TaxTMI 
TaxTMI 
2021 (11) TMI 763
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....s. 263 was issued for the assessment order passed in erstwhile Suzlon Global Services Limited (PAN AAJCS0174R) whereas the order u/s. 263 has been passed with direction to do afresh assessment in case of appellant which is having PAN AAICS1406R and therefore the subject order is null and void and needs to be set aside in the interest of natural justice and equity. 3. The Id. PCIT has grossly erred in law and on facts in not appreciating that since the assessment order dated 29.10.2018 has been passed in the name of the amalgamating company (PAN AAJCS0174R), the same is nonexistent and resultant revision proceedings are void ab initio. 4. The Id. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the impugned assessment order u/s 143(3) of the Act dated 29.10.2018 is erroneous in so far as it is prejudicial to the interest of the revenue when there was no claim of depreciation on goodwill arising on amalgamation was subject matter of said assessment order. 5. The Id. PCIT grossly erred in assuming jurisdiction u/s.263 of the Act, merely on account of difference of opinion when AO has followed....
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....Principal CIT under section 263 of the Act erred in holding that the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of revenue. 4. Before we touch the issue raised by the assessee, it is pertinent to take a brief note on the history of the facts of the case which goes like this. M/s Suzlon Global Services Limited (PAN: AAJCS0174R) has acquired a division of its holding company namely Operation & Maintenance on slum sale basis vide agreement dated 29th March 2014. The net assets value of the division acquired by the assessee were worth of Rs. 77,0750,308/- against the purchase consideration of Rs. 2000 crores which resulted in excess payment of Rs. 1922,92,49,674/- which was treated as intangible asset being goodwill in the books of M/s Suzlon Global Services Limited (PAN: AAJCS0174R). Accordingly, M/s Suzlon Global Services Limited (PAN: AAJCS0174R) claimed depreciation on such goodwill every year starting from the AY 2014-15 being the 1st year of depreciation. The details of the depreciation claimed by M/s Suzlon Global Services Limited (PAN: AAJCS0174R) on the goodwill generated on the purchase of Operation and Maintenance di....
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....eciation on the assets acquired by M/s SSL from M/s SGSL were claimed proportionately on the basis of number of days. 4.6 Going further, M/s SSL claimed depreciation on the goodwill which was generated in its books of accounts in the scheme of amalgamation by virtue of the judgment of Hon'ble Gujarat High Court dated 14th October 2016 at the rate of 12.5% being the asset held for less than 180 days. The amount of depreciation on such goodwill works out at 178.48 crores only which was claimed by the assessee for the year ending as on 31 March 2016. 4.7 The amount of depreciation claimed by M/s SGSL in its balance sheet prepared as on 30 March 2016 and M/s SSL in its balance sheet prepared as on 31 March 2016 with respect to the intangible assets being goodwill stand as under: a. Depreciation on goodwill claimed by M/s SGSL Opening balance as on 01.04.2015 Depreciation for the period 01.04.2015 to 30.03.2016 Closing balance as on 30.03.2016 Rs. 1262.26 crores Rs. 314.71 crores Rs. 947.60 crores b. Depreciation on goodwill claimed by M/s SSL Op. balance as on 31.03.2016 Addition of unabsorbed depreciation of M/s SGSL on goodwill Addit....
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....that the assessee got amalgamated with the M/s. SSL with the approval of the Hon'ble Gujarat High Court dated 14th October 2016 effective from 31st March 2016. As such, the amount of depreciation was claimed on the intangible assets which were acquired in the year 2014 in a scheme of slum sale. In other words there was no goodwill generated to the M/s SGSL as a result of amalgamation as discussed above and thus no question of disallowing the deprecation on such goodwill arises. Therefore, there was no depreciation claimed by SGSL pertaining to the goodwill generated in the hands of M/s SSL in the scheme of amalgamation. 4.15 Likewise, the assessee also submitted that the method adopted in the scheme of amalgamation was in the nature of purchase which can be verified from the scheme of amalgamation. Such scheme of amalgamation was subsequently approved by the Hon'ble Gujarat High Court. The assessee further submitted that, the transfer of the assets from the amalgamated company namely M/s SGSL to the amalgamated company namely M/s SSL was done on the fair market value and not the book value. The fair market value was valued by the valuer namely Duff & Phleps. One of the precondit....
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....by the A.O. However as seen from the assessment records, the issue of goodwill is on account of amalgamation was not examined by the A.O. A query on this issued was raised by the A.O. vide notice u/s. 142(1) 22-09-2018. In this notice the A.O. asked general questions pertaining to the claim of depreciation but no specific question with regard to the issue of amalgamation and the resultant claim of goodwill was generated of this amalgamation on which the asssessee had claimed deprecation was asked by the A.O. The issue of amalgamation was therefore not verified by the A.O. during the course of assessment proceedings. The A.O. did not examine the issue whether the amalgamation in the assessee's case would lead to create goodwill at all and whether the claim of depreciation on this goodwill created on account of amalgamation was in accordance with the provisions of the law. The A.O. failed to make any inquiry on this issue and without verifying the legality of the claim of depreciation on goodwill allowed the same. The order passed by 20. Therefore, after having considered the position of law and facts and circumstances of the instant case, I am of the considered opinion ....
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.... of section 263 of the Act. 7.3 The learned AR further submitted that the claim of the successor company for the depreciation has to be allowed on merit as it was generated in the scheme of amalgamation which was in the nature of purchase. The conditions as specified under Accounting Standard 14 issued by the ICAI as applicable for the amalgamation in the nature of merger were not complied. In other words all the assets were transferred at the fair market value whereas all the liabilities were transferred at the book value. Thus, the difference arising between the net assets acquired viz a viz the consideration paid was treated as goodwill. 7.4 The learned AR also submitted that the assessment was framed under section 143 (3) of the Act dated 29 October 2018 after necessary verification and therefore the same cannot be revised under the provisions of section 263 of the Act. 7.5 It was also contended that issue of claiming depreciation on the goodwill in the scheme of amalgamation is a debatable issue. In other words where 2 views are possible then the revisions under 263 is not justified. 7.6 On the other hand the Ld. DR submitted that the notice under section 143(2) of....
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.... goodwill by the successor company namely M/s SSL and claimed depreciation on such goodwill in its books of accounts. In other words, M/s SGSL did not claim any depreciation in its books of accounts qua to such goodwill. As such, the successor company namely M/s SSL claimed depreciation on such goodwill. This fact was also admitted by the learned principal CIT in his order dated 31st March 2021. The relevant finding of the learned principal CIT these as under: 9. I have carefully considered the facts on records and the submission of the assessee. As submitted by the assessee the earstwhile Suzlon Global Services Ltd. was no more in existence after 30-03-2016 and as such there was no consequential effect of amalgamation carried out as per the Hon'ble High Court order with a appointed date as 31-03-2016 on the claim of depreciation by the said company. However, the claim of depreciation by the successor company i.e. Suzlon Global Services Ltd. for one day i.e. on 31-03-2016 amounting to Rs. 179.85 cr. is still 1o be considered as this is consequential to the effect of amalgamation between the assessee Suzlon Global Services Ltd. and Suzlun Structures Ltd. The assessee has co....
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....ealt with by the Commissioner of Incometax in the order dated March 30, 2009, were not a subject matter of the assessment order passed on June 28, 2006, under section 143(3)/147 of the Act. All the other issues on which the Commissioner of Income-tax is seeking to exercise the jurisdiction under section 263 of the Act were concluded by virtue of an intimation under section 143(1) of the Act which admittedly was done beyond a period of two years prior to the notice dated March 17, 2009, issued under section 263 of the Act. Section 263(2) of the Act provides that no order would be made in exercise of the jurisdiction under section 263(1) of the Act after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. It is an admitted position that the Commissioner of Income-tax has not exercised the revisional jurisdiction in respect of the order/intimation passed section 143(1) of the Act within two years of it being passed. Therefore, exercise of jurisdiction on those issues under section 263 of the Act is time barred as held by this court in CIT v. Anderson Marine & Sons (P.) Ltd. [2004] 266 ITR 694/139 Taxman 16. 8.3 In view of t....
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....Suzuki India limited (in short MSIL) created a joint venture with shareholding of 70% and 30%. Such joint venture was incorporated as Suzuki Metal India Ltd. Subsequently w.e.f. 8th June 2005 its name was changed to SPIL. On 28th November 2012 SPIL has filed its return of income. Upto this date no amalgamation had taken place. On 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 postulated 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 26th September 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 ....
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.... or more undertakings to an existing company. Strictly 'amalgamation' does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury's 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 Secti....
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....o effect as there is no estoppel against law. 12. Once it is found that assessment is framed in the name of non-existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act." Following the decision in Spice Entertainment, (supra) 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 ....
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....er section 292B of the Income Tax Act. Hon'ble Supreme Court has dealt with this judgment and explained its impact. Hon'ble Supreme Court ultimately upheld the judgment of Hon'ble Delhi High Court in the case of Maruti Suzuki (supra) and held that assessment order passed subsequently in the name of non-existing company would be without jurisdiction and a nullity. Concluding paragraph of the judgment of Hon'ble Supreme Court are worth to note which reproduced hereunder: "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 coordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment (s....
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....heme of amalgamation under pooling of interest method, the difference if any arises between the net assets acquired by the successor company viz a viz the consideration paid to the amalgamating company, the same needs to be adjusted against the capital reserve. In this regard, it is important to refer Accounting standard-14, issued by the ICAI, which recommends two method of accounting for the transaction carried out in the scheme of amalgamation namely pooling of interest method and purchase method. If scheme of the amalgamation satisfies the condition of para 3(e) of the Accounting standard-14 then pooling of interest method should be followed otherwise purchase method of accounting should be applied. The relevant extract of accounting standard reads as under: (e) Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions: (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held....
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....ued by independent valuer namely 'Duff and Phelps'. The M/s SSL discharged purchase consideration by cancelling investment in the books of account instead of issuing equity share capital. Thus condition specified under sub clause (iii) and (iv) of para 3(e) of AS-14 did not comply with. Hence the scheme of amalgamation in the case on hand is in the nature of purchase method which recognizes goodwill where the purchase consideration surpasses the net assets value taken over. 8.12 Admittedly the assesse paid purchase consideration by cancelling the investment of Rs. 2699.72 against net assets value acquired of Rs. 1271.90 crores. Accordingly excess amount recorded as goodwill. Admittedly all these information was part of scheme of amalgamation which was approved the jurisdictional High Court as discussed above. Thus the finding of the learned principal CIT to this extent that the scheme of amalgamation is in the nature of merger is based on wrong assumption of facts. 8.13 Moving further we find the learned Principal CIT alleged that depreciation on goodwill generated in the scheme of amalgamation is not allowable under the provision of the Act. In this connection the learned Pr....
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....planation 3.-For the purposes of this sub-section, the expressions "assets" and "block of assets" shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. 8.14 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. 8.15 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 ....
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....e taken to be the same as it would have been had the amalgamating company continued to hold the capital asset for the purposes of its own business. 8.18 A collective reading of the above provisions reveals that the intention of the legislature 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 schem....
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....mmercial 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- 8.21 On perusal of the above provisions, we note that the word goodwill has nowhere been mentioned. However we note that, the Hon'ble Supreme Court in the case of CIT vs. Smifs Securities Ltd reported in 348 ITR 302 has held that the goodwill falls within the definition of the intangible assets under the category of any other business or commercial rights of similar nature. The relevant extract of judgment of Hon'ble apex court reads as under: Explanation 3 to section 32(1) states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading of the words 'any other business or commercial rights of similar nature' in clause (b ) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial rights of a similar nature&....
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....e is allowed. 8.25 In the result, the appeal of the assessee is allowed. Coming to the ITA number 68/Ahd/2021 for the assessment year 2017-18 9. The assessee has raised the following grounds of appeal: 1. The Id. PCIT has grossly erred in taw and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the impugned assessment order u/s 143(3) of the Act dated 30.03.2019 is erroneous in so far as it is prejudicial to the interest of the revenue. 2. The id. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s. 263 of the Act for disallowing depreciation on goodwill arising on amalgamation when there was neither amalgamation nor addition to the block of intangible assets for any goodwill arising on amalgamation during the year under consideration and depreciation was claimed on the opening WDV of the block of assets. 3. The Id. PCIT grossly erred in not appreciating that in order to invoke s.263, the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, the Id. AO did not dispute the claim of depreciation on goodwill arisin....
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....tion of the Id. PCIT is without jurisdiction and illegal and hence deserves to be deleted. 9. The Id. PCTT has erred in not considering various facts and in not appreciating the facts and law in their proper perspective. 10. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 10. At the outset we note that, the issue raised by the assessee in the present appeal has already been allowed in its favour by us in ITA No. 67/AHD/2021 vide paragraph No. 8 of this order. For the detailed discussion, please refer the relevant paragraph. 10.1 Before parting, it is important to note that the facts of the case have been elaborated in previous paragraph of this order while dealing with the issue in ITA number 67/Ahd/2021 for the assessment year 2016-17. Therefore we are not inclined to repeat the same for the sake of brevity and convenience. However, the additional issue arises for our consideration is that whether the depreciation can be disallowed/disturbed claimed on the opening written down value of the intangible assets being goodwill. In this regard, ....