9911796707
TMI Blog2023 (7) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... f United Breweries [ 2016 (9) TMI 1527 - ITAT BANGALORE ] is not applicable over the facts of case as in the said case there was amalgamation of the three wholly owned subsidiaries whereas in the instant case there is a acquisition of units of third parties by way of slump sale. DR before us submitted that allocation of values to the fixed asset acquired has been on lower side for creating goodwill as intangible asset. But in our opinion, if the quantum of goodwill is reduced, the valuation of the fixed asset will increase, which are also eligible for depreciation and thus in the exercise of reallocation of values among the goodwill and other fixed asset ,will be a revenue neutral exercise We concur with the arguments of the learned counsel of the assessee that goodwill arising from transactions of acquisition of units of GSK and CTPL, is eligible for depreciation under the provisions of the Act. As far as claim of the assessee for allowing depreciation on said goodwill corresponding to assessment year 2008-09, we are of the opinion that claim with respect to depreciation for assessment years 2008-09, cannot be allowed in the appeal for assessment year 2009-10. It is for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble DR have erred in disallowing the Appellant's claim for depreciation of Rs. 21,28,26,691 on goodwill arising on acquisition of business from Glaxo Smithkline Pharmaceuticals Limited ('GSK) and Chemito Technologies Private Limited ('CTPL'). It is prayed that the learned DCIT be directed to allow depreciation of Rs. 21,28,26,691 on goodwill acquired by the Appellant as part of the business acquisition from GSK and CTPL. 2.2 On the facts and circumstances of the case and in law, the learned DCIT and Hon'ble DR erred in relying on Explanation 7 to section 43(1) of the Income-tax Act, 1961 (IT Act) and holding that the value of goodwill in the books of the Appellant should be nil without appreciating that the said Explanation 7 is applicable only in case of transfer of capital asset under a scheme of amalgamation, whereas in the instant case, there is no amalgamation, but the Appellant had acquired goodwill on slump sale as part of business acquisition from GSK and CTPL. It is prayed that learned DCIT be directed to hold that the above referred provision has no applicability to the Appellant's case. On the facts and circumstances of the case and in law, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Ld. DCIT be directed to grant depreciation amounting to Rs. 1,04,938/- purchase of software. 4. Ground 4 - Deletion of erroneous demand of Rs. 80,79,043 4.1 On the facts and circumstances of the case and in law, the learned DCIT (irit final assessment order) has erred in determining a demand of Rs. 80,79,043 as payable by the Appellant (in its final assessment order) as a difference between refund of Rs. 4,48,30,280 issued to the Appellant and refund of Rs. 3,67,51,237 determined as payable to the Appellant. 4.2 The learned DCIT has failed to consider that the Appellant has received interest of Rs. 80,79,043 under Section 244A of the IT Act on the refund of Rs. 3,67,51,237 and accordingly, has received a total refund of Rs. 4,48,30,280 (Rs. 3,67,51,237 plus Rs. 80,79,043) including interest under section 244A of the IT Act and the erroneous demand of Rs. 80,79,043 determined is on account of non-grant of interest under section 244A of the IT Act in the computation sheet of the final assessment order. 4.3 It is prayed that the learned DCIT be directed to consider interest under section 244A of the IT Act in the computation sheet and delete the erroneous demand of Rs. 80,79,04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , being general in nature, we are not required to adjudicate upon specifically and therefore same is dismissed as infructuous. Ground 2: Depreciation on Goodwill - Rs. 21,28,26,691 4. The facts qua the ground No. 2 of the appeal are that the assessee acquired two units and recognised goodwill in those transactions. Firstly, during the previous year relevant to the Assessment Year ( AY ) 2008-09, the assessee acquired by way of a slump sale on a going concern basis the Qualigens Fine Chemicals Division from Glaxo Smith Kline Pharmaceuticals Limited ( GSK )( i.e. an independent third-party seller) for a consideration of Rs. 234.20 crores vide a Business Transfer Agreement ( BTA ) dated 26 July 2007 (pages 1-100 of the paper book). The consideration paid was allocated over various tangible and intangible assets based on a valuation report dated 31 December 2008 issued by M/s Bansi S. Mehta and Co., Chartered Accountants (pages 101-137 of the paper book) and balance amount was treated as Goodwill of business. 4.1 Secondly, during the previous year relevant to the current Assessment Year ( AY ) 2009-10, the assessee acquired by way of a slump sale on a going concern basis the Analytical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the decision of the Hon'ble Supreme Court in Smifs Securities' case (supra) that Goodwill was a depreciable asset. However, he held that the decision in Smifs Securities' case was confined to the issue as to whether Goodwill was a depreciable asset and the other issues such as valuation thereof were required to be gone into. He heavily relied upon the decision of the ITAT in the case of United Breweries Ltd. (2016) 76 taxmann.com 103 (Bangalore - Trib.) and also distinguished the other decisions relied upon by the assessee. 4.7 In the final analysis at page 17, in para 12, the AO observed as under: 12. To sum up, the claim for depreciation on goodwill recorded in the books of the assessee arising out of slump purchase into the assessee company cannot be allowed for the following reasons: 1. The assessee has not followed the proper system of accounting as mandated by the Accounting Standard-14. As the amalgamation was of the nature of 'purchase', the assessee was required to adjust the difference between the amount recorded as share capital issued and the amount of share capital of the transferor company in appropriate reserves, following the 'Pooling of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the businesses acquired market research / studies, other relevant factors, etc. The AO passed the final assessment order dated 31st January 2023 under section 143(3) read with 144C(13) read with section 254 of the Act denying the claim of depreciation on goodwill. 5. Before us the ld. Counsel of the assessee submitted that AO himself has accepted the Goodwill as a depreciable asset under section 32(1)(ii) of the Act. Even otherwise, this issue is concluded by the decision of the Hon'ble Supreme Court in Smifs Securities Ltd. 348 IT 302 (SC). The submission of assessee before us are summarised as under: Transactions in question are in the nature of slump sale, not amalgamation The acquisition of the business undertakings by the Appellant from GSK and CTPL were by way of a slump sale. A review of the respective BTAs clearly show that the business undertakings were taken over as a whole for a lump sum consideration. For instance, a reference may be made to the following: a. Page 4 of the paper book (Recitals): GSK is desirous of selling and Purchaser (i.e., the Appellant) is desirous of purchasing the QFC undertaking as a going concern comprised of its assets, liabilities, ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets (no goodwill) h. Pages 208-222: List of material contracts i. Page 223: List of distributors 5.1. The assessee further submitted that the above is only an illustrative list of the relevant clauses of the two BTAs, which show that: (i) The undertakings were acquired by the assesee from GSK and CTPL by way of a slump sale and on a going concern basis (ii) The consideration for such acquisition was paid by wire transfer (i.e., in monetary terms) and not by issuance of shares (iii) There was no goodwill in seller's books and no claim of depreciation by the sellers on goodwill (iv) Lumpsum consideration paid by the assessee for acquiring the undertakings was allocated over various assets and liabilities and recognised in the books of the Appellant at their respective fair values based on valuation report as per the requirement of Accounting Standard 10. (v) Accordingly, the transactions in question were in the nature of slump sale. This has been acknowledged by the AO and DR as well in their orders. 5.3 The Ld. Counsel further submitted the AO has applied various provisions relating to amalgamation to the facts of the assessee. The AO stated that the assessee has not foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 43(6) of the Act. 5.5 It is submitted by the assessee that Explanation 7 to section 43(1) and Explanation 2 to section 43(6) of the Act are applicable to transactions in the scheme of an amalgamation and, therefore, not applicable in the case of the assessee, since transactions of the assessee are in the nature of slump sale. Non-applicability of fifth proviso (now sixth proviso) to section 32(1)(ii) of the Act 5.6 The ld counsel further submitted that the AO in the assessment order has stated that without prejudice, the depreciation allowable to the assessee on Goodwill post-purchase should have been at the same rate as allowable to seller prior to amalgamation as per the fifth proviso (now sixth proviso) to section 32(1)(ii) of the Act and accordingly, the depreciation allowable to the assessee on Goodwill should have been zero. 5.7 Regarding above , it was submitted that the said proviso applies in cases of tax neutral transactions, such as amalgamation, demerger, succession, etc. where the transferor (i.e., the amalgamating company or the demerged company or the predecessor, as the case may be) is not taxed on the transfer of the assets and, therefore, the scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertakings by the Appellant. Moreover, there is no finding by the AO that the transfer was done for the purposes of claiming enhanced depreciation. 5.11 But in the case of assessee, however: (i) The divisions were acquired by way of a slump sale as a going concern from GSK and CTPL, which are unrelated entities whereas in United Breweries parties were related. (ii) The sellers continue to exist after their respective businesses were sold to the Appellant (iii) Goodwill did not exist in the books of the sellers. The goodwill was determined based on the purchase price allocation made by an independent valuer by assigning fair values to the assets in accordance with the relevant accounting standard. Excess consideration paid to the sellers over the net assets acquired was considered as goodwill (iv) The valuation of other assets except for goodwill was not challenged by the Ld. AO in case of the Appellant (v) The DRP has not found any discrepancy in the value assigned to any particular asset but has generally stated that the valuation reports became unrealistic because the underlying information and assumptions were not shared. It is submitted that the valuation reports firstly identif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. DCIT [2016] 65 taxmann.com 288 (Delhi) In this decision, the Hon'ble Delhi High Court while dealing with depreciation on goodwill arising on account of slump sale has held in favour of the assessee stating as under: As indicated hereinbefore Goodwill includes a host of intangible assets, which a person acquires, on acquiring a business as a going concern and valuing the same at the excess consideration paid over and above the value of net tangible assets is an acceptable accounting practice. Thus, a further exercise to value the goodwill is not warranted. (ii) Triune Energy Services (P.) Ltd. v. DCIT [2018] 96 taxmann.com 580 (Delhi -Trib.) The Hon'ble Delhi Tribunal in this case placed reliance on the decision of Hon ble High Court in case of the same assessee and directed the Id. A to delete the disallowance on account of depreciation on intangibles/ goodwill. (iii) M/s. Pitney Bowes India v. DCIT (ITA Nos. 289 to 293/Del/2013) The Hon'ble Delhi ITAT in this case has held as under: We are of the view that list of transferred asset included business know-how, customer and vendor list etc which are business or commercial rights of similar nature as specified in 32(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the intention of the legislature is that depreciation on goodwill is allowable prior to the said Amendments, is manifest from the adjustment mechanism. If the legislative intention was to deny depreciation for the past years as well, then there was no need for any adjustment to the cost of acquisition of the goodwill. Such an interpretation would lead to a provision of the law being redundant or otiose and such interpretation should be rejected. 5.16 The ld counsel further submitted that since assessment for AY 2008-09 was not picked up for scrutiny, it did not have an occasion to claim depreciation on goodwill in AY 2008-09 in respect of goodwill arising out of slump purchase of undertaking from GSK. Therefore, certain claims were raised before the Hon'ble ITAT in the appeal for AY 2009-10. The Hon'ble ITAT by its order dated 24 August 2022 was pleased to restore these claims to the file of the AO by observing as under: 5. Admittedly, the contentions raised by the assessee in Ground No. 10 and 11 are claims related to the main ground regarding allowing depreciation on goodwill. The contention raised in ground no. 12 is a new claim. We noticed that the main issue relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Where, in a demerger, any capital asset is transferred by the demerged company to the resulting company and the resulting company is an Indian company, the actual cost of the transferred capital asset to the resulting company shall be taken to be the same as it would have been if the demerged company had continued to hold the capital asset for the purpose of its own business : Provided that such actual cost shall not exceed the written down value of such capital asset in the hands of the demerged company. 5.20 On perusal of the above Explanation, we find that same is in relation to transactions of amalgamation and not related to slump sale transactions, which is the case of the assessee. 5.21 The learned Assessing Officer has further relied on Explanation-2 to section 43(6) of the Act, which reads as under: Explanation 2. Where in any previous year, any block of assets is transferred, (a) by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or (b) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not applicable of the facts of the instant case. 5.25 The ratio is in the case of United Breweries (supra) is also not applicable over the facts of case as in the said case there was amalgamation of the three wholly owned subsidiaries whereas in the instant case there is a acquisition of units of third parties by way of slump sale. 5.26 The learned DR before us submitted that allocation of values to the fixed asset acquired has been on lower side for creating goodwill as intangible asset. But in our opinion, if the quantum of goodwill is reduced, the valuation of the fixed asset will increase, which are also eligible for depreciation and thus in the exercise of reallocation of values among the goodwill and other fixed asset ,will be a revenue neutral exercise. 5.27 In view of the above discussion, we concur with the arguments of the learned counsel of the assessee that goodwill arising from transactions of acquisition of units of GSK and CTPL, is eligible for depreciation under the provisions of the Act. As far as claim of the assessee for allowing depreciation on said goodwill corresponding to assessment year 2008-09, we are of the opinion that claim with respect to depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,37,242 Less: Depreciation @ 60% for AY 2008-09 (FY 200708) 2,62,345 Written down value as on 1 April 2008 1,74,897 Depreciation @ 60% for the current year AY 2009-10 (FY 2008-09) 1,04,938 6.5 The ld counsel submitted that considering the above submission, the AO may be directed to grant consequential depreciation of Rs. 1,04,938 on purchase of software. 6.6 We have heard rival submission on the issue in dispute. The only request made in this ground is for allowing depreciation in respect of expenditure on computer software, which was claimed as revenue expenditure in earlier by the assessee but rejected by the ld CIT(A) and held as capital expenditure. Since the said decision has been claimed as finally accepted by the assessee, the assessee deserve depreciation in subsequent years including in year under consideration. In principle, we agree with the claim of the assessee, however, we restore the matter for verifying that decision of ld CIT(A) in earlier AY 2007-08 has not been reversed by higher appellate authorities, and then after verification, allow the claim as directed above. The ground is allowed for statistical purpose. Ground 4 - Deletion of erroneous demand of Rs. 80,79 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
