TMI Blog2012 (5) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... excess payment made, over and above the value of tangible asset acquired, is for licences, quotas, business rights etc. and whereas on the other hand it states the excess amount should be taken as that paid for factors like locational advantage, contracts with dealers and customers attached to the business etc. This second limb, in our view cannot be a business or commercial right but only goodwill. While stating facts, alternate or without prejudice stand cannot be taken. The assessee is supposed to know exactly the purpose for which the amount is paid. While tangible assets were valued, intangible assets were not valued in this case - held as goodwill - decided against the assessee. - ITA No. 1657/Mum/2008, ITA No. 3504/Mum/2008, ITA No. 7311/Mum/2008 - - - Dated:- 30-11-2011 - J. Sudhakar Reddy, V. Durga Rao, JJ. Kanchan Kaushal, Niranjan Govindekar, Dhanesh Bafna and Aliasgar Rampurawala for the Appellant Usha Nair for the Respondent ORDER J. Sudhakar Reddy: These three appeals are filed by the revenue and are directed against separate orders of learned CIT(A) dated 21.12.2007, 17.3.2008 and 17.10.2008 for A.Y. 2001-02, 2004-05 and 2005-06 respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance Sheet of the assessee company dated 31/03/2091 is reproduced hereunder for ready reference. "Pursuant to the Business Transfer Agreement (BTA) dated August 26, 2000 the Cement Business of the Raymonds Ltd consisting of all the assets and operations associated with those assets of the Cement Division including cement factories situated at Arasmeta, in the slates of Chattisgarh respectively was transferred to the company with effect from January 22, 2001. Consequently, the Company had appointed a competent valuer for the purpose of fair valuation of the fixed assets taken over. Based on the report submitted by the valuer, the consideration paid for the fixed assets has been apportioned. As regards the consideration payable for net current assets including debtors, inventories and specific liabilities etc. the company is in the process of determining the amount finally payable to Raymonds Limited. Pending such finalisation, the balances of net current assets taken over have been recorded provisionally at the values as appearing in the closing balance sheet of the vendor after making adjustments as per the understanding under the Agreement for transfer of Undertaking." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating the provision of Explanation 3 to section 43(1) of the I.T. Act." 6. Facts of this issue have been briefly touched upon earlier. Learned CIT(A) has brought out the facts in the following words:- "The facts are that the cement division of Raymond was acquired by the Appellant on a going concern basis on 18.01.2001 under a written agreement referred as Business Transfer Agreement dated 26th August 2000. The total consideration paid is Rs. 751 crores on a mutually agreed negotiated basis This price does not indicate any break up in terms of fixed assets, work-in-progress goodwill etc. It is a lump sum price claimed to be on analysis of balance sheet, accounts, turnover and profitability. Admittedly, no valuation either of the plant and machinery or the business as a whole was undertaken prior to or at the time of making the purchase. It is claimed that in order to correctly reflect the fair market value of the assets taken over from Raymond, the Appellant considered it appropriate to value the fixed assets of the unit for which the consideration of Rs.751 crores, for both the fixed assets and net current assets, was paid. Accordingly, appellant appointed M/s K.S. Aiy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either by relying on the provisions of Explanation 3 to Section 43(1) or otherwise was not justified. It is quite evident that Assessing Officer has not made out a case in any manner to show that the transaction of sale of the cement unit as a going concern was collusive or that there was any tacit understanding with the seller to attach a higher value to the cost of acquisition of capital assets. The deal between the Appellant and Raymonds is not between related parties. The appellant has not attached the cost of acquisition to assets arbitrarily and without any basis. The cost has been assessed and worked out by an expert agency and unless the expert advice is proved to be manipulative or worked up with reference to some tangible piece of evidence, the Assessing Officer, in my opinion, cannot disregard the veracity of the expert valuation. The expert in the facts of the case acts like a witness and A.O. has not at all tried to either examine him or disprove the findings given by him. I have also noticed that observation of A.O. that valuation has been done at net replacement cost is not correct since depreciation has been duly deducted to arrive at market price of the plant and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly where as in this year the value paid was for fixed assets and net current assets and goodwill was involved. 7. In order to consider the action of the A.O. it is necessary to extract the provisions of section 43(1) and Explanation 3, which are as under:- "(1) In sections 28 to 41 and in this section, unless the context otherwise requires- (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: [Provided that] Explanation 3:- Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the [Assessing] Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the [Assessing] Officer may, with the previous approval of the [Joint Commissioner], determine having regard to all the circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The other observation is that the method adopted by the registered valuer on net replacement cost was only to arrive at the exact amount which the assessee has apportioned towards fixed assets. This observation also is not correct. Since the assets are acquired on slump sale basis and individual assets are not priced or purchased item-wise, the assessee as per the Accounting Standard 10 to be adopted for the purpose of maintaining the books of account, has obtained a valuation report which has taken the net replacement cost method and arrived at the amount as Rs.481.61 crores which the assessee has adopted in the books of account. Therefore, the Assessing Officer's observation that the value adopted by the assessee is exactly tallying with the subsequent valuation by the surveyor is without any basis. On the basis of the valuation report assessee has adopted the value. It is also a fact that the said TISCO has shown the profit on the basis of the book value. The A.O., however, has not analysed the actual WDV in the hands of the TISCO. What he has adopted is the book value in the books of TISCO which incidentally will be different from the actual WDV for the purpose of income tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1). 11. In the case of Chitra Publicity Company (P) Ltd. vs. ACIT 172 TTJ (Ahd) (TM) 1 it was held as under:- "17. After careful consideration of above provisions and facts and circumstances of the case, I am unable to accept the stand of the Revenue. As noted above actual cost should ordinarily mean real cost or real worth of assets. If it is not market value, then what is it? Mechanism to take WDV as provided in Expln. 2 to s. 43(6)(c) is not available in Expln. 3 to s. 43(1). Further, assets whose actual cost is to be determined under Expln. 3 are second hand and it is always difficult to find actual cost or value of such assets as compared to new assets. In the case of transfer of an asset between two unconnected parties price fixed is ALP governed by market condition. This ALP between two unconnected parties is nothing but market value of the asset. This ALP has to be taken as the "actual cost" for purposes of depreciation. There is no way to ignore it and it is not possible to record merely that the main purpose of transaction is the reduction of income-tax liability. Such ALP or market value cannot have a different meaning even in case of a transaction between connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O without appreciating that the amount paid over and above the WDV was nothing but the payment of goodwill and that the provision of Explantion-3 to section 43(1) of the I.T. Act are duly applicable in this case." 11. This ground is common to all the three assessment years. As already stated a very same issue has been considered in assessee's own case for A.Y. 2000-01, consistent with the view taken therein, we uphold the order of learned CIT(A) and dismiss ground 2 of the revenue. 12. Ground No. 3 reads as follows:- On the facts and circumstances of the case and in law, learned CIT(A) erred in deleting the addition of Rs. 3,83,75,399/- disallowed by the Assessing Officer as deferred revenue expenses without appreciating that the assessee was entitled to benefit over a period of three years. 13. Facts are brought out by learned CIT(A) at para 5.2 to 5.4 of his order. The same are extracted for ready reference. 5.2 The facts are that Appellant had obtained loan funds from various financial institutions by way of term loans (in October 1999) and issue of non-convertible debentures (in January 2000) on which the company was required to pay interest in the range of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest cost that would otherwise have been borne by the appellant in future. Accordingly, the said premium is nothing but a lump sum amount paid in order to effect, savings in future revenue expenditure, and, therefore, is expenditure in the revenue field. Accordingly, the said amount has been claimed as a business expenditure in the Return of Income for the year." 15. First appellate authority at para 5.9 concluded as follows: "5.9 I have considered the foregoing submissions and I have perused the order of assessment. I am of the view that the fact that an Appellant derived enduring benefit cannot be the criteria to decide that the expenditure is capital in nature unless it was an advantage in the capital field. In other words, if the benefit secured by incurring expenditure, although for a longer duration, does not result into acquisition of any tangible or intangible assets and hence should be considered on revenue account and allowed as a deduction. In view of the above, it is held that the settlement premium paid on restructuring of loan merits to be considered as a revenue expenditure and hence merits to be allowed as a deduction to the Appellant as it has also been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Bench of the Tribunal in the case of Gujarat Guardian Ltd. (supra) relied on the decision in the case of Overseas Sanmar Financial Ltd. and held that lump-sum prepayment premium for restructuring of loan resulting in deduction on rate of interest is allowable as interest and that section 43B(d) also permits such deduction of payment. Respectfully following the coordinate Bench order, we allow ground No. 3 of the revenue which arose only for A.Y. 2001-02. 20. Ground No. 4 reads as under:- On the facts and circumstances of the case and in law, learned CIT(A) erred in holding that the assessee was entitled to claim depreciation with reference to the cost of acquisition of intangible asset purchased from Raymonds without appreciating the fact that the excess amount paid is nothing but the 'Goodwill'. 21. Facts are brought out by learned CIT(A) at para 6and7 which is extracted for ready reference. "Denial of deduction for depreciation on the amount paid for acquisition of various intangibles transferred alongwith the undertaking of Raymonds which was recognized as 'goodwill' in the books of the Appellant. The facts are that appellant had acquired the cement unit of Raymo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84.00 Total 269.87 It is further noticed that these calculations have been done taking a five year scenario. This to my mind is too long a period for working out the estimates of valuation. Historically in India business goodwill is worked on the basis of three years average profits. Therefore a three years scenario would be a better guide. The above figure is proportionately reduced to 107.95 crores which will be treated as valuation of the three intangible assets. There is no adequate basis for valuing the remaining intangible assets being trade names, the various licenses registrations and clearances, the various contracts with suppliers of raw materials and contracts for transportation thereof and, for process related softwares that the appellant listed in the course of proceedings. These are valuable assets of the nature of intangible assets in the form of commercial rights. An adhoc figure of Rs. 50 croes is estimated for the value of these assets. That to my mind would be a just figure. That makes the total value of assets in the nature of commercial rights at Rs. 157.95 crores leaving the balance at Rs. 42.11 crores (200.06 croes considered go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r stated as follows:- "Also the assessee has given reply vide para 3 of its letter dated 10.2.2004 which is reproduced as under:- "As clarified earlier the assessee has capitalised a sum of Rs. 180.86 Crs. as goodwill being the excess consideration Paid over and above the value fixed assets acquired on the purchase of cement division from Raymond Ltd. As your goodself is aware, the Raymond Cement unit was acquired on a going concern basis with all its assets, tangible or intangibles, and liabilities. The assessee carried out a valuation for the tangible assets acquired in the course of acquisition and capitalised them at the value derived by the valuer in his valuation report. The excess payment made over and above the value of tangible assets acquired, is attributable to various intangibles transferred along with the undertaking such as licences, quotas, business rights, etc. and has been capitalised under the head "goodwill". It may be appreciated that the Finance (No.2) Act, 1998 w.e.f. 1st April, 1999 inserted Explanation 3 in Section 32 of the Income tax Act to extend depreciation to intangible assets. The expression 'block of assets' now includes intangible ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed finality. The only issue is, to determine the value of intangible assets other than goodwill. 28. In view of the above discussion, we are of the considered opinion that the issue should be set aside to the file of the Assessing Officer for fresh adjudication in accordance with law. In the result this ground of the revenue is allowed for statistical purposes. This issue arises in all the three assessment years in question and hence for all the years this issue is set aside to the file of the Assessing Officer for fresh adjudication, denova. 29. Ground No. 5and6 for A.Y. 2001-02 are general in nature. 30. Coming to A.Y. 2004-05, ground No. 3 reads as follows:- On the facts and circumstances of the case and in law, learned CIT(A) erred in holding that provision in respect of specific debts cannot be considered to be reserve, which does not call for adjustment u/s. 115JB. 31. As fairly conceded by learned counsel for the assessee, subsequent to retrospective amendment to clause (i) of Explanation (1) to section 115JB, provision for doubtful debt is required to be added back to the net profits, for computing book profit for the purpose of calculation of minimum al ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
