JET PRIVILEGE PRIVATE LIMITED,MUMBAI V. DY CIT CC-5(2), MUMBAI

MA 151/MUM/2025

AI Insights

Jet Privilege Private Limited filed a Miscellaneous Application under section 254(2) of the Income Tax Act, 1961, seeking rectification of the Tribunal's combined order concerning the depreciation on goodwill and other intangible assets from the purchase of the Jet Privilege Frequent Flyer Programme (JPFFP) from Jet Airways. The Tribunal had initially remitted the issue back to the AO for verification of the overall valuation. The MA argued that the Tribunal's findings were erroneous, particularly concerning the applicability of sections 50B/50C and the treatment of intangible assets. After reviewing the submissions and relevant provisions, the Tribunal found merit in the assessee's arguments, leading to the allowance of the MA and the directive for the AO to re-examine the valuation and allow depreciation accordingly.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783684 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 03-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2021-2022
• Appeal Filed On: 16-06-2025
• Other Referred Cases: CIT, Kolkata vs. Smifs Securities Ltd. [2012] 348 ITR 302 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR RAI
• Assessee Lawyers: SHAREAN KR. JHA
• Keywords: Depreciation; Sale consideration of property below Jantri Value; Capital Gains; Valuation report

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JM & MS PADMAVATHY S, AM M.A. Nos. 147 to 151/Mum/2025 (Arising out of I.T.A. Nos.1953 to 1956 & 2287/Mum/2023) (Assessment Years: 2015-16 to 2018-19 & 2021-22) Jet Privilege Private Limited 703, Kanakia Wall Street, Andheri Kurla Road, Andheri (West), Mumbai 400059 PAN: AACCJ9147J Vs. Deputy Commissioner of Income Tax, Central Circle-5(2) [Erstwhile DCIT-10(2)(1)] Deputy Commissioner of Income Tax, Central Circle-5(2) [Erstwhile DCIT- 10(2)(1)] Appellant) : Respondent) Assessee by : Shri Sharean KR. Jha, Adv. Revenue by : Shri. Saurabh Kumar Rai, CIT DR Date of Hearing : 13.10.2025 Date of Pronouncement : 03.11.2025 O R D E R Per Padmavathy S, AM: This Miscellaneous Application (MA) is filed under section 254(2) of the Income Tax Act, 1961 (the Act) by the assessee seeking rectification of the combined order of the Tribunal in the above listed ITA Nos.1953 to 1956 & 2287/Mum/2023 dated 11.11.2024 2. The Tribunal in the above appeals decided the issue of depreciation on goodwill and other intangible assets capitalised by the assessee towards purchase of 'Jet Privilege Frequent Flyer Programme' (JPFFP) from M/s.Jet Airways(India) Printed from counselvise.com 2 M.A. Nos. 147 to 151/Mum/2025 (Arising out of I.T.A. Nos. 1953 to 1956 & 2287/Mum/2023) Jet Privilege Private Limited Limited,as a slump sale transaction. The Tribunal while deciding the issue has recorded a finding that the difference between the net book value of the assets and the purchase consideration is to be recorded goodwill in the books of the assessee. The Tribunal further remitted the issue back to the AO to verify overall valuation along with certain specific directions (refer para 17 of the impugned order). Now the assessee has now filed the MA stating that the findings of the Tribunal with regard to the following are erroneous within the meaning of section 254(2) of the Act – A. Erroneously set out/ reached certain findings on the basis of the provisions of section 50B/50C of the Income Tax Act, 1961 (the Act) are not applicable at all to applicant (Buyer). B. No conclusive finding in respect of intangible assets on which depreciation has be allowed. C. Observed that the basis of arriving at purchase consideration is not submitted by JPPL. 3. We heard the parties and perused the material on record. After considering the submissions of the Ld. AR and the relevant provisions of the Act, we are of the view that there is an apparent error in the findings of the Tribunal and accordingly we allow the MA filed by the assessee. Further from the perusal of findings in para 7 of the impugned order we notice that the table containing amount of depreciation allowed by the Ld. CIT(A) was omitted to be extracted in the order. We are therefore replacing Paragraph No. 7, 12 to 18 of the impugned order with the following paragraphs – Printed from counselvise.com 3 M.A. Nos. 147 to 151/Mum/2025 (Arising out of I.T.A. Nos. 1953 to 1956 & 2287/Mum/2023) Jet Privilege Private Limited “7. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) by placing reliance on the valuation report of Intangible assets gave partial relief to the assessee by allowing depreciation on certain intangible assets as valued in the report after adjusting the liability towards legacy miles. The amount on which the CIT(A) has allowed the depreciation is as detailed below – Particulars Amount – Rs. Commercial agreement 4,48,71,00,000 Member data base 39,23,00,000 License to use \"Jet\" brand 61,65,00,000 Value of Ticket purchase agreement 1,99,47,00,000 Total Assets 7,49,06,00,000 Less : Liability towards Legacy Miles 3,90,46,00,000 Net value of identified intangible assets 3,58,60,00,000 12. From the perusal of the documentary evidences submitted before us as well as the lower authorities it is evident that the M/s.Jet Airways India Ltd., has sold the JPFFP as a going concern by entering into Slump Sale Agreement dated 1911.2013 (page 153 to 237). In our considered view the contention of AO that the entire transaction is a demerger is not tenable for the reason that the basic events / elements of a Demerger such as the court approved process, issue of shares to the existing shareholders as part of demerger etc., are not present in the impugned transaction and the claim of AO is unsubstantiated. As per the claims of the assessee, the impugned transaction has resulted in goodwill in the hands of the assessee since the business acquired consists of many intangible assets some identifiable and some general goodwill. Further it is a settled position that under slump sale no value is attributed to the individual assets and the difference between the fair value of all the assets acquired and the consideration paid by the purchaser is recorded as good will in the books of the purchaser. Now coming to the issue of depreciation in goodwill we notice that the claim of depreciation on goodwill / intangible has not been disputed by the revenue which is substantiated by the observations of the CIT(A) in para 3.21 (page 57 of CIT(A)'s order) where the CIT(A) has given a categorical finding that the depreciation on goodwill is not allowable w.e.f.01.04.2021 and prior to that depreciation is allowable on all intangible assets including goodwill. We further notice that the Hon’ble Supreme Court in the case of CIT, Kolkata vs. Smifs Securities Ltd. [2012] 348 ITR 302 (SC) has considered a similar issue and held that – 4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). Printed from counselvise.com 4 M.A. Nos. 147 to 151/Mum/2025 (Arising out of I.T.A. Nos. 1953 to 1956 & 2287/Mum/2023) Jet Privilege Private Limited 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding. 13. Considering the categorical finding of the Hon'ble Supreme Court that the goodwill also falls under the expression 'any other business or commercial right of a similar nature' and thus would be an asset under Explanation 3(b) to section 32(1) of the Act, we hold that the assessee is entitled to the claim of depreciation on goodwill / intangible assets arising out of the slump sale whereby the assessee has acquired the business of JPFFP. 14. We will now consider the issue of the amount of goodwill on which the assessee is entitled to claim depreciation after considering the fair value of identifiable intangible asset on which the assessee is entitled to claim depreciation.Section 50Bof the Act provides that the difference between the consideration paid as part of slump sale and the net worth of the undertaking transferred shall be taxed as capital gains in the hands of the seller. Though the Act does not contain specific provisions with regard to the value at which the assets acquired are to be recorded in the books of the purchaser, as already stated it is a settled position that the assets acquired are to be recorded at fair value as on the date of acquisition in the books of the purchaser. Further the difference between the net fair value of identified tangible/intangible assets and liabilities and the consideration paid is to be recorded as goodwill in the books of the purchaser. On perusal of records including the notes forming part of the accounts (refer relevant part extracted in the earlier part of this order), we notice that the for the purpose of arriving at the value of goodwill the assessee has computed the net asset i.e. Assets less Liabilities on the basis of fair value of certain identified tangible/intangible assets and liabilities as per the valuation report. To quote an example Commercial Agreement valued at Rs. 448,71,00,000/- as per the valuation report (page 259 of paper book) has been included for the purpose of computing the net asset and similarly Liabilities towards legacy miles valued at Rs. 3,90,36,00,000/- has also been included for arriving at negative net asset value which is the basis for arriving at the value of goodwill. Accordingly the correctness of the value of goodwill as arrived at by the assessee can be accepted provided the correctness of the valuation of other identified Printed from counselvise.com 5 M.A. Nos. 147 to 151/Mum/2025 (Arising out of I.T.A. Nos. 1953 to 1956 & 2287/Mum/2023) Jet Privilege Private Limited tangible/intangible assets and liabilities verified and found to be correct. This is so because, the goodwill being a balancing figure it is imperative that the entire basis of arriving at the fair value of assets and liabilities as per valuation report and the basis of arriving at the overall consideration is examined properly before accepting the amount of goodwill to be recorded as part of the impugned slump sale. Though there may arise an argument that the changes or removal of fair value of identifiedtangible / intangibles considered by the assessee for arriving at net asset will have a compensating impact in the amount of goodwill, we are of the view that it is important to arrive at the correct value of goodwill acquired by the assessee in the purchase of JPFFP more so in the light of the contention of the revenue that the basis of arriving at the purchase consideration is not submitted by the assessee.Once the assessee is able to substantiate the basis of arriving the Fair Value of the identified tangible / intangible assets and liabilities and also the basis for arriving at the over all purchase consideration, then arriving at goodwill is a simple math of working out the difference between the fair value of net assets and overall purchase consideration paid by the assessee. 15. Section 2(42C) of the Act provides that for the purpose of a transaction to be considered as a slump sale there should be a transfer of an undertaking / business and the assets or liabilities not constituting a business activity are excluded from undertaking / business. Therefore it is important for the assessee to identify the assets and liabilities pertaining to the JPFFP business and consider only those assets and liabilities while arriving at the overall value. The ld AR during the course hearing submitted that only those assets and liabilities pertaining to JPFFP business has been transferred as part of slump sale and the said fact is evidenced by the notes to accounts as certified by the auditors of the assessee. Though there is merit in the said submission of the ld AR, we notice from the perusal of the order of the CIT(A) that the valuation of certain assets have been accepted and certain other assets are rejected (Refer the amount on which depreciation is allowed by the CIT(A) as extracted in para 7 herein above) without recording any specific reasons for the same. Further it is noticed that the AO has simply stated that the purchase consideration is unsubstantiated i.e. without any basis, and has proceeded to complete the assessment in a completely different tangent considering the entire transaction as demerger. Accordingly in our considered view, the lower authorities are not correct in rejecting the value of goodwill and the depreciation on identified intangible assets without recording any defects in the valuation report submitted by the assessee. Therefore we are inclined to remit the appeal back to the AO for the limited purpose of examining the valuation basis which the goodwill is arrived at by the assessee by calling for relevant details as may be required in this regard. The AO, is further directed to allow depreciation on all intangible assets including goodwill as claimed by the assessee in accordance with law. Assessee is directed to submit the relevant details before the AO as may be called for. It is ordered accordingly.” 4. The other paragraphs of the impugned order are renumbered accordingly and the rest of the findings given in order dated 11.11.2024 remain unaltered. Printed from counselvise.com 6 M.A. Nos. 147 to 151/Mum/2025 (Arising out of I.T.A. Nos. 1953 to 1956 & 2287/Mum/2023) Jet Privilege Private Limited 5. In result the MA filed by the assessee is allowed. Order pronounced in the open court on 03-11-2025. Sd/- Sd/- (ANIKESH BANERJEE) (PADMAVATHY S) Judicial Member Accountant Member Divya R. Nandgaonkar Stenographer Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "