TROIKAA PHARMACEUTICLAS LIMITED,,AHMEDABAD vs. THE PR. CIT-3, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH (Conducted Through Virtual Court) Before: Shri Mahavir Prasad, Judicial Member And Shri Amarjit Singh, Accountant Member ITA Nos. 55 & 56/Ahd/2021 Assessment Year 2016-17 & 2017-2018

Troikaa Pharmaceuticals The PCIT, Ltd. Commerce House-1, Ahmedabad-3 Opp: Rajvansh Apartment, Vs (Respondent) Judges Bunglow Road, Ahmedabad PAN: AABCT6866H (Appellant)

Revenue by: Shri Vinod Tanwani, CIT-D.R. Assessee by: Shri Dhiren Shah & Shri Nupur Shah, A.Rs. Date of hearing : 17-09-2021 Date of pronouncement : 17-11-2021 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

These two appeals filed by assessee for A.Y. 2016-17 & 2017-18, arise from order of the Pr. CIT, Ahmedabad-3 dated 31-03-2021, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

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ITA No. 55/Ahd/2021 A.Y. 2016-17 3. The assessee has raised following grounds of appeal:- “1. The Ld. PCIT has erred in law and on facts in passing the order u/s. 263 of the Act by holding in Para 25 on Page 57 that" the assessment order u/s. 143(3) of the Act dated 19.12.2018 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(a) below section 263(1) of the Act. Accordingly the impugned assessment order is set aside with a direction to the Assessing Officer to make requisite inquiries and proper verification with regard to the issue mentioned above and redo the assessment de-novo after due consideration of the facts and law in this regard". 2. The Ld. PCIT has erred in law and on facts in making an observation in Para 14 on Page 35 of the order that " The contention of the assessee that it has followed the purchase method of accounting for amalgamation as also mentioned in the order of Hon'ble High Court and the claim of amalgamation is not sufficient evidence in this regard. It is evident from the document filed by the assessee that as per the claim of amalgamation, all the conditions provided in the accounting standards with regard to pooling of interest method are satisfied except that items of assets of the amalgamated company have been revalued and claimed to have been taken at the fair market value. It may be relevant to mention here that this amalgamation is between the two group companies and as per newly introduced accounting standard, the method of accounting for amalgamation in such case can only be the pooling of interest method. The assessee was specifically asked to justify with evidences that he had followed purchase method of amalgamation. The assessee had failed to furnish satisfactory explanation and evidence in this regard therefore a very fact whether goodwill was rightly accounted for in the books of accounts or not is a issue that still requires verification. A.O. had not examined this issue at the time of assessment proceedings and as such the order passed by the A.O. is erroneous and prejudicial to the interest of revenue". 3. The Ld. PCIT has erred in law and on facts in failing to consider the fact that during the course of assessment proceedings the appellant company submitted all the details in respect of the issue as regards to allowability of claim of depreciation before the Ld. AO. The assessee company has filed its return of income for A.Y. 2016-17 on 16.10.2016 declaring total income of Rs. Nil and alongwith the return of income, the Statutory Audit Report under the Companies Act 2013 was submitted and the Statutory Auditor in the notes on accounts of the Audit Report and also the Tax Auditor in its Tax Audit Report in the notes forming part of Form 3CD report has given the complete details of scheme of amalgamation of the Amalgamating Company Troikaa Pharmaceuticals Ltd with Troikaa Exports Pvt. Ltd. Amalgamated Company and as per the Hon'ble Gujarat High Court order, the name of Troikaa Exports Pvt. Ltd (Amalgamated Company) was changed to Troikaa Pharmaceuticals Ltd. In the Notes on Accounts, the Accounting entries made for acquisition of the Goodwill as per "purchase method" in pursuance of the Accounting Standard 14 issued by the Institute of Chartered Accountants of India has also been given. As per the order of Hon'ble Gujarat High Court, the effective date of Scheme of Amalgamation was from 01.04.2015.

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5.1 The transfer of assets and liabilities from the erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. to the resulting company took place w.e.f. 1-4-2015, the appointed date i.e. in assessment year 2016- 17 and good will was recognized in assessee’s company books of account which was the difference between the consideration paid by the company and net value of the asset taken over during the process of amalgamation. The ld. Pr. CIT was of the view that in the erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. no goodwill was existed

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but the same has been created in the books of the resulting company which was the assessee company. The ld. Pr. CIT has also referred 5th proviso to section 32(1) of the Income Tax Act, the depreciation allowable in case of amalgamation shall not exceed the depreciation, the allowance of depreciation to the successors/amalgamated company in the year of amalgamation shall be of WDV of assets in books of amalgamating company and not on value recorded in the books of amalgamated company. The ld. Pr. CIT has stated that the claimed goodwill was not there in the books of amalgamating company and benefit of depreciation was not available to the erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. It is further stated that the claim of depreciation on assets acquired under the scheme of amalgamation is restricted only to the extent as if such amalgamation has now taken place. Besides, actual cost for capital asset transferred by amalgamating company to amalgamated company by virtue of explanation 3 to section 43(1) shall have to be taken at the same cost as it would have been of the amalgamating company if it had computed to hold the capital asset for the purposes of its own business. Similarly, WDV for capital was transferred by amalgamating company to amalgamated company, by virtue of explanation 2 to section 43(6) shall be written down value of the block of asset as in the case of the transferor/amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. The Pr. CIT has further stated that the intangible assets which were owned/held by the Troikaa Pharmaceuticals Ltd., prior to amalgamation with erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. was nil, the cost in the hands of the erstwhile Troikaa

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Pharmaceuticals Ltd. and Troikaa Export Pvt. Ltd. for such goodwill shall be nil only. It is also stated that the goodwill was neither acquired by the amalgamating entity nor resulting entity. So, there was no actual cost incurred by either of the entities with regard to these assets as no cash flow was involved. The Pr. CIT was of the view that goodwill appeared in the balance sheet of the assessee company was purely for the purpose of claiming depreciation and the same is to be disallowed. Therefore, the Pr. CIT stated that depreciation was not allowable on goodwill in assessee’s case created by virtue of amalgamation, under the existing provisions of the Income Tax Act, 1961 viz, 6th proviso to section 32(1), section 49(1)(iii)(e), explanation 7 to section 43(1)/and/or explanation 2(b) to section 43(6)(c) and section 55(2)(a)(i). The Pr. CIT has further stated while finalizing the assessment, the Assessing Officer has neither made disallowance on wrong claim of depreciation on goodwill nor called for any explanation from the assessee. The written down value of goodwill in the books of amalgamated company was nil prior to amalgamation and hence the cost of goodwill in the hands of the resultant company i.e. assessee shall be nil and no depreciation can be allowed where the cost of any asset was nil. The ld. Pr. CIT has also stated that assessee’s claim of goodwill was also not allowable as per the provisions of AS-14. As per the accounting standard 14 there are two methods of amalgamation (i) pooling of interest method and (ii) purchase method. The Pr. CIT has stated that Assessing Officer has failed to examine whether the assessee had followed purchase method or pooling of interest method to justify its claim that goodwill was rightly accounted for.

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5.2 The Pr. CIT has also stated that on verification of computation of income and annexure H of serial 19(I) of tax audit report (form 3CD) that assessee company has claimed a weighted deduction of Rs. 1970.98 lacs ( Rs. 72.30+ Rs. 1898. 68 lacs) being 200% of Rs. 985.46 lacs u/s. 35(2AB) of the I.T. Act which was the total amount of expenditure incurred by the assessee company for R & D expenditure which was claimed and allowed. In this regard, the Pr. CIT stated that as per form 3CL submitted by the assessee the DSIR has allowed Rs. 518.06 lacs as eligible research and development expenditure u/s. 35 (2AB) of the act for the year under consideration. Therefore, the Pr. CIT was of the view that expenditure of Rs. 467.43 lacs ( Rs. 985.49 – Rs. 518.06) was required to be disallowed . 5.3 In view of the above facts the Pr. CIT observed that the order passed u/s. 143(3) dated 19th December, 2018 was erroneous so far as it was prejudicial to the interest of the revenue. Accordingly, a show cause notice dated 22nd March, 2021 was issued to the assessee to show cause as to why provision of section 263 of the act not be invoked directing the Assessing Officer to make a fresh assessment after proper examination and enquiry. 5.4 In response, the assessee has filed written submission vide letter dated 30th march, 2021 submitting that the details were submitted before the Assessing Officer and the claim of depreciation was in accordance with the provisions of law and accounting standard. As per the submission filed by the assessee, the transfer of assets and liabilities from erstwhile Troikaa Pharmaceuticals Ltd. and Troikaa Exports Pvt. Ltd. to the resulting company took place w.e.f. 1st April, 2015, the appointed date i.e. in A.Y. 2016-17 and goodwill was recognized in the company’s books of account which was the

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difference between the consideration paid by the company and net value of the assets taken over during the process of amalgamation. The Pr. CIT has not accepted the submission of the assessee stating that in the books of amalgamating company i.e. erstwhile Troikaa Pharmaceuticals Ltd and Troikaa Export Pvt. Ltd. no goodwill was existed but the same has been created in the books of the resulting company. The Pr. CIT has stated that the claim of the assessee that goodwill was created in view of amalgamation is required to be examined in view of the provision of the income tax act and also the accounting standard. The ld. Pr. CIT after giving reference of accounting standard AS-14 has also stated that as per accounting standard 14 no goodwill is generated in case of pooling of interest method and in this method the difference between the purchase consideration and net value of the asset is adjusted against reserves. The ld. Pr. CIT has also referred various judicial pronouncements in respect of application of accounting standard -14 of the purpose of accounting in the cases pertaining to amalgamation scheme to decide whether in a particular case of amalgamation goodwill will arise or not. These cases are briefly discussed as under:- (i) DCIT vs. Toyo India Pvt. Ltd. ITA No. 3279/Mum/2008 assessment year 2003-04 by referring this case the ld. Pr. CIT has pointed out that if the assessee had paid more than the fair market value of assets minus fair market value of liabilities then the company would have a case to claim that certain amount were incurred for goodwill. In the absence of such an exercise, the considered opinion that there is no goodwill in the nature of commercial right purchased by the assessee. On the issue of the claim that the scheme has been approved by the High Court the ld. CIT(A) has referred decision of

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SC Johnshon Product Pvt. Ltd. Vs. ACIT in the Writ Petition C-2697 of 2015 Delhi High Court wherein it is held even though as per the amalgamation scheme the assessee was to follow purchase method. On verification of facts it was found that in fact assessee had followed the pooling of interest method, the Hon’ble High Court held that reopening of assessment completed u/s. 143(3) was justified. The ld. Pr. CIT has also referred decision of Delhi ITAT in the case of Hespara Realty Pvt. Ltd. Vs. DCIT ITA 764 /Del/2020 and decision of Mumbai ITAT in the case of Abshree Packaging Pvt. Ltd. vs. DCIT ITA No. 6485/Mum/2018. He also referred decision of ITAT declared in the case of the United Beverages Ltd. (2016) 76 taxman.com 103 (Bangalore -Trib). 5.5 On the other hand, before the ld. Pr. CIT the assessee has placed reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Smif Securities (2012) 24 taxmann.com 222 (SC) The assessee has contended that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of revenue. The assessee has further contended that all the issues raised in the show cause notice u/s. 263 had already been examined by the Assessing Officer and detailed inquires were conducted at the time of assessment proceedings as such the proceedings u/s. 263 were not legally valid. However, the ld. Pr. CIT has not accepted the explanation of the assessee and he was of the view that Assessing Officer had not examined the issue of amalgamation and the consequential accounting of goodwill on which assessee had claimed depreciation during the year consideration in accordance with the provisions of law and with reference to the accounting standards. The ld. Pr. CIT has also observed that Assessing Officer has not asked any specific question

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during the course of assessment proceedings to justify the claim of depreciation in accordance with the provision of law. The Pr. CIT was also of the view that Assessing Officer had not verified at all whether the assessee has followed purchase method or pooling of interest method. The assessee had contended that it had followed the purchase method of accounting as such goodwill was incorporated in the books of account at the time of amalgamation. The assessee has also contended that such goodwill was eligible for claim of depreciation under the provision of I.T. Act. However, the Pr. CIT has not agreed with the submission of the assessee stating that Assessing Officer had not examined this issue at the time of assessment proceedings. Therefore, the Pr. CIT has held that the order passed on this issue by the Assessing Officer was erroneous and prejudicial to the interest of revenue.

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In this regard, the assessee has filed its submission vide letter dated 30th March, 2021stating that allegation mentioned in the show cause notice was totally incorrect as the details called for in the assessment proceedings in relation to the claim u/s. 35(2AB) of the act were duly submitted by the assessee company as and when asked by the Assessing Officer. In its submission, the assessee has enclosed the copies of notices along with the details of inquiry made by the Assessing Officer from time to time in respect of claim of deduction made u/s. 35(2AB) of the act. The assessee has also enclosed the copies of detailed submission made before the Assessing Officer during the course of assessment proceedings. Briefly, the assessee also stated that it has claimed weighted deduction u/s. 35(2AB) of the act of Rs. 19,70,97,094/- as per the certificate of the statutory auditor dated 24th October, 2018 on the basis of books of account maintained for expenditure incurred for in house approved R & D Centre and on the basis of expenditure incurred on the clinical trial expenditure conducted outside the approved facility which was filed along with the application made to the DSIR for issuance of form no. 3CL. The assessee has submitted that as against the claim of weighted deduction u/s. 35(2AB) of the act as claimed in the return of income the DSIR in Form 3CL dated 16-03-2017 (copy of which was attached) as per which the weighted deduction u/s. 35(2AB) of the act works out to Rs. 1176.84 lacs. However, the DSIR while issuing form no. 3CL have not given the working as to why they have arrived at the said figure in form no. 3CL as against figure stated in the application made

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to the DSIR for obtaining form no. 3CL. The assessee company is making a follow up with the DSIR to have break up of the working of figure stated in the form 3CL in order to ascertain that in respect of which expenditure incurred by the assessee company, R & D expenditure has not been considered by the DSIR while issuing form no. 3CL. On availability of the details from DSIR the assessee company is going to make a representation to the DSIR to reconsider the claim of assessee company for R & D expenditure incurred by the assessee company for the weighted deduction u/s. 35(2AB) of the act by amending form no. 3CL as per the claim made by the assssesse company in its application made to the DSIR for issuance of form no. 3CL along with supporting details and data required by the DSIR as per the certificate issued by the statutory auditor. The assessee has also requested in its submission to make an observation in the assessment order that on furnishing the amended form no. 3CL, the necessary rectification application order u/s. 154 of the act may be passed by allowing the enhanced weighted deduction in respect of R & D expenditure u/s. 35 (2AB) of the act as per the amended form no. 3CL that may be issued by the DSIR. During the course of assessment, the assessee has also submitted that in respect of clinical trial expenditure conducted outside approved facility by the assessee company is allowable u/s. 35(2AB) of the act is settled in view of the decision of Hon’ble Jurisdictional Gujarat High Court in the case of CIT vs. Cadila Healthcare Ltd. (2013) 31 taxmann.com 300(Guj). The assessee has also stated that it has furnished all the relevant details in respect of claim u/s. 35(2AB) of the act vide submission dated 6th Oct, 2018 and 22nd October, 2018 along with supporting documents and evidences and on being satisfied the Assessing Officer had passed assessment order u/s. 143(3) dated 19th

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December, 2018. Therefore, the order passed u/s. 143(3) was neither erroneous nor prejudicial to the revenue. The ld. Pr. CIT has not accepted the submission of the assessee stating that assessee had claimed weighted deduction @ 200% with regard to the expenditure amounting to Rs. 1970.95 lacs. However, the DSIR had approved only the amount of Rs. 588.42 lacs and the provision of section 35(2AB) clearly provided that deduction u/s. 35(2AB) would be subject to the approval by the prescribed authority i.e. Department of Scientific and Industrial Research, therefore, the Pr. CIT was of the view that Assessing Officer had allowed excess deduction u/s. 35 (2AB) and, therefore, the order passed by the Assessing Officer on this issue also was erroneous as much as it was prejudicial to the interest of the revenue. Accordingly, the assessment order u/s. 143(3) dated 19th December, 2018 was set aside with a direction to the Assessing Officer to make de-novo assessment.

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relating to the claim of expenditure of research and development u/s. 35(2AB) of the act was also submitted vide reply dated 06-10-2018 and 16- 11-2018. The ld. counsel has also referred page no. 199 of the paper book no. 1 containing notice u/s. 142(1) of the act dated 24th Sep, 2018 issued by the Assessing Officer during the course of original assessment proceedings and submitted that as per serial no. 4 of the notice Assessing Officer has asked the assessee to submit complete documents regarding the scheme of amalgamation and copy of high court order for the same. Vide question no. 5, the Assessing Officer has also asked to submit the effective date of scheme of amalgamation with proper reference of the High Court order. The ld. counsel has also referred page no. 235 of the paper book no. 2 containing copy of order of the High Court of Gujarat approving the merger of Troikaa Pharmaceutical Ltd. with Troikaa Export Pvt. Ltd. vide order dated 9th March, 2016 and the effective date was 1st April, 2015. The ld. counsel has also taken us to page no. 285 of the paper book-II pertaining to the copy of composite scheme of arrangement and page no. 299 of the paper book-II of composite scheme of arrangement pertaining to accounting treatment. The ld. counsel has also taken us to page no. 300 of the paper book-II pertaining to clause 9.6 of the order of the High Court where it is mentioned that the difference if any between the net asset value of TEPL transferred to and recorded by TEPL in terms of clause 6.1 and 9.2 above, and the amount credited to share and capital security premium account as per clause 9.4 and 9.5 above and cancellation of inter-company balances and investment as per clause 9.3 above, reduction of share capital of TEPL as per clause 8.8 and differential amount arising as per clause 8.9 shall be credited to the capital reserve account or shall be debited to the goodwill account of TEPL as the

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case may be. The ld. counsel has also referred page no. 49 and 50 of the paper book 1 pertaining to audited balance sheet of the assessee company for the F.Y. 2015-16 and 2016-17, copy of balance sheet and profit and loss account then he referred page no. 58 to 60 of the paper book-I pertaining to the notes forming part of the audited accounts for the year ended 31st March, 2016, wherein as per note no. 28 the complete detail of amalgamation of Troikaa Pharmaceutical Ltd. with the assessee company was given. It is also mentioned that the amalgamation has been accounted for under the purchase method as prescribed under accounting standard-14 at page no. 59 of the paper book no. 1. The assessee has given the working of goodwill arises on amalgamation of Troikaa Pharmaceutical Ltd. He also referred page no. 60 of the paper book-1 as per which the detail of consideration to be paid by issuing of shares in terms of composite scheme of arrangement was given. The ld. counsel has also taken us to page no. 312 to 367 of the paper book no. II pertaining to the copies of valuation and certificates issued by the registered valuer of valuation of various assets as per the terms and conditions of the composite scheme. He also referred page no. 362 of the paper book II pertaining to fair market value of the different fixed asset acquired on account of merger of Troikaa Pharmaceutical Ltd. with the assessee company. The ld. counsel has also taken us to page no. 73 to 114 of the paper book no. I comprising auditor’s report u/s. 44AB along with various annexure and accounting notes with detail of various assets and liabilities of the Troikaa Pharmaceutical Ltd. The ld. counsel has also referred page no. 529 of the paper book-III showing comparative summary part of book value of assets and liabilities and fair value of liabilities as on 1st April, 2015. Ld. counsel has also referred notice

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u/s. 142(1) issued by the Assessing Officer during the course of assessment on 22nd Sep, 2018 vide which the various queries and information was sought on the issue of goodwill. The ld. counsel has also contended during the course of assessment proceedings in the notices issued u/s. 142(1), the Assessing Officer has also made inquires about the claim of deduction made u/s. 35(2AB) of the act. The detail of judicial pronouncements relied upon by the ld. counsel is as under:- 1. Commissioner of Income-tax -10, Mumbai v. Reliance Communication Ltd. , (2016) 76 taxmann.com 226 (SC) - Copy of judgment attached as per Exhibit-l 2. K.R. Satyanarayana v. Commissioner of Income fax, Mysuru [2021) 126 taxmann.com 22 (Karnataka) - Copy of judgment attached as per Exhibit-ll 3.Smt. Anupama~BharatGupta7 Vadodara ITO Ward 3(1)(2),Vadodara ITA No. 1685/Ahd/2018 Asstt. Year 2013-14, Hon’ble ITAT "B" Bench Ahmedabad order dated 12.04.2021- Copy of judgment attached as per Exhibit-Ill 4. Kaushikbhai P. Pate I, Ahmedabad v. Pr. Commissioner of Income fax -7, Ahmedabad, ITA No. 667/Ahd/2019, Hon'ble ITAT "C" Bench Ahmedabad, Asstt. Year 2014-15, order dated 13.05.2021 (Reported in taxsutra [TS-472-ITAT- 2021 (Ahd) - Copy of judgment attached as per Exhibit-IV 5. Pramod Kesharichand Shah, Nani Daman v. Principal Commissioner of Income Tax, Surat - ITA No. 43/SRT/2018, Hon'ble ITAT Surat Bench, Asstt Year: 2007-08 order dated 16.03.2021 - Copy of judgment attached as per | Exhibit-V 6. Hill Queen Investment (Pvt. Ltd. v. Principal Commissioner of Income Tax, Kolkata (2021) 127 taxmann.com 682 (Kolkata - Trib) - Copy of judgment attached as per Exhibit-VI 7. Commissioner of Income Tax v. R.K. Construction Co. (2009) 313 ITR 65 (Guj)

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Corporation, 173 Taxmann 458 (SC). The ld. Departmental Representative has also referred page no. 3 of order passed u/s. 263 by the Pr. CIT stating that Assessing Officer while finalizing the assessment, neither made disallowance of wrong claim of depreciation on goodwill nor called any explanation from the assessee company. He also referred page no. 6 of the order u/s. 263 and referred the finding of the Pr. CIT that in the books of amalgamating companies i.e. erstwhile Troikaa Pharmaceutical Ltd. and Troikaa Export Pvt. Ltd. no goodwill existed but the same has been created in the books of the resulted company. He also referred the page no. 7 of the order passed u/s. 263 and referred the findings of the Pr. CIT that the claim of the assessee in respect of creating goodwill is neither justified in accordance with the provision of I.T. Act nor in accordance with the accounting standard. The ld. Departmental Representative has also referred page no. 9 of order u/s. 263 wherein he has referred method of accounting for amalgamation as per accounting standard no. 14. He also referred page no. 13 of the order u/s. 263 wherein the Pr. CIT referred judicial pronouncements on the issue of non-conducting of inquiry by the Assessing Officer. He also referred page no. 34 of order u/s. 263 wherein the ld. Pr. CIT has mentioned that Assessing Officer did not examine the issue whether the amalgamation in the assessee’s case would lead to create goodwill at all in accordance with the provision of law. The ld. Departmental Representative also referred page no. 299 of the paper book –II filed by the assessee wherein it is mentioned in the order of the Hon’ble High Court in the composite scheme that adoption of purchase method in accordance with accounting standard-14. The ld. Departmental Representative has also referred page no. 58 & 59 of the paper book-I of the assessee regarding

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determination of goodwill with purchase method as prescribed under accounting standard-14. The ld. Departmental Representative has pointed out that as per page no. 59 of the paper book the assessee has taken the liability as per book value as against fair market value. The ld. Departmental Representative referred that everything is to be valued at fair market value. He has referred the case law mentioned by the Pr. CIT in the order passed u/s. 263 pertaining to DCIT vs. Toyo Engineering Pvt. Ltd. ITA 3279/Mum/2008 and decision of SC Johnson Pvt. Ltd. vs. ACIT Delhi High Court. The ld. Departmental Representative has also referred the different pages of the order of the Pr. CIT u/s. 263 of the act and stated that no specific query has been raised. He also referred the decision of Jalgaon People Co-operative Bank (2021) 127 taxmann.com 243 of ITAT Pune. The judgment of Hon’ble High Court vide ITA 987/2017 in the case of Brahmdev Gupta and G.Vee Enterprises 991 ITR 375 (Delhi), Rampyari Devi Sarogi (1968) 671 ITR 84 (SC) and Sify Software Ltd. of ITA Chennai 80 taxmann.com 273. The ld. Departmental Representative has also referred the decision of Abhishri Packaging Pvt. Ltd. of ITA Mumbai ITA No. 6485/Mum/2018. In respect of second ground pertaining to claim of deduction u/s. 35(2AB) of the act, the ld. Departmental Representative has contended that no re-conciliation of research and development expenditure has been carried out and the expenditure claimed were not approved by DSIR. He also submitted that Assessing Officer has allowed the expenditure without applying his mind and referred page no. 54 of the order of Pr. CIT u/s. 263. The Ld. Departmental Representative has also given his argument on the judgment relied upon by the ld. counsel as follows:-

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As per part A of the pager book filed by the assessee

(i) In the case of CIT, Kolkata Vs. Smifs Security Ltd. (2012) 24 taxman.com 222 (SC), he has pointed out that in the judgment the only question whether goodwill is an asset and this judgment is not relevant. (ii) In the case of Pr. Cit-4 Vs. Zydus Wellness Ltd., he stated that it is only literal issue and not relevant to the issue in appeal as the assessee has claimed goodwill in the revised return of income and facts of the case are different from the facts of the case of the assessee. (iii) In respect of Areva T & D India Ltd. vs. DCIT (2012) 20 taxmann.com 29 (Del. HC), this case pertained to slump sale and there is no concept of fair market value. (iv) In the case of Techno Shares & Stocks Ltd. Vs. CIT-IV (2010) 193 Taxman 248 (SC), the ld. Departmental Representative has stated that the fact of this case is different from the assessee’s case as this case pertained to depreciation of membership of BSE and it is not applicable to the assessee’s case. (v) In the case of RFCL Ltd. vs. DCIT, Circle Parwanoo of Hon’ble ITAT, Chandigarh Bench B, Chandigarh, IT No. 293 & 294/Chd/2012, the ld. Departmental Representative has stated that fact of this case is pertained to slump sale. (vi) In respect of Triune Energy Services (P) Ltd. Vs. DCIT (2016) 65 taxmann.com 288 (Del. HC), the ld. Departmental Representative has stated that fact of this case is pertained to slump sale, too.

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(vii) In the case of CIT-IV Vs. Hindustan Coco Cola Beverage Pvt. Ltd. (2021) 198 taxmann.com 104 (Del. HC)., the ld. Departmental Representative has stated that fact of this case is pertained to slump sale

(viii) In the case of ThyseenKrupp Elevators (India) (P.) Ltd. ACIT, Circle- 16(1), New Delhi, (2014) 50 taxmann.com 279 (Delhi-Trib), the ld. Departmental Representative has stated that this case pertained to slump sale. (ix) M/s. Minda Acoustic ltd. vs. DCIT, Circle-6(1) New Delhi of Hon’ble ITAT Delhi Bench E, New Delhi, ITA No. 3203/Del/2010, the ld. Departmental Representative has stated that this case pertained to slump sale. (x) Hinduja Foundries Ltd. Vs. ACIT, Chennai [2017] 83 taxmann.com 52 (Chennai Trib.) the ld. Departmental Representative stated that this case pertained to slump sale.

(xi) Fibres & Fabrics International (P) Ltd. Vs. DCIT, Circle-11(3), Bangalore [2016] 72 taxmann.com 87 (Bangalore Trib.) the ld. Departmental Representative stated that this case pertained to slump sale.

(xii) DCIT, OSD-1(1) Vs. Worldwide Media (P.) Ltd. [2014] 43 taxmann.com 18 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump.

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(xiii) ST. Angelo's Computers Ltd Vs. ITO- 9(3)(2), Mumbai [2017] 88 taxmann.com 376 (Mumbai Trib.) the ld. Departmental Representative stated that this case pertained to slump sale. The ld. Departmental Representative has also given his comments on the case laws relied upon by the ld. counsel as per part B of the paper book. In the case of Adani Gas Ltd. vs. Pr.CIT-1 (ITA No.1252/Ahd/2016) (ITAT Ahmedabad) , the ld. Departmental Representative contended that facts of this case are different from assessee’s case as it pertained only to claim of claimed goodwill. In the case of M/s. MTANDT Rentals Ltd. vs. ITO (ITANo.2410/CHNY/2017) (ITAT Chennai), the ld. Departmental Representative contended that the issue of this case are different from the case of the assessee. In the case of DCT vs. Gea Process Engineering India Pvt. Ltd. (ITA No.4154/Mum/2015) (ITAT Mumbai), the ld. Departmental Representative submitted that this case is a slump sale case. In the case of Aricent Technologies (Holdings) Ltd. vs. DCIT (ITA N0.90/DEL/2013) (ITAT New Delhi), it is pertaining to pooling of interest method not relevant to the fact of the assessee’s case. In the case of DCIT vs. M/s. Toyo Engineering India Ltd. (ITA No.3279/M/2008) (IITAT Mumbai), the ld. Departmental Representative contented that this case law is also not relevant as facts of this case are different from the case of the assessee. 7.3 The ld. counsel has contended that before passing the order u/s. 143(3), the Assessing Officer has made detailed verification and inquiries vide issuing of various notices during the course of assessment proceedings.

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He referred question no. 4 & 8 of the notices dated 11th Sep, 2018. He also referred reply dated 24th Sep, 2018 as per page no. 199 of the paper book in its notice u/s. 142(1) dated 11th Sep, 2019 for which the detailed submission on the relevant issues has been made by the assessee. He also referred page no. 232 of the paper book giving the complete detail of exhibits pertaining to the copy of scheme of amalgamation along with the copy of order of the Hon’ble High Court, copies of valuation report of various assets, copies of ledger account etc from serial no. 1 to 29. He also referred page no. 235 to 311 placed in the paper book II pertaining to the copies of scheme of amalgamation along with the copies of order of Hon’ble High Court of Gujarat approving the scheme of amalgamation. The ld. counsel has also submitted that purchase method as per accounting standard-14 method has been followed by the assessee. The ld. counsel has submitted that it has correctly adopted the fair market for valuation of assets except other assets like stock in trade of date etc. cannot be valued as per fair market value. Similarly, bank balance, cash balance credit balance will not be shown as per fair market value. The ld. counsel has submitted that accounting standard-14 at para 14 say that for other assets it cannot be valued at fair market value. The ld. counsel has also submitted that during the course of assessment proceedings, the assessee has also submitted that during the course of assessment proceedings the assessee has also made compliance with all the notices and the detailed submission has been placed in the paper book. Regarding on the comments of the Departmental Representative that Assessing Officer passed cryptic order the ld. counsel has stated that the case of the assessee was transferred from ACIT to the ITO, Wd the detailed submission and detailed verification made by the ACIT Circle were

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transferred to the ITO Ward and the internal matter between the Assessing Officer were continued for 15 months. The first hearing was taken place on 3rd March, 2017 and last hearing was taken place on 6th December, 2008. Total five notices were issued and the hearing was taken place on 8 times. He has further submitted that Assessing Officer after due verification and after considering the detailed finding of the judicial pronouncement has passed the order u/s. 143(3) of the act. The ld. counsel has further submitted that purchase method was followed as per the order of the High Court. In respect of short order, the ld. counsel has stated that once the Assessing Officer issued numerous notices and conducted 8 hearings it cannot be said that the Assessing Officer has not applied his mind. The ld. counsel has also given his comments on the case laws referred by ld. Departmental Representative in the case of DCIT Vs. Toya Engineering Pvt. Ltd. The ld. counsel submitted that ld. Pr. CIT in his order u/s. 263 has also relied upon this case. He submitted that this case is pertained to order dated 13th October, 2014 and the matter was transferred to High Court and was restored to the ITAT. The ld. counsel has placed reliance on the decision of Mylan Laboratories Ltd. Vs. DCIT Circle 16(2) Hyderabad Tri. (2020) 113 taxmann.com 6 (Hyd.) Regarding the comments of the ld. Departmental Representative in respect of Smifs Securities Ltd. supra he has stated that this was not a case of slump sale. He also stated that Zydus Wellness Ltd. supra case was also not slump sale. Regarding the claim of deduction u/s. 35(2AB) the ld. counsel is eligible for the deduction and the specific questions to this claim was already raised in the notice issued by the Assessing Officer. In this regard, the ld. counsel has referred page no. 437 to 448 of the paper book book-III.

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goodwill shall be nil only. The ld. Pr. CIT in the order u/s. 263 of the act has also held that the Assessing Officer while finalizing the assessment neither made disallowance of wrong claim on deprecation of goodwill nor called for any explanation from the assessee company. The Pr. CIT also observed that the Assessing Officer has failed to examine whether the assessee has followed purchase method or pooling of interest method to justify its claim that goodwill was rightly accounted for. 8.1 The Pr. CIT further on verification of tax audit (form 3CD) found that assessee company has claimed a weighted deduction of Rs. 1970.98 lacs (Rs. 72.30 lacs + Rs. 1898.68 lacs) being 200% of Rs. 985.49 lacs u/s. 35(2AB) of the income tax act which was the total amount of expenditure incurred by thr assessee company for R & D expenses which was claimed and allowed. Further from form 3CL the Pr. CIT has seen that the DSIR has allowed Rs. 518.06 lacs as eligible and research and development explained u/s. 35(2AB) for the year under consideration. Therefore, Rs. 467.43 lacs (Rs. 985.49 lacs - Rs. 815.06 lacs) was required to be disallowed. However, the Assessing Officer while finalizing the assessment proceedings has failed to disallow the said expenditure capital in nature u/s. 37 of the verifying the details and documentary evidences and by not conducting third party enquiries wherever necessary. The assessee company is engaged in the business of manufacturing and selling of pharmaceutical products and engaged in generation of electricity through wind mill to be used for captive consumption. The assessee company has filed its return of income for A.Y. 2016-17 on 16-10-2016 declaring total income at Rs. nil. The said return was selected for scrutiny under CASS and assessment under CASS and assessment u/s. 143(3) was completed and order u/s. 143(3) was

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passed on 19-12-2018 accepting the return of income. Amalgamation of Troikaa Pharmaceutical Ltd. to Troikaa Export Pvt. Ltd. was taken place in accordance with the Composite Scheme of Arrangement u/s. 391 to 394 of the Companies Act, 1956 as sanctioned by the Hon’ble High Court of Gujarat on 13th April, 2016 (effective date), all the residual assets and liabilities of the erstwhile Troikaa Pharmaceutical Ltd. were transferred and vested in the company w.e.f. 1st April, 2015, the appointed date. In this regard, the assessee has placed in the paper book No. II copies of order of the Hon’ble High Court of Gujarat approving the merger of Troikaa Pharmaceutical Ltd. with Troika Exports Pvt. Ltd. and change of name of Troikaa Export Pvt. Ltd. to Troikaa Pharmaceutical Ltd. vide order of the Hon’ble Gujarat High Court dated 9th March, 2016 approving the scheme of amalgamation and certified copy of the said order issued by registry of the Hon’ble Gujarat High Court on 30th April, 2016 along with copies of valuation of reports of different assets of the Troikaa Pharmaceutical Ltd.. The ld. counsel has also placed in the paper book the copy of submission giving the details of written down value of the assets as on 31st March, 2015 in the books of Troikaa Pharmaceutical Ltd. (transferor company) and the assets accounted for in the transferee company Troikaa Pharmaceutical Ltd. (name converted into Troikaa Pharmaceutical Ltd. on 01-04-2015) at the respective market value along with revised audited balance sheet prepared after approval of amalgamation scheme by Hon’ble Gujarat High Court. In the Composite Scheme of Arrangement for amalgamation of Troikaa Pharmaceutical Ltd. with Troikaa Export Pvt. Ltd.. the detail of description of the company, rational of composite scheme of amalgamation, definition and share capital transferred on vesting different kinds of assets, issuance of

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share and restructuring of share capital, accounting treatment in the books of transferee company, general terms and conditions etc, were given in detail approved by the Hon’ble High Court of Gujarat. On perusal of the aforesaid Composite Scheme of Arrangement it is noticed that at clause no. 9.1 it is categorically mentioned that the amalgamation of Troikaa Export Pvt. Ltd. will be accounted for in the books of account of Troikaa Export Pvt. Ltd. by adoption of purchase method of accounting in accordance with the accounting standard-14 issued by the Institute of Chartered Accountant of India. At clause 9.2 it is mentioned that assets and liabilities of TPL to be transferred and vested in TEPL pursuant to this scheme, at their respective fair market value at the close of business on the day immediately preceding year the Appointed date. At clause 9.5 of the composite scheme it is mentioned that the difference, if any, between the date, assets value of TPL transferred to and reduced by TEPL in terms of clause 6.1 and 9.2, and the amount credit to share capital and securities premium account as per clause 9.4 and 9.5 and cancellation of inter-company balances and investment as per clause 9.3, reduction of share capital of TEPL as per clause 8.8 and differential amount arising as per clause 8.9 shall be credited to the Capital Reserve Account or shall be debited to the goodwill account of TEPL as the case may be. 8.2 It is noticed that during the course of assessment proceedings, the Assessing Officer has issued notices u/s. 143(1) at the time of original assessment proceedings, the details of which are as under:-

Sr. No. Date 1 11-09-2018

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2 22-09-2018 3 03-10-2018 4 18-10-2018 5 12-11-2018

With the assistance of ld. representatives, we have gone through these notices. Vide notice u/s. 142(1) dated 11th Sep, 2018 it is noticed that Assessing Officer has specifically made 30 queries as mentioned in the annexure to the notice. Out of these queries the part of the queries relevant to the issues of claim of depreciation are passed are reproduced as under:- “4. Submit the complete documents regarding the scheme of amalgamation and copy of high court order for the same. 5. Submit the effective date of scheme of amalgamation with proper references of the HC order. 6. Submit in detail the treatment of the amalgamation on your books of account with supporting documents, valuation reports etc. 7. Please justify the huge increase in the intangible assets during the FY and the claim of depreciation on the same. 8. Please reconcile the closing WDV of assts as per ITR of AY 2015-16 with the opening WDV of ITR of AY 2016-17” In the same notice on the issue of claim of deduction u/s. 35(2AB), the Assessing Officer has also raised specific queries as per serial no. 21 to 22 of the notice u/s. 11th Sep, 2018 which is reproduced as under:- “21. Please show cause why the sum of Rs 15876 should not be added to your total income u/s 36(1)(va) rws 2(24) as you failed to deposit the sums so received from your employees to the designated funds? 22. Please submit complete details of the expenses claimed u/s 35(2AB) and justify your claim with supporting documents and computations. Also submit the approval from DSIR regarding the amount claimed by you.” Again vide notice dated 22nd Sep, 2018, the Assessing Officer has also raised specific queries on the issues of claim of goodwill on amalgamation reproduced as under:- “4. Submit the complete documents regarding the scheme of amalgamation and copy of high court order for the same. 5. Submit the effective date of scheme of amalgamation with proper references of the HC order.

