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TMI Blog2024 (12) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... s Merchem Ltd. [2015] 280 CTR 381 [Kerala] and CBDT's Circular No. 22/2015 dated 17.12.2015." 2. Whether on facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the disallowance of Rs. 19,08,698/- made on account of sundry creditors." 3. Whether on facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the disallowance of depreciation of Rs. 5,48,77,532/- claimed @ 25% on opening WDV of intellectual property rights." 3. Brief facts of the case are that, the Assessee filed its return by declaring the total income of Rs. 22,96,57,162/- which was processed u/s 143(1) of the Income Tax Act, 1961 ('Act' for short). The case of the Assessee was selected for scrutiny and a notice u/s 143(2) of the Act issued on the Assessee. The assessment order came to be passed on 27/12/2017 by making following disallowance/additions:- * "Disallowance of late deposit of ESI/PF Rs. 17,93,995/- * Addition of interest alleged to be of penal nature Rs. 26,093/- * Addition of sundry creditors outstanding Rs. 19,08,698/- * Disallowance of amount claimed to be incurred for charity and donation Rs. 2,39,501/- * Disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while deleting the above addition held as under:- "I have perused the facts of the case and submission of the AR of the appellant. In this respect, it is noted that the basis adopted for making the impugned addition is that sundry creditors were outstanding for more than three years and since the assessee had not been able to provide either confirmation from the sundry creditors or latest financial statement of the said creditors, it was therefore, held that such sum is taxable under section 41(1) of the Act. It is noted that the above issue had come up for consideration before the Jurisdictional High Court in the case of CIT vs. Vardhman Overseas Ltd. 343 ITR 408. In the aforesaid case, the facts were that the assessee was engaged in the manufacture of rice from paddy and also selling rice after purchasing the same from the local market. The Assessing Officer noted that the sundry creditfor outstanding on account of purchase of paddy was paddy of Rs 1.31.17.230/. The assessee did not submit the confirmatory letters and wrote to the Assessing Officer that it was not aware of the present whereabouts of the creditors after a lapse of four years and whatever addresses were available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has not transferred the said amount from the creditors' account to its profit and loss account. The liability was shown in the balance sheet as on 31st March, 2002. The assessee being a limited company, this amounted to acknowledging the debts in favour of the creditors. Section 18 of the Limitation Act, 1963 provides for effect of acknowledgement in writing. It says where before the expiration of the prescribed period for a suit in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, a fresh period of limitation shall commence from the time when the acknowledgement was so signed. In an early case, in England, in Jones v. Bellgrove Properties [1949] 2KB 700, it was held that a statement in a balance sheet of a company presented to a creditor- share holder of the company and duly signed by the directors constitutes an acknowledgement of the debt. In Mahabir Cold Storage v. CIT [1991] 188 ITR 91/56 Taxman 4ZF, the Supreme Court held: "The entries in the books of accounts of the appellant would amount to an acknowledgement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ground of appeal." 11. The Assessee has written off the credit balance of both the parties under consideration during Assessment Year 2017-18 which is supported by the financials produced by the Assessee at page No. 139A and 139B. Both the ledge accounts the amount standing in the name of both the parties reflecting as written off as on 31/03/2017. Thus, we find no error or infirmity in the order of the Ld. CIT(A) and finding no merit in Ground No. 2 of the Revenue, we dismiss Ground No. 2 of the Revenue. 12. In Ground No. 3 the Department contended that the Ld. CIT(A) has erred in deleting the disallowance of depreciation of Rs. 5,58,77,532/- claimed @25% on opening WDV of intellectual property rights. 13. The Ld. Departmental Representative relying on the findings and conclusion of the assessment order, submitted that the Ld. CIT(A) committed error in deleting the addition. 14. Per contra, the Ld. Senior counsel appearing for the Assessee submitted that the scheme of Amalgamation has been approved by the Hon'ble High Court and once the scheme of amalgamation has been approved, no authority should be allowed to tinker with the scheme. Further submitted that, even the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure by the amalgamating company and valuation report of the valuer could not be a basis to allow such expenditure. Furthermore, it has been held that appellant had failed to prove the utility of patented technology for the business of appellant company. 6.4 Having considered the aforesaid basis, it is noted that justifiable basis to examine the claim of depreciation in the instant assessment year. The Hon'ble Apex Court in the case of CIT vs. Smifs Securities Ltd. 348 ITR 302 examined the issue of eligibility of deduction of goodwill on amalgamation of a company with another company. In holding that goodwill is a legitimate claim of deduction, the Hon'ble Court held that the excess consideration paid by it over value of net assets acquired of the amalgamating company should be considered as goodwill which is an asset under explanation 3(b) of section 32(1) of the Act. In the aforesaid case, one of the issue was raised was that Assessing Officer had held that no amount was actually paid on account of goodwill. However, the Commissioner (Appeals) has come to the conclusion from the orders of High Court ordering amalgamation that assets and liabilities of the amalgamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cernible. The purpose and the only purpose appears to be to acquire capital asset of the DOC Pvt. Ltd. through the intermediary of the transferor-company which was created for that very purpose to meet the requirement of law, and in the process to defeat tax liability that would otherwise arise. If such be the scheme of amalgamation and if such is the use made of the transferor-company by those controlling it, it can never be said that the affairs of the transferor company sought to be amalgamated, created for the sole purpose of facilitating transfer of capital asset, through its medium, have not been carried on in a manner prejudicial to public interest. Public interest looms large in this background, and the machinery of judicial process is sought to be utilised for defeating public interest and the court would not lend its assistance to defeat public interest, namely, tax provision. It must be confessed that it is open to a party to so arrange its affairs so as to reduce its tax liability. The assessee or party can arrange its affairs so that he or it may not incur any tax liability. But it must be within the power of the party to arrange its affairs. If the party seeks assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamation then it is not within the domain of any of the authorities to doubt or reject or not to comply with such scheme. On the contrary, as a matter of record that such scheme was approved and asset was treated as part of block of assessment in the preceding assessment year and therefore, having done so, there is otherwise no valid justification not to allow depreciation on the said issue in the instant assessment year. Another objection raised by the AO is the utility of technology to the business of appellant company. In this regard, appellant had furnished a reply dated 23.12.2017 in the course of assessment proceedings wherein it was stated as under: "Note on the patent Technology: M/s Macro Steel Engineers Private Limited developed cot efficient technology for drilling of oil over several years and got it patented as offshore winch, onshore Winch and Truck Mounted Winch form Controller General of Patents, Designs and Trademarks, Government of India vide patent registration no.21550, 21549 and 177295. The reason of purchasing these technologies from the seller company was that it is recognized by ONGC and other Oil companies. This technology has provided a monopoly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 17. The Co-ordinate Bench of the Tribunal while deciding the similar issue in ITA No. 8270/Del/2018 (A.Y 2014-15) in the name of ACIT Vs. M/s Rohit Bal Designs Pvt. Ltd. vide order dated 12/08/2022, dismissed the Appeal of the Revenue in following manners: - "10. It is clear from the above that, the Ld. A.O has committed an error by passing assessment order based on standalone basis despite fact that he had full knowledge of amalgamation while making the addition. The Ld. A.O should have considered the effect of amalgamation more so in view of the specific mandate of the Hon'ble High Court. The Ld. A.O has ignored the above facts. Further, as per the decision of Hon'ble Madras High Court in the case of Pentamedia Graphics Ltd. vs. ITO: 236 CTR 204, which is also followed by the Delhi Bench of the Tribunal in the case of Bharti Airtel Limited vs. ACIT: ITA No. 3907/Del/2010, the only course open to the Revenue would be to act as per the scheme sanctioned effective from 01/04/2013 which means that the tax authorities are bound to take note of the state of affairs of the Assessee as on 01/04/2013 and a return filed reflecting the same cannot be ignored on the strength of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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