The Dy. Commissioner of Income Tax, Circle-2(1)(2), Ahmedabad V. M/s. Landmark Cars (East) Pvt. Ltd., Ahmedabad

ITA 2419/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0829 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 23-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH MEENA
• Assessee Lawyers: ANKIT TALSANIA
• Keywords: Depreciation; Corroborative evidences
• Section: 143(3); 32

Judgement Text

, SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 2419/AHD/2016 ( / ASSESSMENT YEAR : 2013-14) DCIT CIR. 2(1)(2), AHMEDABAD, 1 ST FLOOR, NAVJIVAN TRUST BUILDING AHMEDABAD- 380014 / VS. M/S. LANDMARK CARS (EAST) PVT. LTD. SUN COURT, SURVEY NO. 383/P, FP-37 & 38, NEAR SOLA FLYOVER, S.G. ROAD, AHMEDABAD- 380059 ./ ./ PAN/GIR NO. : AAC CL4 207 H ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : RAJESH MEENA, SR. DR. / RESPONDENT BY : ANKIT TALSANIA, AR / DATE OF HEARING 14/03/2019 !'# / DATE OF PRONOUNCEMENT 27/03/2019 $%/ O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE CIT(A)-02, AHMEDAB AD (CIT(A) IN SHORT), DATED 07.07.2016 ARISING IN THE ASSESSMENT ORDER DATED 28.03.2016 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING A.Y. 2013-14. ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 2 - 2. THE GRIEVANCE OF THE REVENUE AS PER ITS GROUNDS OF APPEAL READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 93,75,000/- MADE ON ACCOUNT OF DEPRECIATION ON GOODWILL WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 3. BRIEFLY STATED, THE ASSESSEE COMPANY IS STATED T O HAVE DEALERSHIP OF MERCEDES-BENZ IN GUJARAT AND MADHYA PRADESH AND AS PER THE ONGOING BUSINESS STRATEGY, IT WANTED TO FURTHER EXP AND ITS BUSINESS IN NORTH-EAST REGION OF THE COUNTRY. AS STATED, IN PUR SUANCE OF ITS AFORESAID STRATEGY, THE ASSESSEE COMPANY ACQUIRED T HE BUSINESS OF GOING CONCERN NAMELY INTERKRAFTS AUTOCITY PVT. LTD. WHICH WAS HOLDING DEALERSHIP OF MERCEDES-BENZ IN KOLKATA. TH E BUSINESS OF THE AFORESAID CONCERN WAS CLAIMED TO BE ACQUIRED FOR A TOTAL CONSIDERATION OF RS. 12.85 CRORES FOR ALL ITS ASSETS AGGREGATING TO RS. 5,34,61,607/-. THE LIABILITIES OF THE CONCERN WERE ALSO ACQUIRED A ND DIRECTLY PAID BY THE ASSESSEE. IN THE PROCESS, THE EXCESS CONSIDERA TION OF RS. 7.50 CRORES OVER AND ABOVE THE VALUE OF THE TANGIBLE ASS ETS WAS CLAIMED TO HAVE BEEN INCURRED FOR ACQUIRING VARIOUS BUSINESS A ND COMMERCIAL RIGHTS CATEGORIZED UNDER THE HEAD GOODWILL IN THE BOOKS OF THE ASSESSEE. THE ASSESSEE CLAIMED DEPRECIATION ON SUC H GOODWILL PEGGED AT RS. 7.50 CRORES. IN THE COURSE OF THE SC RUTINY ASSESSMENT, THE AO HOWEVER DENIED THE CLAIM OF SUCH DEPRECIATIO N ON GOODWILL. 4. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE T HE CIT(A). THE CIT(A) AFTER CONSIDERATION OF RELEVANT FACTS FOUND THE CLAIM OF THE ASSESSEE TO BE IN CONSONANCE WITH LAW ENUNCIATED BY WAY OF JUDICIAL PRECEDENTS. RELEVANT OPERATIVE PARA OF THE ORDER O F THE CIT(A) IS REPRODUCE HEREUNDER FOR READY REFERENCE:- 3.3. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION OF RS.93.75 LACS MADE IN THE YEAR UNDER CONSIDERATION ON THE GOODWILL. IT HAS BEEN NOTICED THAT THE APPELLANT HAD PAID AN AMOUNT OF RS.7.50 CRORES TOWARDS GOODWILL D URING THE F.Y. ON ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 3 - 01/01/2013 AS PER THE BILL OF RS. 7.5 CRORE RAISED BY M/S. INTERKRAFT AUTOCITY PVT. LTD., KOLKATA. THE AO OBSERVED THAT THE APPELL ANT HAS ACQUIRED THE TANGIBLE AND INTANGIBLE ASSETS FROM M/S. INTERKRAFT S AUTOCITY PVT. LTD., KOLKATA FOR A TOTAL CONSIDERATION OF RS.12.85 CRORE AND THE ENTIRE SALE CONSIDERATION HAS BEEN PAID TOWARDS THE OUTSTANDING LIABILITIES OF M/S. INTERKRAFTS AUTOCITY PVT. LTD., KOLKATA. THE TOTAL CONSIDERATION OF RS.12.85 CRORES INCLUDING VAT WAS PAID IN LIEU OF THE ACQUIS ITION OF THE BUSINESS WITH ALL ITS ASSETS INCLUDING SPARE PARTS WORTH OF RS.5, 34,61,406/- AND THE BALANCE PAYMENT OF RS.7.50 CRORES FOR ACQUIRING VAR IOUS BUSINESS AND COMMERCIAL RIGHTS CATEGORIZED UNDER THE RIGHT OF TH E GOODWILL IN THE BOOKS OF THE APPELLANT. THE AO HAD NOT GRANTED THE DEPRECIAT ION FOR VARIOUS REASONS GIVEN IN THE ASSESSMENT ORDER. THE SAME ARE BRIEFLY AS UNDER. 3.4. AS PER THE AO, THE APPELLANT HAS NOT JUSTIFIED WITH ANY OF THE CORROBORATIVE EVIDENCES TO PROVE THAT IT WAS WORTH PAYING SUCH SUBSTANTIAL AMOUNT OF GOODWILL TO M/S. INTERKRAFTS AUTOCITY PVT . LTD., KOLKATA. FURTHER OBSERVED BY THE AO THAT THE APPELLANT HAS PAID SUBS TANTIAL AMOUNT OF GOODWILL TO THE COMPANY WHICH DOES NOT HAVE THAT MU CH REPUTE AND STANDING AS COMPARED TO MERCEDES BENZ. THE SUBSTANT IAL AMOUNT OF GOODWILL PAID TO AFORESAID COMPANY WHO WAS A FRANCH ISE OF A MERCEDES BENZ IS NOT BELIEVABLE AS IT WAS THE PROMOTER OF ME RCEDES BENZ AND THE CUSTOMERS KNOW M/S. INTERKRAFTS AUTOCITY PVT. LTD., KOLKATA DUE TO THE BRAND NAME OF MERCEDES BENZ. THE AO ALSO OBSERVED THAT IN THE BALANCE SHEET OF LANDMARK CAR PVT. LTD. WHO WAS A GROUP COMPANY H AS SHOWN THE AMOUNT OF RS.12 CRORE AS SHORT TERM LOANS AND ADVAN CES TO THE APPELLANT FOR MAKING THE PAYMENT OF THE LIABILITIES OF INTERK RAFT AUTOCITY PVT. LTD., KOLKATA. IT HAS NOT BEEN SHOWN AS INVESTMENT IN THE BOOKS OF LANDMARK CARS PVT. LTD. THE AO ALSO OBSERVED THAT IN THE FIN ANCIAL STATEMENTS OF M/S. INTERKRAFTS AUTOCITY PVT. LTD., KOLKATA FOR A. Y. 2 012-13, THE OPENING BALANCE OF THE GOODWILL AS ON 01/04/201] WAS AT RS.1 CRORE WHICH WAS AT THE SAME VALUE AS ON 31/03/2012. THUS IN A SPAN OF 10 TO 11 MONTHS FROM 31/03/2012, THE TRANSACTION OF THE ACQUISITION OF T HE BUSINESS WOULD NOT MAKE THE VALUE OF THE GOODWILL AT RS. 7.50 CRORES. HENCE, THE CLAIM OF CREATION OF GOODWILL FALLS UNACCEPTABLE AS PER THE AO. THE AO ALSO OBSERVED THAT THE APPELLANT HAS FAILED TO JUSTIFY T HE VALUATION OF GOODWILL AND IN ABSENCE OF ANY JUSTIFICATION AND CERTIFICATE OF QUALIFIED CHARTERED ACCOUNTANT, THE CLAIM OF RS.7.50 CRORES RAISED THRO UGH THE INVOICE WAS HELD TO BE ERRONEOUS. 3.5. ON THE OTHER SIDE, THE APPELLANT HAS SUBMITTED A DETAILED WRITTEN SUBMISSION DURING THE ASSESSMENT PROCEEDINGS AND TH EREAFTER IN THE APPELLATE PROCEEDINGS AND THE SAME HAVE BEEN REPROD UCED IN THE PRECEDING PARAS OF THIS ORDER. 3.6. HAVING CONSIDERED THE FACTS AND SUBMISSION, IT IS FOUND THAT THE APPELLANT GROUP WAS ALREADY HAVING THE DEALERSHIP O F MERCEDES BENZ IN GUJARAT AND M.P. AND AS PER THE BUSINESS DEVELOPMEN T STRATEGIES IT WANTED TO EXPAND ITS BUSINESS IN THE NORTH EAST REGION OF THE COUNTRY. BEFORE SUCH ACQUISITION, THE APPELLANT HAD A MARKET SHARE OF AB OUT 9% OF THE ALL INDIA SALE OF THE MERCEDES BENZ AND AFTER ACQUISITION IT HAS ACQUIRED THE MARKET SHARE OF 12% OF THE ENTIRE SALE OF MERCEDES BENZ. ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 4 - 3.7. FURTHER, THE COMMERCIAL CONSIDERATIONS BEHIND THE ACQUISITION WAS TO HAVE THE EXPANSION GEOGRAPHICALLY, EARNING GOODWILL OF MERCEDES BENZ AT THE KOLKATA DEALERSHIP WHICH WAS NOT BEING OPERATIN G TO THE SATISFACTION OF MERCEDES BENZ, HAVE BETTER TERMS OF NEW DEALERSHIP AS PROMISED BY MERCEDES BENZ AFTER ACQUISITION OF THE KOLKATA ESTA BLISHMENT AND TO HAVE THE READY AND ESTABLISHED BUSINESS AND INFRASTRUCTU RE INSTEAD OF SETTING UP OF THE DEALERSHIP AFRESH WHICH HAS SAVED THE TIME A ND EFFORTS WITHOUT MUCH EFFORTS. IN FACT, THE APPELLANT HAD THE OFFER FROM MERCEDES BENZ TO PURCHASE THE INTERKRAFT AUTOCITY LIMITED, KOLKATA AND IN TUR N IT PROMISED TO GIVE CERTAIN CONCESSIONS AND OPERATIONAL SUPPORTS TO THE APPELLA NT. 3.8. FURTHER, WITH THIS MARKET SHARE OF LANDMARK CA RS PVT. LTD. AND THE APPELLANT COMPANY WAS EXPECTED TO INCREASE ITS MARK ET SHARE NEAR TO 12% OF ALL INDIA MERCEDES BENZ SALE. CONSIDERING ALL TH E DUE DILIGENCE ON THE PROPERTIES AND BUSINESS PROSPECTS, THE APPELLANT FO UND IT TO MEET ITS OBJECTIVE AS IT WAS ABLE TO GET THE READY BUSINESS, RIGHTS TO USE SUBSTANTIAL AREA PERPETUALLY WITHOUT ANY COMPETITION, DEALERSHI P IN EASTERN AREA OF INDIA WITH COMPLETE INFRASTRUCTURE FOR MARKETING, S ALES AND SERVICING OF VEHICLES WHICH WAS DIFFERENT TO THE ESTABLISHED BY THE APPELLANT. THE APPELLANT COMPANY GOT THE STRATEGICALLY LOCATED SHO W ROOM, SERVICE STATION FRANCHISED PERPETUALLY BY THE INTERKRAFT AND CONTIN UITY IN THE BUSINESS THROUGH THE NAME OF INTERKRAFT ONLY. 3.9. THE TOTAL CONSIDERATION OF RS. 12.84 CRORES WA S AGREED FOR ACQUIRING A READY TO DO BUSINESS ALONG WITH ALL REQUISITE ASSET S. THE APPELLANT COMPANY WAS ALLOWED TO USE THE NAME 'INTERKRAFT' WHICH ENABLED CONTINUITY OF BUSINESS AND SERVICE. IN THE COMPETITIVE BUSINESS S EGMENT OF LUXURY CARS, IT WAS ESSENTIAL THAT THERE IS SEAMLESS TRANSFER OF BU SINESS INTEREST WITHOUT IMPACTING CUSTOMERS SERVICE LEVELS. THE APPELLANT C OMPANY WAS ALLOWED TO USE EXISTING SHOW ROOMS AS WELL AS SERVICE STATIONS WITHOUT WASTING TIME ON SETTING UP THE PREMISES, ORDERING FOR THE PLANT AND MACHINERY, EQUIPMENTS AND AVAILABILITY OF TRAINED AND READY MANPOWER ETC. IT HAS BEEN CONTENDED THAT WITH THIS ACQUISITION OF THE READY TO BUSINESS USE INCLUDING TANGIBLE AND INTANGIBLE ASSETS SUCH AS BUSINESS AND COMMERCIAL R IGHTS, THE APPELLANT COULD ACHIEVE THE SUBSTANTIAL GROWTH SINCE 2013 TIL L 2015 AS EVIDENT FROM THE SALES EFFECTED YEAR WISE AS UNDER:- PERIOD UPTO 31.03.2013 8.45 CRORES YEAR ENDED 31.3.2014 92.33CRORES YEAR ENDED 31.3.2015 136.85 CRORES 9 MONTHS ENDED 31.12.2015 117.05 CRORES TOTAL 354.68 CRORES 3.10. IT HAS BEEN SUBMITTED THAT FOR ACQUIRING SUCH VARIOUS BUSINESS AND COMMERCIAL RIGHTS CATEGORIZED UNDER THE HEAD OF GOO DWILL COMPRISES OF DEALERSHIP, READYMADE INFRASTRUCTURE INCLUDING WORK ING PROCESS, PROCEDURES, TRADE EMPLOYEES AND THE APPROVED FACILI TIES AND OTHER REQUISITES, BESIDES USE OF PREMISES, BUSINESS INFOR MATION, BUSINESS CONTRACTS AND CONTACTS, USE OF TRADE MARK 'INTERKRA FT' ALLOWED BY THE APPELLANT COMPANY TO ACCESS DATA AND CUSTOMER BASE AND SIMILAR OTHER BUSINESS COMMERCIAL RIGHTS RELATING TO BUSINESS. IT IS NOT IN DISPUTE THAT AFTER ACQUISITION OF THE INTERKRAFT, KOLKATA THE BUSINESS OF THE LANDMARK GROUP ROSE TO 12% OF THE ALL INDIA SALES OF MERCEDES BENZ AND OBVIOUSLY THIS IS ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 5 - BECAUSE OF THE ACQUISITION ONLY FOR WHICH THE GOODW ILL WAS PAID CONSIDERING THE LONG TERM BENEFITS. THE APPELLANT COMPANY HAD A CQUIRED THE BUSINESS AS PER ITS COMMERCIAL WISDOM IN AN ADVANTAGEOUS BAR GAIN AS A BUSINESSMAN AND SUCH BUSINESS PRUDENCY CANNOT BE DE CIDED BY THE AO. 3.11. IT HAS BEEN NOTICED THAT THE AO HAS NOT PLACE D ON RECORD THE BASIS OF WHICH IT COULD BE SAID THAT THE INTERKRAFT, KOLKATA HAD NOT SO MUCH OF REPUTATION AND NO GOODWILL WAS TO BE PAID. IT IS TR UE THAT MERCEDES BENZ HAVE MUCH MORE REPUTATION THEN THE INTERKRAFT, KOLK ATA BUT IT DOES NOT MEAN THAT THE INTERKRAFT, KOLKATA ITSELF DID NOT HAVE AN Y REPUTATION. IT IS ALSO OUT OF PLACE TO MENTION THAT THE AMOUNT OF GOODWILL IN RES PECT OF MERCEDES BENZ WOULD BE FAR MORE THAN WHAT HAS BEEN PAID TO THE IN TERKRAFT, KOLKATA. IT IS ALSO NOTICED THAT THE LOANS OF RS.12 CRORES HAS BEE N PAID BY LANDMARK CAR PVT. LTD. TO THE APPELLANT, AND THEREFORE, THE SAME HAS BEEN SHOWN AS LOANS AND ADVANCES IN THE BALANCE SHEET OF LCPL. SINCE NO SHARES AGAINST SUCH ADVANCE HAVE BEEN ISSUED BY THE APPELLANT, THEREFOR E, THERE WAS NO QUESTION OF SHOWING THE SAME AS INVESTMENT IN THE B ALANCE SHEET OF LCPL. EVEN THIS REASON DOES NOT CONNECT IN ANY WAY FOR DI SALLOWANCE OF THE CLAIM OF DEPRECIATION ON THE GOODWILL. THUS, THE AO'S OBS ERVATION IN THIS REGARD IS UNTENABLE. 3.12. IT HAS ALSO BEEN NOTICED THAT IN THE BOOKS OF ACCOUNTS OF INTERKRAFT, KOLKATA, THE BOOK VALUE OF THE GOODWILL HAS BEEN SH OWN AT RS. 1 CRORE, WHICH ITSELF SHOWS THAT THE INTERKRAFT, KOLKATA HAD THE GOODWILL WHICH HAS BEEN RECORDED IN THE BALANCE SHEET. IT IS A DIFFERE NT THING THAT IN THE BOOKS OF ACCOUNTS, IT HAS THE VALUE OF RS. 1 CRORE BUT TH E APPELLANT HAS TO PAY RS.7.5 CRORE AGAINST THE SAME SINCE THE AO HAS BROU GHT NOTHING ON RECORD THAT THE GOODWILL PAID BY THE APPELLANT WAS EXCESSI VE. IN ABSENCE OF ANY DETAILS OF THE INITIAL YEAR OF THE GOODWILL CREATIO N IN THE BOOKS OF THE INTERKRAFT, KOLKATA, THE PRESENT VALUE OF THE GOODW ILL IN THE YEAR UNDER CONSIDERATION COULD NOT BE EVALUATED. IT IS NOT KNO WN FOR HOW LONG THIS GOODWILL WAS APPEARING IN THE BOOKS OF ACCOUNTS OF INTERKRAFT, KOLKATA AND IN WHICH YEAR THE INTERKRAFT, KOLKATA HAS PURCHASED / VALUED THE GOODWILL AT THE VALUE OF RS.1 CRORE. THEREFORE, FROM THESE FACT S, IT IS APPARENT THAT THE INTERKRAFT, KOLKATA HAD THE GOODWILL IN EXISTENCE F OR WHICH THE APPELLANT WAS REQUIRED TO PAY AGAINST THE SAME. 3.13. THE APPELLANT ALSO RELIED UPON THE ACCOUNTING STANDARD - 14. AS PER THE GENERAL ACCEPTED ACCOUNTING PRINCIPLES, THE PUR CHASE CONSIDERATION WAS AT RS.12.85 CRORES AND THE TANGIBLE ASSETS ACQUIRED WERE OF RS.5.35 CRORES. THEREFORE, THE EXCESS OF THE PURCHASE CONSIDERATION OVER THE TOTAL VALUE OF THE ASSETS ACQUIRED WAS DETERMINED AT RS.7.50 CRORE S WHICH WAS PAID OBVIOUSLY FOR THE GOODWILL. IN THIS REGARD, RELIANC E HAS BEEN PLACED ON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD. VS. DCIT [345 ITR 421], WHEREBY IT HAS BEEN HELD THAT IN THE CASE OF ACQUISITION OF AN UNDERTAKING THE BALANCE AMOUNT OV ER AND ABOVE OF THE NET TANGIBLE ASSET WAS TREATED AS GOODWILL AND THE DELH I HIGH COURT HAS ALLOWED THE DEPRECIATION CLAIM ON SUCH GOODWILL FOL LOWING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCK LIMITED VS. CIT [2010] 327 ITR 323 AND CIT VS. HIND USTAN COCO-COLA BEVERAGES PVT. LTD. [2011] 331 ITR 192. ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 6 - 3.14. SINCE IN THE CASE OF APPELLANT, INTANGIBLE AS SETS IN THE FORM OF BUSINESS AND COMMERCIAL RIGHTS SUCH AS DEALERSHIP, READYMADE INFRASTRUCTURE INCLUDING WORKING PROCESS, PROCEDURE S, TRAINED EMPLOYEES, MB APPROVED FACILITIES AND OTHER REQUISITES, USE OF PREMISES, BUSINESS INFORMATION, BUSINESS CONTRACTS AND CONTACT, USE OF TRADE MARKS (INTERKRAFT, KOLKATA) ARE ALL ASSETS WHICH ARE INVARIABLE AND RE SULT IN CARRYING ON THE BUSINESS BY THE APPELLANT WHICH WAS HITHERTO BEING CARRIED OUT BY THE INTERKRAFT, KOLKATA. IN THE ABSENCE OF AFORESAID IN TANGIBLE ASSETS, THE ASSESSEE WOULD HAD TO COMMENCE BUSINESS FROM SCRATC H AND GO THROUGH THE GESTATION PERIOD, WHEREAS BY ACQUIRING THE AFOR ESAID BUSINESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT TH E RUNNING BUSINESS. 3.15. IT HAS BEEN NOTICED THAT IN THE ASSESSMENT PR OCEEDINGS, THE APPELLANT HAS SUBMITTED THE BINDING TERM SHEET BETWEEN THE AP PELLANT AND INTERKRAFF, KOLKATA DATED 29/12/2012 AND THE INTERIM RECEIPT FO R PAYMENT FOR THE TRANSFER OF ASSETS AND 12 SEPARATE INVOICES DATED 0 7/03/2013. IT HAS BEEN NOTICED THAT THROUGH THE AFORESAID INVOICES, THE AP PELLANT HAD PURCHASED THE VARIOUS ASSETS INCLUDING THE GOODWILL AT RS. 12 ,84,61,607/-. THE DETAILS OF THE INTERIM RECEIPT IS REPRODUCED AS UNDER:- INVOICE NO. DATE DESCRIPTION AMOUNT VAT TOTAL 1 02/02/2013 AIR CONDITIONER 62,882 9,118 72,000 2 07/03/2013 STRUCTURAL 1,36,59,162 0 1,36,59,162 3 07/03/2013 CCTV 3,22,589 43,550 3,66,139 4 07/03/2013 VEHICLES 25,48,319 1,01,933 26,50,252 5 07/03/2013 TELEVISION 3,64,006 52,781 4,16,787 6 07/03/2013 REFRIGERATION 8,82,003 1,27,891 10,09,894 7 07/03/2013 KITCHEN EQUIP. 2,40,195 32,426 2,72,621 8 07/03/2013 FURNITURE 4,82,22,824 6,51,081 54,73,905 9 07/03/2013 COMPUTER 30,49,528 1,21,981 31,71,509 10 07/03/20)3 PLANT & MACHINE 1,02,73,631 13,86,940 1,16,60,571 11 07/03/2013 GOODWILL 7,50,00,000 0 7,50,00,000 12 07/03/2013 SPARE PARTS 1,41,43,045 5,65,722 1,47,08,767 12,53,68,184 30,93,423 1 2,84,61,607/- ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 7 - 3.16. SINCE THE AO HAS NOT DOUBTED THE OTHER 11 INV OICES IN RESPECT OF VARIOUS ASSETS, THEN THERE WAS NO QUESTION TO DOUBT THE INVOICE NO. 11 DATED 07/03/2013 TO PURCHASE THE GOODWILL AT RS.7.5 0 CRORE. INTACT, THROUGH THE AFORESAID RECEIPT THE INTERKRAFT AUTOCITY PVT. LTD. HAD ACKNOWLEDGED THE PAYMENT HAVING MADE BY THE APPELLANT TOWARDS THE VA RIOUS LIABILITIES OF INTERKRAFT DIRECTLY PAID TO EACH OF THEM AND NOT TO INERKRAFT, KOLKATA OF WHICH DETAILS ARE NOTED AS UNDER:- SR. NO. NAME OF THE PARTY AND ADDRESS AMOUNT OF PAYMENT MODE OF PAYMENT BANK NAME CHEQUE NO. DATE OF PAYMENT 1 WB VAT DEPARTMENT 5,000,000 E-PAYMENT SBI 02/02/2013 2 WB VAT DEPARTMENT 20,844,444 E-PAYMENT SBI 19/02/2013 3 DPS- CHENNAI 50,000,000 CHEQUE KVB 000107 16/02/2013 4 TATA CAPITAL FINANCIAL SERVICES LTD., KOLKATA 1,299,828 CHEQUE KVB 000110 21/02/2013 5 TATA CAPITAL FINANCIAL SERVICES LTD., KOLKATA 3,235,868 CHEQUE KVB 000109 21/02/2013 6 TATA CAPITAL FINANCIAL SERVICES LTD., KOLKATA 2,425,187 CHEQUE KVB 000108 21/02/2013 7 PUNJAB & SINDH BANK, KOLKATA 3,404,444 CHEQUE KVB 000118 28/02/2013 8 PUNJAB & SINDH BANK, KOLKATA 39,277 CHEQUE KVB 000122 04/03/2013 9 KOTAK MAHINDRA PRIME LIMITED 631,260 CHEQUE KVB 000631 29/03/2013 ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 8 - 10 KOTAK MAHINDRA PRIME LIMITED 270,540 CHEQUE KVB 000632 29/03/2013 11 DPS - CHENNAI 24,507,328 CHEQUE KVB 000111 31/03/2013 12 DFS- CHENNAI 5,437,927 CHEQUE KVB 000117 31/03/2013 13 INCENTIVE OF EDWIN AVIET 42,129 E-PAYMENT ICICI 12/04/2013 117,138,232 3.17. IT IS NOTICED FROM THE ABOVE THAT IT IS NOT A CASE THAT THE APPELLANT HAS MADE THE PAYMENT TO INTERKRAFT, KOLKATA BUT THE OUT STANDING LIABILITIES OF INTERKRAFT, KOLKATA HAS BEEN PAID BY THE APPELLANT DIRECTLY TO EACH OF THEM THROUGH CHEQUES AND E-PAYMENTS. THE DETAILS OF CHEQ UE NO., DATE OF PAYMENT, AMOUNT PAID AND THE PARTY TO WHOM PAID ARE MENTIONEC ABOVE WHICH HAS NOT BEEN DOUBTED BY THE AO. EVEN THE BALA NCE PAYMENT OF RS. 1,13,23,3757- (RS. 12,84,61,6071- - RS. 11,71,38,23 2/-J HAS BEEN PAID BY THE APPELLANT IN THE SUBSEQUENT YEAR WHICH IS SUPPO RTED BY THE LEDGER ACCOUNT COPIES OF INTERKRAFT AUTOCITY PVT. LTD. AVA ILABLE BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS. THERE IS NO INFORMATION AND EVIDENCE ON RECORD THAT THE PAYMENTS MADE TO VARIOUS OUTSTANDING LIABI LITIES OF INTERKRAFT, KOLKATA OR TO INTERKRAFT HAVE RETURNED BACK IN CASH TO THE APPELLANT. THEREFORE, THERE IS NO REASON TO DOUBT THE GENUINEN ESS OF THE PAYMENTS TOWARDS GOODWILL MADE TO INTERKRAFT, KOLKATA WHICH WAS JUSTIFIED IN VIEW OF THE BUSINESS REQUIREMENTS AND BUSINESS EXPEDIENCY D ISCUSSED IN THE PRECEDING PARAS OF THIS ORDER. SINCE THERE WAS NO D OUBT BY THE AO IN RESPECT OF PAYMENT OF THE GOODWILL TO THE OUTSTANDI NG CREDITORS OF M/S. INTERKRAFT, KOLKATA AND THEREFORE, THE DEPRECIATION UPON THE GOODWILL IS AN ALLOWABLE EXPENDITURE IN THE HANDS OF THE APPELLANT AS PER THE JUDGMENTS / DECISIONS OF HONOURABLE COURTS BRIEFLY NOTED AS UND ER:- HON'BLE SUPREME COURT IN THE CASE OF CIT SMIFS SECU RITIES LTD. [2012] 348 ITR 302, HAS HELD THAT A GOODWILL IS AN ASSET UNDER EXPLANAT ION 3(B) TO SECTION 32(1) OF I. T. ACT AND ENTITLED FOR DEPRECI ATION. HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS. RFCL LIMITED [2015] 57 TAXMANN.COM 17, HAS HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON CONSIDERATION PAID AND ACC OUNTED FOR AS GOODWILL. HON'BLE ITAT, DELHI IN THE CASE OF CYBER INDIA ONLI NE LTD. VS. ACIT [2014] 42 TAXMANN.COM 108, HAS HELD THAT WHERE ASSESSEE COMPANY ACQUIRED RUNNING BUSINESS OF A COMPANY FOR A LUMP S UM CONSIDERATION AND IT RECORDED BOOK VALUE OF NET TANGIBLE ASSETS IN BA LANCE SHEET AND BALANCE PART WAS ALLOCATED IN BALANCE SHEET AS GOODWILL, TH E ASSESSEE WAS ENTITLED TO DEPRECIATION ON GOODWILL. ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 9 - ACIT VS. BHARTI TELETECH LTD. [2014] 46 TAXMANN. CO M 26 & ACIT (OSD) VS. SAHITYA MUDRANALAYA PVT. LTD.[2014] 33 IT R (TRIB) 108] (AHD) HAVE HELD THAT DEPRECIATION ON GOODWILL, WHICH IS A N ASSET AS PER SECTION 32 IS ALLOWABLE. HON'BLE ITAT, MUMBAI IN THE CASE OF ACIT VS. WORLDW IDE MEDIA PVT. LTD. [2014] 43 TAXMANN.COM 18(MUM) HAS HELD THAT WHERE ASSESSEE ACQUIRE BUSINESS AS ONGOING CONCERN, AND CLAIMED DE PRECIATION IN RESPECT OF AMOUNT PAID FOR ACQUIRING INTANGIBLE ASSETS, THE DEPRECIATION WAS ALLOWABLE ON GOODWILL LIKE ANY OTHER INTANGIBLE ASS ET. HON'BLE ITAT, DELHI IN THE CASE OF THYSSEN KURUP EL EVATORS (1) PVT. LTD. VS. ACIT [2014] 50 TAXMANN.COM, HAS HELD THAT WHERE THE ASSESSEE ACQUIRED BUSINESS OF ANOTHER COMPANY ON SLUMP BASIS , EXCESS CONSIDERATION PAID BY ASSESSEE OVER AND ABOVE VALUE OF NET ASSETS WAS TO BE CONSIDERED AS GOODWILL UNDER SECTION 32(1 )(II), ELIGIBLE FOR DEPRECIATION. HON'BLE ITAT, MUMBAI IN THE CASE OF CIT VS. BIRLA G LOBAL ASSET FINANCE CO. LTD. [2014] 41 TAXMANN.COM 262, HAVE HELD THAT EVEN INTANGIBLE ASSETS CONSTITUTE GOODWILL ON WHICH DEPR ECIATION WOULD BE ALLOWABLE. HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANIPAL UNIVERSAL LEARNING PVT. LTD. [2013] 34 TAXMANN.COM 9, HAS HELD THAT THE DEPRECIATION IS ALLOWABLE ON AMOUNT PAID FOR GOODWI LL BEING FUTURE PROFITS. HON'BLE KERALA HIGH COURT IN THE CASE OF B, RAVINDR AN PILLAI VS. CIT [332 ITR 531] HAS HELD THAT THE AMOUNT PAID FOR THE GOODWILL FOR ENSURING RETENTION AND CONTINUED BUSINESS WAS ONE FOR ACQUIR ING BUSINESS AND COMMERCIAL RIGHTS AND THE SAME WAS COMPARABLE WITH TRADEMARK, FRANCHISE AND COPY RIGHT ETC. SO GOODWILL WAS COVERED BY THE PROVISIONS OF SECTION 32(1)(II) ENTITLING THE ASSESSEE FOR DEPRECIATION. HON'BLE 1TAT, MUMBAI IN THE CASE OF KOTAK FOREX BRO KERAGE LTD. VS. ACIT [2010] 131 TTJ 404 HAS HELD THAT GOODWILL IS A BUNDLE OF RIGHTS WHICH INCLUDE INTER ALIA PATENT TRADEMARKS, LICENSES, FRA NCHISES ETC. AND THEY ASSUME IMPORTANCE IN COMMERCIAL WORLD AS THEY REPRESENT A PARTICULAR BENEFIT OR REPUTATION BUILD BY A PERSON OVER A PERIOD OF TIME AND CUSTOMERS ASSOCIATE THEMSELVES WITH SUCH ASSETS, HENCE, DEPRECIATION WO ULD BE ALLOWABLE ON SAME. 3.18 IN VIEW OF THE FACTS OF THE CASE AND JUDICIAL PRONOUNCEMENTS, THE ALLOWABILITY OF THE DEPRECIATION ON THE GOODWILL PA ID BY THE APPELLANT IS NOT IN DOUBT AND THE DEPRECIATION HAS BEEN CORRECTLY CLAIM ED BY THE APPELLANT. HENCE, THE CLAIM OF DEPRECIATION ON THE GOODWILL FO R THE PART PERIOD OF THE YEAR IS ALLOWED TO THE APPELLANT. THUS, THE GROUNDS OF APPEAL ARE ALLOWED. 5. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A) , THE REVENUE PREFERRED APPEAL BEFORE THE TRIBUNAL. THE LD. DR FO R THE REVENUE RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE HAS ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 10 - FAILED TO DEMONSTRATE BEFORE THE AO TOWARDS THE BON A FIDES OF CREATION OF GOODWILL. 6. PER CONTRA, THE LD. AR FOR THE ASSESSEE EXTENS IVELY REFERRED TO THE AGREEMENT ENTERED INTO FOR ACQUISITION OF ASSET S AND LIABILITIES WITH INTERKRAFTS AUTOCITY PVT. LTD. AND ALSO A STATEMENT OF ASSETS AND LIABILITIES OF THE AFORESAID CONCERNED. IT WAS CON TENDED THAT THE ASSESSEE HAS PAID RS. 7.50 CRORES OVER AND ABOVE TH E NET VALUE OF THE TANGIBLE ASSETS WHICH REPRESENTS COST OF GOODWILL WHICH CAME TO THE ASSESSEE ALONG WITH THE GOING CONCERN. THE LD. AR ALSO POINTED OUT THAT THE AFORESAID STATEMENT IS SELF EXPLANATORY AN D NO SEPARATE VALUATION OF GOODWILL PER SE IS REQUIRED FROM ANY INDEPENDENT PROFESSIONAL. THE COST OF GOODWILL IS DETERMINED I N COMMERCIAL WORLD TO REPRESENT THE EXTRA CONSIDERATION PAID OVER THE NET VALUE OF ASSETS ACQUIRED. THE FACT TOWARDS PAYMENT OF EXTRA CONSID ERATION HAS NOT BEEN DISPUTED. THEREFORE, THE COST OF GOODWILL REQ UIRES AMORTIZED OVER A PERIOD OF TIME AS PER LAW. 7. THE LD. AR ALSO POINTED OUT THAT APART FROM THE JUDICIAL PRECEDENTS NOTED BY THE CIT(A), THE ISSUE IS SQUARE LY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. SMIFS SECURITIES LTD. 348 ITR 302 (SC). 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE ORDER OF THE AUTHORITIES BELOW. THE ESSENTIAL CONT ROVERSY INVOLVES MAINTAINABILITY OF CLAIM OF DEPRECIATION ON COST OF GOODWILL BY THE ASSESSEE. THE ASSESSEE HAS CLAIMED EXTRA CONSIDERA TION PAID TOWARDS ACQUISITION OF NET VALUE OF ASSETS OF INTERKRAFT AU TOCITY PVT. LTD. WITH A VIEW TO ACQUIRE THE DEALERSHIP OF MERCEDES-BENZ E MBEDDED WITH THE CONCERN COVERING THE STATE OF WEST BENGAL AND ENTIR E NORTH-EAST. THUS, THERE CAN BE NO QUARREL THAT EXTRA CONSIDERAT ION PAID FOR ACQUISITION OF ASSETS AND THE BUSINESS OF THE CONCE RN REPRESENTS COST OF GOODWILL. THIS BEING SO, THE ASSESSEE WOULD BE ENT ITLED IN LAW FOR ITA NO.2419/AHD/2016 [DCIT VS. M/S. LANDMARK CARS (EAST) PVT. LTD.] A.Y. 2013-14 - 11 - CLAIM OF DEPRECIATION THEREON IN VIEW OF THE DECISI ON OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. TGB BANQ UETS & HOTELS LTD. TAX APPEAL NO. 470 OF 2012 DATED. 21.06.2016 ( GUJ.) AND ALSO THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F SMIFFS SECURITIES LTD. SUPRA. THEREFORE, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE CIT(A) IN FAVOUR OF THE ASSESSEE. THUS, WE D ECLINE TO INTERFERE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. SD/- SD/- (RAJPAL YADAV) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 27/03/2019 TANMAY TRUE COPY !' #' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. $ / ASSESSEE 3. ) *+ , / CONCERNED CIT 4. ,- / CIT (A) 5. 012 33*+, *+#, 56$)$ / DR, ITAT, AHMEDABAD 6. 289 : / GUARD FILE. BY ORDER / $% , ;/5 *+#, 56$)$ < 1.DATE OF DICTATION ON 15.03.2019 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 25.03.2019 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 26.03.2019 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 26.03.2019 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 27.03.2019 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.03.2019 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER THIS ORDER PRONOUNCED IN OPEN COURT ON 27/ 03/2019