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TMI Blog2024 (2) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961 (hereinafter "the Act"). Later, the case of the appellant was selected for scrutiny. It is noted that the AO had also made a reference to the Transfer Pricing Officer (hereinafter the "TPO") who, in his order u/s 92CA(3) of the Act dated 28.01.2013, had made a transfer pricing adjustment of Rs. 1397 crores on account of shortfall in price of shares issued to the AE and interest on deemed loan. Upon receipt of the said transfer pricing order, the AO passed a draft assessment order u/s 143(3)/144C(1) of the Act dated 22.03.2013. Aggrieved by the same, the appellant challenged the draft assessment order and the order of the TPO dated 28.01.2013 before the Ld. DRP and also before the Hon'ble Bombay High Court. It was brought to our notice that, the Hon'ble Bombay High Court in their order dated 10.10.2014 [reported in 50 taxmann.com 300] had held that, the issue of shares at premium by VISPL to its non-resident holding company did not give rise to any income from an admitted international transaction. The Hon'ble High Court thus held that provisions of Chapter X did not apply to the said transaction between VISPL and the AE. Following the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reation of goodwill was a financial maneuvering. According to the Ld. CIT(A), the appellant was unable to establish with material evidence that goodwill had actually arisen; and he held that mere difference in the book value of assets and the purchase value cannot be said to tantamount to goodwill. The Ld. CIT(A) also took note of the fact that, the appellant had not received any tangible or measurable benefit, either in terms of turnover or profit or human resources etc., which would justify the payment made towards the purported goodwill. The Ld. CIT(A) observed that the appellant had incurred losses in the subsequent year and that majority of the activities had been outsourced, which according to him evidenced that the CCB acquired by the appellant could not justify such a huge valuation of goodwill. The Ld. CIT(A) accordingly held that the appellant was unable to demonstrate that goodwill had actually arisen upon acquisition of the CCB Business and therefore rejected the claim. Aggrieved by the aforesaid order of Ld. CIT(A), the appellant preferred an appeal before this Tribunal. 6. In the course of hearing held on 17.12.2021, this Tribunal took note of the fact that the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble Supreme Court in the case of Goetze India Ltd. (284 ITR 323) (ii) The documents produced by the appellant cannot be seen as a source of valuation and the requirements of Rule 29 of the ITAT Rules had not been met. Further, the archived information, now being submitted by the appellant, cannot be authenticated, and therefore the department cannot deduce inferences. (iii) The report of M/s Shailesh Haribhakti & Associates suffered from several errors viz., the growth rate was estimated at 66% whereas TRAI estimate the growth rate of 46% etc. Even the CCB valuation was contended to contain several infirmities, which was set out at Part D of the submission. According to the Revenue, the CCB valuation ought to have been Rs. 20.96 crores. 9. The Revenue filed another rejoinder on 18.09.2023 in which it reiterated its objections to the authenticity of the records produced by the appellant. The Revenue also furnished another valuation of goodwill, in which the CCB valuation now stood at Rs. 17.57 crores as opposed to Rs. 20.96 crores, as stated in the earlier rejoinder dated 25.08.2023. The said rejoinder also contained in detail the relevant assumptions, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the appellant had indeed inter alia acquired goodwill of CCB business from VEGL for which the latter had paid capital gains tax as well. The acquired goodwill is noted to have been recognized in the audited financials of the appellant as well. 11. We note that, originally in the return of income filed on 30.09.2009, the appellant had not claimed depreciation on goodwill. The Ld. AR pointed out that, it was only after the judgment rendered by the Hon'ble Apex Court in the case of CIT v. Smifs Securities Ltd. (348 ITR 302) which was pronounced in the year 2012 that, the appellant became aware that it was legally entitled to claim depreciation u/s 32 of the Act on this goodwill acquired from VEGL; and accordingly raised a claim before the AO vide letter 14.03.2013. Having perused the records placed before us, it is indeed noted that the aforesaid claim for depreciation on goodwill had been raised before the AO, however, the AO did not comment on this claim in the draft assessment order which was passed on 22.03.2013. Being aggrieved, the appellant, before the Ld. CIT(A), had raised this claim for depreciation on goodwill, who for the reasons, as already discussed earlier, had