The Dy. CIT, Circle-4(1)(2), Ahmedabad V. M/s. Zydus Wellness Ltd, Ahmedabad

ITA 529/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8084 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 02-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: JIGAR M PATEL A R
• Keywords: Capital asset; Depreciation; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD : , , BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO.529/AHD/2017 ( / ASSESSMENT YEAR : 2013-14) THE DCIT, CIRCLE-4(1)(2) AHMEDABAD / VS. M/S.ZYDUS WELLNESS LTD. HOUSE NO.6 & 7 SIGMA COMMERCE ZONE NR.ISCON TEMPLE, S.G.HIGHWAY, AHMEDABAD-380 015 ' ./ ./ PAN/GIR NO. : AAACC 7740 G ( '% / APPELLANT ) .. ( &'% / RESPONDENT ) '% ' / APPELLANT BY : SHRI V.K. SINGH, SR.DR &'% ( ' / RESPONDENT BY : SHRI JIGAR M.PATEL, AR ) * ( + / DATE OF HEARING 07/06/2018 ,-. ( + / DATE OF PRONOUNCEMENT 18 / 0 6 /201 8 / O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER DATED 06.12.2016 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS)-8 , AHMEDABAD [LD.CIT(A) IN SHORT] U/S.250(6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') FOR ASSESSMENT YEAR (AY) 2013-14 ARISING OUT OF THE ORDER DATED 11.01.2016 PASSED BY THE DCIT, CIRCLE- 4(1)(2) AHMEDABAD. 2. THE MAIN ISSUE INVOLVED IN THIS APPEAL AS TO WHE THER THE ORDER PASSED BY THE CIT(A) IN TREATING THE BALANCING FIGURE OF RS.12,13,33,735/- AT THE TIME OF AMALGAMATION AS GOODWILL AND ALLOWING THE DEPRECIATION OF RS.3,03,33,434/- O N THE SAME IS SUSTAINABLE IN THE EYE OF LAW. - 2 - ITA NO.5 29/AHD/2017 DCIT VS. M/S.ZYDUS WELLNESS LTD. ASST.YEAR 2013-14 3. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF NEUTRACEUTICALS AND TRADING IN LOW CALORIC AND COSM ECUETICALS PRODUCTS. THE ASSESSEE IN THE AY 2013-14 HAD CLAIMED DEPRECIATION OF RS.3,03,33,4 34/- ON GOODWILL OF RS.12,13,33,735/-. THE AO ASKED FOR THE DETAILS REGARDING THE COST OF ACQUISITION OF GOODWILL. THE ASSESSEE IN RESPONSE TO THE SAME, SUBMITTED THE DETAILS SHOWING THAT THE GOODWILL HAS ARISEN ON ACCOUNT OF AMALGAMATION OF CONSUMER PRODUCT DIVISION OF CAD ILA HEALTHCARE LTD. WITH CARNATION NUTRA ANALOGUE LTD. (NOW KNOWN AS ZYDUS WELLNESS LT D.) W.E.F. 01.04.2008. THE DETAILS OF VALUATION OF GOODWILL WERE ALSO SUBMITTED BY THE AS SESSEE. HOWEVER, THE AO HELD THAT THE COST OF ACQUISITION OF GOODWILL IS NIL AND CONSEQU ENTLY DEPRECIATION WILL NOT BE ALLOWED ON IT. THE ASSESSEES CLAIM OF DEPRECIATION OF RS.3,0 3,33,434/- ON GOODWILL WAS THUS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDING, THE ASSESSEE DULY SUBMITTED BEFORE THE LD.CIT(A) THAT THE SIMILA R ISSUE HAS BEEN DECIDED BY HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR THE AYS 2010-11 & 2011-12. IT HAS RELIED UPON THE JUDGEMENTS GOVERNING THE FIELD. THE LD.CIT(A) ULTIMATELY ALLOWED THE APPEAL PREFERRED BY THE ASSESSEE DECIDING THE ISSUE OF DEPRECIATION ON GOODWILL IN FAVOUR OF ASSESSEE UPON QUASHING THE ORDER OF ADDITION MADE BY THE LD.AO FO LLOWING THE ORDER PASSED BY HIS PREDECESSOR. WHILE ALLOWING THE CLAIM OF THE ASSES SEE, THE LD.CIT(A) OBSERVED AS FOLLOWS:- AFTER CONSIDERING ALL MATERIAL ON RECORD AND JUDGM ENTS AVAILABLE ON THIS ISSUE, IT IS NOTED THAT IT HAS ALREADY BEEN ESTABLISHED BY THE JUDICIA L AUTHORITIES THAT GOODWILL IS TO BE TREATED AS CAPITAL ASSET AND IS ELIGIBLE FOR DEPRECIATION. IN THE APPELLANTS CASE THE ISSUE RAISED BY THE AO IS ABOUT THE VALUATION OF GOODWILL. IN VIEW OF THE DIRECTION OF HONBLE GUJARAT HIGH COURT GIVEN IN THE APPROVED SCHEME, THE APPELLANT H AS TREATED THE EXCESS OF LIABILITIES OVER ASSETS AS GOODWILL AND HAS CLAIMED DEPRECIATION T HERE UPON. AS STATED ABOVE THE AO HAS HELD THAT SINCE THE ABOVE AMOUNT IS ONLY THE BALAN CING AMOUNT, THE SAME CANNOT BE TREATED AS COST OF GOODWILL. THE APPELLANT RELIED ON THE J UDGMENT OF SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD. WHICH THE AO DENIED BY STATIN G THAT IN THIS CASE THE SUPREME COURT HAS DECIDED THAT GOODWILL IS AN ASSET BUT HAS NOT CLEAR LY ADJUDICATED AS FAR AS THE VALUATION OF GOODWILL IS CONCERN. HOWEVER, AS DISCUSSED BY THE CIT(A) IN HER ORDER FOR THE A.Y. 2011-12 - 3 - ITA NO.5 29/AHD/2017 DCIT VS. M/S.ZYDUS WELLNESS LTD. ASST.YEAR 2013-14 THE ISSUE WITH IDENTICAL FACTS AS IN THE APPELLANT S CASE HAS BEEN DEALT BY HONBLE ITAT, MUMBAI IN ORDER DATED 13.10.2014 IN THE CASE OF TOY O ENGINEERING INDIA LTD. WHERE THE BENCH HAS DISCUSSED EXPLANATION 7 OF SECTION 43(1) OF THE ACT AND DECIDED THE ISSUE AGAINST THE ASSESSEE. BUT IN ITS SUBSEQUENT ORDER (AS THE MATTER WAS RESTORED BACK TO ITAT ON THE DIRECTIONS OF HONBLE BOMBAY HIGH COURT), AFTER DIS CUSSING THE JUDGMENT OF SUPREME COURT IN CASE OF SMIFS SECURITIES LTD. THE ISSUE WAS DECI DED IN FAVOUR OF ASSESSEE. AFTER RELYING ON THE JUDGMENT OF ITAT MUMBAI IN ABO VE MENTIONED CASE AND ALSO HONBLE ITAT, AHMEDABAD IN THE CASE OF D.B.CORPORAT ION, ITA NO.1113/AHD/2011 A.Y. 2007-08, ORDER DATED 05.09.2014 ON SIMILAR FACTS, T HE CIT(A)-4, AHMEDABAD DECIDED THAT THE APPELLANT HAS RIGHTLY VALUED THE GOODWILL AND IS EN TITLED TO CLAIM DEPRECIATION. .. I HAVE DULY CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION AND FIND NO REASON TO DIFFER WITH FINDINGS IN EARLI ER APPEAL ORDERS IN THE APPELLANTS OWN CASE FOR THE AY. 2011-12 AND 2012-13 (AS DISCUSSED ABOVE ) AND CONCLUDE THAT THE APPELLANT IS ELIGIBLE FOR DEPRECIATION ON GOODWILL ON WDV OF R S.12,13,33,735. HENCE THE CLAIM OF DEPRECIATION OF RS.3,03,33,434/- IS ALLOWED. ACCOR DINGLY THIS GROUND OF APPEAL IS ALLOWED. THE SAID ORDER IS IMPUGNED BEFORE US. 4. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E LD.REPRESENTATIVE FOR THE REVENUE RELIED UPON THE ORDER PASSED BY THE AO. THE LD.AR SUBMITTED BEFORE US THAT THE HONBLE GUJARAT HIGH COURT HAS DECIDED THE ISSUE IN REGARD TO DEPRECIATION ON GOODWILL IN ASSESSEES OWN CASE FOR THE AYS 2010-11, 2011-12 AND 2012-13, COPIES WHEREOF WERE ALSO PLACED ON RECORD BY HIM. 5. WE HAVE HEARD THE LD.REPRESENTATIVES OF TH E RESPECTIVE PARTIES. WE HAVE PERUSED RELEVANT MATERIALS ON RECORD. WE HAVE ALSO GONE TH ROUGH THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT WHEREIN THE ISSUE HAS BEEN DECID ED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR AYS 2010-11, 2011-12 & 2012-13. THE HONBLE GUJARAT HIGH COURT WHILE - 4 - ITA NO.5 29/AHD/2017 DCIT VS. M/S.ZYDUS WELLNESS LTD. ASST.YEAR 2013-14 DISMISSING THE APPEAL PREFERRED BY THE REVENUE AGA INST THE ORDER PASSED BY THIS LD.TRIBUNAL IN TAX APPEAL NO.346 OF 2018, DATED 16.04.2018 OBSE RVED AS FOLLOWS:- 6. WITH RESPECT TO THE CLAIM OF DEPRECIATION, THE DECISION OF SUPREME COURT IN CASE OF SMIFS SECURITIES LTD. (SUPRA) WOULD SQUARELY APPLY. THER E IS NO MATERIAL REFERRED TO BY THE ASSESSING OFFICER TO HOLD THAT THE CLAIM OF DEPRECI ATION WAS FICTITIOUS. IF WE READ HIS ENTIRE EXPRESSION IN THIS RESPECT, HE SEEMS TO BE SUGGESTI NG THAT BEING AN INTANGIBLE ASSET ACQUISITION THEREOF WOULD NOT QUALIFY FOR DEPRECIATION. IF TH AT BE SO, THE VIEW OF THE ASSESSING OFFICER WAS OPPOSED TO THE DECISION OF THE SUPREME COURT IN CASE OF SMIFS SECURITIES LTD. (SUPRA). ON THE OTHER HAND, IF THE OBSERVATIONS OF THE ASSESSIN G OFFICER CAN BE SEEN AS HIS FINDINGS THAT THE CLAIM ITSELF WAS BASELESS, THERE WAS NO DISCUSSION OR REFERENCE TO ANY MATERIAL TO ENABLE HIM TO COME TO SUCH A CONCLUSION. 7. IN THE RESULT, TAX APPEAL IS DISMISSED. 6. THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 80/AHD/2016 FOR AY 2012-13, DATED 01.02.2018 WHILE REJECTING THE APPEAL PREFERRED BY THE REVENUE IN ASSESSEES OWN CASE OBSERVED AS FOLLOWS:- 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD COPY OF THE HONBLE GUJARAT HIGH COURT ORDER IN THE CASE OF ASSESSEE R EPORTED IN PR.CIT VS. ZYDUS WELLNESS LTD., 87 TAXMANN.COM 82 (GUJ.) RENDERED IN TAX APPEAL NO. 779 OF 2017 DATED 3.10.2017. HONBLE HIGH COURT UPHELD ORDER OF THE ITAT VIDE WHICH DEPR ECIATION WAS GRANTED TO THE ASSESSEE ON GOODWILL. SIMILARLY, IN THE ASSTT.YEAR 2011-12, TR IBUNAL HAS DISMISSED APPEAL OF THE REVENUE WHEREBY THE TRIBUNAL HAS UPHELD GRANT OF DEPRECIATI ON ON GOODWILL AT THE END OF LD.CIT(A) VIDE ORDER DATED 8.6.2015. CONSIDERING JUDGEMENT O F THE HONBLE GUJARAT HIGH COURT AND ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE IN DI FFERENT ASSESSMENT YEARS, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON G OODWILL. THE LD.CIT(A) HAS EXAMINED ALL THESE FACTS, AND THEREAFTER, ALLOWED THE DEPRECIATI ON. THE LD.CIT(A) HAS RIGHTLY APPRECIATED THE CONTROVERSY AND NO INTERFERENCE IS CALLED FOR I N HIS ORDER. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED. 7. TAKING INTO CONSIDERATION OF THE ENTIRE ASPECTS OF THE MATTER, WE FIND THAT THE ISSUE IS COVERED IN ASSESSEES OWN CASE BY NUMBER OF JUDGEME NTS AND ORDERS PASSED BY THIS LD.TRIBUNAL AS WELL AS THE HONBLE JURISDICTIONAL H IGH COURT. WE, THEREFORE, RESPECTFULLY - 5 - ITA NO.5 29/AHD/2017 DCIT VS. M/S.ZYDUS WELLNESS LTD. ASST.YEAR 2013-14 FOLLOWING THE DECISION OF THE COORDINATE BENCH AS MENTIONED ABOVE IN ASSESSEES OWN CASE AS WELL AS THE JUDGEMENT PASSED BY THE HONBLE JURI SDICTIONAL HIGH COURT, FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD.CIT(A) AL LOWING THE CLAIM OF DEPRECIATION OF GOODWILL MADE BY THE ASSESSEE. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18/ 06/2018 SD/- SD/- ( ) ( ) ( PRAMOD KUMAR ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 18/ 06/2018 0+..) , .)../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. '% / THE APPELLANT 2. &'% / THE RESPONDENT. 3. 12 3 / CONCERNED CIT 4. 3 ( ) / THE CIT(A)-8, AHMEDABAD 5. 67 8 )2 , + 2 . , 1 / DR, ITAT, AHMEDABAD 6. 8 :; < * / GUARD FILE. / BY ORDER, & 6 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 11.6.18(DICTATION-PAD 11-PAG ES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11.6.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.18.6.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER