MARVELL INDIA PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BENGALURU

4.1 . The learned AO has erred, in law and on facts, by confirming addition of INR 12,690 made under Section 40(a)(i) of the Act, in relation to TDS demand under Section 200A of the Act. 5. Other grounds 5.1. The learned AO has erred, in law and on facts, by computing interest liability of INR 6,79,322 under Section 234A, INR.92,01,062 under section 234B and INR 9,20,335 under section 234C of the Act.

6. Penalty Proceedings

6.1. The learned AO has erred, in law and on facts, in initiating penalty proceedings under section 274 read with section 270A of the Act.”

Year 2020-2021, the Assessee had filed its return of income on 07/01/2021 declaring total income of INR.72,31,93,710/-. The case of the Assessee was selected for regular scrutiny assessment. The Assessing Officer passed Draft Assessment Order under Section 144C(1) of the Act on 29/09/2003 proposing the following additions/disallowance adjustments: a) Transfer Pricing (TP) adjustment amounting to Rs.16,00,55,328/- b) Disallowance of Depreciation claimed on Goodwill amounting to INR.3,08,21,235/- c) Addition on account of Free of Cost Assets amounting to INR.1,93,90,395/-, d) Addition u/s 40(a)(i) of the Act amounting to INR.12,690/-.

4. The Assessee filed objections against the Draft Assessment Order before the DRP. Vide Order, dated 29/05/2004, the DRP granted relief by rejecting proposed transfer pricing adjustment of INR.16,00,55,328/-. As regards corporate tax issues, the DRP agreed with the Assessing Officer and declined to grant any relief to the Assessee. Therefore, the Assessing Officer concluded the assessment and passed Final Assessment Order, dated 27/06/2024, making the following additions/disallowances:

(a) Disallowance of Depreciation claimed on Goodwill amounting to INR.3,08,21,235/-

(b) Addition on account of Free of Cost assets amounting to Rs.1,93,90,935/- and (c) Addition u/s 40(a)(i) of the Act amounting to Rs.12,690/-

Ground No. 1

Ground No.2

7.1. On perusal of records, we find that during the relevant previous year, the Assessee had entered into two separate Business Transfer Agreements to acquire business undertaking of Global Foundries Engineering Pvt. Ltd. (GFEPL) and Aquifina Semi-Conductors India Pvt. Ltd. by way of slump sale transactions. It has been contended on behalf of the Assessee that under the aforesaid BTAs, the Assessee had acquired intangible assets on which assessee was eligible to claim deduction @25% u/s 32(1)(ii) of the Act. During the course of assessment proceedings, the Assessee filed submissions, dated 25/08/2023, furnishing following explanation/details:

“1. In this regard, we wish to submit the required details as under:

Provide the details of depreciation claimed on intangible assets along with the BTA entered by the Company:

We humbly wish to submit that the company during AY 2020- 21 through Business transfer Agreement (BTA) had acquired business from the entities viz. Global Foundries Engineering Private Limited and Aquantia Semiconductors India Private Limited. Details of the same are tabulated as under:

SNo Name of the Entity Date of BTA Amount of xx Goodwill 1 Global Foundries 05 Nov 2019 17,69,42,384 xx Engineering Private Ltd. 2 Aquantia Semiconductors 04 Nov 2019 6,96,27,497 xx India Private Ltd. Total Goodwill acquired 24,65,69,881

Depreciation claimed on goodwill (Intangible asset) 3,08,21,235 xx during the AY 2020-21 7.2. After taking into consideration the above submission, the Assessing Officer issued show-cause notice, dated 14/09/2023, to the Assessee and in response to the same submission, dated 21/09/2023, was filed by the Assessee wherein it was contended that claim of depreciation of goodwill made by the Assessee was not hit by the amended provisions of Section 32 of the Act since the amendment introduced by the Finance Act, 2021 excluding ‘goodwill of a business or profession’ out of the definition of ‘Intangible Asset’ contained in Explanation 3(b) to Section 32 of the Act was effective from Assessment Year 2021-2022.

7.3. The submissions made by the Assessee did not find favour with the Assessing Officer. The Assessing Officer formed a view that the Assessee had failed to furnish documents giving basic details like the basis of arriving at the value of consideration, proof of actual payment made, the rationale for categorizing the entire amount as intangible asset and the valuation report. On the basis of the aforesaid, the Assessing Officer concluded the Assessee had failed to demonstrate and prove that the goodwill was acquired by the Assessee and that the same was akin to an intangible asset.

Therefore, the Assessee was not eligible to claim depreciation on goodwill. Thus, the Assessing Officer proposed disallowance of depreciation of INR.3,08,21,235/- in respect of goodwill in the Draft Assessment Order.