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Also vide aforesaid notice, the Assessing Officer has raised queries on the issue of claim of deduction u/s. 35(2AB) “22. Please submit complete details of the expenses claimed u/s 35(2AB) and justify your claim with supporting documents and computations. Also submit the approval from DSIR regarding the amount claimed by you. 23. Submit the P&L and balance sheet with all schedules independently for the unit on which 80- IC deduction has been claimed. Also submit the basis for the apportionment of various expenses on the 80-IC unit with proper justification.”

It is further noticed that Assessing Officer has also issued notice u/s. 142(1) on 3rd October, 2018 and also made specific inquiry on the issue of goodwill and R & D expenditure. The same is reproduced as under:- “3. Submit the details of the date on which the goodwill was put to use. 4. Submit the details of the benefits derived from the acquired goodwill if any with supporting documentary evidence/factual data. 5. Please submit the complete information on point No 11,15,18,19,20,22,24 of the notice u/s 142(1) dated 22/09/2018. 6. Please show cause why the R&D expenses claimed by you on which deduction u/s 35(2AB) has been claimed should not be appropriated on the unit on which deduction u/s 80-IC has been claimed?”

The Assessing Officer has also issued notice u/s. 142(1) of the act on 18th October, 2018 vide which he has made specific verification and enquiry on the issue of R & D expenditure which is reproduced as under:- “ 3. In view of the certificate issued by DSIR in form No 3CL, please show cause why the claim of weighted deduction u/s 35(2AB) should not be restricted to Rs 10.36 Cr (200% of 5.18 Cr) as expenditure worth only Rs 5.18 Cr has been incurred on in-house R&D facility by the company?”

The Assessing Officer has also noticed u/s. 142(1) on 12th Nov, 2018 vide which he has carried out detailed inquiry on the amalgamation of Troikaa Pharmaceutical Pvt. Ltd. along with detail of goodwill acquired and other

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particulars pertaining to Profit and Loss Account and balance sheet under the scheme of amalgamation along with claim of deduction u/s. 35(2AB), the same is reproduced as under:- Please provide the following information in respect of FY 2015-16 in addition to information requested in earlier all the notices if not submitted till date. Please note that the information requested in this notice and all other subsequent notices needs to be submitted only electronically through your e-filing portal in view of the e-assessment proceedings being conducted in your case 1. Please submit the balance sheet and P&L A/c with all schedules of erstwhile Troikaa Pharma which got amalgamated with Troikaa Exports Pvt. Ltd as on 31-03-2015. 2. Submit the details of the financials of troika group companies etc in below format

Company A.Y. 2013- A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016- A.Y. A.Y. 14 17 2017-18 2018-19 Erstwhile Troikaa Pharma (PAN: AABCT0228K) Size of balance sheet GP Ratio NP Ratio Total Income Book Profit Troikaa Exports Pvt. Ltd. (prior to amalgamation) Turnover Size of the balance sheet GP Ratio NP Ratio Total income Book profit Triokaa Pharma (post amalgamation) Turnover Size of the balance sheet GP Ratio NP Ratio Total Income Book pofit

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8.3 The assessee has made detailed submission in response to the queries raised by the Assessing Officer during the course of assessment proceedings. In its submission dated 24th Sep, 2018 placed in the paper book no. 1 filed by the assessee, it is noticed that assessee has made detailed submission in response to the query raised by the Assessing Officer vide notice u/s. 142(1) dated 11th Sep, 2018 on the issues of claim of goodwill in the scheme of amalgamation and claim of deduction made u/s. 35(2AB) of the Act. The relevant part of some of the submission made by the assessee during the course of assessment is reproduced as under:- “1. (Sr.No.1) Your honour has asked to submit the computation of income, audited financial statements and TAR for FY with all schedules. In this regard, please find enclosed herewith the Acknowledgement, Computation and Return of total income for A.Y. 2016-17 as per Exhibit - I (Page No. 1 to 41), copy of Statutory Audit Report alongvyith Audited Balance Sheet and Profit and loss account for F. Y. 2015-16 as per Exhibit - II (Page No. 42 to 72) and copy of Tax Audit Report for A.Y. 2016- 17 as per Exhibit - III (Page No. 73 to 114). 2. (Sr.No.2) Your honour has asked the assessee company to reconcile the closing stock as per ITR of AY 2015-16 with the opening stock of }TR for AY 2016-17. The Troikaa Pharmaceuticals Ltd. (Transferor Company) having PAN No.AABCT0228K) amalgamated with Troikaa Exports Pvt. Ltd. (Transferee Company) having PAN No.AABCT6866H as per the Order of Hon'ble High Court of Gujarat at Ahmedabad dated 09.03.2016. A copy of the said order is enclosed herein after as per Exhibit-VI (Page No. 153 to 229). As per the Scheme of Amalgamation and Order of Hon'ble High Court of Gujarat at Ahmedabad all the assets and liabilities of Troikaa Pharmaceuticals Ltd. transferred to Troikaa Exports Pvt. Ltd. Subsequently the name of assessee company Troikaa Exports Pvt. Ltd. has been changed to Troika Pharmaceuticals Ltd. Hence the WDV block as per Income-tax Act of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No.AABCT0228K) transferred to assessee company Troikaa Exports Pvt. Ltd. (Now known as Troikaa Pharmaceuticals Ltd. - PAN No.MBCT6866H). In this regard, please find enclosed herewith the statement of reconciliation of closing stock as per ITR of AY 2015-16 with the opening stock of ITR of A.Y. 2016-17 along with copy of ITR of A.Y. 2015-16 is attached herewith as per Exhibit - IV (Page No. 115 to 151). 3. (Sr.No.3) Your honour has asked the assessee company to submit the certified report of stock valuation as on 31.03.2015 and reconcile the same with the closing and opening stocks. In this regard, please find enclosed herewith the report of stock valuation as on 31.03.2015 of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No. AABCT0228K) as certified by the management as per Exhibit - V (Page No. 152). That the valuation method of the closing stock has already been stated in the statutory audit report filed for F.Y. 2015-16 attached herein above as per Exhibit - II (Page No. 42 to 72). The assessee company and erstwhile Troikaa Pharmaceuticals Ltd. (PAN No. AABCT0228K) is consistently following the same method of valuation of closing stock and in all earlier assessment years, the Assessing Officer has accepted the valuation7 method of closing stock adopted by the assessee company and erstwhile Troikaa Pharmaceuticals Ltd. in the assessment orders rendered u/s. 143(3) of the Act which are already available on your honour's record. As regards the reconciliation of the same with the closing and opening stocks, the assessee

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company has already submitted the same herein above at Sr. No. 2, as per Exhibit - IV (Page No. 115 to 151). 4.(Sr.No.4) Your honour has asked to submit complete documents regarding the scheme of amalgamation and copy of high court order for the same. In this regard, please fined enclosed herewith the copy of scheme of amalgamation along with copy of order of the Hon'ble Gujarat High-Court rendered on 09.03.2016 approving the scheme of amalgamation and certified copy of the said order issued by the Registrar of the Hon’ble Gujarat High Court on 30.04.2016 as per Exhibit - VI (Page No. 153 to 229). 5. (Sr.No.5).(a).Your honour has asked to submit the effective date of scheme of Igamation with proper references of the HC order. Your honour is requested to refer Page No. 39, Handwritten on top of the scheme of Amalgamation attached to the copy of the Hon'ble Gujarat High Court order and print Page No. 7 as stated on lower part of the page , Part - B which is having the title " Transfer of Windmill division of TPL to TEPL" and Para 4 which has been approved for transfer and vesting of Windmill Division of TPL to TEPL on a going concern basis with effect from March 31, 2015, closing hours of business, the Windmill Division Troikaa Pharmaceuticals Ltd to Troikaa Exports Pvt.Ltd and in Para 4 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229), it has been approved for transfer and vesting of Windmill division of Troikaa Pharmaceuticals Ltd to Troikaa Exports Pvt.Ltd on a going concern basis with effect from 31,03.2015, closing hours of business, alongwith all encumbrances and charges subsisting over the asses of Windmill Division of Troikaa Pharmaceuticals Ltd , shall, pursuant to the provisions contained in Sections 391 to 394 and other relevant provisions, if any, of the Act, without an further act, deed, matter or thing stand transferred to and vested in and/or to be deemed to be transferred to and vested in TEPL on a going concern basis and thereafter, in Para 4.1.1 to Para 4.1.3 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229) has been stated the manner on Page 39 & 40 handwritten on top of the Page and Print Page No. 7 & 8 on lower part of the page. That on Page No. 40, handwritten on top of the page and Print Page No. 8 on the lower part of the page in Para 5, the consideration has been stated and in Para 6 of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229), the Accounting treatment for transfer of Windmill Division of TPL to TEPL has been stated. b) The assessee company invite your honour's attention to the handwritten Page No. 41 on top of the page, Print Page No. 9 (lower part of the page) of the Scheme of Amalgamation as per Exhibit - VI (Page no. 153 to 229 ) which is Part - C under the head " Amalgamation of the residual TPL with TEPL", in Para 7 under the title " TRANSFER AND VESTING" attached to the scheme of amalgamation stated from 01.04.2015 and for your honour's ready reference Para 7.1 to 7.8 is reproduced hereunder:- "7.1 With effect from April 1, 2015, being the 1st day of April, 2015, and upon the Scheme becoming effective, the entire business of Residual TPL along with the assets and liabilities, shall pursuant to the provisions contained in Sections 391 to 394 and all other applicable provisions, if any, of the Act and other relevant provisions of the Act and section 2(1 B) of the Income Tax Act, 1961, without any further act, deed, matter or thing, stands transferred and vested in and / or be deemed to be transferred to and vested in TEPL so as to become business, assets and properties of TEPL as a part and consequent upon the amalgamation". 7.1.1.All the assets pertaining to Residual TPL which are movable in nature, or are incorporeal property, or are otherwise capable of being physically transferred by manual delivery and/or by endorsement including but not limited to cash on hand, shall be transferred by delivery or endorsement to TEPL to the end and intent that the property therein passes to TEPL. Such delivery and transfer shall be made on a date to be mutually agreed upon between the respective Board of Directors or Committees thereof of TPL and TEPL; 7.1.2 In respect of other assets pertaining to Residual TPL including but not limited to actionable claims, sundry debtors, outstanding loans, advances recoverable in cash or kind or for value to be received and deposits with the Government, semi-Government,

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local and other authorities and bodies and customers, the same shall be and stand transferred to and vested in TEPL as an integral part of this Scheme without any notice or other intimation to the debtors (although TEPL, may if it so deems appropriate issue notices stating that pursuant to this Scheme, the relevant debt, loan, advance, deposit or other asset, be paid or made good to, or be held on account of, TEPL as the person entitled thereto, to the end and intent that the right of Residual TPL to receive, recover or realize the same, stands transferred to TEPL and that appropriate entries should be passed in their respective books to record the aforesaid changes); 7.1.3. In so far as the immovable properties (including but not limited to land together with the buildings and structures standing thereon) of Residual TPL are concerned, whether freehold or leasehold and any documents of title, rights and easements in relation thereto shall stand transferred to and be vested in TEPL, without any act or deed done by TPL and TEPL. With effect from the ISt day of April, 2015, TEPL shall be entitled to exercise all rights and privileges and be liable to pay ground rent, municipal taxes and fulfill all obligations, in relation to or applicable to such immovable properties. The mutation of title to the immovable properties in the name of TEPL shall be made and duly recorded by the appropriate authorities upon filing of true copies of the Order of High Court or any other appropriate authority approving the scheme without any further act or deed on part of TPL or TEPL. 7.1.4. Any amount including but not limited to refund under the Tax Laws due to TPL consequent to the assessment proceedings or otherwise and which have not been received by TPL as on the date immediately preceding the 15t day of April, 2015, shall also belong to and be receivable by TEPL upon the Scheme being effective 7.1.5. In respect of such of the assets belonging to Residual TPL other than those referred to in clause 7.1.1 to 7.1.4, the same shall be transferred to and vested in and/or be deemed to be transferred to and.vested in TEPL on the Ist'day of April, 2015, pursuant to the provisions of Section 394 of the Act. 7.2. With effect from April. 1, 2015, and .upon the Scheme becoming effective any statutory licenses, permissions, approvals, consents, certificates, authorities (including for the operation of bank accounts), powers of attorney given by, issued to or executed in favour of Residual TPL and the rights and benefits under the same shall, and all quality certifications and approvals, trademarks, brands, patents and domain names, copyrights, industrial designs, trade secrets and other intellectual property and all other interests relating to the goods or services being dealt with by Residual TPL, shall stand vested in or transferred to TEPL without any further act or deed, and shall be appropriately mutated by the statutory authorities concerned therewith in favour of TEPL and the benefit of all statutory and regulatory permissions, environmental approvals and consents, registration or other licenses, and consents shall vest in and become available to TEPL as if they were 7.3. In so far as the various incentives, tax exemption and benefits, subsidies, grants, rehabilitation schemes, special status and other benefits, credits or privileges enjoyed including but not limited to in respect of income tax (including Minimum Alternate Tax), excise (including MODVAT / CENVAT), customs, VAT, sales tax, service tax, etc. granted by any Government body, local authority or by any other person, or availed of by Residual TPL, are concerned, the same shall vest with and be available to TEPL on the same terms and conditions as applicable to Residual TPL, as if the same had been allotted and/or granted and/or sanctioned and/or allowed to TEPL. 7.4. The transfer and vesting of the assets and liabilities of Residual TPL as aforesaid shall be subject to the existing securities, charges, mortgages, if any, in respect of any assets of Residual TPL. It is hereby clarified that all existing loans and financial assistances availed by TPL as on Effective Date shall, until the Same is repaid in full to the satisfaction of the respective banks or financial institutions, continue to be secured by the property and assets of TEPL including such assets which have been received by TEPL as per Part B of the Scheme.

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Provided always that the Scheme shall not operate to enlarge the, security for any loan, deposit or facility availed of by Residual TPL and that TEPL shall not be obliged to create any further or additional security thereof after the Effective Date or otherwise. Provided also that the Scheme shall not operate to enlarge the security for any loan, deposit or facility availed by TEPL and that TEPL shall not be obliged to create any further or additional security in lieu thereof, on any assets of Residual TPL vested in TEPL in accordance with foregoing paragraphs of the scheme, after the Effective Date or otherwise. Al1 assets and liabilities of the Residual TPL as on the 1st day of April, 2015, whether or not included in their respective books, and all the assets and properties which are acquired by them on or after the 16t day of April, 2015. but prior to the Effective Date, shall be deemed to be and shall become the assets and properties of TEPL, and shall under the provisions of Sections 391 to 394 of the Act and all other applicable provisions, if any, of the Act. without any further act, instrument or deed be and stand transferred to and vest in or be deemed to be transferred to and vested in and be available to TEPL upon the coming into effect of this Scheme on the Effective Date, pursuant to the provisions of Sections 391 to 394 of the Act and all other applicable provisions, if any of the Act. With effect from the Ist day of April. 2015, and upon the Scheme becoming effective, all debts, liabilities including but not limited to accrued interest thereon contingent liabilities, duties and obligations of even' kind, nature and description Residual TPL under the provisions of Sections 391 to 394 and all other applicable provisions, if any, of the Act, and without any further act or deed, be transferred to or be deemed to be transferred to TEPL, so as to become part and parcel of debt, duties and obligation and liabilities (including but not limited to contingent liabilities) including accrued interest thereon of TEPL with effect from the 15t day of April, 2015, and it shall not be necessary to obtain the consent of any third party or other person who is a party to any contract or arrangement by virtue of which such debts, liabilities including accrued interest thereon, contingent liabilities, duties and obligations have arisen in order to give effect to the provisions of this clause 7.6. 7.7. Upon the Scheme being effective, any tax liabilities under the Income Tax Act, 1961, Customs Act, 1962, Central Excise Act, 1944, value added tax laws, entertainment tax as applicable in any State in which Residual TPL operates, Central Sales Tax Act, '1956, any other State Sales Tax / Value Added Tax laws, or Service Tax, or Corporation Tax, Medicinal and Toilet Preparations Act, 1955 or other applicable laws/ regulations dealing with taxes/ duties/ levies/cess (hereinafter in this Clause referred to as "Tax Laws") to the extent not provided for or covered by tax provision in the Residual TPL's accounts made as on the date immediately preceding the ISt day of April, 2015, shall be transferred to TEPL. Any surplus in the provisionfor taxation/ duties/ levies account including"but not limited to advance tax, tax deducted/ collected at source and credit for Minimum Alternate Tax as on the date immediately preceding the 1st day of April, 2015, will also betransferred to the account of and belong to TEPL. 7.8 For the period between the 1st day of April, 2015, and the Effective Date all debts, liabilities, duties and obligations of the Residual TPL as on the 1st day of April, 2015, whether or not provided in the books of the Residual TPLraised, used and satisfied, shall be deemed to be for and on account of TEPL. 6. (Sr. No. 6 & 7) Your honour has asked to submit the details of treatment of the amalgamation on your books of account with supporting documents, valuation reports etc. and That your honour in question No. 7 has asked to justify about the huge increase in the intangible assets during the FY and the claim of deprecation on the same. (I) In this regard, please find enclosed herewith the details of treatment of the amalgamation in the books of accounts along with Valuation Report as under:- i) Valuation Report of Land and Building of Thol as per Exhibit - VII (Page No. 230 to 232)

