ACIT-2(2)(1), MMUMBAI V. M/S. JICS LOGISTIC LIMITED , MUMBAI

ITA 1761/MUM/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5027 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 18-10-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 17-05-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained cash credit; Business income; Depreciation; Earning of tax free income; Period of limitation; Corroborative evidences; Valuation report; Accommodation entries; Scheme of amalgamation; Time period of passing order; Capital expenditure; Rule 8D; Set aside
• Section: 32; 148; 271(1)(c); 143(3); 11A; 14A; 133(6); 208; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA No. 1760/MUM/2023 Assessment Year: 2011-12 & ITA No. 1779/MUM/2023 Assessment Year: 2012-13 & ITA Nos. 1761 to 1763/MUM/2023 Assessment Year: 2013-14 to 2015-16 & ITA Nos. 1780 & 1781/MUM/2023 Assessment Year: 2016-17 & 2017-18 & ITA No. 1764/MUM/2023 Assessment Year: 2018-19 ACIT-2(2)(1), Room No. 545, 5 th floor, Aayakar Bhavan, Mumbai-400020. Vs. M/s Jics Logistic Ltd., 403, 4 th floor, Classic Pentagon, Andheri (E), Mumbai-400069. PAN No. AACCJ 2178 F Appellant Respondent CO No. 105/Mum/2023 (Arising out of ITA No. 1763/MUM/2023) Assessment Year: 2015-16 M/s Jics Logistics Ltd., 403, 4 th floor, Classic Pentagon, Andheri (E), Mumbai-400069. Vs. ACIT-2(2)(1), Room No. 545, 5 th floor, Aayakar Bhavan, Mumbai-400020. PAN No. AACCJ 2178 F Appellant Respondent Assessee by Revenue by Date of Hearing Date of pronouncement PER OM PRAKASH KANT, AM These appeals by the orders passed by the learned commissioner of I National Faceless Appeal Centre, Delhi [ in short the ld assessment years 2011 16, the assessee has preferred cross objection against the order of the Ld. CIT(A). The issue in dispute involved i cross objection being similar, same have been heard together and disposed off by way of this consolidated orde avoid repetition of facts. 2. At the outset, the Ld. Departmental Representative submitted that there was a delay of six days in filing the appeal The learned DR referred to of delay and submitted that excessive workload of filing appeals before the T Bombay High Court as well as preparing scrutiny report for filing SLP and other tasks involving limitation, file the appeals within ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Assessee by : Mr. Satyaprakash Singh by : Mr. Ujjawal Kumar Chavan, DR Date of Hearing : 19/10/2023 Date of pronouncement : 29/11/2023 ORDER PER OM PRAKASH KANT, AM These appeals by the Revenue are directed against separate by the learned commissioner of Income National Faceless Appeal Centre, Delhi [ in short the ld assessment years 2011-12 to 2018-19. In assessment year 2015 the assessee has preferred cross objection against the order of the Ld. CIT(A). The issue in dispute involved in these appeals and cross objection being similar, same have been heard together and disposed off by way of this consolidated order for convenience and of facts. At the outset, the Ld. Departmental Representative ere was a delay of six days in filing the appeal referred to the application for seeking condonation submitted that during the relevant period, due to of filing appeals before the Tribunal and Hon’ble Bombay High Court as well as preparing scrutiny report for filing SLP and other tasks involving limitation, the Assessing could not within the limitation period provided M/s Jics Logistics Ltd. 2 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Mr. Satyaprakash Singh Kumar Chavan, DR are directed against separate ncome-tax(Appeals)- National Faceless Appeal Centre, Delhi [ in short the ld ‘CIT(A)’] for 19. In assessment year 2015- the assessee has preferred cross objection against the order of n these appeals and cross objection being similar, same have been heard together and r for convenience and At the outset, the Ld. Departmental Representative (DR) ere was a delay of six days in filing the appeals. seeking condonation during the relevant period, due to ribunal and Hon’ble Bombay High Court as well as preparing scrutiny report for filing the Assessing could not the limitation period provided under the Act. According to the learned DR, the d due to bonafide reasons, and therefore say might be condoned. The learned counsel for admission of the appeal parties, we are of the opini not complying the limitation period for filing the appeal Assessing officer, and therefore justice, we admit the appeal 3. Firstly, we take up the appeal year 2011-12. The grounds raised in the appeal are reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 3,38,42, 112/ High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and in the circumstances of the law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 79,36,017/ Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanat ground of non assessment order was passed by the JCIT itself? 4. Briefly stated facts of the case are that the assessee, a clos held public limited company 01/09/2009 by way of converting a partnership firm namely M/s ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 According to the learned DR, the delay was not intentional and was reasons, and therefore say might be condoned. The the assessee also did not seriously object for admission of the appeals. After considering submission of the parties, we are of the opinion that there exists a sufficient cause for not complying the limitation period for filing the appeal , and therefore, in the interest of substantial we admit the appeals for adjudication. Firstly, we take up the appeal of the Revenue 12. The grounds raised in the appeal are reproduced as Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation 3,38,42, 112/-relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore nguishable? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 79,36,017/-made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s. 43(1) was decided on different ground of non-approval by the Joint CIT when the impugned assessment order was passed by the JCIT itself? stated facts of the case are that the assessee, a clos held public limited company, has been in 01/09/2009 by way of converting a partnership firm namely M/s M/s Jics Logistics Ltd. 3 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 not intentional and was reasons, and therefore say might be condoned. The did not seriously object for . After considering submission of the on that there exists a sufficient cause for not complying the limitation period for filing the appeals by the , in the interest of substantial Revenue for assessment 12. The grounds raised in the appeal are reproduced as Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore case and in law, the Ld. CIT(A) erred in deleting the disallowance of the made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts s. 43(1) was decided on different approval by the Joint CIT when the impugned stated facts of the case are that the assessee, a closely incorporated on 01/09/2009 by way of converting a partnership firm namely M/s ‘Jhawar’ Ice and Cold Storage acquired business of a logistics’, Mumbai on 01/11/2010 and acquired another proprietorship concern namely M/s prop. Mr Pranav Jhawar ( company) on 31/03/2011. 4.1 The assessee filed consideration electronically on 29/09/2011 declaring total income at ₹8,41,44,630/-. During the year under consideration, the assessee was engaged in the business of providing warehousing and allied services including financing/refinancing goods to trading members of National commodity and derivative exchange Ltd (NCDEX), farmers et cetera. 4.2 The return of income filed by the assessee was selecte scrutiny assessment and Act, 1961 (in short ‘the Act assessment completed under section 143(3) of the 10/03/2014, the Assessing Officer made t addition was made disallowing depreciation amounting to ₹3,38,42,112/- claimed on intangible assets right’ and ‘goodwill’ concern namely M/s JICS Laboratories made disallowing depreciation amounting to ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Ice and Cold Storage. The assessee company also acquired business of a partnership firm namely M/s , Mumbai on 01/11/2010 and acquired another ship concern namely M/s JICS laborato prop. Mr Pranav Jhawar (who is also director of the assessee 31/03/2011. The assessee filed its return of income for the year under electronically on 29/09/2011 declaring total income . During the year under consideration, the assessee was engaged in the business of providing warehousing and allied services including financing/refinancing against warehoused ading members of National commodity and derivative exchange Ltd (NCDEX), farmers et cetera. The return of income filed by the assessee was selecte scrutiny assessment and statutory notices under the Income the Act’), were issued and complied with. In the assessment completed under section 143(3) of the 10/03/2014, the Assessing Officer made two additions. made disallowing depreciation amounting to claimed on intangible assets in the form of ’ generated due to acquisition of propriety concern namely M/s JICS Laboratories. Second addition has been allowing depreciation amounting to ₹79,36, M/s Jics Logistics Ltd. 4 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 . The assessee company also firm namely M/s ‘JICS , Mumbai on 01/11/2010 and acquired another JICS laboratories, having director of the assessee for the year under electronically on 29/09/2011 declaring total income . During the year under consideration, the assessee was engaged in the business of providing warehousing and against warehoused ading members of National commodity and derivative The return of income filed by the assessee was selected for nder the Income-tax issued and complied with. In the assessment completed under section 143(3) of the Act on o additions. Firstly, made disallowing depreciation amounting to form of ‘business generated due to acquisition of propriety addition has been 79,36,017/-, which was claimed by assessee revaluation of assets of M/s further appeal, the Ld. CIT(A) has deleted both Aggrieved, the Revenue is i Tribunal (in short the ‘Tri above. 5. In ground no. 1 depreciation amounting to 5.1 The brief facts qua the issue in dispute are that during the year under consideration of M/s JICS laboratories, a proprietary concern established in 2007 laboratory of NCDEX and exchange Ltd and was engaged in the of agro-based and non sheet dated 31/03/2011, the book value of t laboratories was of ₹43,44, report of the assets of M/s JICS laboratories engineer M/s Anmol Se consultant), who was approved by Government. On the basis of the valuation report of the valuer, t alonwith all the assets and li total consideration of ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 was claimed by assessee due to enhancement of cost of a revaluation of assets of M/s Jhawar Ice and Cold Storage/ , the Ld. CIT(A) has deleted both Aggrieved, the Revenue is in appeal before the Income in short the ‘Tribunal’), raising grounds as reproduced In ground no. 1, the Revenue has challenged disallowance of depreciation amounting to ₹3,38,42,112/- deleted by the Ld. CIT(A). The brief facts qua the issue in dispute are that during the onsideration, the assessee acquired ongoing business of M/s JICS laboratories, a proprietary concern established in 2007. M/s JICS laboratories was an approved laboratory of NCDEX and ‘ACE’ derivatives and commodity exchange Ltd and was engaged in the ‘commodity testing based and non-agro-based products. As per the balance 31/03/2011, the book value of the assets of M/s JICS 43,44,359/-. The assessee obtained a he assets of M/s JICS laboratories from engineer M/s Anmol Sekri Consultants P Ltd. (in short , who was approved by Government. On the basis of the valuation report of the valuer, the assessee took over the business all the assets and liabilities of M/s JICS laboratories total consideration of ₹39,77,99,955/-. After adjusting the book M/s Jics Logistics Ltd. 5 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 enhancement of cost of asset after Jhawar Ice and Cold Storage/-. On the additions. Income-tax Appellate raising grounds as reproduced has challenged disallowance of deleted by the Ld. CIT(A). The brief facts qua the issue in dispute are that during the the assessee acquired ongoing business of M/s JICS laboratories, a proprietary concern, which was was an approved derivatives and commodity commodity testing’ business based products. As per the balance he assets of M/s JICS assessee obtained a valuation from a chartered kri Consultants P Ltd. (in short M/s Anmol , who was approved by Government. On the basis of the he assessee took over the business abilities of M/s JICS laboratories for a . After adjusting the book value of the assets of business rights and goodwill of the books of account of assessee for laboratories, and corresponding amount of assessee company were issued who happened to be director of the assessee company i.e. related party. The assessee accordingly recognised business right goodwill amounting to Rs. books of account and claimed amounting to Rs. 4,91,81,955/ 5.1.1 The Government approved valuer M/s Anmol Consultants worked out valuation of business by way of two methods DCF) method at Rs. 4287.30 lakhs and secondly, by way of Equity (PE) method at Rs. 3669.25 lakhs and then valuation of both method was worked out to Rs. 3978.28 lakhs. The AO and CIT(A) has reproduced the detailed working of valuation o DCF and PE method impugned orders. 5.1.2 For ‘DCF’ method for next four years and then after applying discounting factor at 10.72% computed discounted cash flow at Rs. 13 adding the terminal value of Rs. 2977 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 value of the assets of ₹34,55,641/-, intangible assets in the form of business rights and goodwill of ₹39,34,55,641/-was determined in books of account of assessee for business of the and corresponding amount of equity shares assessee company were issued to proprietor of JICS who happened to be director of the assessee company i.e. related The assessee accordingly recognised business right goodwill amounting to Rs.39,34,55,641/- as intangible asset and claimed depreciation u/s 32 of the Act amounting to Rs. 4,91,81,955/-. The Government approved valuer M/s Anmol Consultants worked out valuation of business of JICS Laboratories two methods, firstly, by way of Discounted DCF) method at Rs. 4287.30 lakhs and secondly, by way of method at Rs. 3669.25 lakhs and then valuation of both method was worked out to Rs. 3978.28 lakhs. The AO and CIT(A) has reproduced the detailed working of valuation o DCF and PE method provided on behalf of the assessee method, the Valuer has projected the cash flow for next four years and then after applying discounting factor at 10.72% computed discounted cash flow at Rs. 1310 lakhs and after terminal value of Rs. 2977 lakhs, estimated the bu M/s Jics Logistics Ltd. 6 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 , intangible assets in the form of was determined in business of the M/s JICS equity shares of of JICS Laboratories, who happened to be director of the assessee company i.e. related The assessee accordingly recognised business rights and as intangible asset in its depreciation u/s 32 of the Act The Government approved valuer M/s Anmol of JICS Laboratories Discounted Cash Flow( DCF) method at Rs. 4287.30 lakhs and secondly, by way of Private method at Rs. 3669.25 lakhs and then average of valuation of both method was worked out to Rs. 3978.28 lakhs. The AO and CIT(A) has reproduced the detailed working of valuation of provided on behalf of the assessee in the , the Valuer has projected the cash flow for next four years and then after applying discounting factor at 10 lakhs and after , estimated the business value at Rs. 4287 lakhs. valuation for the reasons, for future years or terminal va secondly, no deduction on account of investment in capital expenditure in future cash flow has been given, factor of 10.72% was not explained. For PE valuation method valuer has taken PE ratio of ground that average PE ratio of listed quality testing was around 32.13 and JICS Laboratories being unlisted small size company, the PE ratio of 14 was appropriate. PE valuation for the reaso done on 31/3/2011 where as PE ratio as on 5/03/2011 had been considered by the valuer, Chokasi Laboratories, engaged in identical quality testing services and listed and large c but PE ratio of said company was only 2.4. were confronted to the assessee but getting comments from the valuer, however, the limitation of assessment proceedings wa valuation of the approved valuer and determined the potential market value of the business carried on by JICS laboratories at Rs. 12,70,63,110/- as on the date of merger i.e. 31/03/2011. adjustment made to DCF me addition made is reproduced as under for ready reference: ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 value at Rs. 4287 lakhs. The Assessing Officer rejected the reasons, that firstly, no basis for either cash flow for future years or terminal value was disclosed by the valuer, , no deduction on account of investment in capital expenditure in future cash flow has been given, thirdly factor of 10.72% was not explained. For PE valuation method valuer has taken PE ratio of M/s JICS Laboratories at 14 on the ground that average PE ratio of listed quality testing around 32.13 and JICS Laboratories being unlisted small size company, the PE ratio of 14 was appropriate. The AO rejected the PE valuation for the reason that firstly, the PE valuation has been done on 31/3/2011 where as PE ratio as on 5/03/2011 had been considered by the valuer, secondly, another company namely M/s Chokasi Laboratories, engaged in identical quality testing services and listed and large company as compared to JICs Laboratories, but PE ratio of said company was only 2.4. Those were confronted to the assessee but assessee sought more time for getting comments from the valuer, however, the limitation of assessment proceedings was approaching near, the AO adjusted the the approved valuer and determined the potential market value of the business carried on by JICS laboratories at Rs. as on the date of merger i.e. 31/03/2011. adjustment made to DCF method and PE method and consequent addition made is reproduced as under for ready reference: M/s Jics Logistics Ltd. 7 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 The Assessing Officer rejected the , no basis for either cash flow lue was disclosed by the valuer, , no deduction on account of investment in capital thirdly, discount factor of 10.72% was not explained. For PE valuation method, the JICS Laboratories at 14 on the ground that average PE ratio of listed quality testing laboratories around 32.13 and JICS Laboratories being unlisted small size The AO rejected the , the PE valuation has been done on 31/3/2011 where as PE ratio as on 5/03/2011 had been , another company namely M/s Chokasi Laboratories, engaged in identical quality testing services ompany as compared to JICs Laboratories, Those discrepancies assessee sought more time for getting comments from the valuer, however, the limitation of s approaching near, the AO adjusted the the approved valuer and determined the potential market value of the business carried on by JICS laboratories at Rs. as on the date of merger i.e. 31/03/2011. The thod and PE method and consequent addition made is reproduced as under for ready reference: “5.7 Valuation as per DCF method: M/s. JICS Laboratories, for A.Y. 2010 that the net profit of the business of M/s. JICS Laboratories has increased from Rs. 86,44,370/ in A.Y. 2011-12. Thus the compounded average growth rate (CAGR) is 75%. Considering that its income should grow at a constant growth rate of at least at one half of the speed of calculated CAGR of 75%, cash flow for next five ycars is calculated i A.Y. 2011-12 JICS Lab.Income 15,149,463 CAGR @ 37.50% 56,81,049 Cash Flow 20,830,512 5.8 While estimating the above cash flow it is presumed that the business will require capital expenditure that is equal to depreciation rates. Therefore, neither depreciation has expenditure has been deducted while estimating the cash low. The above calculated cash flow should be discounted by as acceptable interest rate which is estimated at 13.25% considering 8.25% per annum risk free interest rate plu value of for future cash flows is being calculated as under: A.Y. 2011-12 JICS Lab.Income 1,51,49,463 CAGR @ 37.50% 56,81,049 Cash Flow 20,830,512 Discounted rate @ 13.25% Present Value 5.9 Market value of business in terms of future cash flows is being calculated as per formula given here below: (Business income for 2011 of next five years) = (1,51,49,463/3.25) + (18,23,23,903) = (46,61,373/ (18,23,23,903/ {Where capitalization rate = Risk free rate (8.25%) = 3.25%}. Thus present value of business of M/s. JICS Laboratories as on 31/03/2011 comes to Rs. 18.70 Crore in place of 42.87 Crore as estimated by the Valu ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 5.7 Valuation as per DCF method:- From the income tax returns of M/s. JICS Laboratories, for A.Y. 2010-11 and 2011-12 it was found that the net profit of the business of M/s. JICS Laboratories has increased from Rs. 86,44,370/- in A.Y. 2010-11 to Rs. 1,51, 12. Thus the compounded average growth rate (CAGR) is 75%. Considering that its income should grow at a constant growth rate of at least at one half of the speed of calculated CAGR of 75%, cash flow for next five ycars is calculated in the following table: 2012-13 2013-14 2014-15 2015 20,830,512 28,641,953 39,382,686 541,51,193/ 78,11,442 10,740,733 14,768,507 20,306,697 28,641,953 39,382,686 54,151,193 74,457,891/ 5.8 While estimating the above cash flow it is presumed that the business will require capital expenditure that is equal to depreciation rates. Therefore, neither depreciation has been added back nor capital expenditure has been deducted while estimating the cash low. The above calculated cash flow should be discounted by as acceptable interest rate which is estimated at 13.25% considering 8.25% per annum risk free interest rate plus 5% risk premium. Therefore, present value of for future cash flows is being calculated as under:- 2012-13 2013-14 2014-15 2015 49,463 2,08,30,512 2,86,41,953 3,93,82,686 5,41,51,193/ 78,11,442 1,07,40,733 1,47,68,507 2,03 28,641,953 39,382,686 54,151,193 74,457,891/ 0.8675 0.7526 0.6529 0.5664 2,84,46,894 2,96,39,409 3,53,55,314 4,21,72,949 5.9 Market value of business in terms of future cash flows is being calculated as per formula given here below:- (Business income for 2011-12/Capitalization rate) + (Future cash flow of next five years) (1,51,49,463/3.25) + (18,23,23,903) = (46,61,373/ (18,23,23,903/-) = 18,69,85,276/- {Where capitalization rate = Risk free rate (8.25%) - Risk Premium (5%) 3.25%}. Thus present value of business of M/s. JICS Laboratories as 31/03/2011 comes to Rs. 18.70 Crore in place of 42.87 Crore as estimated by the Valuer according to the DCF method. M/s Jics Logistics Ltd. 8 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 From the income tax returns of 12 it was found that the net profit of the business of M/s. JICS Laboratories has 11 to Rs. 1,51,49,463/- 12. Thus the compounded average growth rate (CAGR) is 75%. Considering that its income should grow at a constant growth rate of at least at one half of the speed of calculated CAGR of 75%, n the following table:- 2015-16 2016-17 541,51,193/ 7,44,57,891/- 20,306,697- 2,79,21,709/- 74,457,891/ 10,23,79,600/ 5.8 While estimating the above cash flow it is presumed that the business will require capital expenditure that is equal to depreciation been added back nor capital expenditure has been deducted while estimating the cash low. The above calculated cash flow should be discounted by as acceptable interest rate which is estimated at 13.25% considering 8.25% per s 5% risk premium. Therefore, present 2015-16 2016-17 41,51,193/ 7,44,57,891/- 3,06,697- 2,79,21,709/- 74,457,891/ 10,23,79,600/- 0.5664 0.4914 4,21,72,949 5,03,09,335 5.9 Market value of business in terms of future cash flows is being 12/Capitalization rate) + (Future cash flow (1,51,49,463/3.25) + (18,23,23,903) = (46,61,373/-) + Risk Premium (5%) 3.25%}. Thus present value of business of M/s. JICS Laboratories as 31/03/2011 comes to Rs. 18.70 Crore in place of 42.87 Crore as 5.10 Valuation as per PE method: working in similar line of business, which is a listed company, which has more experience, larger set up and infrastructure as well as man power strength in comparison to M/s. JICS Laboratories and which has PE ratio of 2.04 only as on 31/03/2011 which is evident from its audited annual accounts for the year ended on 31/03/2 Choksi Laboratories Ltd. CL.I is a listed company and founded with 26 locations means wide experienced whereas M/s JICS Laboratories was founded in 2007 (25 Yrs. After CLL.) is not a listed company and it is a very small size compared to the s of the listed companies, PE ratio of M/s JICS Laboratories cannot be greater than PE ratio of Choksi Laboratories Ltd. value of M/s JICS Laboratories is being worked out as per PE after taking PE ratio of 2.04 as Total discounted cash flow Average discounted cash flows PE Multiple Business value 5.11 In view of recaleulated value of business as per DCF & Method average value of the business is being worked out as under: Method DCF Method PE Method Average 5.12 Goodwill Calculation: In view of recalculated value of business, value attributable to goodwill Particular Business Value (as calculated above) Goodwill Contribution to the business value (%) Value attributable to goodwill 5.13 In view of discussion made in para the potential market value of the business carried on by M/s JICS Laboratories was Rs. 12,70,63,110/ 31.03.2011 with M/s JICS Logistics Ltd. Therefore, in the books of M/s JICS Logistics of Rs. 43,44,359/ goodwill should have been recognized at Rs. 12,27,18,751/ right of Rs. 11,63,65,595/ of Rs. 39,34,55,641/ goodwill of Rs. 2,00.00,000/ intangible assets in the form 27,07,36,890/- ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 5.10 Valuation as per PE method:- Choksi Laboratories Ltd., Indore is working in similar line of business, which is a listed company, which has more experience, larger set up and infrastructure as well as man power strength in comparison to M/s. JICS Laboratories and which has PE ratio of 2.04 only as on 31/03/2011 which is evident from its audited annual accounts for the year ended on 31/03/2 Choksi Laboratories Ltd. CL.I is a listed company and founded with 26 locations means wide experienced whereas M/s JICS Laboratories was founded in 2007 (25 Yrs. After CLL.) is not a listed company and it is a very small size compared to the size and volumes of the listed companies, PE ratio of M/s JICS Laboratories cannot be greater than PE ratio of Choksi Laboratories Ltd. Therefore, business value of M/s JICS Laboratories is being worked out as per PE after taking PE ratio of 2.04 as under: Total discounted cash flow 197473366/- Average discounted cash flows 32912227/- 2.04 Business value 67140943/- 5.11 In view of recaleulated value of business as per DCF & Method average value of the business is being worked out as under: Value DCF Method 18,69,85,276/- 67140943/- 127063110/- 5.12 Goodwill Calculation: In view of recalculated value of business, value attributable to goodwill is being worked out as under: Amount Business Value (as calculated above) 127063110 Goodwill Contribution to the business value (%) 0.05 Value attributable to goodwill 53,53,156 In view of discussion made in para 5.1 to 5.12, it is inferred that the potential market value of the business carried on by M/s JICS Laboratories was Rs. 12,70,63,110/- as on the date of its merger i.e. 31.03.2011 with M/s JICS Logistics Ltd. Therefore, in the books of M/s JICS Logistics Ltd. (apart from assets, cransferred at book value of Rs. 43,44,359/-) intangible assets in the form of business right and goodwill should have been recognized at Rs. 12,27,18,751/ right of Rs. 11,63,65,595/- and goodwill of Rs. 63,53,156/ of Rs. 39,34,55,641/- (business right of Rs. 37,34,55,641/ goodwill of Rs. 2,00.00,000/-). Due to excess recognition of value of intangible assets in the form of business right and goodwill of Rs. - (difference of 393455641-122718751) in books of M/s M/s Jics Logistics Ltd. 9 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Choksi Laboratories Ltd., Indore is working in similar line of business, which is a listed company, which has more experience, larger set up and infrastructure as well as man power strength in comparison to M/s. JICS Laboratories and which has PE ratio of 2.04 only as on 31/03/2011 which is evident from its audited annual accounts for the year ended on 31/03/2011. As Choksi Laboratories Ltd. CL.I is a listed company and founded 1982 with 26 locations means wide experienced whereas M/s JICS Laboratories was founded in 2007 (25 Yrs. After CLL.) is not a listed ize and volumes of the listed companies, PE ratio of M/s JICS Laboratories cannot be Therefore, business value of M/s JICS Laboratories is being worked out as per PE Method 5.11 In view of recaleulated value of business as per DCF & PE Method average value of the business is being worked out as under:- 5.12 Goodwill Calculation: In view of recalculated value of business, 127063110 53,53,156 5.1 to 5.12, it is inferred that the potential market value of the business carried on by M/s JICS as on the date of its merger i.e. 31.03.2011 with M/s JICS Logistics Ltd. Therefore, in the books of Ltd. (apart from assets, cransferred at book value ) intangible assets in the form of business right and goodwill should have been recognized at Rs. 12,27,18,751/-(business and goodwill of Rs. 63,53,156/-) instead (business right of Rs. 37,34,55,641/- and ). Due to excess recognition of value of of business right and goodwill of Rs. in books of M/s JICS Logistics Ltd. excess depreciation of Rs. 3,38,42,112/ of 49181955-15339843 calculated @12.5%) was claimed which was not allowable. Accordingly claim of depreciation of Rs. 3,38,42, 112/ hereby disallowed and added back t Penairy proceedings u/s 271(1)(c) initiated separately for furnishing inaccurate particulars of income and concealment thereon. 5.1.3 Thus, for ‘DCF the net profit of the business from Rs. 86,44,370/- thus the compounded average rate of growth (CAGR) if the income of JICS constant growth rate of at CAGR of 75%, cash flow of next five years would be less valuer had determined. The AO was of the view that business would require capital expenditure which will be equal to depreciation rates, therefore, neit capital expenditure has been deducted while flow. The AO further discounted the cash flow calculated by an estimated rate of 13.25% considering 8.25% per annum risk free interest plus 5% risk pre 5.1.4 Under ‘PE and arrived at valuation of business at Rs. 6,71,40,943/ taking average of both method of valuation, he worked out average valuation of business at Rs. 12,70,63,110/ 5.1.5 The Ld AO accordingly held that in the books of account of JICS Laboratories ( apart from assets transferred a ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 JICS Logistics Ltd. excess depreciation of Rs. 3,38,42,112/- 15339843 calculated @12.5%) was claimed which was not allowable. Accordingly claim of depreciation of Rs. 3,38,42, 112/ hereby disallowed and added back to the total income of assessee. Penairy proceedings u/s 271(1)(c) initiated separately for furnishing inaccurate particulars of income and concealment thereon.” DCF’ method calculation, the AO the net profit of the business of JICS Laboratories has increased - in 210-11 to Rs.1,51,49,463/- thus the compounded average rate of growth (CAGR) if the income of JICS Laboratories would have increased at a rate of at least one half of the speed of calculated , cash flow of next five years would be less determined. The AO was of the view that business would require capital expenditure which will be equal to depreciation rates, therefore, neither depreciation has been added back nor capital expenditure has been deducted while estimating the cash AO further discounted the cash flow calculated by an estimated rate of 13.25% considering 8.25% per annum risk free interest plus 5% risk premium. PE’ method valuation, he took PE ratio of 2.04 and arrived at valuation of business at Rs. 6,71,40,943/ taking average of both method of valuation, he worked out average valuation of business at Rs. 12,70,63,110/-. d AO accordingly held that in the books of account of JICS Laboratories ( apart from assets transferred a M/s Jics Logistics Ltd. 10 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 (difference 15339843 calculated @12.5%) was claimed which was not allowable. Accordingly claim of depreciation of Rs. 3,38,42, 112/- o the total income of assessee. Penairy proceedings u/s 271(1)(c) initiated separately for furnishing the AO observed that of JICS Laboratories has increased - in AY 2011-12, thus the compounded average rate of growth (CAGR) was 75% and would have increased at a speed of calculated , cash flow of next five years would be less than what determined. The AO was of the view that business would require capital expenditure which will be equal to depreciation her depreciation has been added back nor estimating the cash AO further discounted the cash flow calculated by an estimated rate of 13.25% considering 8.25% per annum risk free method valuation, he took PE ratio of 2.04 and arrived at valuation of business at Rs. 6,71,40,943/-. After taking average of both method of valuation, he worked out average d AO accordingly held that in the books of account of JICS Laboratories ( apart from assets transferred at book value of Rs. 43,44,359/-) intangible assets in the form of business rights and goodwill should have been recogniz instead of Rs.39,34,55, and goodwill of Rs. 2,00,00,000/ 5.2 Before the Ld. CIT(A) the assessee filed comments of the approved valuer on the defects which were Assessing Officer in the valuation report. The approved value justified his valuation report. The Ld. CIT(A) admitted the comments of the approved valuer and sent the same to the Assessing Officer calling for a remand repor report adhered to his earlier viewpoint. Assessing Officer rejected the contention of the assessee with respect to the investment agreement entered into a Mauritius company, Tara Holdings which was claimed to the Reserve Bank of India (RBI), for the reason that genuineness and creditworthiness of the investor was doubtful because same was not verified through the TR) division (i.e. a division specified for verifying infor relation to foreign investment After considering the remand report and rejoinder of the assessee, the Ld. CIT(A) deleted the depreciation in view of following reasonings: What remains for adjudication is the am be allowed. Whether it should be based on the amount of value of assets calculated by the appellant or by the AO? ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 ) intangible assets in the form of business rights odwill should have been recognized at Rs. 12,27,18,751 55,641/- (business rights of Rs. 37,34,55,641/ and goodwill of Rs. 2,00,00,000/-) in the books of JICS laboratories. Before the Ld. CIT(A) the assessee filed comments of the approved valuer on the defects which were pointed out Assessing Officer in the valuation report. The approved value justified his valuation report. The Ld. CIT(A) admitted the comments of the approved valuer and sent the same to the Assessing Officer calling for a remand report. The Assessing Officer in his report adhered to his earlier viewpoint. In the remand report the Assessing Officer rejected the contention of the assessee with respect to the investment agreement entered into a Mauritius company, Tara Holdings which was claimed to be duly approve eserve Bank of India (RBI), for the reason that genuineness and creditworthiness of the investor was doubtful because same was not verified through the Foreign Tax and Tax Research ( a division specified for verifying infor relation to foreign investment) of Central Board of Direct T After considering the remand report and rejoinder of the assessee, the Ld. CIT(A) deleted the depreciation in view of following What remains for adjudication is the amount of depreciation that is to be allowed. Whether it should be based on the amount of value of assets calculated by the appellant or by the AO? M/s Jics Logistics Ltd. 11 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 ) intangible assets in the form of business rights ed at Rs. 12,27,18,751/- business rights of Rs. 37,34,55,641/- ) in the books of JICS laboratories. Before the Ld. CIT(A) the assessee filed comments of the pointed out by the Assessing Officer in the valuation report. The approved valuer justified his valuation report. The Ld. CIT(A) admitted the comments of the approved valuer and sent the same to the Assessing Officer . The Assessing Officer in his remand In the remand report the Assessing Officer rejected the contention of the assessee with respect to the investment agreement entered into a Mauritius be duly approved by eserve Bank of India (RBI), for the reason that genuineness and creditworthiness of the investor was doubtful because same Foreign Tax and Tax Research (FT & a division specified for verifying information in of Central Board of Direct Taxes. After considering the remand report and rejoinder of the assessee, the Ld. CIT(A) deleted the depreciation in view of following ount of depreciation that is to be allowed. Whether it should be based on the amount of value of In this respect, the following are seen: a. The valuation of assets is done by an independent registered value b. It is a fact that consideration of Rs.39.78 crores has been paid to the seller in the form of equity shares (plus small unsecured loan), which again is on the basis of another valuation report. c. As regards the finding of the AO regarding the projec the valuer has stated that the same is based on the information and data made available by the management. Besides, various other specific factors including (i small scale but high margins (ii) high growth potential (iii) booming commodity been cited. The AO has reiterated in the remand report that the estimation is based on inflated projections and no supporting evidence has been given. However, it is seen that the AO has not given the basis for arriving at his decision of estimating the cash flows at half of the speed of calculated CAGR of 75%. d. As regards the discount rate of 10.72%, the valuer has given a detailed justification in terms of Weighted Average Cost of Capital (WACC) in both the original it. It appears that the AO has accepted this rate in the remand report. In any case, the rate cannot be questioned by the AO by considering risk premium of 5% without providing any factual basis for arriving at a conclusion. Wherever the specific computation made by the registered valuer is to be substituted, it is imperative that it has a factual foundation. In the absence of such an exercise by the AO, in my humble view, the report of the valuer would gai the valuation report has the basis for arriving at WACC. e. As regards the PE adopted, the appellant has pointed out that Vimta Laboratories which had a market capitalization of Rs.37 crores had a PE of 45.3. While the AO h valuer has adopted the average industry PE based on 2 companies and arrived at average of 32.13 of companies in same line of business of testing laboratories (page 67,73 of valuation report). The valuer has eventually adopted a PE of 14 based on the industry PE of companies in infrastructure field. A PE of 2 indicates a very short payback period of just 2 years. In the listed market space, several companies command huge valuation (particularly start huge losses on account of future growth potential. Thus, valuation on a PE basis is more of an art and less of a science. One cannot fault the valuer for eventually adopting a nominal PE of 14, which is much higher than the average PE exchanges. Comparing the PE with a group of entities or the market as adopted by the Registered Valuer, as against benchmarking the PE against a single entity as made by the AO, is in my view, a better proposition. ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 In this respect, the following are seen: a. The valuation of assets is done by an independent registered value b. It is a fact that consideration of Rs.39.78 crores has been paid to the seller in the form of equity shares (plus small unsecured loan), which again is on the basis of another valuation report. c. As regards the finding of the AO regarding the projected cash flows, the valuer has stated that the same is based on the information and data made available by the management. Besides, various other specific factors including (i small scale but high margins (ii) high growth potential (iii) booming commodity markets (iv) entry barriers etc have been cited. The AO has reiterated in the remand report that the estimation is based on inflated projections and no supporting evidence has been given. However, it is seen that the AO has not given the basis at his decision of estimating the cash flows at half of the speed of calculated CAGR of 75%. d. As regards the discount rate of 10.72%, the valuer has given a detailed justification in terms of Weighted Average Cost of Capital (WACC) in both the original valuation report and clarifications issued by it. It appears that the AO has accepted this rate in the remand report. In any case, the rate cannot be questioned by the AO by considering risk premium of 5% without providing any factual basis for arriving at a conclusion. Wherever the specific computation made by the registered valuer is to be substituted, it is imperative that it has a factual foundation. In the absence of such an exercise by the AO, in my humble view, the report of the valuer would gain precedence, particularly since the valuation report has the basis for arriving at WACC. e. As regards the PE adopted, the appellant has pointed out that Vimta Laboratories which had a market capitalization of Rs.37 crores had a PE of 45.3. While the AO has opted to compare with a single entity, the valuer has adopted the average industry PE based on 2 companies and arrived at average of 32.13 of companies in same line of business of testing laboratories (page 67,73 of valuation report). The valuer has ntually adopted a PE of 14 based on the industry PE of companies in infrastructure field. A PE of 2 indicates a very short payback period of just 2 years. In the listed market space, several companies command huge valuation (particularly start-ups) even though they suffer from huge losses on account of future growth potential. Thus, valuation on a PE basis is more of an art and less of a science. One cannot fault the valuer for eventually adopting a nominal PE of 14, which is much higher than the average PE of the indices of the listed entities in the stock exchanges. Comparing the PE with a group of entities or the market as adopted by the Registered Valuer, as against benchmarking the PE against a single entity as made by the AO, is in my view, a better M/s Jics Logistics Ltd. 12 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 a. The valuation of assets is done by an independent registered valuer. b. It is a fact that consideration of Rs.39.78 crores has been paid to the seller in the form of equity shares (plus small unsecured loan), which ted cash flows, the valuer has stated that the same is based on the information and data made available by the management. Besides, various other specific factors including (i small scale but high margins (ii) high growth markets (iv) entry barriers etc have been cited. The AO has reiterated in the remand report that the estimation is based on inflated projections and no supporting evidence has been given. However, it is seen that the AO has not given the basis at his decision of estimating the cash flows at half of the d. As regards the discount rate of 10.72%, the valuer has given a detailed justification in terms of Weighted Average Cost of Capital valuation report and clarifications issued by it. It appears that the AO has accepted this rate in the remand report. In any case, the rate cannot be questioned by the AO by considering risk premium of 5% without providing any factual basis for arriving at such a conclusion. Wherever the specific computation made by the registered valuer is to be substituted, it is imperative that it has a factual foundation. In the absence of such an exercise by the AO, in my humble n precedence, particularly since e. As regards the PE adopted, the appellant has pointed out that Vimta Laboratories which had a market capitalization of Rs.37 crores had a as opted to compare with a single entity, the valuer has adopted the average industry PE based on 2 companies and arrived at average of 32.13 of companies in same line of business of testing laboratories (page 67,73 of valuation report). The valuer has ntually adopted a PE of 14 based on the industry PE of companies in infrastructure field. A PE of 2 indicates a very short payback period of just 2 years. In the listed market space, several companies command ough they suffer from huge losses on account of future growth potential. Thus, valuation on a PE basis is more of an art and less of a science. One cannot fault the valuer for eventually adopting a nominal PE of 14, which is much higher of the indices of the listed entities in the stock exchanges. Comparing the PE with a group of entities or the market as adopted by the Registered Valuer, as against benchmarking the PE against a single entity as made by the AO, is in my view, a better f. As regards the AO's questioning of the inclusion of Vimta Laboratories on the ground that it is a much larger entity, it supports the case of the appellant that this is a high growth high potential segment. In view of the detailed discussion valuation report in this case has adequate factual basis. The Valuation Report has not been assailed by way of compelling contrary evidences or by demonstrating that any of the assumptions made by the Registered Valuer In the case of Ashwin Vanaspati Industries vs CIT, 255 ITR 26 (Guj HC), the Hon'ble Gujarat HC has held as follows: "The valuation report is by a registered" valuer. Neither in the assessment order nor in the Tribunal's order is there any whisper that the valuation report by the registered valuer is incorrect in any manner whatsoever. a report by the registered valuer, it is incumbent upon an authority to dislodge the same by bringing adequate material on record in the form of departmental valuation report, because in absence of the same, a technical expert's opinion (Registered Valuer's report) cannot be dislodged by any authority by merely ignoring the same. Neither the Assessing Officer nor the Tribunal have even attempted to state that the valuation report and the values put on the assets are incorrect in any manner whatsoever. They have simply ignored the val report could be questioned by the AO if any of the specific defects had been pointed out, the same is not the case here. In view of the above facts and position of law, the appellant is entitled to recognition of valu and goodwill of Rs.27,07,36,890/ AO. The consequential depreciation of Rs.3,38,42,112/ the appellant. This ground stands allowed. 6. Before us, the Ld to the finding of ld Hon’ble Gujarat High Court in the case of Industries (supra) held that the Departmental V discard the valuation of M/s Jics Laboratories carried out by the registered valuer. The Ld. DR submitted that when the Ld. CIT(A) noted that there was no report ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 f. As regards the AO's questioning of the inclusion of Vimta Laboratories on the ground that it is a much larger entity, it supports the case of the appellant that this is a high growth high potential segment. In view of the detailed discussion as above, in my considered view, the valuation report in this case has adequate factual basis. The Valuation Report has not been assailed by way of compelling contrary evidences or by demonstrating that any of the assumptions made by the Registered Valuer / Appellant are divested of reality. In the case of Ashwin Vanaspati Industries vs CIT, 255 ITR 26 (Guj HC), the Hon'ble Gujarat HC has held as follows: "The valuation report is by a registered" valuer. Neither in the assessment order nor in the order is there any whisper that the valuation report by the registered valuer is incorrect in any manner whatsoever. Once there is a report by the registered valuer, it is incumbent upon an authority to dislodge the same by bringing adequate material on ecord in the form of departmental valuation report, because in absence of the same, a technical expert's opinion (Registered Valuer's report) cannot be dislodged by any authority by merely ignoring the same. In the present case, that is what has happened. Neither the Assessing Officer nor the Tribunal have even attempted to state that the valuation report and the values put on the assets are incorrect in any manner whatsoever. They have simply ignored the valuation report". Although the valuation report could be questioned by the AO if any of the specific defects had been pointed out, the same is not the case here. In view of the above facts and position of law, the appellant is entitled to recognition of value of intangible assets in the form of business rights and goodwill of Rs.27,07,36,890/- which has been disallowed by the AO. The consequential depreciation of Rs.3,38,42,112/- is allowable to the appellant. This ground stands allowed.” Before us, the Ld. Departmental Representative (DR) CIT(A), wherein he following the decision of Hon’ble Gujarat High Court in the case of Ashwin Vanaspati held that in absence of any valuation report from the Departmental Valuation Officer, the Assessing Officer can’t the valuation of M/s Jics Laboratories carried out by the The Ld. DR submitted that when the Ld. CIT(A) noted that there was no report from the Departmental Valuer M/s Jics Logistics Ltd. 13 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 f. As regards the AO's questioning of the inclusion of Vimta Laboratories on the ground that it is a much larger entity, it supports the case of the as above, in my considered view, the valuation report in this case has adequate factual basis. The Valuation Report has not been assailed by way of compelling contrary evidences or by demonstrating that any of the assumptions made by the In the case of Ashwin Vanaspati Industries vs CIT, 255 ITR 26 (Guj HC), the Hon'ble Gujarat HC has held as follows: "The valuation report is by a registered" valuer. Neither in the assessment order nor in the order is there any whisper that the valuation report by the Once there is a report by the registered valuer, it is incumbent upon an authority to dislodge the same by bringing adequate material on ecord in the form of departmental valuation report, because in absence of the same, a technical expert's opinion (Registered Valuer's report) cannot be dislodged by any authority by merely In the present case, that is what has happened. Neither the Assessing Officer nor the Tribunal have even attempted to state that the valuation report and the values put on the assets are uation report". Although the valuation report could be questioned by the AO if any of the specific defects had In view of the above facts and position of law, the appellant is entitled e of intangible assets in the form of business rights which has been disallowed by the is allowable to . Departmental Representative (DR) referred following the decision of Ashwin Vanaspati in absence of any valuation report from sing Officer can’t the valuation of M/s Jics Laboratories carried out by the The Ld. DR submitted that when the Ld. CIT(A) from the Departmental Valuer ,he within his co-terminus power called for the valuation valuation of JICS Laboratories. The Ld. DR referred to the decision dated 11/03/2015 of the Hon’ble Delhi High Court in the case of Jansampark Advertising and Marketing P ltd (ITA 525/2014) wherein it is held that if the Assessing Officer fails in carrying out any inquiry then it is incumbent upon the appellate authorities to carry out such inquiry for discovery of the true facts of the case. The Ld. DR further submitted that in the case merely acquired proprietary business of Rs.43,44,359/-. The Ld. DR further submitted that the proprietor has not reported valuation of the asse as valued by the approved valuer sale of the intangible assets containing business rights and goodwill in his return of income. H or commercial rights arose or develop of the Director merely for the reason that it was transferred to a company in which the proprietor himself is d submitted that valuation by the valuer has been of the unrealistic projections by management and just for the purpose of reducing tax liability in the hand of the company by way of claiming excess depreciation and no came into existence in the hands of the co acquiring proprietary concern of director of the company. ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 erminus power of Assessing Officer, called for the valuation report from the Departmental Valuer Laboratories. The Ld. DR referred to the decision of the Hon’ble Delhi High Court in the case of Advertising and Marketing P ltd (ITA 525/2014) wherein it is held that if the Assessing Officer fails in carrying out any inquiry then it is incumbent upon the appellate authorities to h inquiry for discovery of the true facts of the case. The Ld. DR further submitted that in the case , the assessee has merely acquired proprietary business of director having book value . The Ld. DR further submitted that the proprietor d valuation of the assets of his proprietary concern as valued by the approved valuer and consequent capital gain on sale of the intangible assets containing business rights and goodwill in his return of income. He submitted that no additiona or commercial rights arose or developed in the proprietary concern of the Director merely for the reason that it was transferred to a company in which the proprietor himself is director. The Ld. DR submitted that valuation by the valuer has been made on the basis of the unrealistic projections by management and just for the purpose of reducing tax liability in the hand of the company by way of claiming excess depreciation and no additional ce in the hands of the company by way of acquiring proprietary concern of director of the company. M/s Jics Logistics Ltd. 14 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 of Assessing Officer, he could have report from the Departmental Valuer for Laboratories. The Ld. DR referred to the decision of the Hon’ble Delhi High Court in the case of Advertising and Marketing P ltd (ITA 525/2014) wherein it is held that if the Assessing Officer fails in carrying out any inquiry then it is incumbent upon the appellate authorities to h inquiry for discovery of the true facts of the case. the assessee has having book value . The Ld. DR further submitted that the proprietor ts of his proprietary concern and consequent capital gain on sale of the intangible assets containing business rights and goodwill e submitted that no additional business in the proprietary concern of the Director merely for the reason that it was transferred to a irector. The Ld. DR made on the basis of the unrealistic projections by management and just for the purpose of reducing tax liability in the hand of the company by way additional asset actually mpany by way of acquiring proprietary concern of director of the company. The Ld. DR in support of his claim relied on the decision of the Tribunal in the case of M/s Dosti Realty Ltd. in ITA No. 2043/Mum/2022 for assessment year 2016 “6. As observed by us that scheme of amalgamation not fully observed by assessee by considering reserve and surplus for the purposes of calculation of goodwill. As far as allowability of depreciation/amortization is concerned we have gon of AO, Ld. CIT (A) and assessee’s submissions thereon. In our observation claim of the assessee is not tenable for the following reasons notwithstanding the reduction in amount of goodwill by virtue of our finding (supra) as under: A) In case of amalgamation amongst the closely held companies, where the owner/promoters and directors are same how the goodwill can emerge by virtue of amalgamation, as no new people/organization came into picture and whatever reflecting in Balance Sheet. B) Assessee is a holding company where all the main owners and directors are promoters and on the board of the company, in that case how is it possible that a smaller entity that is too a subsidiary have more market value/brand value, which can create good power house in terms of finance, decision making and personal reputation in the industry. C) The assessee had tried to make out a case that the amalgamation of two companies with the transferor company was by a method of merger was not necessary that all the shareholders of the erstwhile transferor companies would become shareholders in the same ratio in the transferee company. On the other hand, in the 'pooling of inter assets, liabilities and reserves are recorded by the transferee at the relevant 'carrying amounts', i.e. points. The criteria applicable was 'pooling of interests method' in para 3(e) of AS 14.All assets and lia passed on, in totality, to the transferee company, thus, indicating that it was a 'pooling of interest' method of amalgamation and there could not have been accounting for goodwill. D) No credible evidence or mater show that the assessee incurred any cost for acquiring goodwill in the scheme of amalgamation. The record revealed that the assessee himself in the first instance written off the entire ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 DR in support of his claim relied on the decision of the Tribunal in M/s Dosti Realty Ltd. in ITA No. 2043/Mum/2022 for assessment year 2016-17 wherein the Tribunal held as under: 6. As observed by us that scheme of amalgamation not fully observed by assessee by considering reserve and surplus for the purposes of calculation of goodwill. As far as allowability of depreciation/amortization is concerned we have gone through the order of AO, Ld. CIT (A) and assessee’s submissions thereon. In our observation claim of the assessee is not tenable for the following reasons notwithstanding the reduction in amount of goodwill by virtue of our finding (supra) as under: In case of amalgamation amongst the closely held companies, where the owner/promoters and directors are same how the goodwill can emerge by virtue of amalgamation, as no new people/organization came into picture and whatever reflecting in Balance-Sheet is merely a balancing figure to match the Balance B) Assessee is a holding company where all the main owners and directors are promoters and on the board of the company, in that case how is it possible that a smaller entity that is too a subsidiary have more market value/brand value, which can create goodwill in favour of parent entity which is the main power house in terms of finance, decision making and personal reputation in the industry. C) The assessee had tried to make out a case that the amalgamation of two companies with the transferor company by a method of merger called 'purchase method' by which it was not necessary that all the shareholders of the erstwhile transferor companies would become shareholders in the same ratio in the transferee company. On the other hand, in the 'pooling of interest' method of amalgamation the transferor's assets, liabilities and reserves are recorded by the transferee at the relevant 'carrying amounts', i.e. points. The criteria applicable was 'pooling of interests method' in para 3(e) of AS 14.All assets and liabilities of the transferor companies had passed on, in totality, to the transferee company, thus, indicating that it was a 'pooling of interest' method of amalgamation and there could not have been accounting for goodwill. D) No credible evidence or material had been laid on record to show that the assessee incurred any cost for acquiring goodwill in the scheme of amalgamation. The record revealed that the assessee himself in the first instance written off the entire M/s Jics Logistics Ltd. 15 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 DR in support of his claim relied on the decision of the Tribunal in M/s Dosti Realty Ltd. in ITA No. 2043/Mum/2022 nal held as under: 6. As observed by us that scheme of amalgamation not fully observed by assessee by considering reserve and surplus for the purposes of calculation of goodwill. As far as allowability of e through the order of AO, Ld. CIT (A) and assessee’s submissions thereon. In our observation claim of the assessee is not tenable for the following reasons notwithstanding the reduction in amount of goodwill by virtue In case of amalgamation amongst the closely held companies, where the owner/promoters and directors are same how the goodwill can emerge by virtue of amalgamation, as no new people/organization came into picture and whatever reflecting in merely a balancing figure to match the Balance B) Assessee is a holding company where all the main owners and directors are promoters and on the board of the company, in that case how is it possible that a smaller entity that is too a subsidiary have more market value/brand value, which can will in favour of parent entity which is the main power house in terms of finance, decision making and personal C) The assessee had tried to make out a case that the amalgamation of two companies with the transferor company called 'purchase method' by which it was not necessary that all the shareholders of the erstwhile transferor companies would become shareholders in the same ratio in the transferee company. On the other hand, in the est' method of amalgamation the transferor's assets, liabilities and reserves are recorded by the transferee at the relevant 'carrying amounts', i.e. points. The criteria applicable was 'pooling of interests method' in para 3(e) of AS- bilities of the transferor companies had passed on, in totality, to the transferee company, thus, indicating that it was a 'pooling of interest' method of amalgamation and there could not have been accounting for ial had been laid on record to show that the assessee incurred any cost for acquiring goodwill in the scheme of amalgamation. The record revealed that the assessee himself in the first instance written off the entire amount of Rs. 46.05 Crores accounted fo accounts. That decision taken by the assessee was consistent to the Standard Accounting Practices followed in respect of fictitious assets. From the accounting treatment, it was clear that the assessee made accounting entries to th account after the scheme of amalgamation became effective and not on account of the order of the High Court to make any payment for goodwill (intangible assets) specifically. As per standard accounting practices, in the cases of amalgamations, i the assets side is greater than the liability side then the difference is credited to the capital reserve account and in a case where the liability side is greater than the asset side then the difference is accounted as 'Goodwill' account in the hands of the amalgamated company. This practice is followed to balance the asset and liability sides by making accounting entries and by making such book entries, no real asset as goodwill in fact comes into existence. That was how the accounting treatment to be given was clearly stated in the scheme and no payment on account of any such asset was made by the assessee in that scheme which stood approved by the order of the High Court. The said order thus, clearly stated that the assets of the transferor company com transferred and vested in the transferee company as a going concern. 7. In the case of Smifs Securities Ltd., the Supreme Court has held that 'goodwill' is an intangible asset eligible for depreciation under the provisions of section 32 of the IT Act. A decision is only an authority for what it actually decides. Hence, the said case can be said to be an authority only to the extent that goodwill is a depreciable asset. In the case of U.P. State Industrial Development Corpn. [ Industrial Development Corpn. [1997] 225 ITR 703], the Hon’ble Supreme Court held that it is a well purposes of ascertaining profits and gains the ordinary principles of commercial accounting should be ap with any express provision of the relevant statute. The said principle was again retreated by the Supreme Court in the case of Woodward Governor [CIT v. Woodward Governor India (P.) Ltd.[2009] 312 ITR 254] wherein it held that profits for income accordance with ordinary principles of commercial accounting, unless such principles stand superseded or modified by legislative enactments. In other words, it can be said that accounting treat transaction is relevant only to the extent they are not in conflict with the express provisions of the IT Act. In case of merger and acquisition, the IT Act expressly requires recording of capital assets at the price appearing in the books of T of goodwill in accordance with Accounting Standard amortisation of the same in accordance with Accounting Standard may not be of any help in claiming depreciation under the IT Act in view of the express acquisition of existing goodwill in the hands of the acquirer will be the ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 amount of Rs. 46.05 Crores accounted for as its goodwill in its accounts. That decision taken by the assessee was consistent to the Standard Accounting Practices followed in respect of fictitious assets. From the accounting treatment, it was clear that the assessee made accounting entries to th account after the scheme of amalgamation became effective and not on account of the order of the High Court to make any payment for goodwill (intangible assets) specifically. As per standard accounting practices, in the cases of amalgamations, i the assets side is greater than the liability side then the difference is credited to the capital reserve account and in a case where the liability side is greater than the asset side then the difference is accounted as 'Goodwill' account in the hands of the amalgamated company. This practice is followed to balance the asset and liability sides by making accounting entries and by making such book entries, no real asset as goodwill in fact comes into existence. That was how the accounting treatment to iven was clearly stated in the scheme and no payment on account of any such asset was made by the assessee in that scheme which stood approved by the order of the High Court. The said order thus, clearly stated that the assets of the transferor company comprised in the undertaking stood transferred and vested in the transferee company as a going concern. 