7.4. The above disallowance proposed in the Draft Assessment Order was not accepted by the Assessee and objections were filed before the DRP in relation to the same. The DRP rejected the objections raised by the Assessee observing that the provisions of Section 32(1) of the Act were amended w.e.f. 01/04/2021 to specifically exclude goodwill from the category of asset/depreciable assets. The aforesaid amendment introduced by Finance Act, 2021 was clarificatory in nature, and the same also applied to Assessment Year 2020-2021.

7.5. The Assessing Officer passed the Final Assessment Order rejecting Assessee’s claim for depreciation of INR.3,08,21,235/- in respect of goodwill.

7.6. Being aggrieved, the Assessee has carried the issue in appeal before this Tribunal.

7.7. We have considered the rival submissions and perused the materials available on record.

7.8. Finance Act, 2021 amended Explanation 3 to Section 32 of the Act to provide that ‘goodwill of a business or profession’ shall not be considered as an asset for the purposes of the Section 32(1) of the Act. The relevant extract of the memorandum in relation to the above amendment stated as under “Depreciation on Goodwill – Section 2 of the Act provides the definitions for the purposes of the Act. Clause (11) of the said section defines…. xx xx

Thus, while Hon‘ble Supreme Court has held that the Goodwill of a business or profession is a depreciable asset, the actual calculation of depreciation on goodwill is required to be carried out in accordance with various other provisions of the Act, including the ones listed above. Once we apply these provisions, in some situations (like that of business reorganization) there could be no depreciation on account of actual cost being zero and the written down value of that assets in the hand of predecessor/amalgamating company being zero.

However, in some other cases (like that of acquisition of goodwill by purchase) there could be valid claim of depreciation on goodwill in accordance with the decision of Hon‘ble Supreme Court holding goodwill of a business or profession as a depreciable asset.

It is seen that Goodwill, in general, is not a depreciable asset and in fact depending upon how the business runs; goodwill may see appreciation or in the alternative no depreciation to its value. Therefore, there may not be a justification of depreciation on goodwill in the manner there is a need to provide for depreciation in case of other intangible assets or plant & machinery. Hence there appears to be little justification for depreciation on goodwill even in the category of cases referred to in the immediately preceding paragraph.

In view of above discussion, it has been decided to propose that goodwill of a business or profession will not be considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation. In a case where goodwill is purchased by an assessee, the purchase price of the goodwill will continue to be considered as cost of acquisition for the purpose of computation of capital gains under section 48 of the Act subject to the condition that in case depreciation was obtained by the assessee in relation to such goodwill prior to the assessment year 2021-22, then the depreciation so obtained by the assessee shall be reduced from the amount of the purchase price of the goodwill.

Therefore, to give effect to the above decision, it has been proposed to:

(a) amend clause (11) of section 2 of the Act to provide that ‘block of asset‘ shall not include goodwill of a business or profession;

(b) amend clause (ii) of sub-section (1) of section 32 of the Act to provide that goodwill of a business or profession shall not be considered as an asset for the purpose of the said clause and therefore not eligible for depreciation. Further, it is also proposed to amend Explanation 3 to sub- section (1) of the said section to provide that goodwill of a business or profession shall not be considered as an asset for the said sub-section. xx xx

These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.[Clauses 7, 18 and 20]”

7.9. Thus, a bare reading of the above extract of Memorandum to the Finance Bill, 2021 shows that amendment made in Section 32 of the Act would apply to Assessment Year 2021-2022 and subsequent assessment years. This become clear on perusal of the following extract of Notes to Clauses to Finance Bill, 2021: “Clause 7 of the Bill seeks to amend section 32 of the Income- tax Act relating to depreciation.

Sub-section (1) of the said section provides for deduction on account of depreciation on tangible assets (building, machinery, plant and furniture) and intangible assets (know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature) acquired on or after the 1st day of April, 1998, and are owned, wholly or partly by the assessee and are used wholly and exclusively for the purpose of business and profession while computing the income under the head ‘Profits and gains of business or profession’.

It is proposed to amend clause (ii) of the said sub-section (1) so as to provide that goodwill of a business or profession shall not be considered as an asset for the purpose of the said clause and, hence, not eligible for depreciation.

Explanation 3 to the said sub-section defines the expression “assets” to mean tangible assets, being buildings, machinery, plant or furniture; and intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.

It is proposed to amend the said Explanation 3 so as to provide that goodwill of a business or profession shall not be considered as an asset for that purposes of the said sub-section.

These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.”

7.10. We find that assessee has relied by the various decisions of the Tribunal wherein it has been held that the above amendment introduced by Finance Act, 2021 is prospective in nature and shall apply to Assessment Years 2020-2122 and the subsequent assessment years. The relevant extract of recent decision of the Tribunal in the case of I&B Seeds (P.) Ltd. vs. Deputy Commissioner of Income-tax [2022] 142 taxmann.com 274 (Bangalore - Trib.)[15- 06-2022] reads as under:

“Amendment by Finance Act 2021 clarifies the position on Goodwill depreciation 13.13 The Finance Act, 2021, inserted a series of amendments in relation to the allowance of depreciation on Goodwill. Post such amendments, no depreciation is allowable to an Assessee on goodwill. However, it has been specifically provided that the aforementioned amendments will take effect from April 01, 2021 and will, accordingly, apply in relation to AY 2021-22 and subsequent AYs. 13.14 xx xx 13.15 Therefore, the intention of the legislature is that depreciation on goodwill is allowable prior to the said Amendments, is manifest from the adjustment mechanism. If the legislative intention was to deny depreciation for the past years as well, then there was no need for any adjustment to the cost of acquisition of the goodwill. Such an interpretation would lead to a provision of the law being redundant or otiose and such interpretation should be rejected.”

7.11. In view of the above, we hold that the basis on which the objections raised by the Assessee were rejected by DRP cannot be sustained.

7.12. As regards observations made by the Assessing Officer regarding failure of the Assessee to furnish relevant supporting documents and evidences, we find that the Assessee has now filed additional evidences by placing on record the following additional evidences/submissions: (a) Bank payment approval and invoice of Global Foundries Engineering Private Limited (Global Foundries) evidencing proof of payment (in relation to Ground 2)

(b) Relevant extract of Bank statement of Marvell India Private Limited evidencing proof of payment made to Aquantia Semiconductor India Private Limited (Aquantia India) and Global Foundries (in relation to ground 2)

7.13. We are of the considered view that the above documents now placed on record by the Assessee travel to the root of the matter and are relevant for the determination of the issue at hand. Since the DRP had rejected the claim of the Assessee on the ground that the said claim was hit by the amendment made in the Section 32(1) of the Finance Act, 2021, the other aspects of the claim under dispute were not examined by DRP. We have already concluded that the directions issued by the DRP cannot be sustained since the amendment to Section 32(1) of the Act was prospective in nature. Therefore, given the facts and circumstances of the present case, we deem it appropriate and in the interest of justice to restore the issue of depreciation of goodwill back to the file of Assessing Officer with the directions to adjudicate the issue afresh after taking into consideration the additional evidences now filed by the Assessee. It is clarified that we have not expressed any opinion on the merits of the matter and all the rights and contentions of both the sides have been left open. In terms of above, Ground No.2 raised by the assessee is allowed for statistical purposes.

Ground No. 3

8.1. During the assessment proceedings, the Assessing Officer noted that the Assessee had received some assets free of cost. According to the Assessing Officer, the cost of the aforesaid assets constituted benefit or perquisite that had accrued to the Assessee from the business carried on by the Assessee during the relevant previous year and therefore, the same fell into the ambit of Section 28(iv) of the Act. Therefore, the Assessee was asked to provide explanation in relation to the same. In response, the Assessee filed Response, dated 25/08/2023, providing the following explanation: “Provide the details Free of Cost (FOC) assets received by the company during the year under consideration by the company: Details of FOC assets received during the AY 2020-21 are tabulated as under:

Sr.No. Particulars Amount Reference 1 Opening balance of cumulative 51,02,324 Annexure 4 FOC assets as on 1.4.2019 2 Add: FOC assets received during 1,93,90,395 Annexure 4 the FY 2020-21 3 Less: FOC returned during the Nil Annexure 4 AY 2020-21 4 Closing balance of cumulative 2,44,92,719 Annexure 4 FOC assets as on 31.3.2020

Further, the company would like to bring your goodself’s attention to the fact that Hon’ble ITAT in the company’s own case for the AY 2014-15 has granted relief to the extent to which the company has re-exported the assts received during the year (copy of the order is enclosed as Annexure 5)”

8.2. Thereafter, the Assessee filed another Letter, dated 21/09/2023, in response to show cause notice issued by the Assessing Officer whereby the assessee had provided following explanation:

