VERTIV ENERGY PVT. LTD (FORMERLY KNOWN AS EMERSON NETWORK POWER (INDIA) P. LTD., THANE (W) V. PR. COMM OF INCOME TAX -1, THANE

ITA 789/MUM/2022

AI Insights

The case involves Vertiv Energy Private Limited, which underwent an amalgamation with its sister concern, Emerson Network Power Pune Pvt. Ltd. The Principal Commissioner of Income Tax (Pr.CIT) observed that the goodwill created from this amalgamation was self-acquired and merely an accounting entry, thus not eligible for depreciation as claimed. The Pr.CIT issued a notice under section 263 of the Income Tax Act, 1961, questioning the assessment order passed by the Assessing Officer, which had allowed the depreciation on goodwill. The Tribunal, after examining the submissions and evidence, concluded that the Assessing Officer had properly investigated the matter and allowed the depreciation claim, thus setting aside the Pr.CIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123519 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 30-11-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 25-04-2022
• Other Referred Cases: CIT v. Smifs Securities Limited, Chowgule & company Private Limited vs. Addl. CIT, Principal Commissioner vs. Zydus Wellness Ltd, Toyo Engineering India Limited vs. ITT-655-ITAT-2014(Mum), Deputy Commissioner of Income Tax vs. GEA Process Engineering Private Limited, Aricent Technologies Holding Limited vs. Dy. CIT, Signoda India Limited v. Dy. CIT, Texmo Precision Castings UK Ltd., v. CIT, CIT v. Ballarpur Industries Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Revision of order; Depreciation; Principle of natural justice; Scheme of amalgamation; Capital Gains
• Section: 263; 143(3); 142(1); 48; 2(A)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI KULDIP SINGH, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO.788/MUM/2022 (A.Y: 2016-17) & ITA NO.789/MUM/2022 (A.Y: 2017-18) & ITA NO.790/MUM/2022 (A.Y: 2018-19) Vertiv Energy Private Limited (formerly known as Emerson Network Power India Pvt. Ltd) Plot No. 20, Road No. 19 Wagle Ind. Estate, Thane (W)-400604. PAN: AAACT4033H v. PCIT-1 B Wing Ashar IT Park, 6 th Floor Road No. 16Z Wagle Industrial Estate Thane (W) - 400604 (Appellant) (Respondent) Assessee Represented by : Dhanesh Bafna, Chandni Shah & Riddhi Maru Department Represented by : Shri Nimesh Yadav Date of Hearing : 01.12.2022 Date of Pronouncement : 20.02.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the assessee against different orders of Learned Principal Commissioner of Income Tax-1, Thane [hereinafter in short “Ld. Pr.CIT] dated 17.03.2022, 21.03.2022 and 21.03.2022 for the 2 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited A.Y.2016-17 and 2017-18 and 2018-19 respectively, passed u/s. 263 of the Income-tax Act, 1961 (in short “Act”). 2. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 788/MUM/2022 for Assessment Year 2016-17 as a lead appeal. 3. Brief facts of the case are, assessee filed its return of Income for A.Y.2016-17 on 30.11.2016 declaring total income at ₹.83,41,36,342/-. The case was selected for scrutiny under CASS and assessment u/s 143(3) of the Act was completed on 30.12.2019 assessing total income at ₹.93,51,51,110/- by making addition of ₹.10,10,14,768/- on account of disallowance of Bank Guarantees and other issues. 4. Ld. Pr.CIT-1, Thane, Mumbai while going through the assessment records, observed that the assessee has entered into an amalgamation with its sister concern named M/s Emerson Network Power Pune Pvt. Ltd [ENPPL]. He observed that both the companies have common parent company in USA. The amalgamation scheme was structured in such a way that the assessee has issued shares at a huge security premium to 3 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited erstwhile shareholder of amalgamating company named M/s Emerson Network Power Pune Pvt. Ltd after due valuation. He observed that as per the records, in the result of amalgamation with the sister concern, goodwill has been created in the books of the assessee company. According to him it is a self-acquired goodwill in which no payment has been made and it has been created by way of merely an accounting entry. Since, amalgamation does not hold the meaning of transfer as per provision u/s 47 of the Act and therefore, the amalgamation of ENPPL is not a transfer/case of slump sale. Therefore, the claim of depreciation amounting to ₹.86.87 Crores on the goodwill created by the assessee for the A.Y 2016-17 was not allowable and the Assessing Officer should have disallowed while completing the assessment proceedings for the year under consideration. He observed that assessment order passed by the Assessing Officer is found to be erroneous in so far as it is prejudicial to the interest of the revenue. Accordingly, a notice u/s 263 of the Act was issued through system on 31.01.2022 which has been successfully delivered to the assessee and in the above notice assessee was asked to explain as to how the claim of depreciation of ₹.86.87 Crores for the present assessment year on the goodwill created by way of accounting treatment is allowable. 