AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (9) TMI 1600
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..... 338,302/- in respect of transactions appearing in the IRS statement alleged as unreconciled by treating the same as income of the appellant 2) on the facts and in the circumstances of the case and in law, the learned CIT - A 14 ignoring that the reconciliation of transactions reported in the AI are statement could not be accomplished by the appellant in absence of details and information from the third parties DEPRECIATION ON GOODWILL ARISING ON AMALGAMATION OF ERSTWHILE WYETH LTD WYETH Rs. 271, 63, 00,000 3) on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in disallowing the claim of depreciation on goodwill arising on amalgamation of Wyeth amounting to Rs. 2,716,300,000 4) on the facts and in the circumstances of the case and in law, the learned CIT (A) order in not following the decision of the honourable Supreme Court in the case of CIT V Smif securities Ltd (2012) 348 ITR 302 5) without prejudice to the above grounds of appeal and in the alternative, the learned CIT (A) order in disallowing the aforesaid claim of depreciation by invoking the erstwhile fifth of proviso to section 32 (1) of the act (now sixth proviso to section ....
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....filed by assessee raising following grounds of appeal:- "Disallowance of payments made to Drs in alleged violation of Indian medical Council (professional conduct, adequate and ethics) regulations, 2002 (IMC regulations) - Rs. 11,60,34,713/- if it is held that IMC regulations and the CBDT circular number 5 of 2012 are applicable to the assessee, as prayed by the Department in ground number 1 of the appeal bearing ITA number 2108/M/2018, then:- 1. on the facts and in the circumstances of the case and in law, the expenditure on brand reminders on purchase of medical books and journals to not fall within the scope of the IMC regulations and ought to be allowed as a business expenditure The respondent here by reserves the right to add to, alter or amplify the above grounds of cross objections" 05. Brief facts of the case shows that assessee is a company engaged in the business of manufacturing, sale of pharmaceutical including over-the-counter [OTC] pharmaceuticals, cosmetics and allied consumer products and trading of pharmaceuticals. It filed its return of income [ ROI] on 30/11/2014 declaring total income of Rs. 3,422,546,530/-. Assessee revised it on 30/11/2015 declaring ....
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....h the assessee. Therefore, the income of Wyeth limited and Pfizer Ltd as described in the original return of income is added to the total income of the assessee. Learned AO noted that originally the assessee filed the return income of Rs. 3,422,546,533, which was revised to Rs. 1,939,382,340 whereas the Wyeth Limited has filed its original return of income at Rs. 141,04,95,520 and the revised return filed on 30/3/2016 are Rs. Nil. The AO noted that the combined income of both these entities is Rs. 4,833,042,050/- as per the original return of income of both the entities whereas when the return was revised of both the entities total income are now returned at Rs. 1,939,382,340/- only. The learned assessing officer questioned the decline in amount of income in the return of income of assessee. The assessee submitted that the payment of Rs. 1186,52,00,000/- was made to the erstwhile shareholders of Wyeth Ltd on account of goodwill and depreciation at the prevailing rate as per income tax account is amounting to Rs. 2,716,300,000 were claimed in the return of income on that goodwill. The ld. AO further noted that there is a difference of Rs. 177,359,710 for which no details were produc....
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....ils were submitted, the learned AO informed the assessee that Assessment order has already been passed. The learned CIT - A on perusal of the letter dated 31 December 2016 categorically noted that the learned AO has written by hand that the letter was submitted by the assessee after passing of /dispatch of the assessment order. The learned CIT - A asked the assessing officer by letter dated 13/11/2017 to give his comments. The learned AO submitted remand report on 6/12/2017 that though there are no sufficient materials available on record for the quantification of goodwill, the assessee is not eligible to claim depreciation over and above the depreciation allowable to the Wyeth Ltd before the merger as claim is in violation of proviso 5 to section 32 (1) of The Income Tax Act. The AO further submitted that the decision of the coordinate bench in ITA number 722/BANG/2014 [ United Breweries Limited] for assessment year 2007 - 08 held that an amalgamated company cannot claim depreciation on the assets acquired in the scheme of amalgamation including goodwill, more than that which is permitted to the amalgamating company. With respect to the decision of the honourable Supreme Court in ....
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....ation expenditure amounting to Rs. 25,739890/-. The learned CIT - A asked for the remand report of the learned assessing officer wherein it was stated that assessee has not been able to completely justify the entire expenditure of Rs. 286,99,915/- in addition, many invoices and bills referred to the "project Echo" /"Project Echo 1". It is unclear that whether this project has any relation to the amalgamation expenses. The ld. CIT - A held that if the expenditure is related to the amalgamation than 1/5 of deduction under section 35DD may be granted. The response of the assessee was also obtained and after that the learned CIT - A as per paragraph number 9.3 of the order has dealt with this issue. He held that that assessee has stated by letter dated 19/1/2018 that the certificate has been issued by the Ernst & young LLP that the invoice of Rs. 159,396,000 issued by that company pertaining to that project is in relation to the tax advisory services provided in connection with the merger. The engagement letter and invoices were also submitted. However, he held that that assessing officer in his remand report stated that the assessee has not been able to give copies of the invoices and....
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....losed in the financial statements of the assessee. ii. Similar dividends declared by the amalgamating company are also disclosed in schedule of Dividend Distribution Tax and in the financial statement. iii. Shareholders are non-resident entities are properly disclosed in Notes to the share capital wherein the details of shareholders are mentioned and further in related party transaction disclosures are made. iv. In case of Pfizer Ltd Pfizer investments, Netherlands BV is holding 29.52% and in case of Wyeth Ltd John Wyeth brothers, Ltd of United Kingdom holds 5.55% of the equity. v. details of dividend paid to the aforesaid shareholders along with the corresponding dividend distribution tax liability is disclosed in the return of income vi. Details are available on record that assessee has non-resident equity shareholders and dividend is paid to them as well as dividend distribution tax is also paid on dividend distributed to those nonresident shareholders along with resident shareholders. vii. This is purely a legal issue and therefore it deserves to be admitted. viii. Identically in case of several assesses the coordinate benches have admitted identical grounds. ix....
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....atements along with the provision for Dividend Distribution Tax. In the return of income filed by the assessee the details of dividend distribution tax, the applicable rate under section 115O of the act, the date of declaration of the dividend, date of payment of dividend distributed and tax thereon are disclosed. In the share capital schedule in financial statements, it is evident that there are non-resident shareholders. However, whether those shareholders are eligible to claim the benefit of double taxation avoidance agreement between the country of their residence and country of the residence of the assessee is not clear, however, for the purpose of adjudication of the ground, enough details are available on record. Assessee has submitted several judicial precedents wherein identical additional ground is admitted. We have also carefully perused the decisions of various coordinate benches in favour of the assessee where these grounds were admitted and solitary decision of coordinate bench where the ground was not admitted. We find that there is no provision of appeal against the determination of tax under section 115O of the act. Admittedly, assessee himself has computed the tax....
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....n or Agreement on the said items of income shall also apply under this Convention. iv. India has entered into a Double Taxation Avoidance Agreement with Hungary wherein in article 2 (3) provides that "dividend tax" has been included in taxes covered. v. Further, as per article 10 dividends can be taxed in source country; such dividend tax cannot exceed 10% of the gross amount of dividends. vi. Protocol further provides that when the company paying the dividends is a resident of India, the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend. vii. The dividend distribution tax paid by the assessee on distribution of dividend to non-resident shareholders of Pfizer Ltd has also attracted the tax as provided under section 115O of the act , which is more than 10 %. viii. Therefore, if dividend distribution tax is considered as a tax on the income of the shareholders, then such tax cannot exceed 10%. The balance tax is required to be refunded to the assessee. ix. However, special bench of ITAT in case of TOTAL OIL LTD has held that such tax is tax on the undistributed profit....
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....e stand of the revenue has been clarified in all the arguments made before the honourable Supreme Court that most favoured nation clause can only be invoked as and when notified by the government. v. Even otherwise, if for any reason it is held that the tax under section 115 O should have been 10% as per the Double Taxation Avoidance Agreement coupled with most-favoured-nation clause of Netherlands Treaty importing Hungary Double Taxation Avoidance Agreement in case of Netherlands resident shareholder, then, the situation may arise that if an Indian resident, earning dividend income from Pfizer, has income below the taxable limits, no tax should have been deducted by Pfizer. However, such a resident shareholder is paying tax at the rate prescribed under section 115O of the act whereas a non-resident shareholder is paying taxes at the lower rate. He submitted that in so far as interplay of section 115-O of the Act, with the provisions of international tax laws and DTAA, for the purpose of section 10(34) of the Act, there is no distinction between resident and non-resident shareholder. Section 10(34) of the Act does not distinguish based on the residential status of the person in r....
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....uld be any addition to those reasons. It was stated that special bench has stopped by saying that it is not an income in the hence of shareholder whereas, the coordinate bench where the reference was made to the special bench, has clearly held that benefit of double taxation avoidance agreement cannot be invoked so far as the issue of dividend distribution tax is concerned. He specifically referred to paragraph number 10 of that decision wherein several reasons are given which negative the claim of the assessee. That observation of the bench binds this bench. Therefore, on this ground also the benefit cannot be granted to the assessee. 020. We have carefully considered the rival contention and find that the coordinate bench in case of Deputy Commissioner of Income Tax Vs The TOTAL OIL India LTD ITA NO. 6997/MUM/2019 (A.Y. 2016-17) dated 20/04/2023 (SB) ( MUMBAI) has categorically held that dividend distribution tax is a tax on the under distributed profits of the company and it is not a tax on the income of the shareholder. The payment of dividend distribution tax under section 115 O does not discharge the tax liability of the shareholders. It is a liability of the company and dis....
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....3. In view of the above discussion, respectfully following the decision of the special bench and various observations made with respect to the applicability of double taxation avoidance agreement, we dismiss the additional ground raised by the assessee. 024. Coming to the appeal of the learned assessing officer wherein the solitary issue is with respect to payment made for customer gifts etc. to Drs, the learned departmental representative submitted that that assessee has debited a sum of Rs. 482,612,000 as advertisement expenses in the profit and loss account. On examination of the details are sum of Rs. 87,953,773/- in respect of Brand reminder is and Rs. 28,080,940 on purchase of medical books and journals provided to healthcare professional has been disallowed by the learned AO which is been deleted by the learned CIT - A. The learned CIT DR stated that despite the IMC regulation 2002, circular number 05/2012 dated 1/8/2012 issued by The Central Board Of Direct Taxes, the honourable Supreme Court in case of Apex laboratories private limited dated 22/2/2022 has categorically held that if any expenses prohibited by the law, the same cannot be allowed as deduction under section 3....
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....6. We have carefully considered the rival contention and perused the orders of the lower authorities. We do not find any reason to uphold the order of the learned and CIT - A which is now been decided by the honourable Supreme Court holding that any free gifts in any manner is prohibited by the provisions of Indian medical Council's rules and therefore same is not allowable under section 37 (1) of the act Brand reminder is in the purchase of medical books and journals for the medical professionals are specifically covered under the gift prohibited by the rules of Indian medical Council. Nobody can deny that it is not a free be given by assessee to those doctors. We also find that the decision of the honourable Supreme Court is a lot of land and decision is not at all narrow in its scope. Therefore, for this reason it needs to be applied to the facts of each case irrespective of its consequences. With respect to the claim of the assessee that purchase of medical books and journals are provided for dissemination of knowledge and education. There is no doubt about that that the profession of medical is always evolving. Therefore, the need of medical books and journals is imperative. S....
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....assessee by the learned first appellate authority is not sustainable in law. For the 11's of bad debts the AO was directed to furnish remand report, it was furnished on 8/1/2018 as stated in paragraph number 8.1 of the learned CIT appeal's order. Therefore, it is incorrect to say that no opportunity was available to the assessing officer for verification of the claim. In any case, when there is no grievance that the claim allowed to the assessee by the first appellate authority is easy in accordance with the law, we failed to understand what purpose it would achieve if the learned assessing officer is given and unfortunately once again. In view of this, we dismiss ground number 4 of the appeal. 028. In the result ITA number 2108/M/2018 filed by the learned AO is partly allowed. 029. Coming to the cross objection filed by the assessee in CO number 110, we find that in view of our decision in ground number 1 - 3 of the appeal of the learned AO, the cross objection of the assessee deserves to be dismissed as it also argues the same thing which has been decided in those grounds. 030. Accordingly CO number 110/M/2019 filed by the assessee is dismissed. 031. Now we come to the appeal....
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.... the assessee has made communication with them but they failed to reply to the request of the assessee. Therefore, the confirmation of addition by the learned CIT - A is not proper. It deserves to be deleted. 034. The learned departmental representative vehemently supported the orders of the lower authorities and submitted that where the ITS data is populated though by the others but it pertains to the permanent account number of the assessee and therefore it is for assessee to show that there is no transaction with those parties. As assessee has failed to obtain any confirmation from those parties, the learned lower authorities have made the addition, which is justified. 035. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that there is a difference between the AIR data of the assessee and the income shown by the assessee in its books of accounts. It is not denied that AIR data is populated by others if they have transaction with the assessee. The AR data is populated based on permanent account number. Therefore, there are chances that certain times when AR data is populated by others, the permanent account number of the....
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....tio report By S R Batliboi & CO LLP and Deloitte Haskins and Sells as per the report dated 23 November 2013. The accounting treatment was passed by the assessee in terms of clause 7 of the scheme wherein in clause 7.3 it was stated that any excess of the fair value of the shares issued by the assessee is a consideration over the value of the net assets of Wyeth Ltd acquired by the assessee shall be adjusted in the assessee company's financial statement as goodwill arising on amalgamation. The valuation report dated 27/12/2014 was obtained of movable properties wherein estimated fair work at value of over factory, HORO and CHC was determined at Rs. 263,463,300/-. A further report of Cushman and Wakefield dated 6 May 2014 for valuation of an industrial unit located in Verna industrial estate was also prepared where the market value of the property was considered at Rs. 323 million. Further fair valuation of identified intangibles of Wyeth Limited vested in Pfizer Ltd pursuant to the amalgamation of Wyeth Limited with Pfizer Ltd was prepared by Deloitte as per letter dated 9 March 2015 stated that the fair value of identified intangibles as arrived at INR 427 2 million and value attri....
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.... assessee by payment of purchase consideration, which is higher than the fair market value of assets acquired. He further referred to the object of amalgamation and stated that such difference is in the nature of goodwill on which assessee is entitled for the appreciation. He submitted that the learned lower authorities have denied the depreciation on this goodwill by invoking the sixth proviso to section 32 (1) of the act. For this proposition the revenue authorities of relied upon the decision of Bangalore bench in case of United breweries Ltd. He submitted that identical issue arose before the honourable Karnataka High Court in ITA number 154 of 2014 in case of Padmini products private limited wherein by order dated 14/11/2014, while deciding the substantial question of law ( iii), the honourable High Court after considering the facts of the case, which is funny material the same with the facts of the case of the assessee, held that sixth proviso to section 32 of the act restricts aggregate deduction both by the predecessor and successor and if in a particular year there is no aggregate deduction, the sixth proviso does not apply. Therefore, until and unless it is the case of ag....
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....malgamated company and S co is amalgamating company. The investment of P Co in S co was appearing as asset before amalgamation; let us say at Rs 100. At the time of merger, the valuation of S Co is done and it comes to Rs 1000. P Co would not show the acquired assets at Rs 100 and the balance 900 would appear on the asset side as "Goodwill" and on liability side as "Capital Reserve". Thus, without any physical exchange of money, only by book entry goodwill has been created in the books. 1.3 Taxpayers claim that they are eligible for depreciation under section 32(1)(1) of the Act is not acceptable. The relevant portion of the section 32 of the Act reads as under: 32. Depreciation (1) In respect of depreciation of (i) Buildings, machinery, plant or furniture, being tangible assets; (ii) Know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1 day of April 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed....." 1.4 The claim is that Goodwill qualifies for depre....
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....hed or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced- (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value; (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets ....
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....any, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the 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. 1.9 Thus the Act clearly lays down that the actual cost of the block of asset (intangible block in this case) in the hand of the amalgamated company (P Co) would be written down value in the immediate preceding year in the case of amalgamating company (S Co). Since, the written down value of the intangible block of asset was zero in the books of the amalgamating company (S Co), the actual cost would remain zero in the hand of amalgamated company (P Co). 1.10 Hence, the above provisions of law make it clear that the cost of goodwill in the hand of amalgamated company (P co) shall be zero for the purpose of depreciation. 1.11 Without prejudice to above argument, where it has been demonstrated that under the Act, cost of goodwill acquired during amalgamation shall be zero, I would like to bring to highlight the provisions of 6th proviso (5th proviso before Finance Act 2015) to section....
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....ee in its books post amalgamation which were taken from KBDL. The Assessing Officer asked the assessee to explain how this goodwill came to be added to the fixed assets. It was explained that goodwill arose on account of acquiring KBDL for a purchase consideration exceeding fair value of tangible assets and other net current assets from that company. KBDL became a wholly owned subsidiary of the assessee in the preceding year by virtue of acquisition of shares of the said company from shareholders for a consideration of Rs. 180.52 Crores. During the year under consideration KBDL got amalgamated with the assessee as per the order of the Hon'ble High Court. Consequently all assets and liabilities as on 1.4.2006 were taken over into account for the tax purpose by the assessee. The assessee explained before the Assessing Officer that while entering the tangible assets i.e. land, building and plant and machinery in its books the Fair Market Value (FMV) as on that date one entered. The assessee has also produced the valuation report of the valuer who has computed the FMV of the tangible assets on the basis of replacement method and after reducing the depreciation from the replacement ....
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.... and the FMV of the tangible asset and therefore the claim of depreciation cannot be denied on the ground that there is no goodwill and the assessee has failed to show the justification for excess consideration excluding the value of tangible assets. He has referred to the valuation report and submitted that valuer has adopted the replacement cost method and after allowing the depreciation for a period during which the assets were already under use, the FMV has been arrived. In support of his contention he has relied upon the judgment of Hon'ble Bombay High Court in the case of Chowgule& Co. Pvt. Ltd. Vs. Addl. CIT (2016) 95 CCH 0021 (Mum HC) as well as the decision of the Hyderabad Bench of the Tribunal in the case of A.P. Paper Mills Ltd. Vs. ACIT Dt.4.11.2009 in ITA No.218/Hyd/2006. Thus the Id.AR has submitted that when the assessee has produced the valuation report and valued of the tangible asset then without giving the correct value by the Assessing Officer the rejection of the valuation report is not justified. He has further submitted that the Assessing Officer has not determined the correct valuation if the valuation report produced by the assessee was doubted or foun....
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....t raised this objection of restricting the claim of depreciation by applying 5th proviso to Section 32(1) of the Act. Therefore the revenue cannot raise this objection when it was not raised in the other cases before the Hon'ble Supreme Court and Hon'ble High Courts. 14. We have considered the rival submissions as well as the relevant material on record. During the year under consideration the assessee inter alia amalgamated its wholly owned subsidiary KBDL. The assessee acquired the entire shareholding of the company from the shareholders for consideration of Rs. 180.52 Crores. In the books of accounts, the assessee has recorded the value of the assets on the basis of revaluation done by the valuer and thereby shown the goodwill at Rs. 62.30 Crores. The Assessing Officer has not accepted the claim of depreciation on goodwill by holding that the assessee has not acquired any intangible assets in pursuant to the amalgamation of its subsidiary with the assessee and therefore as per the Assessing Officer the goodwill was not at all in existence. It is pertinent to note that the Assessing Officer has the jurisdiction and power to examine the valuation of the assets as per Exp....
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....of the goodwill was shown in the books of the KBDL at Rs. 7.45 Crores which has been enhanced in the books of accounts of the assessee to Rs. 62.30 Crores. The assessee has forcefully contended that the valuation of the goodwill is nothing but only the differential value between the consideration and FMV of the tangible assets. Thus the Id. AR has contended that Assessing Officer cannot disturb the valuation of the goodwill when it is a differential amount between the consideration and the FMV of the tangible assets. If such claim of goodwill and depreciation is allowed then it would render the provisions of Expin. 3 to Section 43(1) of the Act redundant, otherwise in every case of transfer, succession or amalgamation the party would claim excessive depreciation by assigning arbitrary value to the goodwill. Therefore the entire assets taken over by the assessee under the amalgamation are subjected to the Expl.3 of Section 43(1) of the Act and if the Assessing Officer finds that the assessee has claimed excess claim of depreciation by enhancing the cost of goodwill then actual cost of goodwill can be determined only by considering the actual cost of the other assets so acquired unde....
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....that depreciation allowable in the case of succession, amalgamation or merger, demerger should not exceed the depreciation allowable had the succession not taken place. In other words, the allowance of depreciation to the successor / amalgamated company in the year of amalgamation would be on the written down value of the assets in the books of the amalgamating company and not on the cost as recorded in the books of amalgamated company. The case of amalgamation is not regarded as transfer for the purpose of capital gain as provided under Section 47(vi) of the Act and therefore such cases are exempted from capital gain which is otherwise chargeable to tax on transfer of assets. In the case on hand the business of the subsidiary was transferred to the assessee by way of amalgamation therefore it would not be regarded as transfer of asset for the purpose of capital gain. Hence the claim of depreciation on the assets acquired under the scheme of amalgamation is restricted only to the extent if such amalgamation has not taken place. The Assessing Officer made a reference to 5th proviso to Section 32 in para 5.7 as under: "5.7 As highlighted above, the company paid Rs. 180.52 Crores in....
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....Securities Ltd. (2012) 348 ITR 302, the said ruling of the Hon'ble Supreme Court is only on the point whether the goodwill falls in the category of intangible assets or any other business or commercial rights of similar nature as per the provisions of section 32(1) of the Act. Therefore there is no quarrel on the issue that goodwill is eligible for depreciation. However, the said judgment would not override the provisions of 5th proviso to Section 32(1) of the Act which restricts the claim in the cases specified there under. The consideration paid by the assessee for acquiring the shareholding of the subsidiary in the earlier years is not relevant for the issue of depreciation on the assets taken under amalgamation and for the purpose of 5th proviso to Section 32(1) of the Act. Accordingly, in view of the above facts and circumstances of the case as well as the above discussion, we hold that the claim of depreciation in the hands of the assessee is subjected to the 5th proviso to Section 32(1) of the Act. Accordingly, this issue is decided against the assessee." 1.13 Thus Hon'ble ITAT did consider the decision of Hon'ble SC in the case of CIT Vs. Smiff Securities Ltd ....
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....before SC. Ruling on favour of the assessee, SC held that 'goodwill' would fall under the expression 'any other business or commercial right of a similar nature' as per Sec 32(1)().SC observed that "Explanation 3 states that the expression 'asset' shall mean an intangible asset, being knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature....The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b)." SC also held that IT Department had not challenged the fact that assessee acquired capital right in the form of goodwill. 2. 2. It may be highlighted that there were two questions of law before Hon'ble SC. The first was whether stock exchange membership cards are assets eligible for depreciation. This question was answered in affirmative as the issue was already covered in the case of Techno Shares and Stock Limited (discussed subsequently). The second question was whether goodwill is an asset within the meaning of section 32 of the Income Tax Act 1961 and whether depreciation on goodwill is allowable under the said ....
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....ded because through an error committed by this court, an answer was given in favour of the revenue in ignorance of the true position". 2.6. Thus, it is respectfully submitted that the decision of Hon'ble SC is restricted to the interpretation that goodwill is a capital asset under the category of intangibles and that depreciation is allowable to it under section 32(1). There was no occasion for Hon'ble SC to adjudicate as to whether the actual cost of goodwill acquired by the amalgamated company is to be taken as zero in view of provisions of explanation 7 to section 43(1) and explanation 2 to section 43(6)(c) or that no depreciation is allowable due to provision of sixth proviso (earlier fifth proviso) to section 32(1), as these issues were not agitated before Hon'ble SC. The same observation was also made by ITAT Bangalore in the case of United Breweries cited above. 3. Conclusion: It has been clearly established above that the issue before Hon'ble SC in Smiff Securities was only that whether goodwill is an intangible asset and hence eligible for depreciation under section 32(1) of the Act. Hon'ble SC has correctly laid down the law that goodwill is an int....
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....uation report of the assessee itself shows at page number 277 of the paper book that valuation of goodwill is only INR 690 8 million. He further submitted that even INR 690 8 million stated is merely a balancing figure because the valuation that are including workforce, synergies, customer relationship, distribution network, vendor relationships, contract et cetera are not available. He submitted that only intangibles identified by the assessee are of Rs. 4272 million. He further submitted that quantification of goodwill is the issue raised by the assessing officer in the first remand report and therefore complete facts are not available before the lower authorities. He further stated that merely because assessee has recorded goodwill in its books of account, does not become a depreciable asset, unless it satisfies provisions of the income tax act and further represents the actual intangible asset. Therefore, the depreciation is correctly denied. 042. The learned authorized representative vehemently objected the submission of the learned that departmental representative stating that he does not have any authority to improve upon the case of the revenue. Therefore there is no reaso....
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....or in the books of account. Thus it is apparent that in books of account the assessee recorded trademark separately of Rs. 4272 crores and goodwill also of Rs. 6908 crore separately. In the tax audit report, form number 3CD with respect to clause 18 of the particulars of addition to the fixed assets assessee made an addition to the fixed assets under the intangible assets on 1/4/2013 of an amount of Rs. 186,52,00,000 claiming depreciation thereon at the rate of 25% giving the description of the asset as Goodwill (including the right to use the trademarks of Rs. 4,272,000,000 (refer not 6 of annex 4 of tax audit report and not 11 fixed assets of the financial statements. This was stated to be the purchase value. Admittedly before the assessing officer no explanation was given. The learned assessing Officer categorically asked the reason of substantial reduction in the combined income offered by both these companies in their original return compared to the revised return filed by the assessee. After the assessment proceedings are over, assessee submitted compliances to that letter wherein the learned assessing officer questioned decrease in the return income on amalgamation. Therefor....
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.... CIT DR has categorically stated that the claim of depreciation was not before the AO, in the remand report the AO has questioned the quantification and has relied upon the decision of United breweries Ltd. The decision of United breweries Ltd was not only with respect to proviso 5 of section 32, there was a consideration of the decision of the honourable Supreme Court, as well as the cost of acquisition of goodwill under section 43 (1) of the act. He submitted that in the present case also the provisions of explanation 2 to section 43 of the income tax act clearly applies. As we already noted that the learned assessing officer has categorically stated that subject to the quantification of depreciation on goodwill, at the threshold itself it cannot be allowed by invoking proviso 5 of section 32 of the act, we find that the learned CIT DR is not improving the case of the AO but merely saying that the provisions of the law i.e. the income tax act cannot be ignored. 046. We find that assessee has recorded in its books of account goodwill of Rs. 6908 crores. Obviously honourable Supreme Court has categorically held that it is an intangible asset on which depreciation can be allowed un....
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.... of the learned assessing officer to examine the actual cost of the goodwill, and if allowable in accordance with the law, to allow depreciation on it. The assessee is directed to show before the learned assessing officer that the claim of depreciation on goodwill satisfies the provisions of the income tax act, the learned AO may verify the same and decide the issue in accordance with the law. Needless to say, the proper opportunity of hearing is given to the assessee. In the result ground number 3 - 5 of the appeal of the assessee are allowed with above directions. 048. Ground number 6 of the appeal of the assessee is with respect to the claim of deduction under section 3 5DD of the act, assessee has incurred amalgamation expenditure of Rs. 257,39,983/- being 1/5 of the expenditure on amalgamation incurred amounting to Rs. 128,699,915/-. Though in the original proceedings the learned assessing officer did not call about the expenditure details, this is for the reason that assessee did not furnish the explanation of decrease in the combined annual return income of both the entities, same were asked in the remand report, the assessee submitted some of the invoices. On verification ....