TMI Blog2017 (1) TMI 1692X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by the first appellate authority, though a specific ground was raised before him. Considering the above, we are of the opinion that in the interest of justice the matter should be restored back to the file of the first appellate authority for fresh adjudication. He is directed to decide the issue afresh after affording a reasonable opportunity of hearing to the assessee. The first ground of appeal is decided in favour of the assessee, in part. Disallowance u/s 145A - AO found that the assessee was following an exclusive method of accounting with regard to relation of stock, that it was not including cenvat credit - HELD THAT:- Before us, the learned authorised representative and the Departmental representative stated that the issue needs further verification at the level of the Assessing Officer and the matter should be restored back to his file for fresh adjudication. Accordingly, we are remitting back the matter to the file of the Assessing Officer who will decide the issue after affording a reasonable opportunity of hearing to the assessee. Ground No. 2 is allowed in favour of the assessee, in part. Directing AO to grant credit - HELD THAT:- As stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Returned income (Rs.) Assessment date Assessed income (Rs.) CIT(A) 2007-08 29-10-2007 5,64,95,162 31-12-2010 22,79,96,485 28-3-2013 2008-09 30-09-2008 24,35,52,117 26-12-2011 37,61,06,040 18-3-2013 I. T. A. No. 3943/Mum/2013, assessment year 2007-08 2. The first effective ground of appeal is about rejecting the claim of depreciation of ₹ 16.37 crores in respect of intangibles. During the assessment proceedings, the Assessing Officer (AO) found that in the year under consideration the assessee had purchased A R business of the sister concern namely, Merck Ltd. (ML), for a total consideration of ₹ 81.67 crores, that it had merged the current assets and liabilities of the erstwhile business with its accounts and had shown an addition to the block of intangible assets amounting to ₹ 65.50 crores, that it had also shown addition of ₹ 3.18 crores with regard to other fixed assets, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the description of the above assets proved that the assessee had not acquired any visible assets, that the assets mentioned above appeared to be only matter of perception of the assessee, that the valuation report did not figure in the sale agreement. He asked the assessee to explain as to why the entire value of intangible asset should not be ignored for the purpose of depreciation as per the provisions of Explanation 3 to section 43(1) of the Act. He also took into notice the findings of the Assessing Officer, who had assessed the income of the sister concern. In its response to the query raised by the Assessing Officer, the assessee relied on the provisions of section 32(1)(ii) of the Act and various judicial pronouncements. However, the Assessing Officer did not find it tenable. He held that entire transaction, including the creation of assets in support of the transaction, had been designed by the assessee and its sister concern to evade tax by claiming exemption in the hands of the transferor company and claim depreciation on the fictitious assets in the hands of the assessee, that both the companies were subsidiaries of the same parent company, that the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 15.14 crores represented the goodwill purchased, that identifiable long-term assets of the company having no physical existence were shown intangible assets, that same included goodwill, patents, copyrights, that intangible assets would either be acquired or would develop internally, that in the case of acquisition of a business such assets would be recorded at their fair market value, that in the case of internally generated intangible assets the same would be recorded at the cost incurred in development phase, that in relation to development of internally generated intangible assets there were two phases namely research phase and development phase that the scope of section 32(1) was widened by the Act 1998 from the assessment year 1999-2000 so that depreciation was made allowable in respect of intangible assets owned by an assessee and used for the purpose of its business/profession, that the intangible assets would form a separate block of assets, that depreciation on such assets was allowable on payment made to acquire the same, that ordinarily an assessee was entitled to claim depreciation on the actual cost of the assets acquired by it, that the law permitted the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made available by the sister concern for survival and expansion of its business, that the part of business taken over by the assessee from its sister concern and it had not own independent intangible assets, that value of trade mark, copyright and know-how could not be capitalised for grant of depreciation, that no assets in the form of intangibles existed, that the same were not actually transferred, that purchase of intangible assets by the assessee from the sister concern was a pure paper transaction and the assessee was not entitled for claiming depreciation under the law, that the Assessing Officer had rightly rejected the ground of depreciation at the rate of 25 per cent. With regard to grant of depreciation on goodwill, the first appellate authority observed that the valuation report of the registered valuers submitted by the assessee to establish the value of intangibles did not mention the value of goodwill at all, that as per the assessee's own papers no goodwill stood transferred from the sister concern to the assessee for a price, that the assessee had claimed that it had paid excess amount in respect of the intangible assets purchased and had tried to justify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of goodwill, that it was a transaction between the group concerns, that it was important to consider the treatment given to the transaction by the seller in its books, that the claim made by the assessee was fictitious and it was a skill to avoid taxes, that there was no justification to allow the expenditure under section 37(1) of the Act, that the expenditure was not incurred for business purposes, that the Assessing Officer had correctly invoked the provisions of Explanation 3 to section 43(1). He referred to the cases of Asst. CIT v. Jitender Kumar Gupta [2015] 154 ITD 389 (Delhi) and Southern Ferro Steels Ltd. v. ITO [2016] 69 taxmann.com 196 (Bang-Trib). 2.3. We have heard the rival submissions and perused the material on record. We find that the assessee had purchased A R business from its sister concern for ₹ 81.67 crores, that it had merged the assets and liabilities of the erstwhile business with the newly acquired assets and liabilities, that it had shown an addition to the block of intangible assets amounting to ₹ 65.50 crores, that it had also shown addition of ₹ 3.18 crores with regard to other fixed assets, that it had obtained a valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer/Dispute Resolution Panel have held that there is no intangible assets of the assessee which have been transferred and the amount received of ₹ 65,50,00,000 have been assessed under section 28(iv) of the Act . . . The learned authorised representative further referred to pages 86 to 110 of the paper book and submitted that the assessee also obtained valuation reports from two valuers for transfer of the said assets. The learned authorised representative submitted that the Department has no right to re-write the agreement and to consider that the consideration of ₹ 65,50,00,000 received by the assessee is on account of non-compete fee. . . . The learned authorised representative submitted that the consideration of ₹ 65,50,00,000 received by the assessee is on account of transfer of intangible assets. Therefore it is a capital receipts which cannot be taxed under section 28 of the Act. 19. The learned authorised representative referred the valuation report and submitted that in the said valuation report and also in the sale agreement dated April 17, 2006, there is no reference of the valuation report on the basis of which the assessee has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of hearing, the learned authorised representative has not been able to controvert the said fact. In respect of valuation 'earmarked' at ₹ 10,90,000 towards ISO certificate, the Assessing Officer has stated that the expenses for the same have actually been claimed by the assessee as revenue expenses in the earlier years and if it is so we agree with the learned Depart mental representative that if any consideration is received on transfer of that benefit i.e. ISO certificate, it cannot be considered as capital receipt on transfer of the business. Not only this, we observe from 'exhibit A', the annexure to the sale agreement, (copy placed at pages 30 to 39 of the paper book No. 2) the assessee has given individual value of the assets and whereas in the case of 'slump sale', as per section 2(42C), the term 'slump sale' has been defined as the transfer of one or more undertakings as a result of sale for a lump sum consideration without valuation being assigned to the individual asset and liability of such sales. Considering the said facts in the light of the explanation, we are of the considered view that the condition as provided in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses by restoring the matter to the Assessing Officer for fresh consideration. The Tribunal has observed that the assessee had argued in the case of Merck Ltd. that the transferor company had obtained valuation reports from two valuers. We are not aware as to what is the details bifurcation of the intangibles is given in those reports. In case there is difference in the values appearing in the valuation reports of the assessee and Merck, the provisions of section 43(6) may be applicable in deciding the issue. All these developments have taken place after the first appellate authority decided the appeal. In our opinion, these facts will be some bearing on the final outcome of the appeal. We further find that the alternate ground raised by the assessee about allowing the entire expenditure as revenue expenditure has not been adjudicated upon by the first appellate authority, though a specific ground was raised before him. Considering the above, we are of the opinion that in the interest of justice the matter should be restored back to the file of the first appellate authority for fresh adjudication. He is directed to decide the issue afresh after affording a reasonable oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art. I. T. A. No. 3944/Mum/2013, assessment year 2008-09 5. The first ground of appeal is about the disallowance of ₹ 1.49 lakhs under section 14A of the Act read with rule 8D of the Income-tax Rules, 1962 (Rules). During the assessment proceedings, the Assessing Officer found that the assessee had declared dividend income of ₹ 16.78 lakhs and claimed it as exempt under section 10(35) of the Act. He directed the assessee to furnish details of expenditure incurred or attributable for earning exempt income and to show cause as to why disallowance under section 14A read with rule 8D of the Rules should not be made. The assessee argued that it had not incurred any expenditure to earn tax-free income, that even if disallowance was to be made it had to be restricted to the proportionate salary paid to one of the employees of the company. However, the Assessing Officer made a disallowance of ₹ 1.49 lakhs invoking provisions of section 14A. 5.1. During the appellate proceedings the first appellate authority held that the assessee had earned exempt income during the year under appeal for which no expenditure had been incurred, that the assessee itself had argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the order of the Assessing Officer. He directed the Assessing Officer to take necessary consequential action on receipt of the decision of the hon'ble Supreme Court on the special leave petition filed before it in the case of Exide Industries Ltd. (supra). We find that the assessee had claimed the deduction relying upon the case of Exide Industries Ltd. (supra), that the first appellate authority has directed the Assessing Officer to take necessary consequential action in pursuance of final outcome of the special leave petition filed before the hon'ble Supreme Court. Thus, the interest of the assessee have been taken into consideration by the first appellate authority. We do not want to interfere with his order. The Assessing Officer would take necessary action after pronouncement of judgment by the hon'ble Supreme Court. The fourth ground of appeal is decided in favour of the assessee in part. 9. The next effective ground is about charging of interest under sections 234B and 234D of the Act. In our opinion, the ground is consequential in nature and hence is not being adjudicated. As a result the appeals filed by the assessee stand partly allowed. Order pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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