ABHISHRI PACKAGING P. LTD, MUMBAI V. DCIT 9(1)(1), MUMBAI

ITA 6485/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4151 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 13-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MICHAEL JERALD
• Keywords: Depreciation; Valuation report
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A, BENCH MUM BAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.6485/MUM/2018 ( ASSESSMENT YEAR: 2013-14 ) ABHISHRI PACKAGING PVT.LTD. 118, TAINWALA HOUSE ROAD NO.18 MIDC, ANDHERI (EAST) MUMBAI-400 093 VS. DCIT-9(1)(1) AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AAFCA6446G APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI HARIDAS BHAT, AR REVENUE BY SHRI MICHAEL JERALD, DR DATE OF HEARING 12/02 /2020 DATE OF PRONOUNCEME NT 21 /0 2 /2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)16, MUMBAI, DATED 29/08/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. GROUND 1: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CJT (APPEALS) ERRED IN RESTRICTING DEPRECIATION ON GOOD WILL BY CONSIDERING THE GOODWILL AS THE NET WORTH OF THE SELLER, I.E. R S. 6.38,707/- INSTEAD OF ASSETS AS PER VALUATION REPORT AS REDUCED BY THE LIABILITIES I.E. RS 27,43,135/- 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) FAILED TO APPRECIATE THAT ITA NO.6485/MUM/2018 ABHISHRI PACKAGING PVT.LTD. 2 A) THE GOODWILL BOOKED BY THE ASSESSE IS THE NET DI FFERENCE IN CONSIDERATION PAID ON PURCHASE OF THE UNIT UNDER SL UMP SALE, AS REDUCED BY THE INDIVIDUAL ASSETS OTHER THAN ASSETS EXCEPT GOODWILL ACCOUNTED FOR AS PER VALUATION REPORT B) THE INDIVIDUAL VALUE OF ASSETS IS REDUCED AS PER VALUATION REPORT AND ACCORDINGLY DEPRECIATION IS CALCULATED ON ALL A SSETS ON REDUCED VALUE. C) THE INDIVIDUAL ASSETS VALUE CANNOT MATCH THE ASS ETS AS IN THE HOOKS OF THE SELLER BEFORE THE SLUMP SAFE SINCE THE ASSETS ARE CARRIED IN THE BOOKS OF THE ASSESSES AS PER VALUATI ON REPORT. D) BY CONSIDERING THE DEPRECIATION AS CLAIMED ON OT HER ASSETS AND NOT ON THE GOODWILL DENIES THE DEPRECIATION ALLOWAN CE OF THE ASSESSEE. 3. THE APPELLANT, THEREFORE, PRAYS THAT THE DEPR ECIATION MAY BY ALLOWED ON GOODWILL OF RS 27,43,135/- AS CLAIMED IN THE RE TURN OF INCOME. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF JOB-WORK OF SOFT AND HA RD LUGGAGE(BAGS) AND MANUFACTURING AND SALE OF LUGGAGE BAGS AND THEI R COMPONENTS, FILED ITS RETURN OF INCOME FOR AY 2013-14 ON 29/09/ 2013, DECLARING TOTAL INCOME AT RS. 49,00,230/- UNDER NORMAL PROVIS IONS OF THE I.T.ACT,1961 AND BOOK PROFIT OF RS. 1,45,40,157/- U /S 115JB OF THE I.T.ACT, 18961. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO NOTIC ED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @25% APPLICABLE T O INTANGIBLE ASSETS ON GOODWILL AND HENCE, CALLED UPON THE ASSES SEE TO FILE NECESSARY EVIDENCES, INCLUDING ACQUISITION/PURCHASE S OF GOODWILL AND CLAIM OF DEPRECIATION @25% AS APPLICABLE TO INT ANGIBLE ASSETS. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IT HAS ACQ UIRED THE BUSINESS OF SHRI RAKESH TAINWALA, BY WAY OF SLUMP S ALE W.E.F 01/04/2012 AND THE ACQUISITION HAS BEEN ACCOUNTED FOR UNDER THE PURCHASE METHOD, AS PRESCRIBED BY THE ACCOUNTING ST ANDARD AS-14 ACCOUNTING FOR AMALGAMATION NOTIFIED UNDER COMP ANIES (ACCOUNTING STANDARDS) RULES, 2006 AND ACCORDINGLY, DIFFERENCE BETWEEN ASSETS AND LIABILITIES OF THE PROPRIETORSHI P FIRM AND ITA NO.6485/MUM/2018 ABHISHRI PACKAGING PVT.LTD. 3 CONSIDERATION PAID FOR ACQUISITION OF BUSINESS HAS BEEN TREATED AS GOODWILL IN BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ASSESSEE, FURTHER SUBMITTED THAT ALTHOUGH, THE NET-WORTH OF P ROPRIETORSHIP FIRM IS LESS THAN FULL VALUE OF CONSIDERATION PAID FOR ACQU ISITION OF BUSINESS, BUT THE ASSESSEE HAS REVALUED CERTAIN ASSETS, FOR W HICH NECESSARY VALUATION REPORT HAS BEEN OBTAINED FROM REGISTERED VALUER AND AS PER SAID VALUATION REPORT, THE NET WORTH OF THE UNDERT AKING ACQUIRED (M/S RAKESH TAINWALA) AS ON 31/03/2012 IS AT RS. 1,92,56 ,865/-. SINCE, THE ASSESSEE HAS PAID FULL VALUE OF CONSIDERATION F OR ACQUISITION OF BUSINESS AT RS. 2,20,00,000/-, THE DIFFERENCE AMOUN T OF RS.27,43,135/- HAS BEEN CONSIDERED AS GOODWILL AND DEPRECIATION @25% AS APPLICABLE TO INTANGIBLE ASSETS HAS BEEN CL AIMED U/S 32(1)(II) OF THE I.T.ACT, 1961. 4. THE LD. AO AFTER CONSIDERING RELEVANT SUBMISSION S OF THE ASSESSEE AND ALSO TAKEN NOTE OF VALUATION REPORT SU BMITTED BY THE ASSESSE IN SUPPORT OF VALUE OF GOODWILL, OPINED THA T THE PROPRIETOR OF ERSTWHILE FIRM AND THE DIRECTOR OF PRESENT ASSESSEE ARE ONE AND OF THE SAME AND THE PRESENT DIRECTOR HAS HOLDING 21% S HAREHOLDING IN THE ASSESSEE COMPANY. THUS, THERE IS AN ARRANGEMEN T BETWEEN THE PROPRIETOR, WHO ALSO HAPPENED TO BE THE PROMOTER O F THE PRIVATE COMPANY TO SHOW DIFFERENT NET-WORTH FOR THE PURPOSE OF CALCULATION OF GOODWILL IN THE BOOKS OF ACCOUNTS OF THE ASSESSE E COMPANY AND DIFFERENT NET-WORTH FOR THE PURPOSE OF COMPUTATION OF LONG TERM CAPITAL GAIN IN THE HANDS OF THE PROPRIETOR OF ERST WHILE FIRM. THEREFORE, HE OPINED THAT THERE IS NO MERIT IN THE ARGUMENTS OF THE ASSESSEE THAT AS PER PURCHASE METHOD THE NET-WORTH OF THE ERSTWHILE FIRM WOULD BE DIFFERENT FROM THAT OF NET-WORTH, AS PER BOOKS OF ACCOUNT OF FIRM ACQUIRED AS ON THE DATE OF ACQUISI TION AND ITA NO.6485/MUM/2018 ABHISHRI PACKAGING PVT.LTD. 4 ACCORDINGLY, ARRIVED AT GOODWILL OF RS. 6,38,707/- BEING DIFFERENCE BETWEEN FULL VALUE OF CONSIDERATION PAID FOR ACQUIS ITION OF BUSINESS MINUS NET WORTH OF THE UNDERTAKING ACQUIRED, AS ON THE DATE OF ACQUISITION AND ACCORDINGLY, DISALLOWED EXCESS DEPR ECIATION CLAIMED ON GOODWILL AMOUNTING TO RS. 6,85,784/-. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSU E, WHICH HAS BEEN REPRODUCED AT PARA 5 ON PAGE 2 TO 12 OF LD.CIT(A) O RDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE THE LD.CIT(A) ARE THAT, IT HAS ACCOUNTED ACQUISITION OF BUSINESS OF ERSTWHILE PROPRIETORSHIP FIRM, AS PER ACCOUNTING STANDARD AS- 14 ,ACCOUNTING FOR AMALGAMATION NOTIFIED UNDER THE COMPANIES (ACCO UNTING STANDARDS) RULE, 2006 AND ACCORDINGLY, DETERMINED N ET-WORTH OF THE PROPRIETORSHIP FIRM AT 1,92, 56, 865/- AND THE DIF FERENCE BETWEEN FULL VALUE OF CONSIDERATION PAID FOR ACQUISITION OF BUSI NESS AND THE NET- WORTH OF THE UNDERTAKING ACQUIRED AS ON THE 31/03/2 012 HAS BEEN RECOGNIZED AS GOODWILL IN THE BOOKS OF ACCOUNT OF T HE ASSESSEE AND DEPRECIATION ON SAID AMOUNT HAS BEEN CLAIMED @ 25% AS APPLICABLE TO INTANGIBLE ASSETS.. THE LD.CIT(A) AFTER CONSIDER ING RELEVANT SUBMISSION OF THE ASSESSE AND ALSO TAKEN NOTE OF T HE DECISION RELIED UPON BY THE ASSESSEE IN THE CASE OF CHOWGULE & COMPANY PVT.LTD. VS ADDL.CIT ( 2016) ( 95 CCH 021) (MUM. HC ) OBSERVED THAT SINCE, THE SELLER OF THE ASSETS HAVE SHOWN TH E NET -WORTH OF THE UNDERTAKING ACQUIRED AT RS.2,13,61,293/-, THE ASSE SSEE IS ONLY ELIGIBLE FOR DEPRECIATION ON GOODWILL AMOUNTING TO RS. 6,38,707/- ( 2,20,00,000-2,13,61,320) AND ACCORDINGLY, UPHELD AD DITIONS MADE BY THE LD. AO TOWARDS DISALLOWANCES OF EXCESS DEPRECIA TION CLAIMED ON ITA NO.6485/MUM/2018 ABHISHRI PACKAGING PVT.LTD. 5 GOODWILL. AGGRIEVED BY THE LD.CIT(A) ORDER, THE ASS ESSEE IS IN APPEAL BEFORE US. 6. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEAR ING SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITIO NS MADE BY THE LD. AO TOWARDS DEPRECIATION ON GOODWILL BY RE-COMPUTING THE AMOUNT OF GOODWILL, WITHOUT APPRECIATING THE FACT THAT THE AS SESSEE HAS ARRIVED AT VALUE OF GOODWILL, AS PER ACCOUNTING STANDARD AS -14 NOTIFIED UNDER THE COMPANIES (ACCOUNTING STANDARD) RULES, 20 06 AND ALSO, SUCH METHOD IS SUPPORTED BY VALUATION REPORT OF REG ISTERED VALUER, IN RESPECT OF ASSETS AND LIABILITIES TAKEN OVER BY THE ASSESSEE. THE LD. AR, FURTHER SUBMITTED THAT THE ASSESSEE HAS VALUED INDIVIDUAL ASSETS, WHICH IS SUPPORTED BY VALUATION REPORT AND HENCE, THE LD. AO, AS WELL AS THE LD.CIT(A) WERE INCORRECT IN TAKI NG THE VALUE OF ASSETS, AS PER THE BALANCE SHEET OF ERSTWHILE PROPR IETORSHIP FIRM WITHOUT APPRECIATING THE FACT THAT CERTAIN ASSETS A ND LIABILITIES CANNOT BE TAKEN OVER BY THE ASSESSEE. IN THIS REGARD, HE RELIED UPON BY THE DECISION OF HONBLE DELHI HIGH COURT, IN THE CASE O F DE NORA INDIA LIMITED VS CIT (2015) 370 ITR 0391. 7. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORTIN G ORDER OF THE LD. AO, AS WELL AS THE LD.CIT(A) SUBMITTED THAT THE ASSESSEE HAS ADOPTED DIFFERENT NET- WORTH FOR DIFFERENT PURPOSE ,WHICH IS EVIDENT FROM THE FACT THAT FOR THE PURPOSE OF GOODWILL, IT HAS REVALUED ITS ASSETS AND LIABILITIES, WHEREAS FOR THE PURPOSE OF PAYMENT OF CAPITAL GAIN IN THE HANDS OF PROPRIETOR OF ERSTWHILE FIRM, THE NET-WORTH HAS BEEN ADOPTED, AS PER BOOKS OF ACCOUNTS. THEREFORE, THE LD. AO, AS WELL AS THE LD.CIT(A) HAS RIGHTLY OBSERVED THAT THE RE CANNOT BE TWO DIFFERENT NET-WORTH FOR TWO PURPOSES. THEREFORE, IT IS CLEAR THAT THE ITA NO.6485/MUM/2018 ABHISHRI PACKAGING PVT.LTD. 6 ASSESEE HAS INFLATED THE VALUE OF GOODWILL IN BOOKS OF ACCOUNTS FOR THE PURPOSE OF CLAIMING HIGHER DEPRECIATION AND ACC ORDINGLY, DISALLOWED EXCESS DEPRECIATION CLAIM ON GOODWILL. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACTS THAT THE ASSESE E HAS ACQUIRED BUSINESS OF ERSTWHILE PROPRIETORSHIP FIRM BY WAY OF SLUMP SALE ON 01/04/2012. IT IS ALSO AN ADMITTED FACT THAT WHEN, THE BUSINESS HAS BEEN SOLD OR ACQUIRED ON SLUMP SALE, THEN ALL ASSE TS AND LIABILITIES OF ERSTWHILE FIRM WOULD BE THE ASSET AND LIABILITIES OF THE CONTINUING OR THE FIRM, WHO HAD ACQUIRED THE BUSINESS. IN THIS F ACTUAL BACKGROUND, IF YOU GO THROUGH THE METHOD FOLLOWED BY THE ASSESS EE FOR ACCOUNTING ACQUISITION OF BUSINESS OF ERSTWHILE PRO PRIETORSHIP FIRM IN ITS BOOKS OF ACCOUNTS, WE FIND THAT THE ASSESSEE HA S FOLLOWED ACCOUNTING STANDARD AS-14 NOTIFIED UNDER THE COMPAN IES (ACCOUNTING STANDARD) RULES, 2006,FOR ACCOUNTING FO R AMALGAMATIONS. NO DOUBT, AS-14 PRESCRIBED METHOD OF ACCOUNTING FOR ACQUISITION OF BUSINESS UNDER AMALGAMATIONS, AS PER WHICH ANY DIFFERENCE IN FULL VALUE OF CONSIDERATION PAID FOR ACQUISITION OF BUSINESS AND NET VALUE OF ASSETS AND LIABILITIES SH ALL BE TREATED AS GOODWILL OF THE BUSINESS. BUT, FACT REMAINS THAT WH ETHER, AN ASSESSEE CAN FOLLOW DIFFERENT METHOD OF VALUATION O R COMPUTATION OF NET-WORTH FOR DIFFERENT PURPOSES AND SUCH METHOD H AS BEEN PRESCRIBED BY AS-14 OR NOT HAS TO BE SEEN. ADMITTED LY, AS-14, NOWHERE PRESCRIBED FOR DIFFERENT METHOD OF COMPUTA TION OF NET WORTH OF UNDERTAKING ACQUIRED BY WAY OF SLUMP SALE FOR DI FFERENT PURPOSES. IN THIS CASE, THE ASSESSEE ALTHOUGH, FOLLOWED AS-14 FOR ACCOUNTING OF ACQUISITION OF BUSINESS, WHILE ARRIVING AT GOODW ILL, IT HAS REVALUED ITA NO.6485/MUM/2018 ABHISHRI PACKAGING PVT.LTD. 7 ITS ASSETS, WHICH IS DIFFERENT FROM VALUE OF ASSETS , AS PER BOOKS OF ACCOUNTS OF ERSTWHILE PROPRIETORSHIP FIRM. HOWEVER, WHEN IT COMES TO PAYMENT OF CAPITAL GAIN ON SLUMP SALE, THE PROPRIET OR OF ERSTWHILE FIRM HAS TAKEN NET WORTH AS PER BOOKS OF ACCOUNTS OF FIRM AS ON THE DATE OF ACQUISITION. FROM THE ABOVE, IT IS VERY CLE AR THAT THE ASSESSEE HAS TAKEN DIFFERENT VALUES FOR THE PURPOSE OF ACCOU NTING OF ACQUISITION OF BUSINESS AND THE PROPRIETOR HAS FOL LOWED DIFFERENT METHOD FOR COMPUTATION OF NET-WORTH FOR THE PURPOS E OF COMPUTATION OF CAPITAL GAIN ON SLUMP SALE. SINCE, THE SELLER OF ASSETS I.E PROPRIETOR OF ERSTWHILE FIRM AND THE DIRECTOR OF THE PRESENT ASSESSEE ARE ONE AND THE SAME AND ALSO, FACT THAT THE DIRECTOR HAS H OLDING MORE THAN 21% IN PRESENT COMPANY, IT IS UNDOUBTEDLY CLEAR TH AT THE ASSESSEE HAS FOLLOWED A DIFFERENT METHOD FOR ACCOUNTING GOOD WILL IN BOOKS OF ACCOUNTS, SO AS TO CLAIM HIGHER DEPRECIATION, ALTHO UGH SUCH METHOD HAS BEEN FOLLOWED IN ACCORDANCE WITH PRESCRIBED ACC OUNTING STANDARD. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. AO, AS WELL AS THE LD.CIT(A) WERE RIGHT IN, COMING TO THE CONCLUSION THAT THE ASSESSEE HAS ARRIVED AT INFLATED VALUE OF GOODW ILL TO CLAIM HIGHER DEPRECIATION ON INTANGIBLES. INSOFAR AS, THE CASE L AWS RELIED UPON BY THE ASSESSEE IN THE CASE OF DE NORA INDIA LIMITED V S CIT (SUPRA), WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE RATIO LAID DOWN BY THE HONBLE HIGH COURT, INSOFAR AS, VALUATION OF AS SETS AND ADOPTION OF VALUE, AS PER VALUATION REPORT FOR THE PURPOSE O F ACQUISITION OR SALE OF AN ASSET. BUT, FACT REMAINS THAT SINCE, TH E ASSESEE HAS TAKEN DIFFERENT VALUES FOR DIFFERENT PURPOSES, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HONBLE BOMBAY HI GH COURT, IN THE SAID CASE IS NOT APPLICABLE TO THE CASE OF THE ASSE SSEE AND HENCE, THE SAME IS HEREBY REJECTED. ITA NO.6485/MUM/2018 ABHISHRI PACKAGING PVT.LTD. 8 9. IN THIS VIEW OF THE MATTER AND CONSIDERING THE F ACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE CONSIDERE D VIEW THAT THE LD. AO, AS WELL AS THE LD.CIT(A) WERE RIGHT IN DISA LLOWED EXCESS DEPRECIATION CLAIMED ON GOODWILL AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD.CIT(A) AND DISMISSED , APPEAL FILED BY THE ASSESSEE. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 /02 /2020 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 21/02/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//