SAGARLAXMI AGRISEEDS PRIVATE LIMITED,AHMEDABAD V. THE ACIT, CIRCLE-4(1)(1), AHMEDABAD

ITA 1918/AHD/2024

AI Insights

The case involves Sagarlaxmi Agriseeds Pvt Ltd, which acquired a proprietorship and claimed depreciation on goodwill valued at Rs.5,53,12,761. The Assessing Officer disallowed this depreciation, linking it to an increase in share capital during the acquisition. The Tribunal examined whether the Assessing Officer was justified in expanding the scope of scrutiny beyond the issue of share capital increase to include depreciation on goodwill without the necessary administrative approval. The Tribunal also considered the validity of the goodwill valuation, which was supported by a registered valuer's report. Ultimately, the Tribunal found procedural improprieties in the Assessing Officer's actions and upheld the assessee's claim for depreciation on goodwill.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714223 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHARNIDAS V.S.
• Assessee Lawyers: DEEPAK R. SHAH; WAY OF A
• Keywords: Capital asset; Depreciation; Cost of acquisition; Valuation report; Assessment record; Competent authority; Scheme of amalgamation
• Section: 143(3); 56; 68; 15

Judgement Text

"आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ ‘C’ अहमदा बा द। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ] ] BEFORE S/SHRI SANJAY GARG, JUDICIAL MEMBER AND NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER ITA No.1918/Ahd/2024 Assessment Year : 2017-18 Sagarlaxmi Agriseeds Pvt Ltd 206, Ashwamegh Avenue Opp: Mithakhali Garden Navrangpura Ahmedabad. PAN : AAWCS 7561 F Vs ACIT, Cir.4(1)(1) Ahmedabad. (Appellant) (Respondent) Assessee by : Shri Deepak R. Shah, AR Revenue by : Shri Dharnidas V.S., Sr.DR सुनवाई की तारीख/Date of Hearing : 15/05/2025 घोषणा की तारीख /Date of Pronouncement: 05/08/2025 आदेश/O R D E R Per Sanjay Garg, Judicial Member The above appeal has been preferred by the assessee against order passed by the Ld. Commissioner of Income-Tax(Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “Ld. CIT(A)] dated 22.10.204 under section 250 of the Income Tax Act, 1961 (\"the Act\" for short) arising out of the order of passed by the Assessing Officer (hereinafter referred to as “AO”) under section 143(3) of the Act pertaining to Assessment Year 2017-18. 2. The assessee has raised the following grounds of appeal: Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 2 1. That the Ld. CIT(A) erred in law and in the facts of the case in confirming the order of the AO in disallowing depreciation on goodwill which was not the subject matter of limited scrutiny. 2. That the Ld. CIT(A) erred in law and in the facts of the case in confirming the order of the AO in disallowing depreciation on goodwill of Rs.5,53,12,761/-u/s 32 of the act. 3. The assessee, a private limited company, filed its return of income for the year under consideration i.e. Asst. Year 2017-18 on 10-10-2017 declaring a loss of Rs.2,78,32,804/-. The return was processed under section 143(1) of the Act. The case was thereafter selected for scrutiny under CASS to examine the issue of large increase in share capital during the year. Thereafter, notice under section 143(2) of the Act was issued to the assessee on 20.8.2018. The contents of the said notice are reproduced hereunder: “ Notice under section 143(2) of the Income Tax Act, 1961 Limited scrutiny ( Computer Aided Scrutiny Selection) Sir/Madam/M/s, This is for your kind information that the return of income filed by you for Assessment Year 2017-18 vide ack. No. 2374714611011017 on 10/10/2017 has been selected for Limited Scrutiny and following issue(s) have been identified for examination: i. Share capital/Capital 2. In this regard, an opportunity is being given to you to produce or cause to produce any evidence on which you may like to rely in support of the said return of income by 05/09/2018 at 11:00 AM. 3. The evidence/information specified above has to be furnished online electronically through your E-filing account in lncometaxindiaefiling.gov. in. Subsequent assessment proceedings shall also be conducted electronically through the 'E-Proceeding* facility of Income-tax Department. A brief note on 'E-Proceeding' is enclosed for your kind reference. 4. In course of assessment proceedings, if required, specific questionnaire(s) or requisition(s) for information/document shall be issued subsequently. 5. Please note that para 3 is applicable if you have an E-filing account. Till the time such an account is created by you, assessment proceedings shall be Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 3 carried out either through your specified e-mail account or manually (if e-mail is not available). 4. A perusal of the aforesaid contents of notice issued under section 143(2) of the Act would also reveal that the case of if the assessee was selected for limited scrutiny to examine the issue of increase in share capital. In response to the notice, the assessee furnished reply and stated therein that the assessee company had taken over one proprietorship namely “M/s. Sagar Laxmi Seeds form Prop. Dilipbhai Majumdar. That the assessee company had recorded all the assets and liabilities including intangible assets like goodwill etc. at the acquisition cost on the basis of valuation report by eminent Chartered Accountant firm who was expert in business valuation. That the assessee company had issued the shares against the assets and liabilities taken over as per the said valuation report. The AO after considering the reply and explanation of the assessee, did not make any addition in respect of the issue of increase in share capital. However, the AO noticed that the assessee had claimed depreciation on goodwill of Rs.5,53,12,761/-. He, thereafter, proceeded to examine the issue of the claim of depreciation on goodwill. While so proceedings, the AO noted as under: “However, at the outset it is clarified that in this case, the issue of share-capital and creation of goodwill are inextricably linked to each other. Considering the peculiar nature of take-over, unsubstantiated by any legal backing, the creation of goodwill is impossible to disentangle from issue of share capital and they form part of same transaction of take-over. Accordingly, the disallowance of account of incorrect depreciation claimed on self-claimed goodwill created by virtue of takeover of proprietorship concern is done in the hands of the assessee company. The same is discussed in ensuing paragraphs:” 5. The Assessing Officer, thereafter, proceeded to examine the issue of claim of depreciation and observed that the assessee- Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 4 company had purchased a proprietorship concern in the name and style of “M/s. Sagar Laxmi Seeds whose proprietor was Shri Dilipbhai Majumdar. He further noticed that even the share-holding of the assessee-company was also vested with the said Shri Dilipbhai Majumdar and his family members. He observed that the said sole proprietorship concern revalued its business at Rs.23,66,00,000/- which included goodwill of Rs.22,12,51,045/-. The said business was taken over by the assessee-company and in lieu of that, the shares of the assessee-company were issued to the proprietor of the proprietary concern Shri Dilipbhai Majumdar and his daughter. The assessee- company claimed depreciation on the said purchased goodwill. The AO, after examining the issue held that the proprietorship concern was not enjoying the self-acquired goodwill of such a huge worth. He did not agree with the valuation report valuing the business assets including goodwill of the said proprietorship concern and observed that the said proprietorship concern had falsely created the aforesaid goodwill which was sold to the assessee at a hefty rate. He, further, referring to the 6th proviso to section 32(1) of the Income Tax Act, ( in short, “the Act”) read with section 55(2)(a)(ii) of the Act, observed that before it’s succession to the assessee- company, the amount of goodwill in the books of the proprietorship concern was nil, therefore, goodwill just after taking over of its business by the assessee company has to be nil. He, therefore, held the value of the goodwill purchased by the assessee was zero and therefore, the assessee was not entitled to depreciation on goodwill. He accordingly made the impugned addition to the income of the assessee by disallowing the depreciation on goodwill. Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 5 6. Being aggrieved by the said order of the AO, the assessee preferred appeal before the ld. CIT(A). 6.1 The assessee took a specific additional ground before the ld. CIT(A) to the effect that the issue of claim of depreciation was not the subject matter of limited scrutiny, therefore, the AO had erred in law and on facts in disallowing the depreciation claim on goodwill. It was contended that the AO could not have extended the scope of limited scrutiny, which was restricted to the issue of increase in share capital, to the issue of depreciation on goodwill without previous approval of the administrative Commissioner. It was, therefore, contended that the assessment order passed by the AO was in violation of the law as well as CBDT instructions. 6.2 The issue of claim of depreciation on merit was also contested before the ld. CIT(A). It was contended that the said proprietorship concern was in the business of R & D, production, processing and marketing of hybrid agricultural seeds and its derivatives. It had obtained trademark registered in respect of 14 different types of seeds ranging from 1999 to 2015. That it had also dealer/distribution network comprising 35 distributors and over 2000 dealers in State of Gujarat and 5 distributors and 300 dealers in State of Rajasthan. The dealers/distributors were associated with said firm since over two decades. It was therefore, contended that in view of established brands and dealers’ network, the said proprietorship concern commanded a premium in form of goodwill which was self -generated. That since the assessee company was to take over the said business in its running condition, a valuation report was obtained by said concern. Based on the valuation report, the assessee-company by an Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 6 agreement dt. 1st April 2016 took over the said business. The consideration was fixed at Rs. 23.66 crores. Entire consideration of Rs. 236600000 was paid by way of issue of shares of the assessee- company. The consideration was determined based on the approved valuer’s report dt. 01/03/2016. The valuers’ report valued the business at Rs. 23.66 crores. The consideration inter alia included a sum of Rs. 221251045 towards goodwill of erstwhile proprietors’ business. It was t6herefore, contended that the AO was not justified in disallowing the claim of depreciation on Goodwill purchased by the assessee. 7. The ld. CIT(A), however, observed that though, the case of the assessee was selected for limited scrutiny to examine the increase in capital and on examination, the AO, however, found that increase in share capital was not due to issue of shares of the assessee- company for cash but it was by virtue of creation of goodwill and the shares of the company by virtue of this goodwill were issued to the proprietor and his daughter of the erstwhile proprietorship concern. That in this process of verification, the AO further found that the same Goodwill was instrumental for increase in share capital, 25% of which was claimed as deduction on account of depreciation. He therefore, held that the share capital, goodwill and the depreciation on goodwill were relatable to each other and not different in any manner. He therefore, held that the AO had not travelled beyond the scope of limited scrutiny. 7.1 The Ld. CIT(A), further, in para 8.3 of the impugned order observed that Goodwill is an intangible but saleable asset. He observed that Goodwill is built over the years because of various Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 7 factors, generally with heavy and continuous expenditure in promotion, creation and maintenance of durable customer and supplier relationships, high quality of goods and services, and high quality and conduct of management and employees etc. He observed that the value of the Goodwill is not recognized in account books but is realized when the business is sold, and is reflected in the firm’s selling price by the amount in excess over the firm’s net worth. The Ld. CIT(A) further in Para 8.4 of the impugned order has observed that generally, when someone acquires a business and the purchase consideration paid for the business exceeds the net assets acquired, the difference is recognized as goodwill in accounting. That there are two types of goodwill: one being the goodwill acquired, for which the acquirer pays, and the second being self-generating or internally generated goodwill. According to accounting standards, depreciation is provided for acquired goodwill as it involves cost. However, in the case of self-generated or internally generated goodwill, there is no cost. Therefore, even in accounting standards, no depreciation is provided on self-generated goodwill because such goodwill is not considered an intangible asset. 7.2 The ld. CIT(A), thereafter, referred to the to the explanation 7 to s. 43(1) defining “actual cost” and explanation 2 to s. 43(6)(c) defining “written down value” and held that the combined reading of said provisions would reveal that in a scheme of amalgamation, if any capital asset is transferred by the Amalgamating Company to the Amalgamated Company, the actual cost of transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purpose of its own business. He further observed Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 8 that the WDV (Written Down Value) of the assets acquired in the scheme of takeover in the hands of the assessee company would continue to be the same as it were in the accounts of the proprietorship concern. He further referred to the proviso to section 32(1) of the Act and observed that the aggregate deduction in respect of tangible and intangible assets in the case of succession shall not exceed the deduction available to the predecessor company before succession and will be calculated in the hands of the successor company at the rates as if the succession had not taken place, and that such deduction shall be apportioned between the predecessor and the successor in ratio of the number of days for which the assets were used by them. He, accordingly, held that depreciation to the assessee company on the assets acquired on takeover of the proprietorship concern would be allowable in the same manner which would have been allowed to the erstwhile proprietorship concern. He observed that the actual cost of the assets acquired in the scheme of takeover in the hands of the assessee- company would continue to be the same as it was in the hands of the erstwhile proprietorship concern and therefore, since, there was no goodwill recorded in the books of accounts of the erstwhile proprietorship concern, the assessee company was not entitled to claim any depreciation on the Goodwill purchased from the erstwhile Proprietorship concern. He further noted that at the time of the takeover, the proprietorship concern valued it’s Goodwill at exorbitant amount so that the said Goodwill could be used to claim depreciation in the company. He held that the AO was justified in disallowing the depreciation on Goodwill claimed by the assessee. He, accordingly, dismissed the appeal of the assessee and upheld the disallowance made by the AO. Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 9 8. We have heard the rival contentions of the Ld. Representatives of the parties and gone through the record. In this case, the return of the assessee was, admittedly, selected for limited scrutiny on the issue of increase in share capital. The credit in form of share capital can be examined in terms of provision of S. 68 of the Act. The issue price of such shares can also be examined u/s 56 of the Act, whereby the addition can be made into the income of an assessee if such an assessee has received higher consideration for sale of shares than the market price. The issue was, accordingly examined by the AO and it was found that increase in share capital was not on account of any introduction of cash on sale of shares, rather, it was on account of acquisition of assets including Goodwill in lieu of transfer of shares of the assessee company. Thus, it was not a case of addition of income on account of introduction of unjustified share capital, hence no addition on this issue was warranted. Rather, it was the case of the AO that the values of the assets in particular “the Goodwill” purchased from erstwhile proprietorship concern, in actual, was not of such high amount as was valued by the valuer and claimed by the assessee in its books of accounts. Thus, at the most, it was a case of capital loss not of any introduction of cash which could have been added as introduction of the own income of the assessee, the source of which was not explained. The AO, having noted that it was not a case of increase in share capital by way of sale of shares by assessee company at exorbitant price or at a premium which was not justified and that it was not a fit case for making addition on account of increase in share capital, the Jurisdiction of the AO had ceased at that point. The issue of depreciation on goodwill was altogether different which was to be considered in terms of s. 32 of the Act. If the AO wanted to further examine the issue of claim of depreciation of Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 10 Goodwill, in our view, he should have taken the permission to enlarge the scope of limited scrutiny from the Jurisdictional Commissioner as per the law. Merely because the issue of claim of depreciation was germane to the issue of purchase of assets/Goodwill, that itself, in our view, will not confer jurisdiction upon the AO to suo moto to enlarge his jurisdiction from limited scrutiny to full scrutiny and entitle him to make the addition by disallowing depreciation on goodwill, which issue was neither the subject nor within the scope of the limited scrutiny issue of increase in share capital. The scope of limited scrutiny on any issue cannot be enlarged in the absence of previous approval of the administrative Commissioner as directed by the CBDT’s (Central Board of Direct Taxes) instructions dated 26.09.2014, 29.12.2014 and 14.07.2016 in respect of “CASS” assessment. The Ld. CIT(A) himself, has referred to CBDT’s Instruction No. 5/2016 dated 14.07.2016, the contents of which are reproduced as under: “Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under 'Limited Scrutiny' selected through CASS 2015 & 2016-regd.- Vide Instruction No.20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under 'Limited Scrutiny’ which were selected through Computer Aided Scrutiny Selection in 'CASS Cycle 2015'. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that 'Complete Scrutiny' could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. 2.In order to ensure that maximum objectivity is maintained in converting a case falling under 'Limited Scrutiny’ into a 'Complete Scrutiny' case, the Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 11 matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny’ in a case which was originally earmarked for 'Limited Scrutiny’, the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete Scrutiny'. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3.Further, while forming the reasonable view, the Assessing Officer would ensure that: (a)there exists credible material or information available on record for forming such view; (b)this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and (c)there must be a direct nexus between the available material and formation of such view. 4.It is further clarified that in cases under 'Limited Scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to 'Complete Scrutiny’ after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny’. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases. 5.It is also clarified that once a case has been converted to 'Complete Scrutiny, the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note. 6.To ensure proper monitoring in cases which have been converted from 'Limited Scrutiny to 'Complete Scrutiny', it is suggested that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, it is desirable that these cases should invariably be picked up while conducting Review or Inspection by the administrative authorities. 7.The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected/being selected under the CASS 2016. 8.The contents of this Instruction may be brought to the notice of all for necessary compliance. Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 12 9.Hindi version to follow. Sd/- (Rohit Garg) Deputy Secretary to the Government of India\". 9. Further, the CBDT vide its instructions dated 30. 11. 2017 has taken serious note of the instances of Assessing Officers travelling beyond their jurisdiction while making assessment in Limited Scrutiny cases by initiating enquires on new issues without complying with mandatory CBDT instructions dated 26.09.2014,29.12.2015 and 14.07.2016 and even one Assessing Officer who had not followed the above said instructions was placed under suspension. The relevant part of the said instruction is reproduced as under: “F. No. DGIT(Vig.)/HQ/Sl/2017-18 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi-11 0001 Dated: 30th November, 2017 Subject: Unauthorized expansion of the scope of limited scrutiny- instructions- reg. ………… 3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 13 very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT while completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders. (Rakesh Gupta) ADG (V) HQ-I New Delhi” 10. Admittedly, in this case the ld. AO did not seek any permission of the competent authority for converting the limited scrutiny to a full scrutiny. As observed above, neither the AO nor the Ld. CIT(A) had jurisdiction to go into the said issue of depreciation on Goodwill as it was a case of limited scrutiny on the issue of increase in share capital, the scope of which could not have been enlarged to a new issue of claim of depreciation that too by further going into the issue of correctness of the valuation amount of the assets of the Proprietorship Concern and that too without joining or summoning the said proprietorship concern in the proceedings, therefore, assessment order is not sustainable. The Hon'ble Calcutta High Court in the case of Principal Commissioner of Income Tax -vs.- Weilburger Coatings (India) (P.) Limited reported in 155 taxman.com 580, 296 ITR 205, [2024] 463 ITR 89 , wherein the hon’ble High Court upheld the order of the Tribunal holding that the Assessing Officer exceeded his jurisdiction in enquiring into those issues which were beyond the scope of limited scrutiny. Similar view has been taken by the co-ordinate Visakhapatnam Bench in the case of “ Vudatha Vani Rao vs. Income Tax Officer” reported in [2024] 159 taxmann.com 1394 (Visakhapatnam) and by the Delhi Bench of the Tribunal in the case of “ Dev Milk Foods Pvt. Ltd. v. Addl. CIT [IT Appeal No. 6767 (Delhi) of 2019, dated 12.06.2020] and by the Pune Bench of the TRIBUNAL in ITA no. 05/Pun/2016 dt. 04.05.2018 in the case of Suresh Jugraj Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 14 Mutha v. Addl. CIT wherein it has been categorically held that assessment order passed in violation of Board’s instructions, which are binding upon the A.O. is bad in law. This issue is accordingly decided in favour of the assessee. The impugned assessment order is therefore quashed on this score. 11. Now coming to the issue of legality of allowability of claim of depreciation on the cost of purchased goodwill, we note that both the lower authorities have wrongly applied/interpreted the provisions of section 32(1) and explanation 7 to section 43(1) and section 55 of the Act. This is not a case where there was an amalgamation of the companies. This is a case of outright purchase of the business of the proprietorship concern by the assessee company. The Ld. CIT(A), himself, in para 8.3 and 8.4 of the impugned order has observed that that Goodwill is an intangible but saleable asset and that Goodwill is built over the years. He has also observed that the value of the acquired Goodwill is not recognized in account books but is realized when the business is sold, and is reflected in the firm’s selling price by the amount in excess over the firm’s net worth. He has further observed that according to accounting standards, though, no depreciation is provided on self-generated goodwill because such goodwill is not considered an intangible asset, however, depreciation is an allowable deduction on the purchased goodwill as it involves a cost and is recognized as an intangible asset in accounting in the successor company. Having held so, the Ld. CIT(A) proceeded on wrong footing treating it as a case of amalgamation or merger of the companies. The finding of both the lower authorities on this issue is thus, not sustainable in law. Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 15 12. So far as the issue relating to the genuineness of the a valuation amount of the goodwill or the correctness of the valuation report is concerned, we note that both the lower authorities have not much deliberated upon it and proceeded with the observation that the exorbitant value of Goodwill has been mentioned in the valuation report. 13. The Ld. Counsel for the assessee has, in this respect, placed reliance upon on the decision of the hon’ble Gujarat High Court in the case of Ashwin Vanaspati Industries (255 ITR 26) to contend that the hon’ble High Court has held that where the enhanced cost was supported by valuation report by a registered value, it was incumbent upon the Income tax authority to dislodge the same by bringing adequate material on record in the form of departmental valuation report, because in absence of the same a technical expert’s opinion (registered valuer’s report) cannot be dislodged by any authority by merely ignoring the same. That the assessee having made a claim for depreciation on enhanced cost, it was necessary for the authority who wanted to determine the ‘actual cost’ (as required by Explanation 3 to section 43(1) to place some evidence on record. It could not have substituted its opinion and adopted book value or the written down value in hands of the assessee-company. Under Explanation 3 to section 43(1), the ITO is required to determine actual cost to the assessee having regard to all the circumstances of the case and if, in his opinion, the written down value is the actual cost, he ought to have supported the same by placing sufficient evidence so as to dislodge the valuation report of the registered valuer. On his having failed to do so, even if the earlier portion of the provisions, viz., the condition of the assets having been used by another person before the date of acquisition, stands fulfilled, the provision cannot be applied. Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 16 13.1. The Ld. Counsel has further placed reliance on the Third member decision of coordinate Ahmedabad Bench of the Tribunal in the case of “Chitra Publicity Pvt Ltd.” reported in (127 TTJ 1) and has contended that in the said case also, on transfer of a business of erstwhile firm to a company, the enhanced cost of an intangible asset which was not in books of erstwhile firm which having been paid for by way of issue of shares, it was held that in view of explanation 3 to section 43(1) of the Act, the AO was supposed to record satisfaction that main purpose of the transfer of assets was reduction in tax liability by claiming depreciation with refrence to the enhanced cost. Further the Assessing Officer could determine such cost with the previous approval of the Jt. CIT. The ld. Counsel has contended that the tribunal in the above noted case has followed the judgment of Hon’ble Gujarat High Court in the case of Ashwin Vanaspati (supra). 13.2. As noted above, the assessee in this case has made a categorical claim that the erstwhile proprietorship was enjoying good business goodwill. It was contended that the said proprietorship concern was in the business of R & D, production, processing and marketing of hybrid agricultural seeds and its derivatives. It had obtained trademark registered in respect of 14 different types of seeds. That it had also dealer/distribution network comprising 35 distributors and over 2000 dealers in State of Gujarat and 5 distributors and 300 dealers in State of Rajasthan. It was therefore, contended that in view of established brands and dealers’ network, the said proprietorship concern commanded a premium in form of goodwill which was self -generated. That since the assessee company was to take over the said business in Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 17 its running condition, a valuation report was obtained by said concern. Based on the valuation report, the assessee-company by an agreement dt. 1st April 2016 took over the said business. The consideration was determined based on the approved valuer’s report dt. 01/03/2016, which inter alia included a sum of Rs.22,12,51,045/- towards goodwill of erstwhile proprietors’ business. We note that none of the lower authorities could rebut the above claim of the assessee by way of a categorical factual finding. Though, the AO has relied upon certain disclaimers in the valuation report, but he failed to rebut the same by way of bringing any positive contrary evidence to the said report. Therefore, the above cited case laws by the Ld. Counsel for the assessee are squarely applicable in this case. More over no approval of the Jt. Commissioner was obtained by the AO before determining the cost of Goodwill of the erstwhile proprietorship concern at nil. The impugned addition is, thus not sustainable on this score also. 14. In view of the discussion made above, the impugned addition made/confirmed by the lower authorities is not sustainable and the same is accordingly ordered to be deleted. 15. In the result, appeal of the assessee stands allowed. Order pronounced in the Open Court on 5th August, 2025. Sd/- Sd/- (Narendra Prasad Sinha) Accountant Member (Sanjay Garg) Judicial Member Ahmedabad, dated 05/08/2025 Printed from counselvise.com ITA No.1918/Ahd/2024 Sagarlaxmi Agriseeds Pvt.Ltd. vs. ACIT Asst.Year: 2017-18 18 vk* आदेश की \u0017ितिलिप अ\u0019ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u0015 / The Appellant 2. \u0016\u0017थ\u0015 / The Respondent. 3. संबंिधत आयकर आयु / Concerned CIT 4. आयकर आयु (अपील) / The CIT(A) concerned 5. िवभागीय \u0016ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड\" फाईल / Guard file. आदेशानुसार/BY ORDER, //TRUE COPY// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation- 1/08/2025 2. Date on which the typed draft is placed before the Dictating Member :4/8/225 3. Date on which the approved draft comes to the Sr.P.S./P.S. - 4. Date on which the fair order is placed before the Dictating Member for Pronouncement ……………….. 5. Date on which the file goes to the Bench Clerk : 5/08/2025 6. Date on which the file goes to the Head Clerk……………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. Date of Despatch of the Order……………… Printed from counselvise.com "