“3. Free of cost assets amounting to INR 1,93,90,395 received by the company during the subject AY During the year, the assessee had received tangible assets from its group company (ies) on loan basis towards testing, analysing and validating of the software. The assessee wishes to humbly submit the following in respect of assets/computer supplies received free of cost during the subject AY from its group companies: • The company wishes to humbly submit that the Marvell group is responsible for the design and manufacture of the hardware of its product and assigns software module development tasks to various development centres, including Marvell India. • After each of the centre undertakes the software module development services, the same needs to be tested which involves various levels of testing of the software to ensure that the performance adheres to the required specifications. • The uninterrupted availability of these assets/computer supplies is an important factor for the assessee to perform services. • Further, the company wishes to humbly submit that even if the Marvell Group were to engage a third-party service provider for the provision of such services, Marvell group would be obligated to share such assets/computer supplies on a free of cost for performing the testing services as no third party service provider would be in a position to procure specific configured assets/computer supplies (as required to Marvell’s specifications) on its own account. In this regard, the assessee wishes to submit the following with respect to taxation of such fre of cost assets/computer supplies in the hands of the assessee. Taxation of Hypothetical income • We humbly submit that the income tax is a tax on the ‘income’ of the assessee. As such, the term ‘income’ has to be construed as ‘real income’ earned by the assessee, and not a hypothetical or notional income. • In this regard, we humbly submit that the company is obligated to test the software developed on custom assets/computer supplies provided to it. • It is not entitled to use the assets/computer supplies received for no cost at its discretion. • Additionally, any presumption of obtaining any income or benefit out of the same would not be permissible under the Act.”

The above explanation did not find favour with the Assessing Officer 8.3. as the Assessing Officer proposed addition of INR.1,93,90,395/- in the Draft Assessment Order.

8.4. Being aggrieved, the Assessee filed objections before DRP which did not yield any favourable result as the DRP concluded that cost of assets received for free by the Assessee was income chargeable to tax in the hands of the Assessee in terms of Section 28(iv) of the Act and therefore, no interference with the proposed addition made by the Assessing Officer was called for. Thus, in the Final Assessment Order, the Assessing Officer made the above addition of INR.1,93,90,395/-.

8.5. Being aggrieved, the assessee has carried the appeal before this Tribunal.

8.6. We have heard the rival submissions and perused the materials available on record. During the course of bearing both sides reiterated the stand taken before the authorities below. On perusal of record, we find that before the Assessing Officer, it was contended on behalf of Assessee that identical issue had come up for consideration before this Tribunal in the case of the Assessee for the Assessment Year 2014-15, and the Tribunal was pleased to grant relief to the Assessee by deleting the addition to the extent the same pertained to free of cost assets received by the Assessee re- exported during the relevant previous year. Accordingly, respectfully following the above decision of the aforesaid decisions of the Tribunal in the case of the Assessee [IT(TP)A No.3082(Bang)/2018, AY 2014-15] we direct the Assessing Officer to delete the additions to the extent the Assessee is able to establish that free of cost goods received by the Assessee during the relevant previous year re- exported.

8.7. During the course of hearing, it was further contended on behalf of the Assessee that part of free of cost assets received by the Assessee were actually destroyed and to that extent no benefit had accrued to the Assessee during the relevant previous year. In this regard, the Learned Departmental Representative had submitted that the aforesaid contention made on behalf of the Assessee was not supported by any material forming part of the record. On giving thoughtful consideration to the rival submission, we are of the view that given the aforesaid facts, this issue can also be restored back to the file of Assessing Officer with the directions to delete the addition made in respect of free of cost assets received by the Assessee after verifying documents/details to be furnished by the Assessee showing that the free of cost assets received were destroyed as per the instructions received from the actual owner of such goods.

8.8. In terms of paragraph 8.6 & 8.7 above, Ground No.3 raised by the Assessee is partly allowed.

Ground No. 4

9.1. In this regard, the Assessee has now taken a stand that in respect of payment of INR.10,518/- made to Adamas Builders Pvt. Ltd, the Assessee had deducted tax at lower rate as per tax withholding certificate issued by the Income Tax Department. Therefore, the provisions of Section 40(a)(i) of the Act were incorrectly invoked to make disallowance of INR.10,518/-. Consequently, interest of INR.1,890/- was also incorrectly levied. Learned Departmental Representative submitted that the stand taken by the Assessee required examination as the tax withholding certificates now furnished as additional evidence were not provided to authorities below.

9.2. We have perused the tax withholding certificates filed as additional evidence and the same provide for deduction of tax at lower rate of 0.1% under Section 194C [valid from 25/06/2019 to 21/03/2020] and 5% under Section 194I(b) [valid from 25/06/2019 to 21/03/2020]. These certificates were issued by the TDS Circle 1(1), Bangalore and not by a third party. Therefore, we deem is appropriate to direct the Assessing Officer decide the issue afresh after verifying the certificates and their applicability to the payments of INR.10,518/- made by the Assessee to Adamas Builders Pvt. Ltd in respect of which provisions of Section 40(a)(i) of the Act were invoked o make the disallowance. Accordingly, disallowance to the extent of INR.12,410/- is set aside in terms of the aforesaid directions. Thus, Ground No. 4 raised by the Assessee is partly allowed.

Ground No. 5 & 6 10. Ground No. 5 raised by the Assessee pertains to levy and computation of interest and the same is disposed off as being consequential in nature.

Order pronounced on 28th Nov, 2025