TaxTMI 
TaxTMI 
2024 (5) TMI 1720
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....e Income tax Act, 1961 ("the Act") erred in confirming the order of the Learned Asst. Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated March 31, 2015 under section 143(3) of the Act ("impugned order") without appreciating that the same is contrary to law. 1.2 The Appellant prays that the impugned order dated March 31, 2015 be quashed and set 2.1 On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming the disallowance made by the Ld. AO of depreciation amounting to Rs. 31,26,46,956 claimed on intangibles and goodwill arising out of Business Transfer Agreement dated February 13, 2012 entered into with Gati Ltd. for acquiring Express distribution and Supply chain business on a going concern basis from the close of business hours on March 31, 2022. 2.2 The Appellant prays that the Ld. AO be directed to allow deduction of depreciation amounting to Rs. 31,26,46,956 claimed on intangibles and goodwill. 3.1 On the facts and in the circumstances of the case and in law, the Ld. NFAC erred in confirming disallowance made by the Ld. AO of business advances written off amounting to Rs. 35,68,793 and bad....
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....that the assessee entered into a business transfer agreement (BTA) dated 13.02.2012 with M/s Gati Ltd. ( i.e. holding company ) for the purpose of acquiring express distribution supply chain (EDSC) business of Gati Ltd. on a going concern basis (PB- 68 to 104). The transfer of the business was made effective from close of business hour on financial year end i.e. 31.03.2012. The BTA did not provide for payment of consideration by the assessee to M/s Gati Ltd., however, the liabilities taken over by the assessee was in excess of the assets of the undertaking. The assessee treated the excess amount of the liability over and above the value of the assets amounting to Rs.125.6 crores as intangibles and goodwill. The total liability taken over amounted to Rs.380.11 crores which was broken into Rs. 255.05 crores towards the tangible assets (moveable and immovable) and the remaining liability Rs.125.06 crores towards intangible assets. The assessee claimed depreciation of Rs. 31,26,46,956/- at the rate of 25% of the goodwill/intangible asset of Rs. 125.06 crores arising out of business transfer agreement. 9.1 The Ld. Assessing Officer disallowed the claim of the depreciation by holding ....
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....ssion of business, the aggregate deduction in respect of depreciation on any tangible or intangible assets allowable to the predecessor and the successor shall not exceed, in any previous year, the deduction calculated at the prescribed rates as if the succession had not taken place and such deduction shall be apportioned between the predecessor and the successor in the ratio of the period of usage of assets. Since, the predecessor had not claimed any depreciation on goodwill as intangible assets; therefore, if the succession had not taken place there would not be claim of depreciation of the goodwill. Thus the assessee cannot be allowed the claim depreciation more than the depreciation allowable to the predecessor company in case of succession. 9.3 On the allegation of the Assessing Officer that no intangible had been transferred to the assessee on account of BTA, the Ld. counsel for the assessee referred to the BTA (PB 83 and 75) and submitted that all the properties, assets, resources, rights, privileges and licenses forming part of express distribution and supply chain (EDSC) business of the Gati ltd has been transferred to the assessee as going concern. The 'EDSC' i....
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....s and advances, plant and machinery, capital work in progress, furniture & fittings, office equipments, computers, appliances, accessories and vehicles, in terms of the broad description set out in Part A of Schedule I ("Moveable Assets") which will be updated as of the Closing Date; (ii) all the immoveable properties of every kind, nature or description pertaining exclusively to the Business Division including the freehold and leasehold land, buildings, warehouses, structures, offices, plant and machinery thereon as more specifically described in Part B of Schedule 1 ("Immoveable Assets"); (iii) all the current assets such as sundry debtors, accounts receivable (including refunds and rebates), advances, earnest moneys, cash, bank accounts (including bank balances) the aggregate of such cash and bank balances being INR 126 million, bills of exchange, benefit of any deposits including security deposits, benefit of any bank guarantees and letters of credit all exclusively relating to the Business Division, loans (excluding inter divisional loans) and advances as appearing in the books of the Transferor as of the Accounts Date, in terms of the broad description set o....
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....alue, for time bound delivery, for delivery of merchandise without any damage and without any pilferage and shortage. It has developed a brand name for customer satisfaction. The assessee company acquired all other benefits for carrying on the business which are all intangible assets having a tremendous commercial value. 9.6 The Ld. Counsel for the assessee further rebutted the allegation of the Ld. AO that the assessee had not received any intangible asset pursuant to the BTA. He submitted that the assessee derived substantiate advantage by acquiring the above intangible assets, business and commercial rights and goodwill of Gati Ltd. and it could achieve substantial turnover having details as under: Amount in crores i. Financial year 2012 854.27 ii. Financial year 2013 1021.83 iii. Financial year 2014 1138.71 iv. Financial year 2015 1139.89 9.7 Without obtaining the business and commercial rights including all the advantages as described above, it would not have been possible for any new business to achieve the above turnover from day one. 9.8 The Ld. Counsel for the assessee further submitted that the consid....
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....380.11 crores which is broken up into Rs.255.05 crores towards the value of tangible assets (movable and immovable) and the remaining liability of Rs.125.06 crores towards the value intangible assets. 9.12 The Ld. counsel for the assessee submitted that the negative net worth which has been taken over itself is a consideration and the same has to be considered for working out capital gain in case of the slump sale by treating the negative net worth as taxable u/s 50B(2) of the Act. In this regard, the Ld. counsel for the assessee placed reliance upon the decision of the Hon'ble Special Bench in the case of DCIT v. Summit Securities Ltd. (135 ITD 99) wherein the Hon'ble Special Bench has held that negative figure of network should be considered for working out of capital gain in case of slump sale. Therefore, the allegation of the Ld. AO as well as the Ld. CIT(A) that no consideration has been paid is incorrect. 9.13 In relation to the allegation of the Ld. AO and Ld. CIT(A) that the holding company Gati has not offered the income nor has reduced the same from cost of its assets, therefore, the intangible and goodwill is nothing but a book entry, the Ld. counsel for th....
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.... 5th proviso to section 32(1) of the Act. Therefore, the question of invoking 5th proviso does not arise. Secondly, 5th proviso is applicable when the succession has taken place during the year and not at the beginning of the year or at the end of the year. The BTA was entered into on 13.02.2012 and the business was transferred from the closing date i.e. 31.03.2012 relevant to assessment year 2012-13. The transfer had taken place at the close of the business hours on 31.03.2012. Therefore, 5th proviso shall have no applicability. Thirdly, 5th proviso is applicable only if the asset is also appearing in the books of accounts of the predecessor company. The Ld. Counsel for the assessee submitted that since, the intangible and goodwill were self-generated assets, same were not appearing in the books of Gati Ltd. Therefore, the question of claiming any depreciation by the predecessor on the same does not arise. The 5th proviso is applicable only when the predecessor company is also claiming depreciation. In this case, the question of Gati ltd claiming any depreciation does not arise. In view of the above three reasons, the proviso to section 31(1) of the Act is no applicability to the ....
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....levant material on record. Before us, the issue which emerges from the facts of the cases is whether the 'goodwill' has arisen in the case of the assessee under BTA for transfer of 'EDSC' unit of the Gati Ltd. to the assessee. The main allegation of the lower authorities is that under the 'BTA' neither any intangible in the form of business or commercial rights or goodwill specially transferred to the assessee. In our opinion, this allegation is without any basis. The Ld. counsel for the assessee has referred to the relevant clause of the BTA wherein the business and commercial rights which were in existence with the 'EDSC' unit of the Gati Ltd. have been transferred to the assessee. The Ld. Counsel for the assessee has duly explained the number of franchisee, distribution network, warehouses and the brand name associated with the EDSC which has been acquired under the slump sale. Further, the Ld. Counsel for the assessee has also brought on record the effect of increasing turnover and the profit of the assessee consequent to business and transfer rights along with goodwill received under the BTA. Further, we also do not agree with the allegation of ....
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....e Bench of the Tribunal in the case of Thermo Fisher Scientific India (P) Ltd. (supra) has examined the issue of depreciation or goodwill recognized on purchase of unit under slump sale and held that depreciation is allowable on the goodwill acquired under the slump sale. The relevant finding of the Tribunal is reproduced as under: "5.18 We have heard rival submission of parties. The issue in dispute is claim of depreciation on Goodwill recognised by the assessee in two transaction of acquisition of two units. The assessee claimed that those acquisitions are for purchase of unit for lumpsum consideration, as going concerns in the nature of slump sale, which is subject to capital gain tax u/s 50B in the hand of seller. Whereas the according the Assessing officer the acquisitions are in the nature of amalgamation. Before us, the learned counsel has referred to various clauses of business transfer agreement (BTA) in respect of units acquired from GSK and CTPL respectively. On perusal of relevant clauses referred, we find that transaction in both the cases are of slump sale and not, amalgamation as stated by the Assessing Officer. 5.19 The learned Assessing Officer ha....
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.... relation to the said preceding previous year. 5.22 On perusal of above Explanation, we find that it is in relation to acquisition of a subsidiary company by its holding company or vice versa and in relation to transactions of amalgamation and not in respect of slump sale. 5.23 The learned Assessing Officer has further relied on fifth proviso ( now sixth proviso) to section 32(1)(ii) of the Act, which is reproduced for ready reference: "Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as i....
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....eld that goodwill arising on slump sale is eligible for depreciation and 5th proviso to section 32(1) of the Act is not applicable on slump sale. The relevant finding of the Tribunal is reproduced as under: "13.10. In this case, the AO did not principally contend against the position of the Appellant, that the goodwill recorded by it is an intangible asset eligible for depreciation under Section 32(1) of the Act. In our opinion, the claim of assessee is to be allowed on the following lines :- i. The said goodwill is in the nature of any other commercial or business right under the category of an intangible asset that is eligible for depreciation under section 32 of the Act. The issue whether Goodwill arising on transfer is eligible for depreciation or not, is no longer Res- Integra, and has been settled by the Hon'ble SC in the case of Smifs Securities Ltd. (348 ITR 302), wherein held that "in the present case, it is the valuation that is challenged and not the eligibility of depreciation on goodwill." The position of law held by the Hon'ble SC constitutes the law of the land and is binding on all the lower authorities, in terms of Article 141 of the Const....
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.... of ACIT v. Dorma India (P.) Ltd. [IT Appeal Nos. 1664 to 1666/Chny/2019 dealt with the eligibility of depreciation of goodwill under the slump sale agreement and held that excess payment made over the tangible immovable assets (net of liabilities) acquired is towards intangible assets acquired by the taxpayer under business contract and thus the payments by the taxpayers over and above is to be treated as goodwill and depreciation is allowed on the same. The case laws relied upon by the Ld. DR pertain to the period prior to the decision of the Hon'ble Supreme Court in the case of Smiff Securities Pvt. Ltd. (supra) and therefore, ratio of the said cases is not applicable over the facts of the instant case. In those cases the excess of assets over the liabilities was not held to be in the nature of goodwill. 11.3 In view of the above discussion and relying on the decisions discussed above, we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Assessing Officer to allow the depreciation on the amount of the goodwill recorded in the books of accounts of the assessee under the BTA between the assessee and the Gati Ltd. The ground Nos. 2.1 and 2.2 of t....
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....m of Rs. 35,68,793/- being in the nature of irrecoverable business advance has also not been offered as income in the hands of the appellant in any previous year. 7.4 The clause (vii) of section 36 (1) provides that the amount of any bad debt or part thereof which is written off as irrecoverable in the account of the assessee for the previous year, shall be allowed as deduction in computing business income, subject to the provisions of section 36(2). Section 36(2) lays down several conditions for allow ability of deduction for a bad debt or part thereof. One of such conditions, specified in clause i) thereof, is that no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. In the instant case, it is clear from facts that the sum of Rs. 53,85,488/-, which has been charged to profits for the year on account of bad debts written off, cannot be allowed as deduction in computing income under section 28, for reason that the said sum has not been taken into account in computing income of....
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....rement of furnishing any evidence in respect of advances made during the course of business because once the assessee has entered into shoes of the Gati Ltd. there is no further obligation on the part of assessee to adduce evidence in respect of transaction undertaken by the Gati Ltd. 15. On the other hand, the Ld. DR submitted that under the slump sale the assessee has purchased going concern of the assessee and it is not a case of succession of the another entity by the assessee and therefore, the assessee does not fulfill the condition of section 36(2) in respect of receivables and conditions u/s 28 of the Act in respect of advances and loans written off treating it to be business advances. 16. We have heard rival submission of the parties. The issue in dispute is whether the debt and advances of the unit of predecessor company, which have been acquired by the successor company under slum sale, however written off subsequently due non recoverability, are eligible for deduction u/s 32(2) as bad debt or loss of business respectively. An identical issue came up before the Hon'ble Supreme Court in the case of CIT Vs T Veerabhadra Rao & KKoteswara Rao & Co. reported in 155 ....
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....rable in the accounts of its successor, the assessee, in a subsequent year and could be claimed as a bad debt under cl.(vii) of sub-s.(1) of s.36 of the Income Tax Act, 1961. Cl.(vii) of sub-s.(1) of s.36 of the Income Tax Act, 1961 provides : "36.(1). The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 - (vii) subject to the provisions of sub-s.(2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year". Sub-s.(2) of s.36 declares :- "(2). In making any deduction for a bad debt or part thereof, the following provisions shall apply :- (i) no such deduction shall be allowed unless such debt or part thereof - (a) has been taken into account in computing the income of the assessee of the previous year or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee, and (b) has been written off as irrecoverable in the accounts of the assessee for that pre....
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.... right which should, on a proper appreciation of all that is implied in the transfer of a business, be regarded as belonging to the new owner. Unless the language of the statute plainly and clearly compels a construction to the contrary, the normal rule of the law should be given its proper play. It is true that cl.(i) of sub-s.(2) of s.36 declares that a deduction can be allowed only if the debt, or part thereof, has been taken into account in computing the income of the assessee of that previous year or an earlier previous year and that it has also been written off as irrecoverable in the accounts of the assessee for that previous year. In the present case, the debt was taken into account in the income of the assessee for the assessment year 1963-64 when the interest income accruing thereon was taxed in the hands of the assessee. The interest was taxed as income because it represented an accretion accruing during the earlier year on money owed to the assessee by the debtor. The item constituted income because it represented interest on a loan. The nature of the income indicated the transaction from which it emerged. The transaction was the debt, and that debt was taken into accou....
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....inion that in principle deduction for the bad debt written off and advances written off cannot be disallowed in the hands of the assessee for the reason that same were not transacted by the assessee and only received under the transaction of slum sale. We reject the finding of the ld CIT(A) on this issue. However, the assessee has to satisfy the requirement of section 32(2) of the Act in respect of amount of Rs. 18,16,695/- and demonstrate that said sum was part of the debt under the ordinary course of the business and shown as income in earlier years by the predecessor . The assessee has also to demonstrate whether any interest income was shown in its books of accounts in respect of those debts. Regarding the loans and advances written off amounting to Rs. 35,68,793/-, the assessee is required to demonstrate whether those loans and advances were for the purpose of the business of the predecessor. The assessee cannot take the shelter under the business transfer agreement and claim that the assessee is not required to satisfy the requirement of law. Accordingly, we set aside the finding of the Ld. CIT(A) and the Assessing Officer on this issue in dispute, and restore the matter back....
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....,727/- paid for late payment of tax deducted at source. Before us, the Ld. counsel for the assessee submitted that assessee did not press the said ground. Therefore, the said ground is dismissed as infructuous. 19. Now we take appeal for assessment for assessment year 2015- 16. The grounds raised by the assessee are reproduced as under: 1.1 On the facts and in circumstances of the case and in law, the Learned National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, 2023 under section 250 of the Income tax Act, 1961 ("the Act" erred in confirming the order of the Learned Asst. Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated December 12, 2017 under section 143(3) of the Act ("impugned order") without appreciating that the same is contrary to law. 1.2 The Appellant prays that the impugned order dated December 12, 2017 be quashed and set aside. 2.1. On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming the disallowance of made by the Ld. AO of depreciation amounting to Rs. 17,58,63,913/-claimed on intangibles and goodwill arising out of Business Transfer Agreement dated February 13,....
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....nder: 1.1. On the facts and in circumstances of the case and in law, the Learned National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in confirming the order of the Learned Asst. Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated November 25, 2019 under section 143(3) of the Act ("impugned order") without appreciating that the same is contrary to law. 1.2. The Appellant prays that the impugned order dated November 25, 2019 be quashed and set aside. 2.1 On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming the disallowance of made by the Ld. AO of depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and goodwill arising out of Business Transfer Agreement dated February 13, 2012 entered into with Gati Ltd. for acquiring Express distribution and Supply chain business on a going concern basis from the close of business hours on March 31, 2022. 2.2 The Appellant prays that the Ld. AO be directed to allow deduction of depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and goodwill. ....