4 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited 5. In response to the above show cause notice, the assessee filed its written submissions in which it was submitted that the claim of depreciation on goodwill as per the provisions of the Act and the same is supported by the following decisions: - (i). CIT v. Smifs Securities Limited (348 ITR 302) (ii). Chowgule & company Private Limited vs. Addl. CIT (2016) 95 CCH (Mum H.C.) (iii). Principal Commissioner vs. Zydus Wellness Ltd (2017) 87 taxmann.com 82 (Gujarat H.C.) (iv). Toyo Engineering India Limited ITS-655-ITAT-2014(Mum) (v). Deputy Commissioner of Income Tax vs. GEA Process Engineering Private Limited (ITA No. 4337/Mum/2015) (vi). Aricent Technologies Holding Limited vs. Dy. CIT (2019) 109 taxmann.com (Delhi Tribunal). 6. Further, it was submitted that claim of depreciation on goodwill is correct and the assessment order is not erroneous nor prejudicial to the interests of the revenue. Therefore, the provisions of section 263 of the Act cannot be invoked in assessee case by relying on several decisions. 7. After considering the submissions of the assessee, Ld. Pr.CIT distinguished the cases relied by assessee of CIT v. Smifs Securities Limited (348 ITR 302). Ld. Pr.CIT observed that the above decisions is distinguishable to the facts of the assessee case, the issue involved is that 5 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited Assessing Officer held the goodwill is not an asset falling under Explanation 3 to section 32(1) of the Act and the Hon'ble Apex Court held that goodwill is an asset. Whereas in the present case the goodwill is self- acquired for which no payment has been made and it has been created by way of an accounting entry. Further, amalgamation does not hold the meaning of transfer as per provision u/s 47 of the Act, the amalgamation of Emerson Network Power Pune Pvt. Ltd., is not a transfer/case of slump sale, hence it is distinguishable. Further, he observed that other decisions relied by the assessee are all connected with the decision of CIT v. Smifs Securities Limited (supra) and various courts and Tribunals are relied on this decision only. Therefore, the above said decisions are distinguishable to the assessee’s case. 8. Further, Ld. Pr.CIT relying on the decision in the case of Signoda India Limited v. Dy. CIT [2021 ITA No. 954/H/2019] observed that the Hon'ble ITAT Hyderabad Tribunal has held the view that depreciation on goodwill created by the assessee on account of amalgamation is not allowable to the company which is acquiring the business. Further, he addressed the various issues raised by the assessee in support of the Assessment Order passed dated 30.12.2019 and reasons for selection, he 6 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited observed that the case of the assessee was selected for the reasons other than claim of depreciation on goodwill and on perusal of notice issued u/s 142(1) of the Act he observed that Assessing Officer has not called for the details in respect of claim of depreciation on goodwill and assessee has not filed submissions in respect of claim of depreciation on goodwill. By observing the above, he came to the conclusion that Assessing Officer has not made enquiry or verification during the course of the assessment proceedings in this case and therefore the Assessment Order passed u/s. 143(3) of the Act on 30.12.2019 is erroneous in so far as prejudicial to the interest of the Revenue and as such Explanation 2(a) to section 263(1) of the Act is attracted in the case of the assessee. Accordingly, he set aside the order of the assessment and directed the Assessing Officer to examine the above discussed issue and redo the assessment after affording adequate opportunity to the assessee. 9. Aggrieved assessee preferred appeal before us raising following grounds in its appeal: - “1. On the facts and in the circumstances of the case and in law, the Learned Pr. Commissioner of Income-tax-1, Thane (Ld. Pr. CIT) erred in passing order under section 263 of the Income Tax Act, 1961 (Act') in complete contravention of CBDT Circular No. 19 of 2019. The Appellant prays that the order passed under section 263 of the Act be treated as invalid and be quashed. 7 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited 2 Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Ld. Pr. CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order passed by the Assistant Commissioner of Income-tax- Circle 3. Thane (Ld. AO") and directing the Ld. AO to revise the assessment. The Appellant prays that the order passed under section 263 is liable to be quashed. 3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Ld. Pr. CTT erred in initiating proceedings under section 263 of the Act, without appreciating that the Ld. AO was correct in allowing depreciation on goodwill as claimed by the Appellant in the return of income and order under section 143(3) is neither erroneous nor prejudicial to the interests of revenue. The Appellant prays that the order passed under section 263 is liable to be quashed. 