TaxTMI 
TaxTMI 
2022 (2) TMI 971
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....18 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 impugned assessment order is set aside with a direction to the Assessing Officer to make requisite inquiries and proper verification with regard to the issue mentioned above and redo the assessment de-novo after due consideration of the facts and law in this regard". 2. The Ld. PCIT has erred in law and on facts in making an observation in Para 14 on Page 35 of the order that " The contention of the assessee that it has followed the purchase method of accounting for amalgamation as also mentioned in the order of Hon'ble High Court and the claim of amalgamation is not sufficient evidence in this regard. It is evident from the document filed by the assessee that as per the claim of amalgamation, all the conditions provided in the accounting standards with regard to pooling of interest method are satisfied except that items of assets of the amalgamated company have been revalued and claimed to have been taken at the fair market value. It may be relevant to mention here that this a....
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.... company has also taken into consideration while claiming the depreciation on the acquired Goodwill as per purchase Method of Accounting Standard 14 of the Institute of Chartered Accountants of India being cost incurred for acquiring the Goodwill on amalgamation was worked out at Rs. 342,71,92,8557- and depreciation thereon of Rs. 85,67,98,2147- was claimed. 5. The appellant humbly submit that the order passed by the Ld. AO was neither erroneous nor prejudicial to the interest of revenue. All the issues raised in the show cause notice u/s. 263 had already been examined by the Ld.AO and detailed enquiries were conducted at the time of assessment proceedings as such the proceedings u/s. J263 are not legally valid. 6. The Ld. PCIT has erred in law and on facts in making an observation in Para 24 on Page 57 of the order that " it is apparent from the assessee's submission that the approval given by the DSIR was only limited to Rs. 588.42 lacs and in the given facts and circumstances of the case, the excess allowance of deduction u/s. 35(2AB) was not in accordance with the provisions of law. In view of the aforesaid fact, it is evident that the order passed by the ....
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.... return of income and annexure G of serial no. 18 of tax audit report that the assessee company has claimed depreciation on goodwill for assessment year 2016-17. It is further noticed from the record that the goodwill has been recognized on amalgamation of erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. subsequently, known as Troikaa Pharmaceuticals Ltd. It is stated that:- "Pursuant to the Composite Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956 for amalgamation of erstwhile Troikaa Pharmaceuticals Limited with The Company as sanctioned by the Hon'ble High Court of Gujarat on 30th April, 2016 (effective date) all the residual assets and liabilities of the erstwhile Troikaa Pharmaceuticals Limited were transferred to and vested in The Company with effect from 1st April, 2015, the appointed date." 5.1 The transfer of assets and liabilities from the erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. to the resulting company took place w.e.f. 1-4-2015, the appointed date i.e. in assessment year 2016- 17 and good will was recognized in assessee's company books of account which was the difference between the considera....
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.... was involved. The Pr. CIT was of the view that goodwill appeared in the balance sheet of the assessee company was purely for the purpose of claiming depreciation and the same is to be disallowed. Therefore, the Pr. CIT stated that depreciation was not allowable on goodwill in assessee's case created by virtue of amalgamation, under the existing provisions of the Income Tax Act, 1961 viz, 6th proviso to section 32(1), section 49(1)(iii)(e), explanation 7 to section 43(1)/and/or explanation 2(b) to section 43(6)(c) and section 55(2)(a)(i). The Pr. CIT has further stated while finalizing the assessment, the Assessing Officer has neither made disallowance on wrong claim of depreciation on goodwill nor called for any explanation from the assessee. The written down value of goodwill in the books of amalgamated company was nil prior to amalgamation and hence the cost of goodwill in the hands of the resultant company i.e. assessee shall be nil and no depreciation can be allowed where the cost of any asset was nil. The ld. Pr. CIT has also stated that assessee's claim of goodwill was also not allowable as per the provisions of AS-14. As per the accounting standard 14 there are two methods ....
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....ceuticals Ltd and Troikaa Export Pvt. Ltd. no goodwill was existed but the same has been created in the books of the resulting company. The Pr. CIT has stated that the claim of the assessee that goodwill was created in view of amalgamation is required to be examined in view of the provision of the income tax act and also the accounting standard. The ld. Pr. CIT after giving reference of accounting standard AS-14 has also stated that as per accounting standard 14 no goodwill is generated in case of pooling of interest method and in this method the difference between the purchase consideration and net value of the asset is adjusted against reserves. The ld. Pr. CIT has also referred various judicial pronouncements in respect of application of accounting standard -14 of the purpose of accounting in the cases pertaining to amalgamation scheme to decide whether in a particular case of amalgamation goodwill will arise or not. These cases are briefly discussed as under:- (i) DCIT vs. Toyo India Pvt. Ltd. ITA No. 3279/Mum/2008 assessment year 2003-04 by referring this case the ld. Pr. CIT has pointed out that if the assessee had paid more than the fair market value of assets minus....
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....ot verified at all whether the assessee has followed purchase method or pooling of interest method. The assessee had contended that it had followed the purchase method of accounting as such goodwill was incorporated in the books of account at the time of amalgamation. The assessee has also contended that such goodwill was eligible for claim of depreciation under the provision of I.T. Act. However, the Pr. CIT has not agreed with the submission of the assessee stating that Assessing Officer had not examined this issue at the time of assessment proceedings. Therefore, the Pr. CIT has held that the order passed on this issue by the Assessing Officer was erroneous and prejudicial to the interest of revenue. 6. Regarding claim of deduction u/s. 35(2AB) of the act, the relevant part of the show cause notice issued by the Ld. Pr. CIT to the assessee is reproduced as under:- "5 Further, on verification of "Computation of Income" and "Annexure-H" of Sr. 19(1) of tax audit report(Form 3CD), it is noticed your company has claimed a weighted deduction of Rs. 1970.98 lacs (Rs. 72.30 + Rs. 1898.68 lacs) being 200% of Rs. 985.49 lacs u/s. 35(2AB) of the IT Act which was the total amou....
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....ted 24th October, 2018 on the basis of books of account maintained for expenditure incurred for in house approved R & D Centre and on the basis of expenditure incurred on the clinical trial expenditure conducted outside the approved facility which was filed along with the application made to the DSIR for issuance of form no. 3CL. The assessee has submitted that as against the claim of weighted deduction u/s. 35(2AB) of the act as claimed in the return of income the DSIR in Form 3CL dated 16-03-2017 (copy of which was attached) as per which the weighted deduction u/s. 35(2AB) of the act works out to Rs. 1176.84 lacs. However, the DSIR while issuing form no. 3CL have not given the working as to why they have arrived at the said figure in form no. 3CL as against figure stated in the application made to the DSIR for obtaining form no. 3CL. The assessee company is making a follow up with the DSIR to have break up of the working of figure stated in the form 3CL in order to ascertain that in respect of which expenditure incurred by the assessee company, R & D expenditure has not been considered by the DSIR while issuing form no. 3CL. On availability of the details from DSIR the assessee c....