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ii) Valuation Report of Land and Building of Dehradun as per Exhibit - VIII (Page No. 233 to 236) iii) Valuation Report of Land of Virochanagar per Exhibit - IX (Page No. 237 to 240) iv) Valuation Report of commercial Office as per Exhibit - X (Page No. 241 to 243) v) Valuation Report of Plant and Machinery, Laboratory equipments, Office equipments, Electric Installations, Furniture & Fixtures, Computers, etc. of Thol and Dehradun as per Exhibit - XI (Page No. 244 to 247) vi) Valuation Report of Vehicles at Thol, Dehradun and HO as per Exhibit - XII (Page No. 248 to 251) vii) Valuation Report of Patents as per Exhibit - XIII (Page No. 252 to 285) In this regard the assessee company has to submit as under for reply to Sr. No. 6 and 7:- (II) The assessee company request your honour to refer Para 9 ,of the Scheme of Amalgamation which provides for the accounting treatment in the books of transferee company on the handwritten Page No. 47 on the top of the page and Printed No. 15 on the lower part of the page of the Scheme of Amalgamation as per Exhibit - VI (Page No. 153 to 229) and for your honour's ready reference, Para 9 and sub-para 9.1 to 9.7 are reproduced hereunder- "9. ACCOUNTJNG TREATMENT IN THE BOOKS OF TRANSFEREE COMPANY On the Scheme becoming effective and with effect from the 1st day of April, 2015, TEPL shall account for the amalgamation in its books as under: The amalgamation of TPL will be accounted for in the books of TEPL by adoption of "Purchase Method" of accounting in accordance with the Accounting Standard - 14 issued by the Institute of Chartered Accountants of India. 9.2 Upon coming into effect of this Scheme, TEPL shall record, all the assets and liabilities of TPL transferred to and vested in TEPL pursuant to this Scheme, at their respective lair market values at the close of business on the day immediately preceding the Appointed Date. 9.3. The inter-company balances and investments, if any, appearing in the books of accounts of TEPL and TPL inter se, will stand cancelled 9.4. TEPL shall credit to its share capital account(s), the aggregate face value of the Equity Shares and Preference Shares issued and allotted under clause8.2 and clause 8.3 of this Scheme. 9.5. TEPL shall credit to its Securities Premium Account, the aggregate premium respect of Equity Shares issued and allotted under Clause8.2 of this Scheme. 9.6. The difference, if any. between the Net Assets Value of TPL transferred to and recorded by TEPL in terms of Clause 6.1 and 9.2 above, and the amount credited to Share capital and Securities Premium account as per Clause 9.4 and 9.5 above and cancellation of inter-company balances and investment as per Clause 9.3 above, reduction of share capital of TEPL as per clause 8.8, and differential amount arising as per clause 8.9. shall be credited to the Capital Reserve Account or shall be debited to the Goodwill Account of TEPL, as the case may be. ("Net Assets Value" shall be computed as the value of assets less the value of liabilities, of TPL transferred to TEPL and recorded in TEPL in terms of Clause 9.2.) 9.7. if considered appropriate for the purpose of application of uniform accounting methods and policies between TPL and TEPL. TEPL may make suitable adjustments and reflect the effect thereof in the Capital Reserve or Goodwill Account of TEPL, as the case may be". The assessee company is attaching herewith accounting entries passed in the books of assessee company on amalgamation as per Exhibit - XIIIA (Page No. 285/A to 285/D) (III) The assessee company has to submit that the assessee company has prepared a chart showing the WDV of various assets standing in the books of accounts of Troikaa Pharmaceuticals Ltd as on 31.03.2015 and in pursuance of Para 9.2 of the scheme of amalgamation, all assets of Troikaa Pharmaceuticals Ltd (Transferor Company) have been accounted for in the books of account of Troikaa Exports Pvt.Ltd ( Transferee company) (name converted into Trcikca Pharmaceuticals Ltd after amalgamation as per

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the Hon'ble Guj'rat High Court order w.e.f.1.4.2015) and the statement giving the details of written down value of the assets as on 31..3.2015 in the books of accounts of Troikaa Pharmaceuticals Ltd (transferor company) and the assets accounted for in the transferee company Troikaa Exports Pvt.Ltd (Name converted into Troikaa Pharmaceuticals Ltd on 1.4.2015) at the respective fair market value along with revised Audited Balance Sheet prepared after approval of amalgamation scheme by Hon'ble Guj'arat High Court which is attached herewith as per Exhibit - XIV (Page No. 286 to 318). (IV) The assessee company has to invite your honour's attention to the Note No. 27 & 28 forming part of Notes to the Accounts of the Statutory Audit Report for the year ended on 31.03.2016 (Please refer Exhibit - II (Page No. 42 to 72)) Page No. 38 & 39, wherein, the complete details have been given in respect of effect of the accounting treatment of the amalgamation of Troikaa Pharmaceuticals Ltd with Troikaa Exports Pvt.Ltd (name converted into Troikaa Pharmaceuticals Ltd . For your honour's ready reference, Note No. 27 & 28 forming part of notes to the accounts of statutory audit report is reproduced hereunder:- '27. Company Information Troikaa Pharmaceuticals Limited (the 'Company') is a public limited company. The Company was previously registered as Troikaa Exports Private Limited (TEPL) and in accordance to the Composite Scheme of Arrangement sanctioned bytheHon'ble High Court of Gujarat on 30th April 2016 (effective date) with following events taking place under the Scheme a. Transfer of Windmill Undertaking of the erstwhile Troikaa Pharmaceuticals Limited was w.e.f. 31st March 2015 closing hours of business; b. Amalgamation of Residual erstwhile Troikaa Pharmaceuticals Limited was w.e.f. 1st April, 2015. c. The paid-up Equity Share Capital of the Company (TEPL) was reduced from the existing paid-up Equity Share Capital from Rs. 3.00 lakhs (Number of Equity Shares 30,000) to Rs. 1.00 lakhs (Number of Equity -Shares 10,000). d. TEPL was converted to Troikaa Exports Limited (TEL). The effect of the conversion was given on 8th June 2016 by Registrar of Companies, Gujarat. e. The name of TEL was changed to Troikaa Pharmaceuticals Limited. The effect of the change in name was given on ISthl June 2016 by Registrar of Companies, Gujarat. f. The Fixed Assets of the amalgamated Company shall be transferred to amalgamating company on the payment of stamp duty. The amount of stamp duty is under adjudication. 28. Amalgamation of Troikaa Pharmaceuticais Limited with the Company: Composite Scheme of Arrangement was undertaken between erstwhile Troikaa Pharmaceuticals Limited and Troikaa Exports Private Limited subsequently known as Troikaa Pharmaceuticals Limited (The Company): Pursuant to the Composite Scheme of Arrangement u/s 391 to 394 of the Companies Act,1956for amalgamation of erstwhile Troikaa Pharmaceuticals Limited with The Company as sanctioned by the Hon'ble High Court of Gujarat on SOtll April, 2016 (effective date) all the residual assets and liabilities of the erstwhile Troikaa Pharmaceuticals Limited were transferred to and vested in The Company with effect from 1" April, 2015, the appointed date. The erstwhile Troikaa Pharmaceuticals Limited along will its subsidiaries were operating as integrated international organizations with business encompassing the entire value chain in the production, marketing and distribution of pharmaceutical formulations. The Scheme has accordingly been given effect to in these financial statements. 28. The amalgamation has been accounted for under the "Purchase Method" as prescribed under Accounting Standard 14 - "Accounting for Amalgamations" (AS 14) issued by the Institute of Chartered Accountants of

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India and as notified under section 133 of the companies Act, 2013 read with Rule 7 of the Companies Accounts Rules, 2014. Accordingly and giving effect of the Composite Scheme of Arrangement, all the residual fixed assets including all intangible assets of the erstwhile Troikaa Pharmaceuticals Limited, were recorded in the books of the Company at their fair market value and in the same form as at the appointed date. All other assets and liabilities have been recorded at the book value of, erstwhile Troikaa Pharmaceuticals Limited. Hence, in accordance with the Composite Scheme of Arrangement: 1. The Company has taken over the residual fixed assets at the fair market value aggregating to Rs. 14,336.77 lakhs, other assets aggregating to Rs. 17,261.77 lakhs and liabilities aggregating to Rs. 17,262.42 Lakhs at book value of the erstwhile Troikaa Pharmaceuticals Limited and an amount of Rs. 34,271.93 lakhs being the excess of the amount recorded as share capital and securities premium to be issued by The Company over the amount of net asset value (after cancellation of the inter-company balance and investmentjof the erstwhile Troikaa Pharmaceuticals Limited and Share Capital Reduction ofRs. 2.00 lakhs has been debited to Goodwill account. (Rs. In lakhs) Particulars Amount

Total Consideration (A) 48,610.05

Tangible Fixed Assets 9,502.06

Capital Work-in-progress 984.39

Intangible Fixed Assets 3850.32

Non-Current Investments 26.27

Long Term Loans & Advances 1208.69

Other Non-Current Assets 23.61

Inventories 10,193.30

Trade Receivables 4300.53

Cash & Bank Balances 296.74

Short-term Loans & Advances 977.37

Other Current Assets 235.36

Total Assets acquired (B) 31,598.54

Long Term Borrowings 2,708.09

Other Long Term Borrowings 636.05

Long Term Provisions 367.76

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Short Term Borrowings 6,696.06

Trade Payables 4,886.29

Other Current Liabilities 1,802.50

Short Term Provisions 165.67

Total Liabilities acquired ( C) 17,262.42

Net Asset acquired (D)=(B-C) 14,336.12

Share Capital Reduction (E) 2.00

Goodwill (F) = (A-D-E) 34,271.93

On 30th-July, 2016, in terms of the Composite Scheme of Arrangement a. 15 (Fifteen) Equity Shares of Rs. 10/- each at a Premium of Rs. 67/- (Number of Equity Snares 6,25,43,220 of the Company has been allotted to the Equity Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) Equity Share of Rs. 10/-each (Number of Equity Shares 41,69,548). b. 1 (One) 11.50% Cumulative Preference Share of Rs.-10/-each (Number of Preference Shares 6,29,700) of the Company has been allotted to the 11.50% Cumulative Preference Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) 11.50% Cumulative Preference Shares ofRs. 10/-each (Number 6,29,700). c. 1 (One) 9.00% Cumulative Preference Share of Rs. 10/- each (Number of Preference Shares 38,88,000) of the Company has been allotted to the 9.00% Cumulative Preference Shareholders of the erstwhile Troikaa Pharmaceuticals Limited for every 1 (One) 9.00% Cumulative Preference Shares of Rs. 10/- each (Number 38,88,000). iiii... In view of the above scheme of arrangement, the Financial Statements for the current year are not comparable to those of the previous year. iv. As the allotment of Equity Shares and Preference Shares has been made on 30thth July, 2016, the amount of Equity Share Capital and Share Premium thereon, Preference Share Capital has been shown as Equity Share Suspense Account, Preference Share Suspense Account under grouping Share Capital and Share Premium Suspense Account under grouping Reserves & Surplus. These shares have been considered for the purpose of calculation of earnings per share." iii) Your honour is requested to refer Note No. 29, Significant Accounting Policies and Para [E] under the head " Depreciation / Amortization" /wherein, it has been stated as under:- A. Basis of Accounting: The company maintains its accounts on accrual basis following the historical cost convention in accordance with generally accepted accounting principles ("GAAP") comprises Accounting Standards specified under Section 133 of the of the Companies Act 2013, read with Rule 7 of Companies (Accounts) Rules, 2014, other pronouncements of the Institute of Chartered Accountants of India, the relevant provisions of the Companies Act, 2013. B. Use of estimates: The preparation of the financial statements is in conformity with I GAAP which requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities on the date of the financial statements and reported amounts of revenues and expenses for the year. Examples of such estimates include estimation of useful lives of tangible and intangible assets, valuation of inventories, assessment of recoverable amounts of deferred tax assets and provision for obligations relating to employees. Actual results could differ from these estimates. Estimates and underlying assumptions are

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reviewed on an ongoing basis. Any revision to accounting estimates is recognized prospectively in the current and future periods. 8. (Sr.No.8) Your honour has asked to reconcile the closing WDV of assets as per ITR of ^AY 2015-16 with the opening WDV of ITR of AY 2016-17. The Troikaa Pharmaceuticals Ltd. (Transferor Company) having PAN No.AABCT0228K) amalgamated with Troikaa Exports Pvt. Ltd. (Transferee Company) having PAN No.AABCT6866H as per the Order of Hon'ble High Court of Gujarat at Ahmedabad dated 09.03.2016. A copy of the said order is enclosed herein after as per Exhibit-VI (Page No. 153 to 229). As per the Scheme of Amalgamation and Order of Hon'ble High Court of Gujarat at Ahmedabad all the assets and liabilities of Troikaa Pharmaceuticals Ltd. transferred to Troikaa Exports Pvt. Ltd. Subsequently the name of assessee company Troikaa Exports Pvt. Ltd. has been changed to Troika Pharmaceuticals Ltd. Hence the WDV block as per Income-tax Act of erstwhile Troikaa Pharmaceuticals Ltd. (PAN No.AABCT0228K) transferred to assessee company Troikaa Exports Pvt. Ltd. (Now known as Troikaa Pharmaceuticals Ltd. - PAN No.AABCT6866H). In this regard, please find enclosed herewith the reconciliation of closing WDV as per ITR of A.Y. 2015-16 with opening WDV of ITR of AY 2016-17 as per Exhibit - XV (Page No. 319).Further the assessee company would like to draw Your Honour's attention to Note no. 04 of Tax Audit Report wherein it is mentioned that "the company has purchased wind turbine generator on 31.03.2015 under slump sale and depreciation of Rs. 56,00,000/- (Rs. 1,40,00,000*40% under the Income Tax Act has not been claimed for AY 2015-16. However to calculate depreciation for the AY 2016-17, Opening WDVofRs. 84,00,000/- [Rs. 1,40,00,000 - Rs. 56,00,000 has been taken by considering the depreciation for the AY 2015-16 deemed to be allowed to avoid protected litigation." 9. (Sr.No.9) Your honour has asked to show cause why the donation payments of Rs 1,62,500 debited to P&L A/c should not be disallowed in computingyour total income as the same has not been reduced from the business profits in your ITR despite mentioned by auditor in TAR?. In this regard, the assessee company has to submit that the Donation of Rs. 1,62,500/- debited to P & L Account has already been disallowed in the computation of total income and also in the ITR filed. Your honour is requested to refer e-filing ITR Schedule BP wherein at Point No. 23, Part - A, the figures stated therein of Rs. 14,20,96,183/- includes donation expenses of Rs. 1,62,500/-. Therefore, the assessee company in the computation of total income has already disallowed the donation expenses of Rs. 1 ,62,500/- and the tax auditor in the tax audit report has already disallowed the donation of Rs. 1 ,62,500/- at Point No. 21 (ii) and the assessee company in e-filing return ITR has also made the disallowance. If your honour have any query about the same, the opportunity of personal hearing may kindly be given. Further for Your Honour's ready reference the bifurcation of disallowance made in the computation of Income totaling to Rs. 14,20,96,1837- in ITR Schedule BP at Point No. 23, Part - A is as follows: HEAD OF DISALLOWANCE AMOUNT

R&D Expense 9,49,33,935

Donation 1,62,500

Loss On Sale Of Fixed Assets 4,31,247

Interest On Ids 8,058

Unpaid Bonus 2,54,77,207

ESIC Disallowance u/s.36(1)(Va) 15,876

Penalty 55,000

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Gratuity & Leave Encashment Provisions 1,89,61,152

Disallowance U/S.14a 5,10 Excess Provision of Previous Year Depriciation 5,799 CSR Expense 20,29,933 Prior Period Expense 14,966 Total 14,20,96,183/-

8.4 In its submission dated 24th Sep, 2018 placed at pages 199 to 234 of the paper book I during the course of assessment the assessee has also filed copy of scheme of amalgamation along with copy of order of the Hon’ble Gujarat High Court approving the scheme of amalgamation along with certified copies of the said order, copies of valuation report of valuer of different assets on account of amalgamation and the copy of statement giving the detail of written down value of the assets as on 31st March, 2015 in the books of account of Troikaa Pharmaceutical Pvt. Ltd.. and the assets accounted in the books of Troikaa Export Pvt. Ltd. along with revised audit balance sheet prepared after approval of amalgamation scheme by the Hon’ble Gujarat High Court. It is also noticed that during the course of assessment proceedings vide submission dated 16th Nov, 2018, placed at page 405 to 434 of the paper book II, in response to the queries raised by the Assessing Officer in the notice u/s. 142(1), the assessee has also made detailed submission that the company has taken over the residual fixed assets at the fair market value aggregating to Rs. 14,366.77 lacs, other assets aggregating to Rs. 17,261.77 lacs and liabilities aggregating to Rs. 17,262.42 lacs at book value of the erstwhile Troika Pharmaceuticals Ltd. and an amount of Rs. 34,271, 93 lacs being the excess of the amount recorded as

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share capital and securities premium to be issued by the assessee company over the amount of net asset value (after cancellation of the inter-company balance and investment) of the erstwhile Troika Pharmaceuticals Ltd. and share capital reduction of Rs. 2.00 lacs has been debited to goodwill account. The assessee has also submitted detail of accounting treatment in the books of transferee company and also submitted detailed decision of the Hon’ble Apex Court as well as the Hon’ble High Court relied upon by the assessee. The relevant part some of the submission made by the assessee before finalization of assessment before the Assessing Officer is reproduced as under:- “(Sr. no. 2) Your honor has asked to submit the details of financials of Troikaa group companies etc in the prescribed format. With regards to the same, the assessee company would like to submit the said details for the erstwhile Troikaa Pharmaceuticals Ltd. (Pan: AABCT0228K) for AY 2013-14 to 2015-16 (i.e. prior to amalgamation) as per Exhibit I, for Troikaa Exports Pvt. Ltd. (PAN: AABCT6866H) for AY 2013-14 to 2015-16 (i.e. prior to amalgamation) as per Exhibit II and Troikaa Exports Pvt. Ltd (now known as Troikaa Pharmaceuticals Ltd. PAN: AABCT6866H) for AY 2016-17 and AY 2017-18 (i.e. post- amalgamation) as per Exhibit III 2. (Sr. No. 3) Your honour has asked the assessee company to furnish details regarding the date on which the Goodwill was put to use by the assessee company. In this regard the assessee company has to submit as under:- i) Pursuant to the Composite Scheme of Arrangement u/s. 391 to 394 of the Companies for amalgamation of erstwhile Troikaa Pharmaceuticals Ltd with the assessee as sanctioned by the Hon'ble High Court of Gujarat, all the residual assets and of the erstwhile Troikaa Pharmaceuticals Ltd were transferred to and vested in the with effect from 1st April, 2015, i.e. the appointed date. The erstwhile Troikaa Pharmaceuticals Ltd alongwith its subsidiaries were operating as integrated international organizations with business encompassing the entire value chain in the production, marketing and distribution of pharmaceutical formulations. The Scheme has accordingly been given effect to in financial statements of the assessee company for F.Y. 2015-16. The amalgamation has been accounted for under the "Purchase Method" as prescribed under Accounting Standard 14 - "Accounting for Amalgamations" (AS 14) issued by The Institute of Chartered Accountants of India and as. notified under section 133 of the Companies Act, 2013 read with Rule 7 of the Companies Accounts Rules 2014. Accordingly and giving effect of the Composite Scheme of

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Arrangement, all the residual fixed assets including all intangible assets of the erstwhile Troikaa Pharmaceuticals Limited, were recorded in the books of the assessee company at their fair market value and in the same form as at the appointed date i.e. 01.04.2015. All other assets and liabilities have been recorded at the book value of erstwhile Troikaa Pharmaceuticals Limited. Hence, in accordance with the Composite Scheme of Arrangement: The Company has taken over the residual fixed assets at the fair market value aggregating to Rs. 14,336.77 lakhs, other assets aggregating to Rs. 17,261.77 lakhs and liabilities aggregating to Rs. 17,262.42 Lakhs at book value of the erstwhile Troikaa Pharmaceuticals Limited and an amount of Rs. 34,271.93 lakhs being the excess of the amount recorded as share capital and securities premium to be issued by the assessee company over the amount of net asset value (after cancellation of the inter-company balance and investment) of the erstwhile Troikaa Pharmaceuticals Limited and : Capital Reduction of Rs. 2.00 lakhs has been debited to Goodwill account. Share Particulars Amount (Rs.in lakhs)

Total Consideration (A) 48,610.05

Tangible Fixed Assets 9,502.06

Capital Work-in-progress 984.39

Intangible Fixed Assets 3850.32

Non-Current Investments 26.27

Long Term Loans & Advances 1208.69

Other Non-Current Assets 23.61

Inventories 10,193.30

Trade Receivables 4300.53

Cash & Bank Balances 296.74

Short-term Loans & Advances 977.37

Other Current Assets 235.36

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Total Assets acquired (B) 31,598.54

Long Term Borrowings 2,708.09

Other Long Term Borrowings 636.05

Long Term Provisions 367.76

Short Term Borrowings 6,696.06

Trade Payables 4,886.29

Other Current Liabilities 1,802.50

Short Term Provisions 165.67

Total Liabilities acquired (C) 17,262.42

Net Asset acquired (D)=(B-C) 14,336.12

Share Capital Reduction (E) 2.00

Goodwill (F) = (A-D-E) 34,271.93 ....

ii). The assessee company has to further submit that as per the scheme of amalgamation approved by the order of the Hon'ble Gujarat High Court, the amalgamating company Troikaa Pharmaceuticals Ltd got amalgamated with Troikaa Exports Pvt. Ltd (changed the name to Troikaa Pharmaceuticals Ltd, assessee company) with effect from 01.04.2015 being the appointed date as per the scheme. As per Clause 9 of the Scheme of Amalgamation, which provides for Accounting Treatment in the books of accounts of Transferee company i.e. the assessee company. For your honour's ready reference, Clause 9 is reproduced hereunder- "ACCOUNTING TREATMENT IN THE BOOKS OF TRANSFEREE COMPANY On the Scheme becoming effective and with effect from the 1st day of April, 2015, TEPL shall account for the amalgamation in its books as under.

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9.1. The amalgamation of TPL will be accounted for in the books of TEPL by adoption of "Purchase Method" of accounting in accordance with the Accounting Standard -14 issued by the Institute of Chartered Accountants of India. 9.2. Upon coming into effect of this Scheme, TEPL shall record, all the assets and liabilities of TPL transferred to and vested in TEPL pursuant to this Scheme, at their respective fair market values at the close of business on the day immediately preceding the Appointed Date. 9.3. The inter-company balances and investments, if any, appearing in the books of accounts of TEPL and TPL inter se, will stand cancelled 9.4. TEPL shall credit to its share capital account(s), the aggregate face value of the Equity Shares and Preference Shares issued and allotted under clause 8.2 and clause 8.3 of this Scheme. 9.5. TEPL shall credit to its Securities Premium Account, the aggregate premium in respect of Equity Shares issued and allotted under Clause 8.2 of this Scheme. 9.6. The difference, if any, between the Net Assets Value of TPL transferred to and recorded by TEPL in terms of Clause 6.1 and 9.2 above, and the amount credited to Share capital and Securities Premium account as per Clause 9.4 and 9.5 above and cancellation of inter-company balances and investment as per Clause 9.3 above, reduction of share capital of TEPL as per clause 8.8, and differential amount arising as per clause 8.9, shall be credited to the Capital Reserve Account or shall ID tie Goodwill Account of TEPL, as the case may be. ( “Net Assets Value" shall be computed as the value of assets less the value of of TPL transferred to TEPL and recorded in TEPL in terms of Clause 9.2.) 9.7 If considered appropriate for the purpose of "application of uniform accounting and policies between TPL and TEPL, TEPL may make suitable and reflect the effect thereof in the Capital Reserve or Goodwill Account TEPL, as the case may be".

iii) That as per the scheme of amalgamation, Troikaa Exports Pvt Ltd. (TEPL), the company purchased the on-going concern of the Troikaa Pharmaceuticals Ltd, 7 ,-~amalgamating company w.e.f 01.04.2015 for a total consideration of Rs. 48610.05 as per the exchange ratio of shares of amalgamated company Troikaa Exports Pvt. Ltd to be issued to the shareholders of amalgamating company Troikaa Pharmaceuticals Ltd. It is further submitted that Clause 11, provides for "conduct of business until the effective date", wherein, at Para 11.1 it is stated that TPL shall carry on and be deemed to have been carrying on the business and activities and shall stand possessed of and hold all of its properties and assets for and on account of and in trust for TEPL." Hence, the amalgamating company Troikaa Pharmaceuticals Ltd, was carrying on the business for and on behalf of Troikaa Exports Pvt. Ltd (name changed to Troikaa Pharmaceuticals Ltd, assessee company) amalgamated company with effect, from 01.04.2015 and as discussed hereinabove, in Clause 9 of the Accounting Treatment on approval of scheme of amalgamation by the order of the Hon'ble Gujarat High Court, the same has to be given effect from 01.04.2015 and accordingly, on 01.04.2015, as there was

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excess share capital over net assets, the difference was accounted as a Goodwill for an amount of Rs. 34271.93 Lakhs in the books of accounts of the amalgamated company on 01.04.2015. Therefore the Goodwill came into existence on 01.04.2015 as an intangible asset in the assessee company's books of accounts in the process of amalgamation and the same was put to use from 01.04.2015. iv). The assessee company has to submit that there was no Goodwill in the books of accounts of Troikaa Pharmaceuticals Ltd, i.e. the amalgamating company on 31.03.2015 and there was no Goodwill standing in the books of accounts and in the Balance Sheet as on 31.03.2015 of Troikaa Exports Pvt. Ltd i.e. the assessee company. The assessee company invites your honour's attention to provisions of section 32(ii) which provides as under- "(ii) know-how, palertls, copyrights, trade marks, licences, franchises or- any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998," The assessee company has to submit that the Goodwill in the form of intangible assets which came into existence on 01.04.2015 for an amount of Rs. 34271.93 lakhs in the books of the assessee company falls in the category of intangible assets being business or commercial rights of similar nature, which is eligible for depreciation as per the provisions of Section 32(ii) of the Act. In support of this contention, the assessee company would like to place reliance on the following decisions of the Hon'ble Apex Court as well as the Hon'ble Jurisdictional High Court: a.Hon'ble Supreme Court in the case of Commissioner of Income-tax, Kolkata v. Smifs Securities Ltd. [2012] 24 taxmann.com 222 (SC) wherein it was held that: "3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 /'.Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3.- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean-- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." 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).

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in value of the factors producing it. The Hon'ble Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC) have held as follows: "A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in IRC v. Muller and Co.'s Margarine Limited [1901] AC 217 (HI) that although goodwill was easy to describe, it was nonetheless difficult to define. In a progressing business goodwill tends to show progressive increase, And in a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is a/so impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business." Thus, it is difficult to furnish details of the benefits derived from the acquired goodwill if any I documentary evidence/ factual data. However, the list of factors which give in the case of the assessee company are encapsulated in Clause 1.6 (a), 0) & (g) of the Hon'ble High Court approved Scheme of Amalgamation and the »is reproduced below for ready reference: “a) All the assets and properties of Transferor Company as on the Appointed Date (i.e. 1st April, 2015); c) All licenses (including but not limited to the licenses granted by any governmental, statutory or regulatory bodies for the purpose of carrying on the business of Transferor Company or in connection therewith), approvals, authorizations, permissions including but not limited to municipal permissions, consents, registrations, certifications, no objection certificates, quotas including but not limited to import quotas, rights, permits, entitlements, concessions, exemptions, subsidies, tax deferrals, credits (including but not limited to Cenvat Credits, sales tax credits and income tax credits), privileges, advantages and all other rights and facilities of every kind, nature and description whatsoever of Transferor Company; d) All intellectual property rights (including but not limited to applications for registration of the same and the right to use such intellectual property rights), trade and service names and marks, patents, copyrights, and other intellectual property rights of any nature whatsoever, trade secrets, confidential information, books,

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records, files, papers, process information, software licenses (whether proprietary or otherwise), quotations, list of present and former customers and suppliers, other customer information, customer credit information, customer pricing information, sales and advertising materials, product registrations, product master cards and all other records and documents, whether in physical or electronic form relating to the business activities and operations of Transferor Company; f) Without prejudice to ihe generality of sub-clause (a) above, the Undertaking of Transferor Company shall include movable and immovable properties, assets, including but not limited to lease-hold rights, tenancy rights, industrial and other //censes., registrations, permits, authorizations, quota rights, trade marts, patents and other industrial and intellectual properties, import quotas, electrical connections telephones, telex, facsimile and other communication facilities and equipments, rights and benefits of all agreements, pending applications and all other interests, rights and powers of ever/ kind, nature and description whatsoever, privileges, liberties, easements, advantages, benefits and approvals of Transferor Company; and All employees of Transferor Company."

B. Furthermore, The Hon'ble Courts in a catena of judgments have held that depreciation is allowable not only on a specified category of intangibles but also for other categories of intangible assets which fall within the purview of the expression "business or commercial rights of similar nature" under Section 32 of the Income Tax Act, 1961. Reliance is placed on the cases cited herein below: i. The Hon'ble Delhi High Court in Areva T & D India Ltd. v. Deputy Commissioner of Income-tax reported in [2012] 20 taxmann.com 29 (Delhi) "13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in Section 32(l)(ii-) of the Act, it is seen that such rights need not answer the description of "knowhow, patents, trademarks, licenses or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(l)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been

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additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of the assessee, intangible assets, viz., business claims; business information; business record contracts; employees; and knowhow, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assesses, which was hitherto being carried out by the transferor., without any interruption. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares & Stocks Ltd. (supra) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "license" or "akin to a license" which is one of the items falling in Section 32(l)(ii) of the Act. Further, the SLP filed before the Hon'ble Supreme by the department has been dismissed by the Hon'ble Supreme Court vide SLP CC no. 21227/2012 dated 23.09.2013 Ii Techno Shares & Stocks Ltd. v. Commissioner of income-tax-IV[2010] 193 Taxman 248 (SC) 19. The next question is - whether the membership right could be said to be owned by the assessee and used for the business purpose terms of section 32(l)(ii). Our answer is in the affirmative for the reason that the Rules and the Bye-laws analysed hereinabove indicate that the right of membership (including the right of nomination) vests in the Exchange only when a member commits default. Otherwise, he continues to participate in the trading session on the floor of the Exchange; that he continues to deal with other members of the Exchange and even has the right to nominate subject to compliance of the Rules. Moreover, by virtue of Explanation 3 to section 32(l)(ii) the commercial or business right which is similar to a "licence" or

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"franchise" is declared to be an intangible asset. Moreover, under rule 5, membership is a personal permission from the Exchange which is nothing but a "licence" which enables the member to exercise rights and privileges attached thereto. It is this licence which enables the member to trade on the floor of the Exchange and to participate in the trading session on the floor of the Exchange. It is this licence which enables the member to access the market. Therefore, the right of membership, which includes right of nomination, is a "licence" or "akin to a licence" which is one of the items which falls in section 32(l)(ii) of the 1961 Act. The right to participate in the market has an economic and money value. It is an expense incurred by the assessee which satisfies the test of being a "licence" or "any other business or commercial right of similar nature" in terms of section 32(l)(ii). 24. Before concluding, we wish to clarify that our present judgment is strictly confined to the right of membership conferred upon the member under the BSE membership card during the relevant assessment years. We hold that the said right of membership is a "business or commercial right" which gives a non-defaulting continuing member a right tc access the Exchange and to participate therein and in that sense it is a licence or akin to licence in terms of section 32(l)(ii) of the 1961 Act. That, such a right vests in the Exchange only on default/demise In terms of the Rules and Bye-laws of BSE, as they stood at the relevant time. Our judgment should not be understood to mean that every business or commercial right would constitute a "licence" or a "franchise" in terms of section 32(l)(ii) of the 1961 Act." iii. Commissioner of Income-tax v. RFCL Ltd. [2015] 57 taxmann.com 17 (Himachal Pradesh) "14. The Appellate Tribunal has rightly discussed the facts, circumstances, the law applicable, including the judgments of the Bombay High Court and Delhi High Court and various other judgments, in paragraphs No.l9f20, 24,25 and 26 In the order impugned in ITA Nos.13 and 4 of 2014, which are reproduced hereunder: "19. The issue arising before us is whether the assessee is entitled to the claim of depreciation on the said acquisition of intangible assets in line with the acquisition of business of Animal Health Care and Diagnostics Business divisions of Ranbaxy and/or also whether the assessee is entitled to the claim of depreciation on the amount booked under the head goodwill simpliciter. 20. Under the amended provisions of section 32 of the Act w.e.f. 1.4.1999, ambit of depreciation has been enlarged to cover both the tangible and intangible assets. The depreciation on buildings, machinery plant of furniture being tangible assets was being allowed subject to satisfaction of the conditions laid down under section 32 oj the Act i.e. the assets should be owned wholly or partly by the assessee and used for the purpose of

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business 01 profession of the assessee. The rate of depreciation for such assets was provided in Schedule attached to the Income Tax Act. However, after the amendment by the Finance (No.2) Act, 1998, w.e.f. 1.4.1999 the depreciation is also to be allowed on intangible assets i.e. know-how, patent and copyrights, trademarks, licences or franchises or any other business or commercial rights of similar nature. The Hon'ble Delhi High Court in Areva T and D India Ltd. Vs. DCIT (supra) applied the principle of ejusdem generic to interpret the expression "business or commercial rights of similar nature" referred to in section 32(l)(ii) of the Act and held that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. The Hon'ble Court further held that in the circumstances, the nature of business or commercial rights could be of the same genus in which all the aforesaid six assets fall and thus intangible assets i.e. business claims; business information; business records;, contracts; employees; and know-how, were held to be assets which are invaluable and result in carrying on the business of the assessee, without any interruption and are comparable to a licence or akin to a licence which is one of the items falling in section 32(l)(ii) of the Act. 24. The above said ratio was referred to by Mumbai Bench of the Tribunal in M/s India Capital Markets P. Ltd. Vs DCIT (supra) wherein the purchase of clientele business by the assessee from M/s AFC was held to be right which could be used as a tool to carry on the business and the consideration paid for which was held eligible for depreciation. Sl. No. Details of Intangible Assets Paper Book Reference Page acquired Numbers 1. Stockist Agreements 2. Distribution Agreements 3. Lease Agreements 4. Distribution and Marketing 82 Agreements 5. List of Employees 6. List of Licenses and Permissions 126 (Export Registrations) 7. Various Products - Enlarged 108-120 product range and customer base Name license Manufacturing know bow, 36-37 specifications and test methods, manufacturing and packaging instructions, master formulae, validations reports, stability data, analytical methods and any other documents necessary to manufacture, control and release 25. As pointed out in paras hereinabove the assessee in addition to building plant & machinery, furniture, fixtures, vehicles and net current assets alongwith brands valued at Rs.49.26 crores had also acquired the under mentioned assets: The perusal of the Schedules to BPA comprising

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of the above said list of Stockist Agreements, Distribution Agreements, Lease Agreements and also Distribution and Marketing Agreements, alongwith List of Licenses and Permissions and List of various Products, the name license and also the manufacturing know-how etc., alongwith List of employees are assets, which are invaluable and instrumental in carrying on the business of Animal Health Care and Diagnostics Business divisions acquired by the assessee from M/s Ranbaxy Laboratories Ltd. as per BPA. The acquisition of the above said items is bundle of rights acquired by the assessee for which lump sum price was fixed and no break up in the value of price was determined either by the assessee or by the ai'd'tor* but the same constituted bundle of rights akin to a licence or comparable to a license to carry on the business of Animal Health Care and Diagnostics Business divisions^ which was being carried on by the seller i.e. M/s Ranbaxy Laboratories Ltd. the above said assets acquired by the assessee were the 'business or commercial rights or licence acquired' in order to carry on new business acquired by the assessee including list of employees and also various licences owned by Ranbaxy Laboratories Ltd. In line with the ratio laid down by the Hon'ble Delhi • High Court in Areva T and D India Ltd. Vs. DCIT (supra), we are of the view that the consideration of Rs.12.74 crores paid by the assessee was for acquisition of the intangible assets on which the assessee is entitled to the claim of depreciation under section 32(1) (ii) of the Act." iv. Triune Energy Services (P.) Ltd. v. Deputy Commissioner of Income- tax [2016] 65 taxmann.com 288 (Delhi) 14. In CIJ v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC), the Supreme Court had explained that:— "Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v. Lye [1810] 17 Ves 335 that goodwill was nothing more than 'the probability that the old customers would resort to the old places' was expanded by Wood V. C. in Churton v. Douglas [1859] John 174 to encompass every positive advantage that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business." The Court had further explained that: "A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in IRC v. Muller and Co.'s Margarine Limited [1901] AC 217 (HL) that although goodwill was easy to describe, it was nonetheless difficult to define. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin

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to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio- economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business." v. Commissioner of Income-tax-IV v. Hindustan Coca Cola Beverages (P.) Ltd. [2011] 1'98 TAXMAN104 (Delhi) 21. It is worth noting, the scope of section 32 has been widened by the Finance (No. 2) Act, 1998 whereby depreciation is now allowed on intangible assets acquired on or after 1st April, 1998. As per section 32(1)(ii), depreciation is allowable in respect of know-how, patent, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature being intangible assets. Scanning the anatomy of the section, it can safely be stated that the provision allows depreciation on both tangible and intangible assets and clause (ii), as has been indicated hereinbefore, enumerates the intangible assets on vjhich depreciation is allowable. The assets which are included in the definition of 'intangible assets' includes, along with other things, any other business or commercial rights of similar nature. The term 'similar' has been dealt with by the Apex Court in Nat Steel Equipment (P.) Ltd. v. Collector of Central Excise AIR 1988 SC 631 wherein the Apex Court has opined that the term 'similar' means corresponding to or resembling to in many aspects. In this regard, it would not be out of place to refer to the decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 2941 (SC) wherein the concept of goodwill has been understood in the following terms: "Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v. Lye 181017 Ves 335 that goodwill was nothing more than "the probability that the old customers would resort to the old places" was expanded by Wood V.C. in Churton v. Douglas 1859 John 174 to encompass every positive advantage "that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business". In Trego v. Hunt 1896 A.C. 7 (HL) Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possesses goodwill

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from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his Introduction to the Law of Property describes it as property of a highly peculiar kind. In CIT v. Chunilal Prabhudas & Co. [1970] 76ITR 566 the Calcutta High Court reviewed the different approaches to the concept (pp.577, 578): "It has been horticulturally and botanically viewed as 'a seed sprouting' or an 'acorn growing into the mighty oak of goodwill'. It has been geographically described by locality. It has been historically described by locality. It has been historically explained as growing and crystallizing traditions in the business. It has been described in terms of a magnet as the 'attracting force'. In terms of comparative dynamics, goodwill has been described as the 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a 'habit' and sociologically it is a 'custom'. Biologically, it has been described by Lord Macnaghten in Trego v. Hunt [1896] AC 7(HL) as the 'sap and life' of the business. Architecturally, it has been described as the 'cement' binding together the business and its assets as a whole and a going and developing concern." A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in IRC v. Muller & Co.'s Margarine Limited [1901] A.C. 217(HL) that although goodwill was easy to describe, it was nonetheless difficult to define. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business." 22. Regard being had to the concept of 'goodwill' and the statutory scheme, the claim of the assessee and the delineation thereon by the Tribunal are to be scanned and appreciated. The claim of the assessee- respondent, as is discernible, is that the Assessing Officer had treated the

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transactions keeping in view the concept of business or commercial rights of similar nature and put it in the compartment of intangible assets. To effectively understand what would constitute an intangible asset, certain aspects, like the nature of goodwill involved, how the goodwill has been generated, how it has been valued, agreement under which it has been acquired, what intangible asset it represents, namely, trademark, right, patent, etc. and further whether it would come within the clause, namely, 'any other business or commercial rights which are of similar nature' are to be borne in mind. 23. On a scrutiny of the order passed by the Tribunal, it is clear as crystal that the depreciation was claimed on goodwill by the assessee on account of payment made for the marketing and trading reputation, trade style and name, marketing and distribution, territorial know-how, including information or consumption patterns and habits of consumers in the territory and the difference between the consideration paid for business and value of tangible assets. The Tribunal has treated the same to be valuable commercial asset similar to other intangibles mentioned in the definition of the block of assets and, hence, eligible to depreciation. It has also been noted by the Tribunal that the said facts were stated by the assessee in the audit report and the Assessing Officer had examined the audit report and also made queries and accepted the explanation preferred by the assessee. The acceptance of the claim of the assessee by the Assessing Officer would come in the compartment of taking a plausible view inasmuch as basically intangible assets vte identifiable non-monetary assets that cannot be seen or touched or physical measures which are created through time and/or effort and that are identifiable as a separate asset. They can be in the form of copyrights, patents, trademarks, goodwill, trade secrets, customer lists, marketing rights, franchises, etc. which either arise on acquisition or are internally generated. 24. It is worth noting that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of section 32(l)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customers associate with such assets. Goodwill, when appositely understood, does convey a positive reputation built by a person/company/business concern over a

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period of time. Regard being had to the wider expansion of the definition after the amendment of section 32 by the Finance (No. 2) Act, 1998 and the auditor's report and the explanation offered before the Assessing Officer, we are of the considered opinion that the Tribunal is justified in holding that if two views were possible and when the Assessing Officer had accepted one view which is a plausible one, it was not appropriate on the part of the. Commissioner to exercise his power under section 263 solely on the ground that in the books of account it was mentioned as 'goodwill' and nothing else. As has been held by the Apex Court in Malabar Industrial Co. Ltd.'s case (supra), Max India Ltd.'s case (supra) and CIT v. Vimgi Investment (P.) Ltd. [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power under section 263 of the Act. vi. ThyssenKrupp Elevator (India) (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle 16 (1), New Delhi [2014] 50 taxmann.com 279 (Delhi - Trib.) "37. On a perusal of the meaning of the categories of specific intangible assets referred to under Section 32(l)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of "business or commercial rights" can be of the same genus in which all of the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of business. In the circumstances, it is observed that in case of the assessee, certain annual maintenance contracts (AMC's), which constituted the whole and sole of the 'maintenance division' business of the transferor and which was hitherto being carried out by the transferor, without any interruption were transferred under the said undertaking and sale agreement. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by create new/fresh business rights; the assessee got an up and running business. This view was fortified by the ratio of the decision of Supreme Court in Techno Shares & Stocks Ltd. v. CIT I2010J 327 ITR 323/193 Taxman 248 wherein it was held that intangible assets owned by the assessee and used for the

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business purpose which enables the assessee to access the market and has an economic and money value is a "license" or "akin to a license". Since in the present case AMC's constitutes the very basic income earning apparatus for the assessee, the same should fall within the purview of Section 32(1)(ii) of the Act. 40. In the said circumstances, we find force in the argument of the Id AR that since said AMC's are commercial rights and the same should rightly be categorized as 'business or commercial rights for the purposes of Section 32(l)(ii) of the Act. Thus, by applying the principle of ejusdem generis we hold that in the facts and circumstances of this case, such AMC's should get covered within the expression "business or commercial rights of similar nature" specified under Section 32(l)(ii) of the Act and accordingly eligible for depreciation. In the result, this issue is answered in the affirmative and decided in favour of the assessee. 43. Further, a classic definition of goodwill has been given by the Constitutional Bench of the Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India [1970] 1 SCC 248: The goodwill of a business is an intangible asset; it is the whole advantage of the reputation and connections formed with the customers together with the circumstances making the" connection durable. It is that component of the' total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years or in excess of normal amounts because of its reputation, location and other features." vii. M/s. Minda Acoustic Ltd. v. Dy. Commissioner of Income Tax, Circle 6(1), New Delhi ITA No. 3203/De//20f 0 "10. We have heard the rival contentions in light of the material produced and precedents relied upon. Ld. Counsel of the assessee submitted that the Assessing Officer has failed to appreciate the real facts due to which the amount was treated as 'goodwill' in the books of accounts of the assessee. This amount came into existence on account of the fact that the existing running unit was transferred by Minda Industries Ltd. to this newly formed company i.e. the assessee for a consolidated consideration of Rs. 2.75 crores and the difference between the net value of assets, which assets were recorded at book value, was recognized as 'goodwill' in the books of accounts and the same represented various assets as were also identified in the business transfer agreement as under:- "Contracts" means the rights and obligations of the Transferor under all contracts and agreements relating to the Business to which the Transferor is a party. "Permits" means licenses including EPCG/DEEC/Advance License and its obligation, bonds, legal undertaking (LUT) consents, authorizations, orders, confirmations, permission, certificates, approvals existing as well as in pipelines and authorities, as set /or ;n Schedule III. Para 2.2 and 2.4 of the Business Transfer Agreement 2.2 Transferor hereby assigns and the Transferee hereby accepts assignment of the Contracts. If the consent of any entity (other than a government authority)

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is required for the assignment of rights and obligations of any of the contracts under this Agreement, the Transferor on the form of assignment agreement to be executed with such other entity, and the Transferor shall use all reasonable endeavors to notify and / or obtain the consent of such other entity in respect of the assignment as soon as possible. 2.4 Transferor hereby transfer and the Transferee hereby accepts transfer of the employees." 10.5 In light of the above case laws, we are in agreement with the submissions of the Id. Counsel of the assessee that the goodwill that has been recognized in this case represents various assets in the nature of goodwill. We find considerable cogency in the submissions of the Ld. Counsel of the assessee as mentioned above. Thus, we hold that the assesscs's case is covered by the decision in the Hon'ble Delhi High Court as above. The case laws relied upon by the Ld. Departmental Representative are not applicable as they are Tribunal's decisions and Hon'ble Jurisdictional High Court takes a precedence over the same." viii. Hinduja Foundries Ltd. v. Assistant Commissioner of Income-tax, Chennai (2017) 83 taxmann.com 52 (Chennai-Trib.) 6. We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the judgment of Apex Court in SMIFS Securities Ltd. (supra). In the case before Apex Court, the assessee claimed deduction towards depreciation on goodwill. The assessee claimed that the excess consideration paid by the assessee over the value of net asset to be considered as goodwill arising on amalgamation. However, the Assessing Officer found that the goodwill is not an asset However, the Apex Court found that the assessee had acquired a capital right in the form of goodwill because of which the market worth of the assessee-company stood' increased. In those circumstances, the Apex Court found that the assessee is entitled for depreciation on the goodwill which is in the nature of commercial asset. In the case before us, it is not in dispute that the assessee has purchased Ductron Castings Unit from M/s Ashok Leyland Ltd. The assessee has paid over the value of net asset to the extent of Rs. 147.57 lakhs-and claimed the same as cost of the goodwill. However, the Assessing Officer disallowed the claim of the assessee on the ground that the payment does not fall within the meaning of know-how, patent or copyright. The Assessing Officer has not considered the judgment of Apex Court in SMIFS Securities Ltd. (supra). The Apex Court, after considering the provisions of Explanation 3 to Section 32(1) of the Act found that the word "any other business or commercial rights of similar nature" in clause (b) of Explanation 3 indicates that goodwill will fall under the expression "any other business or commercial rights of similar nature". In view of the above judgment of Apex Court in SMIFS Securities Ltd., we are unable to uphold the orders of the lower authorities. Accordingly, we set aside the

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orders of the lower authorities. The Assessing Officer is directed to allow depreciation at the applicable rate on the payment relatable to goodwill. ix. Fibres & Fabrics International (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle 11(3), Bangalore [2016] 72 taxmann.com 87 (Bangalore - Trib.) "20. In the present case, it w on undisputed fad that the sole proprietary concern was acquired by the appellant as a going concern with all assets & liabilities. In the balance sheet of the sole proprietary concern, goodwill of Rs.35 crores was shown on the assets side of balance sheet. The agreement of take over had clearly mentioned that all assets including the goodwill was taken over by the company. Even accepting the view of the CIT(Appeals) that there were no commercial rights acquired, now the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) held that purchase consideration paid over and above the net value of the assets constitutes goodwill. Even the Hon'ble Delhi High Court recently in the case of Triune Energy Services (P.) Ltd. v. Dy. CIT [2016] 65 taxmann.com 288/237 Taxman 230 held that the excess of the amount paid over net value of assets constitutes 'goodwill'. In coming to this conclusion, the Hon'ble Delhi High Court relied on Accounting Standards AS-10 issued by the ICAI. That apart, when the company was taken over as a going concern with all the assets & liabilities for a slump consideration, it is neither permissible nor possible to apportion the consideration paid against different assets as held by the Hon'ble Supreme Court in the case of CIT v. Mugneeram Bangur & Co. [1965] 57 ITR 299. Thus, in our considered view, the view of the CIT(Appeals) that there was no goodwill as no commercial rights were acquired, cannot be accepted. x. Deputy Commissioner of Income - tax, OSD - 1(1) v. Worldwide Media (P.) Ltd. (2014) 43 taxmann.com 18 (Mumbai-Trib) "11. One very important aspect in the present case which is worth consideration is that the Revenue is not challenging the overall consideration paid by the assessee for acquiring the business i.e., Rs.91 crores. If the amount on account of foreign exchange gain is taken into account this comes to Rs.96 crores. Out of the amount, there is no dispute with regard to the value of current assets at Rs. 11 crores. The sole dispute is with regard to adoption of the value of the copy right and trade mark. The assessee's case is that once the copy right and trade mark has been valued or taken into consideration then, there is no requirement of valuing goodwill and in fact there is no goodwill on such acquisition of a division. In any case, if there is goodwill then the same is paid for, which ii within the sum of overall consideration paid for Rs.91 owes. Insofar as this contention of the assessee is concerned, that there is no acquisition of goodwill while purchasing the magazine and event division, we are not much inclined to agree on such contention. The reason being that this division consists of publication and distribution of very popular magazines like Femina and Filmfare, which has a very huge customer base and has a

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very high brand value for more than sixty years. The goodwill is a kind of benefit arising from the reputation of a brand or business which is generated with the passage of time. Goodwill is a generic term which has a very wider meaning and is generated while carrying on the business and the brand value associated with the products. The goodwill can be in the form of copy rights, patent, trade mark, marketing rights, particular customers, franchisee, brand value, etc. In this case, the assessee has only taken the part of the goodwill in the form of trade mark and copy right, however, that alone cannot be said to be a part of goodwill, especially when the assessee has acquired such a high end brand products in the form of one of the most popular magazine and right to organize mega events under such brand name. Therefore, part of the acquisition cost can also be said to be for goodwill of the brand product. However, the manner in which the Assessing Officer has adopted the value of the goodwill is''absolutely incorrect and without any method, which is generally adopted for evaluating the goodwill. In this case, once there is no dispute that the total consideration for tangible and intangible assets is for Rs.91 crores, which has also been accepted by the A.O., then it is presumed that such consideration also includes goodwill on account of brand or product besides trade mark and copy rights. 12. Now, the issue whether the depreciation can be allowed on such intangible asset in the form of goodwill also or not is no longer res Integra, as the Hon'ble Supreme Court in Smifs Securities Ltd. 's case (supra) besides various other High Courts also, have held that the depreciation is to be allowed on such intangible asset which constitute goodwill. Once the depreciation allowable on goodwill at the same rate on which the assessee has claimed depreciation on trade mark and copy right, then it is immaterial to disallow the entire claim of depreciation made by the assessee on intangible assets. The reason being that, the aggregate value of all the intangible assets is Rs.80 crores and depreciation is to be allowed at 25% on this cost, then it does not make any difference whether part of the depreciation is to be ascribed for goodwill or not, because resultantly, there would be no effect on assessee's quantum of claim of depreciation. The very premise of the Assessing Officer to invoke the provisions of Explanation 3 to section 43(1) and to ascribe the value of goodwill gets vitiated when the law has been settled by the Hon'ble Supreme Court that the depreciation is to be allowed on goodwill also as any other intangible asset. Thus, it will not make any difference in the present case to segregate the various intangible assets for the purpose or making any disallowance-on account of depreciation. Thus, the grounds raised by the Revenue are treated as dismissed for the reasons given above." xi. St. Angela's Computers Ltd. v. Income-tax Officer-9(3)(2), Mumbai taxmann.com 376 (Mumbai - Trlb.) [2017] 88

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The coordinate bench of the Tribunal in the case of PPG Asian Paints (P.) Ltd. (supra), held as under :— "In view of 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 accordingly hold that the assessee is entitled to the claim of depreciation on goodwill. This issue is accordingly decided in favour of the assessee." 7. As the facts and circumstance of the case in all the years under consideration are same, following the same reasoning, we direct the AO to allow assessee's claim of depreciation on "Good-will" in all the years under consideration. 8. In the result, all appeals of the assessee are allowed in terms indicated hereinabove. xii. Dy. Commissioner of Income Tax - 6, Kanpur v. M/s. J.K. Cement Ltd. ITA No. 499/LKW/2010 "2. So for as first issue/ground relating to depreciation on good will is concerned, it was contended before us that this issue is squarely covered by the order of the Tribunalin assessee's own case for AYs 2005-06 & 2006-07 in which the Tribunal has categorically held that assessee is entitled for depreciation on good will. The copy of the order of the Tribunal is placed on record on pages 268 to 279 of the compilation of the assesses. The relevant observations of the Tribunal in this regard arc performed hereunder- "10. Our attention was also invited to Explanation 3 below section 32(1) of the Act. While allowing the claim of the assessee, the Id. CIT(A) has held that issuance of shares for Rs.7.44 crores was a part payment of purchase consideration towards cost of acquisition of cement undertaking, therefore, the cost of shares issued to the shareholder of JKSL is eligible for depreciation and the Id. CIT(A) has also held that even if it is considered to be the cost of goodwill of JKSL, still the assessee is entitled for depreciation. During the course of hearing of the appeal, the Id. D.R. has placed emphasis that this cost of shares issued to JKSL is not part of purchase consideration towards cost of acquisition of cement undertaking but it is a cost of goodwill and is not eligible for depreciation. There is no quarrel on the proposition of law that if the cost of shares allotted to the shareholders of JKSL is considered as the payment of purchase consideration towards cost of acquisition to the cement undertaking, then Hit ussessee is eligible for depreciation of the said cost. The dispute was raised that it is not a part of payment of purchase consideration towards cost of acquisition of cement undertaking. It was rather called to be the cost of goodwill which wrts transferred to the assessee. In this regard, we have carefully perused the judgments referred to by the parties. 11. In the case of R.G. Keswani vs. ACIT (supra) and DOT vs. Toyo Engineering India Ltd. (supra), the Mumbai Benches of the Tribunal have taken a view that no depreciation would be allowed on goodwill, but the controversy with regard to the ulluwunie uf depreciation un goodwill has been set at rest by the Hon'ble Apex Court in the case of CIT vs. Smifs Securities Ltd. (supra) in which their Lordships

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have held that the difference between the cost of an asset and 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. Therefore, the assessee is entitled for depreciation on the said goodwill. The relevant observations of the Hon'ble Apex Court are extracted hereunder in order to understand the legal proposition and controversy raised therein:- "We quote herein below Explanation 3 to section 32(1) of the Act: "Explanation 3.—For the purposes of this sub-section, the expressions 'assets' and 'block of assets shall mean-fa) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature :" Explanation 3 states that the expression "asset" shall mean an intangible asset, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Areading the words "any other business or commercial rights of similar nature" in douse (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). In the circumstances, we are of the view that "goodwill" is an asset under Explanation 3(b) to section 32(1) of the Act. 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) ("the 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 P. Ltd. 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 the Income-tax Appellate Tribunal ("the ITAT"; for short). We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of the Income-tax Appellate Tribunal, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under section 32 of the Act. In the circumstances, before the High Court, the Revenue did not fits an appeal on the finding of fact referred to hereinabove. For the aforestated reasons, we answer question No. (b) also in favour of the assessee."

