TaxTMI 
TaxTMI 
2020 (11) TMI 47
X X X X Extracts X X X X
X X X X Extracts X X X X
....(Appeals) has erred in confirming action of the Assessing Officer in computing the total income at Rs. 2,56,06,81,0687- as against that of Rs. 1,38,88,41,840/-declared by the appellant in the return of income filed on 30/09/2015. 2. The learned Commissioner of Income Tax (Appeals) has erred in passing the appellate order in undue haste without granting adequate opportunity of representation to the appellant Company when the written submissions dtd. 10/10/2019 filed before him specifically stating therein that the written submissions have been filed in part and the balance submissions shall be furnished to you shortly. Hence the order so passed being against the principles of natural justice and law requires to be cancelled. 3. The learned Commissioner of Income Tax (Appeals) has erred in not appreciating the fact that the assessee company had filed written submissions dtd.09/07/2019 and 10/10/2019. He ought to have considered the fact that in both the written submissions it has been specifically stated that the submissions have been made in part and the balance submissions shall be furnished to you shortly. 4. The learned Commissioner of Income Tax (Appea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2. The learned Commissioner of Income Tax (Appeals) has erred in confirming action of the Assessing Officer in holding that the existing business of a group company has been amalgamated with a paper company of the same group only by issue of shares and without any material change in shareholding. 13. The learned Commissioner of Income Tax (Appeals) has erred in confirming action of the Assessing Officer in holding that the assessee has issued shares at a huge premium to the same shareholders of the group and the transferee company is a paper company with no worthwhile activities. 14. The learned Commissioner of Income Tax (Appeals) has erred in confirming action of the Assessing Officer in making allegation that high value tax evasion is happened in both by way of claiming excess depreciation and creation of dubious capital in the converted entity LLP. 15. The learned Commissioner of Income Tax (Appeals) has erred in confirming action of the Assessing Officer in not accepting valuation report of RBSA Capital Advisors LLP submitted by the Appellant and further holding that adoption of different value method for two companies UPPL and UMPL is unjustified. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inable in view of the latest decision of the Hon'ble Supreme Court in the case of PC1T Vs. Maruti Suzuki India Ltd, ( 2019) 416 ITR 613. According to the learned Counsel for the assessee, it was not aware about the decision of the Hon'ble Supreme Court in the case of Maruti Suzuki India Ltd (supra) when the appeal was filed. It came to its notice subsequently. On the strength of the Hon'ble Supreme Court's decision in the case of National Thermal Power Co. Ltd. Vs. CIT, (1998) 229 ITR 383 (SC), he contended that this will go to the root of the assessment of the assessee and, therefore, being a legal issue, the assessee be permitted to raise these grounds. On the other hand, learned CIT-DR opposed the prayer of the assessee. He contended that the assessee never took this objection before the Revenue Authorities below. According to him, permission to raise these additional grounds of appeal at this stage would require investigation of fresh facts which are not available on record. Therefore, assessee's application be rejected. We have duly considered the rival contentions and gone through the record carefully. The issue which assessee wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sd/- (WA)  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that point of time. 6. The Ld. AR before us has challenged the validity of the assessment order framed by the AO under section 143(3) read with section 144C of the Act dated 27th December 2018 on the reasoning that it was framed on erstwhile company which was a non-existent entity at that point of time. The ld. AR has filed a paper book running from pages 1 to 59 and highlighted the chronology of events right from the date of filing the returns, scheme of amalgamation, intimations for change of name and conversion into LLP and the assessment framed under section 143(3) read with section 144C of the Act dated 27th December 2018. 7. On the other hand the Ld. DR submitted that the notice under section 143(2) of the Act was issued on 8-4-2016 in the name of the erstwhile company before the approval of the scheme of amalgamation by the Hon'ble High Court. Therefore, the notice issued under section 143(2) of the Act was valid and consequent assessment in the name of the erstwhile company under section 143(3) of the Act was also valid. 8. We have heard both the parties and perused the materials available on record before us, especially the impugned orders and the case law cited t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as on 31.03.2015, (Fixed Assets) that during the year under consideration the assessee has created goodwill of Rs. 468,73,56,913/- in the books of accounts by virtue of amalgamation of M/s Unicorn Packers Private Limited (UPPL) (hereinafter called as UPPL or Transferor Company) with Urmin Marketing Pvt Ltd (UMPL or Transferee Company). The excess consideration discharged by UMPL, over book value of UPPL Transferor Company, was recorded as goodwill in the books of UPPL, Transferee Company. In terms of the scheme, All the assets of UPPL transferred to and vested in UMPL pursuant to the Scheme have been recorded at the book value and all the liabilities of UPPL transferred to and vested in UMPL pursuant to the Scheme have been recorded at the book value. The difference of Rs. 4,68,73,56,913/- between net value of assets over consideration has been debited to goodwill account in the books of the company." 10. The AO vide letter dated 25-1-2017 bearing No. ITO/Wd.4(1)(4)/AHD/Advance Tax/2016-17 has also requested to the UPPL for making the advance payment of tax. The copy of the letter is placed on page 51 of the paper book. Similarly, the fact of intimating the non-existence of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....29th January 2013 a scheme for amalgamation of SPIL and MSIL was approved by the Hon'ble High Court w.e.f. 1st April 2012. The terms of approval scheme provided that all liability and duties of the transferor company shall stand transferred to the transferee company. On scheme being coming into effect, the transferor company was to stand dissolved without winding up. The scheme stipulated that the order of amalgamation will not be construed as an order granted exemption from the payment of stamp duty or taxes, or any other charges, if any payable in accordance with law. The AO has initiated the assessment proceedings by issuance of notice under section 143(2) on 26thSeptember 2013 followed by a notice under section 142(1) of the Act to the amalgamating company. MSIL participated in the assessment proceedings of erstwhile amalgamating entity i.e. SPIL through its authorized representative and officers. The assessment was framed. Thereafter during the appellate proceedings before the Tribunal the assessee took an objection that final assessment order was passed on 31.10.2016 in the name of SPIL which was amalgamated with MSIL. The assessee took an objection that the assessment or....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Laws of England (4th edition volume 7 para 1539). Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity." (iv) Fourthly, upon the amalgamating company ceasing to exist, it cannot be regarded as a person under Section 2(31) of the Act 1961 against whom assessment proceedings can be initiated or an order of assessment passed; (v) Fifthly, a notice under Section 143 (2) was issued on 26 September 2013. To the amalgamating company, SPIL, which was followed by a notice to it under Section 142(1); (vi) Sixthly, prior to the date on which the jurisdictional notice under Section 143 (2) was issued, the scheme of amalgamation had been approved on 29 January 2013 by the High Court of Delhi under the Companies Act 1956 with effect from 1 April 2012; (vii) Seventhly, the assessing officer assumed jurisdiction to make an assessment in pursuance of the notice under Section 143 (2). The notice was issued in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) the Delhi High Court quashed assessment orders which were framed in the name of the amalgamating company in: (i) Dimension Apparels (supra); (ii) Micron Steels; and (supra) (iii) Micra India (supra). 21. In Dimension Apparels, (supra) a Division Bench of the Delhi High Court affirmed the quashing of an assessment order dated 31 December 2010. The Respondent had amalgamated with another company and thus, ceased to exist from 7 December 2009. The Court rejected the argument of the Revenue that the assessment was in substance and effect in conformity with the Act by reason of the fact that the assessing officer had used correct nomenclature in addressing the Assessee; stated the fact that the company had amalgamated and mentioned the correct address of the amalgamated company. It was the Revenue's contention that the omission on the part of the assessing officer to mention the name of the amalgamated company is a procedural defect. The Delhi High Court rejected this contention. In doing so, it relied on the holding in Spice Entertainment, (supra) where the High Court expressly clarified that "the framing of assessment against a non-existing e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any would be without jurisdiction and a nullity. Concluding paragraph of the judgment is worth to note which reads as under: "33. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. This position now holds the field in view of the judgment of a co-ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment (supra) on 2 November 2017. The decision in Spice Enfotainment has been followed in the case of the respondent while dismissing the Special Leave Petition for AY 2011-2012. In doing so, this Court has relied on the decision in Spice Enfotainment (supra). 