TMI Blog2022 (2) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is only w.e.f. with the amendment to rule 6(7a)(b) that quantification of the weighted deduction u/s. 35(2AB) of the act has significance. Similarly, ITAT Bangalore in the case of Provici Animal Nutrition India Pvt. Ltd. [ 2020 (12) TMI 177 - ITAT BANGALORE ] has held that prior 11-06-2016 form 3CL granting approval by prescribed authority in relation to quantification of weighted deduction u/s. 35(2AB) had no legal sanctity and it was only w.e.f. 1-7-2016 with amendment to rule 6(7a)(b) that quantification of weighted deduction u/s. 35(2AB) has significance. After perusal of the material on record made by the AO submission of the assessee and judicial finding, we observed that the above said judicial finding was available when the impugned revision order was passed u/s. 263 of the act, meaning there was possible views with regard to the question as to whether furnishing of form 3CL is mandatory or not for claiming deduction u/s. 35(2AB) of the act and the AO has followed one of the possible views in which case, the impugned assessment order cannot be framed as prejudicial to the interest of revenue. Depreciation of goodwill on WDV on the basis of claim of amalgamation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing grounds of appeal:- 1. The Ld. PCIT has erred in law and on facts in passing the order u/s. 263 of the Act by holding in Para 25 on Page 57 that the assessment order u/s. 143(3) of the Act dated 19.12.2018 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(a) below section 263(1) of the Act. Accordingly the impugned assessment order is set aside with a direction to the Assessing Officer to make requisite inquiries and proper verification with regard to the issue mentioned above and redo the assessment de-novo after due consideration of the facts and law in this regard . 2. The Ld. PCIT has erred in law and on facts in making an observation in Para 14 on Page 35 of the order that The contention of the assessee that it has followed the purchase method of accounting for amalgamation as also mentioned in the order of Hon'ble High Court and the claim of amalgamation is not sufficient evidence in this regard. It is evident from the document filed by the assessee that as per the claim of amalgamation, all the conditions provided in the accounting standards with regard to po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill acquired in view of the Amalgamation relying on the decision of Hon'ble Apex Court in the case of Commissioner of Income-tax, Kolkata v, Smifs Securities Ltd. [2012] 24 taxmann.com 222 (SC). The appellant company has also taken into consideration while claiming the depreciation on the acquired Goodwill as per purchase Method of Accounting Standard 14 of the Institute of Chartered Accountants of India being cost incurred for acquiring the Goodwill on amalgamation was worked out at ₹ 342,71,92,8557- and depreciation thereon of ₹ 85,67,98,2147- was claimed. 5. The appellant humbly submit that the order passed by the Ld. AO was neither erroneous nor prejudicial to the interest of revenue. All the issues raised in the show cause notice u/s. 263 had already been examined by the Ld.AO and detailed enquiries were conducted at the time of assessment proceedings as such the proceedings u/s. J263 are not legally valid. 6. The Ld. PCIT has erred in law and on facts in making an observation in Para 24 on Page 57 of the order that it is apparent from the assessee's submission that the approval given by the DSIR was only limited to ₹ 588.42 lacs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as initiated proceedings u/s. 263 of the act and passed order u/s. 263 of the Act on 31st March, 2021. The ld. Pr. CIT stated that on scrutiny of assessment record for assessment 2017-18 it is found from Schedule DOA of return of income and annexure G of serial no. 18 of tax audit report that the assessee company has claimed depreciation on goodwill for assessment year 2016-17. It is further noticed from the record that the goodwill has been recognized on amalgamation of erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. subsequently, known as Troikaa Pharmaceuticals Ltd. It is stated that:- Pursuant to the Composite Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956 for amalgamation of erstwhile Troikaa Pharmaceuticals Limited with The Company as sanctioned by the Hon'ble High Court of Gujarat on 30th April, 2016 (effective date) all the residual assets and liabilities of the erstwhile Troikaa Pharmaceuticals Limited were transferred to and vested in The Company with effect from 1st April, 2015, the appointed date. 5.1 The transfer of assets and liabilities from the erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. It is also stated that the goodwill was neither acquired by the amalgamating entity nor resulting entity. So, there was no actual cost incurred by either of the entities with regard to these assets as no cash flow was involved. The Pr. CIT was of the view that goodwill appeared in the balance sheet of the assessee company was purely for the purpose of claiming depreciation and the same is to be disallowed. Therefore, the Pr. CIT stated that depreciation was not allowable on goodwill in assessee s case created by virtue of amalgamation, under the existing provisions of the Income Tax Act, 1961 viz, 6th proviso to section 32(1), section 49(1)(iii)(e), explanation 7 to section 43(1)/and/or explanation 2(b) to section 43(6)(c) and section 55(2)(a)(i). The Pr. CIT has further stated while finalizing the assessment, the Assessing Officer has neither made disallowance on wrong claim of depreciation on goodwill nor called for any explanation from the assessee. The written down value of goodwill in the books of amalgamated company was nil prior to amalgamation and hence the cost of goodwill in the hands of the resultant company i.e. assessee shall be nil and no depreciation can be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the consideration paid by the company and net value of the assets taken over during the process of amalgamation. The Pr. CIT has not accepted the submission of the assessee stating that in the books of amalgamating company i.e. erstwhile Troikaa Pharmaceuticals Ltd and Troikaa Export Pvt. Ltd. no goodwill was existed but the same has been created in the books of the resulting company. The Pr. CIT has stated that the claim of the assessee that goodwill was created in view of amalgamation is required to be examined in view of the provision of the income tax act and also the accounting standard. The ld. Pr. CIT after giving reference of accounting standard AS-14 has also stated that as per accounting standard 14 no goodwill is generated in case of pooling of interest method and in this method the difference between the purchase consideration and net value of the asset is adjusted against reserves. The ld. Pr. CIT has also referred various judicial pronouncements in respect of application of accounting standard -14 of the purpose of accounting in the cases pertaining to amalgamation scheme to decide whether in a particular case of amalgamation goodwill will arise or not. These cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso observed that Assessing Officer has not asked any specific question during the course of assessment proceedings to justify the claim of depreciation in accordance with the provision of law. The Pr. CIT was also of the view that Assessing Officer had not verified at all whether the assessee has followed purchase method or pooling of interest method. The assessee had contended that it had followed the purchase method of accounting as such goodwill was incorporated in the books of account at the time of amalgamation. The assessee has also contended that such goodwill was eligible for claim of depreciation under the provision of I.T. Act. However, the Pr. CIT has not agreed with the submission of the assessee stating that Assessing Officer had not examined this issue at the time of assessment proceedings. Therefore, the Pr. CIT has held that the order passed on this issue by the Assessing Officer was erroneous and prejudicial to the interest of revenue. 6. Regarding claim of deduction u/s. 35(2AB) of the act, the relevant part of the show cause notice issued by the Ld. Pr. CIT to the assessee is reproduced as under:- 5 Further, on verification of Computation of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the copies of detailed submission made before the Assessing Officer during the course of assessment proceedings. Briefly, the assessee also stated that it has claimed weighted deduction u/s. 35(2AB) of the act of ₹ 19,70,97,094/- as per the certificate of the statutory auditor dated 24th October, 2018 on the basis of books of account maintained for expenditure incurred for in house approved R D Centre and on the basis of expenditure incurred on the clinical trial expenditure conducted outside the approved facility which was filed along with the application made to the DSIR for issuance of form no. 3CL. The assessee has submitted that as against the claim of weighted deduction u/s. 35(2AB) of the act as claimed in the return of income the DSIR in Form 3CL dated 16-03-2017 (copy of which was attached) as per which the weighted deduction u/s. 35(2AB) of the act works out to ₹ 1176.84 lacs. However, the DSIR while issuing form no. 3CL have not given the working as to why they have arrived at the said figure in form no. 3CL as against figure stated in the application made to the DSIR for obtaining form no. 3CL. The assessee company is making a follow up with the DSIR to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Pr. CIT was of the view that Assessing Officer had allowed excess deduction u/s. 35 (2AB) and, therefore, the order passed by the Assessing Officer on this issue also was erroneous as much as it was prejudicial to the interest of the revenue. Accordingly, the assessment order u/s. 143(3) dated 19th December, 2018 was set aside with a direction to the Assessing Officer to make de-novo assessment. 7. During the course of appellate proceedings before us, the ld. counsel referred page no. 116 of the paper book no. 1 and submitted that vide letter dated 22nd March, 2021 the ld. Pr, CIT has issued show cause notice u/s. 143(3) of the act and proposed revision of order u/s. 143(3) dated 30th March, 2019 stating that the same was erroneous and prejudicial to the interest of revenue. In response to the show cause notice, assessee company has filed its submission vide letter dated 30th March, 2021 placed at page 120 of the paper book no. and submitted that during the course of original assessment proceedings carried out u/s. 143(3) of the act it had already provided the detail related to goodwill including claim of depreciation on goodwill vide reply dated 24-09-2018 and 16-11-201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamation of Troikaa Pharmaceutical Ltd. with the assessee company was given. It is also mentioned that the amalgamation has been accounted for under the purchase method as prescribed under accounting standard-14 at page no. 59 of the paper book no. 1. The assessee has given the working of goodwill arises on amalgamation of Troikaa Pharmaceutical Ltd. He also referred page no. 60 of the paper book-1 as per which the detail of consideration to be paid by issuing of shares in terms of composite scheme of arrangement was given. The ld. counsel has also taken us to page no. 312 to 367 of the paper book no. II pertaining to the copies of valuation and certificates issued by the registered valuer of valuation of various assets as per the terms and conditions of the composite scheme. He also referred page no. 362 of the paper book II pertaining to fair market value of the different fixed asset acquired on account of merger of Troikaa Pharmaceutical Ltd. with the assessee company. The ld. counsel has also taken us to page no. 73 to 114 of the paper book no. I comprising auditor s report u/s. 44AB along with various annexure and accounting notes with detail of various assets and liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax v. Gabriel India Ltd. 203 ITR 108 (HC Bombay) 13. Commissioner of Income Tax v. Vikas Polymers (2003) 341 ITR 537 (HC Delhi) 7.1 During the course of appellate proceedings before us on the issue of depreciation on assets it was submitted that this issue was also duly considered during the course of original assessment proceedings in the reply of the assessee dated 24th Sep, 2018. The reconciliation chart with respect to assets pre-amalgamation i.e. Troika Pharmaceutical Ltd. as on 31st March, 2015 and post amalgamation with Troika Exports Pvt. Ltd. as on 31st March, 2015 with opening WDV as on 1-4-2016 were submitted. The assessee has enclosed the same as per annexure B vide its submission dated 17th August, 2021. As per annexure B enclosed in the submission, the assessee has given the detail of assets along with written down value of the assets as on 31st March, 2015 and opening figure of the same as on 1st April, 2016 in the case of Troika Pharmaceutical Ltd. showing it has taken the same figure as per the written down value of the assets as on 31st March, 2015 for the purpose of further claim of depreciation. 7.2 On the other hand, the ld. Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket value. The ld. Departmental Representative referred that everything is to be valued at fair market value. He has referred the case law mentioned by the Pr. CIT in the order passed u/s. 263 pertaining to DCIT vs. Toyo Engineering Pvt. Ltd. ITA 3279/Mum/2008 and decision of SC Johnson Pvt. Ltd. vs. ACIT Delhi High Court. The ld. Departmental Representative has also referred the different pages of the order of the Pr. CIT u/s. 263 of the act and stated that no specific query has been raised. He also referred the decision of Jalgaon People Co-operative Bank (2021) 127 taxmann.com 243 of ITAT Pune. The judgment of Hon ble High Court vide ITA 987/2017 in the case of Brahmdev Gupta and G.Vee Enterprises 991 ITR 375 (Delhi), Rampyari Devi Sarogi (1968) 671 ITR 84 (SC) and Sify Software Ltd. of ITA Chennai 80 taxmann.com 273. The ld. Departmental Representative has also referred the decision of Abhishri Packaging Pvt. Ltd. of ITA Mumbai ITA No. 6485/Mum/2018. In respect of second ground pertaining to claim of deduction u/s. 35(2AB) of the act, the ld. Departmental Representative has contended that no re-conciliation of research and development expenditure has been carried out and the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Representative has stated that this case pertained to slump sale. (x) Hinduja Foundries Ltd. Vs. ACIT, Chennai [2017] 83 taxmann.com 52 (Chennai Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. (xi) Fibres Fabrics International (P) Ltd. Vs. DCIT, Circle-11(3), Bangalore [2016] 72 taxmann.com 87 (Bangalore Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. (xii) DCIT, OSD-1(1) Vs. Worldwide Media (P.) Ltd. [2014] 43 taxmann.com 18 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump. (xiii) ST. Angelo's Computers Ltd Vs. ITO- 9(3)(2), Mumbai [2017] 88 taxmann.com 376 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. The ld. Departmental Representative has also given his comments on the case laws relied upon by the ld. counsel as per part B of the paper book. In the case of Adani Gas Ltd. vs. Pr.CIT-1 (ITA No.1252/Ahd/2016) (ITAT Ahmedabad) , the ld. Departmental Representative contended that facts of this case are different from assessee s case as it pertained only to claim of clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets it cannot be valued at fair market value. The ld. counsel has also submitted that during the course of assessment proceedings, the assessee has also submitted that during the course of assessment proceedings the assessee has also made compliance with all the notices and the detailed submission has been placed in the paper book. Regarding on the comments of the Departmental Representative that Assessing Officer passed cryptic order the ld. counsel has stated that the case of the assessee was transferred from ACIT to the ITO, Wd the detailed submission and detailed verification made by the ACIT Circle were transferred to the ITO Ward and the internal matter between the Assessing Officer were continued for 15 months. The first hearing was taken place on 3rd March, 2017 and last hearing was taken place on 6th December, 2008. Total five notices were issued and the hearing was taken place on 8 times. He has further submitted that Assessing Officer after due verification and after considering the detailed finding of the judicial pronouncement has passed the order u/s. 143(3) of the act. The ld. counsel has further submitted that purchase method was followed as per the order of the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamating company if it had continued to hold the capital assets for the purposes of its own business. Similarly, WDV for capital assets transferred by amalgamating company to amalgamated company by virtue of explanation 2 to section 43(6) shall be the written down value of the block of asset as in the case of the transferor/amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. The intangible assets which were owned/held by the Troikaa Pharmaceutical Ltd., prior to amalgamation with erstwhile Troikaa Pharmaceutical Ltd. and Troikaa Export Pvt. Ltd. was nil, the cost, in the hands of the erstwhile Troikaa Pharmaceutical Ltd. and Troikaa Export Pvt. Ltd. for such goodwill shall be nil only. The ld. Pr. CIT in the order u/s. 263 of the act has also held that the Assessing Officer while finalizing the assessment neither made disallowance of wrong claim on deprecation of goodwill nor called for any explanation from the assessee company. The Pr. CIT also observed that the Assessing Officer has failed to examine whether the assessee has followed purchase method or pool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said order issued by registry of the Hon ble Gujarat High Court on 30th April, 2016 along with copies of valuation of reports of different assets of the Troikaa Pharmaceutical Ltd.. The ld. counsel has also placed in the paper book the copy of submission giving the details of written down value of the assets as on 31st March, 2015 in the books of Troikaa Pharmaceutical Ltd. (transferor company) and the assets accounted for in the transferee company Troikaa Pharmaceutical Ltd. (name converted into Troikaa Pharmaceutical Ltd. on 01-04-2015) at the respective market value along with revised audited balance sheet prepared after approval of amalgamation scheme by Hon ble Gujarat High Court. In the Composite Scheme of Arrangement for amalgamation of Troikaa Pharmaceutical Ltd. with Troikaa Export Pvt. Ltd.. the detail of description of the company, rational of composite scheme of amalgamation, definition and share capital transferred on vesting different kinds of assets, issuance of share and restructuring of share capital, accounting treatment in the books of transferee company, general terms and conditions etc, were given in detail approved by the Hon ble High Court of Gujarat. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in detail the treatment of the amalgamation on your books of account with supporting documents, valuation reports etc. 7. Please justify the huge increase in the intangible assets during the FY and the claim of depreciation on the same. 8. Please reconcile the closing WDV of assts as per ITR of AY 2015-16 with the opening WDV of ITR of AY 2016-17 In the same notice on the issue of claim of deduction u/s. 35(2AB), the Assessing Officer has also raised specific queries as per serial no. 21 to 22 of the notice u/s. 11th Sep, 2018 which is reproduced as under:- 21. Please show cause why the sum of ₹ 15876 should not be added to your total income u/s 36(1)(va) rws 2(24) as you failed to deposit the sums so received from your employees to the designated funds? 22. Please submit complete details of the expenses claimed u/s 35(2AB) and justify your claim with supporting documents and computations. Also submit the approval from DSIR regarding the amount claimed by you. Again vide notice dated 22nd Sep, 2018, the Assessing Officer has also raised specific queries on the issues of claim of goodwill on amalgamation reproduced as under:- 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been incurred on in-house R D facility by the company? The Assessing Officer has also noticed u/s. 142(1) on 12th Nov, 2018 vide which he has carried out detailed inquiry on the amalgamation of Troikaa Pharmaceutical Pvt. Ltd. along with detail of goodwill acquired and other particulars pertaining to Profit and Loss Account and balance sheet under the scheme of amalgamation along with claim of deduction u/s. 35(2AB), the same is reproduced as under:- Please provide the following information in respect of FY 2015-16 in addition to information requested in earlier all the notices if not submitted till date. Please note that the information requested in this notice and all other subsequent notices needs to be submitted only electronically through your e-filing portal in view of the e-assessment proceedings being conducted in your case 1. Please submit the balance sheet and P L A/c with all schedules of erstwhile Troikaa Pharma which got amalgamated with Troikaa Exports Pvt. Ltd as on 31-03-2015. 2. Submit the details of the financials of troika group companies etc in below format Company A.Y. 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In this regard, please find enclosed herewith the Acknowledgement, Computation and Return of total income for A.Y. 2016-17 as per Exhibit - I (Page No. 1 to 41), copy of Statutory Audit Report alongvyith Audited Balance Sheet and Profit and loss account for F. Y. 2015-16 as per Exhibit - II (Page No. 42 to 72) and copy of Tax Audit Report for A.Y. 2016- 17 as per Exhibit - III (Page No. 73 to 114). 2. (Sr.No.2) Your honour has asked the assessee company to reconcile the closing stock as per ITR of AY 2015-16 with the opening stock of }TR for AY 2016-17. The Troikaa Pharmaceuticals Ltd. (Transferor Company) having PAN No.AABCT0228K) amalgamated with Troikaa Exports Pvt. Ltd. (Transferee Company) having PAN No.AABCT6866H as per the Order of Hon'ble High Court of Gujarat at Ahmedabad dated 09.03.2016. A copy of the said order is enclosed herein after as per Exhibit-VI (Page No. 153 to 229). As per the Scheme of Amalgamation and Order of Hon'ble High Court of Gujarat at Ahmedabad all the assets and liabilities of Troikaa Pharmaceuticals Ltd. transferred to Troikaa Exports Pvt. Ltd. Subsequently the name of assessee company Troikaa Exports Pvt. Ltd. has been cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with proper references of the HC order. Your honour is requested to refer Page No. 39, Handwritten on top of the scheme of Amalgamation attached to the copy of the Hon'ble Gujarat High Court order and print Page No. 7 as stated on lower part of the page , Part - B which is having the title Transfer of Windmill division of TPL to TEPL and Para 4 which has been approved for transfer and vesting of Windmill Division of TPL to TEPL on a going concern basis with effect from March 31, 2015, closing hours of business, the Windmill Division Troikaa Pharmaceuticals Ltd to Troikaa Exports Pvt.Ltd and in Para 4 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229), it has been approved for transfer and vesting of Windmill division of Troikaa Pharmaceuticals Ltd to Troikaa Exports Pvt.Ltd on a going concern basis with effect from 31,03.2015, closing hours of business, alongwith all encumbrances and charges subsisting over the asses of Windmill Division of Troikaa Pharmaceuticals Ltd , shall, pursuant to the provisions contained in Sections 391 to 394 and other relevant provisions, if any, of the Act, without an further act, deed, matter or thing stand transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pertaining to Residual TPL including but not limited to actionable claims, sundry debtors, outstanding loans, advances recoverable in cash or kind or for value to be received and deposits with the Government, semi-Government, local and other authorities and bodies and customers, the same shall be and stand transferred to and vested in TEPL as an integral part of this Scheme without any notice or other intimation to the debtors (although TEPL, may if it so deems appropriate issue notices stating that pursuant to this Scheme, the relevant debt, loan, advance, deposit or other asset, be paid or made good to, or be held on account of, TEPL as the person entitled thereto, to the end and intent that the right of Residual TPL to receive, recover or realize the same, stands transferred to TEPL and that appropriate entries should be passed in their respective books to record the aforesaid changes); 7.1.3. In so far as the immovable properties (including but not limited to land together with the buildings and structures standing thereon) of Residual TPL are concerned, whether freehold or leasehold and any documents of title, rights and easements in relation thereto shall stand trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other benefits, credits or privileges enjoyed including but not limited to in respect of income tax (including Minimum Alternate Tax), excise (including MODVAT / CENVAT), customs, VAT, sales tax, service tax, etc. granted by any Government body, local authority or by any other person, or availed of by Residual TPL, are concerned, the same shall vest with and be available to TEPL on the same terms and conditions as applicable to Residual TPL, as if the same had been allotted and/or granted and/or sanctioned and/or allowed to TEPL. 7.4. The transfer and vesting of the assets and liabilities of Residual TPL as aforesaid shall be subject to the existing securities, charges, mortgages, if any, in respect of any assets of Residual TPL. It is hereby clarified that all existing loans and financial assistances availed by TPL as on Effective Date shall, until the Same is repaid in full to the satisfaction of the respective banks or financial institutions, continue to be secured by the property and assets of TEPL including such assets which have been received by TEPL as per Part B of the Scheme. Provided always that the Scheme shall not operate to enlarge the, security for any l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being effective, any tax liabilities under the Income Tax Act, 1961, Customs Act, 1962, Central Excise Act, 1944, value added tax laws, entertainment tax as applicable in any State in which Residual TPL operates, Central Sales Tax Act, '1956, any other State Sales Tax / Value Added Tax laws, or Service Tax, or Corporation Tax, Medicinal and Toilet Preparations Act, 1955 or other applicable laws/ regulations dealing with taxes/ duties/ levies/cess (hereinafter in this Clause referred to as Tax Laws ) to the extent not provided for or covered by tax provision in the Residual TPL's accounts made as on the date immediately preceding the ISt day of April, 2015, shall be transferred to TEPL. Any surplus in the provisionfor taxation/ duties/ levies account including but not limited to advance tax, tax deducted/ collected at source and credit for Minimum Alternate Tax as on the date immediately preceding the 1st day of April, 2015, will also betransferred to the account of and belong to TEPL. 7.8 For the period between the 1st day of April, 2015, and the Effective Date all debts, liabilities, duties and obligations of the Residual TPL as on the 1st day of April, 2015, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Chartered Accountants of India. 9.2 Upon coming into effect of this Scheme, TEPL shall record, all the assets and liabilities of TPL transferred to and vested in TEPL pursuant to this Scheme, at their respective lair market values at the close of business on the day immediately preceding the Appointed Date. 9.3. The inter-company balances and investments, if any, appearing in the books of accounts of TEPL and TPL inter se, will stand cancelled 9.4. TEPL shall credit to its share capital account(s), the aggregate face value of the Equity Shares and Preference Shares issued and allotted under clause8.2 and clause 8.3 of this Scheme. 9.5. TEPL shall credit to its Securities Premium Account, the aggregate premium respect of Equity Shares issued and allotted under Clause8.2 of this Scheme. 9.6. The difference, if any. between the Net Assets Value of TPL transferred to and recorded by TEPL in terms of Clause 6.1 and 9.2 above, and the amount credited to Share capital and Securities Premium account as per Clause 9.4 and 9.5 above and cancellation of inter-company balances and investment as per Clause 9.3 above, reduction of share capital of TEPL as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For your honour's ready reference, Note No. 27 28 forming part of notes to the accounts of statutory audit report is reproduced hereunder:- '27. Company Information Troikaa Pharmaceuticals Limited (the 'Company') is a public limited company. The Company was previously registered as Troikaa Exports Private Limited (TEPL) and in accordance to the Composite Scheme of Arrangement sanctioned bytheHon'ble High Court of Gujarat on 30th April 2016 (effective date) with following events taking place under the Scheme a. Transfer of Windmill Undertaking of the erstwhile Troikaa Pharmaceuticals Limited was w.e.f. 31st March 2015 closing hours of business; b. Amalgamation of Residual erstwhile Troikaa Pharmaceuticals Limited was w.e.f. 1st April, 2015. c. The paid-up Equity Share Capital of the Company (TEPL) was reduced from the existing paid-up Equity Share Capital from ₹ 3.00 lakhs (Number of Equity Shares 30,000) to ₹ 1.00 lakhs (Number of Equity -Shares 10,000). d. TEPL was converted to Troikaa Exports Limited (TEL). The effect of the conversion was given on 8th June 2016 by Registrar of Companies, Gujarat. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.77 lakhs and liabilities aggregating to ₹ 17,262.42 Lakhs at book value of the erstwhile Troikaa Pharmaceuticals Limited and an amount of ₹ 34,271.93 lakhs being the excess of the amount recorded as share capital and securities premium to be issued by The Company over the amount of net asset value (after cancellation of the inter-company balance and investment of the erstwhile Troikaa Pharmaceuticals Limited and Share Capital Reduction of ₹ 2.00 lakhs has been debited to Goodwill account. (Rs. In lakhs) Particulars Amount Total Consideration (A) 48,610.05 Tangible Fixed Assets 9,502.06 Capital Work-in-progress 984.39 Intangible Fixed Assets 3850.32 Non-Current Investments 26.27 Long Term Loans Advances 1208.69 Other Non-Current Assets 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 38,88,000). iiii... In view of the above scheme of arrangement, the Financial Statements for the current year are not comparable to those of the previous year. iv. As the allotment of Equity Shares and Preference Shares has been made on 30thth July, 2016, the amount of Equity Share Capital and Share Premium thereon, Preference Share Capital has been shown as Equity Share Suspense Account, Preference Share Suspense Account under grouping Share Capital and Share Premium Suspense Account under grouping Reserves Surplus. These shares have been considered for the purpose of calculation of earnings per share. iii) Your honour is requested to refer Note No. 29, Significant Accounting Policies and Para [E] under the head Depreciation / Amortization /wherein, it has been stated as under:- A. Basis of Accounting: The company maintains its accounts on accrual basis following the historical cost convention in accordance with generally accepted accounting principles ( GAAP ) comprises Accounting Standards specified under Section 133 of the of the Companies Act 2013, read with Rule 7 of Companies (Accounts) Rules, 2014, other pronouncements of the Insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 56,00,000/- (₹ 1,40,00,000*40% under the Income Tax Act has not been claimed for AY 2015-16. However to calculate depreciation for the AY 2016-17, Opening WDVof₹ 84,00,000/- [₹ 1,40,00,000 - ₹ 56,00,000 has been taken by considering the depreciation for the AY 2015-16 deemed to be allowed to avoid protected litigation. 9. (Sr.No.9) Your honour has asked to show cause why the donation payments of ₹ 1,62,500 debited to P L A/c should not be disallowed in computingyour total income as the same has not been reduced from the business profits in your ITR despite mentioned by auditor in TAR?. In this regard, the assessee company has to submit that the Donation of ₹ 1,62,500/- debited to P L Account has already been disallowed in the computation of total income and also in the ITR filed. Your honour is requested to refer e-filing ITR Schedule BP wherein at Point No. 23, Part - A, the figures stated therein of ₹ 14,20,96,183/- includes donation expenses of ₹ 1,62,500/-. Therefore, the assessee company in the computation of total income has already disallowed the donation expenses of ₹ 1 ,62,500/- and the tax auditor in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide submission dated 16th Nov, 2018, placed at page 405 to 434 of the paper book II, in response to the queries raised by the Assessing Officer in the notice u/s. 142(1), the assessee has also made detailed submission that the company has taken over the residual fixed assets at the fair market value aggregating to ₹ 14,366.77 lacs, other assets aggregating to ₹ 17,261.77 lacs and liabilities aggregating to ₹ 17,262.42 lacs at book value of the erstwhile Troika Pharmaceuticals Ltd. and an amount of ₹ 34,271, 93 lacs being the excess of the amount recorded as share capital and securities premium to be issued by the assessee company over the amount of net asset value (after cancellation of the inter-company balance and investment) of the erstwhile Troika Pharmaceuticals Ltd. and share capital reduction of ₹ 2.00 lacs has been debited to goodwill account. The assessee has also submitted detail of accounting treatment in the books of transferee company and also submitted detailed decision of the Hon ble Apex Court as well as the Hon ble High Court relied upon by the assessee. The relevant part some of the submission made by the assessee before finalization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en recorded at the book value of erstwhile Troikaa Pharmaceuticals Limited. Hence, in accordance with the Composite Scheme of Arrangement: The Company has taken over the residual fixed assets at the fair market value aggregating to ₹ 14,336.77 lakhs, other assets aggregating to ₹ 17,261.77 lakhs and liabilities aggregating to ₹ 17,262.42 Lakhs at book value of the erstwhile Troikaa Pharmaceuticals Limited and an amount of ₹ 34,271.93 lakhs being the excess of the amount recorded as share capital and securities premium to be issued by the assessee company over the amount of net asset value (after cancellation of the inter-company balance and investment) of the erstwhile Troikaa Pharmaceuticals Limited and : Capital Reduction of ₹ 2.00 lakhs has been debited to Goodwill account. Share Particulars Amount (Rs.in lakhs) Total Consideration (A) 48,610.05 Tangible Fixed Assets 9,502.06 Capital Work-in-progress 984.39 Intangible Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and with effect from the 1st day of April, 2015, TEPL shall account for the amalgamation in its books as under. 9.1. The amalgamation of TPL will be accounted for in the books of TEPL by adoption of Purchase Method of accounting in accordance with the Accounting Standard -14 issued by the Institute of Chartered Accountants of India. 9.2. Upon coming into effect of this Scheme, TEPL shall record, all the assets and liabilities of TPL transferred to and vested in TEPL pursuant to this Scheme, at their respective fair market values at the close of business on the day immediately preceding the Appointed Date. 9.3. The inter-company balances and investments, if any, appearing in the books of accounts of TEPL and TPL inter se, will stand cancelled 9.4. TEPL shall credit to its share capital account(s), the aggregate face value of the Equity Shares and Preference Shares issued and allotted under clause 8.2 and clause 8.3 of this Scheme. 9.5. TEPL shall credit to its Securities Premium Account, the aggregate premium in respect of Equity Shares issued and allotted under Clause 8.2 of this Scheme. 9.6. The difference, if any, between the Net Asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 01.04.2015 as an intangible asset in the assessee company's books of accounts in the process of amalgamation and the same was put to use from 01.04.2015. iv). The assessee company has to submit that there was no Goodwill in the books of accounts of Troikaa Pharmaceuticals Ltd, i.e. the amalgamating company on 31.03.2015 and there was no Goodwill standing in the books of accounts and in the Balance Sheet as on 31.03.2015 of Troikaa Exports Pvt. Ltd i.e. the assessee company. The assessee company invites your honour's attention to provisions of section 32(ii) which provides as under- (ii) know-how, palertls, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, The assessee company has to submit that the Goodwill in the form of intangible assets which came into existence on 01.04.2015 for an amount of ₹ 34271.93 lakhs in the books of the assessee company falls in the category of intangible assets being business or commercial rights of similar nature, which is eligible for depreciation as per the provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Tax appeal no. 47-51 of 2009 dated 21.06.2016) Therefore, the assessee company has to submit that in respect of intangible assets came into existence on 01.04.2015 from the said date it has been put to use by the assessee company and therefore, eligible depreciation has been claimed u/s. 32(ii) of the I.T. Act, 1961 in the return of income filed for A.Y. 2016-17 under the Income-tax Act following the decision of the Hon'ble Supreme Court, Jurisdictional Gujarat High Court and various other High Courts. 3. (Sr. No. 4) Your honor has asked the assessee company to furnish details of the benefits derived from the acquired goodwill if any with supporting- documentary evidence/ factual data. A. With regards to the same, it is humbly submitted that the details of the benefits derived from acquired goodwill cannot be shown with the help of any documentary evidence or factual, data. The expression goodwill subsumes within it a variety of intangible benefits that are acquired when a person acquires a business of another as a going concern. It is submitted that a variety of elements go into the making of goodwill like licenses, know-how, customer information, supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is a/so impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business. Thus, it is difficult to furnish details of the benefits derived from the acquired goodwill if any I documentary evidence/ factual data. However, the list of factors which give in the case of the assessee company are encapsulated in Clause 1.6 (a), 0) (g) of the Hon'ble High Court approved Scheme of Amalgamation and the is reproduced below for ready reference: a) All the assets and properties of Transferor Company as on the Appointed Date (i.e. 1st April, 2015); c) All licenses (including but not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t depreciation is allowable not only on a specified category of intangibles but also for other categories of intangible assets which fall within the purview of the expression business or commercial rights of similar nature under Section 32 of the Income Tax Act, 1961. Reliance is placed on the cases cited herein below: i. The Hon'ble Delhi High Court in Areva T D India Ltd. v. Deputy Commissioner of Income-tax reported in [2012] 20 taxmann.com 29 (Delhi) 13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression business or commercial rights of similar nature specified in Section 32(l)(ii-) of the Act, it is seen that such rights need not answer the description of knowhow, patents, trademarks, licenses or franchises but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(l)(ii) of the Act preceding the term business or commercial right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 Ii Techno Shares Stocks Ltd. v. Commissioner of income-tax-IV[2010] 193 Taxman 248 (SC) 19. The next question is - whether the membership right could be said to be owned by the assessee and used for the business purpose terms of section 32(l)(ii). Our answer is in the affirmative for the reason that the Rules and the Bye-laws analysed hereinabove indicate that the right of membership (including the right of nomination) vests in the Exchange only when a member commits default. Otherwise, he continues to participate in the trading session on the floor of the Exchange; that he continues to deal with other members of the Exchange and even has the right to nominate subject to compliance of the Rules. Moreover, by virtue of Explanation 3 to section 32(l)(ii) the commercial or business right which is similar to a licence or franchise is declared to be an intangible asset. Moreover, under rule 5, membership is a personal permission from the Exchange which is nothing but a licence which enables the member to exercise rights and privileges attached thereto. It is this licence which enables the member to trade on the floor of the Exchange and to participate in the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of furniture being tangible assets was being allowed subject to satisfaction of the conditions laid down under section 32 oj the Act i.e. the assets should be owned wholly or partly by the assessee and used for the purpose of business 01 profession of the assessee. The rate of depreciation for such assets was provided in Schedule attached to the Income Tax Act. However, after the amendment by the Finance (No.2) Act, 1998, w.e.f. 1.4.1999 the depreciation is also to be allowed on intangible assets i.e. know-how, patent and copyrights, trademarks, licences or franchises or any other business or commercial rights of similar nature. The Hon'ble Delhi High Court in Areva T and D India Ltd. Vs. DCIT (supra) applied the principle of ejusdem generic to interpret the expression business or commercial rights of similar nature referred to in section 32(l)(ii) of the Act and held that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. The Hon'ble Court further held that in the circumstances, the nature of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees are assets, which are invaluable and instrumental in carrying on the business of Animal Health Care and Diagnostics Business divisions acquired by the assessee from M/s Ranbaxy Laboratories Ltd. as per BPA. The acquisition of the above said items is bundle of rights acquired by the assessee for which lump sum price was fixed and no break up in the value of price was determined either by the assessee or by the ai'd'tor* but the same constituted bundle of rights akin to a licence or comparable to a license to carry on the business of Animal Health Care and Diagnostics Business divisions^ which was being carried on by the seller i.e. M/s Ranbaxy Laboratories Ltd. the above said assets acquired by the assessee were the 'business or commercial rights or licence acquired' in order to carry on new business acquired by the assessee including list of employees and also various licences owned by Ranbaxy Laboratories Ltd. In line with the ratio laid down by the Hon'ble Delhi High Court in Areva T and D India Ltd. Vs. DCIT (supra), we are of the view that the consideration of ₹ 12.74 crores paid by the assessee was for acquisition of the intangible assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business. v. Commissioner of Income-tax-IV v. Hindustan Coca Cola Beverages (P.) Ltd. [2011] 1'98 TAXMAN104 (Delhi) 21. It is worth noting, the scope of section 32 has been widened by the Finance (No. 2) Act, 1998 whereby depreciation is now allowed on intangible assets acquired on or after 1st April, 1998. As per section 32(1)(ii), depreciation is allowable in respect of know-how, patent, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature being intangible assets. Scanning the anatomy of the section, it can safely be stated that the provision allows depreciation on both tangible and intangible assets and clause (ii), as has been indicated hereinbefore, enumerates the intangible assets on vjhich depreciation is allowable. The assets which are included in the definition of 'intangible assets' includes, along with other things, any other business or commercial rights of similar nature. The term 'similar' has been dealt with by the Apex Court in Nat Steel Equipment (P.) Ltd. v. Collector of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed by Lord Macnaghten in Trego v. Hunt [1896] AC 7(HL) as the 'sap and life' of the business. Architecturally, it has been described as the 'cement' binding together the business and its assets as a whole and a going and developing concern. A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in IRC v. Muller Co.'s Margarine Limited [1901] A.C. 217(HL) that although goodwill was easy to describe, it was nonetheless difficult to define. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the claim of the assessee by the Assessing Officer would come in the compartment of taking a plausible view inasmuch as basically intangible assets vte identifiable non-monetary assets that cannot be seen or touched or physical measures which are created through time and/or effort and that are identifiable as a separate asset. They can be in the form of copyrights, patents, trademarks, goodwill, trade secrets, customer lists, marketing rights, franchises, etc. which either arise on acquisition or are internally generated. 24. It is worth noting that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of section 32(l)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights can be of the same genus in which all of the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of business. In the circumstances, it is observed that in case of the assessee, certain annual maintenance contracts (AMC's), which constituted the whole and sole of the 'maintenance division' business of the transferor and which was hitherto being carried out by the transferor, without any interruption were transferred under the said undertaking and sale agreement. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by create new/fresh business rights; the assessee got an up and running business. This view was fortified by the ratio of the decision of Supreme Court in Techno S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 2.75 crores and the difference between the net value of assets, which assets were recorded at book value, was recognized as 'goodwill' in the books of accounts and the same represented various assets as were also identified in the business transfer agreement as under:- Contracts means the rights and obligations of the Transferor under all contracts and agreements relating to the Business to which the Transferor is a party. Permits means licenses including EPCG/DEEC/Advance License and its obligation, bonds, legal undertaking (LUT) consents, authorizations, orders, confirmations, permission, certificates, approvals existing as well as in pipelines and authorities, as set /or ;n Schedule III. Para 2.2 and 2.4 of the Business Transfer Agreement 2.2 Transferor hereby assigns and the Transferee hereby accepts assignment of the Contracts. If the consent of any entity (other than a government authority) is required for the assignment of rights and obligations of any of the contracts under this Agreement, the Transferor on the form of assignment agreement to be executed with such other entity, and the Transferor shall use all reasonable endeavors to notify and / or obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Explanation 3 to Section 32(1) of the Act found that the word any other business or commercial rights of similar nature in clause (b) of Explanation 3 indicates that goodwill will fall under the expression any other business or commercial rights of similar nature . In view of the above judgment of Apex Court in SMIFS Securities Ltd., we are unable to uphold the orders of the lower authorities. Accordingly, we set aside the orders of the lower authorities. The Assessing Officer is directed to allow depreciation at the applicable rate on the payment relatable to goodwill. ix. Fibres Fabrics International (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle 11(3), Bangalore [2016] 72 taxmann.com 87 (Bangalore - Trib.) 20. In the present case, it w on undisputed fad that the sole proprietary concern was acquired by the appellant as a going concern with all assets liabilities. In the balance sheet of the sole proprietary concern, goodwill of ₹ 35 crores was shown on the assets side of balance sheet. The agreement of take over had clearly mentioned that all assets including the goodwill was taken over by the company. Even accepting the view of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s like Femina and Filmfare, which has a very huge customer base and has a very high brand value for more than sixty years. The goodwill is a kind of benefit arising from the reputation of a brand or business which is generated with the passage of time. Goodwill is a generic term which has a very wider meaning and is generated while carrying on the business and the brand value associated with the products. The goodwill can be in the form of copy rights, patent, trade mark, marketing rights, particular customers, franchisee, brand value, etc. In this case, the assessee has only taken the part of the goodwill in the form of trade mark and copy right, however, that alone cannot be said to be a part of goodwill, especially when the assessee has acquired such a high end brand products in the form of one of the most popular magazine and right to organize mega events under such brand name. Therefore, part of the acquisition cost can also be said to be for goodwill of the brand product. However, the manner in which the Assessing Officer has adopted the value of the goodwill is''absolutely incorrect and without any method, which is generally adopted for evaluating the goodwill. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assesses attributed ₹ 4,85,00,000/- towards goodwill and business knowhow. The value of consideration was determined on the basis of valuation made by the M/s Uttam Abuwala Co.. The valuation report indicates the contents of the computer diskette in electronic form relating to the operations and other information provided by the management signifying the value of the name/brand of St. Angela's and other know-how in the field of computer education, trained instructors, books, course material developed for providing training in computer applications, working pattern, education methodology etc. which basically was developed over a period of time with the object of ensuring the best quality training in computer application. In the return of income assessee claimed depreciation on goodwill . The AO declined assessee's claim of depreciation on the goodwill on the plea that good-will is not an intangible asset for depreciation u/s. 32(l)(ii). By the impugned order, the CIT (A) confirmed the disallowance of claim of depreciation on Good-will against which assessee is in further appeal before us. 6. We have carefully gone through the decision of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult, all appeals of the assessee are allowed in terms indicated hereinabove. xii. Dy. Commissioner of Income Tax - 6, Kanpur v. M/s. J.K. Cement Ltd. ITA No. 499/LKW/2010 2. So for as first issue/ground relating to depreciation on good will is concerned, it was contended before us that this issue is squarely covered by the order of the Tribunalin assessee's own case for AYs 2005-06 2006-07 in which the Tribunal has categorically held that assessee is entitled for depreciation on good will. The copy of the order of the Tribunal is placed on record on pages 268 to 279 of the compilation of the assesses. The relevant observations of the Tribunal in this regard arc performed hereunder- 10. Our attention was also invited to Explanation 3 below section 32(1) of the Act. While allowing the claim of the assessee, the Id. CIT(A) has held that issuance of shares for ₹ 7.44 crores was a part payment of purchase consideration towards cost of acquisition of cement undertaking, therefore, the cost of shares issued to the shareholder of JKSL is eligible for depreciation and the Id. CIT(A) has also held that even if it is considered to be the cost of goodwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Areading the words any other business or commercial rights of similar nature in douse (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). In the circumstances, we are of the view that goodwill is an asset under Explanation 3(b) to section 32(1) of the Act. 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) ( the CIT(A) , for short) has come to the conclusion that the authorised representatives had filed copies of the orders of the High Court ordering amalgamation of the above two companies ; that the assets and liabilities of M/s. YSN Shares and Securities P. Ltd. were transferred to the assessee for a consideration ; that the diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of ₹ 16,58,76,000 over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle of business and commercial rights, clearly defined in the slump sale agreement, compendiously termed as goodwill in the books of account, which comprised, inter alia, the following : (i) business claims, (ii) business information, (Hi) business records, (iv) contracts, (v) skilled employees, (vi) knowhow. It is also observed that the Assessing Officer accepted the allocation of the slump consideration of ₹ 44.7 crores paid by the transferee, between tangible assets and intangible assets (described as goodwill) acquired as part of the running business. The Assessing Officer, however, held that depreciation in terms of section 32(l)(ii) of the Act was not, in law, available on goodwill. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal approved the reasoning of the Assessing Officer thereby holding disallowance of depreciation on the amount described as goodwill. It was thus argued on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in the case of the assessee, intangible assets, viz., business claims; business information; business records ; contracts; employees ; and know-how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 1TR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of JKSL is considered to be the cost of goodwill acquired by the assessee, as it was shown as part of means of finance, even then it is eligible for depreciation in the light of the aforesaid judgments of the Hon'ble High Court and the Hon'ble Apex Court. Therefore, we are of the considered opinion that the ld. CIT(A) has rightly adjudicated the issue and we do not find any infirmity therein. Accordingly we confirm his orders in both the years. Similar views have also been held in the following judicial pronouncements: i. Commissioner of Income-tax v. Aditya Birla Nuvo Ltd. [2017] 79 taxmann.com 210 (Bombay) 3. Regarding question no (i):- (a) The impugned order of the Tribunal allowed the respondent-assessee's appeal on this issue of depreciation on goodwill by following the decision of the Apex Court in C7T v. Smijs Securities Ltd. [20121348 ITR 302/210 Taxman 428/24 taKmann.com 222. (b) In the above view, question no.(i) as proposed does not give rise to any substantial question of law Thus, not entertained. Commissioner of Income-tax taxmann.com 262 (Bombay) 2 v. Birla Global Asset Finance Co. Ltd. (2014) 41 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of Sify Software Ltd. vs. ACIT, Corporate Circle, Chennai (2017) 80 taxman.com 273 (Chennai-Trib) During the course of appellate proceedings, the ld. Departmental Representative has referred the decision of Sify supra stating that Assessing Officer has accepted claim made by the assessee without proper examination and enquiry. In this regard, after perusal of the material on record as referred above, we observed that fact in the case of the assessee are different since it is demonstrated from the material on record that Assessing Officer has made detailed enquiry on the issue of claim of goodwill and the claim of deduction u/s. 35(2AB) therefore looking to the material fact on record we consider that the facts of the case are distinguishable from this case law. The ld. Departmental Representative has also referred the case law of Babulal S. Solanki vs. ITO (2019) 104 taxman.com 155 (Ahd-Trib), in this case, the Assessing Officer has not specifically looked into the application of section 50C of the act for adoption of sale consideration as against stamp duty valuation. However, the fact in the case of the assessee are quite different as per the material on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Representative was initially adjudicated by the ITAT Mumbai on 25th May, 2012 holding that no depreciation could be allowed on goodwill whereby purchase of goodwill was not proved by the assessee. However, the Hon ble High Court has restored this case to the file of ITAT for fresh adjudication on merit in accordance with the law. Thereafter, the ITAT vide order dated 13th October, 2014 held after following the decision of the Hon ble Supreme Court in the case of Smifs Securities Ltd. that goodwill is eligible for depreciation, the ITAT has held that the issue of allowability on depreciation of goodwill should be decided in favour of the assessee as such revenue has not brought any contrary material to suggest that the claim of deprecation of goodwill is not genuine and the same is not eligible for depreciation. The ld. Departmental Representative has referred the decision of CIT Delhi vs. Woodward Governor India Pvt. Ltd. (2009) 179 taxman 326 (SC). We find that facts of this case are entirely different as it pertained to adjustment to be made in carrying cost of fixed assets acquired in foreign currency because of fluctuation in rate of foreign exchange. The case of SC Johnson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e number of notices issued u/s. 143(2) and 142 of the act as referred in this order and the assessee had made due compliance before the Assessing Officer and furnished books of accounts along with copies of documents/material. The ld. counsel referred the decision of Krishna Capbox (P) (2015) 60 taxman.com 243 (Allahabad) wherein the Hon ble High Court of Allahabad held that once inquires was made, a mere non-discussion or non-mention thereof in assessment order could not lead to assumption that Assessing Officer did not apply his mind or that he had not made inquiry on subject and this would not justify interference by Commissioner by issuing notice u/s. 263 of the act. Similarly, in the case of the assessee also it is demonstrated from the copies of notices issued by the Assessing Officer and detailed submission with copies of documents made by the assessee that Assessing Officer has made the specific enquiry on the issue of claim of depreciation of goodwill and claim of deduction in respect of R D expenditure before finalizing the assessment, however, these issues were not discussed in the assessment order because Assessing Officer has not found any irregularities with the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamation. In that case the auditor has not expressed their opinion on the truthfulness and correctness of the accounts and the auditor has not considered the claim of deprecation allowable. We find that facts in the case of the assessee are different as it has been demonstrated from the submission made by the assessee in response to the query raised by the Assessing Officer that goodwill has arised in the scheme of amalgamation and duly supported with the audited account by statutory auditor. The case of Bodal Chemicals Ltd. vs. Addl. CIT vide ITA No. 1439/Ahd/2011 dated 16-10- 2019 wherein ITAT Ahmedabad held that the assessee was allowed goodwill in the first year of amalgamation i.e. assessment year 2006-07 and there was no action either u/s. 263 or 147 of the act by the revenue therefore it was held that claim of depreciation of the assessee on the first year has attained finality and it was further held that in such case principal of consistency shall be valid as held by the Bombay High Court in the case of Pr. CIT vs. Quest Investment Advisor Ltd. 96 taxman.com 157. Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC), the ld. Departmental Representative has referred this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of merger; and b) in the nature of purchase. In the second type of amalgamation by purchase, the consideration paid in excess of the net value of assets liabilities of the amalgamating company is to be treated as goodwill. In the case before us, goodwill on which depreciation is claimed by the assessee is arising out of the amalgamation scheme, but is not solely the self-generated goodwill as alleged by the AO. Further, the AO followed the decision of Bangalore bench of ITAT in the case of United Breweries (cited supra) to disallow the claim of depreciation on goodwill. The Tribunal had considered the judgment of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. and has held that the Hon'ble Supreme Court has only held that goodwill is an intangible asset and that depreciation is allowable thereon, but, that it does overrode of 5th Proviso to section 32(1) of the Act. We find that the facts of United Breweries are distinguishable from the facts of the^ case before us, as in the case of United Breweries, there was a merger with its Wholly owned Subsidiary, whereas in the case of the assessee, it is amalgamation by purchase. Therefore, the decision in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 3.2(1) of the Act. 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 the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee Company in the process of amalgamation had acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we consider that Assessing Officer has made detailed verification as demonstrated from the number of invoices referred above and assessee has given the detailed submission in response to all the queries raised by the Assessing Officer. In the case of CIT, Kolkata vs. Smifs Securities Ltd., (2012) 24 taxmann.com 222 (SC),the Hon ble Supreme Court held as under:- Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1) - Held, yes - During relevant assessment year, one V Ltd. amalgamated with assessee-company - According to assessee, excess consideration paid by it over value of net assets acquired of V ltd. amounted to goodwill on which depreciation was to be allowed - Authorities below recorded a finding that assets and liabilities of 'Y' Ltd. were transferred to assessee for a consideration; that difference between cost of an asset and amount paid constituted goodwill and that assessee-company in process of amalgamation had acquired a capital right in form of goodwill because of which market worth of assessee-company stood increased - Accordingly, assessee's claim was allowed - Whether since revenue could not rebut factual findings rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on goodwill - Held, yes [Para 6] [In favour of assessee] 8.7 The assessee has also demonstrated from the material placed in the record that it has followed purchase method as excess of the amount of consideration over the value of the net assets of transferor company acquired by the transferee company was recognized in the transferee company s financial statement as goodwill. We have gone through the accounting for amalgamation as per accounting standard 14 on the submission of the assessee that it has correctly adopted the fair market for valuation of assets except assets and like stock in track, bank balance cash balance cannot be valued as per fair market value. The assessee has demonstrated from the material from record that as per submission made at the time of assessment that excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company was recognized in the transferee company s financial statement in accordance to purchase method as per accounting standard-14 In this regard we have gone through the common procedures as mentioned in para 40 of the accounting standard 14 in respect of such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if Commissioner still feels that order is erroneous and prejudicial to interest of revenue, Commissioner may pass revisional orders - Held, yes - Whether if a query was raised during course of scrutiny by Assessing Officer, which was answered to satisfaction of Assessing Officer, but neither query nor answer was reflected in assessment order, that would not, by itself, lead to conclusion that order of Assessing Officer called for interference and revision - Held, yes 8.8 With regard to the claim of deduction u/s. 35(2AB), the assessee has categorically brought to the notice of the Pr. CIT during the course of proceeding u/s. 263 of the act that the necessary verification and inquiry on this issue has been made by the Assessing Officer during the course of assessment proceedings. The assessee has also given the reference of the notices issued u/s. 142(1) of the act along with relevant details and inquiry made in respect of expenses claimed u/s. 35(2AB) of the act. The assessee company in the return of income filed for assessment year 2016-17 claimed weighted deduction and research and development expenditure incurred u/s. 35(2AB) of the act for an amount of ₹ 72,29,22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer to make an observation in the assessment order that on furnishing the amended form no. 3CL, the necessary rectification application u/s. 154 of the act should be passed by allowing the enhanced weighed deduction in respect of R D expenditure u/s. 35(2AB) of the act. It is demonstrated from the above referred brief detail of submission made by the assessee during the course of appellate proceedings that it has submitted all the relevant details in respect of claim u/s. 35(2AB) of the act vide submission dated 6th October, 2018 and 23rd October, 2018 along with all the supporting documents and evidences and on being satisfied the Assessing Officer had passed assessment order u/s. 143(3) dated 19th December, 2018 without making any addition. We have also perused the decision of Hon ble Gujarat High Court in the case of Claris Lifescience Ltd. 326 ITR 251 (Guj.) wherein it is held that once facility is approved the entire expenditure so incurred on development of R D facility has to be allowed for weighted deduction. Prior to 1-06-2016, only requirement to claim deduction u/s. 365(2AB) was to receive recognition from prescribed authority and deduction could not be denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WDV of ₹ 2,57,03,94,642/- on the basis of claim of amalgamation of the amalgamating company Troika Pharmaceutical Ltd. with Troika Export Pvt. Ltd. amalgamated company and also claimed deduction u/s. 35(2AB) in respect of R D expenditure. The Assessing Officer has allowed the claim of depreciation on the goodwill. The additional facts pertaining to the issue of R D of this year is that during the year, the assessee company has claimed weighted deduction of ₹ 23,38,59,786/- being two times of ₹ 11,69,29,893/- u/s. 35(2AB) of the act. As per the form 3CL dated 6th August, 2018 issued by the DSIR, is eligible R D expenditure for deduction u/s. 35(2AB) was of ₹ 10,76,44,000/- being two times of ₹ 538.22 lacs during the course of assessment proceedings, the Assessing Officer has made detailed verification and investigation of the claim of the assessee vide notices issued u/s. 142(1) of the act on 28-02-2019, 15-03- 2019 and 26-03-2019. After taking into consideration the submission of the assessee, the Assessing Officer has issued show cause notice dated 26th March, 2019 and asked the assessee to show cause why weighted deduction claimed by it u/s. 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind of inquiry and examination was not made by the Assessing Officer. The Assessing Officer rightly held in accordance to the amended provision as supra that the weighted deduction is available in respect of expenditure on scientific nature as approved in Form No. 3CL w.e.f. 1.7.2016. If a query was raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order that would not by itself, lead to the conclusion that the order of the Assessing Officer called for interference and revision. The ld. Pr. CIT has failed to substantiate as to how the order passed by the Assessing Officer was prejudicial to the interest of Revenue and that too without dealing with the explanation and material furnished by the assessee before him. It is clear from the material on record that every aspect of the matter was dealt with by the Assessing Officer though no specific mention was made by him in the assessment order. The Assessing Officer in this case had made enquires in regard to the claim of deduction for goodwill on amalgamation and claim of deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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