10. At the time of hearing, Ld. AR submitted that in this appeal depreciation on goodwill is the only issue raised by Ld. Pr.CIT and he brought to our notice Page No. 88 of the Paper Book which is the notice issued u/s. 263 of the Act and he brought to our notice the reasons recorded for issue of notice u/s. 263 of the Act as per which Ld. Pr.CIT has observed that goodwill has been created because of amalgamation with the sister concern. The amalgamation does not hold the meaning of transfer as per provisions of section 47 of the Act and therefore the amalgamation of ENPPL is not a transfer or /slump sale. Therefore, the claim of depreciation on the goodwill created is not allowable for this assessment year and Assessing Officer should have disallowed the same 8 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited and further, he submitted that Ld. Pr.CIT observed that during assessment proceedings u/s. 143(3) of the Act, Assessing Officer has not raised this issue and assessee also has not filed the submissions. In this regard he brought to our notice Para No. 5 of the 263 order to highlight the above. Further, he submitted that the 263 notice itself does not have any reference to Explanation 2(a) to the section 263(1) of the Act. He brought to our notice Page No. 109 of the Paper Book which is the notice issued u/s. 142(1) of the Act along with the annexure. In the annexure to notice u/s. 142(1) of the Act Assessing Officer has raised this issue in Point No. 2 and in this regard Assessing Officer asked the assessee to furnish copy of amalgamation order approved by the Hon'ble High Court and also explain the basis of arriving at the premium value of shares and furnish the copy of the valuation report of the valuation of shares. Further, he brought to our notice in the same annexure, Assessing Officer enquired about the creation of goodwill of ₹.463.30 crores during the year and in this regard he asked the assessee to furnish the valuation of goodwill with supporting documentary evidences. 11. In reply to the same, assessee has submitted all the related documents to the Assessing Officer and he brought to our notice Page 9 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited No.107 of the Paper Book to the submission of the above details by the assessee. Further, he brought to our notice Page No. 23 of the Paper Book which is the notes to the financial statements as on 31.03.2016 and in which the assessee has given complete details of the amalgamation and also the details of goodwill. Further, he brought to our notice Page No. 162 and 163 of the the Paper Book in which Assessing Officer has specifically issued separate notice u/s. 142(1) of the Act dated 23.12.2019 enquiring about the valuation of shares with premium. Therefore, he submitted that Assessing Officer has made thorough investigation on this issue of shares with premium as well as valuation of goodwill. Therefore, Assessing Officer has applied his mind and taken one of the possible view. Therefore, now Ld. Pr.CIT cannot enforce his view on the Assessing Officer to take a different view. 12. On the other hand, Ld. DR submitted with regard to Ground No. 1 raised by the assessee and in this regard he relied on the decision of the Hon'ble Madras High Court in the case of Texmo Precision Castings UK Ltd., v. CIT [2022] 138 taxmann.com 566 (Madras) and he filed copy of the same. Further, he submitted that Assessing Officer has called for the general informations and not proceeded with the proper enquiry. 10 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited Accordingly, he relied on the decision of the Ld. Pr.CIT and he supported the same as proper and just. Further, he submitted that he is relying on the decision of the CIT v. Ballarpur Industries Ltd., [2017] 85 taxmann.com 10 (Bombay) as per which when the Assessing Officer does not make proper enquiries then the Assessment Order passed by him is erroneous as well as prejudicial to the interest of the Revenue. Further, he relied on the decision of CIT v. Smifs Securities Limited (supra) and specifically brought to our notice Para No. 7 of the Ld. Pr.CIT order in which Ld. Pr.CIT has distinguished the above case with the case of assessee. 13. In response to the submissions of the Ld.DR, Ld. AR filed his written submissions as rejoinder, for the sake of clarity it is reproduced below:- Ground No. Order under section 263 of the Income Tax Act, 1961 (the Act) passes in contravention of the CBDT Circular 19/2019 is invalid: 1. To counter the ground of the Appellant that the impugned order is illegal and non-est as the same has been passed without quoting the Document Identification Number (DIN) on the body of the order, the Revenue has sought to rely on the decision of the Hon'ble Madras High Court in the case of Texmo Precision Castings UK Ltd. v. CIT & Ors: W.P. No. 12310 of 2021. 2. At the outset, it is submitted that the said decision is on a different issue altogether and is clearly distinguishable on the facts. In this regard, the submissions of the Appellant are as under: 11 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited 2.1 In the said case before the Hon'ble Madras High Court, the petitioner had filed a writ petition under Article 226 of the Constitution of India challenging the order under section 263 of the Act passed by the Commissioner of Income Tax (CIT). 2.2 Though the petitioner in the said case had the remedy to file an appeal against the order under section 263 before the Income Tax Appellate Tribunal (the Tribunal), the petitioner still those to invoke the extraordinary writ jurisdiction of the High Court. 2.3 The circumstances in which a High Court may exercise its discretionary power under Article 206 of the Constitution of India in cases where there is already an alternate remedy available to the petitioner have been discussed by the Hon'ble Supreme Court in the recent case of Radha Krishan Industries vs. State of Himachal Pradesh and Ors.: Civil Appeal No 1155 of 2021. In this case, the Hon'ble Supreme Court has laid down the following principles after analyzing the earlier decisions on this issue: 27. The principles of law which emerge are that: (i) The power Under Article 226 of the Constitution to issue writs can be exercised not only for the enforcement of fundamental rights, but for any other purpose as well; (ii) The High Court has the discretion not to entertain a writ petition. One of the restrictions placed on the power of the High Court is where an effective alternate remedy is available to the aggrieved person; (iii) Exceptions to the Rule of alternate remedy arise where (a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution; (b) there has been a violation of the principles of natural justice; (e) the order or proceedings are wholly without jurisdiction: or (d) the vires of a legislation is challenged 12 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited (iv) An alternate remedy by itself does not divest the High Court of its powers Under Article 206 of the Constitution in an appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternate remedy is provided by law."(emphasis supplied) 2.4 In the case before the Madras High Court, exception to the rule of alternate remedy which was sought to be invoked by the petitioner was "lack of jurisdiction. The petitioner sought to invoke the writ jurisdiction of the High Court to quash the order passed under section 263 of the Act, on the primary ground that the notice issued under section 263 of the Act was "without jurisdiction". The same has been noted by the Hon'ble High Court in para 45 of the under as under "45 The issue that arises for consideration in this writ petition whether the notice issued to the petitioner under section 263 of the Income tax Act, 1961, pursuant to which, the impugned order dated 30-3-2021 was without jurisdiction or not." 2.5 To urge that the notice issued under section 263 of the Act was without jurisdiction, the petitioner had taken multiple grounds and arguments before the Hon'ble High Court in the course of hearing, one such argument was that the DIN was not quoted on the body of the order under section 263 of the Act passed by CIT in that ease and thus the impugned order was bad in law. 2.6 Apropos the issue before it, the High Court proceeded to examine the limited issue whether the initiation of proceedings under section 263 of the Act was amenable to the writ Jurisdiction 2.7 After a detailed analysis, the Hon'ble High Court arrived at the conclusion that the initiation of the proceedings under section 263 of the Act could not be said to be "without jurisdiction on any count as urged by the petitioner. Accordingly, the Hon'ble High Court refrained from exercising its writ jurisdiction and dismissed the petition with "liberty to the petitioner to work out the Appellate remedy before the Appellate Tribunal under section 254 of the Income-tax Act, 1961" 2.8 The findings of the Hon'ble High Court are at paras 45 to 53 of the order, relevant excerpts from which are an under: “45. The issue that arises for consideration in this writ petition whether the notice issued to the petitioner under 13 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited section 263 of the come-tax Act, 1961, pursuant to which the impugned order dated 30-3-2021 was without jurisdiction or not. ..... 48. Whether the facts on merits warrants invocation of section 11.18 of the Income-tax Act, 1961 or not would render the proceedings without jurisdiction. Invocation of section 263 of the Income-tax Act 1961 by the first respondent on 15-3-2021 vide notice bearing Reference No. CITIT CHE/13/2020-21 which has culminated in the impugned order doted 30-3-2021 cannot be said to be without jurisdiction merely because the intimation of DIN to the order passed under section 263 was one day after the order was passed Para No. 5 of the CBDT Circular No 19/2019 dated 14-8-2019 makes it clear that communication issued manually can be regularized within 15 days of the issuance Para 5 of Circular reads as under:- ...... 49. Para 7 of the said Circular reads as under: — 50. As the scope of judicial review under article 226 of the Constitution of India is limited. I am refraining for discussing on merits of the case Suffice to state that the proceeding initiated by the 1st respondent was not without jurisdiction. 51. The argument of the petitioner that the assessment order was not prejudicial to the interest of revenue and therefore the proceeding under section 263 was liable to be quashed cannot be countenanced A proceeding under section 263 of the Income-tax Act, 1961 cannot be scuttled Further the petitioner participated in the proceeding initiated under action 263 of the Income-tax Act, 1961. Therefore, it is not open to the petitioner to turn around to state that the proceeding was without jurisdiction. 52. Under these circumstances, I do not find any merits in the present writ petition. This writ petition is therefore 14 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited liable to be dismissed with liberty to the petitioner to work out the Appellate remedy before the Appellate Tribunal under section 254 of the Income-tax Act, 1961. If the petitioner files such an appeal within a period of 30 days from the date of receipt of a copy of this order, the Appellate Tribunal shall entertain such appeal and pass appropriate orders on merits and in accordance with law. 53. This Writ petition is therefore dismissed in terms of the above observation. No costs. Consequently, connected miscellaneous petition is closed.” 2.9 Though some paras from the CBDT's Circular No. 19 of 2010 were quoted by the High Court in para 48 and 49 of the order as obiter dicta, the High Court has expressly refrained from commenting on the merits of the same, as noted in para go of the order. The High Court merely found it suffice to state that the invocation of proceedings was not without jurisdiction. Thus, the High Court has only decided upon the jurisdictional challenge to the initiation of proceedings under section at of the Act and not the illegality of the wider under section 263 of the Act 2.10 It is a well settled position in law that an order being "without jurisdiction" is separate and distinct from an order being "illegal". An order cannot be said to be "without jurisdiction" merely because "illegal" and vice-verse. 2.11 As noted above and in paras of the High Court's order, the issue regarding DIN and other issues apart from the limited issue of "lack of jurisdiction" were left open by the High Court while granting liberty to the petitioner to avail the alternate appellate remedy before the Hon'ble Tribunal Further, the Hon'ble High Court has specifically directed t the Hon’ble Tribunal to pass appropriate orders on merits and in accordance with law 2.12 In the present case, the Appellant is not challenging the impugned order on account of the same being "without jurisdiction", but the same has been challenged on the ground that the order is "illegal" and "non-est". 2.13 Further, the Appellant is availing an appellate remedy before the Hon'ble Tribunal and is not invoking the extraordinary writ jurisdiction of a High Court. Accordingly, the order of the Madras High Court in a writ petition dealing with a challenge on jurisdictional grounds cannot be pressed into service in the facts of the present case. 15 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited 2.14 Therefore, Revenue's reliance on the said order of the Hon'ble Madras High Court is evidently misplaced. In view of the above, it is respectfully submitted that the said decision of the Hon'ble Madras High Court does not sway the manner in which an appellate authority may decide the said issue and thus, the Hon'ble Tribunal may decide the issue under consideration on its own merits, in light of the CBDT's Circular No. 19/2019.” 14. Considered the rival submissions and material placed on record, we observe from the record that Ld. Pr.CIT while verifying the assessment records came to the conclusion that order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue by observing that the depreciation claimed by the assessee and goodwill is nothing but created by the assessee by way of accounting treatment and further, the amalgamation itself is not falling under provisions of section 47 of the Act and it does not fall within the meaning of transfer. Ld. Pr.CIT, further, distinguished the facts of CIT v. Smifs Securities Limited (supra) with the facts of the assessee and further, he observed that Assessing Officer has not verified this transaction during assessment proceedings. However, it is brought to our notice that the Assessing Officer has issued notice u/s.142(1) of the Act specifically in order to verify the shares issued with premium as well as the determination of goodwill and further, we observe that another separate notice was issued by the Assessing Officer before passing the Assessment Order on 23.12.2019, all these informations 16 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited submitted by the assessee before the Assessing Officer clearly indicates that Assessing Officer has verified the issue of shares issued with premium as well as determination of goodwill. Further, we observe that the assessee has proceeded to amalgamate with ENPPL after acquiring Hon'ble High Court Order which was also submitted before the Assessing Officer during the assessment proceedings clearly indicate that the transactions were properly approved by Hon'ble High Court and further, Ld. Pr.CIT observes that the transfer of assets by amalgamation does not fall under section 47 of the Act. We notice that Section 47(vi) clearly states that any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company. Therefore, the transfers taken place in amalgamation is not considered as transfer for section 45 of the Act. Therefore, above section clearly recognizes that the transfer due to amalgamation is transfer and it directs the authorities not to consider the above transfer for the purpose of determining capital gains. It is a transfer by the above said definition hence the claim of the Ld.Pr.CIT is not proper. 17 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited 15. Further, we observe that the determination of goodwill is nothing but in the course of amalgamation the purchase consideration paid by the assessee is more than the assets acquired by the assessee. The difference is treated as goodwill and it is an allowable asset for the purpose of claiming depreciation. It is not created by way of accounting treatment. The above said treatment is accepted in the companies Act as well as accounting standard and guidance note issued by ICAI. The assessee has clearly submitted the above said determination of goodwill in the notes of the financial statements and also it is a public document which was submitted before the Assessing Officer and Assessing Officer has considered the same, for the sake of clarity it is reproduced below: - “EMERSON NETWORK POWER (INDIA0 PRIVATE LIMITED Notes to the financial statements as at 31 march 2016 (Continued) Currency: Indian rupees in lakhs 3. Amalgamation of Emerson Network Power (Pune) Private Limited with the Company During the year ended 31 March 2015, the shareholders of the Company (net approved the Scheme of Amalgamation (Scheme) between the Company and Emerson Network Power (Pans) Private Limited (NPP or the Transfer). ENPP was engaged in the business of manufacturing and marketing of Uninterruptible Power Supply (UPS) Systems and related equipment and services manufacturing facilities for UPS was set up at Pune (Maharashtra) and Satara (Maharashtra) The Company also had in-house Research and Development centre at Pane 18 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited The said Scheme received the approval of the Hon'ble High Court of Judicature a Bombay on 24 July 2015 and the Scheme became effective 1 April 2014 consequent to its fling with the Registrar of Companies on 1 October 2015. Prior to the appointed date, the Company was holding 50,000 equity shares of ENPP. As a consequence of and as per the approved Scheme of Amalgamation the aforesaid investment of the Company ENPP had been cancelled and accordingly the share capital of the Company stands reduced by Ra 5.55 lakhs In accordance with the provisions of the aforesaid Scheme, i) The approved share swap ratio was 1,109 equity shares of the face value of Rs 10 each fully paid up of the Company for every 1,000 equity shares of the face value of Rs 10 each fully paid up of ENPP. Since the Company held 2% of the shares in the transferor company, the shares to be issued to the other shareholders in December 2015 was 2,717,050 equity shares of Rs 10/- each for a total consideration of Rs 64,747 lakhs including securities premium of Rs 64,475 lakhs. ii) The amalgamation was accounted under the "Purchase Method" as per Accounting Standard 14-Accounting for Amalgamations, as referred to in the Scheme of Amalgamation approved by the High court. iii) The transfer of assets and liabilities of ENPP at fair value has been effected from the "Appointed date of April 1, 2014, as defined in the Scheme Pursuant to this, balances outstanding/transactions between transferee and transferor Company stands cancelled. iv) Any excess of fair value of shares issued by Transferee Company as consideration over the value of net assets of the Transferor Company acquired by the Transferee Company is adjusted in the Transferee Company's financial statement as Goodwill arising on amalgamation amounting to Rs 46,330 lakhs is net of the value of the shares of the Transferor Company cancelled by the Transferee Company v) Fair value of assets and liabilities acquired from Emerson Network Power (Pune) Private Limited are as under: 19 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited Assets Amount Fixed assets 3,667 Inventories 3,481 Trade Receivables 5,383 Cash and Bank balances 8,457 Short Terms Loans & Advances 3,740 Other Current Assets 78 Total Assets 24,805 Liabilities Trade Payable 3,971 Current Liabilities 1,006 Provisions 954 Other long- term liabilities 5 Total Liabilities 5,936 Net Assets taken over 18,869 Gross Purchase consideration 66,069 Less: Intercompany elimination 1,322 Net: Purchase Consideration (refer note (i) above) 64,747 Goodwill (refer note (iv) above 46,330 16. Coming to the next issue, whether Assessing Officer has verified and made enquiries on the above issue, from the above discussions it clearly indicates that Assessing Officer has verified the issue and he has taken one of the possible view, he may not have discussed the same in Assessment Order. However, it is clear from the above discussion that Assessing Officer has taken a possible view. Now Ld. Pr.CIT cannot take a divergent view which is according to him is correct and proper view. Which he cannot impose on the Assessing Officer. We observe that on the similar issue the Coordinate Bench in the case of Metallurgical Services Private Limited v. Pr.CIT in ITA.No. 835/Mum/2021 dated 13.09.2020 and held as under: - 20 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited “11. A perusal of the impugned order reveals that the PCIT has disallowed depreciation on Goodwill merely on surmises and conjectures. In so far as the issue of depreciation on Goodwill is concerned, the Hon’ble Apex Court in the case of CIT vs. Smifs Securities Ltd.(supra) has held that Goodwill is an asset under Explanation 3(b)(as applicable to assessment year under appeal) to section 32(1) of the Act and thus, depreciation on Goodwill is allowable. Undisputedly, in the present case the Goodwill has arisen on slump sale of business by partnership firm to the assessee. The said transaction of purchase of business was on mutually agreed terms and conditions. It has been pointed by the assessee that during the course of assessment proceedings a specific query was raised by the Assessing Officer with respect to additional depreciation claimed u/s. 32(1) vide notice u/s. 142(1) of the Act dated 22/08/2016. It is further noted that the Assessing Officer vide notice u/s.142(1) of the Act dated 20/07/2017 (at page 232 of the paper book) had raised specific query with reference to addition of intangible asset during the year. The assessee in response to the said notice had furnished the details as well as documentary evidences. The reply of the assessee dated 18/08/2017 is at page 229 of the paper book. Thus, this issue was considered and examined by the Assessing Officer during the assessment proceedings. Thus, after examining the issue the Assessing Officer formed an opinion and accepted assessee’s claim of depreciation on Goodwill. The PCIT has erred in invoking provisions of Explanation 2 (a) &(b) to section 263 of the Act. We further observe that while deciding this issue of depreciation on Goodwill, the PCIT on one hand gave a conclusive finding that the Goodwill claimed by the assessee is merely an illusory entry in the books of account and, therefore, no depreciation as claimed can be allowed to the assessee, on the other hand PCIT set aside the issue back to the Assessing Officer to examine the facts involved in the light of observations made. The PCIT in fact has given a specific finding on the issue, without examining the assessee’s claim of depreciation. The PCIT has thrust his view over the view taken by the Assessing Officer after examining the facts, which is one of the possible views by the legal jurisprudence and the provisions of the Act. The findings given by the PCIT are superfluous, as they are merely based on assumptions hence, unsustainable. We find merit in Ground No.4 of the appeal, ergo, the same is allowed. 21 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited 12. In the light of our above findings it is unambiguously clear that the PCIT has overstepped in exercising his revisional jurisdiction u/s. 263 of the Act. The two mandatory conditions to be satisfied for exercising revisional powers i.e. the order passed by Assessing Officer should be (i) erroneous and (ii) prejudicial to the interest of Revenue are not concurrently fulfilled in the instant case. Hence, the impugned order is set-aside and the appeal of the assessee is allowed.” 17. Respectfully following the above said decision, we set-aside the impugned order and accordingly appeal filed by the assessee is allowed. ITA.No. 789 & 790/MUM/2022 (A.Y. 2017-18 & 2018-19) 18. Coming to the appeals relating to A.Ys. 2017-18 & 2018-19, since facts in these cases are mutatis mutandis, therefore the decision taken in A.Y. 2016-17 is applicable to these Assessment Years also. Accordingly, these appeals are allowed 19. To sum-up, appeals filed by the assessee are allowed. Order pronounced in the open court on 20 th February, 2023 Sd/- Sd/- (KULDIP SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 20/02/2023 Giridhar, Sr.PS 22 ITA NO.788, 789 & 790/MUM/2022 (A.Y: 2016-17) Vertiv Energy Private Limited Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum