TaxTMI 
TaxTMI 
2025 (6) TMI 2060
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....e Income-tax Act, 1961. 2. Both the assessee and the Revenue, being dissatisfied with the decision of the learned CIT(A) to the extent it was adverse to them, preferred cross-appeals before us raising following grounds: 3. Grounds raised in Assessee's for Asst. Year 2012-13, 2013-14 and 2014-15 are as follows: Asst. Year 2012-13 1) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in the points of law and facts. 2) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of delayed payment of Rs. 2,10,729/- to ESIC and Rs. 2,51,103/- to Provident Fund as per provisions of section 2(24)(x) r.w.s. 36(l)(va) of the I.T. Act. 3) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of depreciation on goodwill for Rs. 23,03,33,7827- 4) In law and in facts and circumstances of the Appellant's case, the learned CIT (A) has grossly erred in holding that charging of interest u/ss. 234B & 234C of the Act is mandatory. 5) In law....
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....aising the following grounds: Asst. Year 2013-14 1. Disallowance of claim of Sales Tax subsidy as capital receipts of Rs. 81.51.84,216/-. 2. Disallowance of excess claim of depreciation on intangible assets for Rs. 7,31,74,359/-. 3. Disallowance of product registration expenses of Rs. 35,35,877/-. 4. Addition on account of benchmarking of loan u/s 92CA Rs. 38,752/-. 5. Disallowance u/s 801A Rs. 214,95,00,000/-. 6. Additional Ground on account of corporate guarantee commission of Rs. 166,56,019/given to Bank for financial assistance to wholly owned subsidiary. 7. On the facts and circumstances of the case, the Ld. Commissioner of Income-tax (A) ought to have upheld the order of the Assessing Officer in respect of above issues. 8. It is, therefore, prayed that the order of the Ld. Commissioner of Income-tax (A) may be set-aside and that of the Assessing Officer be restored. Asst. Year 2014-15 1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs .79,42,31,787/- made by A.O. on account of claim of Sales Tax subsidy as capital receipts. 2. The Ld. CIT....
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....f depreciation on goodwill (AYs 2012-13 to 2014-15) 6. The brief facts of the case are that the Saurashtra Chemicals Limited was amalgamated with the assessee company with effect from 01.04.2011 and the scheme was approved by Board for Industrial and Financial Reconstruction (BIFR) vide order dated 22.01.2013. The assessee-company had acquired all the assets and liabilities of Saurashtra Chemicals Limited at the book value in pursuant to the scheme of amalgamation, where net assets has resulted in to goodwill of Rs. 92.14 crores. The assessee company accordingly claimed depreciation at 25% on goodwill, which comes to Rs. 23,03,33,782/- for the AY 2012-13. The Assessing Officer disallowed the claim for depreciation on goodwill by a detailed discussion at paragraph no. 10 of his order as under :- "10.1 As per clause D of note no. 38 of notes forming part of the financial statements of NL it has been stated that the company has acquired assets of Rs. 755.70 crores and liability of Rs. 823.13 crores of SCL. The company to issue and allot 247080232 preference shares to the equity shareholders of SCL in ratio of 1 (one) 6% Redeemable hon cumulative, non-convertible Shares of ....
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....stoms Cavasajee Cooper v. Union of India [1970] 1 SCO 248 stated that the goodwill of a business is an intangible asset; it is the whole advantage of the reputation and connections formed with the customers together with the circumstances making the connection durable. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years or in excess of normal amounts because of its reputation, location and other features. The Supreme Court in the case of CIT v. B.C. Srinivasa Shetty [1981] 128 ITR. 294/5 Taxman 1, observed that "because of its intangible nature it (goodwill) remains insubstantial in form and nebulous in character. Its value may fluctuate from one moment to another depending on the changes in the reputation of business." In the present case as SCL was held to be a sick company by BIFR, it is difficult to assume that SCL was having Goodwill or reputation as such. Prima facie, in the present case Goodwill has been assigned an arbitrarily high value in order to evade the taxes legitimately payable by the assessee company. iii. Goodwill is connected to name and fa....
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.... merger results in amalgamated company stepping into the shoes of the amalgamating company for the purpose of depreciation. Thus depreciation will not be available in case the goodwill is self generated in the hands of the amalgamating company, as the amalgamated company is an entity stepping into the shoes of the transferor. viii. The so-called goodwill has arisen on amalgamation only as an accounting entry, to balance the debit and credit sides of the balance sheet. However, through this exercise, no actual asset has come into existence. Further, no consideration has actually been paid by the assessee company to acquire an asset in the nature of 'goodwill'. Depreciation is governed by the provisions of section 32. Depreciation on any asset or block of assets is to be allowed as a percentage of the 'actual cost' thereof. As per Explanation 7 to section 43 of the Income-tax Act, where in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company, the actual cost to the amalgamated company shall be taken to be the same as it would have been if the transferor company had continued to hold the capital asset for the purpos....
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.... Assessing Officer. He held that there was no increase in the market worth of the assessee as a result of the amalgamation scheme with SCL. This conclusion was reached through a detailed discussion made by the Ld. CIT(A) in his order vide paragraph No. 10.2 which is reproduced as follows :- "10.2 I have carefully considered rival contentions, case law relied upon and observations made by the A.O. in the assessment order. The A.O. has observed that the appellant has acquired assets of Rs. 755.70 crores and liability of Rs. 823.13 crores of Saurashtra Chemicals Ltd. (SCL). According to the appellant as per the Scheme of Amalgamation the appellant was required to allot 247083232 preference shares of the appellant to the equity shareholders of SCL, as per the scheme of amalgamation. According to appellant this has resulted into a goodwill of Rs. 92.14 crores. During the assessment proceedings the appellant has claimed the depreciation at the rate of 25% on this goodwill amounting to Rs. 23,03,33,782/- which has been disallowed by the A.O. According to the A.O the appellant has not claimed the said depreciation on goodwill in the return of income. The A.O. has further mentioned....
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..... 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', for short]. We quote herein below Explanation 3 to Section 32(1) of the Act: "Explanation 3. - For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean - [a] tangible assets, being buildings, machinery, plant or furniture; [b] Intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. " Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading 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 right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b....
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....assessee for a consideration and the difference between the cost of an asset and the amount paid constituted goodwill and the assessee company in the process of amalgamation has acquired a capital right in the form of goodwill because of which the "market worth" of the assessee company stood increased. Hon'ble Supreme Court has also mentioned that the ITAT has upheld this fact and hence there is no reason to interfere with the factual finding. Further the Supreme Court has also mentioned that the only question raised before it was whether goodwill is an asset u/s. 32 of the Act or not ? and the revenue had not filed an appeal before the High Court on the finding of fact mentioned earlier. The A.O has also mentioned in the order of assessment that the findings given by the Hon'ble Supreme Court that the only question of law that was raised before it was whether goodwill is a depreciable asset or not? There is no doubt that the judgment of the Apex Court is the law of land. There is also no doubt that 'Goodwill' is an intangible asset eligible for claim of depreciation u/s. 32 of the Act. The A.O. has relied upon the judgment of Rustoms Cavasajee Cooper v Union of India (197....
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....llate proceedings nowhere the appellant has brought out that how it has acquired a capital right in the form of goodwill by acquiring SCL that has lead to increase in the market worth of the appellant. The payment appears to have been made for acquiring the running business and not for any intangible assets in the form of goodwill that would lead to increase in the market worth of the appellant. The appellant has also relied upon the judgment of CIT vs Aditya Birla Nuvo Ltd. 79 Taxman 290 and in the case of DOT vs Zydus Wellness Centre 76 Taxman 328, Ahmedabad. In the case of Aditya Birla Nuvo Ltd. Hon'ble High Court of Mumbai has followed Hon'ble Supreme Court in the case of Smifs Securities Ltd. In the present case under consideration it is an accepted proposition that goodwill is an intangible asset on which the assessee can claim depreciation. In the case of Zydus Wellness Centre Ltd.(supra) the Hon'ble Tribunal allowed the claim of depreciation on goodwill arising on amalgamation claimed by the assessee during the course of assessment proceedings by filing revised computation of income and without filing revised return of income. In both the cases the authority have relied upo....
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....ation of income and without filing revised return of income. In both the cases the authorities have relied upon the judgment of Hon'ble Supreme Court in the case of Smifs Securities Ltd. In the case of Smifs Securities Ltd. (supra), paras 4 to 7 read as under: "4. Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading 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 right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 6.4 We find that Section 32(1)(ii) 'Goodwill of a Business or Profession' has been specifically excluded from the definition of assets on which depreciation shall be calculated. Explanation 3(b) of Section 32(1): 'Goodwill of a Business or Profession' has been specifically excluded from the definition of intangible asse....
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.... runs, goodwill may see appreciation and in the alternative no depreciation to its value. Hence, for the said reasons assessees have been barred from claiming depreciation on goodwill. 6.6 Since the above amendments are applicable prospectively from the AY 2021-22, the appeal of the assessee on this issue for the AY 2012-13 is hereby allowed based on the judgment of the jurisdictional High Court in the case of Aculife Healthcare Pvt Ltd (supra) and judgment of Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra). In the result, the appeals of the assessee on this ground are allowed. III. Sales Tax Subsidy - 115JB (AYs 2012-13 to 2014-15) 7. We note that this issue stands squarely covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for Assessment Years 2006-07 to 2011-12. For facility of reference, the relevant portion of the Tribunal's order for AY 2006-07, which has been consistently followed for AYs 2007-08 to 2011-12, is reproduced below: "37. Coming to the additional ground of appeal raised vide letter dated 26-03- 2019 and 02-03-2020, it was pleaded by the assessee in the application filed for the admi....
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....l is only required to consider the question of law arising from the facts which were on record during the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. Since, the claim of the assessee is purely legal claim and entire facts are available on record, thus, it is not justified in not admitting the purely legal ground raised by the assessee for the first time. Accordingly, we admit the additional grounds raised by the assessee. 40. As far as the issue of exclusion of sales tax benefit of Rs. 92,63,70,395/- from the computation of minimum alternate tax under the provisions of section 115JB is concerned, we note that the AO while assessing the income under normal provisions of the Act treated the benefit of sale tax exemption as revenue receipt and added to the total income of the assessee. On appeal by the assessee, the learned CIT(A) held the same as capital receipt not liable to be taxed under the Act. On second appeal by the Revenue before us in ITA No. 685/AHD/2014, we have confirmed the order of the learned CIT(A)....
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....ind no reason to deviate from the earlier view. Accordingly, the appeals of the assessee on this ground are allowed. 7.2 In the result, the appeals of the assessee for AYs 2012-13 & 2013-14 are partly allowed and the appeal of the assessee for AY 2014-15 is allowed. ITA No. 2224/Ahd/2017 - Department's Appeal, AY 2013-14 ITA No. 791/Ahd/2018 - Department's Appeal, AY 2014-15 A. Disallowance of claim of sales-tax subsidy:- 8. We find that that this issue stands squarely covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for Assessment Years 2006-07 to 2011-12. For sake of reference, the relevant portion of the Tribunal's order for AY 2006-07, which has been consistently followed for AYs 2007-08 to 2011-12, is reproduced below: "59. The assessee during the year received sales tax subsidy aggregating to Rs. 99,19,95,360/- for two units namely Alindrra Unit Broada and Kalatalav Unit Bhavnagar under the backward area development scheme. The impugned subsidy was treated as capital receipt by the assessee. However, the AO found that the impugned subsidy was received in the form of exemption on sales tax on sale and purch....
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....materials available on record. At the outset, we note that the issue on hand was also in dispute in earlier year i.e. AY 2004-05 which traveled up-to the Hon'ble Gujarat High in tax appeal No. 226 of 2010 where following question was framed: 2. The question of law framed at the time of admitting Tax Appeal No. 226 of 2010 reads as under:-- "Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by CIT (A) and thereby holding that amount of Sales-tax incentive received by the assessee is a capital receipt?" 62.1 The Hon'ble bench answered the above question in favour of the assessee by holding as under: 12. We have heard both the learned counsel and perused the record. We have also gone through the decisions cited before us. After considering the material on record, we are of the view that the issues involved in these appeals are squarely covered by the decisions of this Court in Birla VXL Ltd. (supra) and in Munjal Auto Industries Ltd. (supra). Therefore, the questions of law posed for our consideration in these appeals are answered in favour of the assessee and against the department. Accordingly, all t....
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.... of Nirma would be taken at Rs. 500 crores or its value is to be taken at Rs. 53.43 cores considered by the AO has been disputed in the case of Nirma Industries in the Asstt. Year 2003-04. The ld.AO has made disallowance of Rs. 61.8 crores out of depreciation claimed which was deleted by the ld. CIT(A). This issue has been considered by us in ITA No. 1738/Ahd/2014 at para 8 of this order. We have followed order of the ITAT in the Asstt. Year 2001-02 wherein value of intangible assets was upheld at Rs. 500 crores. Thus, following order in the case of Nirma Industries, para-8 of order onwards, we are of the view that the ld. CIT(A) has rightly taken the value of intangible assets at Rs. 500 crores and has rightly allowed depreciation to the assessee. There is no merit in this ground of appeal. It is rejected. 112.1 Thus, in view of the above we uphold the order of the ld. CIT-A and direct the AO to allow the depreciation to the assessee on closing WDV as decided in A.Y. 2003-04. Hence, the ground of appeal of the Revenue is hereby dismissed." 9.1 Respectfully following the above-referred decision of the Tribunal, rendered in the assessee's own case and consistently applie....
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....count of benchmarking of loan to foreign subsidiary. The observation of the Ld. CIT(A) in this regard is as follows:- "10.2 I have carefully considered the rival contentions, case laws relied upon and observations made by the A.O. in the assessment order. Appellant submitted that loan granted to its Associated Enterprise (subsidiary company) should be computed at LIBOR plus 200 to 250 points. Appellant submitted that considering the fact that the LIBOR rate during FY 10-11 was 0.90% and by applying the higher rate of 293 basis points the total interest percentage comes to 3.83%. Appellant submitted that it charged interest of 5% and there was no justification for the TPO to take the interest rate at 6.18% by considering the basis points at 293 instead of the settled rate as accepted by various Tribunals as relied upon by the appellant in the written submission. The then CIT(A)-9. Ahmedabad also decided similar issue in favour of the appellant in the appeal order passed for A.Y. 2010-11 by holding as under: "12.2 I have carefully considered appellant's submission and case laws relied upon by the appellant. Appellant submitted that Ld. Transfer Pricing Officer p....
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....adjustment but the learned CIT(A) was pleased to delete such upward adjustment. The basis adopted by the learned CIT(A) was that there were series of orders of different Tribunal where ALP of interest extended to AE were taken at LIBOR + 200 or 250 basis points as against the ALP taken by the TPO or present assessee at LIBOR + 409.72 basis points. Considering the finding of learned CIT(A) and the series of order of different bench Tribunal as referred by the assessee during the appellate proceeding if we take the ALP in the case of the present assessee at LIBOR + 250 basis points then interest would be at 3.8% whereas assessee has charged interest @ 5% from its AE which is more than the ALP. Therefore, in our considered view no further adjustment is required to be made on account of benchmarking of interest on loan & advances to the AE. Hence, we uphold the order of the learned CIT(A) regarding issue of benchmarking of interest on loan." 11.2 Respectfully following the above decision of the Tribunal in assessee's own case for AYs 2010-11 to 2011-12, and in the absence of any material change in facts or legal position, we find no reason to take any other view of the matter. Ac....
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....essee becomes entitled for the deduction provided under section 80-IA of the Act. It was further contended by the learned AR that the assessee has been allowed the deduction under section 80 IA of the Act in the earlier assessment year. Therefore, according to the learned AR, the assessee cannot be denied for the deduction under section 80 IA of the Act for the year under consideration. 33. On the other hand, the learned DR before us vehemently supported the order of the authorities below. 34. We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we note that the revenue has admitted the claim of the assessee for the deduction under section 80- IA of the Act in the earlier years with respect to its power undertaking located at Bhavnagar. The learned CIT(A) in the assessment year 2004-05 has allowed the deduction to the assessee under section 80IA of the Act and the same was not challenged by the revenue. Likewise, the ITAT in the own case of the assessee for the assessment 2003-04 in ITA No. 1599/AHD/2013 vide order dated 19 April 2018 has dismissed the appeal of the revenue. Thus, we ....
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....enefit of deduction envisaged under the provisions of section 80IA of the Act. Accordingly, we set aside the finding of the learned CIT(A) and direct the AO allow the deduction to the assessee under section 80IA of the Act as per the provisions of law. Hence, the ground of appeal of the assessee is hereby allowed." 12.1 Respectfully following the above decision of the Tribunal in assessee's own case for AYs 2006-07 to 2011-12, and in the absence of any material change in facts or legal position, we find no reason to deviate from the earlier view. Accordingly, the Revenue's appeal on this ground is dismissed. F. Corporate guarantee commission :- 13. We note that this issue has also been decided by the Tribunal in its orders for Assessment Years 2009-10 to 2011-12 in the assessee's own case. For the sake of reference, the relevant extract from the Tribunal's order is reproduced below: "202. The last issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition on account of guaranteed fee for Rs. 12,48,19,000/- only. 203. The AO/TPO in the assessment proceedings found that that the assessee has provided foreign Bank Guarantee for ....
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....ssociated enterprises and neither was any amount of guarantee commission charged by the appellant. As the transaction did not have any impact on the income, profits, losses or assets of the appellant the same could, not be classified as an international transaction as per the provisions of chapter X of the income tax act. In view of decision of Hon'ble Delhi Tribunal, in the case of Bharti Airtel Ltd Vs. CIT (43 taxrriann.com 150), "It is held that, the bank guarantee to the foreign bank for providing finance to associated enterprise at U.S.A. which is wholly owned subsidiary of the appellant company, is not covered within the purview of making any adjustment since it is not international transaction. Following the said decision, I delete the addition made for Rs. 12,48,19,000/-. This ground of appeal raised by the appellant is allowed. 205. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 206. The learned DR before us vehemently supported the findings of the assessment order. 207. On the other hand, the learned AR contended that the assessee has not taken any fees against the bank guarantee furnished to the AE an....
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.... provision of guarantee always involves risk and there is a service provided to the Associate enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on profit & loss account, but inherent risk cannot be ruled out in providing guarantees. U1 and adjustment are to be made on guarantee commissions on such guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise. In the light of the above decisions, the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and the order passed by the DRP is to be restored. [Para 76] 208.2 Thus, in view of the above, we hold that the bank/corporate guarantee is an international transaction. Therefore, the same has to be bench marked for determining the ALP. Thus, the issue involved on hand is no longer covered as alleged by the learned AR for the assessee in view of the judgment of Hon'ble Madras High Court as discussed above. 208.3 The next aspects arise to determine the benchmarking for working ou....