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....19th December, 2018 was set aside with a direction to the Assessing Officer to make de-novo assessment. 7. During the course of appellate proceedings before us, the ld. counsel referred page no. 116 of the paper book no. 1 and submitted that vide letter dated 22nd March, 2021 the ld. Pr, CIT has issued show cause notice u/s. 143(3) of the act and proposed revision of order u/s. 143(3) dated 30th March, 2019 stating that the same was erroneous and prejudicial to the interest of revenue. In response to the show cause notice, assessee company has filed its submission vide letter dated 30th March, 2021 placed at page 120 of the paper book no. and submitted that during the course of original assessment proceedings carried out u/s. 143(3) of the act it had already provided the detail related to goodwill including claim of depreciation on goodwill vide reply dated 24-09-2018 and 16-11-2018 also the justification relating to the claim of expenditure of research and development u/s. 35(2AB) of the act was also submitted vide reply dated 06-10-2018 and 16- 11-2018. The ld. counsel has also referred page no. 199 of the paper book no. 1 containing notice u/s. 142(1) of the act dated 24th Se....
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....es on amalgamation of Troikaa Pharmaceutical Ltd. He also referred page no. 60 of the paper book-1 as per which the detail of consideration to be paid by issuing of shares in terms of composite scheme of arrangement was given. The ld. counsel has also taken us to page no. 312 to 367 of the paper book no. II pertaining to the copies of valuation and certificates issued by the registered valuer of valuation of various assets as per the terms and conditions of the composite scheme. He also referred page no. 362 of the paper book II pertaining to fair market value of the different fixed asset acquired on account of merger of Troikaa Pharmaceutical Ltd. with the assessee company. The ld. counsel has also taken us to page no. 73 to 114 of the paper book no. I comprising auditor's report u/s. 44AB along with various annexure and accounting notes with detail of various assets and liabilities of the Troikaa Pharmaceutical Ltd. The ld. counsel has also referred page no. 529 of the paper book-III showing comparative summary part of book value of assets and liabilities and fair value of liabilities as on 1st April, 2015. Ld. counsel has also referred notice u/s. 142(1) issued by the Assessing ....
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....ted that this issue was also duly considered during the course of original assessment proceedings in the reply of the assessee dated 24th Sep, 2018. The reconciliation chart with respect to assets pre-amalgamation i.e. Troika Pharmaceutical Ltd. as on 31st March, 2015 and post amalgamation with Troika Exports Pvt. Ltd. as on 31st March, 2015 with opening WDV as on 1-4-2016 were submitted. The assessee has enclosed the same as per annexure B vide its submission dated 17th August, 2021. As per annexure B enclosed in the submission, the assessee has given the detail of assets along with written down value of the assets as on 31st March, 2015 and opening figure of the same as on 1st April, 2016 in the case of Troika Pharmaceutical Ltd. showing it has taken the same figure as per the written down value of the assets as on 31st March, 2015 for the purpose of further claim of depreciation. 7.2 On the other hand, the ld. Departmental Representative contended that assessment order was passed without any inquiry. It is cryptic order with haste. He has placed reliance on the decision of Rampyari Devi Saraogi 67 ITR 84(SC). He also referred decision of Toyota Motor Corporation, 173 Taxmann ....
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....cision of SC Johnson Pvt. Ltd. vs. ACIT Delhi High Court. The ld. Departmental Representative has also referred the different pages of the order of the Pr. CIT u/s. 263 of the act and stated that no specific query has been raised. He also referred the decision of Jalgaon People Co-operative Bank (2021) 127 taxmann.com 243 of ITAT Pune. The judgment of Hon'ble High Court vide ITA 987/2017 in the case of Brahmdev Gupta and G.Vee Enterprises 991 ITR 375 (Delhi), Rampyari Devi Sarogi (1968) 671 ITR 84 (SC) and Sify Software Ltd. of ITA Chennai 80 taxmann.com 273. The ld. Departmental Representative has also referred the decision of Abhishri Packaging Pvt. Ltd. of ITA Mumbai ITA No. 6485/Mum/2018. In respect of second ground pertaining to claim of deduction u/s. 35(2AB) of the act, the ld. Departmental Representative has contended that no re-conciliation of research and development expenditure has been carried out and the expenditure claimed were not approved by DSIR. He also submitted that Assessing Officer has allowed the expenditure without applying his mind and referred page no. 54 of the order of Pr. CIT u/s. 263. The Ld. Departmental Representative has also given his argument on t....
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....ned to slump sale. (xi) Fibres & Fabrics International (P) Ltd. Vs. DCIT, Circle-11(3), Bangalore [2016] 72 taxmann.com 87 (Bangalore Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. (xii) DCIT, OSD-1(1) Vs. Worldwide Media (P.) Ltd. [2014] 43 taxmann.com 18 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump. (xiii) ST. Angelo's Computers Ltd Vs. ITO- 9(3)(2), Mumbai [2017] 88 taxmann.com 376 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. The ld. Departmental Representative has also given his comments on the case laws relied upon by the ld. counsel as per part B of the paper book. In the case of Adani Gas Ltd. vs. Pr.CIT-1 (ITA No.1252/Ahd/2016) (ITAT Ahmedabad) , the ld. Departmental Representative contended that facts of this case are different from assessee's case as it pertained only to claim of claimed goodwill. In the case of M/s. MTANDT Rentals Ltd. vs. ITO (ITANo.2410/CHNY/2017) (ITAT Chennai), the ld. Departmental Representative contended that the issue of this case are different from ....
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....assessment proceedings the assessee has also made compliance with all the notices and the detailed submission has been placed in the paper book. Regarding on the comments of the Departmental Representative that Assessing Officer passed cryptic order the ld. counsel has stated that the case of the assessee was transferred from ACIT to the ITO, Wd the detailed submission and detailed verification made by the ACIT Circle were transferred to the ITO Ward and the internal matter between the Assessing Officer were continued for 15 months. The first hearing was taken place on 3rd March, 2017 and last hearing was taken place on 6th December, 2008. Total five notices were issued and the hearing was taken place on 8 times. He has further submitted that Assessing Officer after due verification and after considering the detailed finding of the judicial pronouncement has passed the order u/s. 143(3) of the act. The ld. counsel has further submitted that purchase method was followed as per the order of the High Court. In respect of short order, the ld. counsel has stated that once the Assessing Officer issued numerous notices and conducted 8 hearings it cannot be said that the Assessing Officer ....
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.... company by virtue of explanation 2 to section 43(6) shall be the written down value of the block of asset as in the case of the transferor/amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. The intangible assets which were owned/held by the Troikaa Pharmaceutical Ltd., prior to amalgamation with erstwhile Troikaa Pharmaceutical Ltd. and Troikaa Export Pvt. Ltd. was nil, the cost, in the hands of the erstwhile Troikaa Pharmaceutical Ltd. and Troikaa Export Pvt. Ltd. for such goodwill shall be nil only. The ld. Pr. CIT in the order u/s. 263 of the act has also held that the Assessing Officer while finalizing the assessment neither made disallowance of wrong claim on deprecation of goodwill nor called for any explanation from the assessee company. The Pr. CIT also observed that the Assessing Officer has failed to examine whether the assessee has followed purchase method or pooling of interest method to justify its claim that goodwill was rightly accounted for. 8.1 The Pr. CIT further on verification of tax audit (form 3CD) found that assessee company has claimed....
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.... paper book the copy of submission giving the details of written down value of the assets as on 31st March, 2015 in the books of Troikaa Pharmaceutical Ltd. (transferor company) and the assets accounted for in the transferee company Troikaa Pharmaceutical Ltd. (name converted into Troikaa Pharmaceutical Ltd. on 01-04-2015) at the respective market value along with revised audited balance sheet prepared after approval of amalgamation scheme by Hon'ble Gujarat High Court. In the Composite Scheme of Arrangement for amalgamation of Troikaa Pharmaceutical Ltd. with Troikaa Export Pvt. Ltd.. the detail of description of the company, rational of composite scheme of amalgamation, definition and share capital transferred on vesting different kinds of assets, issuance of share and restructuring of share capital, accounting treatment in the books of transferee company, general terms and conditions etc, were given in detail approved by the Hon'ble High Court of Gujarat. On perusal of the aforesaid Composite Scheme of Arrangement it is noticed that at clause no. 9.1 it is categorically mentioned that the amalgamation of Troikaa Export Pvt. Ltd. will be accounted for in the books of account of T....
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....fficer has also raised specific queries as per serial no. 21 to 22 of the notice u/s. 11th Sep, 2018 which is reproduced as under:- "21. Please show cause why the sum of Rs. 15876 should not be added to your total income u/s 36(1)(va) rws 2(24) as you failed to deposit the sums so received from your employees to the designated funds? 22. Please submit complete details of the expenses claimed u/s 35(2AB) and justify your claim with supporting documents and computations. Also submit the approval from DSIR regarding the amount claimed by you." Again vide notice dated 22nd Sep, 2018, the Assessing Officer has also raised specific queries on the issues of claim of goodwill on amalgamation reproduced as under:- "4. Submit the complete documents regarding the scheme of amalgamation and copy of high court order for the same. 5. Submit the effective date of scheme of amalgamation with proper references of the HC order. 6. Submit in details the treatment of the amalgamation on your books of account with supporting documents, valuation reports etc. 7. Please justify the huge increase in the intangible assets during the F.Y. and the clai....
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....uced as under:- Please provide the following information in respect of FY 2015-16 in addition to information requested in earlier all the notices if not submitted till date. Please note that the information requested in this notice and all other subsequent notices needs to be submitted only electronically through your e-filing portal in view of the e-assessment proceedings being conducted in your case 1. Please submit the balance sheet and P&L A/c with all schedules of erstwhile Troikaa Pharma which got amalgamated with Troikaa Exports Pvt. Ltd as on 31-03-2015. 2. Submit the details of the financials of troika group companies etc in below format Company A.Y. 2013-14 A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016-17 A.Y. 2017-18 A.Y. 2018-19 Erstwhile Troikaa Pharma (PAN: AABCT0228K) Size of balance sheet GP Ratio NP Ratio Total Income Book Profit Troikaa Exports Pvt. Ltd. (prior to amalgamation) Turnover Size of the balance sheet GP Ratio NP Ratio Total income Book profit Triokaa Pharma (post amalgamation) Turnover Size of the balance sheet GP Ratio NP Ratio Total Income Book....
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....ikaa Pharmaceuticals Ltd. transferred to Troikaa Exports Pvt. Ltd. Subsequently the name of assessee company Troikaa Exports Pvt. Ltd. has been changed to Troika Pharmaceuticals Ltd. Hence the WDV block as per Income-tax Act of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No.AABCT0228K) transferred to assessee company Troikaa Exports Pvt. Ltd. (Now known as Troikaa Pharmaceuticals Ltd. - PAN No.MBCT6866H). In this regard, please find enclosed herewith the statement of reconciliation of closing stock as per ITR of AY 2015-16 with the opening stock of ITR of A.Y. 2016-17 along with copy of ITR of A.Y. 2015-16 is attached herewith as per Exhibit - IV (Page No. 115 to 151). 3. (Sr.No.3) Your honour has asked the assessee company to submit the certified report of stock valuation as on 31.03.2015 and reconcile the same with the closing and opening stocks. In this regard, please find enclosed herewith the report of stock valuation as on 31.03.2015 of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No. AABCT0228K) as certified by the management as per Exhibit - V (Page No. 152). That the valuation method of the closing stock has already been stated in the statutory audit report filed f....
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....provisions contained in Sections 391 to 394 and other relevant provisions, if any, of the Act, without an further act, deed, matter or thing stand transferred to and vested in and/or to be deemed to be transferred to and vested in TEPL on a going concern basis and thereafter, in Para 4.1.1 to Para 4.1.3 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229) has been stated the manner on Page 39 & 40 handwritten on top of the Page and Print Page No. 7 & 8 on lower part of the page. That on Page No. 40, handwritten on top of the page and Print Page No. 8 on the lower part of the page in Para 5, the consideration has been stated and in Para 6 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229), the Accounting treatment for transfer of Windmill Division of TPL to TEPL has been stated. b) The assessee company invite your honour's attention to the handwritten Page No. 41 on top of the page, Print Page No. 9 (lower part of the page) of the Scheme of Amalgamation as per Exhibit - VI (Page no. 153 to 229 ) which is Part - C under the head " Amalgamation of the residual TPL with TEPL", in Para 7 under the title " TRANSFER AND VESTING" attache....
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....s standing thereon) of Residual TPL are concerned, whether freehold or leasehold and any documents of title, rights and easements in relation thereto shall stand transferred to and be vested in TEPL, without any act or deed done by TPL and TEPL. With effect from the ISt day of April, 2015, TEPL shall be entitled to exercise all rights and privileges and be liable to pay ground rent, municipal taxes and fulfill all obligations, in relation to or applicable to such immovable properties. The mutation of title to the immovable properties in the name of TEPL shall be made and duly recorded by the appropriate authorities upon filing of true copies of the Order of High Court or any other appropriate authority approving the scheme without any further act or deed on part of TPL or TEPL. 7.1.4. Any amount including but not limited to refund under the Tax Laws due to TPL consequent to the assessment proceedings or otherwise and which have not been received by TPL as on the date immediately preceding the 15t day of April, 2015, shall also belong to and be receivable by TEPL upon the Scheme being effective 7.1.5. In respect of such of the assets belonging to Residual TPL other....
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....L including such assets which have been received by TEPL as per Part B of the Scheme. Provided always that the Scheme shall not operate to enlarge the, security for any loan, deposit or facility availed of by Residual TPL and that TEPL shall not be obliged to create any further or additional security thereof after the Effective Date or otherwise. Provided also that the Scheme shall not operate to enlarge the security for any loan, deposit or facility availed by TEPL and that TEPL shall not be obliged to create any further or additional security in lieu thereof, on any assets of Residual TPL vested in TEPL in accordance with foregoing paragraphs of the scheme, after the Effective Date or otherwise. Al1 assets and liabilities of the Residual TPL as on the 1st day of April, 2015, whether or not included in their respective books, and all the assets and properties which are acquired by them on or after the 16t day of April, 2015. but prior to the Effective Date, shall be deemed to be and shall become the assets and properties of TEPL, and shall under the provisions of Sections 391 to 394 of the Act and all other applicable provisions, if any, of the Act. with....
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.... 7.8 For the period between the 1st day of April, 2015, and the Effective Date all debts, liabilities, duties and obligations of the Residual TPL as on the 1st day of April, 2015, whether or not provided in the books of the Residual TPLraised, used and satisfied, shall be deemed to be for and on account of TEPL. 6. (Sr. No. 6 & 7) Your honour has asked to submit the details of treatment of the amalgamation on your books of account with supporting documents, valuation reports etc. and That your honour in question No. 7 has asked to justify about the huge increase in the intangible assets during the FY and the claim of deprecation on the same. (I) In this regard, please find enclosed herewith the details of treatment of the amalgamation in the books of accounts along with Valuation Report as under:- i) Valuation Report of Land and Building of Thol as per Exhibit - VII (Page No. 230 to 232) ii) Valuation Report of Land and Building of Dehradun as per Exhibit - VIII (Page No. 233 to 236) iii) Valuation Report of Land of Virochanagar per Exhibit - IX (Page No. 237 to 240) iv) Valuation Report of commercial Office as per Exhibit....
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....nd the amount credited to Share capital and Securities Premium account as per Clause 9.4 and 9.5 above and cancellation of inter-company balances and investment as per Clause 9.3 above, reduction of share capital of TEPL as per clause 8.8, and differential amount arising as per clause 8.9. shall be credited to the Capital Reserve Account or shall be debited to the Goodwill Account of TEPL, as the case may be. ("Net Assets Value" shall be computed as the value of assets less the value of liabilities, of TPL transferred to TEPL and recorded in TEPL in terms of Clause 9.2.) 9.7. if considered appropriate for the purpose of application of uniform accounting methods and policies between TPL and TEPL. TEPL may make suitable adjustments and reflect the effect thereof in the Capital Reserve or Goodwill Account of TEPL, as the case may be". The assessee company is attaching herewith accounting entries passed in the books of assessee company on amalgamation as per Exhibit - XIIIA (Page No. 285/A to 285/D) (III) The assessee company has to submit that the assessee company has prepared a chart showing the WDV of various assets standing in the books of accounts of Tro....
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....quity Shares 30,000) to Rs. 1.00 lakhs (Number of Equity -Shares 10,000). d. TEPL was converted to Troikaa Exports Limited (TEL). The effect of the conversion was given on 8th June 2016 by Registrar of Companies, Gujarat. e. The name of TEL was changed to Troikaa Pharmaceuticals Limited. The effect of the change in name was given on ISthl June 2016 by Registrar of Companies, Gujarat. f. The Fixed Assets of the amalgamated Company shall be transferred to amalgamating company on the payment of stamp duty. The amount of stamp duty is under adjudication. 28. Amalgamation of Troikaa Pharmaceuticais Limited with the Company: Composite Scheme of Arrangement was undertaken between erstwhile Troikaa Pharmaceuticals Limited and Troikaa Exports Private Limited subsequently known as Troikaa Pharmaceuticals Limited (The Company): Pursuant to the Composite Scheme of Arrangement u/s 391 to 394 of the Companies Act,1956for amalgamation of erstwhile Troikaa Pharmaceuticals Limited with The Company as sanctioned by the Hon'ble High Court of Gujarat on SOtll April, 2016 (effective date) all the residual assets and liabilities of the erstwhile Troikaa Pharmaceut....
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.... 977.37 Other Current Assets 235.36 Total Assets acquired (B) 31,598.54 Long Term Borrowings 2,708.09 Other Long Term Borrowings 636.05 Long Term Provisions 367.76 Short Term Borrowings 6,696.06 Trade Payables 4,886.29 Other Current Liabilities 1,802.50 Short Term Provisions 165.67 Total Liabilities acquired ( C) 17,262.42 Net Asset acquired (D)=(B-C) 14,336.12 Share Capital Reduction (E) 2.00 Goodwill (F) = (A-D-E) 34,271.93 On 30th-July, 2016, in terms of the Composite Scheme of Arrangement a. 15 (Fifteen) Equity Shares of Rs. 10/- each at a Premium of Rs. 67/- (Number of Equity Snares 6,25,43,220 of the Company has been allotted to the Equity Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) Equity Share of Rs. 10/-each (Number of Equity Shares 41,69,548). b. 1 (One) 11.50% Cumulative Preference Share of Rs.-10/-each (Number of Preference Shares 6,29,700) of the Company has been allotted to the 11.50% Cumulative Preference Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) 11.50% Cumulative Preference Shares ofRs. 10/....
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.... to accounting estimates is recognized prospectively in the current and future periods. 8. (Sr.No.8) Your honour has asked to reconcile the closing WDV of assets as per ITR of ^AY 2015-16 with the opening WDV of ITR of AY 2016-17. The Troikaa Pharmaceuticals Ltd. (Transferor Company) having PAN No.AABCT0228K) amalgamated with Troikaa Exports Pvt. Ltd. (Transferee Company) having PAN No.AABCT6866H as per the Order of Hon'ble High Court of Gujarat at Ahmedabad dated 09.03.2016. A copy of the said order is enclosed herein after as per Exhibit-VI (Page No. 153 to 229). As per the Scheme of Amalgamation and Order of Hon'ble High Court of Gujarat at Ahmedabad all the assets and liabilities of Troikaa Pharmaceuticals Ltd. transferred to Troikaa Exports Pvt. Ltd. Subsequently the name of assessee company Troikaa Exports Pvt. Ltd. has been changed to Troika Pharmaceuticals Ltd. Hence the WDV block as per Income-tax Act of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No.AABCT0228K) transferred to assessee company Troikaa Exports Pvt. Ltd. (Now known as Troikaa Pharmaceuticals Ltd. - PAN No.AABCT6866H). In this regard, please find enclosed herewith the reconciliation ....
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....5,799 CSR Expense 20,29,933 Prior Period Expense 14,966 Total 14,20,96,183/- 8.4 In its submission dated 24th Sep, 2018 placed at pages 199 to 234 of the paper book I during the course of assessment the assessee has also filed copy of scheme of amalgamation along with copy of order of the Hon'ble Gujarat High Court approving the scheme of amalgamation along with certified copies of the said order, copies of valuation report of valuer of different assets on account of amalgamation and the copy of statement giving the detail of written down value of the assets as on 31st March, 2015 in the books of account of Troikaa Pharmaceutical Pvt. Ltd.. and the assets accounted in the books of Troikaa Export Pvt. Ltd. along with revised audit balance sheet prepared after approval of amalgamation scheme by the Hon'ble Gujarat High Court. It is also noticed that during the course of assessment proceedings vide submission dated 16th Nov, 2018, placed at page 405 to 434 of the paper book II, in response to the queries raised by the Assessing Officer in the notice u/s. 142(1), the assessee has also made detailed submission that the company has taken over the residual fixed asset....
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.... the entire value chain in the production, marketing and distribution of pharmaceutical formulations. The Scheme has accordingly been given effect to in financial statements of the assessee company for F.Y. 2015-16. The amalgamation has been accounted for under the "Purchase Method" as prescribed under Accounting Standard 14 - "Accounting for Amalgamations" (AS 14) issued by The Institute of Chartered Accountants of India and as. notified under section 133 of the Companies Act, 2013 read with Rule 7 of the Companies Accounts Rules 2014. Accordingly and giving effect of the Composite Scheme of Arrangement, all the residual fixed assets including all intangible assets of the erstwhile Troikaa Pharmaceuticals Limited, were recorded in the books of the assessee company at their fair market value and in the same form as at the appointed date i.e. 01.04.2015. All other assets and liabilities have been recorded at the book value of erstwhile Troikaa Pharmaceuticals Limited. Hence, in accordance with the Composite Scheme of Arrangement: The Company has taken over the residual fixed assets at the fair market value aggregating to Rs. 14,336.77 lakhs, other assets a....
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....ill be accounted for in the books of TEPL by adoption of "Purchase Method" of accounting in accordance with the Accounting Standard -14 issued by the Institute of Chartered Accountants of India. 9.2. Upon coming into effect of this Scheme, TEPL shall record, all the assets and liabilities of TPL transferred to and vested in TEPL pursuant to this Scheme, at their respective fair market values at the close of business on the day immediately preceding the Appointed Date. 9.3. The inter-company balances and investments, if any, appearing in the books of accounts of TEPL and TPL inter se, will stand cancelled 9.4. TEPL shall credit to its share capital account(s), the aggregate face value of the Equity Shares and Preference Shares issued and allotted under clause 8.2 and clause 8.3 of this Scheme. 9.5. TEPL shall credit to its Securities Premium Account, the aggregate premium in respect of Equity Shares issued and allotted under Clause 8.2 of this Scheme. 9.6. The difference, if any, between the Net Assets Value of TPL transferred to and recorded by TEPL in terms of Clause 6.1 and 9.2 above, and the amount credited to Share capital and Securi....
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....01.04.2015. iv). The assessee company has to submit that there was no Goodwill in the books of accounts of Troikaa Pharmaceuticals Ltd, i.e. the amalgamating company on 31.03.2015 and there was no Goodwill standing in the books of accounts and in the Balance Sheet as on 31.03.2015 of Troikaa Exports Pvt. Ltd i.e. the assessee company. The assessee company invites your honour's attention to provisions of section 32(ii) which provides as under- "(ii) know-how, palertls, 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," The assessee company has to submit that the Goodwill in the form of intangible assets which came into existence on 01.04.2015 for an amount of Rs. 34271.93 lakhs in the books of the assessee company falls in the category of intangible assets being business or commercial rights of similar nature, which is eligible for depreciation as per the provisions of Section 32(ii) of the Act. In support of this contention, the assessee company would like to place reliance on the following decisions of the Hon....
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....angible assets came into existence on 01.04.2015 from the said date it has been put to use by the assessee company and therefore, eligible depreciation has been claimed u/s. 32(ii) of the I.T. Act, 1961 in the return of income filed for A.Y. 2016-17 under the Income-tax Act following the decision of the Hon'ble Supreme Court, Jurisdictional Gujarat High Court and various other High Courts. 3. (Sr. No. 4) Your honor has asked the assessee company to furnish details of the benefits derived from the acquired goodwill if any with supporting- documentary evidence/ factual data. A. With regards to the same, it is humbly submitted that the details of the benefits derived from acquired goodwill cannot be shown with the help of any documentary evidence or factual, data. The expression "goodwill" subsumes within it a variety of intangible benefits that are acquired when a person acquires a business of another as a going concern. It is submitted that a variety of elements go into the making of goodwill like licenses, know-how, customer information, supply-chain, product pricing, process information, trade-secrets, confidential information, software licenses, product-regi....
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.... impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is a/so impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business." Thus, it is difficult to furnish details of the benefits derived from the acquired goodwill if any I documentary evidence/ factual data. However, the list of factors which give in the case of the assessee company are encapsulated in Clause 1.6 (a), 0) & (g) of the Hon'ble High Court approved Scheme of Amalgamation and the »is reproduced below for ready reference: "a) All the assets and properties of Transferor Company as on the Appointed Date (i.e. 1st April, 2015); c) All licenses (including but not limited to the licenses granted by any governmental, statutory or regulatory bodies for the purpose of carrying o....
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....of intangible assets which fall within the purview of the expression "business or commercial rights of similar nature" under Section 32 of the Income Tax Act, 1961. Reliance is placed on the cases cited herein below: i. The Hon'ble Delhi High Court in Areva T & D India Ltd. v. Deputy Commissioner of Income-tax reported in [2012] 20 taxmann.com 29 (Delhi) "13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in Section 32(l)(ii-) of the Act, it is seen that such rights need not answer the description of "knowhow, patents, trademarks, licenses or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(l)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are cle....
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.... 19. The next question is - whether the membership right could be said to be owned by the assessee and used for the business purpose terms of section 32(l)(ii). Our answer is in the affirmative for the reason that the Rules and the Bye-laws analysed hereinabove indicate that the right of membership (including the right of nomination) vests in the Exchange only when a member commits default. Otherwise, he continues to participate in the trading session on the floor of the Exchange; that he continues to deal with other members of the Exchange and even has the right to nominate subject to compliance of the Rules. Moreover, by virtue of Explanation 3 to section 32(l)(ii) the commercial or business right which is similar to a "licence" or "franchise" is declared to be an intangible asset. Moreover, under rule 5, membership is a personal permission from the Exchange which is nothing but a "licence" which enables the member to exercise rights and privileges attached thereto. It is this licence which enables the member to trade on the floor of the Exchange and to participate in the trading session on the floor of the Exchange. It is this licence which enables the member to access the....
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....ons laid down under section 32 oj the Act i.e. the assets should be owned wholly or partly by the assessee and used for the purpose of business 01 profession of the assessee. The rate of depreciation for such assets was provided in Schedule attached to the Income Tax Act. However, after the amendment by the Finance (No.2) Act, 1998, w.e.f. 1.4.1999 the depreciation is also to be allowed on intangible assets i.e. know-how, patent and copyrights, trademarks, licences or franchises or any other business or commercial rights of similar nature. The Hon'ble Delhi High Court in Areva T and D India Ltd. Vs. DCIT (supra) applied the principle of ejusdem generic to interpret the expression "business or commercial rights of similar nature" referred to in section 32(l)(ii) of the Act and held that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. The Hon'ble Court further held that in the circumstances, the nature of business or commercial rights could be of the same genus in which all the aforesaid six assets fal....
