M/s I & B Seeds Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 3415/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1096 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-03-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 27-12-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE , JUDICIAL MEMBER ITA NO. 3 415 /BANG/201 8 ASSESSMENT YEAR : 2015-16 M/S. I & B SEEDS PVT. LTD., UNIT NO.1690, SIA, 15 TH MAIN, 30 TH CROSS, BANASHANKARI 2 ND STAGE, BENGALURU 560 070. PAN : A A D C I 6256 N VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -3(1)(1). BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI. R. E. BALASUBRAMANIAM, CA REVENUE BY : SHRI. MANJEET SINGH , ADDL. CIT (DR)(ITAT), BENGALURU DATE OF HEARING : 13 . 0 3 .20 20 DATE OF PRONOUNCEMENT : 29 . 0 5 .20 20 O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-3, BENGALURU, DATED 06.11.2018, FOR ASSESSMENT YEAR 2015-16. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: ITA NO.3415/BANG/2018 PAGE 2 OF 6 ITA NO.3415/BANG/2018 PAGE 3 OF 6 2. BRIEF FACTS TILL ASSESSMENT STAGE ARE NOTED BY LEARNED CIT(A) IN PARA 5.0 OF HIS ORDER WHICH IS REPRODUCED BELOW FOR THE SAKE OF REFERENCE: 5.0 THE GROUNDS OF' APPEAL 3 TO 6 RELATE TO THE COMMON ISSUE OF ACTION OF THE AO IN MAKING A DISALLOWANCE OF RS.2,15,02,864/-. IN BRIEF DURING ASSESSMENT PROCEEDINGS THIS WAS OBSERVED BY THE AO THAT THE APPELLANT HAD CLAIMED DEPRECIATION @25% ON INTANGIBLE ASSETS OF RS. 17,39,83,689/-. THE APPELLANT WAS ASKED BY THE AO TO PROVIDE THE DETAILS OF INTANGIBLE ASSETS. IN RESPONSE TO THE. SAME THE APPELLANT INFORMED THAT IT HAD PAID AN AMOUNT OF. RS.16.46,08,759/- TO M/S INDUS SEEDS, A SOLE PROPRIETARY CONCERN OF THE MANAGING DIRECTOR OF THE APPELLANT COMPANY. THE APPELLANT INFORMED THAT THE BUSINESS OF THE SAID CONCERN WAS TAKEN OVER BY IT DURING THE YEAR UNDER CONSIDERATION IN A SLUMP SALE. THE APPELLANT ALSO INFORMED THAT IT HAD PAID AN AMOUNT OF RS.74,14,150/- TO M/S SASYA GENTECH PRIVATE LIMITED, A COMPANY IN WHICH THE MD OF THE APPELLANT COMPANY WAS A DIRECTOR AS WELL AS A SUBSTANTIAL SHARE HOLDER. THIS COMPANY WAS ALSO TAKEN OVER BY THE APPELLANT COMPANY IN A SLUMP SALE AGREEMENT. AS REGARDS BALANCE AMOUNT OF RS.19,60,780/- THE SAME WAS STATED. TO BE VALUE OF INTANGIBLE ASSETS AS RECORDED IN THE BOOKS OF M/S INDUS SEEDS, WHICH WAS TAKEN OVER BY THE APPELLANT COMPANY IN SLUMP SALE AGREEMENT. THE APPELLANT SUBMITTED THAT THE VALUE OF THE INTANGIBLE ASSETS BEING GOODWILL WAS THE DIFFERENCE BETWEEN HOOK VALUE OF THE ASSETS AND LIABILITIES TAKEN OVER AND THE SALE CONSIDERATION PAID TO BOTH THE CONCERNS. THE APPELLANT ALSO RELIED UPON THE DECISION IN THE CASE OF C/T VS M/S SMIFS SECURITIES LIMITED 348 ITR 302 (SC) AND SOME OTHER DECISIONS TO ARGUE THAT DEPRECIATION ON GOODWILL NEEDS TO BE ALLOWED TO IT. AFTER CONSIDERING THE REPLIES OF THE APPELLANT, THE AO HELD THAT THE APPELLANT HAD FAILED TO PROVIDE ANY BASIS FOR DETERMINING THE VALUE OF THE GOODWILL AS RS. 17,20,22,909/-. THE AO OBSERVED THAT NO SUCH VALUATION OF GOODWILL WAS PROVIDED BY THE APPELLANT AND THAT THE APPELLANT HAD NOT PROVIDED ANY MATERIAL OR JUSTIFICATION TO SUPPORT ITS CLAIM OF HAVING PAID HUGE AMOUNTS FOR GOODWILL TO CONCERNS. THE AO NOTED THAT M/S SASYA GENTECH HAD NEGATIVE NET WORTH OF RS. 34,14,150/- BUT IT WAS CLAIMED BY THE APPELLANT THAT THE EXCESS AMOUNT OF RS. 74,14,150/- PAID BY IT WAS ICY GOODWILL. SIMILARLY IN RELATION TO MIS INDUS SEEDS, ALTHOUGH ITS NET WORTH WAS ONLY RS.2,13,91,242/- BUT IT WAS CLAIMED BY THE APPELLANT THAT THE EXCESS AMOUNT OF RS. 16,46,08,759/- PAID BY IT TO THE SAID CONCERN WAS FOR GOODWILL. THE AO ALSO NOTED THAT THE VALUE OF INTANGIBLES RECORDED IN THE BOOKS OF M/S SASYA GENTECH AS ON 29.03.2015 WAS NIL AND THAT IN THE BOOKS OF M/S INDUS SEEDS AS ON 31.10.2014 WAS A MERE RS. ITA NO.3415/BANG/2018 PAGE 4 OF 6 19,60,780/-. NO VALUATION CERTIFICATE WAS PROVIDED BY THE APPELLANT TO SHOW HOW THE VALUE OF THE GOODWILL WAS DETERMINED. THE AO NOTED THAT MD OF THE APPELLANT COMPANY WAS PROPRIETOR OF MIS INDUS SEED AND ALSO HAD SUBSTANTIAL INTEREST IN M/S SASYA GENTECH. IN VIEW OF-ABOVE THE AO TREATED THE TRANSACTION RELATED TO GOODWILL AS SHAM AND COLORABLE DEVICE TO CLAIM HIGHER DEPRECIATION BY THE APPELLANT COMPANY. THE AO INVOKED THE PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT AND RESTRICTED THE VALUE OF INTANGIBLE AT RS.19,60,780/-, AS ALREADY RECORDED IN THE BOOKS OF INDUS SEEDS AS ON 31.10.2014 THE DATE IMMEDIATELY BEFORE THE SAID CONCERN WAS TAKEN OVER BY THE APPELLANT COMPANY. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LEARNED CIT(A) BUT WITHOUT SUCCESS AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IN THE COURSE OF HEARING, IT WAS SUBMITTED BY LEARNED AR OF THE ASSESSEE THAT THE ASSESSEES CLAIM IS NOTED BY LEARNED CIT(A) IN HIS ORDER IN PARA 5.4 AS PER WHICH THIS IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE HAS PAID LUMPSUM CONSIDERATION AND THE DIFFERENCE BETWEEN SUCH CONSIDERATION AND THE VALUE OF ASSETS AS DETERMINED BY THE VALUER WAS TREATED AS GOODWILL BUT THIS IS THE OBJECTION OF LEARNED CIT(A) THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM OF HAVING PAID ENTIRE DIFFERENCE AMOUNT FOR GOODWILL. HE SUBMITTED THAT IF THE EXCESS AMOUNT PAID IS NOT FOR GOODWILL, THEN FOR WHICH ASSET. HE SUBMITTED THAT ON PAGE 271 OF THE PAPER BOOK IS THE BALANCE SHEET OF M/S. INDUS SEEDS AS ON 31.10.2014 AS PER WHICH THE ASSETS TAKEN OVER IS RS.9,47,73,699/- AND THUS THE EXCESS AMOUNT PAID TO M/S. INDUS SEEDS IS RS.16,46,08,759/- WHEREAS EXCESS AMOUNT PAID TO M/S. SASYA GENTEC PVT. LTD. AND TREATED AS GOODWILL IS RS.74,14,150/- AND THEREFORE, THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE ASSESSEES CLAIM FOR DEPRECIATION ON GOODWILL. AT THIS JUNCTURE, THE BENCH POINTED OUT THAT AS PER BALANCE SHEET OF M/S. INDUS SEEDS AVAILABLE ON PAGE 271 OF THE PAPER BOOK, THE ASSETS TAKEN OVER BY THE ASSESSEE AS PER BUSINESS TRANSFER AGREEMENT (BTA) INCLUDES FIXED ASSETS OF RS.5,04,67,566/- AND THE DETAILS OF ITA NO.3415/BANG/2018 PAGE 5 OF 6 WHICH AS PER SCHEDULE 4 IS AVAILABLE ON PAGE 275 OF THE PAPER BOOK AND AS PER THOSE DETAILS, VARIOUS BUILDINGS ARE ALSO TAKEN OVER WITH A VALUE OF RS.1,75,09,457/-. THE BENCH WANTED TO KNOW REGARDING THE LAND PORTION AND THE LAND VALUE ON WHICH SUCH BUILDINGS WERE CONSTRUCTED WHICH HAVE BEEN TAKEN OVER BY THE ASSESSEE BY WAY OF SLUMP SALE. THE BENCH ALSO WANTED TO SEE THE BUSINESS TRANSFER AGREEMENT BUT NEITHER OF THEM COULD BE MADE AVAILABLE BY LEARNED AR OF THE ASSESSEE. AS AGAINST THIS, LEARNED DR OF THE REVENUE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT ON PAGE 4 OF HIS ORDER, A CATEGORICAL FINDING IS GIVEN BY LEARNED CIT(A) THAT THE ASSESSEE HAD FAILED TO PROVIDE ANY BASIS FOR DETERMINING THE VALUE OF GOODWILL AS RS.17,20,22,909/-. HE ALSO POINTED OUT THAT ON THE SAME PAGE, IT IS NOTED BY LEARNED CIT(A) THAT M/S. SASYA GENTEC PVT. LTD., HAD NEGATIVE NET WORTH OF RS.34,14,150/- BUT IT WAS CLAIMED BY THE ASSESSEE THAT THE EXCESS AMOUNT OF RS.74,14,150/- WAS PAID BY THE ASSESSEE FOR GOODWILL AND SIMILARLY IN RELATION TO M/S. INDUS SEEDS, THE NET WORTH WAS ONLY RS.213,91,242/- BUT IT WAS CLAIMED BY THE ASSESSEE THAT EXCESS AMOUNT OF RS.16,46,08,759/- WAS PAID BY THE ASSESSEE TO THE SAID CONCERN FOR GOODWILL. THIS IS ALSO NOTED BY LEARNED CIT(A) THAT THE AO HAS NOTED THAT THE VALUE OF INTANGIBLES RECORDED IN THE BOOKS OF M/S. SASYA GENTEC AS ON 29.03.2015 WAS NIL AND THAT IN THE BOOKS OF M/S. INDUS SEEDS AS ON 31.10.2014 WAS RS.19,60,780/- AND NO VALUATION CERTIFICATE WAS PROVIDED BY THE ASSESSEE TO SHOW HOW THE VALUE OF THE GOODWILL WAS DETERMINED AND THEREFORE, THE ORDER OF AUTHORITIES BELOW SHOULD BE CONFIRMED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT BEFORE US, NEITHER COPY OF BTA WAS PROVIDED NOR THE BASIS OF VALUATION OF GOODWILL WAS PROVIDED. IN SPITE OF SPECIFIC QUERY, THIS DETAIL WAS ALSO NOT PROVIDED AS TO HOW MUCH LAND VALUE WAS INCLUDED IN THE FIXED ASSETS OF INDUS SEEDS TAKEN OVER BY THE ASSESSEE BY WAY OF SLUMP SALE. THIS IS VERY COMMON THING THAT ITA NO.3415/BANG/2018 PAGE 6 OF 6 MARKET VALUE OF LAND IS ALWAYS MUCH HIGHER THAN THE BOOK VALUE OF THE LAND PARTICULARLY WHEN THE LAND IS ACQUIRED BY THE HOLDER LONG BACK. UNDER THESE FACTS, WHEN VARIOUS BUILDINGS ARE ACQUIRED BY THE ASSESSEE WHICH MAY BE ALONG WITH LAND ALSO, THE EXCESS AMOUNT PAID BY THE ASSESSEE OVER THE BOOK VALUE OF THE ASSETS MAY BE ON ACCOUNT OF EXCESS MARKET VALUE OF LAND AS COMPARED TO ITS BOOK VALUE ON WHICH NO DEPRECIATION IS ALLOWABLE AND THEREFORE, WITHOUT BRINGING ANY EVIDENCE ON RECORD THAT THE EXCESS AMOUNT PAID IS ON ACCOUNT OF GOODWILL, SUCH EXCESS PAYMENT WHICH MAY BE ON ACCOUNT OF EXCESS MARKET VALUE OF THE LAND OVER ITS BOOK VALUE, SUCH CLAIM OF THE ASSESSEE CANNOT BE ALLOWED AND IT CANNOT BE HELD THAT THE ENTIRE EXCESS AMOUNT PAID BY THE ASSESSEE OVER THE BOOK VALUE OF THE ASSETS TAKEN OVER IS ON ACCOUNT OF GOODWILL. HENCE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT(A). 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- ( PAVAN KUMAR GADALE ) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED: 29 TH MAY, 2020. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.