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In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in section 32(l)(ii) of the Act. It is seen that such rights need not answer the description of "know-how, patents, trade marks, licences or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred to in section 32(l)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., know-how, patents, trademarks, copyrights, licences or franchise!,. The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in the case of the assessee, intangible assets, viz., business claims; business information; business records ; contracts; employees ; and know-how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 1TR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "licence" or "akin to a licence" which is one of the items falling in section 32(l)(ii) of the Act. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in section 32(l)(ii) of the Act and were accordingly eligible for depreciation under that section. In view of the above, it is not necessary to decide the alternative submission made on behalf of the assessee that goodwill per se is eligible for depreciation under section 32(l)(ii) of the Act. In the circumstances, the substantial question of law is

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decided in the affirmative and this appeal is allowed in favour of the assessee and against the Revenue and the impugned order is set aside." 13. This judgment of the Hon'ble Delhi High Court was approved by the Hon'ble Apex Court as the SLP filed by the Department was dismissed on merit also. 14. Similar view was expressed by the Hon'ble Karnataka High Court in the case of CIT vs. Monipal Universal Learning Pvt. Ltd. (supra) by holding that Explanation 3 of section 32(1) of the Act defines expression "asset" to include intangible asset like goodwill and goodwill is an asset under Explanation 3(b) to section 32(1) of the Act, therefore, depreciation is allowable even on the goodwill. 15. Again in the case of CIT vs. Hindustan Coca-Cola Beverages (P) Ltd., 331 ITR 192, the Hon'ble Delhi High Court has examined the issue of depreciation on goodwill in detail and finally concluded that goodwill is o valuable commercial asset similar to other intangible assets mentioned in the definition of block of assets and hence eligible for depreciation. The view taken by the Hon'ble Delhi High Court in the case of CIT vs. Hindustan Coca-Cola Beverages (P) Ltd. (supra) was approved by the Hon'ble Apex Court. 16. In the light of this legal proposition, we are of the view that first of all the cost of shares allotted to the shareholders of JKSL is part of payment of purchase consideration towards the cost of acquisition of cement undertaking on which assessee is eligible for depreciation. Even in the alternative, if the cost of shares allotted to the shareholders of JKSL is considered to be the cost of goodwill acquired by the assessee, as it was shown as part of means of finance, even then it is eligible for depreciation in the light of the aforesaid judgments of the Hon'ble High Court and the Hon'ble Apex Court. Therefore, we are of the considered opinion that the ld. CIT(A) has rightly adjudicated the issue and we do not find any infirmity therein. Accordingly we confirm his orders in both the years." Similar views have also been held in the following judicial pronouncements: i. Commissioner of Income-tax v. Aditya Birla Nuvo Ltd. [2017] 79 taxmann.com 210 (Bombay) "3. Regarding question no (i):— (a) The impugned order of the Tribunal allowed the respondent-assessee's appeal on this issue of depreciation on goodwill by following the decision of the Apex Court in C7T v. Smijs Securities Ltd. [20121348 ITR 302/210 Taxman 428/24 taKmann.com 222. (b) In the above view, question no.(i) as proposed does not give rise to any substantial question of law Thus, not entertained." Commissioner of Income-tax taxmann.com 262 (Bombay) 2 v. Birla Global Asset Finance Co. Ltd. (2014) 41 "3. As regard the second question is concerned, the contention of the Revenue is that intangible assets like business and commercial brand equity are goodwill on which depreciation is not allowable. The Apex Court in the mutter of CIT v. Smifs Securities Ltd. [20121 24 taxmann.com 222/210 Taxman 428 (SC) has in-lit that even the intangible assets constitute goodwill on which depreciation would be allowable. Hence, the second question cannot be entertained. Accordingly, the appeal is dismissed.

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We hope that the aforesaid details and explanation will suffice your honour's requirements. We shall be happy to furnish any other details and explanation that may be required by your honour in connection with the assessment proceedings the assessee company also request your honour to give the opportunity of personal hearing if your honour has any query while verifying the details submitted by the assessee company. Thanking you, Yours faithfully, For Troikaa Pharmaceuticals Ltd., (Hiten Shah) Sd/- Sr. GM- Finance & Accounts Encl: As above”

8.5 Both the parties to the dispute have placed relevance of a number of judicial pronouncements which are duly considered as under:- It is demonstrated from the facts and material placed on record as discussed supra that during the course of assessment, the Assessing Officer has made detailed enquiries and raised different queries on the issue of claim of goodwill and claim of deduction u/s. 35(2AB) of the act. In this regard the assessee has made detailed submission along with copies of the relevant documents to substantiate its claim of depreciation on goodwill as well as claim of deduction u/s. 35(2AB) of the act. During the course of 263 proceedings before the Pr. CIT, the assessee has submitted the information about the detailed inquiry already made by the Assessing Officer at the time of original assessment and copies of documents and relevant material which the assessee has submitted before the Assessing Officer. In this regard, we observed that ld. Pr. CIT has not controverted the supporting and relevant evidences put up before him during the course of proceeding u/s. 263 that

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Assessing Officer has already made detailed inquiry on the issue of claim of goodwill and deduction claimed u/s. 35(2AB). The ld. Departmental Representative has placed reliance on the decision of Sify Software Ltd. vs. ACIT, Corporate Circle, Chennai (2017) 80 taxman.com 273 (Chennai-Trib) During the course of appellate proceedings, the ld. Departmental Representative has referred the decision of Sify supra stating that Assessing Officer has accepted claim made by the assessee without proper examination and enquiry. In this regard, after perusal of the material on record as referred above, we observed that fact in the case of the assessee are different since it is demonstrated from the material on record that Assessing Officer has made detailed enquiry on the issue of claim of goodwill and the claim of deduction u/s. 35(2AB) therefore looking to the material fact on record we consider that the facts of the case are distinguishable from this case law. The ld. Departmental Representative has also referred the case law of Babulal S. Solanki vs. ITO (2019) 104 taxman.com 155 (Ahd-Trib), in this case, the Assessing Officer has not specifically looked into the application of section 50C of the act for adoption of sale consideration as against stamp duty valuation. However, the fact in the case of the assessee are quite different as per the material on record (supra), the Assessing Officer has made detailed enquiry on the claim of goodwill and claim of deduction R & D expenditure. We have also perused the decision in the case of Mrs. Khatiza S. Oomerboy Vs. ITO (2006) 100 ITD 173 Mum wherein it is held that where Assessing Officer raised several queries regarding computation of income under capital gain and in response the assessee had filed detailed revised explanation supported by various documents which were duly

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received by Assessing Officer, it could not be assumed that there was no application of mind on the part of the Assessing Officer and therefore Commissioner was not justified in interfering with order passed by Assessing Officer by invoking his jurisdiction u/s. 263 of the act. It is noticed in the case of the assessee as evident from the discussion referred above in this order the Assessing Officer has raised queries through a number of notices issued u/s. 142(1) of the act and the assessee has filed written submission/explanation during the course of assessment and merely because there was no elaboration in the assessment order by the Assessing Officer, it cannot be said that said order becomes erroneous after taking into consideration the finding of the Hon’ble Bombay High Court in the case of the Gabriel India Ltd. 230 ITR 188. The entire material was available before the Assessing Officer during the course of assessment proceedings and same was filed before the Assessing Officer in response to the queries raised by him therefore the ld. Pr. CIT could not justify how the Assessing Officer has failed to make inquiry before passing the impugned assessment order. the case of the Gee Vee Enterprises vs. Adll. Cit (1995) 99 ITR 375 (Del), the ld. Departmental Representative has also referred wherein ITO granted registration to the firm and made very first assessment on that basis apparently without ascertaining truth of fact on which registration was granted. However , in the case of the assessee we observed that the facts are entirely different since Assessing Officer has raised detailed queries and assessee has furnished the relevant submission with supporting copies of documents regarding claim of depreciation and R & D expenditure therefore this case is distinguishable from the fact of the case. The case of DCIT vs. Toya Engineering India Ltd. ITA No. 3279/Mum/2008 referred by the ld.

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Departmental Representative was initially adjudicated by the ITAT Mumbai on 25th May, 2012 holding that no depreciation could be allowed on goodwill whereby purchase of goodwill was not proved by the assessee. However, the Hon’ble High Court has restored this case to the file of ITAT for fresh adjudication on merit in accordance with the law. Thereafter, the ITAT vide order dated 13th October, 2014 held after following the decision of the Hon’ble Supreme Court in the case of Smifs Securities Ltd. that goodwill is eligible for depreciation, the ITAT has held that the issue of allowability on depreciation of goodwill should be decided in favour of the assessee as such revenue has not brought any contrary material to suggest that the claim of deprecation of goodwill is not genuine and the same is not eligible for depreciation. The ld. Departmental Representative has referred the decision of CIT Delhi vs. Woodward Governor India Pvt. Ltd. (2009) 179 taxman 326 (SC). We find that facts of this case are entirely different as it pertained to adjustment to be made in carrying cost of fixed assets acquired in foreign currency because of fluctuation in rate of foreign exchange. The case of SC Johnson Products Pvt. Ltd. vs. ACIT Writ Petition 2697/2015 referred by the ld. Departmental Representative wherein the Assessing Officer noticed that assessee had adopted a wrong method of purchase while calculating depreciation instead of pooling of assets method in terms of different accounting standards. We observed that the facts of the case of the assessee are distinguishable from the fact of this case as nothing like this has been found in the case of the assessee. The ld. Departmental Representative referred the case of United Breweries Ltd. Vs. Addl. CIT, Range-2 Bangalore (2016) 76 taxman.com 103 (Bangalore Tri), wherein held that by virtue of 5 proviso to second 32(1) assessee being amalgamated

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company could not claim or be allowed depreciation on assets acquired in scheme of amalgamation more than depreciation was allowable to amalgamating company. However, in the case of the assessee, the amount of goodwill was arised on the basis of valuation of assets as per the scheme of amalgamation and related facts along with accounting standard and provision of law has been fully discussed. The case of CIT vs. Vikas Polymers (2010) 194 taxman 57 (Del) referred by ld. counsel wherein the Hon’ble High Court of Delhi held if a query was raised during the course of scrutiny by Assessing Officer which was answered to satisfaction of Assessing Officer, but neither query nor answer was reflected in assessment order, that would not by itself, lead to conclusion that order of Assessing Officer called for interference and revision. We have also noticed that in the case of the assessee the ld. Pr. CIT has not considered the reply of the assessee that it has made detailed submission before the Assessing Officer in response to the queries and enquiry made during the course of assessment. The ld. counsel has referred the case of CIT vs. Meerut vs. Vam Resorts & Hotels (2019) 111 taxman.com 62 (Allahabad) wherein Hon’ble High Court of Allahabad held that when the Assessing Officer had required assessee to furnish all documents and only after production of said document, he recorded his satisfaction and passed order, it could not be said that it was a case where Commissioner found that assessment order is erroneous and prejudicial to the interest of the revenue. In the case of the assessee also, it is noticed that assessment order was passed after raising a number of queries, the number of notices issued u/s. 143(2) and 142 of the act as referred in this order and the assessee had made due compliance before the Assessing Officer and furnished books of accounts along with copies of

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documents/material. The ld. counsel referred the decision of Krishna Capbox (P) (2015) 60 taxman.com 243 (Allahabad) wherein the Hon’ble High Court of Allahabad held that once inquires was made, a mere non- discussion or non-mention thereof in assessment order could not lead to assumption that Assessing Officer did not apply his mind or that he had not made inquiry on subject and this would not justify interference by Commissioner by issuing notice u/s. 263 of the act. Similarly, in the case of the assessee also it is demonstrated from the copies of notices issued by the Assessing Officer and detailed submission with copies of documents made by the assessee that Assessing Officer has made the specific enquiry on the issue of claim of depreciation of goodwill and claim of deduction in respect of R & D expenditure before finalizing the assessment, however, these issues were not discussed in the assessment order because Assessing Officer has not found any irregularities with the submission of the assessee. The ld. Departmental Representative referred the case of Steels Cotton Mills Ltd. Vs. CIT (1979) 116 ITR (SC). However, we observed that the fact of this case pertained to the issue that if foreign currency is held as a capital asset or as fixed capital such profit or loss would be of capital nature. The ld. D.R. has referred the case of Pr. CIT –II vs. Shri Braham Dev Gupta vide ITA 1162/2017 dated 207 2018. This is the case pertained to the issue wherein during the course of scrutiny assessment the assessee could not supply the PAN of certain creditors since assessee has not furnished the specific information therefore the proceedings u/s. 263 was justified. However, the facts in the case of the assessee are totally different as all the information required by the Assessing Officer during the course of assessment has been furnished by the assessee. The ld. D.R. has referred

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the decision of Jalgaon Peoples Co-operative Bank Ltd. Vs. Pr. CIT (2021) 127 taxman.com 243 (Pune-Trib) in this case the assessee has claimed bad debt written off but Assessing Officer has not called any detail during the course of assessment proceedings. However, the fact in the case of the assessee of this case are different as Assessing Officer has called the specific detail vide different notice u/s. 142(1) and during the course of assessment, assessee has made full compliance. In the case of Abhishek Packaging Pvt. Ltd. Vs. DCIT vide ITA No. 6484/Mum/2018, the fact of this case are different as it pertained to acquiring of assets and liabilities on slump sale. Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 93 taxman 502 (SC), the ld. Departmental Representative has referred this case which pertained to the issue of taxing interest income on investment of borrowed funds before commencement of business. However, we find that fact of this case are different as the issue of expenditure involved in this case are claim of depreciation on amalgamation and deduction of R & D expenditure on the basis of specific enquiry made by the Assessing Officer. Chowgule & Co. (P) Ltd. vs. ACIT (2011) 10 taxman.com 224 (Panaji), the ld. Departmental Representative has referred this case wherein ITAT Panaji Bench held that no credible evidence or material had been laid on record to show that assessee incurred any cost for acquiring goodwill in the scheme of amalgamation. In that case the auditor has not expressed their opinion on the truthfulness and correctness of the accounts and the auditor has not considered the claim of deprecation allowable. We find that facts in the case of the assessee are different as it has been demonstrated from the submission made by the assessee in response to the query raised by the Assessing Officer that goodwill has arised in the scheme of amalgamation and duly

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supported with the audited account by statutory auditor. The case of Bodal Chemicals Ltd. vs. Addl. CIT vide ITA No. 1439/Ahd/2011 dated 16-10- 2019 wherein ITAT Ahmedabad held that the assessee was allowed goodwill in the first year of amalgamation i.e. assessment year 2006-07 and there was no action either u/s. 263 or 147 of the act by the revenue therefore it was held that claim of depreciation of the assessee on the first year has attained finality and it was further held that in such case principal of consistency shall be valid as held by the Bombay High Court in the case of Pr. CIT vs. Quest Investment Advisor Ltd. 96 taxman.com 157. Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC), the ld. Departmental Representative has referred this case wherein it is revealed that the assessee neither resided nor carried out any business from the address declared in the return and the ITO was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc. without any inquiry or evidences. In this regard, we find that fact in the case of the assessee are entirely different since Assessing Officer had made detailed inquiries and passed the order on the basis of detailed submission and copies of document furnished by the assessee during the course of assessment proceedings itself. 8.6 We have also perused the decision of Mylan Laboratoris Ltd vs. DCIT Circle 16(2) Hyderabad Trib (2020) 113 (2020) 113 taxman.com 6 (Hyd) referred by the ld. counsel during the course of appellate proceedings. In this decision, the ITAT Hyderabad held that where assessee amalgamated with a company by way of acquisition/purchase, consideration paid in excess of net value of assets and liabilities of amalgamating company was to be treated as goodwill, and assessee was to be allowed depreciation on such

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goodwill acquired on amalgamation. The relevant operating para of the decision is reproduced as under:- “14. Having regard to the rival submissions and material on record, we find that on account of amalgamation, the consideration paid by the assessee to the vendor is much more than the net value of assets and liabilities taken over by the assessee. Such excess consideration paid by the assessee has been treated by the assessee as goodwill and has claimed depreciation thereon at the applicable rate. The finding of the AO that the goodwill cannot be self-generated and that the claim of the assessee is on account of self-generated goodwill is not correct. The consideration to be paid to Strides for acquisition of the shares of Agila and Onco is after negations between the assessee and Strides. It is an admitted fact that Strides is not a related party to the assessee and therefore, the consideration agreed upon cannot be doubted and in fact is not disputed by the AO or the CIT(A). The AO has relied upon the sixth proviso to section 32(1) of the Act, to hold that the claim of depreciation on goodwill cannot exceed the depreciation allowable to the amalgamating company if the succession had not taken place. But as explained in AS-14, amalgamation cair6e,~aTin the nature of merger; and b) in the nature of purchase. In the second type of amalgamation by purchase, the consideration paid in excess of the net value of assets liabilities of the amalgamating company is to be treated as goodwill. In the case before us, goodwill on which depreciation is claimed by the assessee is arising out of the amalgamation scheme, but is not solely the self-generated goodwill as alleged by the AO. Further, the AO followed the decision of Bangalore bench of ITAT in the case of United Breweries (cited supra) to disallow the claim of depreciation on goodwill. The Tribunal had considered the judgment of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. and has held that the Hon'ble Supreme Court has only held that goodwill is an intangible asset and that depreciation is allowable thereon, but, that it does overrode of 5th Proviso to section 32(1) of the Act. We find that the facts of United Breweries are distinguishable from the facts of the^ case before us, as in the case of United Breweries, there was a merger with its Wholly owned Subsidiary, whereas in the case of the assessee, it is amalgamation by purchase. Therefore, the decision in the case of United Breweries is not applicable to the case before us. Let us therefore now consider the facts in the judgement of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. For the sake of clarity and ready reference, the relevant paras are reproduced hereunder: Question No.[b]: "Whether goodwill is an asset within the meaning of Section 32 of the Income Tax Act and whether depreciation on goodwill1 is allowable under the said Section?" Answer: In the present case, the assessee had claimed deduction of Rs.54,85,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: "In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares & Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company." It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 2 http://www.itatonline.org The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3.— For the purposes of this sub-section, the expressions 'assets' and "block of assets' shall mean~[a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature."

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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). In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 3.2(1) of the Act. 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. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the afore-stated reasons, we answer Question No. [b] also in favour of the assessee.' Thus, it is clear that the Hon'ble Supreme Court has considered the circumstances under which the goodwill has arisen on which depreciation was claimed. Therefore, the judgement in the case of Smifs Securities Ltd. is applicable to the facts of the case before us. The following decisions relied upon by the Id. Counsel for the assessee also hold that depreciation on goodwill is allowable.: 1. Pr. CITv. Zydus Wellness Ltd. [2017] 87 taxmann.com 82 (Guj.) 2. Sri Krishna Drugs Ltd., TS-5874-ITAT-2011 (Hyd. Trib.) 3. AP Paper Mills Ltd. (supra) 4. Zuari Cement Ltd., TS-5823-ITAT-2016 (Hyd. Trib.) 5. MTANDT Rentals Ltd., TS-7175-ITAT-2018 (Hyd. Trib.) 6. Dr. Reddy's Laboratories Ltd. v. Addl. CIT [2017] 78 taxmann.com 63 (Hyd. – Trib) 7. Cosmos Co-operative Bank Ltd. v. Dy. CIT [2014] 45 taxmann.com 13/64 SOT 90 (Pune - TriL). 8. Areva T&D India Ltd. (supra) 9. Triune Energy Services (P) Ltd. (supra) 10. CLC & Sons (P.) Ltd. v. Asstt. CIT[2018] 95 taxmann.com 219/171 ITD 139 (Delhi - Trib.)' (SB). 11. Volvo India (P.) Ltd. v. Asstt. CIT [IT (TP) Appeal No. 1537 (Bang.) of 2012, dated 8-5- 2019]. 14.1 The decisions relied upon by the Id. DR are all decisions of coordinate benches of the Tribunal and also are all distinguishable on facts. Respectfully following the above precedents relied upon by the assessee on the issue, we are inclined to allow the ground of appeal No. 3.”

Considering the decision of the ITAT Hyderabad as supra on similar facts and issue after considering the judicial decision as referred in the operating para , we consider that Assessing Officer has made detailed verification as

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demonstrated from the number of invoices referred above and assessee has given the detailed submission in response to all the queries raised by the Assessing Officer. In the case of CIT, Kolkata vs. Smifs Securities Ltd., (2012) 24 taxmann.com 222 (SC),the Hon’ble Supreme Court held as under:- “Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1) - Held, yes - During relevant assessment year, one V Ltd. amalgamated with assessee-company - According to assessee, excess consideration paid by it over value of net assets acquired of V ltd. amounted to goodwill on which depreciation was to be allowed - Authorities below recorded a finding that assets and liabilities of 'Y' Ltd. were transferred to assessee for a consideration; that difference between cost of an asset and amount paid constituted goodwill and that assessee-company in process of amalgamation had acquired a capital right in form of goodwill because of which market worth of assessee-company stood increased - Accordingly, assessee's claim was allowed - Whether since revenue could not rebut factual findings recorded by authorities below, impugned order passed by them was to be upheld - Held, yes [Para 8] fin favour of assessee] II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of - Whether stock-exchange membership card is an asset eligible for depreciation under section 32 - Held, yes [Para 1] [In favour of assessee”

The Hon’ble Supreme Court at para 6 & 7 of the order held as under:- “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

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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 [TTAT1, for short]. We see no reason to interfere with the factual finding. 7. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove.”

In the case of Pr. CIT-4 vs. Zydus Wellness Ltd. (2017) 87 taxmann.com 82 (Guj), the Hon’ble High Court of Gujarat held as under:- “Assessee company claimed depreciation on goodwill expanded at time of ^amalgamation of companies - Assessing Officer denied same on grounds that being an intangible asset, goodwill would not qualify for depreciation - Whether in view of ratio laid down by Supreme Court in Clt v. Smifs Securities Ltd. f20121 348 ITR 302/210 Taxman 428/24 taxmann.com 222. goodwill is eligible for depreciation, thus, assessee was to be allowed depreciation on goodwill - Held, yes [Para 6] [In favour of assessee]”

8.7 The assessee has also demonstrated from the material placed in the record that it has followed purchase method as excess of the amount of consideration over the value of the net assets of transferor company acquired by the transferee company was recognized in the transferee company’s financial statement as goodwill. We have gone through the accounting for amalgamation as per accounting standard 14 on the submission of the assessee that it has correctly adopted the fair market for valuation of assets except assets and like stock in track, bank balance cash balance cannot be valued as per fair market value. The assessee has demonstrated from the material from record that as per submission made at the time of assessment

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that excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company was recognized in the transferee company’s financial statement in accordance to purchase method as per accounting standard-14 In this regard we have gone through the common procedures as mentioned in para 40 of the accounting standard 14 in respect of such assets like above which cannot be valued at fair market value, in the common procedural, it is laid down that where the market of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book value. We have also gone through the decision of Gujarat High Court in the case of Arvind Jewellers (259 ITR 502) held that:- "Held, that the finding of fact by the Tribunal was that the assesses had produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the act and after considering the material and explanations, the Income-tax Officer had come to a definite conclusion. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that different view can be taken should not be the basis for an action under section 263. The order of revision was not justified."

The ratio laid down by the Hon’ble Gujarat High Court in the case of aforesaid decision is that when the assessee had produced relevant material and offered explanation in pursuance of the notice u/s. 143(2) and 142(1) of the Act and after considering the material and explanation the Assessing Officer had come to a definite conclusion, the mere fact a different view can be taken should not be the basis for a valid action u/s. 263 of the Act. In the case of CIT vs. Vikas Polymers (2010) 194 Taxman 57 (Delhi), the Hon’ble Supreme Court held as under:-

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“Section 263 of the Income-tax Act, 1961 - Revision - Of orders perjudicial to interests of revenue - Assessment year 1982-83 - Whether for exercising power under section 263, it is a prerequisite that Commissioner must give reasons to justify exercise of suo motu revisional powers by him to reopen a concluded assessment and exercise of power being quasi-judicial in nature, reasons must be such as to show that enhancement or modification of assessment or cancellation of assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to conclusion that order of Assessing Officer was not only erroneous but was also prejudicial to interest of revenue - Held, yes - Whether before exercising revisional powers, assessee must be called, his explanation sought for and examined by Commissioner, and thereafter, if Commissioner still feels that order is erroneous and prejudicial to interest of revenue, Commissioner may pass revisional orders - Held, yes - Whether if a query was raised during course of scrutiny by Assessing Officer, which was answered to satisfaction of Assessing Officer, but neither query nor answer was reflected in assessment order, that would not, by itself, lead to conclusion that order of Assessing Officer called for interference and revision - Held, yes”

8.8 With regard to the claim of deduction u/s. 35(2AB), the assessee has categorically brought to the notice of the Pr. CIT during the course of proceeding u/s. 263 of the act that the necessary verification and inquiry on this issue has been made by the Assessing Officer during the course of assessment proceedings. The assessee has also given the reference of the notices issued u/s. 142(1) of the act along with relevant details and inquiry made in respect of expenses claimed u/s. 35(2AB) of the act. The assessee company in the return of income filed for assessment year 2016-17 claimed weighted deduction and research and development expenditure incurred u/s. 35(2AB) of the act for an amount of Rs. 72,29,224/- for research and development capital expenditure u/s. 35(2AB) and for an amount of Rs. 189867870/- research and development revenue expenditure u/s. 35(2AB)

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aggregating to Rs. 197097094/-. The assessee has also brought to the notice of the Assessing Officer that DSIR as per form no. 3CL, the assessee company is eligible for weighted deduction for inhouse R & D expenditure at 200% u/s. 35(2AB) of the act in respect of Rs. 518.06 lacs which works out to Rs. 1036.2 lacs and in respect of clinical control expenses conducted outside the approved R & D facility in form NO. 3CL for an amount of Rs. 30.36 lacs on which weighted deduction u/s. 35(2AB) of the act at 200% works out to Rs. 140.72 lacs the assessee has also submitted that in respect of clinical trial expenditure conducted outside approved facility by the assessee company during the year under consideration is allowable u/s. 35(2AB) of the act is now settled in view of the decision of the Hon’ble Jurisdictional Gujarat High Court in the case of CIT-1 Vs. Cadila Healthcare Ltd. (2013) 31 taxman.com 300 (Gujarat) and in assessee’s company own case by the appellate order of the CIT(A) for assessment year 2010-11 following the decision of Hon’ble ITAT Ahmedabad and jurisdictional High Court of Gujarat decision in the case of Cadila Healthcare Ltd. and allowed the claim of weighted deduction in respect of clinical trial conducted outside approved facility as per expenditure to section 35(2AB). The assessee has also submitted that it claimed weighted deduction u/s. 35(2AB) of the act of Rs. 19,70,97,094/- as per the certificate of the statutory auditor dated 24th October, 2018 on the basis of books of account maintained for expenditure incurred for inhouse approved R & D centre and on the basis of expenditure incurred on the clinical trial expenditure conducted outside the approved facility which was filed along with application made to DSIIR for issuance of form no. 3CL. However, the DSIR while issuing form no. 3CL, they have not given, the working as to why they have arrived at the said

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figure for form no. 3CL as against figure stated in the application made to the DSIR for obtaining the form no. 3CL. The assessee company is making a follow up with the DSIR to have break up of the working of figures stated in the form no. 3CL. The assessee company has also requested the Assessing Officer to make an observation in the assessment order that on furnishing the amended form no. 3CL, the necessary rectification application u/s. 154 of the act should be passed by allowing the enhanced weighed deduction in respect of R & D expenditure u/s. 35(2AB) of the act. It is demonstrated from the above referred brief detail of submission made by the assessee during the course of appellate proceedings that it has submitted all the relevant details in respect of claim u/s. 35(2AB) of the act vide submission dated 6th October, 2018 and 23rd October, 2018 along with all the supporting documents and evidences and on being satisfied the Assessing Officer had passed assessment order u/s. 143(3) dated 19th December, 2018 without making any addition. We have also perused the decision of Hon’ble Gujarat High Court in the case of Claris Lifescience Ltd. 326 ITR 251 (Guj.) wherein it is held that once facility is approved the entire expenditure so incurred on development of R & D facility has to be allowed for weighted deduction. Prior to 1-06-2016, only requirement to claim deduction u/s. 365(2AB) was to receive recognition from prescribed authority and deduction could not be denied merely because prescribed authority failed to send intimation in form 3CL in respect of expenditure incurred by R & D unit for relevant assessment year as held in the decision of ITAT Calcutta Bench (2021) 125 taxman.com 97 (Kol-Tri) in the case of Dy. CIT vs. STP Ltd. wherein it is also held that prior to 1-6-2016, form 3CL had not legal sanctity, only requirement to claim deduction u/s. 35(2AB) was to receive

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recognition from prescribed authority and it was only with amendment to rule 6(7a) (b) which came into effect 1st July, 2016 that quantification to weighted deduction by prescribed authority had significance. It is clear from the aforesaid judicial finding that prior 1-7-2016 form 3CL had not legal sanctity and it is only w.e.f. with the amendment to rule 6(7a)(b) that quantification of the weighted deduction u/s. 35(2AB) of the act has significance. Similarly, ITAT Bangalore in the case of Provici Animal Nutrition India Pvt. Ltd. vs. Pr. CIT (2021) 124 taxman.com 73 (Bangalore- Trib) has held that prior 11-06-2016 form 3CL granting approval by prescribed authority in relation to quantification of weighted deduction u/s. 35(2AB) had no legal sanctity and it was only w.e.f. 1-7-2016 with amendment to rule 6(7a)(b) that quantification of weighted deduction u/s. 35(2AB) has significance. After perusal of the material on record made by the Assessing Officer, submission of the assessee and judicial finding, we observed that the above said judicial finding was available when the impugned revision order was passed u/s. 263 of the act, meaning there was possible views with regard to the question as to whether furnishing of form 3CL is mandatory or not for claiming deduction u/s. 35(2AB) of the act and the Assessing Officer has followed one of the possible views in which case, the impugned assessment order cannot be framed as prejudicial to the interest of revenue.

ITA No. 56/Ahd/2021 A.Y. 2017-18 9. The ground of appeal of this year is also directed against the order of the Pr. CIT passed u/s. 263 of the act dated 31st March, 2021. This ground of appeal of the assessee is identical and based on similar facts as discussed for

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the preceding assessment year 2016-17 vide ITA No. 55/Ahd/2021 supra in this order. During the course of assessment year 2017-18, the assessee has claimed depreciation of goodwill to the amount of Rs. 64,25,98,661/- on WDV of Rs. 2,57,03,94,642/- on the basis of claim of amalgamation of the amalgamating company Troika Pharmaceutical Ltd. with Troika Export Pvt. Ltd. amalgamated company and also claimed deduction u/s. 35(2AB) in respect of R & D expenditure. The Assessing Officer has allowed the claim of depreciation on the goodwill. The additional facts pertaining to the issue of R & D of this year is that during the year, the assessee company has claimed weighted deduction of Rs. 23,38,59,786/- being two times of Rs. 11,69,29,893/- u/s. 35(2AB) of the act. As per the form 3CL dated 6th August, 2018 issued by the DSIR, is eligible R & D expenditure for deduction u/s. 35(2AB) was of Rs. 10,76,44,000/- being two times of Rs. 538.22 lacs during the course of assessment proceedings, the Assessing Officer has made detailed verification and investigation of the claim of the assessee vide notices issued u/s. 142(1) of the act on 28-02-2019, 15-03- 2019 and 26-03-2019. After taking into consideration the submission of the assessee, the Assessing Officer has issued show cause notice dated 26th March, 2019 and asked the assessee to show cause why weighted deduction claimed by it u/s. 35(2AB) of the act could not be restricted to 200% of Rs. 538.22 lacs in view of the certificate issued by DSIR wherein eligible R & D expenditure is Rs. 5.38 lacs. The assessee company submitted that it has claimed the weighed deduction u/s. 35(2AB) of the act of Rs. 23,38,59,786/- as per the certificate of the statutory auditor dated 28th Sep, 2017 on the basis of books of account maintained for expenditure. However, the Assessing Officer during the course of assessment proceedings as per assessment order

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u/s. 143(3) of the act has only allowed the claim of deduction u/s. 35(2AB) of the act to the extent of Rs. 10,76,44,000/- @ 200% of amount as per form 3CL, therefore, excess amount of deduction of Rs. 12,62,15,726/- was disallowed. After perusal of the aforesaid facts and material it is observed that Assessing Officer after taking into consideration the detail filed by the assessee and related document correctly restricted the deduction to the extent of the amount as per form no. 3CL since 1-7-2016 as per amendment to rule 6(7a)(b) of the Rule the quantification of deduction u/s. 35(2AB) is to be allowed on the basis of form 3CL only. During the course of assessment proceedings for A.Y. 2017-18, the Assessing Officer has made detailed enquires and raised different queries similar to the assessment year 2016-17 on the issue of claim of goodwill and claim of deduction u/s. 35(2AB) of the Act. As per material on record placed in the paper book, the assessee has also made detailed submission along with copies of the relevant documents similar to A.Y. 2016-17 to substantiate its claim of depreciation on goodwill and claim of deduction u/s. 35(2AB) of the Act. Without reiterating the facts and findings as elaborated for A.Y. 2016-17 vide ITA 55/Ahd/2021 supra the Assessing Officer has made detailed enquiries and passed the order u/s. 143(3) of the Act on 30-03-2019 for A.Y. 2017-18 on the basis of detailed submission and copies of documents during the course of assessment proceedings.

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related document with the Pr. CIT. He could not demonstrate that what kind of inquiry and examination was not made by the Assessing Officer. The Assessing Officer rightly held in accordance to the amended provision as supra that the weighted deduction is available in respect of expenditure on scientific nature as approved in Form No. 3CL w.e.f. 1.7.2016. If a query was raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order that would not by itself, lead to the conclusion that the order of the Assessing Officer called for interference and revision. The ld. Pr. CIT has failed to substantiate as to how the order passed by the Assessing Officer was prejudicial to the interest of Revenue and that too without dealing with the explanation and material furnished by the assessee before him. It is clear from the material on record that every aspect of the matter was dealt with by the Assessing Officer though no specific mention was made by him in the assessment order. The Assessing Officer in this case had made enquires in regard to the claim of deduction for goodwill on amalgamation and claim of deduction u/s. 35(2AB) of the act evident from the copies of notices discussed supra in this case. The assessee has given the detailed explanation and submission in writing supported with copies of relevant documents. All these were part of the record of the case. Evidently, the claim was allowed by the Assessing Officer on being satisfied with the explanation of the assessee.

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It was necessary for the commissioner to state in what manner he considered that the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue and what the basis was for such a conclusion. The Assessing Officer after considering the entire book of account and the reply furnished by the assessee passed the assessment order u/s. 143(3) of the act. After perusal of the material on record and copies of letter issued by the Assessing Officer and relied upon by the assessee during the course of assessment proceedings u/s. 143(3), it is evident that Assessing Officer has made specific enquiries with respect to depreciation on goodwill and claim of deduction in respect of research and development expenditure u/s. 35(2AB) of the act. Respectfully following the judgment of the Hon’ble Supreme Court in the case of Smifs Securities Ltd., decision of Hon’ble Jurisdictional High Court in the case of Zydus Wellness Ltd., the finding of the ITAT Hyderabad in the case of Mylan Laboratories Ltd. and the decision relied by the counsel upon the issues, the decision and findings of the Ld. Pr. CIT made in the impugned order u/s. 263 are not justified. We observed that the ld. Pr. CIT was not justified in holding that assessment order u/s. 143(3) of the Act dated 19-12-2018 for A.Y. 2016-17 and order u/s. 143(3) dated 30-03-2019 for A.Y. 2017-18 were erroneous as much as were prejudicial to the interest of revenue. In the light of the facts and finding and judgment of the Hon’ble Supreme Court in the case of Smifs Securities Ltd., decision of Hon’ble Jurisdictional High Court in the case of Zydus Wellness Ltd, decision of ITAT Hyderabad in Mylan Laboratories Ltd, decision of Hon’ble Jurisdictional High Court in the case of Arvind

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Jewellers, decision of Hon’ble Bombay High Court in the case of Gabriel India Ltd and other relevant judicial findings as elaborated supra in this order we consider that order passed u/s. 263 of the act is not sustainable in law. Therefore the order u/s. 263 is quashed. The findings of appeal ITA 55/Ahd/2021 are applied to appeal ITA 56/Ahd/2021. Accordingly, both appeals vide ITA 55/Ahd/2021 and 56/Ahd/2021 are allowed.

Order pronounced in the open court on 17-11-2021

Sd/- Sd/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 17/11/2021 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद