DCIT, CHENNAI V. M/s. Airplaza Retail Holdings Pvt. Ltd., CHENNAI

ITA 2227/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4686 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 11-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 25-07-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R SIVARAMAN
• Keywords: Depreciation; Revised return
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2227/MDS/2016 ( / ASSESSMENT YEAR: 2011-12) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI 600 034 VS M/S. AIRPLAZA RETAIL HOLDINGS PVT. LTD., 4, MOOKAMBIKA COMPLEX 5 TH FLOOR, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN: AAICA7614B ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT /RESPONDENT BY : SHRI R. SIVARAMAN, ADVOCATE /DATE OF HEARING : 11.04.2017 ! /DATE OF PRONOUNCEMENT : 01.05.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-1, CHENNAI DATED 29.04.2016 IN NEW ITA NO. 145/CIT(A)- 1/2014-15 FOR THE ASSESSMENT YEAR 201-12 PASSED U/S.250(6) R. W.S. 143(3) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS 2 ITA NO.2227/MDS/2016 DISALLOWED RS.2,29,79,278/- TOWARDS DEPRECIATION C LAIMED ON GOODWILL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY, FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON 30.09.2011 ADMITTING TOTAL INCOM E AS NIL AND SUBSEQUENTLY FILED REVISED RETURN ON 27.09.2012 ADMITTING LOSS OF RS.3,14,94,242/-. THEREAFTER THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND THE ASSESSMENT WAS COMPLETE D U/S.143(3) OF THE ACT ON 28.03.2014 WHEREIN THE LD. AO DISALLOWED RS.2,29,79,278/- TOWARDS DEPRECIATION C LAIMED ON GOODWILL. 4. DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD PURCHASED RETAIL BUSINESS FROM M/S. VISAL RETAIL LI MITED FOR SALE CONSIDERATION OF RS.10 CRORES. THEREAFTER ON REVAL UING THE FIXED ASSETS IT WAS OBSERVED BY THE ASSESSEE THAT THE VAL UE OF THE FIXED ASSETS HAS TO BE REDUCED FROM RS.31,53,77,571 /- TO RS.13,15,43,344/- IN ORDER TO ARRIVE AT THE CORRECT STATE OF AFFAIRS OF THE COMPANY. THUS THERE WAS A DEFICIT OF RS.18, 38,34,227/- THE ASSESSEE TREATED THE SAME AS GOODWILL AND BEING AN 3 ITA NO.2227/MDS/2016 INTANGIBLE ASSET CLAIMED DEPRECIATION AT ONE-HALF O F 25% ON RS.18,38,34,227/- SINCE THE BUSINESS WAS ACQUIRED O N THE SECOND HALF OF THE RELEVANT FINANCIAL YEAR WHICH WO RKED OUT TO RS.2,29,79,278/-. THE LD.AO DISALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER THE REVALUATION OF FIXED ASSETS AND THEREBY EFFECTING CHANGE IN THE COST AND CLAIMI NG DEPRECIATION ON THE REVISED VALUE CANNOT BE ALLOWED AS EXPENSES. H ENCE, THE DEPRECIATION CLAIMED ON GOODWILL AMOUNTING TO THE S AME IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. 5. ON APPEAL, THE LD.CIT(A) RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE CIT V. SMIFS SECURIT IES LTD., REPORTED IN 24 TAXMANN.COM 222 HELD THE ISSUE IN FA VOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 19. IN THE PRESENT CASE UNDER CONSIDERATION, THIS IS PRECISELY WHAT THE APPELLANT HAS DONE WHEN IT VALUED THE FIXE D ASSETS FROM RS.315377571/- TO RS.131543344/- BY REFERRING TO TH E VALUATION OF ASSETS BY M/S.AXIS RISK CONSULTING BEING THE VALUER TO CLAIM DEPRECIATION FOR WHICH ASSETS THE APPELLANT HAS PAI D A CONSIDERATION OF RS.31.53 CR. 20. THE QUESTION THAT IMMEDIATELY FOLLOWS FOR CONSI DERATION IS THAT WHEN THE CONSIDERATION PAID FOR ACQUISITION OF FIXE D ASSETS IS HIGHER THAN TILE VALUE OF THE ASSETS ON THE DATE OF ACQUISITION AS TO HOW TILE EXCESS CONSIDERATION PAID OUGHT TO BE TREA TED FOR COMPUTATION / INCOME TAX PURPOSES. 4 ITA NO.2227/MDS/2016 21. THE SUPREME COURT WHILE CONSIDERING THE ABOVE Q UESTION IN THE CASE OF CIT VS. SMIFS SECURITIES LTD' (2012 24 TAXMANN.COM 222) HELD THAT THE EXCESS CONSIDERATION PAID BY THE TRANSFEREE OVER THE VALUE OF THE NET ASSETS ACQUIRED FROM THE TRANS FEROR SHOULD HE CONSIDERED AS 'GOODWILL' AND THE EXTRA CONSIDERATIO N PAID IN THIS REGARD TOWARDS THE REPUTATION WHICH THE TRANSFERER WAS ENJOYING IN ORDER TO RETAIN ITS EXISTING CLIENTELE. THE SUPR EME COURT IN HE SAID DECISION FURTHER HELD THAT 'GOODWILL' IS AN AS SET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF IT ACT WHICH I S ELIGIBLE FOR DEPRECIATION UNDER THE RATES STIPULATED UNDER THE I T RULES. THE PLEA OF THE APPELLANT THAT THE DECISION OF THE APEX COURT IN THE CASE OF AN AMALGAMATION OF COMPANIES EQUALLY APPLIES WIT H EQUAL FORCE FOR 'SLUMP SALES' AS IN ITS CASE ALSO. 22. FURTHER, FOLLOWING THE ABOVE DECISION, TILE CLA IM THAT THE EXTRA CONSIDERATION OF RS.18,38,34,227/- PAID BY THE APPE LLANT CONSTITUTES GOODWILL AND BECOMES ELIGIBLE FOR DEPRE CIATION UNDER THE IT ACT WHICH THE APPELLANT HAS CLAIMED FOR THE ASST YEAR: 2011- 12 HAS TO BE UPHELD. SUBSTANTIVELY THIS WOULD BE THE APPROPRIATE VIEW WITH REGARD TO VALUATION OF GOODWI LL FOLLOWING THE 'PURCHASE COST METHOD' AS DISTINCT FROM THE 'PO OLING OF INTEREST METHOD'. 23. TAKING THE SUM TOTALITY OF THE FADS INTO ACCOUN T AND THE DISCUSSION IN THE FOREGOING, I AM OF THE CONSIDERED VIEW THAT THE PLEA ADVANCED BY THE APPELLANT WITH REGARD THE CLAI M OF DEPRECIATION IN RESPECT OF GOODWILL WHICH WAS DENIE D BY THE AO AT RS.2,29,79,278/- HAS TO BE UPHELD. THE AO IS DIR ECT TO MODIFY THE ORDER ACCORDINGLY. THIS GROUND OF APPEAL IS ALL OWED 6. BEFORE US THE LD. DR ARGUED RELYING ON THE ORDER S OF THE LD.AO WHILE AS THE LD. AR PLEADED IN SUPPORT OF THE ORDERS OF THE LD.CIT(A). 5 ITA NO.2227/MDS/2016 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE MATERIALS ON RECORD. ON PERUSING THE DECISION OF THE HONBLE APEX COURT RELIED BY THE LD.CIT(A) SUPRA, WE FIND T HE FACTS TO BE SOMEWHAT IDENTICAL TO THE CASE OF THE ASSESSEE BECA USE THE EXCESS CONSIDERATION PAID OVER AND ABOVE THE NET WO RTH OF THE BUSINESS TAKEN OVER BY THE ASSESSEE CAN BE ONLY TRE ATED AS GOODWILL OR AS ANY OTHER ASSET IN THE NATURE OF INT ANGIBLE ASSET WHICH IS ELIGIBLE FOR DEPRECIATION AS PER SECTION 3 2(1)(II) OF THE ACT. THEREFORE WE DO NOT FIND IT NECESSARY TO INTE RFERE WITH THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE COURT ON 01 ST MAY, 2017. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) ' #$ /JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER %' /CHENNAI, &# /DATED 01 ST MAY, 2017 JR # () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF