ASST. COMMISSIONER OF INCOME TAX -7(1)(1), MUMBAI, MUMBAI vs. HORIZON PACKS PVT. LTD., MUMBAI

ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nI.T.A. No. 5950 & 6096/Mum/2024 are two separate appeals by the\nrevenue against two separate orders dated 21/09/2024 pertaining to AY\n2018-19 and 2020-21 by NFAC, Delhi (hereinafter 'the ld. CIT(A)'].\n2. Since common grievance is involved in both the appeals, they\nwere heard together and are disposed off by this common order for the\nsake of convenience and brevity.\n3. The sum and substance of the grievance of the revenue is that the\nld. CIT(A) erred in deleting the addition made by the AO on account of\ndisallowance of claim of depreciation on good-will u/s 32 of the Act and\nin doing so, without appreciating the facts that such good-will was\ncreated by way of merger/amalgamation transactions between the\ngroup company and when such creation of good-will itself was not\njustified.\n4. Briefly stated the facts of the case are that during the year under\nconsideration, three companies, namely, Pyramid Packaging Private\nLimited, Monad Technologies Pvt. Ltd and Sigma Corru Box Private\nLimited, were merged with the assessee w.e.f. 01/04/2016. The scheme\nwas approved by the NCLT, Mumbai Bench vide its order dated\n22/03/2017, with the appointed date of the said merger as 01/04/2016\neffective from 01/05/2017. The assessee had paid total purchase\nconsideration of Rs.3,38,95,66,300/- for acquiring the above referred\nthree companies whose net asset value as on appointed date was Rs.\n1,75,00,70,889/-. The difference of Rs.1,63,94,95,411/- has been\naccounted as Goodwill in the books of accounts of the assessee on which\nthe depreciation was claimed which is under dispute.\n5. It would be pertinent to refer to the assessment history for AY\n2017-18 which year, the depreciation was first claimed by the assessee.\nThe return for AY 2017-18 was selected for scrutiny assessment for the\nfollowing reasons as per the notice u/s 143(2) of the Act, which reads as\nunder:-\nINCOME TAX DEPARTMENT\n3\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 5950 & 6096/Mum/2024\nभारत सरकार / GOVERNMENT OF INDIA\nवित्त मंत्रालय / MINISTRY OF FINANCE\nआयकर विभाग / INCOME TAX DEPARTMENT\nविहित आयकर प्राधिकारी का कार्यालय / Office of the Prescribed Income-Tax Authority\nसेवा में/ To,\nHORIZON PACKS PRIVATE LIMITED\n801, A WING NAMAN MIDTOWN, SENAPATI\nBAPAT MARG ELPHINSTONE ROAD WEST\nMUMBAI 400013, Maharashtra\nIndia\nJA232599467IN\nस्थायी लेखा संख्या / PAN:\nAABCH1561K\nनिर्धारण वर्ष / AY:\n2017-18\nनोटिस संख्या / Notice No.:\nITBA/AST/S/143(2)/2019-\n20/1018347693(1)\nदिनांक/ Dated:\n27/09/2019\nआयकर नियम 1962 के नियम 12 ड़ के साथ पठित आयकर अधिनियम 1961 की धारा 143 (2) के अधीन नोटिस\nNotice under section 143(2) of the Income-tax Act, 1961 read with Rule 12 E of Income Tax\nRules, 1962\nप्रिय करदाता,\nDear Taxpayer,\nसंवीक्षा (जांच) (कंप्यूटर आधारित संवीक्षा चयन)\nScrutiny (Computer Aided Scrutiny Selection)\nINCOME\nCA\nARTMENT\nआपके द्वारा निर्धारण वर्ष 2017-18 के लिए दिनांक. 04/09/2018 को\nदाखिल करने के लिए आपको धन्यवाद ।\nपावती सं. 283699721040918 के तहत आयकर विवरणी\nThank you for filing your return of income for Assessment Year 2017-18 vide Ack. no.\n283699721040918 on 04/09/2018.\n2. विवरणिका को तैयार करने में आपके ध्यान एवं परिश्रम को स्वीकार करते हुए, कुछ मुद्दो पर और स्पष्टीकरण की आवश्यकता है,\nजिनके कारण आपकी आय विवरणिका को संवीक्षा (जांच) के लिए चुना गया है, ये मुद्दे प्रारंभ में निम्नानुसार है:\n2. While acknowledging the care and diligence you may have taken in preparing the return, there\nare certain issues which need further clarification, for which your return of Income has been\nselected for scrutiny and such issues initially are as under:\nS. No.