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2025 (10) TMI 1305
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....mpugned order failed to appreciate that it is impermissible to apply deeming fiction in section 50C beyond express purpose stated therein viz for deeming value prescribed for registration purpose as consideration received by seller as a result of transfer. 3. We have heard the rival submissions and perused the materials available on record. We find that the additional ground raised by the assessee is purely legal in nature and goes to the root of the issue in dispute before us. Hence the same is hereby admitted and taken up along with the other original grounds raised by the assessee as well as by the revenue. 4. The Ground Nos. 1 to 1.1. raised by the assessee ; the additional ground raised by the assessee and the grounds raised by the revenue are inter connected. The common issue that emanates in all these grounds is with regard to the determination of the value of Goodwill and claim of depreciation on Goodwill. The Ground Nos. 2 and 2.1. raised by the assessee are challenging the denial of depreciation on Non-Compete Fee paid by the assessee. 5. We have heard the rival submissions and perused the materials available on record. The assessee company was incorporated on 29....
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....hereon. The Learned AO also observed that the schedule of fixed assets also includes Goodwill and Non Compete Fees opening value of which has been shown at Rs 144,09,13,533/- and Rs 20,00,00,000/-. The Learned AO observed that in the income tax depreciation schedule attached with Annexure to Form 3CD by the assessee, there is no block of intangible assets which include the value of goodwill or amount paid as non-compete fee. 6. The assessee submitted that it had acquired certain business of Kilitch Drug (India) Limited (KDIL) from 28-2-2012 at a net purchase consideration of Rs 281,28,95,923/-. The Book value of assets acquired was Rs 137,19,82,389/-. Hence the excess amount paid of Rs 144,09,13,534/- over and above the book value of assets was attributed towards Goodwill by the assessee. Apart from this, the assessee also entered into a Non-Compete Agreement dated 6-10-2011 whereby the promoters of KDIL agreed to certain restrictive covenants for a consideration of Rs 20,00,00,000/- to not to compete with the assessee company. It was submitted that the assessee is of the view that these payments for goodwill and non-compete fee represent price paid towards bundle of business or....
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....xisting or obtained from the transaction. Thus primarily, for claiming depreciation on goodwill, the onus is on the assessee to substantiate that the payment made as slump purchase consideration also include value paid for goodwill and also prove the benefit it expects to get from such transaction other than or in addition to the assets acquired. Thus, there must be a difference in the value of asset acquired with the purchase consideration paid. In the instant case, the valuation of goodwill itself is disputed at the first stage by the auditor who has not recognized the difference between the amount paid as net purchase consideration with the net book value. The Learned AO noted that the assessee company during the year under consideration had entered into a Business Transfer Agreement (BTA) on 6-10-2011 with Kilitch Drugs India Limited (KDIL) to acquire the business of research, development, manufacturing, marketing, importing and exporting of generic pharmaceutical formulation products at its manufacturing facilities located at Village, Nihalgarh, Tehsil Paonta Sahib, Himachal Pradesh, India. 8. The assessee submitted that in respect of acquisition of the assets on slump sale....
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....nt observed that the goodwill of the seller associated with the business and the transferred undertaking is also included in the list of transferred asset and liability. However, no specific valuation of the goodwill is mentioned in the Business Transfer Agreement or the valuation report of the Protocol Surveyors & Engineers Pvt Ltd. The assessee however furnished a final valuation report dated 19-9-2012 prepared by Price Waterhouse & Co which is an additional valuation report. As per this report, the goodwill valuation has been done at Rs 108,03,60,481/-. The assessee further furnished a reconciliation of this valuation to prove the valuation of goodwill at Rs 144,09,13,533/- as shown in the financial statement. The assessee in its letter dated 18-03-2015 explained the difference as the financial statement of the assessee are prepared on the basis of Indian Generally Accepted Accounting Principles (IGAAP) whereas, the value of goodwill reported in the valuation report is after considering US GAAP adjustment. The learned AO observed that this does not answer the basic question of the basis of valuation and also as to what the goodwill represent in the instant case. Accordingly he c....
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....ld be Rs 71,27,47,621/-, as against the assessee's value of land considered at Rs 18,93,99,464/-. The Learned AO also noted that even though the aforesaid rate prescribed in the notification is applicable for the period 1-4-2012 to 31-3-2013, it atleast gives the real picture of the transaction. The Learned AO observed that similar thing cannot be ruled out in respect of buildings. 11. Further the Learned AO observed that the AIR information filed by the Tehsildar, Paonta Sahib for transaction of immovable property of land and building carried out by the assessee was reflecting the value of Rs 110,98,65,626/- for unit 1 & 2. This is the value for which sale deed has been registered with Sub-Registrar 1, Tehsil Paonta Sahib, Sirmaur, Himachal Pradesh. The Learned AO observed that this value denotes the fair market value of the land and building in accordance with the provisions of section 50C of the Act. 12. The assessee vide letter dated 24-03-2015 filed before the Learned AO stated that the value of land as per the valuation report submitted by the assessee was calculated at the rate of Rs 2200 per square meter on the basis of research of the local market and verbal price qu....
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....ntion that the items / medicines produced by the assessee company are not marketed under its own brand. The Learned AO on verification of the assessee submission dated 10-3-2015 observed that assessee has furnished a list of products which the assessee company has manufactured and sold to the companies who are further marketing the drug in their name. This shows that assessee has manufactured various injectables for the leading brands / pharmaceutical companies who are selling this product under their brand such as Baxter (India) Private Limited, Cipla Limited, Elder Pharmaceuticals Limited, Emcure Pharmaceuticals Limited, IPCA Laboratories Limited, Microlabs Limited, Ranbaxy Laboratories Limited and Wanbury Limited. Hence, assessee has not made any sale of injectables or drugs under the brand of AKORN. Hence, the Learned AO concluded that by purchasing the manufacturing facility of Kilitch Drug India Limited, the assessee has not obtained or added any specific brand value in its fold, value of which can be attributable towards any asset other than the assets of business purchased through Business Transfer Agreement. Hence, no value could be attributed towards goodwill in this rega....
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.... Rand International Industries Limited in ITA No. 452 of 2013 reported in 48 taxmann.com 349 (Kar HC) 14. The Learned AO, however, placed reliance on the decision of Hon'ble Jurisdictional Delhi High Court in the case of Sharp Business Systems v. CIT reported in 27 taxmann.com 50 ( Del HC) wherein it was held that since in the case of non-competition agreement, advantage is a restricted one in point of time and it does not confer any exclusive right to carry on primary business activity, amount paid as non-compete fee does not qualify for depreciation under section 32(1)(ii) of the Act. By placing reliance on this decision, the Learned AO held that non-compete fees does not fall within the definition of intangible assets under section 32(1)(ii) of the Act and accordingly the claim of the assessee on account of depreciation on non-compete fees in the sum of Rs 2.50 crores was sought to be rejected by the Learned AO. 15. The Learned CITA practically upheld the decision of the Learned AO wherein it was concluded that the assessee had indeed undervalued the cost of land and building to the extent of Rs 78.25 crores and had correspondingly increased the value of goodwill to that e....
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....oodwill could be accepted or not. It is a fact that the assessee had attributed the value of land and building based on the valuation report obtained from Protocol Surveyors & Engineers Pvt Ltd and Price Waterhouse & Co. which is practically the same. The approved valuers had given some value for land and building as detailed supra in the narration of facts and observations of the Learned AO supra. The Valuation report of Protocol Surveyors & Engineers Pvt Ltd is enclosed in Pages 113 to 163 of the Paper Book. The Valuation report of Price Waterhouse & Co is enclosed in Pages 168 to 302 of the Paper Book. The workings given by the assessee before the Learned AO duly reconciling the value of goodwill as per the valuation report with the value as per the financial statements are enclosed in Page 303 of the Paper Book. It is not in dispute that the circle rate for the subject mentioned land and buildings acquired by the assessee under slump sale were notified only with effect from April 2012 onwards. The year under consideration before us is financial year 2011-12 relevant to Assessment Year 2012-13. The date of notification of circle rates by the State Government is falling in Assess....
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....deeming fiction created in section 50C of the Act cannot be extended to slump sale cases which are governed by provisions of section 50B of the Act, is to be rejected. Once the provisions of section 56(2)(vii)(b) of the Act are made applicable, what is to be seen is if the value at which assets were acquired by the assessee at a price lesser than the value determined by the stamp valuation authorities for the purpose of levy of stamp duty, then the acquisition price of the assets shall be substituted with the value determined by the stamp valuation authorities for the purpose of stamp duty. The differential amount shall be treated as inadequate consideration and brought to tax under section 56(2)(vii)(b) of the Act. But it is pertinent to note that the same provisions of section 56(2)(vii)(b) of the Act contains a proviso which says that if there is any dispute with regard to the value between the assessee and the value determined by the stamp valuation authorities, then the proper recourse to the revenue would be to refer the valuation of the land and buildings to the Learned Departmental Valuation Officer and thereafter the valuation of assets need to be governed by the mandate p....
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....ications Ltd vs CIT reported in 407 ITR 706 (Mad) which had rendered the decision in favour of the assessee after distinguishing the decision of Hon'ble Delhi High Court in the case of Sharp Business System referred supra, we hold that the decision of the Hon'ble Jurisdictional Delhi High Court has got higher precedence value over this Tribunal. Hence we are inclined to follow the decision of the Hon'ble Jurisdictional High Court which had held the issue of claim of depreciation on non-compete fees against the assessee. We decide accordingly. 18.4. Hence the Additional Ground raised by the assessee is dismissed, the original grounds 1 to 2.1. raised by the assessee are allowed for statistical purposes and grounds raised by the revenue are dismissed. 19. The Ground No. 3 raised by the assessee is challenging the disallowance of interest paid on late payment of customs duty. We find that this issue is not emanating from the orders of the lower authorities for the year under consideration. Hence Ground No. 3 raised by the assessee is hereby dismissed as not maintainable. 20. In the result, the appeal of the assessee for Assessment Year 2012-13 in ITA No. 1743/Del/2017 is part....