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Income Tax Appellate Tribunal, C BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
O R D E R Per Bench :
These appeals are filed by the assessee against the Order passed by the CIT(A) on the following grounds:
Grounds raised for Assessment Year 2013-14:
1. The order of the learned Commissioner of Income Tax (Appeals) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) dated 31.10.2023 for Assessment Year 2013- 14 in so far as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The Appellant denies itself liable to be assessed on a total income of Rs.8,53,27,470/- as against the returned income of Rs.5,10,21,290/- under the facts and circumstance of the case.
3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the addition made of a sum of Rs. 3,36,25,000/- is not arising out of any incriminating material found during the course of search and consequently the addition made in a proceedings under section 153A of the Act which is not arising out of incriminating material is unsustainable in law on the facts and circumstances of the case.
4. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the Hon’ble Supreme Court has in the case of Abhisar Buildwell Pvt. Ltd. [(2023) 454 ITR 212(SC)], upheld the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla [(2016) 380 ITR 573 (Del.)] and consequently no addition can be made, which is not arising out of incriminating material in respect of an unabated/ completed assessment year on the facts and circumstances of the case.
5. The authorities below failed to appreciate that the disallowance of depreciation on goodwill is discernible from the financial statements which were already available with the income tax department during the course of the original assessment proceedings and consequently the same cannot be incriminating material on the facts and circumstances of the case.
6. The learned Commissioner of Income Tax (Appeals) is not justified in disallowing the depreciation on intangible assets of a sum of Rs.3,26,25,000/- on the facts and circumstances of the case.
7. The authorities below failed to appreciate that it is not for the Assessing Officer to sit on the armchair of the businessman and decide as to what consideration ought to have been paid for purchase of assets including intangible assets and consequently the disallowance of depreciation on intangible assets on the premise that the consideration is paid in excess is unsustainable in law on the facts and circumstances of the case.
8. The learned Commissioner of Income Tax (Appeals) erred in holding that the consideration of Rs. 13,60,00,000/- was paid for intangible assets in the form of property rights, technical know- how, client preferences, brand appeal, etc., were always owned by the appellant, when the appellant was, previously, only an operator to 26/Bang/2024 Page 3 of 47 of the restaurants and not an owner of all the intangible assets on the facts and circumstances of the case.
9. The learned Commissioner of Income Tax (Appeals) erred in holding that the intangible assets that was transferred for which consideration has been paid by the appellant is arbitrary despite noting that the same has been paid towards goodwill, revenue rights, tenancy rights, permits, etc. and consequently is not justified in denying depreciation on such sum on the facts and circumstances of the case.
10. The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
11. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend, or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
12. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
Additional grounds raised for Assessment Year 2013-14:
1. Grounds on the validity of the search under section 132 of the Act a. The learned Assessing Officer erred in assuming jurisdiction under section 153A of the Act the search under section 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) of the Act is bad in law on the facts and circumstances of the case. to 26/Bang/2024 Page 4 of 47 b. The learned Assessing Officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153A of the Act. c. The learned Assessing Officer failed to verify various aspects before issuing the notice under section 153A of the Act as the valid search under section 132 of the Act is sine qua non for a valid issue of notice under section 132 of the Act. d. The appellant itself himself liable to be assessed under section 153A of the Act under the impugned order on the ground that:- i. The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act; ii. That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment under section 153A is null and void-ab-inito on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80. iii. The learned assessing officer has not discharged the burden of proving that there is a valid search under section 132 (1) (a), (b) & (c) of the Act, and consequently the assumption of jurisdiction to make an assessment under section 153A of the Act is untenable in law. iv. The learned assessing officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.
2. The notice issued under section 153A of the Act is bad in law in as much as it does not contain whether the learned Assessing Officer proposes to assess or reassess the income of the appellant and consequently the notice issued under section 153A of the Act is invalid and the entire assessment proceedings is bad in law and void ab initio on the facts and circumstances of the case. to 26/Bang/2024 Page 5 of 47 3. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing.
4. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
Grounds raised for Assessment Year 2014-15:
1. The order of the learned Commissioner of Income Tax (Appeals) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) dated 31.10.2023 for Assessment Year 2014- 15 in so far as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The Appellant denies itself liable to be assessed on a total income of Rs.25,18,27,383/- as against the returned income of Rs.22,30,62,972/- under the facts and circumstance of the case.
3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the addition made of a sum of Rs. 2,52,18,750/- is not arising out of any incriminating material found during the course of search and consequently the addition made in a proceedings under section 153A of the Act which is not arising out of incriminating material is unsustainable in law on the facts and circumstances of the case.
4. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the Hon’ble Supreme Court has in the case of Abhisar Buildwell Pvt. Ltd. [(2023) 454 ITR 212(SC)], upheld the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla [(2016) 380 ITR 573 (Del.)] and consequently no addition can be made, which is not arising out of incriminating material in respect of an unabated/ completed assessment year on the facts and circumstances of the case.
