The Karad Urban Co.Op Bank Ltd, Satara V. DCIT, Satara

ITA 1454/PUN/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2528 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Depreciation; Cost of acquisition; Scheme of amalgamation
• Section: 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 1454 & 2432/PN/2012 %' ( ')( / ASSESSMENT YEARS : 2008-09 & 2009-10 THE KARAD URBAN CO-OP. BANK LTD., 516/2, SHANIWAR PETH, KARAD, DISTT.-SATARA PAN : AAAAT3981A ....... / APPELLANT ' / V/S. DY. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 13-01-2016 / DATE OF PRONOUNCEMENT : 11-03-2016 * / ORDER PER VIKAS AWASTHY, JM : THESE APPEALS BY THE ASSESSEE ARE IN SECOND ROUND BE FORE THE TRIBUNAL. THESE APPEALS WERE EARLIER DECIDED BY THE TRIBU NAL VIDE ORDER DATED 31-01-2014. THEREAFTER, THE ASSESSEE FILED MISCELLANE OUS APPLICATIONS I.E. MA NO. 56/PN/2014 IN ITA NO. 1454/PN/2012 AND MA NO. 57/PN/2014 IN ITA NO. 2432/PN/2012 STATING THAT GROUND NO. 8 IN ITA NO. 1454/PN/2012 AND GROUND NOS. 11 AND 13 IN ITA NO. 2 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 2432/PN/2012 WERE DISMISSED AS NOT PRESSED. HOWEVER , NO SUCH STATEMENT WAS MADE BY THE LD. AR OF THE ASSESSEE IN RE SPECT OF AFORESAID GROUNDS IN THE RESPECTIVE APPEALS. THE TRIBUNAL VIDE SEP ARATE ORDERS DATED 09-09-2014 ALLOWED THE MISCELLANEOUS APPLICA TIONS OF THE ASSESSEE AND RECALLED ITA NO. 1454/PN/2012 FOR ADJUDICAT ING GROUND NO. 8 AND ITA NO. 2432/PN/2012 FOR ADJUDICATING GROUND N OS. 11 AND 13. 2. NOW, THE APPEALS ARE LISTED AGAIN BEFORE THE BENCH FOR THE LIMITED PURPOSE OF ADJUDICATING GROUND NO. 8 IN ITA NO. 1454/PN/2 012 WHICH READS AS UNDER: 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCE MADE BY A.O. OF RS.75,00,000/- BEING CLAIM OF AMORTIZATION COST OF ACQUISITION. THE SAME BE ALLOWED IN FULL. GROUNDS NO. 11 AND 13 IN ITA NO. 2432/PN/2012 WHICH REA D AS UNDER: 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCE MADE BY A.O. OF RS.75,00,000/- BEING CLAIM OF AMORTIZATION COST OF ACQUISITION. THE SAME BE ALLOWED IN FULL. 13. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOW ANCE OF RS.1,19,80,337/- CLAIMED UNDER DEBT WAIVER SCHEME F ORMULATED BY CENTRAL GOVT. AND APPROVED BY RBI. THE SUSTENAN CE TO DISALLOWANCE IS ILLEGAL AND WITHOUT JURISDICTION. IT BE DELETED. 3. THE ISSUES RAISED IN GROUND NO. 8 IN ITA NO. 1454/PN/2 012 AND GROUND NO. 11 IN ITA NO. 2432/PN/2012 ARE IDENTICAL. ACCO RDINGLY, THEY ARE TAKEN UP TOGETHER FOR ADJUDICATION. THE AUTH ORITIES BELOW HAVE 3 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 DECIDED THE ABOVE ISSUE IN BOTH THE ASSESSMENT YEARS IN A SIMILAR MANNER. THEREFORE, FOR THE SAKE OF CONVENIENCE THE FACTS HAVE BEEN TAKEN FROM ITA NO. 1454/PN/2012. 4. SHRI M.K. KULKARNI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. DURING THE PERIOD RELEVANT TO THE ASSESSMENT Y EAR 2008-09 THERE WAS AMALGAMATION OF SHRI PARSHWANATH CO-OP. BANK L TD., SANGLI WITH THE ASSESSEE BANK. THE SCHEME OF MERGER/AMALGAMATION WA S DULY APPROVED BY THE RESERVE BANK OF INDIA (RBI) AND THE DAT E OF AMALGAMATION AS PER RBIS ORDER DATED 29-10-2007 WAS FIXED AS 03-12-2007. ACCORDING TO THE SCHEME OF AMALGAMATION ALL THE ASSETS AND LIABILITIES OF SHRI PARSHWANATH CO-OP. BANK LTD., SANGLI WER E TAKEN OVER BY THE ASSESSEE BANK. ALL THE PERMANENT EMPLOYEES OF THE AMALGAMATING BANK WERE ALSO TRANSFERED TO THE ASSESSEE BANK. THE ASSESSEE HAD CLAIMED COST OF ACQUISITION OF SHRI PARSHWANA TH CO-OP. BANK LTD., SANGLI AT ` 3,71,87,550/-. IN ACCORDANCE WITH THE RBI CIRCULAR DATED 13-07-2007, THE COST OF ACQUISITION OF THE S AID BANK WAS TO BE AMORTIZED OVER THE PERIOD OF 5 YEARS. THE AMOUNT OF ` 3,71,87,550/- WAS REFLECTED IN THE BALANCE SHEET OF THE AS SESSEE AS GOODWILL. IN PURSUANCE TO THE RBI CIRCULAR NO. UBD.PCB.C IR.NO. 5/09.16.901/2007-08, THE ASSESSEE BANK DEBITED ` 75,00,000/- TO P & L A/C. TOWARDS YEARLY AMORTIZATION. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE PRESUMPTION THAT IT IS MERELY A PROVISIO N AND NOT ACTUAL EXPENDITURE. THE COMMISSIONER OF INCOME TAX (APPEA LS) UPHELD THE FINDINGS OF ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE RBI GUIDELINES OR PRUDENTIAL NO RMS ISSUED BY THE RBI ARE NOT INTENDED TO REGULATE INCOME TAX LA WS. THERE IS NO 4 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 PROVISION UNDER THE INCOME TAX ACT TO ALLOW GOODWILL AS DE DUCTION ON DEFERRED BASE. THE AMOUNT DOES NOT REPRESENT PRICE AC TUALLY PAID BY THE ASSESSEE BY WAY OF CONSIDERATION TO THE TRANSFEROR BANK FOR ACQUISITION OF THE SAID BANK. EVEN IF IT IS PRESUMED THAT TH E AMOUNT HAS BEEN PAID, THE ASSESSEE HAS DERIVED ENDURING BENEFIT FROM SUCH EXPENDITURE AND AS SUCH IT IS CAPITAL IN NATURE. THEREFORE , IT IS NOT ALLOWABLE AS EXPENDITURE U/S. 37 OF THE ACT AND AS SUCH AMORTIZATION OF THE SAID EXPENDITURE CANNOT BE ALLOWED. THE LD. COUNSEL FOR THE ASSESSEE MADE TWO FOLD SUBMISSIONS. THE FIRST SUBMISSION OF THE LD. COUNSEL IS THAT THE ASSESSEE IS GOVERNED BY THE RBI GU IDELINES. ACCORDING TO THE RBI CIRCULAR THE ACQUIRER BANK HAS TO AMORTIZE THE LOSS TAKEN OVER FROM THE ACQUIRED BANK OVER A PERIOD OF 5 YEARS, INCLUDING THE YEAR OF MERGER. THE LD. COUNSEL REFERRED TO R BI CIRCULAR DATED 13-07-2007. THE LD. COUNSEL FURTHER REFERRED TO D ECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD. REPORTED AS 379 ITR 24 (BOM) TO EMPH ASIS THAT THE CO-OPERATIVE BANKS ARE GOVERNED BY THE RBI DIRECTIONS AND PRUDENTIAL NORMS AND HAVE OVERRIDING EFFECT VIZ-A-VIZ INCOME RECOGNIT ION PRINCIPLE FOLLOWED BY THE CO-OPERATIVE BANKS. 4.1 IN AN ALTERNATE SUBMISSION THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE AMOUNT AMORTIZED BY THE ASSESSEE IS IN NATURE OF GOODWILL. THIS FACT HAS BEEN ADMITTED BY THE COMMISSIONER O F INCOME TAX (APPEALS) IN HIS ORDER FOR THE ASSESSMENT YEAR 2009- 10. THE GOODWILL IS AN INTANGIBLE ASSET AND THUS, THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON SAME U/S. 32(1)(II) OF THE ACT. IN SUPPORT OF HIS SUBMISSIONS THE LD. COUNSEL PLACED RELIANCE ON THE DECISION O F MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF THE SHAMRAO VITHAL CO -OP. BANK 5 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 LTD. VS. DCIT IN ITA NOS. 4092 & 6462/MUM/2011, 3859/MUM /2013 AND 4286/MUM/2014 FOR ASSESSMENT YEARS 2007-08 TO 20 10-11 DECIDED ON 23-09-2015 AND THE DECISION OF PUNE BENCH IN THE CASE OF THE COSMOS CO-OP. BANK LTD. VS. DY. COMMISSIONER OF INCOM E TAX IN ITA NOS. 460 & 461/PN/2012 FOR ASSESSMENT YEARS 2007- 08 AND 2008- 09 DECIDED ON 23-01-2014. 5. ON THE OTHER HAND SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT SUBMITTED THAT THE AMOUNT DEBITED TO THE P & L A/C. TOWARDS AMORTIZATION OF COST OF ACQUISITION IS MERELY A PR OVISION, NO ACTUAL EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE. THEREFORE, THERE IS NO QUESTION OF ALLOWING THE SAME U/S. 37 OF THE ACT. T HE LD. DR FURTHER SUBMITTED THAT RBI GUIDELINES ARE APPLICABLE TO TH E ASSESSEE FOR PREPARING ACCOUNTS ONLY AND THUS WOULD NOT OVERRIDE T HE PROVISIONS OF INCOME TAX ACT. THE LD. DR VEHEMENTLY SUPPORTED THE FIN DINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE AND PRA YED FOR DISMISSING THE GROUND RAISED BY THE ASSESSEE IN APPEAL. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. COUNSE L FOR THE ASSESSEE HAS PLACED RELIANCE. SHRI PARSHWANATH CO-OP. B ANK LTD. WAS MERGED WITH THE ASSESSEE BANK. THE EXESS OF BOOK VALUE OF LIABILITIES OVER ASSETS OF THE MERGED BANK ` 3,71,87,550/- HAS BEEN CONSIDERED AS COST OF ACQUISITION. THE SAID AMOUNT HAS BEEN REFLECTED IN THE BALANCE SHEET AS GOODWILL. THE ASSESSEE AMORTIZED THE GOODWILL IN FIVE EQUAL INSTALLMENTS IN PURSUANCE TO THE RBI CIRCULAR DATED 13-0 7-2007. THE 6 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 SAID CIRCULAR HAS BEEN PLACED ON RECORD BY THE LD. COUNSE L FOR THE ASSESSEE. THE SAME IS REPRODUCED HERE-IN-UNDER: RBI/2007 -2008/94 UBD. PCB.CIR.NO. 5/09.16.901/2007-08 JULY 13, 2007 THE CHIEF EXECUTIVE OFFICER OF ALL PRIMARY (URBAN) CO-OPERATIVE BANKS DEAR SIR/MADAM, AMORTIZATION OF GOODWILL ON MERGER-UCBS PLEASE REFER TO OUR CIRCULAR UBD. PCB. CIR. NO 18/0 9.16.901/05-06 DATED NOVEMBER 22, 2005 PERMITTING THE ACQUIRER BANK TO A MORTIZE THE LOSS TAKEN OVER FROM THE ACQUIRED UCB OVER A PERIOD OF N OT MORE THAN FIVE YEARS, INCLUDING THE YEAR, OF MERGER. 2. THE MATTER HAS BEEN REVIEWED TAKING' INTO CONSID ERATION THE UNDERLYING PROVISIONS OF AS-14 OF ACCOUNTING STANDA RDS ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND IT IS ADVISED AS UNDER: I) WHERE THE CONSIDERATION, IF ANY, PAID FOR THE ACQUISITION/AMALGAMATION EXCEEDS THE BOOK VALUE OF THE NET ASSETS TAKEN OVER, THE EXCESS AMOUNT SHOULD BE TREATED AS GOODWILL AND AMORTIZED OVER A PERIOD OF FIVE YEARS IN EQUAL INST ALLMENTS. II) WHERE NO CONSIDERATION IS PAID BUT THE BOOK VAL UE OF THE ASSETS IS LESS THAN THE BOOK VALUE OF LIABILITIES TAKEN OVER, THE EXCESS OF THE BOOK VALUE OF LIABILITIES OVER THE BOOK VALUE OF THE ASS ETS TAKEN OVER WILL BE CONSIDERED AS GOODWILL AND AMORTIZED OVER A PERIOD OF FIVE YEARS IN EQUAL INSTALLMENTS. III) WHERE NO CONSIDERATION IS PAID, BUT THE BOOK V ALUE OF THE ASSETS TAKEN OVER IS GREATER THAN THE BOOK VALUE OF THE L IABILITIES TAKEN OVER, THE EXCESS OF THE BOOK VALUE OF ASSETS OVER THE BOOK VA LUE OF THE LIABILITIES WILL BE CONSIDERED AS CAPITAL RESERVE. 3. PLEASE ACKNOWLEDGE RECEIPT OF THE CIRCULAR TO TH E REGIONAL OFFICE CONCERNED. YOURS FAITHFULLY, (N.S. VISHWANATHAN) CHIEF GENERAL MANAGER-IN-CHARGE 7. THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS E ITHER THE AMOUNT OF GOODWILL MAY BE ALLOWED TO BE AMORTIZED, IN ACCORD ANCE WITH THE RBI GUIDELINES OR DEPRECIATION MAY BE ALLOWED ON THE A MOUNT OF GOODWILL. IN SO FAR AS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE FOR ALLOWING AMORTIZATION OF GOODWILL IS CONCERNED WE DO NOT CON CUR WITH 7 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 THE SAME. THE LD. COUNSEL IN SUPPORT OF HIS SUBMISSIONS HA S REFERRED TO THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD. (SUPRA). IN THE SAID CASE THE ISSUE BEFORE HON'BLE COURT WAS, WHETHER PRUDENTIAL NORMS ISSUED BY RBI APPLY TO CO-OPERATIVE BANKS? THE CONTENTION OF THE RE VENUE WAS THAT RBI GUIDELINES AND NORMS APPLY TO SCHEDULED BANKS ONLY THEREFORE THE PROVISIONS OF SECTION 43D OF THE ACT RELATING TO STICKY ADV ANCES WOULD NOT APPLY TO CO-OPERATIVE BANKS BEING NON-SCHEDULED BA NK. THE HON'BLE HIGH COURT HELD: THE ASSESSEE HEREIN BEING A CO-OPERATIVE BANK ALSO GOVERNED BY THE RESERVE BANK OF INDIA AND THUS THE DIRECTION S WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDI A ARE EQUALLY APPLICABLE TO THE CO-OPERATIVE BANKS. THE HON'BLE SUPREME COURT IN THE CASE OF S0UTHERN TECHNOLOGIES LTD. (SUPRA) HELD THA T THE PROVISIONS OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS- -VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPAN IES ACT. HENCE, SECTION 45Q OF THE RESERVE BANK OF INDIA ACT SHALL HAVE THE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOW ED BY CO-OPERATIVE BANKS. HENCE, THE ASSESSING OFFICER HAS TO FOLLOWE D THE RESERVE BANK OF INDIA DIRECTIONS, 1998, AS HELD BY THE HON'BLE SUPR EME COURT. THE AFORESAID DECISIONS WAS RENDERED BY THE HON'BLE HIGH COURT IN RESPECT OF STICKY ADVANCES, WHEREAS, IN THE PRESENT CA SE THE ISSUE RELATES TO AMORTIZATION OF GOODWILL. THEREFORE, THE CASE RE FERRED BY THE LD. COUNSEL IS DISTINGUISHABLE. THE PROVISIONS OF SECTION 32(1) OF THE ACT PROVIDE FOR DEPR ECIATION ON TANGIBLE AND INTANGIBLE ASSETS. ACCORDING TO SUB-CLAUSE (II) TO SECTION 32(1), THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION O N KNOW- HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISE S OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIB LE ASSETS 8 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998. THUS, IN OUR CONSIDERED VIEW THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON GOODW ILL BEING IN TANGIBLE ASSET. 8. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF THE SH AMRAO VITHAL CO-OP. BANK LTD. VS. DCIT (SUPRA) WHILE DEALING WITH THE SIMILAR ISSUE AFTER PLACING RELIANCE ON THE JUDGMENT RENDERED BY THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF SMIFS SECURITIES LTD. REPORTED AS 348 ITR 302 HELD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEP RECIATION ON GOODWILL. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL READS AS UND ER: 7. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS ACQUIRED THREE COOPERATIVE BANKS. THE AMOUNT PAID FOR ACQUISITION WAS RS.22.83 CRORES. THE ASSESSEE VALUED THE TANGIBLE ASSETS AND RIGHTS SO A CQUIRED. THE DIFFERENCE BETWEEN THE COST SO PAID VIS--VIS VALUE OF THE ASSETS AND RIGHTS SO ACQUIRED WAS CLAIMED AS REVENUE EXPENDITU RE WHICH WAS DISALLOWED BY THE AO. THE AO ALSO DISALLOWED AMORTI ZATION OF SUCH EXPENDITURE. THE AMOUNT PAID IN EXCESS OF THE VALUE OF ASSETS WERE ARGUED BY LD. AR, AS IN THE NATURE OF PAYMENT FOR G OODWILL AND ASSESSEE IS ONLY ENTITLED FOR CLAIM OF DEPRECIATION THEREON AS PER VERDICT OF THE HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITI ES LTD. 348 ITR 302, WHEREIN THE HONBLE SUPREME COURT HELD THAT GOODWIL L IS A DEPRECIABLE ASSET ELIGIBLE FOR CLAIM OF DEPRECIATION AS PER PRO VISIONS OF EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. THE PRECISE OBSER VATION OF THE HONBLE SUPREME COURT WAS AS UNDER :- HELD- EXPLANATION 3 TO SECTION 32(1) STATES THAT THE EX PRESSION 'ASSET' SHALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PAT ENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. A READING O F THE WORDS 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE' IN CLAUSE (B ) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF A SIMILAR NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STR ICTLY APPLY 9 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 WHILE INTERPRETING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3 (B). (PARA 4) IN VIEW OF THE ABOVE, IT IS OPINED THAT 'GOODWILL ' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1). (PARA 5) ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. IN THE P RESENT CASE, THE ASSESSING OFFICER, AS A MATTER OF FACT, CAME TO THE CONCLUSION THAT NO AMOUNT WAS ACTUALLY PAID ON ACCOUNT OF GOOD WILL. THIS IS A FACTUAL FINDING. THE COMMISSIONER (APPEALS) HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAD FILED COPIES OF TH E ORDERS OF THE HIGH COURT ORDERING AMALGAMATION OF THE ABOVE TWO C OMPANIES; THAT THE ASSETS AND LIABILITIES OF 'Y' LTD. WERE TR ANSFERRED TO THE ASSESSEE FOR A CONSIDERATION; THAT THE DIFFERENCE B ETWEEN THE COST OF AN ASSET AND THE AMOUNT PAID CONSTITUTED GOODWIL L AND THAT THE ASSESSEE-COMPANY IN THE PROCESS OF AMALGAMATION HAD ACQUIRED A CAPITAL RIGHT IN THE FORM OF GOODWILL BECAUSE OF WH ICH THE MARKET WORTH OF THE ASSESSEECOMPANY STOOD INCREASED. THIS FINDING HAS ALSO BEEN UPHELD BY TRIBUNAL. THERE IS NO REASON TO INTERFERE WITH THE FACTUAL FINDING. (PARA 6) ONE MORE ASPECT WHICH NEEDS TO BE MENTIONED IS TH AT, AGAINST THE DECISION OF TRIBUNAL, THE REVENUE HAD PREFERRED AN APPEAL TO THE HIGH COURT IN WHICH IT HAD RAISED ONLY THE QUES TION AS TO WHETHER GOODWILL IS AN ASSET UNDER SECTION 32. IN T HE CIRCUMSTANCES, BEFORE THE HIGH COURT, THE REVENUE D ID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREINABO VE. (PARA 7) IN VIEW OF THE ABOVE, IT HAS TO BE HELD THAT GOOD WILL IS AN ASSET WITHIN THE MEANING OF SECTION 32 AND DEPRECIATION O N 'GOODWILL' IS ALLOWABLE UNDER THE SAID SECTION. (PARA 8) 8. WE HAVE GONE THROUGH THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF SMIFS SECURITIES LTD., 348 ITR 0302, WHEREI N IT WAS HELD THAT PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY W HILE INTERPRETING THE EXPRESSION OF GOODWILL, WHICH FINDS PLACE IN EXPL ANATION 3(B) TO SECTION 362(1). ACCORDINGLY IT WAS HELD THAT GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT, THERE FORE, ELIGIBLE FOR CLAIM OF DEPRECIATION. FOR THIS PURPOSE RELIANCE CAN ALSO BE PLACED ON THE FOLLOWING DECISION WHEREIN GOODWILL WAS ACCEPTED AS AN ASSET ELIGIBLE FOR CLAIM OF DEPRECIATION :- 10 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 I) TYSSENKRUPP ELEVATOR (INDIA) (P) LTD., 167 TTJ 1 31(DEL); II) WORLDWIDE MEDIA PVT. LTD., 30 ITR (TRIB) 181; III) M/S PPG ASIAN PAINTS PVT. LTD., ITA NO.2919/MU M/2013, DATED 15-4-15 IV) M/S TOYO ENGINEERING INDIA LIMITED, ITA NO.3279 /MUM/2008, DATED 13-10-2014; V) BIRLA GLOBAL ASSET FINANCE CO. LTD., 221 TAXMAN 176(BOMBAY); VI) KEC INTERNATIONAL LTD., ORDER DATED 7-2-2013(BO MBAY HIGH COURT) IN VIEW OF THE ABOVE DISCUSSION, WE RESTORE THE MAT TER BACK TO THE FILE OF AO FOR CONSIDERING ASSESSEES CLAIM OF DEPRECIATION IN TERMS OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF SMIFS SECUR TIES (SUPRA). THE IS ALSO DIRECTED TO CONSIDER THE NATURE OF EXCESS PAYM ENT SO UNDER IN TERMS OF DECISION OF HONBLE SUPREME COURT DISCUSSED ABOV E. 9. SIMILAR VIEW HAS BEEN TAKEN BY THE CO-ORDINATE PUNE BE NCH IN THE CASE OF THE COSMOS CO-OP. BANK LTD. VS. DY. COMMISSIO NER OF INCOME TAX (SUPRA). THE CO-ORDINATE BENCH HELD THAT TH E ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON GOODWILL IN TERMS OF SECTION 3 2(1)(II) OF THE ACT. THE FINDINGS OF THE TRIBUNAL IN THE AFORESAID CAS E ARE AS UNDER: 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. SECTION 32(1)(II) PRESCRIBES THAT IN RESPECT OF KNOWHOW, PATENTS, CO PYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFT ER 01.04.1998 OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE P URPOSES OF BUSINESS OR PROFESSION SHALL BE ENTITLED FOR ALLOWANCE OF DE PRECIATION AS PER THE PRESCRIBED RATES. THE CONTROVERSY BEFORE US IS AS T O WHETHER ON ACCOUNT OF MERGER OF FOUR BANKS ASSESSEE HAS ACQUIRED ANY A SSET WHICH FALLS IN THE MEANING OF EXPRESSION BUSINESS OR COMMERCIAL R IGHTS OF SIMILAR NATURE SO AS TO BE ELIGIBLE FOR DEPRECIATION UNDER CLAUSE (II) OF SUB- SECTION (1) OF SECTION 32 OF THE ACT. 12. BEFORE PROCEEDING FURTHER, IT WOULD BE APPROPRI ATE TO REFER TO THE SCHEME OF MERGER OF RESPECTIVE FOUR BANKS, COPIES O F WHICH HAVE BEEN 11 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 PLACED IN THE PAPER BOOK. ALL THE SCHEMES OF THE ME RGER ARE SIMILAR AND HAVE BEEN APPROVED BY THE RESERVE BANK OF INDIA IN TERMS OF THE RESPECTIVE STATUTORY PROVISIONS. THE SCHEME OF MERG ER PROVIDES THAT THE ENTIRE UNDERTAKING, THE ENTIRE BUSINESS, ALL THE PR OPERTIES (WHETHER IMMOVABLE OR IMMOVABLE, TANGIBLE OR INTANGIBLE) ASSE TS, INVESTMENTS OF ALL KINDS, ALL CASH BALANCES WITH THE RBI AND OTHER BANKS MONEY AT CALL OR SHORT NOTICE, LOANS & ADVANCES, ANY OTHER CONTIN GENCY RIGHTS OR BENEFITS, LEASE AND HIRE PURCHASE CONTRACTS AND ASS ETS, RECEIVABLES, SECURITIZED ASSETS, LICENSES, FIXED ASSETS AND OTHE R ASSETS, POWERS, CONSENTS, REGISTRATIONS, EXEMPTIONS, WAIVERS OF ALL KINDS AND WHERESOEVER SITUATE BELONGING TO, OR ENJOYED BY THE TRANSFEROR BANK HAVE BEEN TAKEN-OVER BY THE ASSESSEE. THE LIABILITI ES TAKEN-OVER MEAN ALL DEBTS, DEMAND DEPOSITS, SAVING BANK DEPOSITS, TERM DEPOSITS, TIME AND DEMAND LIABILITIES, RUPEE BORROWINGS, BILLS PAYABLE , INTEREST ACCRUED, CAPITAL RESERVES AND SURPLUSES, WHETHER STATUTORY O R NOT AND ALL OTHER LIABILITIES INCLUDING CONTINGENT LIABILITIES, DUTIE S, UNDERTAKINGS AND OBLIGATIONS OF THE TRANSFEROR BANKS HAVE BEEN TAKEN BY THE ASSESSEE. IN- FACT, THE SCHEME SPECIFICALLY PROVIDES THAT ALL THE LICENSES/REGISTRATIONS OF THE BANK OR ITS BRANCHES ETC. ISSUED BY RESERVE BAN K OF INDIA OR ANY AUTHORITY OF THE STATE/CENTRAL GOVERNMENT OR OTHER AUTHORITIES CONCERNED, ETC. STAND TRANSFERRED TO THE ASSESSEE BANK. SIMILAR IS THE POSITION WITH REGARD TO THE LIABILITIES OF THE TRANSFEROR BANK IN CLUDING THE SAVINGS BANK ACCOUNT OR CURRENT BANK ACCOUNT OR ANY OTHER DEPOSI TS OF THE CUSTOMERS. THE SCHEME ALSO ENVISAGED TAKINGOVER OF ALL THE EMP LOYERS OF THE TRANSFEROR BANK WHO WISHED TO CONTINUE IN SERVICE. IN SUM AND SUBSTANCE, ASSESSEE BANK TOOK OVER THE ENTIRE BUSIN ESS APPARATUS OF THE TRANSFEROR BANK, WHICH INCLUDED ITS CLIENT BASE, OP ERATIONAL BRANCHES OF THE BANK AT DIFFERENT PLACES AND ALSO THEIR EMPLOYE ES, BESIDES THE LICENSES AND OTHER STATUTORY APPROVALS ENJOYED BY T HE TRANSFEROR BANK. NOW, THE CASE SET-UP BY THE ASSESSEE IS THAT THE AC QUISITION OF HUGE CLIENT BASE, OPERATIONAL BRANCHES OF THE BANKS AND THE ACCESS TO NEW MONEY MARKETS HAS RESULTED IN A BUSINESS ADVANTAGE WHICH IS COVERED WITHIN THE MEANING OF THE EXPRESSION BUSINESS OR C OMMERCIAL RIGHTS OF SIMILAR NATURE AS CONTEMPLATED IN CLAUSE (II) OF S UB-SECTION (1) OF SECTION 32 OF THE ACT. 13. THEREFORE, THE MOOT QUESTION IS AS TO WHETHER T HE AFORESAID BUSINESS/ COMMERCIAL ADVANTAGES, NAMELY, TAKING OVE R OF HUGE CLIENT BASE, LICENSES, OPERATIONAL BANK BRANCHES IN DIFFER ENT AREAS, ETC. CAN BE CONSIDERED TO FALL WITHIN THE EXPRESSION BUSINESS OR COMMERCIAL RIGHTS OF 12 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 SIMILAR NATURE CONTAINED IN SECTION 32(1)(II) OF T HE ACT. IN THIS CONTEXT, ONE MAY REFER TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD. & ORS. (SUPRA). IN THE CA SE BEFORE THE HONBLE HIGH COURT ASSESSEE COMPANY ACQUIRED THE BUSINESS O F THE TRANSFEROR LOCK, STOCK AND BARREL UNDER A SLUMP SALE AGREEMENT . THE AMOUNT OF CONSIDERATION PAID IN EXCESS OF THE NET VALUE OF TA NGIBLE ASSETS TRANSFERRED, WAS CLAIMED AS PAYMENT MADE BY THE ASSE SSEE FOR ACQUISITION OF VARIOUS BUSINESS AND COMMERCIAL RIGH TS, WHICH COMPRISED OF BUSINESS CLAIMS; BUSINESS INFORMATION; BUSINESS RECORDS; CONTRACTS; SKILLED EMPLOYEES; AND, KNOWHOW. SUCH ACQUISITION W AS CLAIMED TO BE AN ASSET IN THE NATURE OF BUSINESS OR COMMERCIAL R IGHTS CONTAINED IN SECTION 32(1)(II) OF THE ACT. THE HONBLE HIGH COUR T CONCURRED WITH THE ASSESSEE AND HELD THAT THE ASSETS IN QUESTION, BEIN G INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEMENT WERE IN THE NAT URE OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE SPECIFIED IN S ECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGLY HELD ELIGIBLE FOR DEPRECIATION . 14. IN THE AFORESAID LIGHT, FACTUALLY SPEAKING, IN THE PRESENT CASE, IT CAN BE SEEN THAT THE ASSESSEE BY ACQUIRING THE FOUR CO- OPERATIVE BANKS HAS ACQUIRED EXISTING RUNNING BANKING BUSINESSES COMPLE TE WITH THE REQUIRED STATUTORY LICENSES, OPERATIONAL BANK BRANCHES, CUST OMERS BASE AS ALSO THE EMPLOYEES, BESIDES OTHER ASSETS. THE PLEA OF TH E REVENUE IS THAT THE DIFFERENCE PAID BY THE ASSESSEE IN EXCESS OF LIABIL ITIES OVER THE REALIZABLE VALUES OF THE ASSETS TAKEN-OVER DOES NOT REPRESENT PAYMENT FOR ANY BUSINESS OR COMMERCIAL RIGHTS IS UNTENABLE. IN-FACT , THE IMPUGNED SUM REFLECTS THE AMOUNT PAID BY THE ASSESSEE OVER AND A BOVE THE NET WORTH OF THE BANKS WHICH HAVE BEEN TAKENOVER, WHICH OSTENSIB LY IS A REFLECTION OF THE VALUE OF THE AFORESAID INTANGIBLE ADVANTAGES OB TAINED BY THE ASSESSEE. SUCH ADVANTAGES ARE TO BE CONSIDERED IN T HE NATURE OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE S PECIFIED IN SECTION 32(1)(II) OF THE ACT, HAVING REGARD TO THE PARITY O F REASONING LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD. & ORS. (SUPRA). IN THE CASE OF SKS MICRO FINANCE LTD. (SUP RA), ASSESSEE ACQUIRED A RUNNING BUSINESS UNDER A SLUMP SALE AGREEMENT AND THE CONSIDERATION PAID INCLUDED, SUM PAID FOR ACQUIRING THE CLIENT BA SE OF THE TRANSFEROR. THE ACQUISITION OF RIGHTS OVER THE ASSETS OF THE TR ANSFEROR, INCLUSIVE OF ITS CUSTOMERS BASE WAS HELD TO BE AN INTANGIBLE ASSET BEING BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE CONTEMPLATED IN SECTION 32(1)(II) OF THE ACT AND WAS HELD ELIGIBLE FOR DEPRECIATION. FOL LOWING THE AFORESAID DISCUSSION, IN THE PRESENT CASE, THE BUSINESS ADVAN TAGES DETAILED 13 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 EARLIER, ARE LIABLE TO BE CONSIDERED AS AN INTANGIB LE ASSET, BEING BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE C ONTEMPLATED U/S 32(1)(II) OF THE ACT. IN OUR CONSIDERED OPINION, TH E PLEA OF THE ASSESSEE FOR ALLOWANCE OF DEPRECIATION IN TERMS OF SECTION 32(1) (II) OF THE ACT CANNOT BE FAULTED EITHER IN LAW OR ON FACTS. THUS, IN VIEW OF THE FACTS OF THE CASE AND DECISIONS OF CO- ORDINATE BENCHES, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO CONSIDER THE ASSESSEES CLAIM OF DEPRECIATION ON GOODWILL, IN THE LIGHT OF DECISIONS DISCUSSED ABOVE. ACCORDINGLY, GROUND NO. 8 IN IT A NO. 1454/PN/2012 AND GROUND NO. 11 IN ITA NO. 2432/PN/2012 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. THE GROUND NO. 13 RAISED IN GROUNDS OF APPEAL BY THE ASSESSEE IN ITA NO. 2432/PN/2012 HAS BEEN REPRODUCED IN PARA 2 HE REINABOVE. IN MISCELLANEOUS APPLICATION NO. 57/PN/2014 FILED U/S. 254(2) OF THE ACT BY THE ASSESSEE FOR RECTIFICATION OF THE ORDER, THE ASSESS EE HAS REFERRED TO GROUND NO. 13 WHICH READS AS UNDER: 13. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWA NCE MADE BY A.O. OF RS.5,98,741/- ON ACCOUNT OF GROSSING UP OF INSURANCE COMMISSION BY TDS AMOUNT AS NET COMMISSION WAS ONLY TAXABLE IN THE YEAR UNDER APPEAL. THE DISALLOWANCE BE DELE TED. 11. THE TRIBUNAL VIDE ORDER DATED 09-09-2014 WHILE DISPOS ING OF THE SAID MISCELLANEOUS APPLICATION HAS RECALLED THE ORDER OF TRIBU NAL DATED 31-01-2014 TO ADJUDICATE GROUND NO. 13 AS REPRODUCED IN THE MISCELLANEOUS APPLICATION. THE GROUND NO. 13 REPRODUCED IN THE MISCELLANEOUS APPLICATION IS IN FACT GROUND NO. 14 IN THE GRO UNDS OF APPEAL. THE GROUND NO. 13 REPRODUCED IN MISCELLANEOUS AP PLICATION HAS ALREADY BEEN DISMISSED AS NOT PRESSED IN THE APPE AL AND NO 14 ITA NOS. 1454 & 2432/PN/2012, A.YS. 2008-09 & 2009-10 OBJECTION HAS BEEN RAISED BY THE ASSESSEE ON THE SAME . MOREOVER, NO ARGUMENTS HAVE BEEN ADVANCED BY THE LD. COUNSEL FOR TH E ASSESSEE IN RESPECT OF GROUND NO. 13 DURING THE PRESENT PROCEEDINGS . THEREFORE, WE DO NOT FIND ANY REASON TO TAKE A VIEW CONTRARY TO THE ORDER OF TRIBUNAL DATED 31-01-2014 DECIDING THIS ISSUE. ACCORDINGLY, THIS G ROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 12. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 11 TH DAY OF MARCH, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 11 TH MARCH, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-III, PUNE 4. ' / THE CIT-III, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE