TMI Blog2023 (7) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... ets from the amalgamating company and it is part of consideration paid. Hence, the assessee would be entitled for claiming depreciation on Goodwill in view of the decision in the case of CIT vs. Smifs Securities Ltd., reported in[ 2012 (8) TMI 713 - SUPREME COURT] Hence, even on merits, assessee is entitled for depreciation on Goodwill. AO after taking due cognizance of all these documents and case laws had indeed taken a possible view in the matter, which in our considered opinion, is also the correct view in the eyes of law. Hence, the ld. PCIT could not invoke his revision jurisdiction to substitute his erroneous view on the matter in the place of view already taken by the ld. AO. Allowability of deduction of premium on redemption of debentures - It is pertinent to note that the claim of the assessee on accrual basis with regard to the premium on redemption of debentures equally over the period of debentures is strictly in accordance with the ratio laid down in the case of Madras Industrial Investment Corporation Ltd [ 1997 (4) TMI 5 - SUPREME COURT] Hence, it cannot be said that there was an inadvertent claim made by the assessee in A.Y.2013-14 on accrual basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High court dated 04/04/2014 w.e.f. 01/04/2012. The assessment was completed u/s. 143(3) r.w.s.144C(3) of the Act on 28/12/2016 determining loss of Rs. 46,61,24,517/- under normal provisions of the Act and book loss of Rs. 17,78,58,239/- u/s. 115JB of the Act. In the said assessment, various disallowances were made by the ld. AO which are subject matter of appeal before the ld. CIT(A). The assessment framed by the ld. AO on 28/12/2016 was sought to be revised by the ld. PCIT by invoking revision jurisdiction u/s. 263 of the Act on the ground that the order passed by the ld. AO is erroneous in as much as it is prejudicial to the interest of the Revenue in view of the following:- (i) Incorrect claim of Premium on Redemption of Debentures: In this case during the course of assessment proceedings for AY 2015-16, it was observed that the assessee company had debited and claimed Rs. 55,53,50,000/- on account of premium paid on redemption of debentures. However, on perusal of assessment records of AY 2013-14, it was noticed that the assessee made a claim of Rs. 18,84,52,508/- on premium on redemption of debentures on accrual basis . On being asked to justify the allowabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and Infiniti Wholesale Limited (Formerly known as Woolworths Wholesale India Private Limited) ( IWL ) got merged with effect from 1 April 2012. Accordingly, IWL ceased to exist as separate legal entity with effect from 1 April 2012 and all the rights, liabilities and obligations of IWL had been transferred to assessee. ● However, before the merger order had been issued, the assessee company had filed the original return of income for AY 2013-14 on 29 November 2013 declaring total loss of Rs 6,19,61,820. Post receiving the merger order, the assessee filed revised return of income for AY 2013-14 declaring the total loss of Rs 53,26,02,366 on 31 March 2015. In the revised return of income, the assessee has offered to tax the income of assessee (pre-merger) and IWL. The copy of original computation of income and revised computation of income are enclosed herewith as Annexure 2 and Annexure 3 respectively. ● The return of income was processed and the case was selected for scrutiny assessment under CASS. Notice under section 143(2) of the Act was issued on 04 September 2014. Post this notice, a Notice under section 142(1) of the Act was issued on 08 July 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business loss as per return of income (53,26,02,366) Add: Disallowance under section 14A of the Act 53,31,545 Add: Disallowance of stock revaluation 5,57,94,825 Add: Disallowance of advance written off 47,91,719 Add: Disallowance of soiled note 4,00,000 Add: Disallowance of Corporate Social Responsibility expenses 1,59,760 Total assessed income/ loss (46,61,24,517) ● From the above, it is evident that the claim deduction for premium on redemption of debenture and depreciation on goodwill had been duly allowed after considering all the necessary facts on record. ● In view of the above submissions, your Honour would appreciate that it proves beyond doubt that AO had applied his mind while framing the assessment order and had taken on record all the details regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. ● The Karnataka High Court in the case of Gokuldas Exports (20 Taxmann.com 491 (2012)] has held: The phrase prejudicial to the interest of the Revenue under section 263 of the Act has to be read in conjunction with the expression erroneous order by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. ● Based on the aforesaid paragraphs, following order can be termed as erroneous and Commissioner can invoke Section 263 provided the order is prejudicial to the interest of the revenue: Which suffers from a patent lack of jurisdiction Passed without due application of mind and/or passed based on wrong assumption of facts and/or passed based on incorrect application of law and/ or passed without following the principle of nature justice ● As mentioned in foregoing paragraphs, the assessment for the captioned AT was completed by the assessing officer on the basis that the depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under section 263 are conjunctive and not disjunctive. An order of assessment passed by an ITO, therefore, should not be interfered with only because another view is possible. ● Reliance in this regard, can be placed on the decisions of Jurisdictional High Court in the case of Gabriel India Ltd (71 Taxman 585 (1993)]. ● Based on the aforesaid judicial precedents and facts of the case, it is clear that, when the assessing officer has taken one of the possible views, the Commissioner cannot exercise his revisionary powers under section 263 of the Act. ● In the instant case, both the proposed disallowances i.e. redemption of premium on debentures and depreciation on goodwill are sought to be made on the basis of the stand taken by the Assessing Officer in the assessment order for AY 2015-16 in the assessee's own case. The Assessing Officer in course of the assessment of AY 2013-14 has applied his mind and provisions of the law while allowing this deduction t the assessee. Hence, the proceedings under section 263 ought to be dropped, since the same is without merits. Applicability of Explanation 2 to Section 263 of the Act: ` ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly been taken on record by the assessing officer before passing the assessment order for AY 2013-14.The aforesaid claims were allowed in the assessment order for AY 2013-14 after considering the provisions of the Act. C. There is no order, direction or instruction issued by the Central Board of Direct Taxes under section 119 on respect of the issue of claim of deduction of premium on redemption of debentures and depreciation on goodwill d. The assessee would like to mention here that, while claiming depreciation on Goodwill, the assessee had relied on the Hon'ble Supreme Court decision in case of Smifs Securities Ltd where in the contention of the assessee to claim the depreciation on Goodwill had been allowed. ● Considering the above, we humbly wish to submit before your Honour that assuming without admitting that Explanation 2 to section 263 of the Act is applicable for AY 2013-14, the conditions mentioned therein are not satisfied so as to merit initiation of proceedings under Section 263 of the Act. ● In this regard, attention is invited to the decision of the Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd (97 taxmann.com 671) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this decision, the Tribunal observed that clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. This provision shall apply, if the order has been passed without making enquiries of verification which a reasonable and prudent officer shall have carried out in such cases. ● Hence, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. ● In view of the aforesaid submissions, it is submitted that given that the AO had duly made the necessary inquiries during the course of the assessment proceedings, the current proceedings to re-examine the issues are clearly beyond the scope of Section 263 of the Act. Hence the notice under Section 263 is without jurisdiction and merits should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll Goodwill is also approved by the Scheme of amalgamation filed before the Hon'ble Bombay High Court vide its order dated 4 April 2014. A copy of the scheme filed before the Bombay High Court is attached as Annexure 9 and the order of the Bombay High Court is attached as Annexure 10. The said scheme was submitted, considered and depreciation had been granted to assessee in the earlier assessment years as well. The Accounting treatment given under Scheme of Amalgamation approved by the High Court has also been reads as under: 15.1 The Transferee Company shall upon the Scheme coming into effect, record all assets and liabilities of the Transferor Company vested in it pursuant to this Scheme, at their respective fair values as on the Appointed Date 15.2 The Investments held by the Transferee Company in the Transferor Company shall stand cancelled and there shall be no further obligation/outstanding n that behalf. 15.3 To the extent there are inter-corporate loans or balances between the Transferor Company and the Transferee Company, the obligations in respect thereof shall come to an end and corresponding effect shall be given in the books of accounts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould fall under the expression any other business or commercial right of a similar nature' The principle of ejusdem genens would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 1. The claim of goodwill has also been upheld in the following Judicial precedents a. CIT v Birla Global Asset Finance Co Ltd 221 Taxman176 b. Toyo Engineering, Mumbai ITAT judgement dated 13/10/2014, ITA No 3724/M/2008 C. India Capital Markets Pvt Ltd v Dy Commissioner of Income tax 56 SOT 32 d. Supreme Nonwoven Pvt (ITA/5915/Mumy/2009) e. Virbac Animal Health P. Ltd. (ITA No. 6806/Mum/2011) f. Dy, Commissioner of Income-tax 050 1(1) Worldwide Media pvt. Ltd. (2015) 153 (TD 162 g. Jeypore Sugar Co. Ltd (2011) 44 50T 625 h. Cyber India Online. Asst. Commissioner of Income tax, Cirde 3(1) (2014) 64 SOT 1 (Del.)(URO) i. SKS Micro Finance Ltd. v. Dy. Commissioner of Income-tax, Circle 3(2) (2013) 145 TD 111 In the circumstances, we are of the view that Goodwill is an asset eligible for depreciation and the Assessing Officer has rightly allowed depreciation to the assessee on the basis of the Supreme Court decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption of the aforesaid debenture was Rs 56,53,50,000. Judicial Precedents have held different views regarding the year of deductibility of either discount on issue of debentures or premium payable on redemption of debentures. The Supreme Court in the case of Madras Industrial Investment (91 Taxmann 340) has held that assessee was entitled to proportionate deduction of discount spread over the period for which the debentures would remain outstanding However, the Supreme Court in the case of Taparia Tools Ltd vs CTT (55 taxmann.com 361) wherein it was held that, the claim of the assessee on payment basis as such course of action was in consonance with the provisions of he Act which permitted the assessee to claim the expenditure in the year in which it was incurred In the assessment order for AY 2012-13, the assessee's claim of Rs 0.43 Cr being redemption premium payable on pro-rata basis was not accepted by the assessing officer. Accordingly, in AY 2013-14, the assessee had claimed Rs 18.84 Cr of redemption premium on pro-rata basis to keep the claim alive in case the redemption premium has not been allowed by the assessing officer on payment basis during AY 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the ld. PCIT sought to invoke Explanation 2 to Section 263 of the Act clause (b) in respect of depreciation on Goodwill and clause (d) thereon in respect of issue of allowability of redemption on premium of non-convertible debentures. Accordingly, the ld. PCIT was justified the invocation of revision jurisdiction u/s. 263 of the Act by treating the order of the ld. AO erroneous as well as it is prejudicial to the interest of the Revenue. 3.3. On merits, the ld. PCIT observed that with regard to claim of premium on redemption of debentures, the said claim has been made wrongly by the assessee during the year under consideration as assessee had also claimed a total sum of Rs.56,53,50,000/- on account of premium paid on redemption of debentures in A.Y.2015-16 which has been allowed by the ld. AO on payment basis and accordingly, the proportionate sum claimed by the assessee in A.Y.2013-14 amounting to Rs.18,84,52,508/- amount to double deduction. The ld. PCIT also placed reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Grindwell Norton Ltd, in Income Tax Appeal No.694 of 2012 dated 24/12/2014 to drive home the point that the premium on pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, among other items. The assessee vide reply letter dated 26/12/2016 had furnished complete workings of arriving at the Goodwill and justification for claiming depreciation on Goodwill. We find that the business of Infiniti Wholesale Ltd (IWL) is amalgamated with the business of assessee company. IWL was wholly owned subsidiary company of Woolsworths Australia Pty Ltd. Assessee is wholly owned subsidiary company of Tata Sons Ltd. The assessee entered into a share purchase agreement during September 2012 with Woolsworth Australia Pty Ltd to buy the shares of IWL. Post the purchase of shares, the IWL became wholly owned subsidiary of assessee post acquisition of IWL with itself. The Goodwill of Rs.162.37 Crores had arose pursuant to acquisition of business of IWL by assessee. The workings of the Goodwill on amalgamation as submitted before the ld. AO is as under:- Infiniti Retail Limited Audit for the year ended March 31, 2014 Working of Goodwill on Amalgamation of IWL with IRL Companies Art Particulars Amount (Rs. In crores) Share Capital of IWL as at 31 March 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mated company were also forming part of the scheme of arrangement and that has also been approved by the Hon ble Bombay High Court. The relevant accounting treatment mentioned in the scheme of arrangement is reproduced hereunder for the sake of convenience:- On the Scheme becoming effective, the Transferee Company shall count for the amalgamation of the Transferor Company with the Transferee Company in its books of account with effect from the Appointed Date as under: 5.1. The Transferee Company shall upon the Scheme coming into effect, record all assets and liabilities of the Transferor Company vested in it pursuant to this scheme, at their respective fair values as on the Appointed Date. 5.2. The investments held by the Transferee Company in the Transferor Company shall stand cancelled and there shall be no further obligation/outstanding in that behalf. 5.3. To the extent there are inter-corporate loans or balances between the Transferor Company and the Transferee Company, the obligations in respect thereof shall come to an end and corresponding effect shall be given in the books of accounts and records of the Transferee Company for the reduction of any assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 263(1) of the Act. We also find that under similar facts and circumstances, the Co-ordinate Bench of this Tribunal in the case of DCIT vs. Toyo Engg. India Ltd., in ITA No.3279/Mum/2008 for A.Y.2003-04 dated 30/10/2014 had indeed granted depreciation on Goodwill arising on amalgamation by placing reliance on the decision of the Hon ble Supreme Court in the case of Smifs Securities Ltd., referred to supra. In any case, the decision of this Mumbai Tribunal, decision of the Hon ble Supreme Court and the decision of the Hon ble Bombay High Court approving the scheme of merger were all available before the ld. AO while framing the assessment. The ld. AO after taking due cognizance of all these documents and case laws had indeed taken a possible view in the matter, which in our considered opinion, is also the correct view in the eyes of law. Hence, the ld. PCIT could not invoke his revision jurisdiction to substitute his erroneous view on the matter in the place of view already taken by the ld. AO. Reliance in this regard is placed on the decision of Hon ble Jurisdictional High Court in the case of Nirav Modi reported in 390 ITR 292 (Bom). Hence, the order passed by the ld. PCIT u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct. It is pertinent to note that the claim of the assessee on accrual basis with regard to the premium on redemption of debentures equally over the period of debentures is strictly in accordance with the ratio laid down by the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd., reported in 225 ITR 802. Hence, it cannot be said that there was an inadvertent claim made by the assessee in A.Y.2013-14 on accrual basis. When the action of the assessee is in accordance with the decision of the Hon ble Supreme Court, the ld. AO accepting the said claim of the assessee by duly following the decision of the Hon ble Supreme Court , cannot be termed as erroneous order and it cannot be stated that the ld. AO had passed an order without application of mind warranting revision u/s. 263 of the Act by the ld. PCIT. In fact, the ld. AO had taken a correct view by allowing claim of the assessee on accrual basis in the A.Y.2013-14 as the said claim is in consonance with the decision of the Hon ble Supreme Court reported in 225 ITR 802 supra. We find that the decision relied upon by the ld. PCIT in case of Grindwell Norton Ltd., referred to supra of the Hon ble Jur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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