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TMI Blog2022 (7) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... ha Chary, Judicial Member For the Assessee : Shri M.V.Prasad For the Revenue : Shri Rohit Mujumdar ORDER PER SHRI RAMA KANTA PANDA, A.M. This appeal filed by the assessee is directed against the order dated 21.06.2019 of the Learned Commissioner of Income Tax (Appeals)-1, Hyderabad relating to AY 2016-17. 2. Facts of the case, in brief are, that the assessee is a company and filed its return of income on 17.10.2016 declaring Nil income and current year loss of Rs. 1,08,85,581/-. During the course of assessment proceedings, the AO noted that the assessee company acquired Hyderabad business of Beams Hospitals Pvt Ltd as a going concern and on a slump sale basis by paying a purchase consideration of Rs. 7,94,00,000/-. The purchase consideration is stated to be towards certain tangible assets and also goodwill. While the value of the fixed assets is taken at Rs. 3,31,23,000/-, the difference amount of Rs. 3,96,87,209/-(after deducting the value of the fixed assets and the value of security deposits from the sale consideration) is treated as Goodwill and depreciation thereon is claimed at @25%. He, therefore asked the assessee to submit the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,96,87,209/- is internally generated goodwill, hence, the case laws relied upon by the appellant is not applicable. Therefore, depreciation on this amount of goodwill of Rs. 3,96,87,209/-. @25% i.e Rs. 99,21,802/- is not allowable u/s. 32 and hence disallowed. 4. Aggrieved with such order of the ld.CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- 1. The ld.CIT(A) is erred in facts and law while passing the order. 2. The ld.CIT(A) has not given proper conclusion why Depreciation on Goodwill is not allowable 3. The ld.DR.CIT(A) has not observed the facts the consideration paid over the above the tangible assets is for the goodwill and is accounted in the books of accounts of the purchaser. 4. The ld.CIT(A) has not observed the fact that goodwill is not internally generated, it is acquired during the course of purchase of the ongoing hospital and hence depreciation is allowable as per Section 32(1)(ii) 5. The Ld. Counsel for the assessee strongly challenged the order of the ld.CIT(A) in sustaining the disallowances made by the AO on account of depreciation on goodwill. He submitted that the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT vs Smifs Securities Ltd. 348 ITR 302, he submitted that the Hon ble Supreme Court has held that Goodwill is an asset under Explanation 3(b) to section 32(1) and, thus, it is eligible for depreciation. He submitted that in this case, during relevant assessment year, one Y Ltd. amalgamated with assessee company. According to assessee, excess consideration paid by it over value of net assets acquired of Y ltd amounted to goodwill on which depreciation was to be allowed. The Authorities below recorded a finding that assets and liabilities of Y Ltd. were transferred to assessee for a consideration, the difference between cost of an asset and amount paid constituted goodwill and that assessee company in process of amalgamation had acquired a capital right in form of goodwill because of which market worth of assessee company stood increased- Accordingly, assessee s claim was allowed since revenue could not rebut the factual findings recorded by authorities below, the order passed by them was upheld. 7. Referring to the decision of Hon ble Supreme Court in the case of PCIT vs.Zydus Wellness Ltd. [2020] 113 taxmann.com 154(SC)/269 Taxman 57, he submitted that the Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be set aside and the grounds raised by the assessee should be allowed. 12. The ld.DR on the other hand heavily relied on the order of the ld.CIT(A). Referring to the decision of the Co-ordinate bench of the Tribunal in the case of Signode India Ltd. vs. DCIT vide ITA No.954/Hyd/2019 order dated 24.02.2021, he submitted that identical issue has been decided by the Tribunal, where depreciation on goodwill was disallowed and the appeal filed by the assessee has been dismissed. He accordingly submitted that the grounds raised by the assessee should be dismissed. 13. We have considered the rival arguments made by both the sides, perused the orders of the AO and ld.CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has acquired Hyderabad business of Beams Hospitals Private Limited as a going concern and on a slump sale basis by paying a consideration of Rs. 7.94 crores as per the slump sale agreement between AVIS Hospitals India Limited and Beams Hospitals Private Limited dated 30.03.2015 copy of which is placed in the paper book at page at 78 to 99. We find the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount 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. 7. 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. 8. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee. 15. We find the Hon ble Supreme Court in the case of PCIT vs. Zydus Wellness Ltd.(supra) has observed as under:- 3. The remaining questions no. (E) to (I) relate to the assessee's claim of depreciation. In the return filed for the assessment year 2010-11, the assessee had not raised such a claim. However, during the course of assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Goetze (India) Ltd. vs. Commissioner of Income-tax (supra). When it comes to the power of Appellate Commissioner or the Tribunal, the Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer. Income Tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income. 39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Institute of Chartered Accountants of Ireland in respect of its application in the Republic of Ireland, explains that the accounting requirements for goodwill reflect the view that goodwill arising on an acquisition is neither an asset like other assets nor an immediate loss in value. Rather, it forms the bridge between the cost of an investment shown as an asset in the acquirer's own financial statements and the values attributed to the acquired assets and liabilities in the consolidated financial statements . 16. The abovementioned Financial Reporting Standard 10 also provides for accounting of purchased goodwill as the difference between the cost of an acquired entity and the aggregate of the fair values of that entity's identifiable assets and liabilities. Positive goodwill arises when the acquisition cost exceeds the aggregate fair values of the identifiable assets and liabilities. Negative goodwill arises when the aggregate fair values of the identifiable assets and liabilities of the entity exceed the acquisition cost. 17. At this stage, it is also relevant to refer to Accounting Standard 10 as issued by the Institute of Chartered Accountants of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Revenue. The Assessee's appeal (ITA 40/2015) is, accordingly, allowed. 17. So far as the decision relied on by the ld.CIT-DR in the case of Signode India Ltd.(supra) is concerned, the same in our opinion is distinguishable and not applicable to the facts of the present case. In that case, the Tribunal while rejecting the claim of depreciation on goodwill has given certain observations, which are not present in the instant case. The Tribunal in the said case has reproduced the valuation made by an independent valuer, who have given their report based on the information provided by the client and have not independently verified or checked the accuracy or timeliness of the same as per para 7.4 of the order. Similarly, the Tribunal at para 7.13 of the order has observed that the basis for transfer price is in the individual knowledge of the transferor and transferee and both the parties are under the control of same management, which indicate that the claim of fictional goodwill is nothing but deriving undue benefit out of oneself at the cost of the revenue. Similarly, the Tribunal observed at para 7.14 of the order that the parent company appointed the valuer and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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