\nIssues\ni.\nAi.\niii.\niv.\nDeduction Claimed for Industrial Undertaking u/s\n801A/801AB/80IAC/IB/IC/IBA/80ID/80IE/10A/10AA\nBusiness Expenses\nInvestment in Intangible Assets\nAmalgamation or Demerger\n3. उपरोक्त को ध्यान में रखते हुए उल्लेखित मुद्दो के उत्तर आप संबंधित दस्तावेजो (यदि कोई हो) सहित निर्धारण अधिकारी को 'ई-\nNote: If digitally signed, the date of digital signature may be taken as date of document.\n1. The Notice/Letter/Order No. mentioned above may be treated as DIN for the purpose of procedure for issuance of Income Tax Notice\nprescribed by Circular No.19/2019 dt. 14 August 2019.\n2. This notice u/s 143(2) is issued by the Prescribed Income-tax Authority u/s 143(2) of the IT Act, 1961 notified by the CBDT vide notification\nNo. 65/2019 dated 13 September 2019. This office does not have a physical address.\nLON PACKS\n4\nPVT. LTD\nDolw.\nCERTIFIED TRUE COPY\n4\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 5950 & 6096/Mum/2024\nAABCH1561K- HORIZON PACKS PRIVATE LIMITED\nΑ.Υ. 2017-18\nITBA/AST/S/143(2)/2019-20/1018347693(1)\nकार्यवाही' सुविधा में अपने ई-फाइलिंग वेबसाइट खाते के जरिए (www.incometaxindiaefiling.gov.in) अपनी सुविधानुसार,\nदिनांक 12/10/2019 तक या उससे पहले इलेक्ट्रोनिक माध्यम से प्रस्तुत कर दें।\n3. In view of the above, you may submit your response with supporting documents (if any) on the\nabove mentioned issues to the Assessing Officer electronically in 'e-Proceedings' facility through your\naccount in e-Filing website (www.incometaxindiaefiling.gov.in) at your convenience on or before\n12/10/2019.\n4. निर्धारण प्रक्रिया के दौरान यदि आवश्यक हुआ तो सूचना/कागजात के लिए विस्तृत प्रश्नावली या मांग पत्र बाद में जारी किया जाएगा।\n4. In course of assessment proceedings, if required, specific questionnaire(s) or requisition(s) for\ninformation/document may be issued subsequently.\n5. आप के संदर्भ के लिए 'ई-कार्यवाही' पर एक संक्षिप्त नोट संलग्न है। यदि आपको अपना उत्तर दर्ज करने में किसी भी सहायता की\nआवश्यकता है तो आप टोल फ्री कॉल सैंटर नं 1800 103 4215 पर संपर्क कर सकते है।\n5. A brief note on 'e-Proceeding' is enclosed for your kind reference. In case you require any\nassistance in filing your response, you may contact toll free Call Centre number 1800 103 4215.\nसंलग्नः यथोपरि\nEnclosure: as above\nकोष मूलो दण्ड.\nINCOME TAX DЕР\nMENT\nभवदीय / Yours faithfully,\nसहायक आयकर आयुक्त (ई-सत्यापन)\nAssistant Commissioner of Income-tax (e-Verification)\nआयकर अधिनियम 1961 की धारा 143 (2) के अधीन विहित आयकर प्राधिकारी\nPrescribed Income-tax Authority u/s 143(2) of the Income Tax Act, 1961\nRIZON PACKS\nYOH\n*PVT. LTD.\n6. The notice u/s 142(1) of the Act, raised the following queries:-\n***This space is left blank intentionally; PTO***\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 5950 & 6096/Mum/2024\n5\nGOVERNMENT OF INDIA\nMINISTRY OF FINANCE\nINCOME TAX DEPARTMENT\nOFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX\nCIRCLE 7(1)(2), MUMBAI\nTo,\nHORIZON PACKS PRIVATE LIMITED\n801, A WING NAMAN MIDTOWN, SENAPATI BAPAT\nMARG ELPHINSTONE ROAD WEST\nMUMBAI 400013, Maharashtra\nIndia\nPAN:\nAABCH1561K\nAY:\n2017-18\nDated:\n15/11/2019\nNotice No:\nITBA/AST/F/142(1)/2019-20/1020478369(1)\nSir/Madam/ M/s,\nNotice under Sub Section (1) of Section 142 of the Income Tax Act, 1961\nIn connection with the assessment for the assessment year 2017-18 you are required to:\na) Furnish or cause to be furnished on or before 18/11/2019 at 11:00 AM the accounts and documents\nspecified overleaf.