TaxTMI 
TaxTMI 
2023 (4) TMI 739
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.... and Revenue are being heard together and disposed off by this consolidated order. 2. The appeal of the assessee for the assessment year 2013-14 and 2015-16 are filed with a delay of 48 days and 12 days respectively, for which, the assessee has filed petitions for condonation of the delay in the form of an affidavit, to which; the ld. DR has not raised any serious objection. Consequently, since the assessee was prevented by sufficient cause, the delay in filing of both the appeals stands condoned and the appeals are admitted for adjudication. 3. The first issue that came up for consideration from the appeals filed by the assessee and Revenue for all the three assessment years is relating to depreciation on goodwill under section 32(1) of the Income Tax Act, 1961 ["Act" in short]. 3.1 Facts with regard to the impugned dispute are that the assessee M/s. Sunedison Solar Power India Private Limited is engaged in the business of manufacture power and energy, mainly solar energy. By virtue of the order passed by the Hon'ble High Court of Madras on the combined petition filed by four entities in a scheme of amalgamation and Arrangement (Demerger) whereby first transferor company ....
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....sessee, judicial precedents and approval of the Hon'ble High Court of Madras vide its order dated 28.01.2014 and also obtained directions from the Addl. CIT under section 144A of the Act to come to the conclusion that depreciation on goodwill is not eligible because the assessee has accounted goodwill towards difference between value of shares issued to Demerged company and net value of assets and liabilities taken over from demerged company. The relevant findings are as under: 4. Depreciation on Goodwill: 4.1 During the course of scrutiny it was observed from the financial that the Hon'ble High Court of Madras has sanctioned a scheme inter-alia involving the demerger of Engineering Procurement and Commissioning ('herein after referred to as EPC) undertaking of SunEdison Energy India Private Limited (SEIPL or demerged company) into the assessee company with effect from 1st April 2012. The assessee has filed a copy of the order of the Hon'ble High Court dated 28 January 2014 along with a copy of the scheme. It is also observed that the assessee has recorded goodwill amounting to Rs.132,55,66,771/- as difference between the purchase consideration paid to....
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....IPL with its technology, customers - present and future, orders in hand and future orders, employees etc., which are nothing but intangible assets. Due to the existence of intangible assets only, the consideration is higher than the net asset of the demerged undertaking. It may be pertinent to note that the solar power industry has been growing at a faster phase. The megawatt installation in India has been more than doubled since last five years. EPC Industry also has grown commensurately. Taking the above qualitative consideration into account, the valuation of the demerged undertaking has been done and the intangible asset has been acquired by the resulting company. Intangible/Goodwill once acquired, is the taxpayer's own asset and hence the amortization in the form of depreciation of acquired asset is deductible in computing commercial profit. 1.2 Analysis under the Act The term "depreciable asset' has no specific definition under the Act, Hence, It would be appropriate to give the term its ordinary grammatical meaning, which would mean to include an asset in respect of which depreciation is allowable under the provisions of the Act. F....
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....irection U/s, 144A vide order dated 20,12.2016. The directions issued by the Addl. CIT are as under: (a) By order dated 28.01.2014 in Comp. Petition No. 402 to 405 of 2013 of Hon'ble High Court of Madras, Sei Green Technology Pvt. Ltd, and Sei Green Energy Pvt. Ltd. amalgamated with Sunedison Energy India Pvt. Ltd. w.e.f. 01.04.2011 and thereafter the EPC business undertaking and the Investment undertaking of the said company got demerged to form the resulting company ie. assessee w.e.f 01.04,2012. (b) While accounting the demerger, assessee in its books of account has recorded goodwill amounting to Rs.132,55,66,771/- being difference between net assets transferred from the demerged company and recorded by assessee in its books and amount credited as share capital and securities premium in the books of the assessee. It may be noted that the demerged company did not have any asset as goodwill appearing to its books and no such, asset was transferred to assessee resulting company. It is only a book adjustment to balance the balance sheet i.e. deficit of value of assets received over the share capital and share premium recorded in the books of assessee company. ....
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....II becoming effective and with effect from the Demerger Appointed Date, the Demerged undertaking shall stand demerged and vested in the Resulting Company, in accordance with Section 2(19AA) of the Income Tax Act, 1961, as a going concern, without any further act or deed, as per the provisions contained herein, together with all its properties, assets, liabilities, rights, benefits and interest therein, subject to existing charges, if any, thereon. It is clarified that the provisions of Part III shall take effect only uponthe amalgamation of SGTPL and SGEPL into and with SEEIPL in terms of Part II hereof. 17.2 Upon the coming into effect of this Scheme and with effect from the Demerger Appointed Date the whole of the undertaking, assets, properties and liabilities of the Demerged Undertaking of the Demerged Company as defined in Clause 16.4 shall pursuant to the provisions contained in Section 391 to 394 and all other applicable provisions, if any, of the Act and without any further act or deed shall stand transferred to and vested in and/or be deemed to be transferred to and vested in the Resulting Company as a going concern so as to vest in the Resulting Company ....
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.... of the high Court to make any payment for goodwill (intangible assets) specifically. As per standard accounting practices, in the scheme of amalgamations, if the asset side is greater than the liability side then the difference is credited to the capital reserve account and in a case where the liability side is greater than the asset side then the difference is accounted as "goodwill" account in the hands of the amalgamated company. This practice is followed to balance the asset and liability sides by making accounting entries and by making such book entries, no real asset as goodwill in fact comes into existence. That is how the accounting treatment to be given was clearly stated in the scheme and no payment on account of any such asset was made by the appellant in this scheme which stood approved by the aforesaid order of the Hon'ble High Court." Godrej & Boyce Mfg. Co. Ltd. Vs Addl. CIT (ITAT, Mum) 153 ITD 676 : Assessee acquired assets under scheme of demerger - In view of Expl. 2B to sec. 43(6), only the WDV of the transferred assets of the demerged company as per accounts maintained under I.T. Act constitutes the WDV of the block of assets of the resulting compa....
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....dingly, the A.O. has disallowed depreciation claimed at Rs.24,85,43,770/- on the goodwill for the assessment year under consideration. 6. Before me, Mr. V. Shekar Babu, CA holding power of attorney has appeared on 09.04.2019. Subsequently, the appellant made written submissions vide its letter dated nil received in this office on 02.05.2018. Submissions made before me are more or less similar to that made before the AO. Matter is considered. The authorized representative has failed to controvert the findings of the assessing officer with any new information or evidence in support of grounds taken against the disallowance of depreciation claimed on goodwill. Having due consideration of the facts and circumstances of the case, I do not find any reason to interfere with the said disallowance. Addition made at Rs.24,85,43,770 stands confirmed. Grounds taken are dismissed. 7. In so far as assessment year 2015-16 is concerned, the ld. CIT(A) has deleted the addition made by the Assessing Officer towards depreciation on goodwill by holding that goodwill accounted in the books of account of the assessee company is not self-generated, but, was acquired in a scheme of demerger sa....
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....01.2014, more particularly, para 24.7 of scheme document and submitted that as per the scheme of demerger approved by the Hon'ble Madras High Court, the procedure for accounting and giving effect has been explained as per which excess consideration paid in the form of issues of shares to shareholders of demerged company is over and above the value of net asset taken over in a scheme of demerger shall be an intangible asset to Resulting company. The scheme had also specified as the manner in which such consideration has been paid to Demerger company. Therefore, it cannot be said that goodwill accounted in the books of accounts of the assessee company is self-generated. The ld. Counsel for the assessee further submitted that once it is proved that goodwill is purchased then the assessee is entitled for depreciation as per the provisions of section 32(1) of the Act, as not disputed and thus, the assessee has rightly claimed depreciation on goodwill. The ld. CIT(A) for the assessment years 2013-14 and 2014-15, without appreciating relevant facts simply sustained the addition. In so far as assessment year 2015-16 is concerned, the ld. CIT(A) has rightly appreciated the facts that the de....
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.... Boyce Mfrs. Co. Ltd. v. Addl. CIT [153 ITD 676 Mumbai] as well as in the case of Signode India Pvt. Ltd. in ITA No. 954/Hyd/2019 dated 05.01.2021. 11. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. There is no dispute with regard to the fact that in a scheme of demerger approved by the Hon'ble High Court of Madras vide its order dated 28.01.2014, the EPC business of Sunedision Energy India Private Limited has been demerged into resulting company Sunedison Solar Power India Private Limited with effect from 01.04.2012. As per the approved scheme of demerger, the method and manner of accounting terms of assets and liabilities taken over by the Resulting company and consideration to be payable to Demerged company has been specified. As per para 22.1 of scheme document, details that the consideration to be paid by resulting company to be paid to the shareholders of Demerged company upon coming into effect of this scheme and in consideration for the transfer and vesting of the Demerged Undertaking in the Resulting company, the Resulting company shall issue and allot shares of Rs..10/- each at a premium, based ....
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.... Supreme Court, after considering relevant facts and also provisions of Explanation (3) to section 32(1) of the Act, held that the expression "asset" shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. 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) to section 32(1) of the Act. Consequently, goodwill is an asset as per Explanation 3(b) to section 32(1) of the Act and eligible for depreciation. The Hon'ble Karnataka High Court in the case of CIT v. Manipal Universal Learning (P.) Ltd. [2013] 359 ITR 369 (Kar), wherein, the Hon'ble High Court followed the decision of the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Limited (supra) and held that depreciation is allowable on amount paid for goodwill being future profits. 13. In the light of factual and legal b....
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....t the Addl. CIT went on the wrong premise that goodwill recorded in the books of the assessee company is self-generated. In pursuance to the scheme of demerger, goodwill recorded in books of accounts of resulting company was acquired, but not self-generated as per the order of the Hon'ble High Court of Madras in a scheme document. Therefore, we are of the considered opinion that once the assessee proves that goodwill accounted in the books of accounts in a scheme of demerger is only of purchased goodwill by paying consideration then the same fall within the ambit of purchased goodwill and entitled for depreciation under section 32(1) of the Act. 16. At this stage, it is necessary to consider various case law relied upon by the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee has relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Limited (supra) and the Hon'ble Supreme Court, in light of scheme of amalgamation and goodwill, has held as under: "6. 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 pa....
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....ted" Concluded that "it is well established that 'goodwill' is an intangible asset, which is required to be accounted for when a purchaser acquires a business as a going concern by paying more than the fair market value of the net tangible assets, that is, assets less liabilities. The difference in the purchase consideration and the net value of assets and liabilities is attributable to the commercial benefit that is acquired by the purchaser. Such goodwill is also commonly understood as the value of the whole undertaking less the sum total of its parts" 19. In the case of CIT v. Manipal Universal Learning (P.) Ltd. [2013] 34 taxmann.com 9 (Karnataka), the Hon'ble Karnataka High Court has observed that: ".........Assessing Officer held that excess consideration paid over value of net assets was in nature of goodwill paid for future profits and, therefore, allowed depreciation only on value mentioned in agreement-Supreme Court in CIT v. SMIFS Securities Ltd. [2012] 24 taxmann.com 222 has held that goodwill is an asset under Explanation 3(b) to section 32(1) and, therefore, depreciation is allowable even on goodwill - Whether following same, depreciation ....