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TMI Blog2024 (2) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Goetze India Limited (supra) was confined to where the claim was made only before the AO and not before the appellate authorities. The Hon ble High Court held that jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Hon ble Supreme Court. We accordingly hold that, the powers of the Ld. CIT(A) being the first appellate authority as well as this Tribunal are wide enough to entertain the appellant s plea for depreciation on goodwill, which had not been claimed in the return of income, but relevant facts on the issue was placed before the AO. Depreciation claimed by the appellant - goodwill acquired under slump sale - We hold that the decision of Hon ble Supreme Court in the case of Smifs Securities Ltd [ 2012 (8) TMI 713 - SUPREME COURT] shall be applicable and therefore depreciation is allowable on goodwill acquired under slump sale u/s 32(1) of the Act in the relevant year. Hence, the plea raised by the Revenue that the depreciation on goodwill claimed by appellant is unsustainable in light of the amendment to Section 2(11) 32 of the Act is rejected. Valuation of goodwill on which the depreciation has been claimed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO is accordingly directed to compute and allow the same in accordance with law. Appeal of the assessee is allowed. - SHRI ABY T. VARKEY, JM AND SHRI AMARJIT SINGH, AM For the Appellant : Ms. Fereshte Sethna (Adv) Revenue by: None ORDER PER ABY T. VARKEY, JM: This appeal has been preferred by the assessee company against the order of the Ld. Commissioner of Income Tax (Appeals)-13, Ahmedabad dated 31.08.2018, arising out of the final assessment order passed u/s 143(3)/144C(13) dated 05.12.2014 for the assessment year 2009-10. 2. In the several grounds raised in the appeal, the sole grievance of the appellant is against the action of the AO/Ld. CIT(A) in not allowing the depreciation claimed on goodwill. 3. Brief facts are that, the assessee company M/s Vodafone India Services Pvt. Ltd. (hereinafter VISPL )] is engaged in the business of Information Technology Enabled Services (ITES) such as Call Centre. It had filed its return of income for AY 2009-10 on 30.09.2009 declaring income of Rs. 21,51,35,898/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter the Act ). Later, the case of the appellant was selected fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (b) Form No. 3CEA in respect of slump sale filed by the transferor/seller VEGL. (c) Copy of return of income of VEGL along with extracts of computation of total income demonstrating that VEGL has offered the long-term capital gain to tax on slump sale of its CCB. 5. The Ld. CIT(A) is noted to have called for remand report from the AO on the additional evidence filed by the appellant. The AO in his remand report dated 12.07.2018 (hereinafter first remand report ) opposed the admission of additional evidences. In light of this remand report, the Ld. CIT(A) is noted to have rejected the prayer for admission of additional evidence. The Ld. CIT(A) further observed on merits that, the valuation report, which was filed by the appellant, only contained the method of valuation but did not explain as to the manner in which the goodwill was valued on the given facts of the case. The Ld. CIT(A) observed that the CCB was acquired from a related party in a highly disproportionate manner and that there was no clear basis for valuation of the acquired business which led him to believe that the creation of goodwill was a financial maneuvering. According to the Ld. CIT(A), the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed on record. The appellant also furnished the electronic archives retrieved including the excel spreadsheet located in the files of former Head of Finance, his internal emails along with certificate/affidavit in compliance with Section 65 read with Section 65B of the Indian Evidence Act, 1872. The appellant also offered physical inspection of the electronic records on their archived server. After considering the contentions put forth by both the parties, this Tribunal admitted the aforesaid evidences on 10.07.2023, subject to compliance with Section 65 of the Evidence Act, 1872 and giving liberty to the Revenue to file its objections to the same. 8. In their rejoinder, the Revenue filed their first objections dated 25.08.2023, asserting that the appellant s claim for depreciation on goodwill was not tenable. Perusal of the same shows that the reasoning of the Revenue, in brief, were as follows: (i) The depreciation on goodwill was not claimed in the return of income and therefore no such claim can be made other than by filing revised return of income. For this, reliance was placed on the decision of the Hon ble Supreme Court in the case of Goetze India Ltd. (284 ITR 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with this slump sale transaction, VEGL had appointed independent valuer, M/s Dalal Shah to value the CCB undertaking to guide the management for ascertaining the slump sale consideration. The Ld. AR further pointed out that, at the material time, when this transaction was executed, VEGL was being managed by two separate promoter groups i.e. Vodafone Group and Essar Group, whereas the CCB business which was being sold to the appellant was being solely managed by Vodafone Group and