\nb) Furnish and verified in the prescribed manner under Rule 14 of I.T. Rules 1962 the information called for as\nper annexure and on the points or matters specified therein on or before 18/11/2019 at 11:00 AM.\nc) The above mentioned evidence/information is to be furnished online electronically in 'E-Proceeding' facility\nthrough your account in 'e-filing' website of Income Tax Department.\nd) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till\nsuch an account is created by you, assessment proceedings shall be carried out either through your e-mail\naccount or manually (if e-mail is not available). AX DEPAR\ne) In cases where order has to be passed under section 153A/153C of the Income Tax Act, 1961 read with\nsection 143(3), assessment proceedings would be conducted manually.\nYours faithfully,\nSONAL LAXMIDAS SONKAVDE\nCIRCLE 7(1)(2), MUMBAI\nNote: If digitally signed, the date of digital signature may be taken as date of document.\nROOM NO:130,1st Floor, AAYAKAR BHAVAN, MAHARISHI KARVE ROAD, MUMBAI, Maharashtra, 400020\nEmail: MUMBAI.DCIT7.1.2@INCOMETAX.GOV.IN, Office Phone:0222015436\n* The Notice/Letter/Order No. mentioned above may be treated as DIN for the purpose of procedure for issuance of Income Tax Notice\nprescribed by Circular No.19/2019 dt. 14 August 2019.\nORIZON\nHO\n★\nPVT. LTD.\nCERTIFIED TRUE COPY.\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 5950 & 6096/Mum/2024\n6\nANNEXURE\nKindly submit the follwoing details with all the documentary evidences.\n1. Please submit all the details in reagrd to amalgation or demerger during the year. Please submit the\nhigh court order and all the other details avilabe with you in this regard.\n2. All details in regard to deductions claimed u/s.801(801A/80IAB and all other sections) and\n/10A/10AA with comparision of deductionc claimed u/s.80l and 10/A010AA. in last 3 years.\n3. All details in reagrd to High revenue from your opeartions viz. sale details etc.\n4. Please exlplain with documentary evidences as to why expenses debited to P/L account for earning\nexempt income are significatly lower than the investments made to earn exempt income.\n5. Please reconcile the AIR.\nHORIZON PACK\nकोष मलो दण्डः\nNCOME TAX DEPARTMENT\nSONAL LAXMIDAS SONKAVDE\nCIRCLE 7(1)(2), MUMBAI\n(In case the document is digitally signed please\nrefer Digital Signature at the bottom of the page)\n7. The assessee filed a detailed reply which reads as under:-\n***This space is left blank intentionally; PTO***\n7\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 5950 & 6096/Mum/2024\n57\nHORIZON PACKS PVT. LTD.\n18st November, 2019\nTo,\nThe DCIT - Circle 7(1)(2),\nMumbai\nDear Madam,\nName\nPAN\nA.Y.\nSub\nHorizon Packs Private Limited ('assessee')\nAABCH1561K\n2017-18\nReply to notice u/s 142(1) of the Income Tax Act, 1961 (the 'Act')\nOur client, the assessee is in receipt of your notice no. ITBA/AST/F/142(1)/2019-\n20/1020478369(1) received on 15th November, 2019 under section 142(1) of the Act, wherein\nthey have been requested to provide various documents & information for the above\n assessment year.\nIn this regard, we wish to submit as follows:\n1. Details relating to Amalgamation - A copy of the order of the NCLT approving the\nscheme of amalgamation of Pyramid Packaging Private Limited, Monad Technologies\nPrivate Limited and Sigma Corru Box Private Limited into the assessee is enclosed as\nAnnexure 1.\n2. The assessee has claimed deduction under section 80-IC of the Act in respect of its\nprofits derived from undertaking located in Rudrapur. A copy of the Form 10CCB is\nenclosed as Annexure 2. No such deduction has been claimed by the assessee in the\npast 3 years.\n3. Details regarding to High revenue from operations - The assessee is in the process of\ncompiling the data for the same and the same shall be submitted shortly.\n4. Details regarding the expenses for earning exempt income - Calculation for\ndisallowance u/s 14A read with Rule 8D is enclosed as Annexure 3.\nBACKS PVT.\nLTD.\n*\nREGISTERED OFFICE: 801, A Wing, Naman Midtown, Senapati Bapat Marg, Elphinstone Rd [W], Mumbai - 400 013\nP: +91 22 2439 8500 F: +91 22 2439 8545 W: http://www.horizonpacks.com E: horizon@horizonpacks.com\nCIN: U21014MH2001 PTC133116\nHORIZON PACKS\n*\nPVT. LTD.\nCERTIFIED TRUE COPY.\n8\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 5950 & 6096/Mum/2024\nHORIZON PACKS PVT. LTD.\n5. In response to the AIR statement - There are no AIR / CIB transactions in the AIR\nAttachment.\nWe trust you will find the above in order. If you need any further information or explanations,\nwe shall be pleased to furnish the same.\nThanking You,\nYours Sincerely,\nFor Horizon Packs Private Limited\nON PACKS\n8.\nAuthorise\nSign\nComplete scheme of amalgamation and further on Note on\nAmalgamation & Investment in Intangible Assets, explained as under:-\n“During AY 2017-18, Pyramid Packaging Private Limited ("Pyramid"), Monad\nTechnologies Private Limited ("Monad") and Sigma Corru Box Private Limited\n("Sigma") (hereinafter collectively known as "the Transferor Companies") were\nmerged with the assessee with effect from 1 April 2016. The scheme was heard and\napproved by the National Company Law Tribunal (Mumbai Bench) vide its order\ndated March 22, 2017. A copy of the scheme is enclosed as Annexure 3. The\nappointed date for the said merger is 1 April 2016 and the effective date is 1 May\n2017.\nBy way of merger, in consideration of the assets acquired by the assessee on merger,\nshares of the assessee have been allotted in the following manner:\n587 fully paid up equity shares of IN 10 each of the assessee Company for every 10\nfully paid up equity shares of IN 100 each held in Pyramid\n810 fully paid up equity shares of IN 10 each of the assessee Company for every 10\nfully paid up equity shares of IN 10 each held in Monad 86 fully paid up equity\nshares of IN 10 each of the assessee Company for every 10 fully paid up equity shares\nof IN 10 each held in Sigma\nThe said merger has been accounted for under the \"Purchase\" method as prescribed\nby Accounting Standard 14 (AS 14) \"Accounting for Amalgamations\" notified\nunder section 133 of the Companies Act, 2013 read together with paragraph 7 of the\nCompanies (Accounts) Rules 2014. Accordingly, the assets, liabilities and other\nreserves of the Transferor Companies as at April 1, 2016 have been taken over at their\nfair values. Further, the difference between the assets and liabilities taken over and\nthe additional share capital issued in accordance with this scheme is accounted as\nGoodwill in the books of the assessee.\nVarious courts, including the Supreme Court in the case of CIT v. Smifs Securities\nLtd. (2012) 348 ITR 302, have held that Goodwill, being the difference between the\npurchase price and the value of the assets received, is a depreciable asset under\nExplanation 3(b) to section 32(1) of the Act. Accordingly, the assessee has considered\nGoodwill arising on account of the merger as an intangible depreciable asset.”\n9. With this factual background, the AO framed the assessment\norder dated 19/12/2019 and allowed the claim of depreciation on good-\nwill.\n9.