Ananya Finance For Inclusive Growth Pvt.Ltd., Ahmedabad V. Dy.Commissioner of Income Tax,Circle-1(1)(1), Ahmedabad

MA 93/AHD/2022

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6664 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 04-06-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-03-2024
• Assessment Year: 2011-2012
• Appeal Filed On: 08-11-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VIRTUE OF BUSINESS TRANSFER AGREEMENT BTA; WAY OF HAVING INDIRECTLY PROVIDED ALL FINANCES ITS CREATION
• Keywords: Depreciation; Valuation report; Capital Gains
• Section: 254(2)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘A’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND MS. SUCHITRA R. KAMBLE, JUDICIAL MEMBER MA No. 93/Ahd/2022 (Arising out of ITA No. 959/Ahd/2016) Assessment Year : 2011-12 Ananya Finance for Inclusive Growth Private Limited, 903, Sakar IX, Besides Old RBI, Ashram Road, Ahmedabad PAN : AAHCA 8023 D Vs. The DCIT, Circle – 1(1)(1), Ambawadi, Ahmedabad-380015 (Applicant) (Applicant)(Applicant) (Applicant) (Respondent) (Respondent)(Respondent) (Respondent) Assessee by : Shri Tushar Hemani, Sr. Advocate & Shri Parimalsingh B. Parmar, AR Revenue by : Shri J.L. Bhatia, Sr DR सुनवाई क琉 तारीख/Date of Hear ing : 08. 03. 202 4 घोषणा क琉 तारीख /Da te of Prono un cem e nt: 0 5.0 6.2 024 आदेश आदेशआदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: Vide this Miscellaneous Application, the assessee seeks rectification of the order dated 25.08.2022 passed by the Tribunal in ITA No. 959/Ahd/2016. The application points out numerous mistakes in the order of the ITAT listed in a 20 page application. 2. Before us, reference was made to the impugned application while orally bringing to our notice the errors/mistakes in the order of the ITAT. Rectification with regards to which was sought with the plea that the order be recalled and the issue be decided afresh after taking into consideration the correct position of facts and law. Briefly put, the mistakes pointed out in the order of the ITAT were with respect to certain contentions raised by the 2 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 assessee and judgments relied upon by the assessee not dealt with by the ITAT, as also with respect to mistakes in the findings of the ITAT to the effect that :- (a) the intangibles transferred to the assessee were irrelevant; (b) that the valuation of the intangibles was incorrect; (c) no actual transfer of business to an independent entity had taken place; (d) that the entire exercise of business transfer was a colourable device for evasion of tax. It was also pointed out that the decision relied upon by the ITAT while finding the entire exercise to be a colourable device was not confronted to the assessee and also stood reversed by the Hon’ble Apex Court. 3. The ld. DR vehemently opposed the entertainment of this application, pointing out that what the assessee was seeking by virtue of this application was a review of the Tribunal’s order which was not permissible in terms of Section 254(2) of the Act. He contended that the ITAT had passed a well- reasoned order on the basis of facts before it and the impugned application needed to be rejected. 4. We have heard both the parties carefully and have also gone through the contents of the application placed before us. Reference was also made to certain judicial decisions during the course of arguments made before us which were also considered by us. Taking note of all of the above, we do not find any merit in the present Miscellaneous Application. 5. We shall now proceed to point out as to why we have held the present Miscellaneous Application to be of no substance. 3 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 6. The application reveals that the mistake noted in the order of the ITAT was in relation to the issue of claim of depreciation on intangibles, which was consistently denied by both the Revenue authorities below, i.e. the Assessing Officer and the ld. CIT(A), and confirmed by the ITAT also. Perusal of the order of the ITAT reveals that the findings of the Assessing Officer on the issue were confirmed to the effect that the intangibles which came into existence in the hands of the assessee by virtue of Business Transfer Agreement (‘BTA’ for short) with a Trust i.e. Friends of Women’s World Banking (‘FWWB’ for short), was entirely baseless since there were no intangibles transferred by virtue of that agreement. That, the valuation, therefore, of the same at Rs.34 crores was liable to be rejected and the assessee’s claim of depreciation to be denied. The ITAT confirmed the findings of the Assessing Officer that the entire exercise of creation of intangible in the hands of the assessee by virtue of BTA was only for claiming depreciation on this intangible so as to avoid payment of taxes. The ITAT’s findings, therefore, were to the effect that:- i. No intangibles were created/transferred to the assessee by virtue of BTA entered into with FWWB by the assessee; ii. The valuation, therefore, of the intangibles was ‘Nil’; iii. Even the valuer’s report justifying the value of the intangibles was without any basis or justification; iv. The entire purpose of the exercise of transferring an existing business of FWWB, the micro financing division, to the assessee was only creating artificially an intangible asset in the assessee’s hands for claiming depreciation thereon so as to reduce profits. The assessee being noted to be controlled and managed by FWWB and the entire process not involving a single penny being expended, the true purpose 4 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 was creating an intangible for FWWB, which it otherwise was ineligible to create in its own books of accounts. 7. In the present Miscellaneous Application consisting of 20 pages, the assessee has pointed out mistakes in various paragraphs of the order of the ITAT which most of the times, we have noted, are repetitive. For the sake of convenience, since we have noted the specific findings of the ITAT as above, we shall be dealing with the mistakes pointed out by the assessee in the application relating to each finding of the ITAT. 8. Taking up first the finding in the order of the ITAT that no intangibles were transferred to the assessee by virtue of BTA, the mistake pointed out in this is at paragraph no. 2.3.1 of the application and is to the effect that the ITAT, while holding so, had noted that the intangibles transferred to the assessee included ‘dedicated customers’ which it was noted, as per AS 26 ( Accounting Standard 26), to have no value. The mistake pointed out in this regard is to the effect that it was not ‘dedicated customers’ which were transferred but it was a ‘distribution network’ of the assessee which was transferred by the BTA. That AS 26 had been wrongly relied upon by the ITAT for determining the value of the customer base; that the actual cost of the intangible was to be determined in accordance with Section 43(1) of the Act on the basis of the actual cost, which is what the assessee had done. Therefore, reliance on the Accounting Standards by the ITAT was incorrect. 9. We do not find any merit in the mistake pointed out as above for the reason that, firstly, ‘dedicated customers’ was identified as only one amongst the several irrelevant intangibles found to be transferred to the assessee by virtue of the BTA. The intangibles were found to be of no consequence - not 5 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 merely on account of ‘dedicated customers’ but also several other intangibles stated by the assessee to have been transferred to it under the BTA. Therefore, pointing out a mistake in the finding of the ITAT that no intangibles have been transferred by virtue of the BTA by referring to only one of the intangibles so transferred, does not have any effect on the finding of the ITAT. Even otherwise, the reference to AS 26 was made for pointing out that a ‘dedicated customer’, as per AS 26, can be treated as an intangible only if there is a legal right to protect the customer base or any other ways to control the relationship and loyalty with the customers. This principle, which was applied to ‘dedicated customer’, applies equally well to ‘loan distribution network’ also. Therefore, applying AS 26 to ‘dedicated customers’ instead of ‘loan distribution network’ does not in any manner effect the finding of the ITAT of no intangibles being transferred. Lastly, the contention that AS 26 could not have been relied upon for determining the cost of intangible is wholly incorrect since AS 26 was referred to by the ITAT not for the purposes of determining the cost of the intangible, but for determining whether any intangible was created on account of ‘dedicated customers’/’loan distribution network’. Therefore, all the mistakes pointed out by the ld. Counsel for the assessee with respect to the finding of the ITAT that no intangibles were transferred by virtue of the BTA merit no consideration and are rejected. What follows as a consequence is that there is no mistake in the finding of the ITAT that no intangibles were transferred by virtue of the BTA. 10. Coming to the next finding of the ITAT in which mistakes have been pointed out, i.e. with respect to the valuation of intangibles at Rs.34 crores being baseless, there is no mistake in the same once the finding of the ITAT that no intangibles were transferred has remained undisturbed. When no intangibles are found to have been transferred, there arises no question of any 6 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 value being given to the intangibles. Therefore, for this reason alone, there cannot be any mistake in the finding of the ITAT of the intangibles having no value at all. Even otherwise, we shall still deal with the mistakes pointed out by the ld. Counsel for the assessee in his application before us. 11. One contention which is oft repeated in the 20 pages Miscellaneous Application is that the genuineness of the Valuer’s Report valuing the intangibles at Rs.34 Crs was not doubted and in the circumstance his valuation was not agreeable, the valuation should have been referred to the DVO and ‘Nil” valuation could not have been given to the intangible without referring the valuation to the DVO. Several case laws were referred to in this regard- more particularly that of Ashwin Vanaspati Industries Vs. CIT, reported in (2002) 255 ITR 26 (Gujarat). It was the contention of the ld. Counsel for the assessee that this argument was repeatedly made while arguing the appeal before the ITAT, but it chose to ignore the same. 12. We do not find any mistake in the order of the ITAT for not dealing with this argument of the assessee. As noted above, once the ITAT found that there were no intangibles transferred to the assessee by the BTA, there arose no question of giving any value to the intangibles and the ITAT rightly held the value of the intangibles, therefore, to be Nil. There was no question of any reference being made to DVO in the light of the glaring fact found by the ITAT that no intangibles were transferred to it by virtue of BTA; therefore, this mistake pointed out by the ld. Counsel for the assessee is found to be of no consequence. 13. The ld. Counsel for the assessee has referred to several other mistakes with regard to the findings of the ITAT on the valuation report being baseless, 7 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 but all of them need to be dismissed for the reason as stated above that in the absence of any intangibles have been transferred to the assessee, there arose no question of valuation of the intangibles. 14. The ld. Counsel for the assessee has also pointed out mistake in the findings of the ITAT that the Business Transfer Agreement was a mere eyewash and the Micro Finance Institution (MFIB) business of FWWB which was transferred to the assessee, was only a way of ensuring that this business of MFI still remained with FWWB, though in the hands of a palpably different entity, the assessee, the ultimate objective being creation of intangibles for claiming depreciation thereon for set off against the profits of the MFI business. The ITAT found FWWB to be controlling and managing the assessee by way of having indirectly provided all finances for its creation and also noting one of the Trustees of FWWB to be a Director of the assessee-company. The ld. Counsel for the assessee has pointed out that, the fact noted in the order that FWWB had controlling stake in the assessee was not correct fact, that in subsequent years the stake of the promoter-trust had reduced substantially from 99.98% to 5.59% from FY 2011-12 to 2021-22. A table in this regard was filed before us. At this juncture, the ld. Counsel for the assessee was asked about the rate of depreciation allowable on intangibles, which he pointed out was @ 25% WDV. The ld. Counsel for the assessee was pointed out at bar that at this rate the value of the intangibles would be amortised to the extent of approx.. 75% in a period of 5 years and in which period, as per the facts presented by the assessee before us, the promoter-trust had substantial stake in the assessee-company; therefore, achieving the objective for which the ITAT found the intangibles to have been created. The fact of dilution of the interest of the promoter-trust over a period of 10 years, as 8 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 pointed out by the ld. Counsel for the assessee, therefore, we find, makes no difference to the ultimate finding of the ITAT that the entire exercise was a colourable device so as to avail the benefit of depreciation on intangible asset. This mistake pointed out in the order of the ITAT is of no merit and deserves no consideration. 15. Ld. Counsel for the assessee has also pointed out that the reasoning with the ITAT for holding the entire exercise to be a colourable device was that the purpose of the entire exercise was to evade payment of taxes by claiming deprecation on alleged non-existing intangible asset. The ld. Counsel for the assessee contended that in the hands of the FWWB capital gains of Rs. 26.57 crores were offered to tax in the return of income filed. Therefore, the allegation of the entire exercise being for the purpose of evasion of taxes was incorrect. 16. We do not find any merit in this contention of the ld. Counsel for the assessee also. The assessment order passed in the case of FWWB for the impugned year was filed before us and we have noted therefrom that no taxes were paid by FWWB for the said year claiming utilization of its entire income including capital gains, by way of donation made to IFIG of Rs.45 crores. This donation was disallowed by the Assessing Officer in his order passed u/s 143(3) of the Act, but was allowed in first appeal by ld. CIT(A). The Department, we have noted, went in appeal before the ITAT, but the assessee ultimately settled the dispute under Vivad-se-Vishwas Scheme 2020, by paying 50% of the taxes of the dispute amount. In view of the above facts, no benefit can be derived by the assessee in any way from the income returned 9 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 in the hands of the FWWB and even its ultimate assessment. This contention of the ld. Counsel for the assessee also, therefore, needs to be rejected. 17. Finally, the ld. Counsel for the assessee contended that the ITAT relied on the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Shiv Raj Gupta, 372 ITR 337 (Del), for holding the impugned transaction to be a colourable device and applying the doctrine of lifting the corporate veil in tax matters. He contended that this decision of the Hon’ble Delhi High Court stood reversed by the Hon’ble Supreme Court in its order dated 22.07.2022 in Civil Appeal No. 12044 of 2016. That the Delhi High Court’s decision was not confronted to the assessee and was applied behind its back. Therefore, the same could not be considered for the purposes of adjudicating the issue. 18. We do not find any merit in this contention of the ld. Counsel for the assessee also because the ITAT referred to the decision of the Shiv Raj Gupta (supra) for applying the proposition that the doctrine of lifting the corporate veil in tax matters is judicially recognized, and, in this context, the ITAT had referred to the decision of the Hon’ble Apex Court in the case of Mcdowell and Company Ltd. Vs Commercial Tax Officer, reported in 154 ITR 148 (SC) and other decisions also of the Hon’ble Apex Court. Therefore, it is the principle judicially recognized by the Hon’ble Apex Court in several cases which was applied by the ITAT and the reference to the decision of the Hon’ble Delhi High Court in the case of Shiv Raj Gupta (supra) has to be read in this context only. That the decision of the Hon’ble Delhi High Court stood reversed by the decision of the Hon’ble Supreme Court does not dilute the judicially accepted proposition of doctrine of lifting the corporate veil in tax matters. Therefore, this contention of the ld. Counsel for the assessee also needs to be dismissed. 10 MA No. 93/Ahd/2022 Ananya Finance for Inclusive Growth Pvt Ltd Vs. DCIT AY : 2011-12 19. In view of the above, we do not find any merit in the application of the assessee pointing mistakes in the order of the ITAT in its case. Therefore, the application filed by the assessee is rejected. 20. In the result, the Miscellaneous Application filed by the assessee is dismissed. Order pronounced in the open Court on 05/06/2024 at Ahmedabad. Sd/- Sd/- (SUCHITRA R. KAMBLE) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 05/06/2024 **bt आदेश की े /Copy of the Order forwarded to : 1. ी / The Appellant 2. / The Respondent. 3. संबं ध आयकर आय / Concerned CIT 4. आयकर आय ) ी (/ The CIT(A)- 5. वभ गीय ध ,आयकर ी ीय धकरण,/DR,ITAT, Ahmedabad, 6. ग ! फ ई /Guard file. आदेश स र/ BY ORDER, TRUE COPY सह यक ंजीक र (Asstt. Registrar) आयकर ी ीय धकरण ITAT, Ahmedabad 1. Date of dictation ......22.05.2024........ 1. Date on which the typed draft is placed before the Dictating Member :.....23.05.2024.......... 2. Other Member...28/29.05.2024..................... 3. Date on which the approved draft comes to the Sr.P.S./P.S...31.05.2024... 4. Date on which the fair order is placed before the Dictating Member for pronouncement...05/06/2024 5. Date on which the fair order comes back to the Sr.P.S./P.S...05.06.2024................ 6. Date on which the file goes to the Bench Clerk...05.06.2024............. 7. Date on which the file goes to the Head Clerk....... 8. The date on which the file goes to the Assistant Registrar for signature on the order............ 9. Date of Despatch of the Order..................