34. We find no reason to take a different view. There is a value which the court must abide by in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment against a non-existing entity or a dead person. Therefore, the decision of the Hon'ble Supreme Court in the case of Maruti Suzuki India Ltd. (supra) squarely applies to the facts of the assessee's case. Respectfully following the decisions of various courts as discussed above, we hold that the assessment made by the Assessing Officer in the name of the Urmin Marketing Pvt. Ltd. under section 143(3) read with section 144C of the Act vide order dated 27thDecember 2018 for the year under consideration is void ab-initio and bad in law. Hence the assessment order is a nullity in the eye of law and the same is quashed. The additional ground raised by the assessee is allowed. 19. The grounds raised in the appeal memo are descriptive and argumentative in nature. They are in fact inter-connected to each other, raising to only one issue, that is to say, in ground no.1 to 17, the effective issue involved is that the ld.CIT(A) has erred in confirming the disallowance of depreciation for Rs. 1,17,18,39,228/- on the intangible assets/goodwill acquired in the scheme of amalgamation. 20. The facts in brief are that M/s Unicorn Packers Private Limited (amalgamating co.)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompanies in the scheme of amalgamation. 20.3 In addition to the above, the AO also observed that the proviso 5 to section 32(1) of the Act requires that the depreciation in case of amalgamation should be allowed to the amalgamated company to the extent what should have been allowed in case if amalgamating company would have continued. 20.4 Similarly the provisions of section 43 (1) & (6) of the Act require that the actual cost of the transferred assets and WDV should remain the same as it was there in the books of amalgamating company prior to the amalgamation. Accordingly, the AO was of the opinion that as there was no goodwill in the books of UPPL prior to amalgamation, therefore the value of goodwill in the books of UMPL should also be NIL for the purpose of taxation. 20.5 The AO further observed that in a scheme of amalgamation two or more separate entities join hands together and become one entity. The shareholders of amalgamating company, in consideration for the transfer of the assets and liabilities, receive shares in new resultant company (amalgamated co.). The value of the shares of the amalgamating company is determined after considering various factor i.e. o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sents the consideration paid against future anticipated income. 22.3 The assessee further submitted that the scheme of amalgamation has been approved by the Hon'ble Gujarat High court. The FMV and exchange of shares were determined by the expert valuer. On the basis of such valuation and approval goodwill was recorded in the books of accounts. 22.4 The assessee with respect to its claim of depreciation on goodwill acquired in process of amalgamation placed its reliance on the following judgment: I. CIT vs. Smifs Securities Ltd [2012] 348 ITR 302 (SC) II. PCIT vs. Zydus Wellness Ltd [2017 87 taxmann.com 82(Gujarat) III. Vimalachal Print & Pack Pvt. Ltd vs. DCIT (2016 tax Pub(DT) 3326 (Guj)) The assessee in view of above judgment claimed that the depreciation on goodwill arising in the scheme of amalgamation is allowable under section 32 of the Act. 22.5. However the AO during the assessment proceedings after considering the detailed submission made by the assessee observed certain facts which can be categorized under the sub-head as detailed under: I. Controlled transaction/ same management :- i. The directors/shareholders in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ifferent approaches to determine the high value of equity shares in case of UPPL in order to get the higher value of goodwill. b. The comparable selected by the valuer in the valuation report namely VST industries Ltd, Godfrey Philips Ltd., and Kothari Products Ltd were different in terms of size and scale as well as service lines of the business which were not matching with the profile of the assessee. This fact was also admitted by the valuer in para 6.18 of the valuation report. But the same were taken as comparable on behest of directors. c. Similarly the factors which used for valuation such as market capitalization, beta and risk free premium were also inconsistent. As such market capitalization has been determined onthe basisof one year data, beta determined on average of 5 years and risk free premium were calculated on an average of 10 year data. Thus the assumptions /basis i.e. market capitalization, beta and risk free premium used in the formula adopted for the valuation of shares were not as per the standard practice. d. Based on the above discrepancies in valuation report it emerged that the valuation was done intentionally i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rly the provision of explanation 7 to section 43 (1) and explanation 2(b) to section 43(6)(c) of the Act mandate that actual cost and WDV of assets transferred in scheme of amalgamation should be equal to what was in the books of amalgamating company. As there was no goodwill available in the books of UPPL prior to amalgamation, accordingly no depreciation allowances is available to the assessee. 23.5 Further, if an assets emerges in the books of amalgamated company which was not existing in the books of amalgamating company, such an asset emerge only due to revaluation of assets & liabilities for which amalgamated company does not incur any cost. Hence as per the provision of section 55(2)(a)(ii) of the Act value of assets which has been acquired without incurring any cost should be taken at NIL. Similarly, there would not be any possibility for allowing the deduction for the assets resulting on account of revaluation of assets. 23.6 The AO Further observed that as per AS-14 there are two methods of accounting namely pooling of interest method and purchase method which are applied for recording the transaction arising in the scheme of amalgamation of companies. In case the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that such purchase consideration was part of the amalgamation scheme which was approved by the Hon'ble Gujarat High Court. The learned AR drew our attention on the clause 5 of the scheme which is placed on page 253 of the paper book. It was also contended by the learned AR that in the scheme of amalgamation it was clearly mentioned that the difference if any between the purchase consideration and the net value of the assets shall be adjusted to the capital reserve or the goodwill as the case may be which is evident from the clause 6.4 of the scheme, copy of the same is placed on page 255 of the paper book. 25.1 Similarly, the Hon'ble Gujarat High Court has also invited objection from the central government if any in the scheme of amalgamation, but there was no objection of any type raised despite having the specific opportunity. Accordingly the learned AR claimed that the AO had no jurisdiction for disturbing the impugned amount of goodwill as there was not any violation in the implementation of the scheme which is approved by the Hon'ble Gujarat High Court. 25.2 It was also pointed out that all the details about the management / ownership/ shareholding patterns /contro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s per its opinion. The learned AR in support of his contention relied on the judgment of Hon'ble Supreme Court in the case of PCIT vs. Rohtak Chain Co. (P) Ltd. reported in 110 taxmann.com 59 25.6 Regarding the valuation report in connection with the purchase consideration paid by the assessee, the learned AR claimed that the AO has pointed out certain deficiencies in the assessment order without giving any opportunity to the assessee despite the fact that it (the valuation report) was furnished during the course of the assessment proceedings. The learned AR further submitted that report has been prepared by the qualified and renowned valuer firm which has a rich experience of nearly 48 years in the field and registered with the SEBI. In case, the AO was dissatisfied with the valuation report, then he should have sought clarification directly from the valuer by issuing notice under section 133(6) of the Act. As such the valuation of the business requires distinct technical expertise and the AO does not possess such technical expertise. Therefore the AO was under the obligation to take the assistance of the valuer in the event of being dissatisfied with valuation. The learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the assets which were therein the books of accounts of the amalgamating company, whereas admittedly there was no goodwill shown by the amalgamating company in the books of accounts. Similarly the provisions of section 43 (6) of the Act does not have any application in the present facts of the case as these provisions deal with respect to the assets existing in the books of accounts of the amalgamating company. Admittedly, there was no written down value for the block of assets in the books of amalgamating company. As such the goodwill first time came into existence in the books of the amalgamated company. 26.3 It was also pointed out by the learned AR for the assessee that there was no transfer of the capital assets by the holding company to the subsidiary and vice versa and therefore the provisions as specified under section 47(iv) & (v) are not applicable in the given facts and circumstances. Likewise, the provisions of section 47(vi) are not applicable to the present facts of the case for the simple reason that there was no goodwill appearing in the balancesheet/ block of assets of the amalgamating company. Similarly the other provisions as specified under section 47 (iva)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es the goodwill arising in the process of amalgamation on account of the payment made in the anticipation of future income. 26.7 Similarly, the allegation of the AO that the amalgamated company is a paper company is far from the truth for the reason that the existence of the company has been admitted by the AO himself by making the assessment. Furthermore the existence of the company has also been admitted by the Hon'ble Gujarat High Court and therefore its existence cannot be doubted. 26.8 The learned AR further submitted that the pre amalgamation earning per share of the amalgamated company stands at Rs. 8,672.34 as evident from the audited financial statements. Thus it was sufficient to pay high purchase consideration to the amalgamating company. In view of the above the learned AR submitted that claim of the assessee for the depreciation on the goodwill being intangible assets should be allowed under the provisions of section 32 of the Act. 27. On the other hand the learned DR submitted that the scheme of amalgamation is tax neutral exercise and therefore there cannot be any question of goodwill arising in such a scheme. 28. The learned DR also argued that the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsi-diary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....algamated company. In return amalgamated company pay purchase consideration to the shareholder of amalgamating company by way of issuing its equity share, other securities or by paying cash. Normally, the companies opt for amalgamation for numerous reasons/objectives which may include the elimination of the competition, better/effective utilization of the resources, better/effective control over the market etc. 31.2 The purchase consideration paid by the amalgamated company to the shareholders of the amalgamating company may be in excess of the value of the net assets taken over or some time it may be lower than the net assets taken over. As such purchase consideration to be paid to the amalgamating company by the amalgamated company is determined after considering various internal and external factors which may affect future profitability and growth. Such factors includes previous earnings, future possible earnings, location, technical knowhow, customer base, marketing network etc.Thus it leads to difference between net value of assets taken over and purchase consideration paid. 31.3 Accounting standard-14, issued by the ICAI prescribes two method of accounting for the trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h all the assets, liabilities and reserves. In return the assessee company issued its 500 share for one share of UPPL as purchase consideration. Accordingly the assessee company issued 4.5 crores new shares for 90000 shares of UPPL @ Rs. 123.50 having face value of Rs. 10 each and premium of Rs. 113.50 each. Thus the assessee company paid purchase consideration of Rs. 555.75 croresonly ( 4.5 crore x Rs. 123.50) against net book value of the assets and liabilities taken over by it at Rs. 87,01,43,087/- only leading to a difference between NAV and purchase consideration of Rs. 486,73,56,913/- only. The assessee by following the pooling of interest method of accounting as prescribed under AS-14 recognized such difference as Goodwill in the books of account. The scheme of amalgamation was approved by the Hon'ble Gujarat High Court vide order dated 24thJuly 2015 which was effective from 1-4-2014. Subsequently the assessee at the time of filing return of income claimed depreciation on such goodwill by treating the same as intangible assetswhich was disallowed by the AO and confirmed by the learned CIT (A) by holding it at NIL value for the purpose of taxation. 31.8 Undeniably, the pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erve or goodwill, as the case may be in books of Transferee Company. 31.11 It is also important to note that the Hon'ble Gujarat High Court before approving the impugned scheme of amalgamation has invited representation from the Central Government. In this regard the Regional Director, north-west region, Ministry of Corporate affaire filed affidavit dated 10thJune 2015, stating that as per the requirement of circular issued by the MCA it has sent letter to Income Tax Department to invite objection if any in the scheme of amalgamation. But the Income Tax Department did not reply within the time limit of 15 days, hence it was assumed that the Income Tax Department has no objection in connection with the impugned scheme of amalgamation. This fact can be verified from the order of the Hon'ble High Court,the relevant finding is reproduced as under: i. It has been pointed out that paragraph 2(a) and 2(b) contain statements of fact and do not require any response. ii. The only observation of the Regional Director made vide paragraph 29c0 pertains to the letter dated 8.5.2015 sent by the Regional Director to the Income Tax Department to invite their objections, is any.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Companies Act, 1956 requires service of a notice on the Central Government wherever cases involving arrangement/compromise (under Section 391) or reconstruction / amalgamation (under Section 394) come up before the Court of competent jurisdiction. As the powers of the Central Government have been delegated to the Regional Directors (RDs) who also file representations on behalf of the Government wherever necessary. 2. It is to be noted that the said provisions is in addition to the requirement of the report to be received respectively from the Registrar of Companies and the Official Liquidator under the first and second provisos to Section 394(1). A joint reading of Sections 394 and 394A makes it clear that the duties to be performed by the Registrar and Official Liquidator under Section 394 and of the Regional Director concerned acting on behalf of the Central Government under Section 394A are quite different. 3. An instance has recently come to light wherein a Regional Director did not project the objections of the Income Tax Department in a case under Section 394. The matter has been examined and it is decided that while responding to notices on behalf of the C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndi in the matter and that Regional Director, MCA has been delegated power in this regard. 3. In this connection Circular No 1/2014 dated 15.01.2014 has been issued by MCA to Regional Directors which lays down that while furnishing any report regarding reconstruction or amalgamation of companies under the Companies Act, comments and inputs from the Income Tax Department may invariably be obtained so as to ensure that the proposed scheme of reconstruction or amalgamation has not been designed in such a way as to defraud the Revenue and consequently being prejudicial to public interest. It has further been said that the Regional Directors would invite specific comments from the Income Tax Department within 15 days of receipt of notice before filing response to the Court. It is emphasised that this is the only opportunity with the Department to object to the scheme of amalgamation if the some is found prejudicial to the interest of Revenue and therefore, it is desired that the comments/objections of the Department are sent by the concerned CIT to Regional Director, MCA for incorporating them in its response to the Court, immediately after receiving information about any schem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty and any transfer of shares to other entity including individuals from the legal entity would attract applicable tax liability. Therefore, we are of the considered view that the Bench can sanction/approve the scheme only if it complies with all applicable provisions of the Act, Rules and if the scheme is in the interest of public, shareholder etc. However, the petitioner companies did not provide details with regard to compliance of tax liability raised by the Income Tax Department, their undertaking to pay the huge tax liability as pointed out by the income department etc. 38. From the above analysis of the financials of Gabs, the bench noted that with an equity share capital of only 1,91,100 the promoters/share holders of Gabs who are also the common promoters of APL, by way of this proposed scheme of amalgamation and arrangement would get the shares of APL worth ?1477.50 Crores (market value as on 31.03.2017 ) and that too without paying any Income Tax, Stamp Duty etc. for which the bench is of the considered view that the same is not in the public interest, thousands of shareholders of Transferee company especially retail shareholders. The market value of the same nu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew is not desirable. 31.16 There is also no dispute in the amount of the purchase consideration and the NAV determined between the companies, as available in the scheme of amalgamation, which was approved by the Hon'ble Gujarat High Court as well. However, the lower authority held the value of goodwill at NIL for the purpose of taxation during the assessment proceedings for the reasons as discussed above in their respective orders. But, in the backdrop of above discussion, we are not convinced with the orders of the authorities below on this preliminary issue. 32. Now, the next question arises for our consideration whether the value of goodwill should be taken at NIL under the provision of Income Tax Act in the books of amalgamated company as no such goodwill was available in the books of amalgamating company prior to amalgamation and such goodwill emerged in the books of amalgamated company were on account of valuation and revaluation of business as no cost incurred by the amalgamated company for such goodwill. In this connection, we are inclined to refer certain provisions of law in the context of the scheme of amalgamation as provided under section 2(1B) of the Act as deta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. The above provision of section 32 of the Act requires allowing the depreciation to the amalgamated company in the same manner which would have been allowed to the amalgamating company in the event had there not been any amalgamation. 32.1 Similarly, the actual cost of the assets acquired in the scheme of amalgamation in the hands of the amalgamated company will continue to be the same as it would have been in the hands of the amalgamating company in the event, had there not been any amalgamation. The relevant extract of the explanation 7 to section 43(1) reads as under: Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires 3- ^4(1) "actual cost" means the actual cost 3 of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met3 directly or indirectly by any other person or authority: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... behind the introduction of the amalgamation scheme was to achieve tax neutrality. Besides the above, the intention of the legislature is also reflecting from the following provisions: i. There is no capital gain in the hands of the amalgamating company on the transfer of capital assets in the scheme of amalgamation under the provisions of section 47(vi) of the Act. ii. The cost of stock-in -trade in the hands of amalgamated company shall remain the same as in the hands of amalgamating company either as capital asset or stock in trade as provided under section 43C of the Act. iii. Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc under the provisions of section 72A of the Act. iv. Exemption of capital gains in the hands of shareholders of amalgamating company on transfer of shares of amalgamating company in the scheme of amalgamation under the provisions of section 47 (vii) of the Act. v. Cost of capital assets to be the same as in the hands of previous owner where capital assets became the assets of the successor as a result of transfer under secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applied to the case on hand. 33.6 Normally, the issue/question of the goodwill arises when one company is acquired by another company. In other words, when one company transfers its business to another company against the consideration, the difference between the net value of the assets acquired and the purchase consideration paid by the transferee is regarded as goodwill/ capital reserve as the case may be. The succeeding question arises whether such goodwill acquired by the assessee is eligible for depreciation under the provisions of section 32 of the Act. In this connection, we are inclined to refer to the provisions of section 32(1) of the Act which reads as under: 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- 33.7 On perusal of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 Tribunal. There is no reason to interfere with the factual finding. (Para 6) From the above, there remains no ambiguity that the goodwill generated in the scheme of amalgamation is acquired by the assessee. Thus, in our considered view the assessee has complied all the conditions provided under section 32 of the Act. Accordingly, we are not convinced with the finding of the authorities below. 34. The next allegation of the AO is that there was contradiction and inconsistency in the valuation report filed by the assessee. Admittedly the valuation report was prepared by the RBSA capital advisors LLP which is the approved valuer. The valuation of the business being a technical matter, in our view, the assistance of the expert is required. The AO himself cannot determine such value. If he was not satisfied with the valu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scussed above. 34.3 It is also pertinent to mention here that all the necessary details about the management of the both companies were disclosed in the scheme of amalgamation and nothing was hidden. The scheme contained all the information related to purchase consideration, its valuation, mode of payment and accounting treatment. The Hon'ble High Court approved such scheme after inviting comment from ROC, MCA, and officialliquidator including the income tax department. Thus in the given fact and circumstances the reasonableness of scheme cannot be doubted. Accordingly, no inference cannot be drawn that the assessee has employed colorable device in order to recordhigh value of purchase considerationwhich is resulting goodwill. 34.4 Without prejudice to the above, we also note that the Revenue has to consider certain facts before arriving at a finding whether a particular series of the transactions is a colourable device or not as the primary onus is on the AO to find out: (i) Whether the parties to the transactions have concealed or hidden any fact and/or whether what is shown to be done could have actually happened in different time or at different place; A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pectively under which the impugned transaction (depreciation on the goodwill in a scheme of amalgamation) can be denied. But such provisions are not applicable for the year under consideration. 34.6 There is no dispute to the fact that the payment was made by the assessee to the shareholders of the amalgamating company in the form of shares and not through the cash payment. But the payment through the shares is valid mode of payment. In this regard we draw support and guidance from the judgment of Hon'ble Delhi High Court in the case of CIT vs. Mira Exim Ltd reported in 359 ITR 70 wherein it was held as under: In terms of the order passed under section 394 of the Companies Act, 1956 the respondent company acquired the imported motor cars. The cars were not acquired and the respondent assessee was not owner of the motor cars prior to the said date. On merger of the three concerns with the respondent assessee, shares were issued as consideration to the proprietors of the business concerns. The shares issued were consideration for the transfer of the assets. It is immaterial, whether there was transfer of an undertaking, including the block of assets, which also i....