TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 763
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....ile 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 one of the probable legal opinion which under no circumstances can be considere....
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....roneous 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 division stand as under: S. No. A. Year Opening(Rs.) Addition (Rs.) Depreciation(Rs.) Closing(Rs.) 1. 2014-15 - ....
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....ciation 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 Addition on account of amalgamation Depreciation for 1 day i.e. 31.03.2016 Cl. Balance on 31.03.2016 Rs. 947.60 cr Rs. 724.46 cr Rs. 1427.90 cr Rs. 179.85 cr Rs. 2920.13 cr 4.8 Suc....
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....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 precondition for holding the amalgamation the nature of merger was that the assets has to be transferred at the book value but it has not been done in the present case. Therefore it cannot be said that the amalgamation was....
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....ral 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 that the assessment order u/s. 143(3) of the Act dated 29.10.2018 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(a) below section 263(1) of the Act. Accordingly, the im....
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....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 the Act in the name of the erstwhile company. At the assessment, the fact was not disputed by the assessee. 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 wa....
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....tion 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 contended that this claim of depreciation in the hands of earstwhile Suzlon Global Services Ltd. {now named as Suzlon Structure Ltd - PAN AA1CS 14096R is in accordance with the provisions of law 8.1 From the above, there remains no ambiguity to the fact that the depreciation on the goodwill....
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.... 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 the above, we hold that the learned Principal CIT cannot revised the intimation issued under section 143(1) of the Act in the case of M/s SSL as it is barred by time as provided under section 263 of the Act. 8.4 Without prejudice to the above, the question also arises whether the assessment framed....
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....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 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 31st October 2016 in the name of SPIL which was amalgamated with MSIL. The assessee took an objectio....
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.... 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 name of the amalgamating com....
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....ed 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 entity/person" is a jurisdictional defect. The Division Bench also relied on the holding in Sp....
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....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 (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 promoting the interest of certainty in tax litigation. The view which has been taken by this Court....
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....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 therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that....
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....nsideration 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 Principal CIT referred various section which has been recorded in previous paragraph. At this juncture, we are inclined to refer those provisions of law in the context of the scheme of amalgamation as provided under section 2(1B) of the Act as detailed under: Depreciation. 1932. (1) 20[In respect of depreciation of- (i) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired ....
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....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: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 14[Explanation 7.-Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company and the amalgamated company is an Indian company, the actual cost of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its own b....
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....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 section 47(vi) r.w.s. 49(1)(iii)(e) of the Act. vi. Cost of shares of amalgamated company in the hands of shareholders, received as consideration for transfer of shares of amalgamating company, to be same as the cost of shares of amalgamating company under section 49(2) of the Act. 8.19 From the above, it would appear that the intent of the Legislature is to make amalgamation a tax neutral scheme for companies as well as for the shareholders and not to provide a tax planning mechanism to either of ....
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....ll 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'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3 (b). (Para 4) In view of the above, it is opined that 'Goodwill' is an asset under Explanation 3(b) to section 32(1). (Para 5) 8.22 In view of the above judgment, there remains no ambiguity that goodwill is part and parcel of intangible assets. Hence, the assessee is eligible for depreciation on the goodwill. 8.23 Moving further, we note that for claiming the depreciation, among other conditions as provided under section 32 of the Act, one of the condition is that the assessee can claim depreciation on the goodwill being intangible asset if acquired on or after 1st day of April 1998. In other words, the assessee can claim depreciation on the....
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....ciation 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 arising on amalgamation in view of the judicial precedents of Hon'ble Supreme Court, jurisdictional Hon'ble Gujarat High Court and jurisdictional Hon'ble ITAT Ahmedabad bench and therefore there was no error on the part of AO in following judicial discipline. 4. 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 one of the probable legal opinion which under no circumstances can be considered as erroneous or prejudicial to the interest of revenue. 5. The Id. PCIT grossly erred in not appreciating that in order to invoke s.263. two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, Id. AO has passed the reasoned assessment orde....
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.... 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, we note that the assessee has claimed depreciation on the goodwill which was brought forward from the immediate preceding assessment years. Thus the depreciation on the goodwill originated in the earlier year cannot be disturbed in the year under consideration without disturbing the year in which it was instigated. In fact, the claim of the assessee for the amount of depreciation on the goodwill should be allowed based on consistency in the given facts and circumstances. 10.2 In holding so, we draw support and guidance from the order of of this Tribunal in the case of Bodal Chemicals Vs. ACIT reported in 180 ITD 313 wherein it was held as under: "Before parting, we are conscious to the fact that the assessee was allowed for depreciation in respect of such goodwill in the 1st year of amalgamation i.e. AY 2006-07. There was no action either under section 263 or 147 of the Act by the rev....