therefore the Essar Group would not have permitted VEGL to sell the CCB business at a lower price. According the Ld. AR, therefore the slump sale consideration which was arrived at was guided by the valuation report and business considerations and was therefore conducted at fair value. Upon query from the Bench, the Ld. AR also demonstrated that the difference between the slump sale price and the net worth of the undertaking had been offered to tax by way of capital gains in the hands of VEGL and the same was supported by Form 3CEA placed before us. The Ld. AR accordingly pointed out that by virtue of this slump sale transaction, the appellant had indeed inter alia acquired goodwill of CCB business from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brokers Shareholders Private Limited (252 CTR 151). In the decided case, the High Court explained that the decision of Supreme Court in the case of Goetze India Limited (supra) was confined to where the claim was made only before the AO and not before the appellate authorities. The Hon ble High Court held that jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Hon ble Supreme Court. We accordingly hold that, the powers of the Ld. CIT(A) being the first appellate authority as well as this Tribunal are wide enough to entertain the appellant s plea for depreciation on goodwill, which had not been claimed in the return of income, but relevant facts on the issue was placed before the AO. 13. Having held so above, the issue which remains to be answered is whether the depreciation claimed by the appellant was allowable on merits or not. Before adverting to the relevant facts, it is first relevant to examine the prevailing legal position on the allowability of depreciation claimed on goodwill. It is noted that this issue has been examined by the Hon ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (supra). In the decided case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets acquired on purchase of the business along with valuation attributable to Intangible asset. On appeal, the Ld. CIT(A) is noted to have allowed the claim of the assessee. This Tribunal also held that the assessee had acquired bundle of valuable business rights under this scheme of arrangement which was a valuable intangible and thus eligible for depreciation under section 32 of the Act. On further appeal by Revenue, the Hon ble Bombay High Court upheld the order of the Tribunal by holding as follows: 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 matter of CIT v. Smifs Securities Ltd. [2012] 24 taxmann.com 222/210 Taxman 428 (SC) has held 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. 15. Subsequent thereto, we note that the provisions of Section 2(11) and Section 32 of the Act have since been amended by the Finance Bill, 2021 with effect AY 2021-22 and onwards, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) as well as the Revenue in their written submissions filed before us, has raised several issues doubting the valuation of goodwill acquired by the appellant. According to Revenue, the goodwill could utmost be valued at Rs. 17.57 crores and not Rs. 160 crores as worked out by the appellant. It was argued by the Ld. DR that the valuation of goodwill was undertaken at a higher figure by the appellant keeping in mind the decision of Hon ble Supreme Court in the case of Smifs Securities Ltd (supra) with the intent to evade tax by claiming higher depreciation. To this, the Ld. AR submitted that, the slump sale transaction was undertaken in the year 2008 and the decision of Hon ble Supreme Court in the case of Smifs Securities Ltd (supra) came in much later in 2012. The Ld. AR also pointed out that, the depreciation was originally not claimed by the appellant in return of income, and the said claim was raised only in course of assessment and after the decision of Hon ble Supreme Court (supra). It was also brought to our notice that, the excess consideration paid by the appellant towards acquisition of goodwill constituted taxable capital gains in the hands of VEGL. The Ld. AR showed us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om independent valuer, M/s Dalal Shah which supported the price paid for acquisition of goodwill. It is noted that, initially the Revenue had disputed the valuation report citing non-filing of under-lying records/basis for preparation of valuation report by M/s. Dalal Shah. Before us the appellant in accordance with Rule 29 of ITAT Rules provided the relevant underlying archives and also filed the certificate u/s 65B of the Indian Evidence Act, as has been prescribed by the Hon ble Supreme Court in the case of Anvar PV vs. P.K. Basheer Others (2014) 10 SCC 473. Although these underlying archives were provided to the Revenue and the appellant had also extended the opportunity to the Revenue to inspect their server/digital records to ascertain its veracity, the Revenue is noted to have not opted for it for extraneous considerations. Instead, the Revenue has made bald assertions doubting its correctness. Such action of the Revenue is against the spirit of fair play and therefore cannot be countenanced. 21. Proceeding further, we come to the reasonablness of the valuation exercise of the goodwill at Rs. 160 crores, it is indeed true that since the transaction was with a relate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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