical Ltd. on 01-04-2015) at the respective market value along with revised audited balance sheet prepared after approval of amalgamation scheme by Hon'ble Gujarat High Court. In the Composite Scheme of Arrangement for amalgamation of Troikaa Pharmaceutical Ltd. with Troikaa Export Pvt. Ltd.. the detail of description of the company, rational of composite scheme of amalgamation, definition and share capital transferred on vesting different kinds of assets, issuance of share and restructuring of share capital, accounting treatment in the books of transferee company, general terms and conditions etc, were given in detail approved by the Hon'ble High Court of Gujarat. On perusal of the aforesaid Composite Scheme of Arrangement it is noticed that at clause no. 9.1 it is categorically mentioned that the amalgamation of Troikaa Export Pvt. Ltd. will be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised specific queries as per serial no. 21 to 22 of the notice u/s. 11th Sep, 2018 which is reproduced as under:- "21. Please show cause why the sum of ₹ 15876 should not be added to your total income u/s 36(1)(va) rws 2(24) as you failed to deposit the sums so received from your employees to the designated funds? 22. Please submit complete details of the expenses claimed u/s 35(2AB) and justify your claim with supporting documents and computations. Also submit the approval from DSIR regarding the amount claimed by you." Again vide notice dated 22nd Sep, 2018, the Assessing Officer has also raised specific queries on the issues of claim of goodwill on amalgamation reproduced as under:- "4. Submit the complete documents regarding the scheme of amalgamation and copy of high court order for the same. 5. Submit the effective date of scheme of amalgamation with proper references of the HC order. 6. Submit in details the treatment of the amalgamation on your books of account with supporting documents, valuation reports etc. 7. Please justify the huge increase in the intangible assets during the F.Y. and the claim of depreciation on the same. 8. Please reconcile the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uested in earlier all the notices if not submitted till date. Please note that the information requested in this notice and all other subsequent notices needs to be submitted only electronically through your e-filing portal in view of the e-assessment proceedings being conducted in your case 1. Please submit the balance sheet and P&L A/c with all schedules of erstwhile Troikaa Pharma which got amalgamated with Troikaa Exports Pvt. Ltd as on 31-03-2015. 2. Submit the details of the financials of troika group companies etc in below format Company A.Y. 2013-14 A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016-17 A.Y. 2017-18 A.Y. 2018-19 Erstwhile Troikaa Pharma (PAN: AABCT0228K) Size of balance sheet GP Ratio NP Ratio Total Income Book Profit Troikaa Exports Pvt. Ltd. (prior to amalgamation) Turnover Size of the balance sheet GP Ratio NP Ratio Total income Book profit Triokaa Pharma (post amalgamation) Turnover Size of the balance sheet GP Ratio NP Ratio Total Income Book pofit 3. Submit the details of the date on which the goodwill was put to use. 4. Submit the details of the benefits derived from the acquired goodwill if any with supporting documentary ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pharmaceuticals Ltd. (PAN No.AABCT0228K) transferred to assessee company Troikaa Exports Pvt. Ltd. (Now known as Troikaa Pharmaceuticals Ltd. - PAN No.MBCT6866H). In this regard, please find enclosed herewith the statement of reconciliation of closing stock as per ITR of AY 2015-16 with the opening stock of ITR of A.Y. 2016-17 along with copy of ITR of A.Y. 2015-16 is attached herewith as per Exhibit - IV (Page No. 115 to 151). 3. (Sr.No.3) Your honour has asked the assessee company to submit the certified report of stock valuation as on 31.03.2015 and reconcile the same with the closing and opening stocks. In this regard, please find enclosed herewith the report of stock valuation as on 31.03.2015 of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No. AABCT0228K) as certified by the management as per Exhibit - V (Page No. 152). That the valuation method of the closing stock has already been stated in the statutory audit report filed for F.Y. 2015-16 attached herein above as per Exhibit - II (Page No. 42 to 72). The assessee company and erstwhile Troikaa Pharmaceuticals Ltd. (PAN No. AABCT0228K) is consistently following the same method of valuation of closing stock and in all earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, in Para 4.1.1 to Para 4.1.3 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229) has been stated the manner on Page 39 & 40 handwritten on top of the Page and Print Page No. 7 & 8 on lower part of the page. That on Page No. 40, handwritten on top of the page and Print Page No. 8 on the lower part of the page in Para 5, the consideration has been stated and in Para 6 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229), the Accounting treatment for transfer of Windmill Division of TPL to TEPL has been stated. b) The assessee company invite your honour's attention to the handwritten Page No. 41 on top of the page, Print Page No. 9 (lower part of the page) of the Scheme of Amalgamation as per Exhibit - VI (Page no. 153 to 229 ) which is Part - C under the head " Amalgamation of the residual TPL with TEPL", in Para 7 under the title " TRANSFER AND VESTING" attached to the scheme of amalgamation stated from 01.04.2015 and for your honour's ready reference Para 7.1 to 7.8 is reproduced hereunder:- "7.1 With effect from April 1, 2015, being the 1st day of April, 2015, and upon the Scheme becoming effective, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of April, 2015, TEPL shall be entitled to exercise all rights and privileges and be liable to pay ground rent, municipal taxes and fulfill all obligations, in relation to or applicable to such immovable properties. The mutation of title to the immovable properties in the name of TEPL shall be made and duly recorded by the appropriate authorities upon filing of true copies of the Order of High Court or any other appropriate authority approving the scheme without any further act or deed on part of TPL or TEPL. 7.1.4. Any amount including but not limited to refund under the Tax Laws due to TPL consequent to the assessment proceedings or otherwise and which have not been received by TPL as on the date immediately preceding the 15t day of April, 2015, shall also belong to and be receivable by TEPL upon the Scheme being effective 7.1.5. In respect of such of the assets belonging to Residual TPL other than those referred to in clause 7.1.1 to 7.1.4, the same shall be transferred to and vested in and/or be deemed to be transferred to and.vested in TEPL on the Ist'day of April, 2015, pursuant to the provisions of Section 394 of the Act. 7.2. With effect from April. 1, 2015, and . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of after the Effective Date or otherwise. Provided also that the Scheme shall not operate to enlarge the security for any loan, deposit or facility availed by TEPL and that TEPL shall not be obliged to create any further or additional security in lieu thereof, on any assets of Residual TPL vested in TEPL in accordance with foregoing paragraphs of the scheme, after the Effective Date or otherwise. Al1 assets and liabilities of the Residual TPL as on the 1st day of April, 2015, whether or not included in their respective books, and all the assets and properties which are acquired by them on or after the 16t day of April, 2015. but prior to the Effective Date, shall be deemed to be and shall become the assets and properties of TEPL, and shall under the provisions of Sections 391 to 394 of the Act and all other applicable provisions, if any, of the Act. without any further act, instrument or deed be and stand transferred to and vest in or be deemed to be transferred to and vested in and be available to TEPL upon the coming into effect of this Scheme on the Effective Date, pursuant to the provisions of Sections 391 to 394 of the Act and all other applicable provisions, if any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & 7) Your honour has asked to submit the details of treatment of the amalgamation on your books of account with supporting documents, valuation reports etc. and That your honour in question No. 7 has asked to justify about the huge increase in the intangible assets during the FY and the claim of deprecation on the same. (I) In this regard, please find enclosed herewith the details of treatment of the amalgamation in the books of accounts along with Valuation Report as under:- i) Valuation Report of Land and Building of Thol as per Exhibit - VII (Page No. 230 to 232) ii) Valuation Report of Land and Building of Dehradun as per Exhibit - VIII (Page No. 233 to 236) iii) Valuation Report of Land of Virochanagar per Exhibit - IX (Page No. 237 to 240) iv) Valuation Report of commercial Office as per Exhibit - X (Page No. 241 to 243) v) Valuation Report of Plant and Machinery, Laboratory equipments, Office equipments, Electric Installations, Furniture & Fixtures, Computers, etc. of Thol and Dehradun as per Exhibit - XI (Page No. 244 to 247) vi) Valuation Report of Vehicles at Thol, Dehradun and HO as per Exhibit - XII (Page No. 248 to 251) vii) Valuation Report of Patents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed as the value of assets less the value of liabilities, of TPL transferred to TEPL and recorded in TEPL in terms of Clause 9.2.) 9.7. if considered appropriate for the purpose of application of uniform accounting methods and policies between TPL and TEPL. TEPL may make suitable adjustments and reflect the effect thereof in the Capital Reserve or Goodwill Account of TEPL, as the case may be". The assessee company is attaching herewith accounting entries passed in the books of assessee company on amalgamation as per Exhibit - XIIIA (Page No. 285/A to 285/D) (III) The assessee company has to submit that the assessee company has prepared a chart showing the WDV of various assets standing in the books of accounts of Troikaa Pharmaceuticals Ltd as on 31.03.2015 and in pursuance of Para 9.2 of the scheme of amalgamation, all assets of Troikaa Pharmaceuticals Ltd (Transferor Company) have been accounted for in the books of account of Troikaa Exports Pvt.Ltd ( Transferee company) (name converted into Trcikca Pharmaceuticals Ltd after amalgamation as per the Hon'ble Guj'rat High Court order w.e.f.1.4.2015) and the statement giving the details of written down value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of stamp duty. The amount of stamp duty is under adjudication. 28. Amalgamation of Troikaa Pharmaceuticais Limited with the Company: Composite Scheme of Arrangement was undertaken between erstwhile Troikaa Pharmaceuticals Limited and Troikaa Exports Private Limited subsequently known as Troikaa Pharmaceuticals Limited (The Company): Pursuant to the Composite Scheme of Arrangement u/s 391 to 394 of the Companies Act,1956for amalgamation of erstwhile Troikaa Pharmaceuticals Limited with The Company as sanctioned by the Hon'ble High Court of Gujarat on SOtll April, 2016 (effective date) all the residual assets and liabilities of the erstwhile Troikaa Pharmaceuticals Limited were transferred to and vested in The Company with effect from 1" April, 2015, the appointed date. The erstwhile Troikaa Pharmaceuticals Limited along will its subsidiaries were operating as integrated international organizations with business encompassing the entire value chain in the production, marketing and distribution of pharmaceutical formulations. The Scheme has accordingly been given effect to in these financial statements. 28. The amalgamation has been accounted for under the "Purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quity Shares of ₹ 10/- each at a Premium of ₹ 67/- (Number of Equity Snares 6,25,43,220 of the Company has been allotted to the Equity Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) Equity Share of ₹ 10/-each (Number of Equity Shares 41,69,548). b. 1 (One) 11.50% Cumulative Preference Share of Rs.-10/-each (Number of Preference Shares 6,29,700) of the Company has been allotted to the 11.50% Cumulative Preference Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) 11.50% Cumulative Preference Shares of₹ 10/-each (Number 6,29,700). c. 1 (One) 9.00% Cumulative Preference Share of ₹ 10/- each (Number of Preference Shares 38,88,000) of the Company has been allotted to the 9.00% Cumulative Preference Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) 9.00% Cumulative Preference Shares of ₹ 10/- each (Number 38,88,000). iiii... In view of the above scheme of arrangement, the Financial Statements for the current year are not comparable to those of the previous year. iv. As the allotment of Equity Shares and Preference Shares has been made on 30thth July, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble High Court of Gujarat at Ahmedabad all the assets and liabilities of Troikaa Pharmaceuticals Ltd. transferred to Troikaa Exports Pvt. Ltd. Subsequently the name of assessee company Troikaa Exports Pvt. Ltd. has been changed to Troika Pharmaceuticals Ltd. Hence the WDV block as per Income-tax Act of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No.AABCT0228K) transferred to assessee company Troikaa Exports Pvt. Ltd. (Now known as Troikaa Pharmaceuticals Ltd. - PAN No.AABCT6866H). In this regard, please find enclosed herewith the reconciliation of closing WDV as per ITR of A.Y. 2015-16 with opening WDV of ITR of AY 2016-17 as per Exhibit - XV (Page No. 319).Further the assessee company would like to draw Your Honour's attention to Note no. 04 of Tax Audit Report wherein it is mentioned that "the company has purchased wind turbine generator on 31.03.2015 under slump sale and depreciation of ₹ 56,00,000/- (₹ 1,40,00,000*40% under the Income Tax Act has not been claimed for AY 2015-16. However to calculate depreciation for the AY 2016-17, Opening WDVof₹ 84,00,000/- [₹ 1,40,00,000 - ₹ 56,00,000 has been taken by considering the depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Troikaa Pharmaceutical Pvt. Ltd.. and the assets accounted in the books of Troikaa Export Pvt. Ltd. along with revised audit balance sheet prepared after approval of amalgamation scheme by the Hon'ble Gujarat High Court. It is also noticed that during the course of assessment proceedings vide submission dated 16th Nov, 2018, placed at page 405 to 434 of the paper book II, in response to the queries raised by the Assessing Officer in the notice u/s. 142(1), the assessee has also made detailed submission that the company has taken over the residual fixed assets at the fair market value aggregating to ₹ 14,366.77 lacs, other assets aggregating to ₹ 17,261.77 lacs and liabilities aggregating to ₹ 17,262.42 lacs at book value of the erstwhile Troika Pharmaceuticals Ltd. and an amount of ₹ 34,271, 93 lacs being the excess of the amount recorded as share capital and securities premium to be issued by the assessee company over the amount of net asset value (after cancellation of the inter-company balance and investment) of the erstwhile Troika Pharmaceuticals Ltd. and share capital reduction of ₹ 2.00 lacs has been debited to goodwill account. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he residual fixed assets including all intangible assets of the erstwhile Troikaa Pharmaceuticals Limited, were recorded in the books of the assessee company at their fair market value and in the same form as at the appointed date i.e. 01.04.2015. All other assets and liabilities have been recorded at the book value of erstwhile Troikaa Pharmaceuticals Limited. Hence, in accordance with the Composite Scheme of Arrangement: The Company has taken over the residual fixed assets at the fair market value aggregating to ₹ 14,336.77 lakhs, other assets aggregating to ₹ 17,261.77 lakhs and liabilities aggregating to ₹ 17,262.42 Lakhs at book value of the erstwhile Troikaa Pharmaceuticals Limited and an amount of ₹ 34,271.93 lakhs being the excess of the amount recorded as share capital and securities premium to be issued by the assessee company over the amount of net asset value (after cancellation of the inter-company balance and investment) of the erstwhile Troikaa Pharmaceuticals Limited and : Capital Reduction of ₹ 2.00 lakhs has been debited to Goodwill account. Share Particulars Amount (Rs.in lakhs) Total Consideration (A) 48,610.05 Tangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares issued and allotted under clause 8.2 and clause 8.3 of this Scheme. 9.5. TEPL shall credit to its Securities Premium Account, the aggregate premium in respect of Equity Shares issued and allotted under Clause 8.2 of this Scheme. 9.6. The difference, if any, between the Net Assets Value of TPL transferred to and recorded by TEPL in terms of Clause 6.1 and 9.2 above, and the amount credited to Share capital and Securities Premium account as per Clause 9.4 and 9.5 above and cancellation of inter-company balances and investment as per Clause 9.3 above, reduction of share capital of TEPL as per clause 8.8, and differential amount arising as per clause 8.9, shall be credited to the Capital Reserve Account or shall ID tie Goodwill Account of TEPL, as the case may be. ( "Net Assets Value" shall be computed as the value of assets less the value of of TPL transferred to TEPL and recorded in TEPL in terms of Clause 9.2.) 9.7 If considered appropriate for the purpose of "application of uniform accounting and policies between TPL and TEPL, TEPL may make suitable and reflect the effect thereof in the Capital Reserve or Goodwill Account TEPL, as the case may be". iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible assets which came into existence on 01.04.2015 for an amount of ₹ 34271.93 lakhs in the books of the assessee company falls in the category of intangible assets being business or commercial rights of similar nature, which is eligible for depreciation as per the provisions of Section 32(ii) of the Act. In support of this contention, the assessee company would like to place reliance on the following decisions of the Hon'ble Apex Court as well as the Hon'ble Jurisdictional High Court: a.Hon'ble Supreme Court in the case of Commissioner of Income-tax, Kolkata v. Smifs Securities Ltd. [2012] 24 taxmann.com 222 (SC) wherein it was held that: "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 '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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot; subsumes within it a variety of intangible benefits that are acquired when a person acquires a business of another as a going concern. It is submitted that a variety of elements go into the making of goodwill like licenses, know-how, customer information, supply-chain, product pricing, process information, trade-secrets, confidential information, software licenses, product-registration C & F Agents and Stockist distribution network, skilled marketing force and other intellectual human resources etc. The aforesaid intangible assets are "any other business rights or commercial of similar nature" attributable to the right to take advantage of a preestablished value chain in the production, marketing and distribution of pharmaceutical formulation and exports of products of amalgamating company Troikaa Pharmaceutical Company (Transferor company), which has benefited the amalgamated company Troikaa Exports Pvt.Ltd (transferee company), for the consideration paid for Goodwill as per scheme of Amalgamation at ₹ 34,271.93 Lacs and revenue from operations in RY. 2015-16 has increased to ₹ 38,522.93 Lacs. Without acquiring Goodwill in the form of intangible right of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1.6 (a), 0) & (g) of the Hon'ble High Court approved Scheme of Amalgamation and the »is reproduced below for ready reference: "a) All the assets and properties of Transferor Company as on the Appointed Date (i.e. 1st April, 2015); c) All licenses (including but not limited to the licenses granted by any governmental, statutory or regulatory bodies for the purpose of carrying on the business of Transferor Company or in connection therewith), approvals, authorizations, permissions including but not limited to municipal permissions, consents, registrations, certifications, no objection certificates, quotas including but not limited to import quotas, rights, permits, entitlements, concessions, exemptions, subsidies, tax deferrals, credits (including but not limited to Cenvat Credits, sales tax credits and income tax credits), privileges, advantages and all other rights and facilities of every kind, nature and description whatsoever of Transferor Company; d) All intellectual property rights (including but not limited to applications for registration of the same and the right to use such intellectual property rights), trade and service names and marks, patents, copyrigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f "knowhow, patents, trademarks, licenses or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(l)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anchise" is declared to be an intangible asset. Moreover, under rule 5, membership is a personal permission from the Exchange which is nothing but a "licence" which enables the member to exercise rights and privileges attached thereto. It is this licence which enables the member to trade on the floor of the Exchange and to participate in the trading session on the floor of the Exchange. It is this licence which enables the member to access the market. Therefore, the right of membership, which includes right of nomination, is a "licence" or "akin to a licence" which is one of the items which falls in section 32(l)(ii) of the 1961 Act. The right to participate in the market has an economic and money value. It is an expense incurred by the assessee which satisfies the test of being a "licence" or "any other business or commercial right of similar nature" in terms of section 32(l)(ii). 24. Before concluding, we wish to clarify that our present judgment is strictly confined to the right of membership conferred upon the member under the BSE membership card during the relevant assessment years. We hold that the said right of members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion "business or commercial rights of similar nature" referred to in section 32(l)(ii) of the Act and held that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. The Hon'ble Court further held that in the circumstances, the nature of business or commercial rights could be of the same genus in which all the aforesaid six assets fall and thus intangible assets i.e. business claims; business information; business records;, contracts; employees; and know-how, were held to be assets which are invaluable and result in carrying on the business of the assessee, without any interruption and are comparable to a licence or akin to a licence which is one of the items falling in section 32(l)(ii) of the Act. 24. The above said ratio was referred to by Mumbai Bench of the Tribunal in M/s India Capital Markets P. Ltd. Vs DCIT (supra) wherein the purchase of clientele business by the assessee from M/s AFC was held to be right which could be used as a tool to carry on the business and the consideration paid fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was for acquisition of the intangible assets on which the assessee is entitled to the claim of depreciation under section 32(1) (ii) of the Act." iv. Triune Energy Services (P.) Ltd. v. Deputy Commissioner of Incometax [2016] 65 taxmann.com 288 (Delhi) 14. In CIJ 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 in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business." The Court had further explained that: "A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Nat Steel Equipment (P.) Ltd. v. Collector of Central Excise AIR 1988 SC 631 wherein the Apex Court has opined that the term 'similar' means corresponding to or resembling to in many aspects. In this regard, it would not be out of place to refer to the decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 2941 (SC) wherein the concept of goodwill has been understood in the following terms: "Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v. Lye 181017 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 in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business". In Trego v. Hunt 1896 A.C. 7 (HL) Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business." 22. Regard being had to the concept of 'goodwill' and the statutory scheme, the claim of the assessee and the delineation thereon by the Tribunal are to be scanned and appreciated. The claim of the assessee-respondent, as is discernible, is that the Assessing Officer had treated the transactions keeping in view the concept of business or commercial rights of similar nature and put it in the compartment of intangible assets. To effectively understand what would constitute an intangible asset, certain aspects, like the nature of goodwill i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of similar nature as know-how, patents, copyrights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customers associate with such assets. Goodwill, when appositely understood, does convey a positive reputation built by a person/company/business concern over a period of time. Regard being had to the wider expansion of the definition after the amendment of section 32 by the Finance (No. 2) Act, 1998 and the auditor's report and the explanation offered before the Assessing Officer, we are of the considered opinion that the Tribunal is justified in holding that if two views were possible and when the Assessing Officer had accepted one view which is a plausible one, it was not appropriate on the part of the. Commissioner to exercise his power under section 263 solely on the ground that in the books of account it was mentioned as 'goodwill' and nothing else. As has been held by the Apex Court in Malaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. This view was fortified by the ratio of the decision of Supreme Court in Techno Shares & Stocks Ltd. v. CIT I2010J 327 ITR 323/193 Taxman 248 wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "license" or "akin to a license". Since in the present case AMC's constitutes the very basic income earning apparatus for the assessee, the same should fall within the purview of Section 32(1)(ii) of the Act. 40. In the said circumstances, we find force in the argument of the Id AR that since said AMC's are commercial rights and the same should rightly be categorized as 'business or commercial rights for the purposes of Section 32(l)(ii) of the Act. Thus, by applying the principle of ejusdem generis we hold that in the facts and circumstances of this case, such AMC's should get covered within the expression "business or commercial rights of similar nature" specified under Section 32(l)(ii) of the Act and accordingly eligible for depreciation. In the result, this issue is answered in the affirmative and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment agreement to be executed with such other entity, and the Transferor shall use all reasonable endeavors to notify and / or obtain the consent of such other entity in respect of the assignment as soon as possible. 2.4 Transferor hereby transfer and the Transferee hereby accepts transfer of the employees." 10.5 In light of the above case laws, we are in agreement with the submissions of the Id. Counsel of the assessee that the goodwill that has been recognized in this case represents various assets in the nature of goodwill. We find considerable cogency in the submissions of the Ld. Counsel of the assessee as mentioned above. Thus, we hold that the assesscs's case is covered by the decision in the Hon'ble Delhi High Court as above. The case laws relied upon by the Ld. Departmental Representative are not applicable as they are Tribunal's decisions and Hon'ble Jurisdictional High Court takes a precedence over the same." viii. Hinduja Foundries Ltd. v. Assistant Commissioner of Income-tax, Chennai (2017) 83 taxmann.com 52 (Chennai-Trib.) 6. We have considered the rival submissions on either side and perused the relevant material available on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake over had clearly mentioned that all assets including the goodwill was taken over by the company. Even accepting the view of the CIT(Appeals) that there were no commercial rights acquired, now the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) held that purchase consideration paid over and above the net value of the assets constitutes goodwill. Even the Hon'ble Delhi High Court recently in the case of Triune Energy Services (P.) Ltd. v. Dy. CIT [2016] 65 taxmann.com 288/237 Taxman 230 held that the excess of the amount paid over net value of assets constitutes 'goodwill'. In coming to this conclusion, the Hon'ble Delhi High Court relied on Accounting Standards AS-10 issued by the ICAI. That apart, when the company was taken over as a going concern with all the assets & liabilities for a slump consideration, it is neither permissible nor possible to apportion the consideration paid against different assets as held by the Hon'ble Supreme Court in the case of CIT v. Mugneeram Bangur & Co. [1965] 57 ITR 299. Thus, in our considered view, the view of the CIT(Appeals) that there was no goodwill as no commercial rights were acquired, cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oodwill is''absolutely incorrect and without any method, which is generally adopted for evaluating the goodwill. In this case, once there is no dispute that the total consideration for tangible and intangible assets is for ₹ 91 crores, which has also been accepted by the A.O., then it is presumed that such consideration also includes goodwill on account of brand or product besides trade mark and copy rights. 12. Now, the issue whether the depreciation can be allowed on such intangible asset in the form of goodwill also or not is no longer res Integra, as the Hon'ble Supreme Court in Smifs Securities Ltd. 's case (supra) besides various other High Courts also, have held that the depreciation is to be allowed on such intangible asset which constitute goodwill. Once the depreciation allowable on goodwill at the same rate on which the assessee has claimed depreciation on trade mark and copy right, then it is immaterial to disallow the entire claim of depreciation made by the assessee on intangible assets. The reason being that, the aggregate value of all the intangible assets is ₹ 80 crores and depreciation is to be allowed at 25% on this cost, then it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on "Good-will" against which assessee is in further appeal before us. 6. We have carefully gone through the decision of Hon'ble Supreme Court in the case of SMIFS Securities Ltd. (supra) and decision of Hon'ble Bombay High Court as well as decision of coordinate bench of the Tribunal cited at bar. The Hon'ble Supreme Court in the case of SMIFS Securities Ltd. (supra), held as under :- '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 herein below 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 commercial rights of similar nature." Explanation 3 states that the expression "asset" shall mean an intangible asset, 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 ..... f shares issued to the shareholder of JKSL is eligible for depreciation and the Id. CIT(A) has also held that even if it is considered to be the cost of goodwill of JKSL, still the assessee is entitled for depreciation. During the course of hearing of the appeal, the Id. D.R. has placed emphasis that this cost of shares issued to JKSL is not part of purchase consideration towards cost of acquisition of cement undertaking but it is a cost of goodwill and is not eligible for depreciation. There is no quarrel on the proposition of law that if the cost of shares allotted to the shareholders of JKSL is considered as the payment of purchase consideration towards cost of acquisition to the cement undertaking, then Hit ussessee is eligible for depreciation of the said cost. The dispute was raised that it is not a part of payment of purchase consideration towards cost of acquisition of cement undertaking. It was rather called to be the cost of goodwill which wrts transferred to the assessee. In this regard, we have carefully perused the judgments referred to by the parties. 11. In the case of R.G. Keswani vs. ACIT (supra) and DOT vs. Toyo Engineering India Ltd. (supra), the Mumbai Benches ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamation of the above two companies ; that the assets and liabilities of M/s. YSN Shares and Securities P. Ltd. were transferred to the assessee for a consideration ; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-company stood increased. This finding has also been upheld by the Income-tax Appellate Tribunal ("the ITAT"; for short). We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of the Income-tax Appellate Tribunal, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under section 32 of the Act. In the circumstances, before the High Court, the Revenue did not fits an appeal on the finding of fact referred to hereinabove. For the aforestated reasons, we answer question No. (b) also in favour of the assessee." 12. In the case of Areva T and D India Ltd. vs. DCIT (supra), the Hon'ble Delhi High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) and the Income-tax Appellate Tribunal approved the reasoning of the Assessing Officer thereby holding disallowance of depreciation on the amount described as goodwill. It was thus argued on behalf of the assessee-company that section 32(l)(ii) would mean rights similar in nature as the specified assets, viz., intangible, valuable and capable of being transferred and that such assets were eligible for depreciation. On behalf of the respondent it was argued that applying the doctrine of noscitur sociis the expression "any other business or commercial rights of similar nature" used in Explanation 3(b) to section 32(1) has to take colour from the preceding words "know-how, patents, copyrights, trademarks, licences, franchises". It was urged that the Supreme Court had clearly held In Techno Shares and Stocks Ltd. [2010] 327ITR 323 (SC) that "Our judgment should not be understood to mean that every business or commercial right would constitute a "licence" or a "franchise" in terms of section 32(l)(ii) of the 1961 Act". In the present case, applying the principle of ejusdem generis, which provides that where there are general words f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 1TR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "licence" or "akin to a licence" which is one of the items falling in section 32(l)(ii) of the Act. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in section 32(l)(ii) of the Act and were accordingly eligible for depreciation under that section. In view of the above, it is not necessary to decide the alternative submission made on behalf of the assessee that goodwill per se is eligible for depreciation under section 32(l)(ii) of the Act. In the circumstances, the substantial question of law is decided in the affirmative and this appeal is allowed in favour of the assessee and against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [20121348 ITR 302/210 Taxman 428/24 taKmann.com 222. (b) In the above view, question no.(i) as proposed does not give rise to any substantial question of law Thus, not entertained." Commissioner of Income-tax taxmann.com 262 (Bombay) 2 v. Birla Global Asset Finance Co. Ltd. (2014) 41 "3. As regard the second question is concerned, the contention of the Revenue is that intangible assets like business and commercial brand equity are goodwill on which depreciation is not allowable. The Apex Court in the mutter of CIT v. Smifs Securities Ltd. [20121 24 taxmann.com 222/210 Taxman 428 (SC) has in-lit that even the intangible assets constitute goodwill on which depreciation would be allowable. Hence, the second question cannot be entertained. Accordingly, the appeal is dismissed. We hope that the aforesaid details and explanation will suffice your honour's requirements. We shall be happy to furnish any other details and explanation that may be required by your honour in connection with the assessment proceedings the assessee company also request your honour to give the opportunity of personal hearing if your honour has any query while verifying the details submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer has not specifically looked into the application of section 50C of the act for adoption of sale consideration as against stamp duty valuation. However, the fact in the case of the assessee are quite different as per the material on record (supra), the Assessing Officer has made detailed enquiry on the claim of goodwill and claim of deduction R & D expenditure. We have also perused the decision in the case of Mrs. Khatiza S. Oomerboy Vs. ITO (2006) 100 ITD 173 Mum wherein it is held that where Assessing Officer raised several queries regarding computation of income under capital gain and in response the assessee had filed detailed revised explanation supported by various documents which were duly received by Assessing Officer, it could not be assumed that there was no application of mind on the part of the Assessing Officer and therefore Commissioner was not justified in interfering with order passed by Assessing Officer by invoking his jurisdiction u/s. 263 of the act. It is noticed in the case of the assessee as evident from the discussion referred above in this order the Assessing Officer has raised queries through a number of notices issued u/s. 142(1) of the act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxman 326 (SC). We find that facts of this case are entirely different as it pertained to adjustment to be made in carrying cost of fixed assets acquired in foreign currency because of fluctuation in rate of foreign exchange. The case of SC Johnson Products Pvt. Ltd. vs. ACIT Writ Petition 2697/2015 referred by the ld. Departmental Representative wherein the Assessing Officer noticed that assessee had adopted a wrong method of purchase while calculating depreciation instead of pooling of assets method in terms of different accounting standards. We observed that the facts of the case of the assessee are distinguishable from the fact of this case as nothing like this has been found in the case of the assessee. The ld. Departmental Representative referred the case of United Breweries Ltd. Vs. Addl. CIT, Range-2 Bangalore (2016) 76 taxman.com 103 (Bangalore Tri), wherein held that by virtue of 5 proviso to second 32(1) assessee being amalgamated company could not claim or be allowed depreciation on assets acquired in scheme of amalgamation more than depreciation was allowable to amalgamating company. However, in the case of the assessee, the amount of goodwill was arised on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation of goodwill and claim of deduction in respect of R & D expenditure before finalizing the assessment, however, these issues were not discussed in the assessment order because Assessing Officer has not found any irregularities with the submission of the assessee. The ld. Departmental Representative referred the case of Steels Cotton Mills Ltd. Vs. CIT (1979) 116 ITR (SC). However, we observed that the fact of this case pertained to the issue that if foreign currency is held as a capital asset or as fixed capital such profit or loss would be of capital nature. The ld. D.R. has referred the case of Pr. CIT -II vs. Shri Braham Dev Gupta vide ITA 1162/2017 dated 207 2018. This is the case pertained to the issue wherein during the course of scrutiny assessment the assessee could not supply the PAN of certain creditors since assessee has not furnished the specific information therefore the proceedings u/s. 263 was justified. However, the facts in the case of the assessee are totally different as all the information required by the Assessing Officer during the course of assessment has been furnished by the assessee. The ld. D.R. has referred the decision of Jalgaon Peoples Co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f consistency shall be valid as held by the Bombay High Court in the case of Pr. CIT vs. Quest Investment Advisor Ltd. 96 taxman.com 157. Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC), the ld. Departmental Representative has referred this case wherein it is revealed that the assessee neither resided nor carried out any business from the address declared in the return and the ITO was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc. without any inquiry or evidences. In this regard, we find that fact in the case of the assessee are entirely different since Assessing Officer had made detailed inquiries and passed the order on the basis of detailed submission and copies of document furnished by the assessee during the course of assessment proceedings itself. 8.6 We have also perused the decision of Mylan Laboratoris Ltd vs. DCIT Circle 16(2) Hyderabad Trib (2020) 113 (2020) 113 taxman.com 6 (Hyd) referred by the ld. counsel during the course of appellate proceedings. In this decision, the ITAT Hyderabad held that where assessee amalgamated with a company by way of acquisition/purchase, consideration paid in exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble from the facts of the^ case before us, as in the case of United Breweries, there was a merger with its Wholly owned Subsidiary, whereas in the case of the assessee, it is amalgamation by purchase. Therefore, the decision in the case of United Breweries is not applicable to the case before us. Let us therefore now consider the facts in the judgement of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. For the sake of clarity and ready reference, the relevant paras are reproduced hereunder: Question No.[b]: "Whether goodwill is an asset within the meaning of Section 32 of the Income Tax Act and whether depreciation on goodwill1 is allowable under the said Section?" Answer: In the present case, the assessee had claimed deduction of ₹ 54,85,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: "In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares & Securities (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the afore-stated reasons, we answer Question No. [b] also in favour of the assessee.' Thus, it is clear that the Hon'ble Supreme Court has considered the circumstances under which the goodwill has arisen on which depreciation was claimed. Therefore, the judgement in the case of Smifs Securities Ltd. is applicable to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see-company stood increased - Accordingly, assessee's claim was allowed - Whether since revenue could not rebut factual findings recorded by authorities below, impugned order passed by them was to be upheld - Held, yes [Para 8] fin favour of assessee] II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of - Whether stock-exchange membership card is an asset eligible for depreciation under section 32 - Held, yes [Para 1] [In favour of assessee" The Hon'ble Supreme Court at para 6 & 7 of the order held as under:- "6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the common procedures as mentioned in para 40 of the accounting standard 14 in respect of such assets like above which cannot be valued at fair market value, in the common procedural, it is laid down that where the market of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book value. We have also gone through the decision of Gujarat High Court in the case of Arvind Jewellers (259 ITR 502) held that:- "Held, that the finding of fact by the Tribunal was that the assesses had produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the act and after considering the material and explanations, the Income-tax Officer had come to a definite conclusion. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that different view can be taken should not be the basis for an action under section 263. The order of revision was not justified." The ratio laid down by the Hon'ble Gujarat High Court in the case of aforesaid decision is that when the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment expenditure incurred u/s. 35(2AB) of the act for an amount of ₹ 72,29,224/- for research and development capital expenditure u/s. 35(2AB) and for an amount of ₹ 189867870/- research and development revenue expenditure u/s. 35(2AB) aggregating to ₹ 197097094/-. The assessee has also brought to the notice of the Assessing Officer that DSIR as per form no. 3CL, the assessee company is eligible for weighted deduction for inhouse R & D expenditure at 200% u/s. 35(2AB) of the act in respect of ₹ 518.06 lacs which works out to ₹ 1036.2 lacs and in respect of clinical control expenses conducted outside the approved R & D facility in form NO. 3CL for an amount of ₹ 30.36 lacs on which weighted deduction u/s. 35(2AB) of the act at 200% works out to ₹ 140.72 lacs the assessee has also submitted that in respect of clinical trial expenditure conducted outside approved facility by the assessee company during the year under consideration is allowable u/s. 35(2AB) of the act is now settled in view of the decision of the Hon'ble Jurisdictional Gujarat High Court in the case of CIT-1 Vs. Cadila Healthcare Ltd. (2013) 31 taxman.com 300 (Gujarat) and in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to receive recognition from prescribed authority and deduction could not be denied merely because prescribed authority failed to send intimation in form 3CL in respect of expenditure incurred by R & D unit for relevant assessment year as held in the decision of ITAT Calcutta Bench (2021) 125 taxman.com 97 (Kol-Tri) in the case of Dy. CIT vs. STP Ltd. wherein it is also held that prior to 1-6-2016, form 3CL had not legal sanctity, only requirement to claim deduction u/s. 35(2AB) was to receive recognition from prescribed authority and it was only with amendment to rule 6(7a) (b) which came into effect 1st July, 2016 that quantification to weighted deduction by prescribed authority had significance. It is clear from the aforesaid judicial finding that prior 1-7-2016 form 3CL had not legal sanctity and it is only w.e.f. with the amendment to rule 6(7a)(b) that quantification of the weighted deduction u/s. 35(2AB) of the act has significance. Similarly, ITAT Bangalore in the case of Provici Animal Nutrition India Pvt. Ltd. vs. Pr. CIT (2021) 124 taxman.com 73 (Bangalore- Trib) has held that prior 11-06-2016 form 3CL granting approval by prescribed authority in relation to quantificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to show cause why weighted deduction claimed by it u/s. 35(2AB) of the act could not be restricted to 200% of ₹ 538.22 lacs in view of the certificate issued by DSIR wherein eligible R & D expenditure is ₹ 5.38 lacs. The assessee company submitted that it has claimed the weighed deduction u/s. 35(2AB) of the act of ₹ 23,38,59,786/- as per the certificate of the statutory auditor dated 28th Sep, 2017 on the basis of books of account maintained for expenditure. However, the Assessing Officer during the course of assessment proceedings as per assessment order u/s. 143(3) of the act has only allowed the claim of deduction u/s. 35(2AB) of the act to the extent of ₹ 10,76,44,000/- @ 200% of amount as per form 3CL, therefore, excess amount of deduction of ₹ 12,62,15,726/- was disallowed. After perusal of the aforesaid facts and material it is observed that Assessing Officer after taking into consideration the detail filed by the assessee and related document correctly restricted the deduction to the extent of the amount as per form no. 3CL since 1-7-2016 as per amendment to rule 6(7a)(b) of the Rule the quantification of deduction u/s. 35(2AB) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction for goodwill on amalgamation and claim of deduction u/s. 35(2AB) of the act evident from the copies of notices discussed supra in this case. The assessee has given the detailed explanation and submission in writing supported with copies of relevant documents. All these were part of the record of the case. Evidently, the claim was allowed by the Assessing Officer on being satisfied with the explanation of the assessee. It was necessary for the commissioner to state in what manner he considered that the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue and what the basis was for such a conclusion. The Assessing Officer after considering the entire book of account and the reply furnished by the assessee passed the assessment order u/s. 143(3) of the act. After perusal of the material on record and copies of letter issued by the Assessing Officer and relied upon by the assessee during the course of assessment proceedings u/s. 143(3), it is evident that Assessing Officer has made specific enquiries with respect to depreciation on goodwill and claim of deduction in respect of research and development expenditure u/s. 35(2AB) of the act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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