7. In the case of Smifs Securities Ltd., the Supreme Court has held that 'goodwill' is an intangible asset eligible for depreciation under the f section 32 of the IT Act. A decision is only an authority for what it actually decides. Hence, the said case can be said to be an authority only to the extent that goodwill is a depreciable asset. In the case of U.P. State Industrial Development Corpn. [CIT v. U.P. State Industrial Development Corpn. [1997] 225 ITR 703], the Hon’ble Supreme Court held that it is a well-accepted proposition that for the purposes of ascertaining profits and gains the ordinary principles of commercial accounting should be applied, so long as they do not conflict with any express provision of the relevant statute. The said principle was again retreated by the Supreme Court in the case of Woodward Governor [CIT v. Woodward Governor India (P.) Ltd.[2009] 312 ITR 254] held that profits for income-tax purpose are to be computed in accordance with ordinary principles of commercial accounting, unless such principles stand superseded or modified by legislative enactments. In other words, it can be said that accounting treatment of any transaction is relevant only to the extent they are not in conflict with the express provisions of the IT Act. In case of merger and acquisition, the IT Act expressly requires recording of capital assets at the price appearing in the books of Target Company. Accordingly, the recognition of goodwill in accordance with Accounting Standard amortisation of the same in accordance with Accounting Standard may not be of any help in claiming depreciation under the IT Act in view of the express provisions mentioned therein. Thus, the cost of acquisition of existing goodwill in the hands of the acquirer will be the M/s Jics Logistics Ltd. 16 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 r as its goodwill in its accounts. That decision taken by the assessee was consistent to the Standard Accounting Practices followed in respect of fictitious assets. From the accounting treatment, it was clear that the assessee made accounting entries to the goodwill account after the scheme of amalgamation became effective and not on account of the order of the High Court to make any payment for goodwill (intangible assets) specifically. As per standard accounting practices, in the cases of amalgamations, if the assets side is greater than the liability side then the difference is credited to the capital reserve account and in a case where the liability side is greater than the asset side then the difference is accounted as 'Goodwill' account in the hands of the amalgamated company. This practice is followed to balance the asset and liability sides by making accounting entries and by making such book entries, no real asset as goodwill in fact comes into existence. That was how the accounting treatment to iven was clearly stated in the scheme and no payment on account of any such asset was made by the assessee in that scheme which stood approved by the order of the High Court. The said order thus, clearly stated that the assets of the prised in the undertaking stood transferred and vested in the transferee company as a going 7. In the case of Smifs Securities Ltd., the Supreme Court has held that 'goodwill' is an intangible asset eligible for depreciation under the f section 32 of the IT Act. A decision is only an authority for what it actually decides. Hence, the said case can be said to be an authority only to the extent that goodwill is a depreciable asset. In the CIT v. U.P. State Industrial Development Corpn. [1997] 225 ITR 703], the Hon’ble accepted proposition that for the purposes of ascertaining profits and gains the ordinary principles of plied, so long as they do not conflict with any express provision of the relevant statute. The said principle was again retreated by the Supreme Court in the case of Woodward Governor [CIT v. Woodward Governor India (P.) Ltd.[2009] 312 ITR 254] tax purpose are to be computed in accordance with ordinary principles of commercial accounting, unless such principles stand superseded or modified by legislative enactments. ment of any transaction is relevant only to the extent they are not in conflict with the express provisions of the IT Act. In case of merger and acquisition, the IT Act expressly requires recording of capital assets at the price arget Company. Accordingly, the recognition of goodwill in accordance with Accounting Standard-14 and amortisation of the same in accordance with Accounting Standard-26 may not be of any help in claiming depreciation under the IT Act in view provisions mentioned therein. Thus, the cost of acquisition of existing goodwill in the hands of the acquirer will be the cost/written down value in the hands of Target Company. Further, in case of goodwill arising out of amalgamation, the cost in the han target company would be NIL by virtue of section 55(2) (a) (ii) and, accordingly, the cost would be NIL in the hands of acquirer is pertinent to note that decisions favouring the proposition [CIT v. Smifs Securities Ltd.[2012] 348 ITR 302 goodwill arising out of amalgamation, section, viz., 5th proviso to section 32 (1), section 49(1)(iii)(e), Explanation 7 to section 43(1) Explanation 2(b) to section 43(6)(c) and section 55(2)(a)(ii) were not referred. 8. Generally, when someone acquires a business and purchase consideration paid for the business is more than the net assets acquired, the difference is recognized as goodwill in accounting. Here in this case as amalgamation process has been carri direction of Hon’ble Bombay High Court and assessee clearly followed “pooling of interest” method, there can’t be any separate purchase consideration, which assessee is supposed to pay. In the whole scenario the principle of “substance ov substance there is no goodwill involved at all and it is simply an accounting entry to balance the accounts of the transferee company by virtue of scheme implementation as per the directions of Hon’ble High Court. 9. Goodwill falls in the category of “Intangible Assets”, but its advantages must be tangible and assessee has to establish on record that by virtue of “Goodwill” what are the financial and non gains are accruing to him. In this case what we observed, p and post-merger is simply a consolidation of figures of entities involved and not a percentage growth in terms of sales, profitability, net worth and customer base etc. post and legal history analysed, we a Ld. CIT (A) is not sustainable in law and order of AO is restored as found to be based on sound legal logics. In the result Ground Nos. 1&2 of the Revenue is allowed. 7. On the contrary, the Ld. Counsel for the asse that the Assessing Officer has rejected the valuation report of the Government approved valuer assumptions. The Ld. Counsel submitted that report of registered valuer being a technical person cannot be subst obtaining report from submitted that as far as projections in the DC ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 cost/written down value in the hands of Target Company. Further, in case of goodwill arising out of amalgamation, the cost in the han target company would be NIL by virtue of section 55(2) (a) (ii) and, accordingly, the cost would be NIL in the hands of acquirer is pertinent to note that decisions favouring the proposition [CIT v. Smifs Securities Ltd.[2012] 348 ITR 302(SC)]that depreciation is available on goodwill arising out of amalgamation, section, viz., 5th proviso to section 32 (1), section 49(1)(iii)(e), Explanation 7 to section 43(1) Explanation 2(b) to section 43(6)(c) and section 55(2)(a)(ii) were not 8. Generally, when someone acquires a business and purchase consideration paid for the business is more than the net assets acquired, the difference is recognized as goodwill in accounting. Here in this case as amalgamation process has been carried out as per the direction of Hon’ble Bombay High Court and assessee clearly followed “pooling of interest” method, there can’t be any separate purchase consideration, which assessee is supposed to pay. In the whole scenario the principle of “substance over form” has to be considered. In substance there is no goodwill involved at all and it is simply an accounting entry to balance the accounts of the transferee company by virtue of scheme implementation as per the directions of Hon’ble High will falls in the category of “Intangible Assets”, but its advantages must be tangible and assessee has to establish on record that by virtue of “Goodwill” what are the financial and non gains are accruing to him. In this case what we observed, p merger is simply a consolidation of figures of entities involved and not a percentage growth in terms of sales, profitability, net worth and customer base etc. post-merger. In view of the above discussion and legal history analysed, we are of the considered view that order of Ld. CIT (A) is not sustainable in law and order of AO is restored as found to be based on sound legal logics. In the result Ground Nos. 1&2 of the Revenue is allowed.” On the contrary, the Ld. Counsel for the asse that the Assessing Officer has rejected the valuation report of the Government approved valuer based on his own presumptions and The Ld. Counsel submitted that report of registered valuer being a technical person cannot be subst obtaining report from a technical person. The Ld. Counsel as far as projections in the DC M/s Jics Logistics Ltd. 17 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 cost/written down value in the hands of Target Company. Further, in case of goodwill arising out of amalgamation, the cost in the hands of target company would be NIL by virtue of section 55(2) (a) (ii) and, accordingly, the cost would be NIL in the hands of acquirer-company. It is pertinent to note that decisions favouring the proposition [CIT v. Smifs (SC)]that depreciation is available on goodwill arising out of amalgamation, section, viz., 5th 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)(ii) were not 8. Generally, when someone acquires a business and purchase consideration paid for the business is more than the net assets acquired, the difference is recognized as goodwill in accounting. Here in ed out as per the direction of Hon’ble Bombay High Court and assessee clearly followed “pooling of interest” method, there can’t be any separate purchase consideration, which assessee is supposed to pay. In the whole er form” has to be considered. In substance there is no goodwill involved at all and it is simply an accounting entry to balance the accounts of the transferee company by virtue of scheme implementation as per the directions of Hon’ble High will falls in the category of “Intangible Assets”, but its advantages must be tangible and assessee has to establish on record that by virtue of “Goodwill” what are the financial and non-financial gains are accruing to him. In this case what we observed, pre-merger merger is simply a consolidation of figures of entities involved and not a percentage growth in terms of sales, profitability, net worth merger. In view of the above discussion re of the considered view that order of Ld. CIT (A) is not sustainable in law and order of AO is restored as found to be based on sound legal logics. In the result Ground Nos. 1&2 On the contrary, the Ld. Counsel for the assessee submitted that the Assessing Officer has rejected the valuation report of the based on his own presumptions and The Ld. Counsel submitted that report of registered valuer being a technical person cannot be substituted without technical person. The Ld. Counsel as far as projections in the DCF method are concerned, same were made by the management and following economic/market conditions, business conditions demand and supply, cost of capital and ho factors are considered are based on they cannot be evaluated purely based on arithmetical value is always worked out based on underline facts and assumptions. At the time of valuation the potential value of business in mind underline factors that and thus the value, after certain period of time. 8. We have heard rival submission of the parties and perused the relevant material on record. It is undisputed that the valuation of the proprietary concer i.e. M/s Jics Laboratories based on the various projections management of the assessee company altered or revised those valuation. The Ld. CIT(A) has by the Assessing Officer mainly for the reason that he was authorized to carry out such revision and matter should have Valuation Officer. We are of the opinion that duty of the Ld. CIT(A) ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 were based on various factors and projections made by the management and following like growth of /market conditions, business conditions d supply, cost of capital and host of other factors. These factors are considered are based on some reasonable approach evaluated purely based on arithmetical value is always worked out based on approximation and catena of underline facts and assumptions. At the time of valuation the business at that particular time and also keeping in mind underline factors that may change over the which is relevant one might not be relevant after certain period of time. We have heard rival submission of the parties and perused the relevant material on record. It is undisputed that the valuation of the proprietary concern of one of the director of company namely i.e. M/s Jics Laboratories, made by the valuer on DC based on the various projections of future earning of the assessee company itself. The Assessing Officer altered or revised those projections and computed his own . The Ld. CIT(A) has rejected the revision of valuation done by the Assessing Officer mainly for the reason that he was authorized to carry out such revision not being expert of valuation and matter should have been referred to the Departmental Valuation Officer. We are of the opinion that duty of the Ld. CIT(A) M/s Jics Logistics Ltd. 18 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 based on various factors and projections like growth of company, /market conditions, business conditions, expected st of other factors. These reasonable approach and evaluated purely based on arithmetical precision as approximation and catena of underline facts and assumptions. At the time of valuation the particular time and also keeping over the period of time might not be relevant We have heard rival submission of the parties and perused the relevant material on record. It is undisputed that the valuation of of company namely , made by the valuer on DCF method, is of future earning by the itself. The Assessing Officer and computed his own the revision of valuation done by the Assessing Officer mainly for the reason that he was not not being expert of valuation referred to the Departmental Valuation Officer. We are of the opinion that duty of the Ld. CIT(A) does not end merely by have carried out said exercise of referring the valuation to the Departmental Valuation referred the matter to the the Hon’ble High Court in the case of Marketing p Ltd Pvt. Ltd. reproduced as under: “ 42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account stat pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 stage of appeals, if deemed proper by way of making or causing to be made a "further inquiry" in exercise of the power under approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld. 8.1 Before us, it has also not been explained that how much amount has been shown by the proprietor in return of income for the purpose of the computation of the capital gain on s proprietary concern and thus it is not clear how the proprietor of JICS Laboratories has reported market value of his business. facts and circumstances of the case, we feel it appropriate to restore the matter back to the file of the Assessing Officer for carrying out valuation from an expert valuation of companies and thereafter decide the ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 does not end merely by saying that the Assessing Officer should have carried out said exercise of referring the valuation to the Departmental Valuation Officer whereas, he himself should have to the Department valuation officer as held by the Hon’ble High Court in the case of Jansampark advertising and Marketing p Ltd Pvt. Ltd. (supra). The relevant para der: 42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a "further inquiry" in exercise of the power under Section 250(4) approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld. Before us, it has also not been explained that how much een shown by the proprietor in return of income for the purpose of the computation of the capital gain on s proprietary concern and thus it is not clear how the proprietor of JICS Laboratories has reported market value of his business. ts and circumstances of the case, we feel it appropriate to restore the matter back to the file of the Assessing Officer for carrying out valuation from an expert department valuer in the field of valuation of companies and thereafter decide the M/s Jics Logistics Ltd. 19 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 that the Assessing Officer should have carried out said exercise of referring the valuation to the he himself should have valuation officer as held by Jansampark advertising and . The relevant para of decision is 42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the ements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld.” Before us, it has also not been explained that how much een shown by the proprietor in return of income for the purpose of the computation of the capital gain on sale of his proprietary concern and thus it is not clear how the proprietor of JICS Laboratories has reported market value of his business. In the ts and circumstances of the case, we feel it appropriate to restore the matter back to the file of the Assessing Officer for carrying out in the field of financial valuation of companies and thereafter decide the issue in accordance with law. The ground No. 1 of the appeal of the Revenue is accordingly allowed for statistical purposes. 9. The ground No. excess depreciation amounting to revaluation of assets of Storage, which has been deleted by the Ld. CIT(A). 9.1 The brief facts qua the issue in dispute are that the partnership firm M/s Jhawar Ice and Cold Storage comprising of seven partners was converted into the assessee company with effect from 01/09/2009 and assets/liabilities of the firm were taken over at book value in the books of the assessee company, which remained till 31/3/2010. Subsequently, the assessee company w.e.f. from revalued old assets of firm and M/s Jhawar Ice and Cold Storage was estimated to accordingly equity shares of were allotted to those seven partners, who became directors of the assessee company. Name of the partners and shares allotted to them, is reproduced by the Assessing Officer are extracted as under: Sr. No. Name 1. Shri Jai Narayan Jhavar S/o Shri Murli Dhar Jhavar 2. Shri Anil Kumar Jhavar S/o Shri Jai Narayan Jhavar 3. Shri Pranav Jhavar S/o Shri Anil Kumar Jhavar 4. Shri Govind Saboo S/o Shri Gopal Narayan Saboo 5. Shri Ajay Lakhotiya S/o Shri P.K. Lakhotiya ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 accordance with law. The ground No. 1 of the appeal of the Revenue is accordingly allowed for statistical purposes. The ground No. 2 of the appeal relates to disallowance of excess depreciation amounting to ₹79,36,017/- claimed on the revaluation of assets of partnership firm M/s Jhawar Ice and Cold which has been deleted by the Ld. CIT(A). The brief facts qua the issue in dispute are that the partnership firm M/s Jhawar Ice and Cold Storage comprising of en partners was converted into the assessee company with effect and assets/liabilities of the firm were taken over at book value in the books of the assessee company, which remained till 31/3/2010. Subsequently, the assessee company from revalued old assets of firm and value of the business of M/s Jhawar Ice and Cold Storage was estimated to accordingly equity shares of ₹ 10 each amounting to were allotted to those seven partners, who became directors of the assessee company. Name of the partners and shares allotted to them, is reproduced by the Assessing Officer are extracted as Amount Jhavar S/o Shri Murli Dhar Jhavar 51000000 Shri Anil Kumar Jhavar S/o Shri Jai Narayan Jhavar 4,95,00,000 Shri Pranav Jhavar S/o Shri Anil Kumar Jhavar Shri Govind Saboo S/o Shri Gopal Narayan Saboo Ajay Lakhotiya S/o Shri P.K. Lakhotiya M/s Jics Logistics Ltd. 20 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 accordance with law. The ground No. 1 of the appeal of the Revenue of the appeal relates to disallowance of claimed on the M/s Jhawar Ice and Cold The brief facts qua the issue in dispute are that the partnership firm M/s Jhawar Ice and Cold Storage comprising of en partners was converted into the assessee company with effect and assets/liabilities of the firm were taken over at book value in the books of the assessee company, which remained till 31/3/2010. Subsequently, the assessee company value of the business of M/s Jhawar Ice and Cold Storage was estimated to ₹ 15 crores and 10 each amounting to Rs.1,50,00,000 were allotted to those seven partners, who became directors of the assessee company. Name of the partners and shares allotted to them, is reproduced by the Assessing Officer are extracted as Amount No. of Shares 51000000 5100000 4,95,00,000 4950000 49440000 4944000 15000 1500 15000 1500 6. M/s Creative Tie-up Pvt. Ltd. 7. Shri Iqbal Singh Gill S/o Late Sardar Preetam Singh Total 9.2 The assessee company with effect from 01/09/2009 onwards taken over the assets and liabilities of the partnership firm at book value and claimed acquired from the firm during assessment year 2010 worked out on the closing WDV of assets of from the firm including assets of year after applying the rate of depreciation as prescribed under the act. The closing WDV of the assets of the company as on 31/03/2010 was amounting to 9.2.1 However during assessment year 2011 company engaged an approved valuer and which were acquired on conversion of the partnership firm at ₹13,76,71,772/- and according depreciation, which amounted report for the year under consideration, the auditor in the notes to account mentioned that two statement of depreciation Annexure A-1 and Annexure The Annexure:A-1 represented on the WDV of M/c Jhawar Ice and Cold Storage prior to conversion into assessee company. The depreciation at the rate prescribed under the assets, in view of the decision of ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 up Pvt. Ltd. Shri Iqbal Singh Gill S/o Late Sardar Preetam Singh 15,00,00,000 assessee company with effect from 01/09/2009 onwards taken over the assets and liabilities of the partnership firm at book depreciation of ₹ 4, 46, 359/ acquired from the firm during assessment year 2010 worked out on the closing WDV of assets of ₹ 50, 55, from the firm including assets of ₹ 8, 68, 825/-acquired during the year after applying the rate of depreciation as prescribed under the act. The closing WDV of the assets of the company as on 31/03/2010 was amounting to ₹ 84, 77, 564/-. However during assessment year 2011-12 the assessee engaged an approved valuer and revalued the assets which were acquired on conversion of the partnership firm at and according claimed depreciation, which amounted to ₹79,36,017/-. In the tax audit report for the year under consideration, the auditor in the notes to account mentioned that two statement of depreciation 1 and Annexure-A2, were annexed to the audit report. 1 represented working of depreciation as per Act Jhawar Ice and Cold Storage prior to conversion into assessee company. The Annexure: A-2 represented working of depreciation at the rate prescribed under the Act on revalued cost of e decision of Chitra Publicity Company P Ltd M/s Jics Logistics Ltd. 21 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 15000 1500 15000 1500 15,00,00,000 1,50,00,000 assessee company with effect from 01/09/2009 onwards taken over the assets and liabilities of the partnership firm at book 4, 46, 359/-on the assets acquired from the firm during assessment year 2010-11, which was 50, 55, 098/-acquired acquired during the year after applying the rate of depreciation as prescribed under the act. The closing WDV of the assets of the company as on 12 the assessee revalued the assets which were acquired on conversion of the partnership firm at claimed inflated/higher . In the tax audit report for the year under consideration, the auditor in the notes to account mentioned that two statement of depreciation vide to the audit report. working of depreciation as per Act Jhawar Ice and Cold Storage prior to conversion 2 represented working of on revalued cost of Chitra Publicity Company P Ltd vs ACIT(2010) 127 TTJ (Ahd)(TM) expert. On being asked to justify by the Assessing Officer, the assessee explained that independent approved valuer being expert of this line, was competent to determine the market value of the old assets and it was claimed on the actual value of the assets for which conversion cost was paid. It was submitted that provisions under the Act do not prohibit for claim of depreciation on revalued assets, because the assessee company is a different entity from the partnership firm which has been acquired on payment of the cost against conversion by way of allotment of shares. The assessee relied on various decisions cited. Acc facts of the cases cited by the assessee are at variance, whereas decision of Hon’ble Kerala High Court in the case of CIT vs Poulose and Mathera (P) Lts 236 ITR 416 the case of the assessee. The Assessing Officer was of the view tha revaluation of the assets with any genuine business need but for depreciation in view of increasing income post conversion of firm into assessee Company ready reference, the relevant finding of the Assessing Officer is reproduced as under: “6.7 From the depreciation chart annexed with the Tax Audit Report of M/s. havar Ice & said firm claimed depreciation of only Rs. 2,23,296/ the part period of 01/04/2009 to 31/08/2009. On same assets after acquisition the assessee company also claimed depreciation of ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 vs ACIT(2010) 127 TTJ (Ahd)(TM) and opinion obtained from tax On being asked to justify by the Assessing Officer, the assessee explained that independent approved valuer being expert mpetent to determine the market value of the old assets and it was claimed on the actual value of the assets for which conversion cost was paid. It was submitted that provisions ct do not prohibit for claim of depreciation on revalued cause the assessee company is a different entity from the partnership firm which has been acquired on payment of the cost against conversion by way of allotment of shares. The assessee relied on various decisions cited. According to the Assessing Officer facts of the cases cited by the assessee are at variance, whereas Hon’ble Kerala High Court in the case of CIT vs Poulose and Mathera (P) Lts 236 ITR 416 squarely applicable in the case of the assessee. The Assessing Officer was of the view tha revaluation of the assets by the assessee was found not motivated y genuine business need but for claiming inflated depreciation in view of increasing income post conversion of firm ssessee Company and resulting increased tax liability. the relevant finding of the Assessing Officer is reproduced as under: 6.7 From the depreciation chart annexed with the Tax Audit Report of M/s. havar Ice & Cold Storage for A.Y. 2010-11, it is noticed that the said firm claimed depreciation of only Rs. 2,23,296/- on their assets for the part period of 01/04/2009 to 31/08/2009. On same assets after acquisition the assessee company also claimed depreciation of M/s Jics Logistics Ltd. 22 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 and opinion obtained from tax On being asked to justify by the Assessing Officer, the assessee explained that independent approved valuer being expert mpetent to determine the market value of the old assets and it was claimed on the actual value of the assets for which conversion cost was paid. It was submitted that provisions ct do not prohibit for claim of depreciation on revalued cause the assessee company is a different entity from the partnership firm which has been acquired on payment of the cost against conversion by way of allotment of shares. The assessee ording to the Assessing Officer, facts of the cases cited by the assessee are at variance, whereas Hon’ble Kerala High Court in the case of CIT vs squarely applicable in the case of the assessee. The Assessing Officer was of the view that was found not motivated claiming inflated depreciation in view of increasing income post conversion of firm and resulting increased tax liability. For the relevant finding of the Assessing Officer is 6.7 From the depreciation chart annexed with the Tax Audit Report of 11, it is noticed that the on their assets for the part period of 01/04/2009 to 31/08/2009. On same assets after acquisition the assessee company also claimed depreciation of Rs. 4,46,359/- for the part period of 01/09/2009 to 31/03/2010 relevant to A.Y. 2010-11. 6.8 Before conversion of the partnership firm into Assessee Company, the fixed assets of the partnership firm were revalued as on 31.03.2008 on the basis of valuation Jain & Co. Assessors Valuers Pvt. Ltd. In the report purpose of valuation has been mentioned as assessment of here open market value of developed land, Building blocks & mercury plant etc. pertaining to running cold storage and Ware house belonging to M/s Jhawar Ice & Cold Storage. Fair open market value was assessed at Rs. 14,29,00,000/- Particulars Developed Land Building/Civil Structures Machinery Plant & Equipment Total 6.9 The Valuer has discussed about the approach to value assessment for building/civil structure and machinery plant & report that (0) As on date fair value of the buildings/ civil structures evaluated adopting built construction, size/built up area and due cognizance of current cost of construction, deducting maintenance & age etc. (ii) Vaiue assessment of machinery/equipments accordingly arrived on the basis of physical inspection, make size/specification, maintenance/condition and taking into consideration new replacement cost, technological obsolescence, residual economical life together with due deduction for depreciation etc. However it is observed that the valuation has not been done according to the approach in fair manner but was done to showe enhanced valu assets in arbitrary manner which is evident from the fact that the cost of building, machinery plants and equipments was estimated presuming them new and deduction on account of depreciation was allowed only @ of 20% & 25% respectively that too wi that for how many years the above said depreciation has been charged though the firm was in business for a considerable numbers of years as it was incorporated long back on 1" February presumed that all the building block well maintained and have residual life of about 40 years and 25 years respectively without any basis and in complete ignorance of the fact that when the building was constructed and machinery equipments were installed. It is a Jhavar Ice & Cold Storage, an addition of Rs. 5,17,733/ the block of building on 31/03/2009 and after claiming depreciation on it W.D.V. as on 31/03/2009 was worked out revaluation the value of such block of building was enhanced 1.61,73.411/- as on 31/03/2008. ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 for the part period of 01/09/2009 to 31/03/2010 relevant 11. Before conversion of the partnership firm into Assessee Company, the fixed assets of the partnership firm were revalued as on 31.03.2008 on the basis of valuation report dated 17.03.2008 obtained from V.K. Jain & Co. Assessors Valuers Pvt. Ltd. In the report purpose of valuation has been mentioned as assessment of here open market value of developed land, Building blocks & mercury plant etc. pertaining old storage and Ware house belonging to M/s Jhawar Ice & Cold Storage. Fair open market value was assessed at Rs. - as on March 2008 details of which are as under: Particulars Fair open market value Developed Land Rs. 6,62,00,000/- Building/Civil Structures Rs. 4,67,00,000/- Machinery Plant & Equipment Rs. 3,00,00,000/- Rs. 14,29,00,000/- 6.9 The Valuer has discussed about the approach to value assessment for building/civil structure and machinery plant & Equipment in his report that (0) As on date fair value of the buildings/ civil structures evaluated adopting built-up area method and considering class/ type of construction, size/built up area and due cognizance of current cost of construction, deducting due depreciation there from towards condition/ maintenance & age etc. (ii) Vaiue assessment of machinery/equipments accordingly arrived on the basis of physical inspection, make size/specification, maintenance/condition and taking into consideration eplacement cost, technological obsolescence, residual economical life together with due deduction for depreciation etc. However it is observed that the valuation has not been done according to the approach in fair manner but was done to showe enhanced valu assets in arbitrary manner which is evident from the fact that the cost of building, machinery plants and equipments was estimated presuming them new and deduction on account of depreciation was allowed only @ of 20% & 25% respectively that too without mentioning that for how many years the above said depreciation has been charged though the firm was in business for a considerable numbers of years as it was incorporated long back on 1" February 1997. It was also presumed that all the building blocks and machinery equipment are well maintained and have residual life of about 40 years and 25 years respectively without any basis and in complete ignorance of the fact that when the building was constructed and machinery equipments were installed. It is aiso pertinent to mention that in the books of M/s. Jhavar Ice & Cold Storage, an addition of Rs. 5,17,733/- was made in the block of building on 31/03/2009 and after claiming depreciation on it W.D.V. as on 31/03/2009 was worked out 1906 420/ valuation the value of such block of building was enhanced as on 31/03/2008. M/s Jics Logistics Ltd. 23 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 for the part period of 01/09/2009 to 31/03/2010 relevant Before conversion of the partnership firm into Assessee Company, the fixed assets of the partnership firm were revalued as on 31.03.2008 report dated 17.03.2008 obtained from V.K. Jain & Co. Assessors Valuers Pvt. Ltd. In the report purpose of valuation has been mentioned as assessment of here open market value of developed land, Building blocks & mercury plant etc. pertaining old storage and Ware house belonging to M/s Jhawar Ice & Cold Storage. Fair open market value was assessed at Rs. as on March 2008 details of which are as under:- 6.9 The Valuer has discussed about the approach to value assessment Equipment in his report that (0) As on date fair value of the buildings/ civil structures up area method and considering class/ type of construction, size/built up area and due cognizance of current cost of due depreciation there from towards condition/ maintenance & age etc. (ii) Vaiue assessment of machinery/equipments accordingly arrived on the basis of physical inspection, make size/specification, maintenance/condition and taking into consideration eplacement cost, technological obsolescence, residual economical life together with due deduction for depreciation etc. However it is observed that the valuation has not been done according to the approach in fair manner but was done to showe enhanced value of the assets in arbitrary manner which is evident from the fact that the cost of building, machinery plants and equipments was estimated presuming them new and deduction on account of depreciation was thout mentioning that for how many years the above said depreciation has been charged though the firm was in business for a considerable numbers of years as 1997. It was also s and machinery equipment are well maintained and have residual life of about 40 years and 25 years respectively without any basis and in complete ignorance of the fact that when the building was constructed and machinery equipments iso pertinent to mention that in the books of M/s. was made in the block of building on 31/03/2009 and after claiming depreciation on 1906 420/- but ofter valuation the value of such block of building was enhanced to Rs. 6.10 The assessee company acquired the business of M/s. Jhavar Ice & Cold Storage with effect from 01/09/2009 relevant to A.Y. 2010 the revaluation of but in A. Y. 2010 in the books of M's claimed on enhanced cost of the assets after revaluation. company only in A.Y. 2011 depreciation on enhanced cost of the assets after revaluation. 6.11 Thus, the main purpose of the adoption of enhanced value after revaluation of assets in the hands of the assessee company in A.Y. 2011-12 was claiming of depreciation at enhanced value to reduce the liability of income tax. The assessee has adopted a colorable device to reduce its income tax liability by claiming higher depreciation with reference to enhanced cost of assets. Reliance regard upon the decision in the case of Mcdowell & Co. Ltd. vs. CTO (1985) 47 CTR(SC) 126 : (1985) 154 ITR 148 (SC). 6.12 The contention of the assessee that in the hands of the company cost of assets is re conversion allotted the valued value, thus the cost of assets in the hands of company is re valued price; is not acceptable. There is reasonable belief that the main purpose of the revalu liability by claiming very high amount of depreciation on the enhanced cost of assets adopted by the assessee company. In this regard it is further observed that the actual cost of any particular assets to assessee is entirely a question of fact to be determined with reference to the attended material. observed in the case of CIT vs. Harvevs Ltd. (1940) 88 ITR 307 (Mad) that the mere production of documentary evi contract was made for purchase of assets at a certain price does net conclusively establish the correctness of claim made by the assessee particularly where the AO is of the opinion that the deal was a colorable device to avoid tax. High Court in the case of Kungundi Industrial Works (P) Ltd. v. CIT [1965] 57 ITR 540 (AP) and the Calcutta High Court in the case of CIT v. Jogta Coal Co. Ltd. [1965! 25 ITR 89 (Cal, and the Supreme Court in the case of Guzdar Kajora Coai Mines Lid. v. CIT [1972] 85 IR 599 (SC) have upheld the action of the AO in going behind the contract and ascertain the actual cost for the purposes of correct ascertainment of income-iax liability. It is pertinent to mention here revaluation was dose according to the sweet wish of the assessee and not on account of any legitimate business need. Had there been any legitimate business need of revaluation the same exercise would have been done in the case of M/s 9.2.2 The Assessing Officer invoked Explanation 43(1) which authorise the Assessing Officer to determine actual cost ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 6.10 The assessee company acquired the business of M/s. Jhavar Ice & Storage with effect from 01/09/2009 relevant to A.Y. 2010 the revaluation of the assets of the firm was done as on 31/03/2008 but in A. Y. 2010-11 neither in 11a beoks cs the nesessee company ner in the books of M's. Jhavar Ice & Cold Storage, depreciation was claimed on enhanced cost of the assets after revaluation. The assessee company only in A.Y. 2011-12 onwards started to claim the depreciation on enhanced cost of the assets after revaluation. Thus, the main purpose of the adoption of enhanced value after revaluation of assets in the hands of the assessee company in A.Y. 12 was claiming of depreciation at enhanced value to reduce the liability of income tax. The assessee has adopted a colorable device to reduce its income tax liability by claiming higher depreciation with reference to enhanced cost of assets. Reliance is placed on in this regard upon the decision in the case of Mcdowell & Co. Ltd. vs. CTO CTR(SC) 126 : (1985) 154 ITR 148 (SC). 6.12 The contention of the assessee that in the hands of the company cost of assets is re-valued value of the assets as the company on conversion allotted the fully paid equity shares to the partners on the re valued value, thus the cost of assets in the hands of company is re valued price; is not acceptable. There is reasonable belief that the main purpose of the revaluation of such assets was to reduce the income tax liability by claiming very high amount of depreciation on the enhanced cost of assets adopted by the assessee company. In this regard it is further observed that the actual cost of any particular assets to assessee is entirely a question of fact to be determined with reference to the attended material. In this behalf, the Madras High Court has observed in the case of CIT vs. Harvevs Ltd. (1940) 88 ITR 307 (Mad) that the mere production of documentary evidence showing that a contract was made for purchase of assets at a certain price does net conclusively establish the correctness of claim made by the assessee particularly where the AO is of the opinion that the deal was a colorable device to avoid tax. Under such circumstances the Andhra Pradesh High Court in the case of Kungundi Industrial Works (P) Ltd. v. CIT [1965] 57 ITR 540 (AP) and the Calcutta High Court in the case of CIT v. Jogta Coal Co. Ltd. [1965! 25 ITR 89 (Cal, and the Supreme Court in the ase of Guzdar Kajora Coai Mines Lid. v. CIT [1972] 85 IR 599 (SC) have upheld the action of the AO in going behind the contract and ascertain the actual cost for the purposes of correct ascertainment of iax liability. It is pertinent to mention here that the exercise of revaluation was dose according to the sweet wish of the assessee and not on account of any legitimate business need. Had there been any legitimate business need of revaluation the same exercise would have been done in the case of M/s JICS Logistics Mumbai also.” The Assessing Officer invoked Explanation 43(1) which authorise the Assessing Officer to determine actual cost M/s Jics Logistics Ltd. 24 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 6.10 The assessee company acquired the business of M/s. Jhavar Ice & Storage with effect from 01/09/2009 relevant to A.Y. 2010-11 and the assets of the firm was done as on 31/03/2008 11a beoks cs the nesessee company ner Storage, depreciation was The assessee 12 onwards started to claim the depreciation on enhanced cost of the assets after revaluation. Thus, the main purpose of the adoption of enhanced value after revaluation of assets in the hands of the assessee company in A.Y. 12 was claiming of depreciation at enhanced value to reduce the liability of income tax. The assessee has adopted a colorable device to reduce its income tax liability by claiming higher depreciation with is placed on in this regard upon the decision in the case of Mcdowell & Co. Ltd. vs. CTO 6.12 The contention of the assessee that in the hands of the company as the company on fully paid equity shares to the partners on the re- valued value, thus the cost of assets in the hands of company is re- valued price; is not acceptable. There is reasonable belief that the main ation of such assets was to reduce the income tax liability by claiming very high amount of depreciation on the enhanced cost of assets adopted by the assessee company. In this regard it is further observed that the actual cost of any particular assets to the assessee is entirely a question of fact to be determined with reference to In this behalf, the Madras High Court has observed in the case of CIT vs. Harvevs Ltd. (1940) 88 ITR 307 (Mad) dence showing that a contract was made for purchase of assets at a certain price does net conclusively establish the correctness of claim made by the assessee particularly where the AO is of the opinion that the deal was a colorable der such circumstances the Andhra Pradesh High Court in the case of Kungundi Industrial Works (P) Ltd. v. CIT [1965] 57 ITR 540 (AP) and the Calcutta High Court in the case of CIT v. Jogta Coal Co. Ltd. [1965! 25 ITR 89 (Cal, and the Supreme Court in the ase of Guzdar Kajora Coai Mines Lid. v. CIT [1972] 85 IR 599 (SC) have upheld the action of the AO in going behind the contract and ascertain the actual cost for the purposes of correct ascertainment of that the exercise of revaluation was dose according to the sweet wish of the assessee and not on account of any legitimate business need. Had there been any legitimate business need of revaluation the same exercise would have The Assessing Officer invoked Explanation-3 to section 43(1) which authorise the Assessing Officer to determine actual cost of asset in situation of transfer of asset fo of liability and after r Court in the case of 509(SC) and Kungundi Industrial Works (P) L ITR 540(AP), rejected the content Assessing Officer distinguished the decisions relied upon by the assessee and relying on the decision of the Court in the case of CIT Vs Poulsoe and Mthera P Ltd (supra) disallowed the claim of inflated depreciation of concluding as under: “6.24 Under the above said circumstances and discussion made, it can be held that the assessee has adopted enhanced cost and has claimed depreciation with reference to such enhanced cost. It is undeniable that it has resulted in reduction requisite conditions of explanation 3 stands fulfilled. After considering the facts and circumstances of the case and provisions of the law, I am of the opinion that the closing W.D.V. of the assets acquired fr firm as per the provisions of the I.T. Act for A.Y. 2010 been taken as the opening .D.V. in the hands of the assessee company for the purpose of computation of depreciation of A.Y. 2011 represents the actual cost of the asset Accordingly, the claim of inflated depreciation of Rs. 79,36,017/ enhancement of the cost of assets after revaluation is hereby disallowed and added back to the total income of assessee. Penalty proceedings u/s 271(1 9.3 On further appeal the Ld. CIT(A) deleted the disallowance of depreciation of observing as under: “In this respect, the following are seen: a. The valuation of assets is done by an independent registered valuer. b. It is a fact that consideration of Rs. 15 crores has been paid to the erstwhile partners in the form of equity shares. ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 of asset in situation of transfer of asset for the purpose of reduction liability and after relying on the decision of the Hon’ble Supreme Court in the case of Sunil Siddhartbhai Vs CIT (1985) 156 ITR 509(SC) and Kungundi Industrial Works (P) Ltd Vs CIT (1965) 57 rejected the contention of the assessee. The learned Assessing Officer distinguished the decisions relied upon by the assessee and relying on the decision of the Hon’ble Kerala High Court in the case of CIT Vs Poulsoe and Mthera P Ltd (supra) disallowed the claim of inflated depreciation of luding as under: 6.24 Under the above said circumstances and discussion made, it can be held that the assessee has adopted enhanced cost and has claimed depreciation with reference to such enhanced cost. It is undeniable that it has resulted in reduction of liability to pay income tax. Thus, all the requisite conditions of explanation 3 stands fulfilled. After considering the facts and circumstances of the case and provisions of the law, I am of the opinion that the closing W.D.V. of the assets acquired fr firm as per the provisions of the I.T. Act for A.Y. 2010-11 should have been taken as the opening .D.V. in the hands of the assessee company for the purpose of computation of depreciation of A.Y. 2011 represents the actual cost of the assets in the hands of the assessee. Accordingly, the claim of inflated depreciation of Rs. 79,36,017/ enhancement of the cost of assets after revaluation is hereby disallowed and added back to the total income of assessee. Penalty proceedings u/s 271(1)(c) initiated separately.” On further appeal the Ld. CIT(A) deleted the disallowance of depreciation of observing as under: In this respect, the following are seen: a. The valuation of assets is done by an independent registered valuer. fact that consideration of Rs. 15 crores has been paid to the erstwhile partners in the form of equity shares. M/s Jics Logistics Ltd. 25 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 r the purpose of reduction elying on the decision of the Hon’ble Supreme Sunil Siddhartbhai Vs CIT (1985) 156 ITR td Vs CIT (1965) 57 ion of the assessee. The learned Assessing Officer distinguished the decisions relied upon by the Hon’ble Kerala High Court in the case of CIT Vs Poulsoe and Mthera P Ltd (supra) disallowed the claim of inflated depreciation of ₹79,36,017/- 6.24 Under the above said circumstances and discussion made, it can be held that the assessee has adopted enhanced cost and has claimed depreciation with reference to such enhanced cost. It is undeniable that of liability to pay income tax. Thus, all the requisite conditions of explanation 3 stands fulfilled. After considering the facts and circumstances of the case and provisions of the law, I am of the opinion that the closing W.D.V. of the assets acquired from the 11 should have been taken as the opening .D.V. in the hands of the assessee company for the purpose of computation of depreciation of A.Y. 2011-12 which s in the hands of the assessee. Accordingly, the claim of inflated depreciation of Rs. 79,36,017/- due to enhancement of the cost of assets after revaluation is hereby disallowed and added back to the total income of assessee. Penalty On further appeal the Ld. CIT(A) deleted the disallowance of a. The valuation of assets is done by an independent registered valuer. fact that consideration of Rs. 15 crores has been paid to the c. As regards the valuation, although the AO has raised objections in para 6.9 of the assessment order, they are generic in nature. As regards the assumption of residual life of 40 years and 25 years for building blocks and machinery equipment respectively adopted by the valuer, the unreasonableness of such assumption has not been brought out with any specific fact. In the case of Ashwin Vanaspati the Hon'ble Gujarat HC has held as follows: "Once there is a report by the registered valuer, it is incumbent upon an authority to dislodge the same by bringing adequate material on record in the form of departmental valuation report, because in absence of the same, a technical expert's opinion (Registered Valuer's report) cannot be dislodged by any authority by merely ignoring the same." Thus, the valuation report cannot be discarded by generic discussion and without pointing specific defects. The AO has relied on the decision of CIT vs Poulose and Mathern P Ltd, 236 ITR 416 (Ker HC). In this regard, I find that the case of the appellant is more close to that of the recent decision of Padmini Products P Ltd vs DCIT, 2 Hon'ble HC held that the provisions which restrict aggregate depreciation claim both by the predecessor and the successor, will apply only in the year of succession and if in a particular year there is no aggregate deduction then such restrictions will not apply. The appellant has also pointed out how the taxable income of the appellant rose to Rs.8.41 crores during the year under reference. I also find that a similar issue arose in the case of DCIT vs Suyash Laboratories, [2016] 65 taxmann.com 217 (Mumbai Hon'ble Jurisdictional Tribunal held that where under an arrangement entire assets and liabilities of a firm had been assigned to a company in lieu of shares issued to partners of erstwhile was entitled to depreciation based on cost incurred by company. In view of the above facts and position of law, in my humble view, the depreciation claim of Rs.79,36,017/ ground stands allowed. 9.4 Before us, the Ld. DR submitted that at the time of the conversion of the partnership firm, the assessee has entered the book value of the assets in its books of accounts and the assets of the partnership firms were not revalued. Therefore, the decisio relied upon by the CIT(A) Padmini Products Pvt. Ltd. v. DCIT (supra) cannot be applied over ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 c. As regards the valuation, although the AO has raised objections in para 6.9 of the assessment order, they are generic in nature. As e assumption of residual life of 40 years and 25 years for building blocks and machinery equipment respectively adopted by the valuer, the unreasonableness of such assumption has not been brought out with any specific fact. In the case of Ashwin Vanaspati Industries vs CIT, 255 ITR 26 (Guj HC), the Hon'ble Gujarat HC has held as follows: "Once there is a report by the registered valuer, it is incumbent upon an authority to dislodge the same by bringing adequate material on record in the form of valuation report, because in absence of the same, a technical expert's opinion (Registered Valuer's report) cannot be dislodged by any authority by merely ignoring the same." Thus, the valuation report cannot be discarded by generic discussion and without pointing specific defects. The AO has relied on the decision of CIT vs Poulose and Mathern P Ltd, ITR 416 (Ker HC). In this regard, I find that the case of the appellant is more close to that of the recent decision of Padmini Products P Ltd vs DCIT, 277 Taxman 22 (Karnataka) [2020] wherein the Hon'ble HC held that the provisions which restrict aggregate depreciation claim both by the predecessor and the successor, will apply only in the year of succession and if in a particular year there is te deduction then such restrictions will not apply. The appellant has also pointed out how the taxable income of the appellant rose to Rs.8.41 crores during the year under reference. I also find that a similar issue arose in the case of DCIT vs Suyash ratories, [2016] 65 taxmann.com 217 (Mumbai - Trib.), wherein the Hon'ble Jurisdictional Tribunal held that where under an arrangement entire assets and liabilities of a firm had been assigned to a company in lieu of shares issued to partners of erstwhile firm, successor company was entitled to depreciation based on cost incurred by company. In view of the above facts and position of law, in my humble view, the depreciation claim of Rs.79,36,017/- is allowable to the appellant. This ground stands allowed.” Before us, the Ld. DR submitted that at the time of the conversion of the partnership firm, the assessee has entered the book value of the assets in its books of accounts and the assets of the partnership firms were not revalued. Therefore, the decisio by the CIT(A) of the Karnataka High Court in the case of Padmini Products Pvt. Ltd. v. DCIT (supra) cannot be applied over M/s Jics Logistics Ltd. 26 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 c. As regards the valuation, although the AO has raised objections in para 6.9 of the assessment order, they are generic in nature. As e assumption of residual life of 40 years and 25 years for building blocks and machinery equipment respectively adopted by the valuer, the unreasonableness of such assumption has not been brought Industries vs CIT, 255 ITR 26 (Guj HC), the Hon'ble Gujarat HC has held as follows: "Once there is a report by the registered valuer, it is incumbent upon an authority to dislodge the same by bringing adequate material on record in the form of valuation report, because in absence of the same, a technical expert's opinion (Registered Valuer's report) cannot be dislodged by any authority by merely ignoring the same." Thus, the valuation report cannot be discarded by generic discussion and without The AO has relied on the decision of CIT vs Poulose and Mathern P Ltd, ITR 416 (Ker HC). In this regard, I find that the case of the appellant is more close to that of the recent decision of Padmini 77 Taxman 22 (Karnataka) [2020] wherein the Hon'ble HC held that the provisions which restrict aggregate depreciation claim both by the predecessor and the successor, will apply only in the year of succession and if in a particular year there is te deduction then such restrictions will not apply. The appellant has also pointed out how the taxable income of the appellant I also find that a similar issue arose in the case of DCIT vs Suyash Trib.), wherein the Hon'ble Jurisdictional Tribunal held that where under an arrangement entire assets and liabilities of a firm had been assigned to a company in firm, successor company was entitled to depreciation based on cost incurred by company. In view of the above facts and position of law, in my humble view, the is allowable to the appellant. This Before us, the Ld. DR submitted that at the time of the conversion of the partnership firm, the assessee has entered the book value of the assets in its books of accounts and the assets of the partnership firms were not revalued. Therefore, the decision of the Karnataka High Court in the case of Padmini Products Pvt. Ltd. v. DCIT (supra) cannot be applied over the case of the assessee. Further, the Ld. DR submitted that assessee has revalued its asset in the subsequent year of conversion mainly for the purpose of reducing its tax liability and therefore, the Assessing Officer is justified in determining the actual cost of asset invoking Explanation Ld. DR also referred to the decision of the Ho in the case of CIT v. M/s. Mansukh Dyeing and Printing Mills in Civil Appeal No. 8258 of 2022 partnership firm/partners tax for the increase in revaluation of the assets however, the assessee has conveniently twisted the facts and only made the revaluation in the year subsequent to conversion in the firm 9.5 On contrary, the Ld. Counsel finding of the Ld. CIT(A) and submitted that in view of the decision relied upon by the Ld. CIT(A), n warranted in the case of the assessee on the revaluation of the asset. 9.6 We have heard rival submission dispute and perused the relevant material on record. On perusal of the facts it is evident that assessee has received the assets and liability in its books of accounts on the value which was recorded in the books of accounts ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 the case of the assessee. Further, the Ld. DR submitted that assessee has revalued its asset in the subsequent year of conversion mainly for the purpose of reducing its tax liability and therefore, the Assessing Officer is justified in determining the actual cost of asset invoking Explanation-3 to section 43(1) of the Act. The Ld. DR also referred to the decision of the Hon’ble Supreme Court v. M/s. Mansukh Dyeing and Printing Mills in Civil Appeal No. 8258 of 2022 and submitted that erstwhile /partners would have been responsible for paying the increase in their capital account on revaluation of the assets however, the assessee has conveniently twisted the facts and only made the revaluation in the year conversion in the firm into the assessee company. On contrary, the Ld. Counsel for the assessee reli finding of the Ld. CIT(A) and submitted that in view of the decision relied upon by the Ld. CIT(A), no disallowance of the depreciation is warranted in the case of the assessee on the revaluation of the We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. On perusal of the facts it is evident that assessee has received the assets and liability in its books of accounts on the value which was recorded in the books of accounts of the erstwhile partnership firm which has M/s Jics Logistics Ltd. 27 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 the case of the assessee. Further, the Ld. DR submitted that assessee has revalued its asset in the subsequent year of conversion mainly for the purpose of reducing its tax liability and therefore, the Assessing Officer is justified in determining the actual to section 43(1) of the Act. The n’ble Supreme Court v. M/s. Mansukh Dyeing and Printing Mills in and submitted that erstwhile would have been responsible for paying capital account on account of revaluation of the assets however, the assessee has conveniently twisted the facts and only made the revaluation in the year to the assessee company. the assessee relied on the finding of the Ld. CIT(A) and submitted that in view of the decision o disallowance of the depreciation is warranted in the case of the assessee on the revaluation of the of the parties on the issue in dispute and perused the relevant material on record. On perusal of the facts it is evident that assessee has received the assets and liability in its books of accounts on the value which was recorded in of the erstwhile partnership firm which has got converted into the assessee company. This con on 01.09.2010, whereas, the assessee has revalued the assets of the erstwhile partnership firm received only on the first day of the next assessment year i.e. 01.04.2011. Thus erstwhile partners have been compensated only at the book value of the assets and liability. In such circumstances, we do not find any justifiable reasons for revaluing the assets of the erstwhile partnership firm that to the basis of a valuation the Ground No. 1 we have held that the Ld. CIT(A) was suppose refer to the matter to the Departmental Valuation Officer f valuation of the assets erstwhile partnership firm has also not been determined by Departmental valuation officer and therefore, followi in ground No. 1, we feel it appropriate to restore this is the file of the Ld. Assessing Officer for taking appropriate action for referring the matter to the Departmental Valuation Officer and decide the issue in dispute in accordance with law. The ground No. 2 of the appeal of the Revenue is accordin purposes. AY 2012-13 10. The grounds assessment year 2012 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 got converted into the assessee company. This conversion happened hereas, the assessee has revalued the assets of the erstwhile partnership firm received only on the first day of the assessment year i.e. 01.04.2011. Thus, it is evident the erstwhile partners have been compensated only at the book value of the assets and liability. In such circumstances, we do not find any justifiable reasons for revaluing the assets of the erstwhile rtnership firm that too in the subsequent assessment years o the basis of a valuation report from a registered valuer. W the Ground No. 1 we have held that the Ld. CIT(A) was suppose refer to the matter to the Departmental Valuation Officer f valuation of the assets. Since the revaluation of the assets of the erstwhile partnership firm has also not been determined by Departmental valuation officer and therefore, followi e feel it appropriate to restore this is the file of the Ld. Assessing Officer for taking appropriate action for referring the matter to the Departmental Valuation Officer and decide the issue in dispute in accordance with law. The ground No. 2 of the appeal of the Revenue is accordingly allowed for statistical raised by the Revenue in its appeal for assessment year 2012-13 are reproduced as under: M/s Jics Logistics Ltd. 28 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 version happened hereas, the assessee has revalued the assets of the erstwhile partnership firm received only on the first day of the it is evident the erstwhile partners have been compensated only at the book value of the assets and liability. In such circumstances, we do not find any justifiable reasons for revaluing the assets of the erstwhile he subsequent assessment years on registered valuer. We find in the Ground No. 1 we have held that the Ld. CIT(A) was supposed to refer to the matter to the Departmental Valuation Officer for ince the revaluation of the assets of the erstwhile partnership firm has also not been determined by Departmental valuation officer and therefore, following our finding e feel it appropriate to restore this issue back to the file of the Ld. Assessing Officer for taking appropriate action for referring the matter to the Departmental Valuation Officer and decide the issue in dispute in accordance with law. The ground No. gly allowed for statistical evenue in its appeal for 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deletin depreciation of Rs. 5,92,23.694/ Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer a therefore distinguishable? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 69,45,718/ Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non when the impugned assessment order was passed by the JCIT itself? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. 1,80,167/- the amendment made by Finance Act 2022 inserting Explanation was only clarificatory and hence retrospectives in effect? 11. We have heard rival submission of the parties on the issue in dispute. The ground Nos. one and two of the appeal are related to depreciation on business rights and goodwill and revalued assets respectively. In the year under consideration the assessee has claimed depreciation on the same assets, which was claimed in assessment year 2011 assessment year 2011 appeal for assessment year 2012 12. The ground no.3 is made by the Assessing Officer under section 14A of the A has been deleted by the Ld. CIT(A) for the reason that assessee had ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 5,92,23.694/- relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 69,45,718/-made relying on the decision of the Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non-approval by the Joint CIT when the impugned assessment order was passed by the JCIT Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. made u/s. 14A r.W.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation y clarificatory and hence retrospectives in effect? have heard rival submission of the parties on the issue in dispute. The ground Nos. one and two of the appeal are related to depreciation on business rights and goodwill and revalued assets ively. In the year under consideration the assessee has claimed depreciation on the same assets, which was claimed in assessment year 2011-12, and therefore following or finding an assessment year 2011-12, the ground Nos. 1(one) and r assessment year 2012-13 are decided mutasis mutandis. no.3 is in respect of disallowance of ssing Officer under section 14A of the A has been deleted by the Ld. CIT(A) for the reason that assessee had M/s Jics Logistics Ltd. 29 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Whether on the facts and in the circumstances of the case and in g the disallowance of relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights nd the relied upon case in Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the made relying on the decision of the Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) approval by the Joint CIT when the impugned assessment order was passed by the JCIT Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. made u/s. 14A r.W.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation y clarificatory and hence retrospectives in effect? have heard rival submission of the parties on the issue in dispute. The ground Nos. one and two of the appeal are related to depreciation on business rights and goodwill and revalued assets ively. In the year under consideration the assessee has claimed depreciation on the same assets, which was claimed in 12, and therefore following or finding an and 2(two) of the 13 are decided mutasis mutandis. in respect of disallowance of ₹1,80,167/- ssing Officer under section 14A of the Act, which has been deleted by the Ld. CIT(A) for the reason that assessee had not earned any exempt income during the year under consideration. The relevant finding of the Ld. CIT(A) is reproduced as under: “ I have considered the submissions and contentions of the appellant. The Hon'ble Bombay High Court in the case of PCIT Vs. Industries Ltd. (ITA no.51 of exempt income, disallowance u/s 14A of the Act could not be made. Although the explanation of sec. 14A inserted by the Finance Act, 2022 can be treated to be clarificatory in nat High Court in the case of M/s. No.204/2022 & CM APPL.31445/2022 dated 20.07.2022 has held that the provisions cannot be treated to be retrospective. claim of the appellant that disall exempt income is backed by judicial precedence and binding in nature. Therefore, respectfully following the decisions of the Hon'ble High Courts referred above, the disallowance stands deleted and the Ground is allowed. 12.1 We find that Ld. CIT(A) has followed decision of the Hon’ble Delhi High Court in the case of (supra) wherein the amendm Finance Act, 2022 has been held to be prospective. As the Ld. CIT(A) has followed a precedent on the issue in dispute, we do not find any infirmity in the order of the Ld. CIT(A) and accordingly uphold the same. The ground accordingly dismissed. AY 2013-14 & 2014- 13. The grounds raised by the R assessment year 2013 Grounds for assessment year 2013 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 any exempt income during the year under consideration. The relevant finding of the Ld. CIT(A) is reproduced as under: have considered the submissions and contentions of the appellant. The Hon'ble Bombay High Court in the case of PCIT Vs. Industries Ltd. (ITA no.51 of 2016) held that in the absence of any exempt income, disallowance u/s 14A of the Act could not be made. Although the explanation of sec. 14A inserted by the Finance Act, 2022 can be treated to be clarificatory in nature, the Hon'ble Delhi High Court in the case of M/s. Era Infrastructure (India) Ltd. In ITA No.204/2022 & CM APPL.31445/2022 dated 20.07.2022 has held that the provisions cannot be treated to be retrospective. claim of the appellant that disallowance u/s 14A cannot exceed the exempt income is backed by judicial precedence and binding in Therefore, respectfully following the decisions of the Hon'ble High Courts referred above, the disallowance stands deleted and the Ground is allowed.” We find that Ld. CIT(A) has followed decision of the Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd wherein the amendment to section 14A of the A ct, 2022 has been held to be prospective. As the Ld. CIT(A) has followed a precedent on the issue in dispute, we do not in the order of the Ld. CIT(A) and accordingly the same. The ground No.3 of the appeal of the R accordingly dismissed. -15 nds raised by the Revenue in its appeal for assessment year 2013-14 and 2014-15 are reproduced as under: for assessment year 2013-14 M/s Jics Logistics Ltd. 30 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 any exempt income during the year under consideration. The relevant finding of the Ld. CIT(A) is reproduced as under: have considered the submissions and contentions of the appellant. The Hon'ble Bombay High Court in the case of PCIT Vs. Ballarpur 2016) held that in the absence of any exempt income, disallowance u/s 14A of the Act could not be made. Although the explanation of sec. 14A inserted by the Finance Act, ure, the Hon'ble Delhi Era Infrastructure (India) Ltd. In ITA No.204/2022 & CM APPL.31445/2022 dated 20.07.2022 has held Hence, the owance u/s 14A cannot exceed the exempt income is backed by judicial precedence and binding in Therefore, respectfully following the decisions of the Hon'ble High Courts referred above, the disallowance stands deleted and the We find that Ld. CIT(A) has followed decision of the Hon’ble Era Infrastructure (India) Ltd ent to section 14A of the Act by way of ct, 2022 has been held to be prospective. As the Ld. CIT(A) has followed a precedent on the issue in dispute, we do not in the order of the Ld. CIT(A) and accordingly ,we No.3 of the appeal of the Revenue evenue in its appeal for 15 are reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallow depreciation of Rs. 4,44,17,770/ Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied therefore distinguishable? 2. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 60,84,748/ Hon'ble Kerala High Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 the case, when the facts of application of Explanation 3 to s. 43(1) was decided on different ground of non when the impugned assessment order was passed by the JCIT itself? 3. Whether on law, the Ld. CIT(A) erred in deleting and disallow of Rs. 4,67,065/- the amendment made by Finance Act 2022 inserting Explanation was only clarifica Grounds for assessment year 2014 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 3,33,13,328/ Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 53,35,154/ Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. withou is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the fact was decided on different ground of non when the impugned assessment order was passed by the JCIT itself? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. 10,91,530/ ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallow depreciation of Rs. 4,44,17,770/- relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 60,84,748/-made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s. 43(1) was decided on different ground of non-approval by the Joint CIT when the impugned assessment order was passed by the JCIT Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation was only clarificatory and hence retrospectives in effect? for assessment year 2014-15 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 3,33,13,328/-relying on the decision Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 53,35,154/-made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non-approval by the Joint CIT when the impugned assessment order was passed by the JCIT Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. 10,91,530/- made u/s. 14A r.w.s. Rule 8D, ignoring the facts that M/s Jics Logistics Ltd. 31 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights upon case in 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the made relying on the decision of the Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s. 43(1) approval by the Joint CIT when the impugned assessment order was passed by the JCIT the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation tory and hence retrospectives in effect? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and t appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of s of application of Explanation 3 to s.43(1) approval by the Joint CIT when the impugned assessment order was passed by the JCIT Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation was only clarificatory and hence retrospectives in effect? 14. As the grounds raised in the present appeals for assessment years 2013-14 and 2014 year 2012-13, and therefore following the same, the grounds for assessment years 2013 mutandis. AY 2015-16 15. The grounds raised by the objection raised by the assessee reproduced as under: Grounds raised by the Revenue : Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in reducing the addition to 10% on the basis of presumptions bereft of any factual base? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in reducing the addition to 10% of the total addition ignoring that the assessee made contradicting statements about its transaction which has not at all supported by any cogent documentary evidences? Whether on the facts and in the circumst law, the La. CIT(A) erred in allowing substantial relief to the assessee while at the same. time agreeing with the findings of the AO recorded in the assessment order, thus, taking a contradictory stand? Cross-objections raised by 1. The Learned AO erred in making addition us 68 of alleged bogus purchases without considering that the provisions of Section 68 deals with Cash credits found in the books of accounts of Assessee whereas the additions are on account of payment ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 the amendment made by Finance Act 2022 inserting Explanation ly clarificatory and hence retrospectives in effect? As the grounds raised in the present appeals for assessment 14 and 2014-15 are identical to appeal for assessment 13, and therefore following the same, the grounds for 2013-14 and 2014-15 are decided mutasis grounds raised by the Revenue in its appeal and cross objection raised by the assessee for assessment year 2015 reproduced as under: Grounds raised by the Revenue : Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in reducing the addition to 10% on the basis of presumptions bereft of any factual base? Whether on the facts and in the circumstances of the case and in . CIT(A) erred in reducing the addition to 10% of the total addition ignoring that the assessee made contradicting statements about its transaction which has not at all supported by any cogent documentary evidences? Whether on the facts and in the circumstances of the case and in law, the La. CIT(A) erred in allowing substantial relief to the assessee while at the same. time agreeing with the findings of the AO recorded in the assessment order, thus, taking a contradictory objections raised by the assessee: The Learned AO erred in making addition us 68 of alleged bogus purchases without considering that the provisions of Section 68 deals with Cash credits found in the books of accounts of Assessee whereas the additions are on account of payment for M/s Jics Logistics Ltd. 32 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 the amendment made by Finance Act 2022 inserting Explanation ly clarificatory and hence retrospectives in effect? As the grounds raised in the present appeals for assessment 15 are identical to appeal for assessment 13, and therefore following the same, the grounds for 15 are decided mutasis evenue in its appeal and cross for assessment year 2015-16 are Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in reducing the addition to 10% on the basis Whether on the facts and in the circumstances of the case and in . CIT(A) erred in reducing the addition to 10% of the total addition ignoring that the assessee made contradicting statements about its transaction which has not at all supported by any cogent ances of the case and in law, the La. CIT(A) erred in allowing substantial relief to the assessee while at the same. time agreeing with the findings of the AO recorded in the assessment order, thus, taking a contradictory The Learned AO erred in making addition us 68 of alleged bogus purchases without considering that the provisions of Section 68 deals with Cash credits found in the books of accounts of Assessee whereas 2. 2 CONT.purchases which has been alleged to be bogus by the Learned A.O. and hence the addition is illegal. invalid. bad in law and therefore the Appellant Company prays that the said addition u/s.6% may please be deleted Additional ground raised in t assessee: The Learned AO erred in making addition u/s 68 of alleged bogus purchases without considering that the provisions of Section 68 deals with Cash credits found in the books of accounts of Assessee whereas the additi purchases which has been alleged to be bogus by the Learned A.O. and hence the addition is illegal, invalid, bad in law and therefore the Appellant Company prays that the said addition u/s.68 may please be deleted. 16. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is in respect of addition of Assessing Officer under section 68 of the A received information from another officer of the I department that assessee received accommodation entries from Sh Ashok Kumar Gupta which was a proprietary concern of sh Anuj Kumar Gupta s/o Sh Ashik Kumar Gupta. During the course of the survey action on Shri Ashik Kumar Gupta, he admitted of having engaged in providing accommodation entries During the course of the assessment proceeding Officer called for relevant sale bill. Th of bills to prove the sales Officer observed that the bills were incomplete with no description ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 2 CONT.purchases which has been alleged to be bogus by the Learned A.O. and hence the addition is illegal. invalid. bad in law and therefore the Appellant Company prays that the said addition u/s.6% may please be deleted. Additional ground raised in the cross-objection raised by the The Learned AO erred in making addition u/s 68 of alleged bogus purchases without considering that the provisions of Section 68 deals with Cash credits found in the books of accounts of Assessee whereas the additions are on account of payment for purchases which has been alleged to be bogus by the Learned A.O. and hence the addition is illegal, invalid, bad in law and therefore the Appellant Company prays that the said addition u/s.68 may please be deleted. have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is in respect of addition of ₹6,07,44,602/ fficer under section 68 of the Act. The Assessing on from another officer of the I department that assessee received accommodation entries from Sh Ashok Kumar Gupta in form of sales to M/s Path International , which was a proprietary concern of sh Anuj Kumar Gupta s/o Sh Ashik Kumar Gupta. During the course of the survey action on Shri Ashik Kumar Gupta, he admitted of having engaged in providing accommodation entries of purchase and sales to various parties. During the course of the assessment proceedings relevant sale bill. The assessee had provided copies of bills to prove the sales were carried on by it. The Assessing Officer observed that the bills were incomplete with no description M/s Jics Logistics Ltd. 33 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 2 CONT.purchases which has been alleged to be bogus by the Learned A.O. and hence the addition is illegal. invalid. bad in law and therefore the Appellant Company prays that the said addition u/s.6% may objection raised by the The Learned AO erred in making addition u/s 68 of alleged bogus purchases without considering that the provisions of Section 68 deals with Cash credits found in the books of accounts of ons are on account of payment for purchases which has been alleged to be bogus by the Learned A.O. and hence the addition is illegal, invalid, bad in law and therefore the Appellant Company prays that the said addition have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in 602/- made by the ct. The Assessing Officer on from another officer of the Income-tax department that assessee received accommodation entries from Sh form of sales to M/s Path International , which was a proprietary concern of sh Anuj Kumar Gupta s/o Sh Ashik Kumar Gupta. During the course of the survey action on Shri Ashik Kumar Gupta, he admitted of having engaged in providing of purchase and sales to various parties. s, the Assessing e assessee had provided copies carried on by it. The Assessing Officer observed that the bills were incomplete with no description of grade of goods, per unit rate, quantity supplied details of transport vehicle used, no details etc. Accordingly the Assess the sales credited of might not be treated as unexplained cash the Act. The assessee filed a long list of case laws relied upon by him but the Assessing Officer rejected the same as distinguishable and not having any direct relevance to the facts of the case in hand. The Assessing Officer f provide details called for and not able to explain his activity by linking his sales with the purchases. The Assessing Officer noted that the assessee failed to furnish evidence in support of import of the goods viz custom house receipt, clearing receipt, transport bill and even failed to furnish purchase/import bills of goods. In view of the observation, the learned rejected the contention of the assessee and held the sales c as unexplained cash credit further appeal, the Ld. CIT(A) rejected the contention of the assessee. Firstly, the assessee contended that statement recorded under survey of sh Ashok in view of the decision of the Hon’ble Supreme Court in t Cit Vs S Khader Khan statement was not the sole or primary basis for addition and it was merely a starting point for ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 of grade of goods, per unit rate, quantity supplied details of transport vehicle used, no details of VAT paid / payable . Accordingly the Assessing Officer asked the assessee a the sales credited of ₹6,07,44,602/- against M/s Path International might not be treated as unexplained cash credit under section 68 of . The assessee filed a long list of case laws relied upon by him but the Assessing Officer rejected the same as distinguishable and not having any direct relevance to the facts of the case in hand. The Assessing Officer further observed that the assessee failed to provide details called for and not able to explain his activity by linking his sales with the purchases. The Assessing Officer noted that the assessee failed to furnish evidence in support of import of viz custom house receipt, clearing receipt, transport bill and even failed to furnish purchase/import bills coreponding to sale of the observation, the learned Assessing Officer rejected the contention of the assessee and held the sales c as unexplained cash credit in terms of section 68 of the A further appeal, the Ld. CIT(A) rejected the contention of the , the assessee contended that statement recorded under survey of sh Ashok Kumar Gupta, had no evidentiary in view of the decision of the Hon’ble Supreme Court in t Cit Vs S Khader Khan, 352 ITR 480. But the Ld. CIT(A) held that statement was not the sole or primary basis for addition and it was merely a starting point for making addition. Secondly M/s Jics Logistics Ltd. 34 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 of grade of goods, per unit rate, quantity supplied, registration of VAT paid / payable ing Officer asked the assessee as why s Path International credit under section 68 of . The assessee filed a long list of case laws relied upon by him but the Assessing Officer rejected the same as distinguishable and not having any direct relevance to the facts of the case in hand. urther observed that the assessee failed to provide details called for and not able to explain his activity by linking his sales with the purchases. The Assessing Officer noted that the assessee failed to furnish evidence in support of import of viz custom house receipt, clearing receipt, transport bill coreponding to sale Assessing Officer rejected the contention of the assessee and held the sales credited in terms of section 68 of the Act. On further appeal, the Ld. CIT(A) rejected the contention of the , the assessee contended that statement recorded , had no evidentiary value in view of the decision of the Hon’ble Supreme Court in the case of , 352 ITR 480. But the Ld. CIT(A) held that statement was not the sole or primary basis for addition and it was Secondly, the assessee contended that transaction had taken place through bank account so it should be allowed. The Ld. CIT(A) however held that merely because the payment was made by cheque, it could not be held as a genuine transaction i Sarvana construction p Ltd 208 Taxman 188( Mag) (ii) CIT Vs Mohankala 161 Taxman 169 ( 291 ITR 278) and (iii) CIT vs Precisions Finance p Ltd 208 ITR 465. distinguished the reli the Hon’ble Bombay High Court in the case of CIT vs Nikunj Eximp Enterprises Private Limited 35 taxmann.com 384(Bombay) Fourthly, the ld CIT(A) also rejected the contention of the assessee for not giving opportunity to cross examine sh Ashok Kumar Gupta. However in his final finding were not genuine and therefore he sustained addition to the extent of 10% of the bogus purchases amounting to The relevant finding of the Ld. CIT(A) is reproduced as under: “16. In view of the detailed discussion above and considering that the evidences of actual delivery of goods has not been demonstrated either before the AO or before the undersigned, and I have no hesitation part of the appellant's contentions are rejected. 17. At the same time, it is seen that the appellant has claimed that the material purchased has been consumed. Thus the reasonable conclusion can be drawn that purchases have been made from market in cash at the lower prices and used in its business. The question arises as to what can be the reasonable basis for computing such disallowance. In this respect, I find significant support from the decision of Hon'ble HIGH COURT OF BOMBAY in the case of Principal Commissioner of Income Thakkar [2022] 145 taxmann.com 414 (Bombay) wherein it was held as under; "In the case at hand, the Assessee statedly had made purchases from the three parties totalling to amount of Rs. 3, ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 contended that transaction had taken place through bank account should be allowed. The Ld. CIT(A) however held that merely because the payment was made by cheque, it could not be held as a genuine transaction in view of the decision in the case of (i) CIT Vs Sarvana construction p Ltd 208 Taxman 188( Mag) (ii) CIT Vs 161 Taxman 169 ( 291 ITR 278) and (iii) CIT vs Precisions Finance p Ltd 208 ITR 465. Thirdly, the Ld. CIT(A) also distinguished the reliance placed by the assessee on the decision of the Hon’ble Bombay High Court in the case of CIT vs Nikunj Eximp Enterprises Private Limited 35 taxmann.com 384(Bombay) , the ld CIT(A) also rejected the contention of the assessee rtunity to cross examine sh Ashok Kumar Gupta. his final finding, the Ld. CIT(A) held that procedures were not genuine and therefore he sustained addition to the extent of 10% of the bogus purchases amounting to ₹60,74, inding of the Ld. CIT(A) is reproduced as under: 16. In view of the detailed discussion above and considering that the evidences of actual delivery of goods has not been demonstrated either before the AO or before the undersigned, and I have no hesitation holding that the purchases are not genuine. This part of the appellant's contentions are rejected. 17. At the same time, it is seen that the appellant has claimed that the material purchased has been consumed. Thus the reasonable conclusion can be drawn that purchases have been made from market in cash at the lower prices and used in its business. The uestion arises as to what can be the reasonable basis for computing such disallowance. In this respect, I find significant support from the decision of Hon'ble HIGH COURT OF BOMBAY in the case of Principal Commissioner of Income-tax v. Jagdish 2] 145 taxmann.com 414 (Bombay) wherein it was held as under; "In the case at hand, the Assessee statedly had made purchases from the three parties totalling to amount of Rs. 3, M/s Jics Logistics Ltd. 35 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 contended that transaction had taken place through bank account should be allowed. The Ld. CIT(A) however held that merely because the payment was made by cheque, it could not be held as a n view of the decision in the case of (i) CIT Vs Sarvana construction p Ltd 208 Taxman 188( Mag) (ii) CIT Vs 161 Taxman 169 ( 291 ITR 278) and (iii) CIT vs the Ld. CIT(A) also ance placed by the assessee on the decision of the Hon’ble Bombay High Court in the case of CIT vs Nikunj Eximp Enterprises Private Limited 35 taxmann.com 384(Bombay). , the ld CIT(A) also rejected the contention of the assessee rtunity to cross examine sh Ashok Kumar Gupta. the Ld. CIT(A) held that procedures were not genuine and therefore he sustained addition to the extent 60,74,460/- only. inding of the Ld. CIT(A) is reproduced as under: 16. In view of the detailed discussion above and considering that the evidences of actual delivery of goods has not been demonstrated either before the AO or before the undersigned, and I holding that the purchases are not genuine. This 17. At the same time, it is seen that the appellant has claimed that the material purchased has been consumed. Thus the reasonable conclusion can be drawn that purchases have been made from market in cash at the lower prices and used in its business. The uestion arises as to what can be the reasonable basis for computing such disallowance. In this respect, I find significant support from the decision of Hon'ble HIGH COURT OF BOMBAY in tax v. Jagdish 2] 145 taxmann.com 414 (Bombay) wherein it was held as under; "In the case at hand, the Assessee statedly had made purchases from the three parties totalling to amount of Rs. 3, 15,72,840/- in respect of which it has been found by both the CIT(A) as well a been doubted, that the payments have been made by the Assessee through banking channels and that the Assessing Officer has also accepted the book results shown by the Assessee. It is also finding of fact that the Assessee has produced before the Assessing Officer delivery challans, purchase bills as well as evidence of payments through banking channels. As such, the Assessee has discharged the initial burden or onus of providing the details of the parties; it was incumbent on the Assessing Officer to rebut the evidence produced by the Assessee. We do not find anything on record controverting the findings of fact of the CIT(A) as well as the Tribunal. Despite uncontroverted findings of fact and keeping in mind that the Assessing Officer had issued 133(6) notices to the three suppliers of goods and the parties had not attended and even though the Assessing Officer did not take any further steps for investigation, in all fairness, the CIT(A) as well as the T upheld the dis under consideration to the extent of 10% of such purchases against which admittedly no appeal has been filed by the Assessee." 18. In the case of PCIT vs Pinaki D Panani, ITA no. dated 08.01.2020, the Hon'ble Bombay HC held as follows: "Assuming that the Respondent from whom the purchases were made were bogus, in view of the finding of fact that the material was consumed, the question would be o on total turnover. This would be a matter of calculations by the concerned authority. In this context, if the Commissioner of Income Tax (Appeals) and the Tribunal chose to follow the percentage arrived by the Settl Respondent exercise cannot be considered as irregular or illegal." 19. In view of the above judicial precedents, factual aspects of the case, I hold that the addition of 10% of the bogus Rs.6,07,44,602/ of Rs.6,07,44,602/ sustained in this case on this ground is 10% of Rs.6,07,44,602/ i.e. Rs.60,74,460/ 17. Before us the learned counsel no addition could have been made for bogus pur section 68 of the Act, whereas the learned representative contested that Assessing Officer has made add ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 in respect of which it has been found by both the CIT(A) as well as the Tribunal that the sales in question have not been doubted, that the payments have been made by the Assessee through banking channels and that the Assessing Officer has also accepted the book results shown by the Assessee. It is also finding hat the Assessee has produced before the Assessing Officer delivery challans, purchase bills as well as evidence of payments through banking channels. As such, the Assessee has discharged the initial burden or onus of providing the details of the parties; it was incumbent on the Assessing Officer to rebut the evidence produced by the Assessee. We do not find anything on record controverting the findings of fact of the CIT(A) as well as the Tribunal. Despite uncontroverted findings of fact and keeping in mind that the Assessing Officer had issued 133(6) notices to the three suppliers of goods and the parties had not attended and even though the Assessing Officer did not take any further steps for investigation, in all fairness, the CIT(A) as well as the Tribunal had upheld the dis-allowance in respect of the purchases for the year under consideration to the extent of 10% of such purchases against which admittedly no appeal has been filed by the Assessee." In the case of PCIT vs Pinaki D Panani, ITA no.1543 of 2017 08.01.2020, the Hon'ble Bombay HC held as follows: "Assuming that the Respondent-Assessee the purchasers from whom the purchases were made were bogus, in view of the finding of fact that the material was consumed, the question would be of extending the percentage of net profit on total turnover. This would be a matter of calculations by the concerned authority. In this context, if the Commissioner of Income Tax (Appeals) and the Tribunal chose to follow the percentage arrived by the Settlement Commission in the Respondent-Assessee's own case for the other years, this exercise cannot be considered as irregular or illegal." In view of the above judicial precedents, factual aspects of the case, I hold that the addition of 10% of the bogus purchases of Rs.6,07,44,602/- would suffice as against the entire disallowance of Rs.6,07,44,602/- made by the AO. Thus the net addition sustained in this case on this ground is 10% of Rs.6,07,44,602/ Rs.60,74,460/-. Therefore, this ground stands partly allowed. us the learned counsel for the assessee submitted that no addition could have been made for bogus pur section 68 of the Act, whereas the learned representative contested that Assessing Officer has made add M/s Jics Logistics Ltd. 36 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 in respect of which it has been found by both the s the Tribunal that the sales in question have not been doubted, that the payments have been made by the Assessee through banking channels and that the Assessing Officer has also accepted the book results shown by the Assessee. It is also finding hat the Assessee has produced before the Assessing Officer delivery challans, purchase bills as well as evidence of payments through banking channels. As such, the Assessee has discharged the initial burden or onus of providing the details of the parties; and it was incumbent on the Assessing Officer to rebut the evidence produced by the Assessee. We do not find anything on record controverting the findings of fact of the CIT(A) as well as the Tribunal. Despite uncontroverted findings of fact and keeping in mind that the Assessing Officer had issued 133(6) notices to the three suppliers of goods and the parties had not attended and even though the Assessing Officer did not take any further steps for ribunal had allowance in respect of the purchases for the year under consideration to the extent of 10% of such purchases against which admittedly no appeal has been filed by the Assessee." 1543 of 2017 Assessee the purchasers from whom the purchases were made were bogus, in view of the finding of fact that the material was consumed, the f extending the percentage of net profit on total turnover. This would be a matter of calculations by the concerned authority. In this context, if the Commissioner of Income Tax (Appeals) and the Tribunal chose to follow the ement Commission in the Assessee's own case for the other years, this exercise cannot be considered as irregular or illegal." In view of the above judicial precedents, factual aspects of the purchases of would suffice as against the entire disallowance made by the AO. Thus the net addition sustained in this case on this ground is 10% of Rs.6,07,44,602/- rtly allowed.” the assessee submitted that no addition could have been made for bogus purchases under section 68 of the Act, whereas the learned departmental representative contested that Assessing Officer has made addition for the sales credit under section 68 of the A CIT(A) who has restricted the addition to the 10% of the amount holding the same as the bogus pu that the Revenue is in appeal against the finding of the Ld 17.1 In back ground of the above facts and circumstances, we are of the opinion that Assessing Officer addition under section 68 of the A the books of accounts of the assessee assessee to M/s Parth International genuineness of the sales, the Assessing Officer to substantiate the failed. The Ld. CIT(A) corresponding to the sales are not substantiated by the assessee, however he restricted the addition to the extent of the 10% of the sales credited. In our opinion finding of the Ld. CIT(A) on the issue in dispute is without appreciation of the facts we set aside the same. As the assessee has failed to demonstrate purchase corresponding to the sales credited in its books of accounts, the Assessing Officer is justified in making the ad under section 68 of the A accordingly allowed whereas cross objection of the assessee is dismissed. ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 credit under section 68 of the Act and CIT(A) who has restricted the addition to the 10% of the amount holding the same as the bogus purchases. He submitted evenue is in appeal against the finding of the Ld In back ground of the above facts and circumstances, we are of the opinion that Assessing Officer has correctly made the dition under section 68 of the Act for entry of the sales credit in the books of accounts of the assessee due bogus sales made to M/s Parth International. In order to justify non genuineness of the sales, the Assessing Officer asked the assessee corresponding purchases but the assessee The Ld. CIT(A) has the accepted that purch corresponding to the sales are not substantiated by the assessee, however he restricted the addition to the extent of the 10% of the sales credited. In our opinion finding of the Ld. CIT(A) on the issue in dispute is without appreciation of the facts properly we set aside the same. As the assessee has failed to demonstrate purchase corresponding to the sales credited in its books of accounts, the Assessing Officer is justified in making the ad under section 68 of the Act. The grounds of the R allowed whereas cross objection of the assessee is M/s Jics Logistics Ltd. 37 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 and it is the Ld. CIT(A) who has restricted the addition to the 10% of the sales rchases. He submitted evenue is in appeal against the finding of the Ld. CIT(A). In back ground of the above facts and circumstances, we are correctly made the ct for entry of the sales credit in ales made by the . In order to justify non- asked the assessee but the assessee as the accepted that purchases corresponding to the sales are not substantiated by the assessee, however he restricted the addition to the extent of the 10% of the sales credited. In our opinion finding of the Ld. CIT(A) on the issue properly. Accordingly, we set aside the same. As the assessee has failed to demonstrate purchase corresponding to the sales credited in its books of accounts, the Assessing Officer is justified in making the addition s of the Revenue are allowed whereas cross objection of the assessee is 18. We note that in AY 2015 ground challenging issue of depreciation of business rights/ goodwill and revalued assets. AY 2016-17, 2017-18 and 2018 19. The grounds raised by the assessment of 2016-17 under: Grounds for assessment of 2016 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 1,87,38,748/ High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill registered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 41,11,831/ Hon'ble Kerala High Court in the case of CIT vs. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Pro 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non the impugned assessment order was pa 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. 3,51,487/ made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 ins only clarificatory and hence retrospectives in effect? Grounds for assessment of 2017 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT( Rs. 1,40,54,061/ ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 We note that in AY 2015-16, revenue has not raised any ground challenging issue of depreciation of business rights/ will and revalued assets. 18 and 2018-19 grounds raised by the Revenue in its appeal for 17, 2017-18 and 2018-10=9 are for assessment of 2016-17: Whether on the facts and in the circumstances of the case and in Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 1,87,38,748/-relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill registered valuer and the relied upon case in therefore distinguishable? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 41,11,831/-made relying on the decision of the Hon'ble Kerala High Court in the case of CIT vs. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non-approval by the Joint CIT when the impugned assessment order was passed by the JCIT itself? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. 3,51,487/ made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation was only clarificatory and hence retrospectives in effect? for assessment of 2017-18: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 1,40,54,061/-relying on the decision of the Hon'ble Gujarat High M/s Jics Logistics Ltd. 38 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 16, revenue has not raised any ground challenging issue of depreciation of business rights/ evenue in its appeal for are reproduced as Whether on the facts and in the circumstances of the case and in Ld. CIT(A) erred in deleting the disallowance of depreciation relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the e decision of the Hon'ble Kerala High Court in the case of CIT vs. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly ducts Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was approval by the Joint CIT when ssed by the JCIT itself? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. 3,51,487/- made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the erting Explanation was Whether on the facts and in the circumstances of the case and in A) erred in deleting the disallowance of depreciation of relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 36, 14,139/ High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Product more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non approval by the Joint CIT when the impugned assessment order was passed by the JCIT itself? Grounds for assessment of 2018 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 1,05,40,545/ High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and in the circumstances law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 31,79,200/ Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the f squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of decided on different ground of non the impugned assessment order was passed by the JCIT itself? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleti made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation was only clarificatory and hence retrospectives in effect? 20. We find that the grounds raised in the pres assessment years 2016 raised in assessment mutatis mutandis. ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the egistered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 36, 14,139/-made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non approval by the Joint CIT when the impugned assessment order was by the JCIT itself? for assessment of 2018-19: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 1,05,40,545/- relying on the decision of the Hon'ble Guja High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore distinguishable? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation of Rs. 31,79,200/-made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non-approval by the Joint CIT when the impugned assessment order was passed by the JCIT itself? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting and disallow of Rs. 31,43,300/ made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation was only clarificatory and hence retrospectives in effect? find that the grounds raised in the pres 2016-17 to 2018-19 are identical to grounds raised in assessment year 2012-13, therefore same M/s Jics Logistics Ltd. 39 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the egistered valuer and the relied upon case in therefore distinguishable? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the depreciation cision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and Mathern (Put.) Ltd. without appreciating the facts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of s Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the case, when the facts of application of Explanation 3 to s.43(1) was decided on different ground of non- approval by the Joint CIT when the impugned assessment order was Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation relying on the decision of the Hon'ble Gujarat High Court without appreciating that he AO had adequately refuted the working of the value of the business rights and goodwill by the registered valuer and the relied upon case in therefore of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the made relying on the decision of the Hon'ble Kerala High Court in the case of CIT us. Poulose and acts in the said case is squarely applicable to the assessee's case without explicitly pointing out how the decision of Padmini Products Put Ltd v/s DCIT 277 taxmen 22 Karnataka 2020 is more close to the facts of the Explanation 3 to s.43(1) was approval by the Joint CIT when the impugned assessment order was passed by the JCIT itself? Whether on the facts and in the circumstances of the case and in ng and disallow of Rs. 31,43,300/- made u/s. 14A r.w.s. Rule 8D, ignoring the facts that the amendment made by Finance Act 2022 inserting Explanation was find that the grounds raised in the present appeals for 19 are identical to grounds 13, therefore same are undecided 21. In the result, the appeal of the revenue for assessment year 2015-16 stand allowed ; appeals for AY 2011 allowed for statistical purposes ; appeal assessment years are allowed partly for statistical whereas cross objection of the assessee for AY 2015 dismissed. Order pronounced in the open Court on Sd/ (KAVITHA RAJAGOPAL JUDICIAL MEMBER Mumbai; Dated: 29/11/2023 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 the appeal of the revenue for assessment year 16 stand allowed ; appeals for AY 2011-12 and 2017 allowed for statistical purposes ; appeal of Revenue assessment years are allowed partly for statistical jection of the assessee for AY 2015 nounced in the open Court on 29/11/2023. Sd/- Sd/ KAVITHA RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai M/s Jics Logistics Ltd. 40 ITA Nos. 1760, 1779, 1761 to 1763, 1780 & 1781, 1764/Mum/2023 and CO No. 105/Mum/2023 the appeal of the revenue for assessment year 12 and 2017-18 are of Revenue for remaining assessment years are allowed partly for statistical purposes, jection of the assessee for AY 2015-16 is /11/2023. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai