FRANKIN TEMPLETON ASSET MANAGEMENT (I) P. LTD, MUMBAI V. ASST CIT CEN CIR 34, MUMBAI

ITA 4068/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3724 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 20-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 16-05-2011
• Court: TRIBUNAL
• Assessee Lawyers: F V IRANI
• Keywords: Depreciation; Business expenditure; Wholly owned subsidiary; Fair market value; Scheme of amalgamation; Revenue expenditure
• Section: 143(3)

Judgement Text

, , F , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4068/MUM/2011 ASSESSMENT YEAR: 2005-06 FRANK L IN TEMPLETON ASSET MANAGEMENT (I) P. LTD. INDIABULLS FINANCE CENTRE, TOWER-2, 12 TH AND 13 TH FLOOR, SENAPATI BAPAT MARG, ELPHINSTONE (W), MUMBAI -400 013 / VS. A CIT 34, R.NO.104, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 (REVENUE ) (RESPONDENT ) P.A. NO. AAACT1609B ASSESSEE BY SHRI F.V. IRANI (AR) REVENUE BY SHRI G.M. DOSS ( CIT - DR) / DATE OF HEARING: 05/07/2016 / DATE OF ORDER: 03/08/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-4 1, MUMBAI, {(IN SHORT CIT(A)}, DATED 24.03.2011 PASS ED AGAINST ASSESSMENT ORDER U/S 143(3) R.W.S. 263 OF THE ACT, DATED 6.12.10 FOR THE A.Y.2005-06 ON THE FOLLOWING GROUND S: FRANKLIN TEMPLETON 2 THE UNDER MENTIONED GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER: 1. JURISDICTION 1.1. IN THE CASE OF THE APPELLANT, THE COMMISSIONER OF INCOME-TAX (APPEALS)-41, MUMBAI ('THE CIT (A)') ERR ED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE ORDER UNDER SECTION 143(3) READ WITH SECTION 263 OF THE INCOME-TAX ACT, 1961 ('THE ACT') ('THE IMPUGNED ORDER'), PASSED BY THE ASSESSING OFFICER ('THE AU') ON 6 DECEMBER 2010, WAS PASSED WITHOUT EXAMINING THE ISSUES IN DETAIL AND NOT MAKING A FRESH ASSESSMENT, ALTHOUGH THE AO WAS DIRECTED TO DO SO BY THE COMMISSIONER OF INCOME-TAX, CENTRAL III. MUMBAI ('T HE CIT'). 1.2. THE CIT(A) ERRED IN NOT APPRECIATING THAT AS T HE ORDER PASSED UNDER SECTION 143(3) OF THE ACT ('ORIGINAL ASSESSMENT ORDER') WAS PASSED AFTER DULY EXAMINING THE RELEVANT ISSUES, THE ORIGINAL ASSESSMENT ORDER WAS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE. THE APPELLANT, THEREFORE, PRAYS THAT THE IMPUGNED O RDER PASSED BY THE AU BE QUASHED AND THE ORIGINAL ASSESSMENT ORDER HE RE-INSTATED. WITHOUT PREJUDICE TO THE ABOVE, 2. LAUNCH EXPENSES 2.1. THE CIT(A) ERRED IN HOLDING THAT THE INITIAL I SSUE EXPENSES OF RS.13,52,00,000, BORNE BY THE APPELLANT , AN ASSET MANAGEMENT COMPANY ('AMC'), SHOULD BE AMORTIZED OVER A PERIOD OF FIVE YEARS. 2.2. THE CIT(A) ERRED IN HOLDING THAT AN AMENDMENT IN THE SEBI REGULATIONS WAS APPLICABLE TO THE ASSESSEE WHERE IT IS HELD THAT THE ASSET MANAGEMENT COMPANY HAS TO OBTAIN REIMBURSEMENT OF THE INITIAL ISSUE EXPENSES TO THE EXTENT OF 6% OF THE TOTAL FUN D RAISED AND BALANCE EXPENSES THOUGH BORNE BY THE ASS ET MANAGEMENT COMPANY SHOULD BE AMORTIZED OVER A PERIO D OF FIVE YEARS. 2.3. THE CIT(A) ERRED IN NOT APPRECIATING THAT THE PROVISIONS FOR AMORTISATION OF INITIAL ISSUE EXPENS ES UNDER THE SEBI REGULATIONS' ARE IN THE CONTEXT OF ACCOUNTING TREATMENT TO BE FOLLOWED BY MUTUAL FUNDS FRANKLIN TEMPLETON 3 AND THESE DO NOT GOVERN THE MANNER OF ACCOUNTING TREATMENT TO BE FOLLOWED BY AMC'S, SUCH AS THE APPE LLANT. 2.4. THE CIT(A) ERRED IN DISTINGUISHING AND NOT FOL LOWING THE ORDERS OF THE HON'BLE TRIBUNAL IN APPELLANT'S O WN CASE FOR EARLIER YEARS ON THIS ISSUE, IN WHICH INIT IAL ISSUE EXPENSES INCURRED BY THE APPELLANT HAVE BEEN CONSISTENTLY HELD TO BE FULLY ALLOWABLE REVENUE EXPENDITURE. THE APPELLANT, THEREFORE, PRAYS THAT THE AFORESAID INITIAL ISSUE EXPENSES INCURRED BY THE APPELLANT AR E REVENUE IN NATURE AND BE FULLY ALLOWED IN THE ASSES SMENT YEAR IN QUESTION. 3. PRIOR PERIOD EXPENSES 3.1. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E OF THE ALLEGED PRIOR PERIOD EXPENSES OF RS.23,32,000 IN TH E SUBJECT YEAR. 3.2. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE EXPENSES IN QUESTION CRYSTALLISED IN THE HANDS OF T HE APPELLANT ONLY IN THE SUBJECT YEAR AND THAT THESE EXPENSES SHOULD BE DEDUCTIBLE IN COMPUTING THE INCO ME OF THE SUBJECT YEAR. THE APPELLANT PRAYS THAT IN RESPECT OF THE EXPENSES IN QUESTION, DEDUCTION BE ALLOWED IN THE SUBJECT YEAR. 3.3. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERR ED IN NOT DIRECTING THE AO TO EXCLUDE THE REVERSAL OF THE SAID EXPENSES FROM THE INCOME OF AY 2009-10, PREVIOUSLY INCLUDED IN THE INCOME OF THAT YEAR. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO NOT TREAT THE EXPENSES IN QUESTION AS INCOME IN THE YEAR IN W HICH THESE ARE REVERSED. 4. ALLOWABILITY OF EXPENSES OF THE AMALGAMATING ENTITY 4.1. THE CIT(A) ERRED IN NOT ALLOWING THE ADMINISTR ATIVE AND OTHER EXPENSES OF RS.2,95,194 AND TAX DEPRECIATION ALLOWANCE OF RS.73,17,204 OF FRANKLIN TEMPLETON AMC LIMITED ('FTAMC'), THE AMALGAMATING ENTITY, IN COMPUTING THE TOTAL INCOME OF FTAMIL, THE AMALGAMATED COMPANY, WITH WHICH FTAMC HAD MERGED EFFECTIVE 26 JULY 2002. 4.2. WITHOUT PREJUDICE, HAVING HIMSELF HELD THAT TH E BUSINESS OF THE APPELLANT HAD NOT CEASED TO EXIST D URING THE YEAR, THE CIT(A) ERRED IN NOT DIRECTING DEDUCTI ON OF FRANKLIN TEMPLETON 4 EXPENSES AND DEPRECIATION ALLOWANCE OF FTAMC IN COMPUTING THE INCOME OF THE MERGED ENTITY I.E. FTAM IL. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLO W DEDUCTION FOR THE AFORESAID EXPENSES AND TAX DEPREC IATION ALLOWANCE IN COMPUTING THE TOTAL INCOME OF THE APPE LLANT FOR THE SUBJECT YEAR. 5. LEVY OF INTEREST UNDER SECTION 220(2) OF THE ACT 5.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE LEVY OF INT EREST OF RS.84,27,813 UNDER SECTION 220(2) OF THE ACT, FOR T HE PERIOD FROM JANUARY 2008 TO DECEMBER 2010. 5.2. THE CIT(A) ERRED IN NOT APPRECIATING THAT THE DEMAND IN QUESTION ENTIRELY AROSE ON ACCOUNT OF THE IMPUGN ED ORDER, RECEIVED BY THE APPELLANT ON 21 DECEMBER 201 0 AND THAT PRIOR TO THE SAME (CONSIDERING THE RELIEF' S OBTAINED IN APPEAL), THERE WAS NO DEFAULT OF PAYMEN T OF TAX ON PART OF THE APPELLANT. 5.3. THE CIT(A) ERRED IN NOT APPRECIATING THAT LIAB ILITY TO INTEREST UNDER SECTION 220(2) OF THE ACT IN RESPECT OF THE SAID DEMAND WOULD TRIGGER ONLY AFTER THE EXPIRY OF 30 DAYS OF THE RECEIPT OF THE IMPUGNED ORDER, THAT IS, FROM 19 JANUARY 2011. THE APPELLANT PRAYS THAT THE AO BE DIRECTED NOT TO LEVY OF INTEREST UNDER SECTION 220(2) OF THE ACT, IN RESPEC T OF THE PERIOD PRIOR TO 19 JANUARY 2011. 6. LEVY OF INTEREST UNDER SECTION 234D OF THE ACT 6.1. THE CIT(A) ERRED IN NOT ADJUDICATING ON THE GR OUND RELATING TO THE LEVY OF INTEREST OF RS. 85,38,2 13 UNDER SECTION 234D OF THE ACT. 6.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN NOT APPRECIATIN G THAT THE LEVY OF INTEREST UNDER SECTION 234D OF THE ACT CANNOT BE INCREASED, AS A CONSEQUENCE OF EFFECT GIVEN TO THE ORDER UNDER SECTION 263 OF THE ACT. 6.3. THE CIT(A) HAS ERRED IN LAW IN NOT APPRECIATIN G THAT SECTION 234D(2) OF THE ACT CLEARLY MANDATES TH AT LEVY OF INTEREST UNDER SECTION 234D( 1) OF THE ACT BE REDUCED UPON GIVING EFFECT TO, INTER ALIA, AN ORDER UNDER SECTION 263 OF THE ACT. 6.4. FURTHER, THE CIT(A) ERRED IN NOT APPRECIATING THAT AN FRANKLIN TEMPLETON 5 ASSESSMENT MADE TO GIVE EFFECT TO THE ORDER UNDER S ECTION 263 OF THE ACT IS NOT A 'REGULAR ASSESSMENT'. 6.5. THE CIT(A) ERRED IN NOT DIRECTING THE AO TO RE STRICT LEVY OF THE SAID INTEREST TO RS.7,00,516 AS WAS DETERMINED AT THE TIME OF GIVING EFFECT TO THE ORDE R OF THE CIT(A) DATED 23 JUNE 2008 PASSED UNDER SECTION 250 OF THE ACT. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO REST RICT THE LEVY OF INTEREST UNDER SECTION 234D OF THE ACT TO RS.7,00,516, AS AGAINST RS. 85,38,2 13 DETERMINED B Y HIM. 7. CONSEQUENTIAL RELIEF THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO GRAN T ALL CONSEQUENTIAL RELIEFS. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI F.V. IRANI, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI G.M. DOSS, DEPARTMENTAL REPRES ENTATIVE (CIT-DR) ON BEHALF OF THE REVENUE. THE ARGUMENTS MA DE BY BOTH THE SIDES HAVE BEEN DULY CONSIDERED WHILE DISP OSING OF THIS APPEAL. 3. GROUND NO.1 RELATES TO JURISDICTIONAL VALIDITY OF THE IMPUGNED ORDERS. DURING THE COURSE OF HEARING, LD. COUNSEL OF THE ASSESSEE STATED THAT THIS GROUND IS NOT PRESSED . THEREFORE, IT IS DISMISSED AS NOT PRESSED. 4. GROUND NO.2: THIS GROUND DEALS WITH DISALLOWANCE OF LAUNCH (INITIAL ISSUE) EXPENSES OF RS.13.52 CRORES. THE AO DISALLOWED THE EXPENSES INCURRED BY THE ASSESSEE CO MPANY FOR LAUNCH/ INITIAL ISSUE OF FRANKLIN INDIA FLEXICAP F UND AND ONE OTHER SCHEME SINCE THESE GAVE BENEFITS OF ENDURING NATURE TO THE ASSESSEE COMPANY AND THUS, THESE EXPENSES WERE CAPITAL FRANKLIN TEMPLETON 6 IN NATURE AND THEREFORE, NOT ALLOWABLE AS EXPENDITU RE OF THE YEAR UNDER CONSIDERATION. 4.1. THE BRIEF BACKGROUND OF THIS CASE IS THAT IN THE O RIGINAL ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) DATED 31 ST DECEMBER 2007, NO DISALLOWANCE WAS MADE UNDER THIS HEAD. SUBSEQUENTLY, THE CIT PASSED AN ORDER U/S 263 DT 31 .03.2010 WHEREIN HE DIRECTED THE AO TO MAKE PROPER VERIFICAT ION OF THE LAUNCH EXPENSES. THUS, IN PURSUANCE TO THE ORDER PA SSED U/S 263, THE AO PASSED AN ORDER U/S 143(3) R.W. SECTION 263 DATED 06.12.2010 WHEREIN HE DISALLOWED THE EXPENSES ON TH E GROUND AS STATED ABOVE. IT WAS HELD BY THE AO THAT ASSESSE E SHOULD HAVE AMORTISED THE INITIAL EXPENSES OVER A PERIOD O F FIVE YEAR BY REFERRING TO CERTAIN PROVISIONS OF SEBI REGULATI ONS. 4.2. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHEREIN THE DISALLOWANCE WAS UPHELD ON THE G ROUND THAT IN VIEW OF SEBI REGULATIONS INITIAL ISSUE EXPE NSES TO THE EXTENT OF 6% OF THE TOTAL FUND RAISED WERE REIMBURS ABLE. IT WAS FURTHER HELD BY THE LD. CIT(A) THAT THESE WERE NOT ALLOWABLE AS REVENUE EXPENSES BEING CAPITAL IN NATURE. 4.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. 4.4. DURING THE COURSE OF HEARING BEFORE US, IT WAS STA TED AT THE OUTSET BY THE LD. COUNSEL THAT THE ORDER PASSED U/S 263 WAS CONTESTED BY THE ASSESSEE BEFORE THE TRIBUNAL W HEREIN THE SAME WAS QUASHED BY THE TRIBUNAL VIDE ITS ORDER DAT ED 27.01.2012 IN ITA NO.3858/M/2010. IN VIEW OF THE SA ME, IT WAS SUBMITTED THAT SINCE THE ORDER PASSED U/S 263, ITSELF HAS BEEN QUASHED THEREFORE, THE IMPUGNED DISALLOWANCE B ECOMES FRANKLIN TEMPLETON 7 ILLEGAL AND BEYOND JURISDICTION PER SE AND THEREFOR E SAME SHOULD BE DELETED BY WAY OF NATURE OF LEGAL CONSEQU ENCE. PER CONTRA, LD. DR DID NOT DISPUTE THE FACTUAL SITUATIO N NARRATED BY THE LD. COUNSEL. 4.5. WE HAVE GONE THROUGH THE FACTS OF THIS CASE AS WEL L AS AFORESAID ORDER PASSED BY THE TRIBUNAL WHEREIN REVI SION ORDER U/S 263 WAS CONTESTED BY THE ASSESSEE. IT IS NOTED BY US THAT LD. COUNSEL HAS RIGHTLY SUBMITTED OF THE FACTS THAT ORDER PASSED U/S 263 HAS BEEN QUASHED BY THE TRIBUNAL. WE FIND IT APPROPRIATE TO REPRODUCE THE RELEVANT PORTION OF TH E ORDER OF THE TRIBUNAL DATED 27.01.2012 (ITA NO.3858/MUM/2010 ) AS UNDER: 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE A RE OF THE VIEW THAT IN THE ABSENCE OF ANY SPECIFIC REFERE NCE TO A PARTICULAR REGULATION OF SEBI WHICH LAYS DOWN THAT INITIAL EXPENSES HAVE TO BE AMORTIZED OVER A PERIOD OF TIME , WE CANNOT SAY WITH CERTAINTY AS TO HOW THE ORDER OF TH E AO IN ALLOWING THE DEDUCTION OF RS.13.52 CRORES WAS ERRON EOUS. WE WILL PROCEED TO EXAMINE THE CONTENTION OF THE PA RTIES ON THE BASIS OF THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N (SUPRA). THE QUESTION BEFORE THE HONBLE COURT WAS AS TO WHETHER DISCOUNT ON ISSUE OF DEBENTURES WAS CAPITAL OR REVENUE EXPENDITURE AND AS TO WHETHER SUCH DISCOUNT CAN BE CLAIMED IN ONE YEAR IN A LUMP SUM OR HAS TO BE S PREAD OVER FOR THE PERIOD OF THE DEBENTURES. THE HONBLE SUPREME COURT THAT THE EXPENDITURE IN QUESTION WAS REVENUE EXPENDITURE. ON THE QUESTION OF CLAIMING THE SAME I N ONE YEAR, THE HONBLE COURT HELD AS FOLLOWS: THE TRIBUNAL, HOWEVER, HELD THAT SINCE THE ENTIRE LIABILITY TO PAY THE DISCOUNT HAD BEEN INCURRED IN THE ACCOUN TING YEAR IN QUESTION, THE ASSESSEE WAS ENTITLED TO DEDU CT THE ENTIRE AMOUNT OF RS. 3,00,000 IN THAT ACCOUNTING YE AR. THIS CONCLUSION DOES NOT APPEAR TO BE JUSTIFIED LOOKING TO THE NATURE OF THE LIABILITY. IT IS TRUE THAT THE LIABIL ITY HAS BEEN INCURRED IN THE ACCOUNTING YEAR. BUT THE LIABILITY IS A FRANKLIN TEMPLETON 8 CONTINUING LIABILITY WHICH STRETCHES OVER A PERIOD OF 12 YEARS. IT IS, THEREFORE, A LIABILITY SPREAD OVER A PERIOD OF 12 YEARS. ORDINARILY, REVENUE EXPENDITURE WHICH IS INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OVER A PER IOD OF YEARS. HOWEVER, THE FACTS MAY JUSTIFY AN ASSESSEE W HO HAS INCURRED EXPENDITURE IN A PARTICULAR YEAR TO SP READ AND CLAIM IT OVER A PERIOD OF ENSUING YEARS. IN FAC T, ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR MIGHT G IVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICUL AR YEAR. THUS IN THE CASE OF HINDUSTAN ALUMINIUM CORPORATION LTD. V. CIT [1983] 144 ITR 474, THE CALCUTTA HIGH COURT UPHELD THE CLAIM OF THE ASSESSEE TO SPREAD OUT A LUMP SUM PAYMENT TO SECURE TECHNICAL ASSISTANCE AND TRAINING OVER A NUMBER OF YEARS AND ALLOWED A PROPORTIONATE DEDUCTI ON IN THE ACCOUNTING YEAR IN QUESTION. ISSUING DEBENTURES AT A DISCOUNT IS ANOTHER SUCH INSTANCE WHERE, ALTHOUGH T HE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISC OUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUI NG BENEFIT TO THE BUSINESS OF THE COMPANY OVER THE ENT IRE PERIOD. THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PERIOD OF THE DEBENTURES. (UNDERLINING BY US FOR E MPHASIS) 25. AS TO WHETHER THE RATIO LAID DOWN IN THE AFORES AID DECISION IS TO THE EFFECT THAT IN ALL CASES REVENUE EXPENSES HAVE TO BE SPREAD OVER FOR THE PERIOD FOR WHICH THE BENEFITS OF SUCH EXPENDITURE ARE LIKELY TO BE DERIVED OR THE SAID DECISION HAS TO BE CONFINED TO THE FACTS OF THE CAS E BEFORE THE HONBLE SUPREME COURT IS AGAIN DEBATABLE. AS TO WHETHER THE SAID DECISION WILL BE RELEVANT IN THE C ONTEXT OF AN AMC WHICH MANAGE FUNDS ON BEHALF OF MUTUAL FUND COMPANIES AND DERIVES INCOME FROM MANAGING A FUND I N THE FORM OF FEE FOR MANAGING THE FUND, IS AGAIN DEB ATABLE. ON SUCH DEBATABLE ISSUES WHERE TWO VIEWS ARE POSSIB LE JURISDICTION U/S.263 IS NOT TO BE EXERCISED. WE ACC ORDINGLY HOLD THAT EXERCISE OF JURISDICTION U/S.263 COULD NO T HAVE BEEN MADE. IN THE RESULT THE ORDER U/S. 263 OF THE ACT, IN SO FAR AS IT RELATES TO THE INITIAL ISSUE EXPENSES, ARE HEREBY QUASHED. FRANKLIN TEMPLETON 9 4.6. IT IS THUS NOTED FROM THE ABOVE THAT THE IMPUGNED ORDER PASSED U/S 263 HAS BEEN QUASHED BY THE TRIBUNAL AND THEREFORE, THERE ARE NO BASIS TO CONTINUE WITH THE IMPUGNED DISALLOWANCE MADE BY THE AO ON ACCOUNT OF LAUNCH/IN ITIAL ISSUE EXPENSES IN CONSEQUENT TO THE ORDER PASSED BY THE CIT U/S 263. THEREFORE, UNDER THESE CIRCUMSTANCES THE I MPUGNED DISALLOWANCE BEING DEVOID OF FORCE OF LAW IS DIRECT ED TO BE DELETED. THUS, GROUND NO.2 IS ALLOWED. 5. GROUND NO.3: THIS GROUND RELATES TO PRIOR PERIOD EXPENSES, THIS GROUND WAS NOT PRESSED BY THE LD. COUNSEL DURI NG THE COURSE OF HEARING AND THEREFORE, IT IS DISMISSED AS NOT PRESSED. 6. GROUND NO.4: THIS GROUND DEALS WITH THE ACTION OF LOWER AUTHORITIES IN NOT ALLOWING THE ADMINISTRATIVE AND OTHER EXPENSES OF RS.2,95,194/- AND DEPRECIATION ALLOWANC E OF RS.73,17,204/- PERTAINING TO A ERSTWHILE COMPANY NA MELY FRANKLIN TEMPLETON AMC LIMITED (IN SHORT FTAMC) W HICH STOOD MERGED/AMALGAMATED WITH THE ASSESSEE COMPANY (I.E. AMALGAMATED COMPANY), WHILE COMPUTING THE INCOME OF THE ASSESSEE COMPANY. 6.1. THE BRIEF BACKGROUND OF THE ISSUE IS THAT ANOTHER COMPANY NAMELY FRANKLIN TEMPLETON AMC LIMITED HAD AMALGAMATED WITH THE ASSESSEE COMPANY BY THE ORDER OF THE HIGH COURT. THE SCHEME OF AMALGAMATION/MERGER WAS APPROVED BY THE HONBLE BOMBAY HIGH COURT ON 07.10. 2005 AND BY HONBLE MADRAS HIGH COURT ON 07.02.2006. 6.2 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF ER STWHILE COMPANY, THE ORIGINAL ASSESSMENT ORDER WAS PASSED U /S 143(3) DT 24.12.2007. IN THE SAID ASSESSMENT ORDER, THE AO OF FRANKLIN TEMPLETON 10 THE ERSTWHILE COMPANY DISALLOWED THE AFORESAID EXPE NSES ON THE GROUND THAT THE SAID ASSESSEE COMPANY HAD NOT C ARRIED OUT ANY REGULAR BUSINESS OTHER THAN THE SALE/REDEMP TION OF MUTUAL FUND FROM WHICH IT HAD EARNED RS.72,97,297/- AS PROFIT AND OFFERED TO TAX UNDER THE HEAD INCOME FR OM BUSINESS. THE AO OF THE SAID COMPANY FINALLY DETER MINED THE INCOME OF THE ERSTWHILE COMPANY UNDER THE HEAD INC OME FROM CAPITAL GAINS AND INCOME FROM OTHER SOURCES AT T OTAL INCOME OF RS.81,37,246/-, AND DID NOT ALLOW THE BENEFIT OF ANY BUSINESS EXPENSES. 6.3. BEING AGGRIEVED, THE ERSTWHILE COMPANY (IN SHORT R EFERRED TO AS FTAMC) FILED AN APPEAL BEFORE THE CONCERNED C IT(A). IN THE APPEAL, THE SAID COMPANY MADE EXHAUSTIVE SUBMIS SIONS TO SHOW THAT BUSINESS OF THE SAID COMPANY WAS STILL IN EXISTENCE AND AO OF FTAMC HAD WRONGLY HELD ON FACTS THAT NO B USINESS ACTIVITY WAS CARRIED OUT DURING THE YEAR UNDER CONS IDERATION. THE CIT(A) OF FTAMC PASSED AN APPEAL ORDER IN THE H ANDS OF ERSTWHILE COMPANY ON 18.08.2010 WHEREIN IT WAS HELD BY HIM THAT IT CANNOT BE HELD THAT THERE WAS NO BUSINESS N OR IT CAN BE SAID THAT BUSINESS ACTIVITY HAD CEASED DURING THE Y EAR UNDER CONSIDERATION. THE RELEVANT PARA CONTAINING THE OBS ERVATIONS OF AFORESAID CIT(A) IS PERTINENT TO BE NOTED AND TH EREFORE REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENC E: I HAVE CONSIDERED THE ASSESSMENT ORDER OF THE ASS ESSING OFFICER, SUBMISSION OF THE APPELLANT AND CIRCUMSTAN CES AND FACTS OF THE CASE THAT AS PER SCHEME OF AMALGAM ATION BETWEEN FTAMC AND FTAMIL, ALL THE PROPERTIES, ASSET S, LIABILITIES, RIGHTS ETC. WERE TRANSFERRED FROM FTAM C TO FTAMIL FROM THE APPOINTED DATE, WHICH IS 26 JULY 20 02. HOWEVER, AS THE DISSOLUTION OF FTAMC, IN THE SCHEME OF AMALGAMATION, WAS FINALLY APPROVED BY THE MADRAS HI GH FRANKLIN TEMPLETON 11 COURT IN MARCH 2008. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAD HELD THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS SOLD 54798 U NITS AND PURCHASES 4,00,086 UNITS OF TEMPLETON ASSET IND IA MANAGEMENT (I) P. LTD. WHICH MEANS THE SALE AND PURCHASE OF THE UNITS WAS WITHIN THE COMPANYS GROU P. SINCE SALE AND PURCHASE OF UNITS WAS THERE DURING THE YEAR UNDER CONSIDERATION, THEREFORE, IT CANNOT BE HELD THAT THERE WAS NOT BUSINESS OR THE BUSINESS ACTIVITY WAS CEASED DURING THE YEAR UNDER CONSIDERATION. TO THIS EXTENT THE GROUND OF APPEAL IS ALLOWED. HOWEVER, WHETHER THESE TRANSACTIONS WERE TREATED AS STOCK IN TRADE OR INVESTMENT IN PURCHASE AND SALE OF UNITS IS SEPARATELY DISCUSSED IN GROUND NO. 3. THEREFORE, SECOND GROUND THAT BUSINESS WAS CARRIED OUT DURING THE YEAR CONSIDERATION IS ALLOWED FOR STATIS TICAL PURPOSES. 6.4. IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE AFORESA ID ORDER ATTAINED FINALITY AS NO APPEAL HAS BEEN REPORTEDLY FILED BY EITHER PARTY AGAINST THE SAID ORDER BEFORE THE TRIB UNAL. THIS FACT WAS CONFIRMED BY LD. COUNSEL BY MAKING STATEME NT AT BAR ON THE INSTRUCTIONS OF THE ASSESSEE. SUBSEQUENTLY, THE AO OF THE ASSESSEE COMPANY, WHILE GIVING EFFECT TO THE AF ORESAID ORDER OF THE AFORESAID CIT(A) (OF FTAMC), IN THE IM PUGNED ASSESSMENT ORDER DATED 06.12.2010 PASSED IN PURSUAN CE TO ORDER U/S 263, DISALLOWED THE AFORESAID EXPENSES WH ILE COMPUTING TOTAL INCOME OF THE ASSESSEE COMPANY AFTE R INCLUDING TAXABLE INCOME OF THE ERSTWHILE COMPANY ( FTAMC) WHICH HAD SINCE BEEN AMALGAMATED/MERGED INTO THE AS SESSEE COMPANY. 6.5. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) WHEREIN IMPUGNED ORDER HAS BEEN PASSED B Y THE LD. CIT(A) WHICH HAS BEEN APPEALED BEFORE US,. IN THE I MPUGNED ORDER, LD. CIT (A) CONSIDERED THE APPEAL ORDER PASS ED EARLIER FRANKLIN TEMPLETON 12 BY THE CIT(A) OF ERSTWHILE COMPANY (FTAMC) AND READ THE SAME IN THE MANNER AS IF DISALLOWANCE HAS BEEN CONF IRMED BY THE CIT(A) (OF FTAMC) IN THE ORDER DATED 18.08.2010 PASSED IN THE CASE OF ERSTWHILE COMPANY. 6.6. BEFORE US, LD. COUNSEL VEHEMENTLY SUBMITTED THAT T HE FACTS HAVE BEEN TOTALLY MISUNDERSTOOD BY THE IMPUGN ED ORDER BY LD CIT(A). IN FACT, IT WAS HELD IN THE CASE OF E RSTWHILE COMPANY BY THE THEN CIT(A) THAT THE SAID COMPANY WA S ACTUALLY CARRYING ON BUSINESS ACTIVITIES. OUR ATTEN TION WAS ALSO DRAWN UPON THE SUBSEQUENT ORDERS PASSED BY THE AO W HEREIN DEPRECIATION HAS BEEN ALLOWED IN A.Y. 2007-08 AS WE LL AS IN SUBSEQUENT YEARS. 6.7. PER CONTRA, LD. DR RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES. 6.8. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES IN THE CASE OF THE ASSESSEE COMPANY AS WELL AS IN THE CASE OF ERSTWHILE COMPANY (FTAMC), WHICH HAS BE EN AMALGAMATED INTO THE ASSESSEE COMPANY. IT IS NOTED BY US THAT THE CIT(A) OF ERSTWHILE COMPANY (FTAMC) HAD CLEARLY HELD THAT THE SAID COMPANY WAS VERY MUCH ENGAGED IN ITS BUSIN ESS ACTIVITIES AND THUS IT COULD NOT BE SAID THAT BUSIN ESS OF THE SAID COMPANY HAD CEASED TO EXIST. THESE FINDINGS OF THE THEN CIT(A) HAVE BEEN MISUNDERSTOOD BY THE PRESENT CIT(A ) WHO HAS PASSED THE IMPUGNED ORDER IN THE HANDS OF ASSES SEE COMPANY. IT IS FURTHER NOTED BY US THAT SCHEME OF T HE AMALGAMATION/MERGER CLEARLY STATES THAT THE ASSESSE E COMPANY HAS TAKEN OVER RUNNING BUSINESS OF THE ERST WHILE COMPANY (FTAMC). THERE IS NO DISPUTE THAT THE ASSES SEE FRANKLIN TEMPLETON 13 COMPANY IS ENGAGED IN THE BUSINESS ACTIVITIES IN A FULL-FLEDGED MANNER. THIS FACT IS CONFIRMED IN THE IMPUGNED ASSE SSMENT ORDER PASSED IN THE HANDS OF THE ASSESSEE COMPANY W HEREIN INCOME OF THE ASSESSEE COMPANY HAS BEEN ASSESSED UN DER THE HEAD INCOME FROM BUSINESS. IT IS FURTHER NOTED TH AT IN THE HANDS OF ERSTWHILE COMPANY ITSELF, THE AO OF THE SA ID COMPANY IN SUBSEQUENT YEAR I.E. A.Y. 2007-08 ASSESSED ITS I NCOME UNDER THE HEAD INCOME FROM BUSINESS AND ALSO ALLO WED THE BENEFIT OF DEPRECIATION. THUS, NO CONTRADICTORY ACT ION COULD HAVE BEEN TAKEN IN THE HANDS OF THE ASSESSEE COMPAN Y WHILE COMPUTING TAXABLE INCOME OF THE ERSTWHILE COMPANY T O BE INCLUDED IN THE TAXABLE INCOME OF THE ASSESSEE COMP ANY, IN CONSEQUENCE TO THE AMALGAMATION/MERGER OF FTAMC INT O THE ASSESSEE COMPANY. WE FIND THAT, ENTIRE FACTS AND CIRCUMSTANCES OF THIS CASE SUGGEST THAT LOWER AUTHO RITIES HAVE THEMSELVES ACKNOWLEDGED FACTUM OF CONTINUATION OF B USINESS. UNDER THESE CIRCUMSTANCES, THERE WAS NO RATIONAL TO DISALLOW ROUTINE ADMINISTRATIVE EXPENSES UNDER THE ERRONEOUS PRESUMPTION OF NON-CONTINUATION OF BUSINESS ACTIVIT IES. THUS, WE FIND THE DISALLOWANCE OF EXPENSES AND DEPRECIATI ON TO BE INCORRECT ON FACTS AS WELL AS ON LAW. THEREFORE, SA ME IS DIRECTED TO BE DELETED. AS A RESULT GROUND NO.4 IS TREATED TO BE ALLOWED. 7. GROUND NOS. 5, 6 & 7 ARE CONSEQUENTIAL AND THEREFO RE THESE ARE DISMISSED. ADDITIONAL GROUND: FRANKLIN TEMPLETON 14 8. DURING THE COURSE OF HEARING, LD. COUNSEL DREW OUR ATTENTION UPON THE ADDITIONAL GROUND VIDE HIS PETIT ION DATED 19 TH DECEMBER 2012. IN THE SAID ADDITIONAL GROUND, THE ASSESSEE HAS CLAIMED THAT IT SHOULD BE GRANTED DEPR ECIATION ALLOWANCE U/S 32(1)(II) OF THE ACT, ON THE AMOUNT O F GOODWILL ACQUIRED BY THE ASSESSEE ON ACQUISITION AND MERGER OF FTAMC ( I.E. ERSTWHILE COMPANY) WITH THE ASSESSEE COMPANY . OUR ATTENTION HAS BEEN DRAWN ON SCHEDULE XIV I.E. NOTES TO THE FINANCIAL STATEMENTS, APPENDED WITH THE BALANCE SHE ET OF THE ASSESSEE COMPANY AS ON 31.03.2005, WHEREIN, INTER A LIA, FOLLOWING NOTE HAS BEEN GIVEN: THE COMPANY HAS MADE AN INVESTMENT OF RS.267,63,35,393 IN FRANKLIN TEMPLETON AMC LIMITED A WHOLLY OWNED SUBSIDIARY. THE BOOK VALUE OF FRANKLIN TEMPLETON AMC LIMITED AS AT JULY 26, 2002 AMOUNT TO RS.22,36,67,034/-. THE DIFFERENCE BETWEEN THE COST OF INVESTMENT AND BOOK VALUE AMOUNTING TO RS.245,26,68,359 REPRESENTS THE VALUE ATTRIBUTABLE TO THE MANAGEMENT CONTRACTS AND OTHER INTANGIBLE ASSETS. 8.1. IT WAS FURTHER SUBMITTED THAT AS ON 31 ST MARCH 2008, THE AMOUNT DEBITED UNDER THE HEAD MANAGEMENT CONTRACTS AND OTHER INTANGIBLE ASSETS WAS REVERSED AND WAS TRANSF ERRED TO GOODWILL ACCOUNT AND THUS GOODWILL SHOWED DEBIT BAL ANCE TO THE TUNE OF RS.24,76,03,223/-. OUR ATTENTION HAS BE EN DRAWN UPON NOTE-2(E) OF SCHEDULE XIV (NOTES TO THE ACCOUN TS APPENDED WITH THE BALANCE SHEET AS ON 31.03.2008 WH EREIN FOLLOWING PARTICULARS HAVE BEEN GIVEN WITH REGARD T O GOODWILL ACQUIRED AS A RESULT OF AMALGAMATION WITH THE ERSTW HILE COMPANY I.E. THE DIFFERENCE BETWEEN THE COST OF INV ESTMENT IN FTAMCL OF THE COMPANY AND THE NET BOOK VALUE OF ALL ASSETS FRANKLIN TEMPLETON 15 AND LIABILITIES OF FTAMCL AS AT JULY 26, 2002 TRANS FERRED TO THE COMPANY HAVE BEEN ADJUSTED AGAINST THE BALANCE IN PROFIT AND LOSS ACCOUNT AND SHARE PREMIUM ACCOUNT OF FTAMC L AS AT THIS DATE IN ACCORDANCE WITH THE RESOLUTION PASS ED BY THE BOARD OF DIRECTORS OF THE COMPANY AT THE MEETING ON AUGUST 12, 2006. THE BALANCE HAS BEEN DISCLOSED AS GOODWIL L ON AMALGAMATION IN THE BOOKS OF ACCOUNT OF THE COMPANY . PART ICULARS AMOUNT IN RUPEES COST OF INVESTMENT(A) 2 67 ,6 3 , 35,393 GROSS VALUE OF ASSETS (AS AT JULY 26, 2002) 30 ,6 6 , 28,484 GROS S VALUE OF LIABILITIES (AS AT JULY 26, 2002) 10 ,6 3 , 25,322 NET: ASSETS TAKEN OVER (B) 20 ,0 3 , 03,162 GOODWILL (A - B) 2 47 ,6 0 , 32,231 8.2. IT WAS FURTHER SUBMITTED THAT IN THE SUBSEQUENT YE ARS DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE ON TH E WRITTEN DOWN VALUE OF THE GOODWILL BROUGHT FORWARD FROM THE EARLIER YEARS. THE AMOUNT OF WDV WAS COMPUTED IN SUCH A MAN NER AS IF DEPRECIATION HAS BEEN CLAIMED AND GRANTED BY THE ASSESSEE SINCE BEGINNING AND ACCORDINGLY AMOUNT OF DEPRECIATION WAS REDUCED EVERY YEAR ON NOTIONAL BAS IS AND WHATEVER AMOUNT OF WDV WAS LEFT IN THE RELEVANT YEA R, THE DEPRECIATION WAS CLAIMED UPON THE SAME. IT WAS SUBM ITTED THAT DEPRECIATION HAS BEEN GRANTED BY THE AO IN ALL THE SUBSEQUENT YEARS AND THEREFORE, THERE WERE NO BASIS TO DENY THE BENEFIT OF DEPRECIATION IN THE YEAR UNDER CONSI DERATION. 8.3. PER CONTRA, LD. CIT-DR FAIRLY SUBMITTED THAT THOUG H THIS ADDITIONAL GROUND IS A PURELY LEGAL GROUND AND THER EFORE, IT FRANKLIN TEMPLETON 16 COULD BE ADMITTED. BUT, THE ASSESSEE HIMSELF DID NO TREAT THIS AMOUNT IN THE INITIAL YEAR AS GOODWILL BUT DESCRIBE D THE SAME AS MANAGEMENT CONTRACTS ON WHICH DEPRECIATION IS NO T ALLOWABLE. 8.4. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND LEG AL POSITION IN THIS REGARD. IT IS NOTED THAT LD. CIT- DR WAS NOT ABLE TO NEGATE THE FACTUAL SUBMISSION OF THE LD. CO UNSEL WHEREIN IT WAS STATED THAT THE AO HAS GRANTED THE B ENEFIT OF DEPRECIATION ON REDUCED WDV OF GOODWILL IN SUBSEQUE NT YEARS, THEREBY ACCEPTING THE CLAIM OF THE ASSESSEE IN PRIN CIPLE, AS PER LAW. IT IS FURTHER NOTED THAT THE JUDGMENT OF HONB LE SUPREME COURT IN THE CASE OF CIT VS SMIFS SECURITIES LTD 348 ITR 302 (SC) CLEARLY LAID DOWN THE PRINCIPLE THAT DEPRECIATION IS ADMISSIBLE ON THE AMOUNT OF GOODWILL. IT IS ALSO WE LL SETTLED THAT THE AMOUNT OF DIFFERENCE BETWEEN THE AMOUNT OF NET VALUE THE ASSETS TAKEN OVER AND AMOUNT OF CONSIDERATION P AID ON THE AMALGAMATION/ACQUISITION/MERGER OF A COMPANY BY ANO THER COMPANY REPRESENTS THE AMOUNT OF GOODWILL. THE LAW IN THIS REGARD IS WELL SETTLED NOW. OUR VIEW FINDS SUPPORT FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF TRIUNE ENERGY SERVICES PRIVATE LIMITED VS DCIT 65 TAXMANN. COM 288 (DELHI), WHEREIN IDENTICAL ISSUE WAS INVOLVED, IN SIMILAR FACTS AND CIRCUMSTANCES. HONBLE DELHI HIGH COURT R ELIED UPON THE JUDGMENT OF APEX COURT IN THE CASE OF SMIFS SEC URITIES LTD., SUPRA AND HELD AS UNDER: GOODWILL IS AN INTANGIBLE ASSET PROVIDING A COMPET ITIVE ADVANTAGE TO AN ENTITY. THIS INCLUDES A STRONG BRAN D, REPUTATION, A COHESIVE HUMAN RESOURCE, DEALER NETWO RK, CUSTOMER BASE, ETC. THE EXPRESSION GOODWILL SUBSUME S WITHIN IT A VARIETY OF INTANGIBLE BENEFITS THAT ARE ACQUIRED FRANKLIN TEMPLETON 17 WHEN A PERSON ACQUIRES A BUSINESS OF ANOTHER AS A G OING CONCERN. FROM AN ACCOUNTING PERSPECTIVE, IT IS WELL ESTABLISHED THAT 'GOODWILL' IS AN INTANGIBLE ASSET, WHICH IS REQUIRED TO BE ACCOUNTED FOR WHEN A PURCHASER ACQUI RES A BUSINESS AS A GOING CONCERN BY PAYING MORE THAN THE FAIR MARKET VALUE OF THE NET TANGIBLE ASSET, THAT IS, AS SETS LESS LIABILITIES. THE DIFFERENCE IN THE PURCHASE CONSIDE RATION AND THE NET VALUE OF ASSETS AND LIABILITIES IS ATTR IBUTABLE TO THE COMMERCIAL BENEFIT THAT IS ACQUIRED BY THE PURC HASER. SUCH GOODWILL IS ALSO COMMONLY UNDERSTOOD AS THE VA LUE OF THE WHOLE UNDERTAKING LESS THE SUM TOTAL OF ITS PAR TS. THE FINANCIAL REPORTING STANDARD 10 ISSUED BY ACCOUNT ING STANDARD BOARD WHICH IS APPLICABLE IN UNITED KINGDO M AND BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF IR ELAND IN RESPECT OF ITS APPLICATION IN THE REPUBLIC OF IRELA ND, EXPLAINS THAT THE ACCOUNTING REQUIREMENTS FOR GOODW ILL REFLECT THE VIEW THAT GOODWILL ARISING ON AN ACQUIS ITION IS NEITHER AN ASSET LIKE OTHER ASSETS NOR AN IMMEDIATE LOSS IN VALUE. RATHER, IT FORMS THE BRIDGE BETWEEN THE COST OF AN INVESTMENT SHOWN AS AN ASSET IN THE ACQUIRER'S OWN FINANCIAL STATEMENTS AND THE VALUES ATTRIBUTED TO T HE ACQUIRED ASSETS AND LIABILITIES IN THE CONSOLIDATED FINANCIAL STATEMENTS. IN VIEW OF ACCOUNTING STANDARD 10 AS IS SUED BY THE ICAI THE ASSESSEE'S CONTENTION WAS RIGHT THA T THE CONSIDERATION PAID BY THE ASSESSEE IN EXCESS OF VAL UE OF TANGIBLE ASSETS WAS RIGHTLY CLASSIFIED AS GOODWILL. IN THE FACTS OF THE PRESENT CASE, THE TRIBUNAL HAS REJECTE D THE VIEW THAT THE SLUMP SALE AGREEMENT WAS A COLOURABLE DEVICE. ONCE HAVING HELD SO, THE AGREEMENT BETWEEN THE PARTIES MUST BE ACCEPTED IN ITS TOTALITY. THE AGREE MENT ITSELF DOES NOT PROVIDE FOR SPLITTING UP OF THE INT ANGIBLES INTO SEPARATE COMPONENTS. INDISPUTABLY, THE TRANSAC TION IN QUESTION IS A SLUMP SALE WHICH DOES NOT CONTEMPLATE SEPARATE VALUES TO BE ASCRIBED TO VARIOUS ASSETS (T ANGIBLE AND INTANGIBLE) THAT CONSTITUTE THE BUSINESS UNDERT AKING, WHICH IS SOLD AND PURCHASED. THE AGREEMENT ITSELF INDICATES THAT SLUMP SALE INCLUDED SALE OF GOODWILL AND THE BALANCE SHEET SPECIFICALLY RECORDED GOODWILL AT RS. 40.58 CRORE. GOODWILL INCLUDES A HOST OF INTANGIBLE ASSET S, WHICH A PERSON ACQUIRES, ON ACQUIRING A BUSINESS AS A GOI NG CONCERN AND VALUING THE SAME AT THE EXCESS CONSIDER ATION PAID OVER AND ABOVE THE VALUE OF NET TANGIBLE ASSET S IS AN FRANKLIN TEMPLETON 18 ACCEPTABLE ACCOUNTING PRACTICE. THUS, A FURTHER EXE RCISE TO VALUE THE GOODWILL IS NOT WARRANTED. 8.5. SIMILAR VIEW HAS BEEN TAKEN RECENTLY BY THE COORDI NATE BENCH IN THE CASE OF GRINDWELL NORTON LTD ITA NO.528/MUM/2012, DT 27 JULY, 2016 (ITAT-MUMBAI). IN THE CASE BEFORE US ALSO THE FACTS ARE IDENTICAL, AS DISCUSSED IN DETAIL IN EARLIER PART OF OUR ORDER, AND THEREFORE IN OUR OPINION, THE ASSESSEE COMPANY IS ELIGIBLE AS PER LAW FOR CLA IM OF DEPRECIATION ON THE AMOUNT OF GOODWILL. 8.6. WITH RESPECT TO OTHER OBJECTION OF LD CIT-DR FOR NO T DEBITING THE AMOUNT OF GOODWILL BY THE ASSESSEE COM PANY IN ITS BOOKS ON REAL TIME BASIS, IT IS NOTED BY US THA T IT IS ALSO WELL SETTLED POSITION OF LAW THAT ENTRY IN THE BOOK S OF ACCOUNTS IS NOT DETERMINATIVE OF REAL CHARACTER OF TRANSACTI ONS UNDER THE INCOME TAX LAW. REFERENCE IN THIS REGARD CAN BE MAD E UPON THE RECENT JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF TAPARIA TOOLS LTD VS JCIT 372 ITR 605 (SC) . THUS, WE FIND THAT THE ASSESSEE IS PRIMA FACIE ENTITLED FOR THE C LAIM OF DEPRECIATION ON THE AMOUNT OF GOODWILL ACQUIRED BY THE ASSESSEE ON ACCOUNT OF ACQUISITION OF ERSTWHILE COM PANY (FTAMC). HOWEVER, WE FIND IT APPROPRIATE THAT REQUI SITE FACTS IN THIS REGARD SHOULD BE VERIFIED BY THE AO. THEREF ORE, WE SEND THIS GROUND BACK TO THE FILE OF THE AO. THE AO SHAL L VERIFY THE FACTUAL ASSERTION MADE BY THE ASSESSEE THAT DEPRECI ATION HAS BEEN ALLOWED ON THIS AMOUNT OF GOODWILL IN SUBSEQUE NT YEARS, AS HAS BEEN CLAIMED BEFORE US. IF IT IS FOUND TO BE CORRECT, THEN DEPRECIATION SHOULD BE GRANTED FROM THE BEGINNING. THE ASSESSEE SHALL FILE REQUISITE DOCUMENTS IN SUPPORT OF ITS CLAIM. FRANKLIN TEMPLETON 19 THE AO TAKE INTO ACCOUNT ALL THE DOCUMENTARY EVIDEN CES AND OTHER SUBMISSION AS MAY BE MADE AVAILABLE BY THE AS SESSEE ON OBJECTIVE BASIS BEFORE DECIDING THIS ISSUE AFRESH, BUT KEEPING IN VIEW THE LEGAL POSITION AS DISCUSSED ABOVE. THE ASSESSEE IS FREE TO RAISE ALL LEGAL AND FACTUAL ISSUES IN THIS REGARD. THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING BEFORE D ECIDING THIS ISSUE AFRESH. THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2016. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 03/08/2016 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI