TaxTMI 
TaxTMI 
2026 (2) TMI 862
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.... as the lead year. Facts of the Case 3. The assessee is a company engaged in the business of owning and operating a five-star hotel at Kovalam Beach, Thiruvananthapuram, known as "Kovalam Leela Raviz Hotel". The assessee acquired the hotel undertaking of M/s Hotel Leela Venture Ltd. on a going concern basis by way of slump sale under a Scheme of Arrangement sanctioned by the Hon'ble Bombay High Court under sections 391 to 394 of the Companies Act, 1956, vide order dated 24.02.2012, with the appointed date as 01.09.2011, for a lump sum consideration of Rs. 500 crores. The assessee also took over liabilities amounting to Rs. 2 crores. 4. For Assessment Year 2012-13, the assessee filed its return of income on 25.09.2012 declaring total income of Rs. 39,14,740/- under the normal provisions of the Act and book profit of Rs. 2,34,93,701/- under section 115JB of the Act. The return was processed under section 143(1) of the Act. The case was selected for scrutiny and notice under section 143(2) dated 23.09.2013 was issued. Notice under section 142(1) along with questionnaire was also issued. The assessee furnished details through its authorised representatives from time to time. T....
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.... Buildings 1,59,72,05,000 2 Computers 47,11,637 3 Furniture & Fixtures 14,45,61,943 4 Plant & Machinery 24,41,35,609 5 Vehicles 1,42,00,830 Total Additions 2,00,48,15,021 8. Based on the revised valuation, the assessee revised its depreciation claim from Rs. 25.86 crores to Rs. 21.53 crores. The revised depreciation schedule was as under: Asset Total Rate Depreciation WDV as on 31.03.2012 Building 1,59,72,05,000 10% 15,97,20,500 1,43,74,84,500 Computer software & data processing equipments 47,11,637 60% 25,96,091 21,15,546 Furniture & Fixtures & office equipment 1,44,56,19,943 10% 14,44,15,515 1,30,12,04,428 Plant & Machinery 2,44,13,56,909 15% 36,54,0879 2,07,59,47,730 Vehicles 1,42,00,832 15% 20,42,537 1,21,58,295 Total 21,53,41,522 1,78,94,73,499 9. The assessee further submitted that allocation of total consideration among assets was made on a fair and reasonable basis having regard to market values and professional valuation reports. Reliance was placed on the judgment of the Hon'ble Kerala High Co....
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....e valuation of land and, on the basis of market enquiries and the revaluation carried out by the transferor company in March 2009, wherein the land was valued at about Rs. 488 crores, concluded that the fair value of land at the time of transfer was around Rs. 490 crores. Accordingly, he held that the excess consideration paid over and above the written down value of depreciable assets should be attributed to land alone. 14. In this view of the matter, the Assessing Officer adopted the written down value of depreciable assets in the books of M/s Hotel Leela Venture Ltd. as on the date of transfer, amounting to Rs. 60,92,34,250/-, as the actual cost of such assets in the hands of the assessee under section 43(1) of the Act. The balance amount of the slump sale consideration, amounting to Rs. 439,07,65,750/-, was treated as attributable to land. 15. The details are tabulated below: Particulars WDV on date of transfer (Rs.) Rate Depreciation (Rs.) WDV after depreciation (Rs.) Building 31,25,79,075 10% 3,12,57,907 28,13,21,168 Plant & Machinery 11,18,79,203 15% 1,67,81,880 9,50,97,323 Furniture & Fixtures 16,67,20,518 10% 1....
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....ented goodwill and depreciation was allowable thereon under section 32 of the Act in view of the judgment of the Hon'ble Supreme Court in Smifs Securities Ltd. 19. The assessee also filed additional grounds before the learned CIT(A), contending that the difference between the total consideration of Rs. 502 crores and the value of tangible assets ought to be treated as goodwill of Rs. 441,25,93,704/- and depreciation should be allowed thereon. In the alternative, depreciation was claimed on goodwill valued at Rs. 156 crores as per a subsequent valuation report. 20. It was further submitted that ICDS-V required apportionment of composite consideration among individual assets and, therefore, the action of the Assessing Officer in attributing the entire excess to land was contrary to law. 21. The learned CIT(A) held that the Assessing Officer was not justified in mechanically adopting the written down value of assets in the hands of the transferor as the actual cost in the hands of the assessee. He observed that section 43(1) does not mandate adoption of the transferor's written down value in a case of slump sale and that the Assessing Officer had not established that the cons....
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....Tax (Appeals) [CIT(A)] erred in upholding the action of learned Assessing Officer in denying the claim of depreciation to the extent of Rs. 19,01,35,791/-- 2. The Ld. CIT(A) erred in applying the erstwhile fifth (presently sixth) proviso to section 32(1) of the Income-tax Act, 1961 (the Act), for computing the depreciation allowable in the year under consideration. a. The Ld. CIT(A) has erred in not considering the fact that fifth proviso which is currently sixth proviso to section 32(1) of the Act is not applicable to a transaction of slump sale. 3. The Ld. CIT(A) has erred in not admitting, dealing and disposing the additional grounds raised by the appellant that in the alternative the difference between the value of the assets acquired under slump sale and the total consideration paid should be apportioned towards goodwill and depreciation on such goodwill should be allowed under section 32 of the Act. a. The Ld. CIT(A) has erred in not considering the fact that the valuation of all the assets acquired by the Appellant was directed to be referred to Department's Valuation Officer by the Ld. CIT(A) himself. Once, that is the case, he cannot....
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....ntended that the acquisition was not a mere book adjustment or internal restructuring, but a real commercial transaction based on enterprise valuation carried out by M/s BDO Consulting (P) Ltd. 27. The learned AR submitted that, in view of such actual payment of consideration, the book values of the assets of the Kovalam undertaking in the hands of M/s Hotel Leela Venture Ltd. prior to transfer were wholly irrelevant for determining the actual cost of the assets in the hands of the assessee. It was argued that the Assessing Officer erred in law in importing the written down value of the transferor's assets into the books of the assessee, despite the fact that the assessee had incurred an independent and real cost for acquiring the undertaking. 28. It was further contended that the valuation adopted by the Assessing Officer on his own was not permissible in law. The learned AR submitted that the Assessing Officer is not an expert valuer and cannot substitute his own estimate of value in place of valuation arrived at by qualified professionals, particularly when the transaction is supported by enterprise valuation and fairness report. It was argued that if the Assessing Officer....
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....the existence of goodwill stands established and depreciation thereon is allowable in terms of section 32(1)(ii) of the Act. 33. The learned AR further submitted that, even assuming without admitting that the fifth proviso to section 32(1) is applicable to slump sale transactions, the learned CIT(A) has misapplied the ratio of the decision in Archroma India (P.) Ltd.( 124 taxmann.com 432)by relying only on that portion of the judgment which holds that depreciation on tangible assets is to be computed with reference to the written down value in the hands of the transferor, while completely ignoring para 26 of the same order, which squarely supports the assessee on the issue of goodwill. It was pointed out that in para 26 of the said decision, the Tribunal has categorically held that the excess amount paid over and above the value of tangible assets acquired under slump sale constitutes goodwill and is eligible for depreciation. The relevant ratio laid down therein is that the balancing figure between the slump sale consideration and the value of tangible assets qualifies as goodwill and depreciation thereon is allowable. Thus, even if the cost of tangible assets is restricted to ....
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....hat the learned CIT(A) himself had directed the Assessing Officer to refer the valuation of the assets to the Departmental Valuation Officer. Once such a direction was issued and valuation reports were obtained, the learned CIT(A) could not have refused to admit or consider the additional grounds relating to goodwill, as the very foundation of such grounds was based on the valuation exercise initiated at his instance. It was further submitted that the learned CIT(A) failed to appreciate that the issue raised in the additional grounds went to the root of the matter, namely, determination of the correct cost of assets and the treatment of excess consideration paid under slump sale. It was argued that the learned CIT(A) ought to have adjudicated the said grounds, particularly when all the relevant material and facts were already before him and no further enquiry was required. 37. The learned Departmental Representative, on the other hand, supported the orders of the Assessing Officer and the learned CIT(A). 38. We have carefully considered the rival submissions, perused the orders of the lower authorities and the material placed on record. The controversy before us, in substance....
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....ion is genuine and for real consideration, we hold that this by itself does not conclude the computational mechanism of depreciation. That computation must be governed by section 32, including the proviso regime, as applicable. 42. The learned AR argued that the Assessing Officer was not permitted to arrive at valuation "on his own" and, if he doubted the assessee's allocation, he ought to have referred the matter to the Departmental Valuation Officer (DVO). It was also pointed out that the CIT(A) had in fact directed reference to valuation cell, and valuation reports were received from the DVO and the Executive Engineer, Valuation Cell, Chennai. 43. On the facts recorded, we agree that the Assessing Officer's approach is internally inconsistent. On the one hand, he rejected the assessee's valuation on the ground that it was arbitrary and inflated. On the other hand, he proceeded to adopt values by making broad assumptions, such as a generic construction rate range and conclusions about land rates from websites and other material, and then attributed almost the entire surplus consideration to land. Such an approach is not an acceptable substitute for a statutory valuation exe....
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.... 346.00 213.00 Slump sale consideration paid 502.00 502.00 Goodwill (balancing figure) 156.00 289.00 46. On these facts, we find force in the assessee's submission that once the statute/precedent constrains depreciation on tangible assets in such transactions, the excess consideration does not disappear. In a commercial acquisition of a running undertaking, such excess ordinarily represents business and commercial rights, being the advantage of acquiring an operating business, brand pull, location premium as a commercial bundle, assembled workforce, systems, vendor relationships, licences, and the capacity of the undertaking to generate earnings. In accounting and commercial terms, this is the very substance of goodwill. 47. Further, the Hon'ble Supreme Court in Smifs Securities Ltd. has recognised goodwill as an eligible intangible asset for depreciation under section 32(1)(ii). On the facts before us, the assessee has demonstrated, at the minimum, the existence of a balancing figure between the consideration and the tangible assets' values as per valuation material. 48. We also find merit in the assessee's specific submission that the learned CIT(....
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....i) of the Act for the assessment years under appeal. 53. Since the valuation of the assets has already been carried out by the Departmental Valuation Officer pursuant to the directions of the learned Commissioner of Income-tax (Appeals), and such valuation has been brought on record, we hold that the fair market value of the tangible assets as determined by the Departmental Valuation Officer shall be adopted for the purpose of computing depreciation. The Assessing Officer is, therefore, directed to recompute the depreciation by adopting the values of land, building and other tangible assets as per the Departmental Valuation Officer's report and by treating the balance of the slump sale consideration as goodwill, and to allow depreciation on such goodwill at the rate applicable to intangible assets under section 32(1)(ii) of the Act. 54. The Assessing Officer is further directed to verify and adjudicate the claims of the assessee relating to depreciation on landscaping and internal roads in accordance with law, after affording reasonable opportunity of being heard to the assessee. 55. The additional grounds raised by the assessee on the issue of goodwill are admitted and al....