DCIT 10(2), MUMBAI V. AADHAR RETAILING LTD, NAVI MUMBAI

ITA 1586/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8531 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./1586/MUM/2014, / ASSESSMENT YEAR: 2008-09 DCIT-10(2) ROOM NO.432/474, 4TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. AADHAR RETAILING LIMITED (NOW KNOWN AS AADHAR WHOLESALE TRADING AND DISTRIBU TION LIMITED) C/O., FUTURE AGROVET LTD. 701/702, BANKING COMPLEX-II, OPP. DANA BUNDER, PLOT NO.9-10, SECTOR-19A, SANPADA, NAVI MUMBAI-400 705. PAN:AAFCA 8793 G ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI R.P. MEENA-CIT-DR /ASSESSEE BY: DINKLE HARIYA / DATE OF HEARING: 08/09/2017 / DATE OF PRONOUNCEMENT: 15/11/2017 / PER RAJENDRA, AM - CHALLENGING THE ORDER ,DTD.12.12.2013 OF CIT(A)-21, MUMBAI THE ASSESSING OFFICER ( AO) HAS FILED THE PRESENT APPEAL. ASSESSEE-COMPANY, ENGAGED IN RETAILING BUSINESS OF AGRI PRODUCTS , FMCG GROCERY CONSUMER DURABLES, GENERAL MERCHANDISE ETC.,FILED ITS RETURN OF INCOME ON 29/09/2008 DECLARING LOSS OF RS.9.04 CRORES. THE A O COMPLETED THE ASSESSMENT ON 24.12.12, U/S. 143(3) OF THE ACT DETERMINING INCOME AT RS.(-) 4.35 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT ALLOWING CLAIM OF DEPRECIATION OF RS.4.57 CRORES. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD SHOWN GOODWILL OF RS.36.62 CRORES,THAT IT HAD CLAIMED DEPRECIATION OF RS.4.57 CRORES ON GOODWILL, THAT THE ASSESSEE HAD TRANSFERRED ASSETS FROM M/S. GODREJ AG ROVET LTD.(GAL)THAT INCLUDED GOODWILL. HE DIRECTED THE ASSESSEE TO FILE COMPLETE DETAILS I N RESPECT OF TRANSFER OF ASSETS AS PER THE ASSET -REGISTER ALONG WITH THE COPIES OF AGREEMENT THEREO F SHOWING THE GOODWILL AS PER ASSET REGISTER OF TRANSFER.HE FURTHER DIRECTED ASSESSEE T O EXPLAIN AS TO WHY THE CLAIM OF DEPRECIATION ON GOODWILL SHOULD NOT BE DISALLOWED. AS PER THE AO ,THE ASSESSEE FURNISHED COPY OF BUSINESS TRANSFER AGREEMENT BETWEEN IT AND AGL,THAT IT DID N OT FILE ANY EVIDENCE INDICATING THE BASIS FOR ASCERTAINING GOODWILL AND ITS CLAIM OF DEPRECIA TION. HE HELD THAT IN ABSENCE OF EXPLANATION VALUATION OF GOODWILL AS WELL AS ALLOWABILITY OF DE PRECIATION WAS NOT ACCEPTABLE, THAT THE ASSESSEE HAD CLAIMED DEPRECIATION SO THE ONUS WAS U PON IT TO SUBSTANTIATE CLAIM WITH NECESSARY DETAILS,THAT MERELY SHOWING THE ASSET IN THE BALANCE SHEET AND CLAIMING DEPRECIATION WOULD NOT SUFFICE THE PURPOSE, THAT THE ASSESSEE HA D NOT PROVED GENUINENESS OF THE GOODWILL 1586/M/14- AADHAR RETAILING LTD.(08-09) 2 SHOWN IN THE ACCOUNTS. HE REFERRED TO THE CASE OF C ALCUTTA AGENCY LTD. (19 ITR191) AND HELD THAT THE ASSESSEE HAD SHOWN AMOUNT OF GOODWILL IN R ESPECT OF RECEIPT OF ASSET FROM GAL, THAT ASSESSEE HAD SHOWN TO HAVE RECEIVED THE VALUE OF GO OD WILL OF RS.36.62 CRORES AS PER TAX AUDIT REPORT, THAT NO SUCH GOODWILL WAS APPEARING I N THE FIXED ASSET REGISTER OF GAL, THAT AS PER THE BUSINESS TRANSFER AGREEMENT DATED 10/03/200 8 THERE IS NO MENTION ABOUT VALUE OF GOODWILL IN THE BOOKS OF ACCOUNT OF GAL,THAT ASSESS EE HAD NOT SUBMITTED ANY DETAILS IN RESPECT OF PURCHASE OF GOODWILL FROM TRANSFEROR AS WELL AS BASIS OF VALUATION OF GOODWILL, THAT THE ASSESSEE HAD CREATED THE FICTITIOUS ASSETS IN T HE BOOKS OF ACCOUNT IN THE NAME OF GOODWILL, THAT DEPRECIATION CLAIMED ON SUCH GOODWILL WAS NOT ALLOWED. HE REFERRED TO PROVISION OF SECTION 32(1)(II) AND THE CASE OF RG KESWANI (116 I TD 133) AND REJECTED CLAIM OF ASSESSEE OF RS.4,57,75,375/- 3. AGGRIEVED BY ORDER OF ASSESSEE THE ASSESSEE PREFERR ED AN APPEAL BEFORE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSIONS.AFTER CONSIDERING AVAILABLE MATERIAL,HE HELD THAT THE ASSESSEE HAD ACQUIRED RUNNING CONCERN FROM GAL FOR AN AMOUNT OF RS.80 CRORES , IT ACCOUNTED RS.43.37CRORES AS TANGIBLE ASSETS, THAT R EST OF THE AMOUNT I.E. RS.36.62 CRORES WERE SHOWN UNDER THE HEAD GOODWILL, BEING INTANGIBLE ASS ETS IN THE FORM OF TRADEMARK AND OTHER COMMERCIAL ASSETS.HE FURTHER OBSERVED THAT THE ASS ESSEE CLAIMED DEPRECIATION @ 12.5% ON GOODWILL AS ACQUISITION OF ASSET WAS BELOW 180 DAY S.REFERRING TO THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF SMIFS SECURITIES LTD. (34 8ITR302),THE FAA HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON GOODWILL.FINA LLY, HE DELETED THE ADDITION MADE BY AO. 4. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE (DR) THA T THERE WAS NO BASIS FOR DETERMINING THE VALUE OF THE GOODWILL,THAT FAA HAD WRONGLY ALLO WED THE DEPRECIATION . THE AUTHORISED REPRESENTATIVE (AR)SUPPORTED THE ORDER OF THE FAA A ND RELIED UPON THE CASE OF CASE OF SMIFS SECURITIES LTD. (SUPRA).SHE ALSO REFERRED TO PAGE 7 1 OF THE PAPER BOOK. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THIS THE SECOND ROUND OF LITIGATION BEFORE THE TRIBUNAL, THAT THE ASSESSEE HAD PREFERRED AN APPEAL CHALLENGING THE ORDER OF THE FAA,THAT VIDE ITS ORDE R DATED 04/09/2013,THE TRIBUNAL RESTORED BACK THE MATTER TO HIM TO DECIDE THE ISSUE AFRESH.I T IS OBSERVED THAT THAT THE ASSESSEE HAD PURCHASED RETAIL DIVISION FOR A SUM OF RS. 80 CRORE S, THAT GAL HAD ISSUED RS.99.50 LAKHS EQUITY SHARES OF RS.10 EACH AT A PREMIUM OF RS.33 P ER SHARE AGGREGATING TO RS.42.78 CRORES,THAT BALANCE RS.37.21 CRORES WERE PAID IN CA SH,THAT GAL HAD TRANSFERRED MOVABLE PROPERTY/IMMOVABLE PROPERTY,CONTRACTS, LICENSE AND PERMIT,RECORDS,SOFTWARE, DEBTORS AND CREDITORS, INTELLECTUAL PROPERTY RIGHTS INCLUDING G OODWILL, TRADEMARKS AND KNOWHOW, THAT THE 1586/M/14- AADHAR RETAILING LTD.(08-09) 3 ASSESSEE REFLECTED ASSETS AND LIABILITIES OF GAL AT THEIR REPRESENTATIVE VALUE AS ON ACQUISITION DATE.THE FAIR VALUE OF TANGIBLE ASSETS RECEIVED FRO M TRANSFER WAS RS.43.37 CRORES. SO,THE ASSESSEE ACCOUNTED BALANCE AMOUNT OF RS.33.60 CRORE S AS GOODWILL,BEING TANGIBLE ASSETS IN THE FORM OF TRADEMARKS AND OTHER COMMERCIAL RIGHTS ACQUIRED AS PER BUSINESS TRANSFER AGREEMENT.IT IS OBSERVED THAT THE ASSESSEE CLAIMED DEPRECIATION ON GOODWILL @25% ON YEARLY BASIS .AS THE ASSET WAS PUT TO USE FOR LESS THAN 18 0 DAYS DURING THE YEAR, SO IT CLAIMED DEPRECIATION @ 12.5% AMOUNTING TO RS.4.75 CRORES.A O DISALLOWED THE CLAIM OF THE ASSESSEE, AS HE WAS OF THE OPINION THAT IN THE ASSET REGISTER OF TRANSFEROR NO VALUE WAS ASSIGNED TO GOODWILL.WE FIND THAT AS PER THE BUSINESS AGREEMENT ,DT. 10/03/2008,THE PARTIES ENTERING INTO AGREEMENT HAD AGREED TO SELL/PURCHASE THE BUSINESS ON GOING CONCERN BASIS.WHENEVER AN ASSESSEE ACQUIRES A GOING CONCERN IT HAS TO ASSIGN VALUE TO THE ASSETS ACQUIRED BY IT FROM TRANSFEROR. THE ENTRIES IN BOOKS OF ACCOUNT OF TRAN SFEROR HAVE NO ROLE TO PLAY FOR THE PURCHASER WHILE IT ASSIGNS VALUE TO THE ACQUIRED TANGIBLE AND INTANGIBLE ASSETS. IT IS A FACT THAT ASSESSEE HAD ACQUIRED TRADEMARKS AND GOODWILL ALONG WITH THE TANGIBLE ASSETS. THE VALUE OF TANGIBLE ASSET WAS DETERMINED AT RS.43.37CRORES.THEREFORE, T HE BALANCE AMOUNT WAS ASSIGNED TO GOODWILL,BEING INTANGIBLE ASSET IN THE FORM OF TRAD E MARK AND OTHER COMMERCIAL ASSETS. WE FIND THAT THE FAA HAD RELIED UPON THE CASE OF HON'B LE SUPREME COURT IN CASE OF SMIFS SECURITIES LTD. (SUPRA), WHEREIN IT HAS BEEN ALLOWE D THAT DEPRECIATION IS ALLOWED ON INTANGIBLE ASSETS INCLUDING GOODWILL. THEREFORE, IN OUR OPINIO N THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY. CONFIRMING THE SAME WE HOLD THAT ASSESSEE HAD RIGHTLY CLAIMED DEPRECIATION AND THAT FAA HAD RIGHTLY ALLO WED THE APPEAL FILED BY IT.EFFECTIVE GROUND OF APPEAL IS DECIDED AGAINST THE AO. AS A RESULT, APPEAL FILED BY AO STANDS DISMISSED. . ORDER PRONOUNC ED IN THE OPEN COURT ON 15 TH NOVEMBER , 2017. 15 , 2017 SD/- SD/ - ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 15.11.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 1586/M/14- AADHAR RETAILING LTD.(08-09) 4 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.