re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT v. Smifs Securities Ltd. (supra). In the decided case, the AO had noted that the goodwill had arisen by virtue of scheme of amalgamation and that no amount was actually paid by the assessee on account of goodwill. On appeal, the Ld. CIT(A) is noted to have held that the assessee had filed copies of the orders of the High Court ordering amalgamation of the companies, pursuant to which the assets and liabilities of amalgamating company were transferred to the appellant for a consideration i.e.; the difference between the cost of an asset and the amount paid constituted goodwill and that the amalgamated company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the amalgamated stood increased. It is noted that the order of the Ld. CIT(A) was upheld both by this Tribunal and the Hon'ble High Court. On further appeal, the Hon'ble Supreme Court held that goodwill acquired on amalgamation (being difference between the net book value of assets and consideration paid) was a capital right which would fall under the expression 'any other business or commercial right of a similar nature' and hence e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Finance Bill, 2021 with effect AY 2021-22 and onwards, wherein it has been provided that "goodwill" is not an intangible asset eligible for depreciation under Section 32 of the Act. As rightly pointed out by the Ld. AR, the amendment has been made applicable only prospectively from AY 2021-22 and onwards. The Memorandum explaining the Finance Bill, 2021 provides the following reasons for the aforementioned amendment. "Though the Hon'ble Supreme Court has held that goodwill of a business or profession is a depreciable asset under section 32, but there are other provisions which are relevant for the calculation of depreciation under section 32. The actual calculation of depreciation on goodwill is required to be carried out in accordance with various other provisions of the Act, which include Section 43(6)(C), Explanation 2 of Section 43(6)(c), Section 43(1), etc. When these provisions are applied, in some situations (like that of business reorganization) there could be no depreciation on account of the actual cost being zero and the written down value of that assets in the hand of predecessor/amalgamating company being zero." 16. We note that Parliament had taken du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital gains in the hands of VEGL. The Ld. AR showed us that, the VEGL had admitted capital gains tax liability on the said slump sale and therefore it was not a case of tax avoidance or undue tax advantage, as was being alleged by the Revenue. Having considered the foregoing, we find force in the Ld. AR's submission that it would be imprudent to infer that the appellant had undertaken the slump sale transaction with the intent to avail the tax concession available on goodwill, as held by Hon'ble Supreme Court (supra), since the benefit of this judgment was not available at the time of the impugned slump sale transaction. 19. The next reasoning given by the Revenue was that, the appellant ultimately did not get any tangible benefit from acquisition of goodwill by way of increased turnover or profit or human resources etc. in as much as the appellant had incurred losses in subsequent years in this CCB business. In rebuttal to this, the Ld. AR first pointed out that the entire exercise of the Revenue suffered from hindsight bias, as the Revenue is presuming by standing and looking back in the year 2023. The Ld. AR argued that the Revenue ought to have examined the same in light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed true that since the transaction was with a related party, the fair market valuation ought to be examined; but at the same time, on the specific facts of this case, it is necessary to also take cognizance of the material information that the excess consideration (towards goodwill) paid by the appellant to VEGL was offerred by the latter as taxable capital gains in its hands. We note that, since the goodwill of VEGL's CCB business was self-acquired having NIL cost, the entire excess consideration was offered to tax as capital gains by VEGL. Accordingly, it was not a case that the appellant and/or the related party, VEGL had obtained any undue tax benefit on account of this transaction involving acquisition / sale of goodwill. The goodwill in question is thus noted to be in the nature of acquired goodwill and the price paid by the appellant, irrepsective of the fact that it was paid to related party, constituted the cost of acquisition in the hands of the appellant, in terms of Section 43(1) of the Act. The aforesaid material information, according to us, is sufficient to entertain the claim for depreciation on the goodwill acquired by the appellant. Hence, the purported errors/in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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