TMI Blog2020 (8) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... uct of business, continuing business, commercial and industrial rights and licenses to the successor company / merged entity. These commercial, business and industrial rights were duly acquired by the assessee company through a scheme of merger and due consideration passed on for the same by way of allotment of shares. Same would factually tantamount to acquisition of goodwill. Since, the goodwill is an intangible asset, within the meaning of Section 32 in the form of industrial, business and commercial rights, the assessee would be eligible for depreciation u/s.32 of the Act. We find that the ld. CIT(A) had observed that goodwill in the instant case had arose on revaluation of properties which is factually incorrect as observed hereinabove by us i.e the value of assets and liabilities were recorded at book values only pursuant to merger. We find that lower authorities had placed reliance on the decision in the case of Jaypore Sugar Co.Ltd., [ 2010 (12) TMI 258 - ITAT, VISAKHAPATNAM] to support their proposition. We find that subsequent to this decision, the Hon ble Supreme Court in the case of CIT vs. Smifs Securities Ltd.. [ 2012 (8) TMI 713 - SUPREME COURT] had specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of this issue are that the assessee is engaged in the business of manufacturing and sale of printed self-adhesive stripes, labels, glow signs and all kind of trade and advertising material, trading of car accessories. The assessee filed the Return of Income on 14/10/2020 declaring the total income of ₹ 8,31,08,850/-. During the year under consideration, the assessee had claimed depreciation of ₹ 4,56,72,382/- (@25%) on goodwill valued at ₹ 18,26,89,529/-. The goodwill arose on account of merger of Safely Products division of M/s Forma Sports Pvt. Ltd. (FSPL) with the assessee company. The Safety Products Division of M/s Forma Sports Pvt. Ltd. (FSPL) was to be merged with the assessee company as per the scheme of merger under the Companies Act, which was duly approved by the Hon'ble Bombay High Court. In accordance to the sanction of scheme of arrangement, all assets and liabilities of Safety Products Division were to be merged into the assessee company at the book values at which they stood in the books of accounts of FSPL against which the assessee company was committed to issue shares to the shareholders of FSPL, in pursuant to the said scheme. The resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d face value of equity shares issued as allotted. The ld. CIT(A) reproduced 6.1 to 6.3 of the order of the Hon ble Bombay High Court sanctioning the claim of merger which reads as under:- 6.1 CSL shall upon the arrangement becoming effective, record the assets and liabilities of the safety Products Division of FSPL vested in it pursuant to this scheme, at the respective book values, ignoring revaluation, if any as appearing in the books of FSPL at the close of business of the day immediately preceding the Appointed date. 6.2. CSL shall credit to the share Capital Account in its books of account, the aggregate face value of the equity shares of CSL issued and allotted by it to the equity shareholders of FSPL pursuant to this Scheme. 6.3. The different between the book value of net assets of Safety Products Division of FSPL and the face value of equity shares and allotted shall be credited by CSL to the General Reserve Account or debited to the Goodwill Account, as the case may be. 3.3. The ld. CIT(A) observed that there was no transfer of intangible assets from the Safety Division of Forma Sports Pvt. Ltd. to the assessee. The transfer is of only movable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observation of the ld. AO, in our considered opinion, is not tenable in view of the fact that whether the unit is incurring losses or not, has got nothing to do with the existence of goodwill prevailing in the said unit. Goodwill would arise on account of various factors such as continuing clients, continuing business relationship, established set up for smooth conduct of business, continuing business, commercial and industrial rights and licenses to the successor company / merged entity. These commercial, business and industrial rights were duly acquired by the assessee company through a scheme of merger and due consideration passed on for the same by way of allotment of shares. Hence, the same would factually tantamount to acquisition of goodwill. Since, the goodwill is an intangible asset, within the meaning of Section 32 of the Act in the form of industrial, business and commercial rights, the assessee would be eligible for depreciation u/s.32 of the Act. We find that the ld. CIT(A) had observed that goodwill in the instant case had arose on revaluation of properties which is factually incorrect as observed hereinabove by us i.e the value of assets and liabilities were recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises or any other business or commercial rights of similar nature. 4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that pursuant to the scheme of arrangement approved by Hon. Gujarat High Court in Asst. Year 2008-09 i.e. Zydus Wellness Ltd. acquired the Consumer Products Division of Cadila Healthcare Ltd. including the Brands 'Sugar-free' and 'Ever Youth' and related intangible assets of the said business, which came to be accounted for as Goodwill in the books of accounts of Zydus Wellness Ltd. The value of the said Goodwill, acquired at ₹ 28.76 crores, stood duly reflected in the Annual Accounts of the Company for F.Y.2008-09 as the excess of the agreegate face value of the Equity Shares issued over the excess of the Assets and Liabilities. At the time of filing of return income in Asst. Year 2010-11 the issue of claiming of depreciation on goodwill was debatable and uncertain. It was only after the judgment of Hon. Supreme Court in the case of CIT vs. Smiffs Securities Ltd. (supra) wherein Hon. Court had an occasion to deal with the issue of claiming depreciation on goodwill, similar to the case of assessee wherein goodwill was paid on account of amalgamation. Hon. Court held as under :- Explanation 3 states that the expression 'asset' shall mean a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant was assessed to purchase tax and the order of assessment was received by it on 23rd November, 1973. The appellant challenged the same and obtained a stay order. The appellant also filed an appeal from the assessment order under the Income Tax Act. It was only during the hearing of the appeal that the assessee claimed an additional deduction in respect of its liability to purchase tax. The Appellate Assistant Commissioner (AAC) permitted it to raise the claim and allowed the deduction. The Tribunal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the Income Tax Officer. The Tribunal also refused the appellant's application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court. The Supreme Court held as under:- 5. In CIT v. Kanpur Coal Syndicate, a three Judge bench of this Court discussed the scope of Section 31(3)(a) of the Income Tax Act, :1922 which is almost identical to Section 251(l)(a). The court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction. [Para 11] Further the observation of the Supreme Court in the case of Jute Corpn. of India Ltd. (supra) to the effect 'if the ground so raised could not have been raised at that particular stage when the return was filed or when the : assessment order was made....' or 'that the ground became available on account of change of circumstances or law,' does not curtail the ambit of the jurisdiction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs. (Para 22) It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. (Para -: 23) The Appellant, therefore, prays that in any case, your Honour, as the first appellate authority is empowered to entertain the Appellant's claim for Depreciation on Goodwill, respectfully following the ratio of the Apex Court in the case of Smijfs Securities (supra). 37. Respectfully following the judgment of Hon. Apex Court in the case of CIT vs. Smiffs Securities Ltd. (supra), and the judgment of Hon. Bombay High Court in the case of CIT vs. Pruthvi Brokers and Shareholders (supra) we are of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them, the assessee cannot be expected to keep track of all the suppliers that too, after a lapse of three years from the date of transaction. 5.2. The assessee submitted that from the bank statement of the assessee which was submitted before the ld. AO, it could be seen that the payments were made to the suppliers by crossed account payee cheques. The assessee also submitted the copy of ledger account of M/s. Deep Enterprises and Mahabir Enterprises as appearing in its books. We find that the aluminium frames that were purchased were duly utilized in the business of the assessee and finished product generated thereon, had been sold and hence, duly reported by the assessee. Hence, there cannot be any dispute on the same. However, the assessee was not able to prove beyond doubt, the suspicion that arose in the minds of the revenue in respect of these parties appearing to be in the negative list of sales tax department of Government of Maharashtra. In these circumstances, it could be safely concluded that assessee could have purchased these capital goods amounting to ₹ 43,94,251/- from the grey market in order to save the liability of VAT. Since the items purchased were c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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