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Capita India Private Limited Versus Asstt. Commissioner of Income Tax -9 (2) (1) (Erstwhile DCIT 5 (1) , Mumbai

Addition u/s 69C - whether the writing off the goodwill has resulted in the siphoning of funds of the company and covered u/s 69C - Held that:- Our answer to the above question is negative. We are in agreement with the submissions of ld.AR that writing off the goodwill during the year has not resulted in any kind of tax evasion as it is undisputed tact the assessee has purchased the ongoing business for a consideration of ₹ 86.69 crores, and bought asset the worth ₹ 21.12 crores on s .....

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pt u/s 10A of the Act, which the assessee was undisputedly entitled to. We are, therefore, of the considered opinion that the finding of the ld.CIT(A) and that of the AO are not correct on facts and are without any basis. Further addition made under the provisions of section 69C of the Act is also not correct as section 69C can only be invoked only when the source of any investment was not explained which is clear from the language used in the section 69C reproduced above. Thus, the order of ld. .....

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1.3.2014 for AY 2010-11. Since issue involved in these cases is common and therefore, these appeals are heard together and are being disposed of by this consolidated order for the sake of convenience. 2. Since the grounds of appeal in both the appeals are common except for the figures, therefore, we reproduce the grounds of appeal taken in assessment year 2009-10. 1. The following ground / sub-ground of appeal are independent of, and strictly without prejudice to one another: I. Based on the fac .....

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otice to the appellant during the course of the assessment proceedings for submitting the appellant's contentions for non-applicability of Section 69C of the Act. 3. Based on the facts and circumstances of the case and in law, the learned CIT(A) erred in not considering the additional evidence filed by the appellant in support of its contentions for non-applicability of Section 69C of the Act. 4. Based on the facts and circumstances of the case and in law, the learned CJT(A) erred in upholdi .....

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69C of the Act without giving any opportunity or show cause notice to the assessee during the assessment proceedings and also not considering the evidence filed by the assessee to prove that the provisions of section 69C were not applicable and writing off goodwill was not colorable device to evade any tax liability. 4. Facts of the case are that the assessee e-filed its return of income on 30.9.2009 declaring total income at ₹ 47,23,270/-. The return was processed under section 143(1) an .....

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, Andheri-(E), Mumbai-400072. During the year the company had acquired business undertaking PPMS pertaining to activity of customer contact centre services and back office services for matured life and pensions business at a total purchase consideration of ₹ 86.69 crores which was duly stated by way of note in the Schedule-16 Notes to Accounts to the balance sheet. As per the agreement, the assessee acquired net assets of ₹ 20,11,63,000/- against the purchase price of ₹ 86,69,1 .....

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and was charged to the profit and loss account. At the time of filing of the return, the goodwill was added back to the profit as per profit and loss account in respect of Vikhroli Unit and the said profits were claimed to be exempt u/s 10A of the Act. During the course of assessment proceedings, the AO noticed from the computation of the total income that the assessee added back the sum of ₹ 66,87,55,000/- to the net profit of ₹ 17,47,00,000/- in the Vikhroli Unit -(2), and thus arr .....

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tion of the assessee that the goodwill arising out of acquisition of business of customer contact centre services and back office services for matured life and pensions business located at Vikhori on slump sale basis is nothing but a adjustment entry to wipe out the amount of goodwill which has no value and is tax neutral. The ld. CIT(A) upheld the addition by holding as under : 2.4 After careful perusal of the assessment order and written submissions of the A/R of the appellant it has been obse .....

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crores. Hence, he has made an addition u/s 69C of the Income Tax Act,1961. The A/R of the appellant has also given parawise reply to the objections raised by the AO simply because the fact that the goodwill acquired by the appellant company has been written off by declaring it as impaired on 31.3.2009 which makes it a colourable transaction. Hence, the addition made by the AO is confirmed an the ground of appeal No.1 is dismissed 5. The ld. AR submitted before us that the assessee during the ye .....

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dwill in para 1 and 13 of the Schedule 16 of notes to the account of the balance-sheet wrote off the said amount by charging the same to the profit and loss account. While computing the total income of the assessee in respect of Vikhroli Unit(2), the goodwill written off of ₹ 66,87,55,000/- was added back to the net profit of ₹ 17,47,00,000/- and accordingly adjusted net profit of ₹ 86,96,91,077/ was claimed as exempt u/s 10A of the Act. It was argued by the ld.AR before us tha .....

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ubmitted that the provisions of section 69C were not applicable to the facts of the assessee s case as the sources of payment was fully explained and the payment was made from the bank account of the assessee maintained with CITY Bank in Mumbai. The amount of goodwill written off was first charged to profit and loss account of the assessee and then added back to the net profit of the Vikhroli Unit(2) for the purpose of claiming exemption u/s 10A. Thus, the assessee had not evaded any tax by writ .....

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was paid through the bank maintained by the assessee with CITY Bank. Similarly, the observations of the ld. CIT(A) that the said transaction was colourable transaction was also wrong. The ld. Counsel finally prayed that the addition as made by the AO u/s 69C and confirmed by the ld. CIT(A) be deleted by setting aside the order of ld. CIT(A). 6. The ld. DR heavily relied on the orders of the authorities below. 7. We have considered the rival submissions and perused the material placed before us. .....

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ent liabilities and provisions (86,531) Secured loans (802) Sub-total (87,333) Net assets acquired 201,163 Purchase consideration 866,918 Goodwill on acquisition 668755 Thus, the difference between the net assets acquired and the purchase consideration was treated as goodwill . The payment for the purchase of existing business was made by cheque vide agreement dated 20.12.2007 and copy the bank statement and acknowledge receipt have also seen is placed in the paper book before us. The assessee, .....

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ited ('PPMS'), wherein PPMS had agreed to sell its business undertaking engaged in business of customer contact centre services and back office services for matured life and pensions business as a slump sale on an 'as is where is' basis, for a consideration of ₹ 869,918. The acquisition was effective October 1, 2008. The total consideration of ₹ 869,918 has been allocated to assets and liabilities acquired from PPMS as under: Description Description Fixed assets 261,6 .....

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ble / realizable value and hence has been treated as fully impaired and has been written off as at the year end. While filing the return of income in the statement of computation of total income, the assessee added back the said goodwill to the profits of Vikhroli(2) of ₹ 17.47 crores and thus arrived at a total profit of ₹ 86,96,91,077/- which was claimed as exempt income u/s 10A of the Act. The AO added the same under section 69C of the Act by suspecting the transaction in colourab .....

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ee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income Now the question before us is, as to whether the writing off the goodwill has resulted in the siphoning of funds of the company and covered u/s 69C of the Act. Our answer is negative. We are in agreement with the submissions of ld.AR that writing .....

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