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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- These two appeals filed by assessee for A.Y. 2013-14 & 2014-15, arise from order of the CIT(A)-1, Vadodara dated 06-07-2018, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised following grounds of appeal:- “In the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - I, Vadodra, erred in confirming disallowances and additions and the observations made by the assessing officer in the assessment order in respect of the following points. He erred in:
I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 2
In respect of Depreciation on Goodwill arising on amalgamation-. a) In confirming not adjudication and consideration appellant's claim made during the course of assessment proceedings, for depreciation on goodwill arising on amalgamation of subsidiary with the appellant company b) In confirming non allowance of deduction on account of depreciation on goodwill arising on amalgamation of subsidiary with the company. c) In concluding that the ground raised by the appellant in respect of depreciation on Goodwill is not at all maintainable. d) In holding that the action of the Assessing Officer in not allowing fresh claim is as per the law since the appellant had not filed revise return of Income & accordingly assesse does not deserve any relief on the account. e) In concluding that there is no error or illegality in the Order of the AO which can be challenged in the appellate proceedings. f) In not directing the Assessing Officer to allow depreciation on Goodwill as claimed by the assesse.
In confirming the disallowance of Rs. 19,65,397/- on account of delay payments of Employee's Contribution.”
The fact in brief is that return of income showing deemed income u/s. 115JB of Rs. 31,08,52,427/- was filed on 30th Nov, 2013. The case was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 5th Sep, 2014. The assessment u/s. 143(3) of the Act was finalized on 23rd March, 2016 and total income was determined at Rs. 21,14,65,778/-. The remaining facts are discussed while adjudicating the grounds of appeal of the assessee as under:-
Ground No. 1 (Claim of deprecation on goodwill)
The Assessing Officer has completed the assessment under section 143(3) of the Act on 23-03-2016. The assessee submitted before the ld. CIT(A) that Assessing Officer had not at all discussed its claim of goodwill arising on account of amalgamation of its subsidiary company in the assessment order in spite of that fact that its claim of depreciation on account of amalgamation was made vide letter dated 20th January, 2016 during the course of assessment proceedings. The impugned claim of depreciation on goodwill was not made in the return of income. The ld. CIT(A) has I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 3 reproduced the submission of the assessee vide its letter dated 22-01-2016 at page no. 22 to 27 of CIT(A)’s order. The assessee has submitted that under section 391 to 394 of the Companies Act, 1956, its subsidiary named Fame India Ltd was amalgamated into Inox as per Hon’ble High Court of Gujarat order dated 12th March, 2013 w.e.f. 1st April, 2012. Pursuant to the scheme, shareholder of erstwhile Fame were entitled to 5 shares of Inox for every 8 shares held by them in Fame. As per the details elaborated at page 22 to 25 in the order of ld. CIT(A), assessee has computed goodwill amounting to Rs. 56.7 crores arises on amalgamation of Fame Group with Inox and claimed depreciation @ 25% amounting to the amount of Rs. 14.19 crores. The ld. CIT(A) has dismissed the appeal of the assessee stating that the issue raised by the assessee required a lot of investigation and verification of the fact and rather revision of its books of account including the balance sheet and P & L A/c which to his understanding is not permitted under the existing law.
During the course of appellate proceedings before us, the ld. counsel filed copies of documents/details/furnished before the lower authorities including copies of submission dated 20th Jan, 2016 in respect of claim of goodwill on amalgamation of its sister concern along with copies of composite scheme of amalgamation filed with High Court of Gujarat. The ld. counsel contended that in spite of filing relevant detail in support of its claim of depreciation on goodwill to the amount of Rs. 14.19 crores, the Assessing Officer has not considered its claim without any reason at the time of assessment proceedings. The ld. counsel also submitted that ld. CIT(A) has not adjudicated the claim of the assessee on merit. The ld. counsel has I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 4 placed reliance on the decision of Hon’ble Juri ictional High Court in the case of Principal CIT-4 vs. Zydus Wellness Ltd. (2017) 87 taxman.com 82 (Guj), CIT vs. Mitesh Impex (2014) 46 taxman.com 30 (Guj), UTI Bank Ltd. (T.A. No. 382 to 384 of 2016 and in the case of Pruthavi Brokers & Shareholders 349 ITR 346 (Bombay High Court), Urmin Marketing (P.) Ltd. 122 taxmann.com ITAT, Ahmedabad. The ld. D.R. has placed reliance on the order of ld. CIT(A).
Heard both the sides and perused the material on record. During the course of assessment proceedings, the assessee has claimed depreciation on goodwill arised on amalgamation of Fame India Ltd. into Inox Leisure Ltd. The Assessing Officer has not made any reference or discussion to the impugned claim of depreciation on goodwill in spite of the fact that the assessee has made detailed submission during the course of assessment vide letter dated 20th 2016 reproduced as under:- "The claim for depreciation on goodwill arising on amalgamation was not made in the return of income filed by the appellant company. However, the claim for the same was made during the course of assessment proceedings and detailed submissions in this regard were made by the company during the course of assessment proceedings vide letter dated 20:1.2016 as under: 20th January 2016 Asst Commissioner of Income "lax - Cir.l(2), Room 103, Aaykar Bhavan, Race Course, Baroda 390007 Sir, PAN NO. AAACI6063J A.Y.2013-14 Sub: Claim of goodwill in respect of amalgamation of Fame India Limited alongwith its subsidiaries_into Inox Leisure Limited Assessment of captioned assessment year in under progress and we request you to allow our claim of goodwill arising on amalgamation and depreciation thereon based on following facts: FACTS: 1) Inox Leisurp Ltd. ("INOX") having its registered office at ABS Towers, Old Padra Road, Vadodara 390007, Gujarat, is a public limited listed company incorporated under the Companies Act, 195G, It is a subsidiary of Gujarat Fluorochemicals Limited ("GFL"). 2) Erstwhile Fame India Ltd ('Tame") was a public limited company incorporated under the Companies Act, 1956 having its registered office at Citi Mall, 2nd Floor, Oshiwara Link Road, and Andheri (West), Mumbai 400053. 3) Both INOX and fame is/was engaged in the business of exhibiting cinematographic films to its patrons in Multiple Screen Cinema Theatre complexes ("Multiplex") and Single Screen Cinema
I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 5 Theatres ("'Theatre") located in various cities in India, under the brand names of Inox and Fame respectively. In addition to exhibition of cinematographic films, they also sell snacks, beverages and other refreshments to patrons in these Multiplexes and Theaters. Thus both the companies are engaged in same business. 4) In February 2010, INOX acquired 1,75,65,288 shares (through two separate block deals) of Fame at cost of Rs. 85,02,17,781 including expenses capitalized. 5) After acquisition of aforesaid shares, as required under Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, INOX made an open offer to the Shareholders of Fame and acquired 1,075 further equity shares of FAME in the Open Offer in during the year 2010-11 at cost of P,s. 54,825. 6) FAME became a subsidiary of INOX on 6th January 2011 viz. on completion of open offer. 7) Subsequently in the financial year 2011-12, INOX acquired further 2,02,12,212 shares of FAME by way subscription to Right's Issue of FAME at cost of Rs. 88,93,37,328. 8) INOX also purchased 6,59,737 equity shares of FAME from open market during the financial year 2011-12, and then another 6,52,200 equity shares of FAME from open market in the financial year 2012-13 total cost Rs. 9,52,34,771. 9) In this manner, INOX acquired a total of 3,90,90,512 equity shares of FAME for a total cost of Rs. 183.48 crores 10) A summary of total Cost of investment in 3,90,90,512 equity shares of fame is enclosed as Annexure 1. 11) Subsequently under a composite Scheme of Amalgamation (Scheme) (Annexure 2) under Section 391 to 394 of the Companies Act, 1956, FAME, along with its subsidiaries (Fame Group), was amalgamated into INOX as per Hon'ble High Court of Gujarat Order dated 12 March 2013 read with Order dated 20 March 2013 (Annexure 3) and Bombay High Court Order dated 10 May 2013 (Annexure 4) with an appointed date being 1 April 2012 is with effect from lst April 2012.(copy of the orders alongwith copy of the scheme are enclosed) 12) Accordingly, all the movable and immovable properties including plant and machinery, equipments, furniture, fixtures, vehicles, stocks and inventory, leasehold assets and other properties, etc. and all the debts, liabilities, duties and obligations including contingent liabilities of the Transferor Companies, as on the Appointed Date vested in the Company with effect from 1 April, 2012 (the appointed date). Accordingly a summary of Gross Assets and Liabilities taken over is enclosed as Annexure 5. 13) Pursuant to the Scheme, shareholders of erstwhile FAME were entitled to 5 shares of INOX for every 8 shares held by them in FAME (please refer clause 8.3 of the Scheme). 14) As per the Scheme of Amalgamation shares were also issued to Inox Benefit Trust("IBT") towards shares already held by Inox in Fame India Limited, These shares are held by the trust for the benefit of Inox.(please refer to clause no 8.1 to the scheme) 15) The aggregate consideration paid, on the basis of actual purchase price paid by Inox for acquisition of Fame shares over the period and fare value of shares issued by Inox to outside shareholders of Fame (excluding face value of shares issued to IBT as stated above) over the net assets received on amalgamation of Fame Group as on 1.4.2012 by Inox resulted in excess amount paid. The working is as under " ' Sr. No Particulars Rs. Rs. Rs.
1 a Gross assets ( Details 2,131,371,294 in Annexure 5 )
b Less: Loans and 518,323,331 other liabilities Details in Annexure 5)
c Net assets taken over 1,613,017,963 ( 1a -1b)
I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 6 Less: Cost of 1,334,844,705 investment in 3,90,90,512 equity snares of Fame India Lid. (Details In Annexure 1 )
3 Sub -Total (3)- (1 -2 Debit 721,796,742 )
4 Add: Face value of shares issued to the shareholders of erstwhile Fame India Ltd, pursuant to the Scheme of amalgamation
a Total shares issued (No's) 34,562,206
b Less: Issued to Inox Benefit Trust ( No's. ) 24,131,570
c Shares issued to outside shareholders 10,130,636
Face value of shares issued to outside 101,306,360 shareholders - 4C to Rs. 10/-
5 Excess of cost of acquired shares and Face value of shares issued 323,103,102 to outside sharp holder over net assets received in amalgamation - (5) = (4-3)
6 Depreciation on Goodwill allowable under 25% 80,775,776 Income Tax Act.
Reconciliation with the financials Total Goodwill as above 323,103,105 Less: Cost Of Fame shares, carried in the balance sheet 1,834,841,705 Credit 1,511,741,603 Reserves and Surplus of Fame India - taken under respective head of accounts 1,231,150,335 Less: Face value of shares issued to Inox Credit 280,591,268 Benefit Trust 344,315,700 Amalgamation reserve as per financial statements 36,275,568 On the basis of above working, it will be observed that there arises, on the basis of excess consideration, a Goodwill of Rs 3,231.U3 Lacs on amalgamation of Fame and its subsidiaries with Inox on 1.04.2012. The treatment in books of accounts including the details of amalgamation scheme are as per Note 30 in notes to financial statements for the year ending 31st March 2013. I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 7 The net surplus credited to amalgamation reserve in books is considering the face value of shares issued to IBT and position of reserves and surplus in the books of Fame group. The shares issued to IBT are in the field of capital account. This accounting treatment in the books of accounts is on the basis of "pooling of Interest" method as prescribed in Accounting Standard (AS 14} notified under the Companies(Accounting Standards) Rules, 2006. 16) Honourable Supreme Court of India in the Case of Smifs Securities Limited [2012] 24 taxmann.com 222 (SC) held that goodwill in the form of difference between consideration paid and the cost of net assets acquired from the amalgamating Company was an asset under Explanation 3(b) of Section 32(1) of the Income Tax Act, and therefore eligible for depreciation under the Act, "Section 32 of the Income-tax Act, 1961 - Depreciation -Allowance/Rate of -Assessment year 2003-04 - Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1) - Held, yes - During relevant assessment year, one 'Y' Ltd. Amalgamated with assessee-company - According to assesses, excess consideration paid by it over value of net assets acquired of 'Y' ltd. amounted to goodwill on which depreciation was to be allowed - Authorities below recuided a finding that assets and liabilities of 'Y' Ltd. were transferred la 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] [In favour of assesses]" 17) Accordingly Goodwill amounting to Rs. 32,31,03,102/-arises on amalgamation of Fame group with Inox on the basis of the actual cost incurred and consideration paid as above. 18) It will be appreciated that the above working of Goodwill is on the conservative basis i.e, excluding face value of shares issued to I8T in lieu of shares held by Inox in erstwhile Fame India Limited. However, these shares known as "treasury shares" in accounting parlance are in capital field and when sold to outsiders, profit or Inss is in the capital field. In short, by crediting treasury shares fresh shares are not required to be issued but existing shares are transferred. However the effect remains the same that is in both the cases consideration received towards transfer of treasury shares or issue of fresh equity shares the proceeds are on account of capital account. Therefore, in fact, the above goodwill is required to be increased by the face value of the shares of Rs.24,43,15,700 issued to IST.
Sr. N 3 Particulars Rs Rs
1 Cost of investment 1,834,344,705 in 3,90,90,512 equity shares of Fame India Ltd as per books of Inox.
2 a Face value of 101,306,360 shares issued to the outside shareholders of erstwhile Fame India Ltd. pursuant to the scheme of amalgamation.
b Face value of 244,315,700. sharps issued to Inox Benefit Trust for the benefit of Inox in terms of scheme of amalgamation.
I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 8 Total - ( 2a+ 2b ) 345,622,060
3 Total (3) = ( 1+2 ) 2,180,466,765
4 Less; Net assets 1,013,047,963 received from Fame Group on amalgamation (Details in Annexure 5 )
5 Excess of cost of 567,418,802 acquired shares and Face value of shares issued to outside shareholder over net assets received in amalgamation. ( 5) - ( 3-4)
6 Depreciation on 25% 141,854,701 Goodwill allowable under Income Tax Act. (6) = 5 X 25%
Therefore on this basis Goodwill amounting to Rs 56.74 Crores arises on amalgamation of Fame group with Inox and hence we request you to allow depreciation thereon @ 25% amounting to Rs
19 Crores. We shall be pleased to furnish any further information required in this connection. Thanking you, Yours truly. For Inox Leisure Limited Upen Shah Chief Finance Officer A copy of the aforesaid submissions, alongwith annexures referred to in the said submissions, are attached herewith as Annexure 15. The assessing officer has not dealt with this issue in the assessment order. In the submissions made before the assessing officer, we have relied on the decision of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (348 IIP, 302) wherein the Supreme Court has held that that goodwill in the form of difference between consideration paid and the cost of net assets acquired from the amalgamating Company was an asset under Explanation 3(b) of Section 32(1) of the Income Tax Act, and therefore eligible for depreciation under the Act. Headnote: Section 32 of the Income-tax Act, 1961 -Depreciation - Allowance/Rate of -Assessment year 2003-04 -Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1) - Held, yes - During relevant assessment year, one 'Y' Ltd. Amalgamated with assessee-company - According to assesses, excess consideration paid by it over value of net assets acquired of 'Y1 ltd. amounted to goodwill on which depreciation was to be allowed - Authorities below recorded a finding that assets and liabilities of 'Y1 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 -
I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 9 Whether since revenue could not rebut tactual findings recorded by authorities below, impugned order passed by them was to be upheld - Held, yes [Para 8] [In favour of assessee] A copy of the above decision is as per Annexure 16. Now the juri ictional Gujarat High Court in the case of Zydus Wellness Ltd. has also decided similar issue. The Gujarat High Court has held as under: a) The issue of the tenability of a claim though not raised in the original return is examined by the courts in various decisions. The Gujarat High Court in case of Mitesh Impex referred to and relied on several decisions of the Supreme Court and High Courts including the decision of Bombay High Court in case of Pruthvi Brokers & Shareholders (P.) Ltd. and observed that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come merely because it is raised for the first time before the appellate authority without resorting to revising the return before the AO b) With respect to the claim of depreciation, the decision of Supreme Court in case of Smifs Securities Ltd. is applicable. There is no material provided by the AO to hold that the claim of depreciation was fictitious. If the High Court read his entire expression in this respect, the' AO seems to be suggesting that being an intangible asset acquisition thereof would not qualify for depreciation. If that be so, the view of the AO was opposed to the decision of the Supreme Court in case of Smifs Securities Ltd, On the other hand, if the observations of the AO Ldn be seen as his findings that the claim itself was baseless, there wds no discussion or reference to any material to enable him to come to such a conclusion A copy of the above decision is as per Annexure 17. Further copy of order of the ITAT, Ahmedabad Bench in the case of DCIT (O ) v. Zydus Wellness Ltd, is attached as Annexure 18. In view of above submission, we request you to kindly direct the A.O. to allow depreciation on goodwill arising from amalgamation." Without specifically considering the detailed submission of the assessee, the ld. CIT(A) has dismissed the claim after taking presumptuous view that as per his understating the claim of depreciation on goodwill was not permitted under the existing law. It is observed that ld. CIT(A) has not made any discussion or reference to the material furnished by the assessee in support of its claim of goodwill arised on account of amalgamation of erstwhile Fame India Ltd. The Hon’ble High Court of Gujarat in the case of Pr. CIT vs. Zydus Wellness Ltd held that in view of ratio laid down by Hon’ble Vs. Zydus Wellness Ltd. (2017) 87 taxmann.com 82 (Guj), the assessee had not raised a claim however during the course of assessment proceedings, the assessee presented a revised computation which included the assessee’s
I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 10 claim of depreciation of Rs. 7.19 crores on the goodwill expanded at the time of amalgamation of the companies. The Assessing Officer has disallowed the claim on two grounds firstly that the claim was not made in the original return nor did the assessee file the revised return. The Juri ictional High Court has allowed the claim of the assessee in view of the ratio laid down by Hon’ble Supreme Court in the case of CIT vs. Smifs Securities Ltd. (2012) 24 taxmann.com 222 (SC). The Hon’ble Gujarat (Guj) has held at para 39 that if a claim though available in law is not made either inadvertently or on account of erroneous belief on complex legal position, such claim cannot be shut for all time to come merely because it is raised for the first time before the appellate authority without resorting to revising the return before the Assessing Officer. Similarly, the Hon’ble to 384 of 2016 dated 13-06-2016 after referring the decision of Mitesh Impex has recognized the power of the appellate commissioner to entertain a new claim for the first time though not made before the Assessing Officer and the intention of the revenue would be to tax real income. During the course of assessment proceedings, the assessee has given a complete detail along with supporting documents demonstrating that goodwill was arised on account of amalgamation of companies, however, the Assessing Officer has not made any discussion to the claim of the assessee. At the appellate stage, the ld. CIT(A) has held in a unwarranted manner that the claim of the assessee is not permitted under the existing law on the pretext that the issue raised requires investigation and verification. We consider that the decision of the ld. CIT(A) is unjustified and he had not made any discussion to the I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 11 legal findings and not substantiated his decision with any material to come to the conclusion. As per law it is required to carry out the required investigation and verification of the facts to tax the real income. In the light of the above facts and judicial findings, we direct the ld. CIT(A) to consider the claim of the assessee on merit after verification/examination of the material to be produced by the assessee with reference to claim of goodwill arsied on account of amalgamation of companies. Therefore, we restore this issue to the file of ld. CIT(A) for adjudicating the impugned issue of claim of depreciation on goodwill afresh on merit after examination as per the direction laid down by the Hon’ble Juri ictional High Court of Gujarat in the decision of Zydus Wellness Ltd. supra. Accordingly, the appeal of the assessee is allowed for statistical purposes.
Ground No. 2 (Disallowance of Rs. 19,65,397/- on account of delay payment of employee contribution)
The assessee has disallowed the claim of employee’s contribution towards PF & ESIC for not crediting the amount on or before due date as prescribed u/s. 36(1)(va) after following the Hon’ble Juri ictional High
Heard both the sides and perused the material on record. During the course of appellate proceedings before us, the ld. counsel has brought to our notice that Hon’ble Juri ictional High Court of Gujarat in the case of CIT vs. Amoli Organics P. Ltd. (2014) 41 taxmann.com 49 (Guj) held that assessee was entitled to make payment within grace period under the I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 12 provident fund act and if within that grace period employees’ contribution have been deposited by the assessee, it cannot be said that assessee has not deposited the amount within due date prescribed under the provident fund act. Following the decision of Hon’ble Gujarat High Court as cited supra, we restore this issue to the file of CIT(A) for deciding afresh after examination of the claim of assessee that amount was deposited within the grace period as provided in the provident fund act. Therefore, this ground of appeal of the assessee is also allowed for statistical purposes.
ITA No. 1925/Ahd/2018 A.Y. 2014-15
As the facts and issue involved in grounds of appeal vide ITA No. 1924/Ahd/2018 Assessment Year 2013-14 are similar as in ITA No. 1925/Ahd/2018 Assessment Year 2014-15 therefore after applying the decision adjudicated vide ITA No. 1924/Ahd/2018 as supra in this order, this appeal of the assessee is also allowed for statistical purposes.
In the result, both the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open court on 27-01-2021 (RAJPAL YADAV) (AMARJIT SINGH) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad : Dated 27/01/2021
I.T.A Nos. 1924 & 1925 /Ahd/2018 A.Y. 2013-14 & 2014-15 Page No 13 आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:-
Assessee
Revenue
Concerned CIT
CIT (A)
DR, ITAT, Ahmedabad
Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील"य अ"धकरण, अहमदाबाद