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....'tor* but the same constituted bundle of rights akin to a licence or comparable to a license to carry on the business of Animal Health Care and Diagnostics Business divisions^ which was being carried on by the seller i.e. M/s Ranbaxy Laboratories Ltd. the above said assets acquired by the assessee were the 'business or commercial rights or licence acquired' in order to carry on new business acquired by the assessee including list of employees and also various licences owned by Ranbaxy Laboratories Ltd. In line with the ratio laid down by the Hon'ble Delhi * High Court in Areva T and D India Ltd. Vs. DCIT (supra), we are of the view that the consideration of Rs. 12.74 crores paid by the assessee was for acquisition of the intangible assets on which the assessee is entitled to the claim of depreciation under section 32(1) (ii) of the Act." iv. Triune Energy Services (P.) Ltd. v. Deputy Commissioner of Incometax [2016] 65 taxmann.com 288 (Delhi) 14. In CIJ v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC), the Supreme Court had explained that:- "Goodwill denotes the benefit arising from connection and reputation. The original definit....
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....t April, 1998. As per section 32(1)(ii), depreciation is allowable in respect of know-how, patent, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature being intangible assets. Scanning the anatomy of the section, it can safely be stated that the provision allows depreciation on both tangible and intangible assets and clause (ii), as has been indicated hereinbefore, enumerates the intangible assets on vjhich depreciation is allowable. The assets which are included in the definition of 'intangible assets' includes, along with other things, any other business or commercial rights of similar nature. The term 'similar' has been dealt with by the Apex Court in Nat Steel Equipment (P.) Ltd. v. Collector of Central Excise AIR 1988 SC 631 wherein the Apex Court has opined that the term 'similar' means corresponding to or resembling to in many aspects. In this regard, it would not be out of place to refer to the decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 2941 (SC) wherein the concept of goodwill has been understood in the following terms: "Goodwill denotes the benefit arising from connection an....
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....ile one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in IRC v. Muller & Co.'s Margarine Limited [1901] A.C. 217(HL) that although goodwill was easy to describe, it was nonetheless difficult to define. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined peri....
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.... secrets, customer lists, marketing rights, franchises, etc. which either arise on acquisition or are internally generated. 24. It is worth noting that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of section 32(l)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customers associate with such assets. Goodwill, when appositely understood, do....
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....case of the assessee, certain annual maintenance contracts (AMC's), which constituted the whole and sole of the 'maintenance division' business of the transferor and which was hitherto being carried out by the transferor, without any interruption were transferred under the said undertaking and sale agreement. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by create new/fresh business rights; the assessee got an up and running business. This view was fortified by the ratio of the decision of Supreme Court in Techno Shares & Stocks Ltd. v. CIT I2010J 327 ITR 323/193 Taxman 248 wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "license" or "akin to a license". Since in the present case AMC's constitutes the very basic income earning apparatus for the assessee, the same sho....
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....e Business to which the Transferor is a party. "Permits" means licenses including EPCG/DEEC/Advance License and its obligation, bonds, legal undertaking (LUT) consents, authorizations, orders, confirmations, permission, certificates, approvals existing as well as in pipelines and authorities, as set /or ;n Schedule III. Para 2.2 and 2.4 of the Business Transfer Agreement 2.2 Transferor hereby assigns and the Transferee hereby accepts assignment of the Contracts. If the consent of any entity (other than a government authority) is required for the assignment of rights and obligations of any of the contracts under this Agreement, the Transferor on the form of assignment agreement to be executed with such other entity, and the Transferor shall use all reasonable endeavors to notify and / or obtain the consent of such other entity in respect of the assignment as soon as possible. 2.4 Transferor hereby transfer and the Transferee hereby accepts transfer of the employees." 10.5 In light of the above case laws, we are in agreement with the submissions of the Id. Counsel of the assessee that the goodwill that has been recognized in this case represents various assets in th....
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....uthorities. Accordingly, we set aside the orders of the lower authorities. The Assessing Officer is directed to allow depreciation at the applicable rate on the payment relatable to goodwill. ix. Fibres & Fabrics International (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle 11(3), Bangalore [2016] 72 taxmann.com 87 (Bangalore - Trib.) "20. In the present case, it w on undisputed fad that the sole proprietary concern was acquired by the appellant as a going concern with all assets & liabilities. In the balance sheet of the sole proprietary concern, goodwill of Rs. 35 crores was shown on the assets side of balance sheet. The agreement of take over had clearly mentioned that all assets including the goodwill was taken over by the company. Even accepting the view of the CIT(Appeals) that there were no commercial rights acquired, now the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) held that purchase consideration paid over and above the net value of the assets constitutes goodwill. Even the Hon'ble Delhi High Court recently in the case of Triune Energy Services (P.) Ltd. v. Dy. CIT [2016] 65 taxmann.com 288/237 Taxman 230 held that....
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....e goodwill can be in the form of copy rights, patent, trade mark, marketing rights, particular customers, franchisee, brand value, etc. In this case, the assessee has only taken the part of the goodwill in the form of trade mark and copy right, however, that alone cannot be said to be a part of goodwill, especially when the assessee has acquired such a high end brand products in the form of one of the most popular magazine and right to organize mega events under such brand name. Therefore, part of the acquisition cost can also be said to be for goodwill of the brand product. However, the manner in which the Assessing Officer has adopted the value of the goodwill is''absolutely incorrect and without any method, which is generally adopted for evaluating the goodwill. In this case, once there is no dispute that the total consideration for tangible and intangible assets is for Rs. 91 crores, which has also been accepted by the A.O., then it is presumed that such consideration also includes goodwill on account of brand or product besides trade mark and copy rights. 12. Now, the issue whether the depreciation can be allowed on such intangible asset in the form of goodwil....
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....ow in the field of computer education, trained instructors, books, course material developed for providing training in computer applications, working pattern, education methodology etc. which basically was developed over a period of time with the object of ensuring the best quality training in computer application. In the return of income assessee claimed depreciation on "goodwill". The AO declined assessee's claim of depreciation on the "goodwill" on the plea that "good-will" is not an intangible asset for depreciation u/s. 32(l)(ii). By the impugned order, the CIT (A) confirmed the disallowance of claim of depreciation on "Good-will" against which assessee is in further appeal before us. 6. We have carefully gone through the decision of Hon'ble Supreme Court in the case of SMIFS Securities Ltd. (supra) and decision of Hon'ble Bombay High Court as well as decision of coordinate bench of the Tribunal cited at bar. The Hon'ble Supreme Court in the case of SMIFS Securities Ltd. (supra), held as under :- 'The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act'....
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....5-06 & 2006-07 in which the Tribunal has categorically held that assessee is entitled for depreciation on good will. The copy of the order of the Tribunal is placed on record on pages 268 to 279 of the compilation of the assesses. The relevant observations of the Tribunal in this regard arc performed hereunder- "10. Our attention was also invited to Explanation 3 below section 32(1) of the Act. While allowing the claim of the assessee, the Id. CIT(A) has held that issuance of shares for Rs. 7.44 crores was a part payment of purchase consideration towards cost of acquisition of cement undertaking, therefore, the cost of shares issued to the shareholder of JKSL is eligible for depreciation and the Id. CIT(A) has also held that even if it is considered to be the cost of goodwill of JKSL, still the assessee is entitled for depreciation. During the course of hearing of the appeal, the Id. D.R. has placed emphasis that this cost of shares issued to JKSL is not part of purchase consideration towards cost of acquisition of cement undertaking but it is a cost of goodwill and is not eligible for depreciation. There is no quarrel on the proposition of law that if the cost of shares a....
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....apply while interpreting the said expression which finds place in Explanation 3(b). In the circumstances, we are of the view that "goodwill" is an asset under Explanation 3(b) to section 32(1) of the Act. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income-tax (Appeals) ("the CIT(A)", for short) has come to the conclusion that the authorised representatives had filed copies of the orders of the High Court ordering amalgamation of the above two companies ; that the assets and liabilities of M/s. YSN Shares and Securities P. Ltd. were 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 the Income-tax Appellate Tribunal ("the ITAT"; for short). We see no reason to interfere ....
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...., which comprised, inter alia, the following : (i) business claims, (ii) business information, (Hi) business records, (iv) contracts, (v) skilled employees, (vi) knowhow. It is also observed that the Assessing Officer accepted the allocation of the slump consideration of Rs. 44.7 crores paid by the transferee, between tangible assets and intangible assets (described as goodwill) acquired as part of the running business. The Assessing Officer, however, held that depreciation in terms of section 32(l)(ii) of the Act was not, in law, available on goodwill. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal approved the reasoning of the Assessing Officer thereby holding disallowance of depreciation on the amount described as goodwill. It was thus argued on behalf of the assessee-company that section 32(l)(ii) would mean rights similar in nature as the specified assets, viz., intangible, valuable and capable of being transferred and that such assets were eligible for depreciation. On behalf of the respondent it was argued that applying the doctrine of noscitur sociis the expression "any other business or commercial rights of similar nature" used in Explanatio....
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.... in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 1TR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "licence" or "akin to a licence" which is one of the items falling in section 32(l)(ii) of the Act. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of s....
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....ny infirmity therein. Accordingly we confirm his orders in both the years." Similar views have also been held in the following judicial pronouncements: i. Commissioner of Income-tax v. Aditya Birla Nuvo Ltd. [2017] 79 taxmann.com 210 (Bombay) "3. Regarding question no (i):- (a) The impugned order of the Tribunal allowed the respondent-assessee's appeal on this issue of depreciation on goodwill by following the decision of the Apex Court in C7T v. Smijs Securities Ltd. [20121348 ITR 302/210 Taxman 428/24 taKmann.com 222. (b) In the above view, question no.(i) as proposed does not give rise to any substantial question of law Thus, not entertained." Commissioner of Income-tax taxmann.com 262 (Bombay) 2 v. Birla Global Asset Finance Co. Ltd. (2014) 41 "3. As regard the second question is concerned, the contention of the Revenue is that intangible assets like business and commercial brand equity are goodwill on which depreciation is not allowable. The Apex Court in the mutter of CIT v. Smifs Securities Ltd. [20121 24 taxmann.com 222/210 Taxman 428 (SC) has in-lit that even the intangible assets constitute goodwill on whi....
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....after perusal of the material on record as referred above, we observed that fact in the case of the assessee are different since it is demonstrated from the material on record that Assessing Officer has made detailed enquiry on the issue of claim of goodwill and the claim of deduction u/s. 35(2AB) therefore looking to the material fact on record we consider that the facts of the case are distinguishable from this case law. The ld. Departmental Representative has also referred the case law of Babulal S. Solanki vs. ITO (2019) 104 taxman.com 155 (Ahd-Trib), in this case, the Assessing Officer has not specifically looked into the application of section 50C of the act for adoption of sale consideration as against stamp duty valuation. However, the fact in the case of the assessee are quite different as per the material on record (supra), the Assessing Officer has made detailed enquiry on the claim of goodwill and claim of deduction R & D expenditure. We have also perused the decision in the case of Mrs. Khatiza S. Oomerboy Vs. ITO (2006) 100 ITD 173 Mum wherein it is held that where Assessing Officer raised several queries regarding computation of income under capital gain and in respo....
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.... dated 13th October, 2014 held after following the decision of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. that goodwill is eligible for depreciation, the ITAT has held that the issue of allowability on depreciation of goodwill should be decided in favour of the assessee as such revenue has not brought any contrary material to suggest that the claim of deprecation of goodwill is not genuine and the same is not eligible for depreciation. The ld. Departmental Representative has referred the decision of CIT Delhi vs. Woodward Governor India Pvt. Ltd. (2009) 179 taxman 326 (SC). We find that facts of this case are entirely different as it pertained to adjustment to be made in carrying cost of fixed assets acquired in foreign currency because of fluctuation in rate of foreign exchange. The case of SC Johnson Products Pvt. Ltd. vs. ACIT Writ Petition 2697/2015 referred by the ld. Departmental Representative wherein the Assessing Officer noticed that assessee had adopted a wrong method of purchase while calculating depreciation instead of pooling of assets method in terms of different accounting standards. We observed that the facts of the case of the assessee are disti....
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....d held that once inquires was made, a mere non-discussion or non-mention thereof in assessment order could not lead to assumption that Assessing Officer did not apply his mind or that he had not made inquiry on subject and this would not justify interference by Commissioner by issuing notice u/s. 263 of the act. Similarly, in the case of the assessee also it is demonstrated from the copies of notices issued by the Assessing Officer and detailed submission with copies of documents made by the assessee that Assessing Officer has made the specific enquiry on the issue of claim of depreciation of goodwill and claim of deduction in respect of R & D expenditure before finalizing the assessment, however, these issues were not discussed in the assessment order because Assessing Officer has not found any irregularities with the submission of the assessee. The ld. Departmental Representative referred the case of Steels Cotton Mills Ltd. Vs. CIT (1979) 116 ITR (SC). However, we observed that the fact of this case pertained to the issue that if foreign currency is held as a capital asset or as fixed capital such profit or loss would be of capital nature. The ld. D.R. has referred the case of P....
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....ing Officer that goodwill has arised in the scheme of amalgamation and duly supported with the audited account by statutory auditor. The case of Bodal Chemicals Ltd. vs. Addl. CIT vide ITA No. 1439/Ahd/2011 dated 16-10- 2019 wherein ITAT Ahmedabad held that the assessee was allowed goodwill in the first year of amalgamation i.e. assessment year 2006-07 and there was no action either u/s. 263 or 147 of the act by the revenue therefore it was held that claim of depreciation of the assessee on the first year has attained finality and it was further held that in such case principal of consistency shall be valid as held by the Bombay High Court in the case of Pr. CIT vs. Quest Investment Advisor Ltd. 96 taxman.com 157. Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC), the ld. Departmental Representative has referred this case wherein it is revealed that the assessee neither resided nor carried out any business from the address declared in the return and the ITO was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc. without any inquiry or evidences. In this regard, we find that fact in the case of the assessee are ent....
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....he self-generated goodwill as alleged by the AO. Further, the AO followed the decision of Bangalore bench of ITAT in the case of United Breweries (cited supra) to disallow the claim of depreciation on goodwill. The Tribunal had considered the judgment of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. and has held that the Hon'ble Supreme Court has only held that goodwill is an intangible asset and that depreciation is allowable thereon, but, that it does overrode of 5th Proviso to section 32(1) of the Act. We find that the facts of United Breweries are distinguishable from the facts of the^ case before us, as in the case of United Breweries, there was a merger with its Wholly owned Subsidiary, whereas in the case of the assessee, it is amalgamation by purchase. Therefore, the decision in the case of United Breweries is not applicable to the case before us. Let us therefore now consider the facts in the judgement of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. For the sake of clarity and ready reference, the relevant paras are reproduced hereunder: Question No.[b]: "Whether goodwill is an asset within the meaning of Section 32 o....
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....iew that 'Goodwill' is an asset under Explanation 3(b) to Section 3.2(1) of the Act. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were 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 Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of....
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....on'ble Supreme Court held as under:- "Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1) - Held, yes - During relevant assessment year, one V Ltd. amalgamated with assessee-company - According to assessee, excess consideration paid by it over value of net assets acquired of V ltd. amounted to goodwill on which depreciation was to be allowed - Authorities below recorded a finding that assets and liabilities of 'Y' Ltd. were transferred to assessee for a consideration; that difference between cost of an asset and amount paid constituted goodwill and that assessee-company in process of amalgamation had acquired a capital right in form of goodwill because of which market worth of assessee-company stood increased - Accordingly, assessee's claim was allowed - Whether since revenue could not rebut factual findings recorded by authorities below, impugned order passed by them was to be upheld - Held, yes [Para 8] fin favour of assessee] II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of - Whether stock-exchange membership card is an asset eligible for depreciation under section 32 - Held, yes [Para 1] [In f....
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.... the transferee company's financial statement as goodwill. We have gone through the accounting for amalgamation as per accounting standard 14 on the submission of the assessee that it has correctly adopted the fair market for valuation of assets except assets and like stock in track, bank balance cash balance cannot be valued as per fair market value. The assessee has demonstrated from the material from record that as per submission made at the time of assessment that excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company was recognized in the transferee company's financial statement in accordance to purchase method as per accounting standard-14 In this regard we have gone through the common procedures as mentioned in para 40 of the accounting standard 14 in respect of such assets like above which cannot be valued at fair market value, in the common procedural, it is laid down that where the market of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book value. We have also gone through the decision of Gujarat High Court in the case of Arvind Jewe....
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....sessment order, that would not, by itself, lead to conclusion that order of Assessing Officer called for interference and revision - Held, yes" 8.8 With regard to the claim of deduction u/s. 35(2AB), the assessee has categorically brought to the notice of the Pr. CIT during the course of proceeding u/s. 263 of the act that the necessary verification and inquiry on this issue has been made by the Assessing Officer during the course of assessment proceedings. The assessee has also given the reference of the notices issued u/s. 142(1) of the act along with relevant details and inquiry made in respect of expenses claimed u/s. 35(2AB) of the act. The assessee company in the return of income filed for assessment year 2016-17 claimed weighted deduction and research and development expenditure incurred u/s. 35(2AB) of the act for an amount of Rs. 72,29,224/- for research and development capital expenditure u/s. 35(2AB) and for an amount of Rs. 189867870/- research and development revenue expenditure u/s. 35(2AB) aggregating to Rs. 197097094/-. The assessee has also brought to the notice of the Assessing Officer that DSIR as per form no. 3CL, the assessee company is eligible for weighted....
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....ssee during the course of appellate proceedings that it has submitted all the relevant details in respect of claim u/s. 35(2AB) of the act vide submission dated 6th October, 2018 and 23rd October, 2018 along with all the supporting documents and evidences and on being satisfied the Assessing Officer had passed assessment order u/s. 143(3) dated 19th December, 2018 without making any addition. We have also perused the decision of Hon'ble Gujarat High Court in the case of Claris Lifescience Ltd. 326 ITR 251 (Guj.) wherein it is held that once facility is approved the entire expenditure so incurred on development of R & D facility has to be allowed for weighted deduction. Prior to 1-06-2016, only requirement to claim deduction u/s. 365(2AB) was to receive recognition from prescribed authority and deduction could not be denied merely because prescribed authority failed to send intimation in form 3CL in respect of expenditure incurred by R & D unit for relevant assessment year as held in the decision of ITAT Calcutta Bench (2021) 125 taxman.com 97 (Kol-Tri) in the case of Dy. CIT vs. STP Ltd. wherein it is also held that prior to 1-6-2016, form 3CL had not legal sanctity, only requireme....
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....his year is that during the year, the assessee company has claimed weighted deduction of Rs. 23,38,59,786/- being two times of Rs. 11,69,29,893/- u/s. 35(2AB) of the act. As per the form 3CL dated 6th August, 2018 issued by the DSIR, is eligible R & D expenditure for deduction u/s. 35(2AB) was of Rs. 10,76,44,000/- being two times of Rs. 538.22 lacs during the course of assessment proceedings, the Assessing Officer has made detailed verification and investigation of the claim of the assessee vide notices issued u/s. 142(1) of the act on 28-02-2019, 15-03- 2019 and 26-03-2019. After taking into consideration the submission of the assessee, the Assessing Officer has issued show cause notice dated 26th March, 2019 and asked the assessee to show cause why weighted deduction claimed by it u/s. 35(2AB) of the act could not be restricted to 200% of Rs. 538.22 lacs in view of the certificate issued by DSIR wherein eligible R & D expenditure is Rs. 5.38 lacs. The assessee company submitted that it has claimed the weighed deduction u/s. 35(2AB) of the act of Rs. 23,38,59,786/- as per the certificate of the statutory auditor dated 28th Sep, 2017 on the basis of books of account maintained for....
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.... Officer, but neither the query nor the answer was reflected in the assessment order that would not by itself, lead to the conclusion that the order of the Assessing Officer called for interference and revision. The ld. Pr. CIT has failed to substantiate as to how the order passed by the Assessing Officer was prejudicial to the interest of Revenue and that too without dealing with the explanation and material furnished by the assessee before him. It is clear from the material on record that every aspect of the matter was dealt with by the Assessing Officer though no specific mention was made by him in the assessment order. The Assessing Officer in this case had made enquires in regard to the claim of deduction for goodwill on amalgamation and claim of deduction u/s. 35(2AB) of the act evident from the copies of notices discussed supra in this case. The assessee has given the detailed explanation and submission in writing supported with copies of relevant documents. All these were part of the record of the case. Evidently, the claim was allowed by the Assessing Officer on being satisfied with the explanation of the assessee. It was necessary for the commissioner to state in....