5. The authorities below failed to appreciate that the disallowance of depreciation on goodwill is discernible from the financial statements which were already available with the income tax department during the course of the original assessment to 26/Bang/2024 Page 6 of 47 proceedings and consequently the same cannot be incriminating material on the facts and circumstances of the case.
6. The learned Commissioner of Income Tax (Appeals) is not justified in disallowing the depreciation on intangible assets of a sum of Rs.2,52,18,750/- on the facts and circumstances of the case.
7. The authorities below failed to appreciate that it is not for the Assessing Officer to sit on the armchair of the businessman and decide as to what consideration ought to have been paid for purchase of assets including intangible assets and consequently the disallowance of depreciation on intangible assets on the premise that the consideration is paid in excess is unsustainable in law on the facts and circumstances of the case.
The learned Commissioner of Income Tax (Appeals) erred in holding that the consideration of Rs. 13,60,00,000/- was paid for intangible assets in the form of property rights, technical know- how, client preferences, brand appeal, etc., were always owned by the appellant, when the appellant was, previously, only an operator of the restaurants and not an owner of all the intangible assets on the facts and circumstances of the case.
9. The learned Commissioner of Income Tax (Appeals) erred in holding that the intangible assets that was transferred for which consideration has been paid by the appellant is arbitrary despite noting that the same has been paid towards goodwill, revenue rights, tenancy rights, permits, etc. and consequently is not justified in denying depreciation on such sum on the facts and circumstances of the case.
The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
11. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend, or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing. to 26/Bang/2024 Page 7 of 47
12. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity. Additional grounds raised for Assessment Year 2014-15:
1. Grounds on the validity of the search under section 132 of the Act a. The learned Assessing Officer erred in assuming jurisdiction under section 153A of the Act the search under section 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) of the Act is bad in law on the facts and circumstances of the case. b. The learned Assessing Officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153A of the Act. c. The learned Assessing Officer failed to verify various aspects before issuing the notice under section 153A of the Act as the valid search under section 132 of the Act is sine qua non for a valid issue of notice under section 132 of the Act. d. The appellant itself himself liable to be assessed under section 153A of the Act under the impugned order on the ground that:- i. The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act; ii. That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment under section 153A is null and void-ab-inito on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80. iii. The learned assessing officer has not discharged the burden of proving that there is a valid search under section 132 (1) (a), (b) & (c) of the Act, and consequently the assumption of to 26/Bang/2024 Page 8 of 47 jurisdiction to make an assessment under section 153A of the Act is untenable in law. iv. The learned assessing officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.
2. The notice issued under section 153A of the Act is bad in law in as much as it does not contain whether the learned Assessing Officer proposes to assess or reassess the income of the appellant and consequently the notice issued under section 153A of the Act is invalid and the entire assessment proceedings is bad in law and void ab initio on the facts and circumstances of the case.
3. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
4. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity. Grounds raised for Assessment Year 2015-16:
1. The order of the learned Commissioner of Income Tax (Appeals) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) dated 31.10.2023 for Assessment Year 2015- 16 in so far as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The Appellant denies itself liable to be assessed on a total income of Rs.28,64,40,303/- as against the returned income of Rs.26,74,86,572/- under the facts and circumstance of the case.
3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the addition made of a sum of Rs. 1,89,14,063/- is not arising out of any incriminating material found during the course of search and consequently the addition made in a proceedings under section 153A of the Act which is not arising out to 26/Bang/2024 Page 9 of 47 of incriminating material is unsustainable in law on the facts and circumstances of the case.
4. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the Hon’ble Supreme Court has in the case of Abhisar Buildwell Pvt. Ltd. [(2023) 454 ITR 212(SC)], upheld the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla [(2016) 380 ITR 573 (Del.)] and consequently no addition can be made, which is not arising out of incriminating material in respect of an unabated/ completed assessment year on the facts and circumstances of the case.
5. The learned Commissioner of Income Tax (Appeals) is not justified in disallowing the depreciation on intangible assets of a sum of Rs.1,89,14,063/- on the facts and circumstances of the case.
6. The authorities below failed to appreciate that it is not for the Assessing Officer to sit on the armchair of the businessman and decide as to what consideration ought to have been paid for purchase of assets including intangible assets and consequently the disallowance of depreciation on intangible assets on the premise that the consideration is paid in excess is unsustainable in law on the facts and circumstances of the case.
7. The learned Commissioner of Income Tax (Appeals) erred in holding that the consideration of Rs. 13,60,00,000/- was paid for intangible assets in the form of property rights, technical know- how, client preferences, brand appeal, etc., were always owned by the appellant, when the appellant was, previously, only an operator of the restaurants and not an owner of all the intangible assets on the facts and circumstances of the case.
8. The learned Commissioner of Income Tax (Appeals) erred in holding that the intangible assets that was transferred for which consideration has been paid by the appellant is arbitrary despite noting that the same has been paid towards goodwill, revenue rights, tenancy rights, permits, etc. and consequently is not justified in denying depreciation on such sum on the facts and circumstances of the case.
9. The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum to 26/Bang/2024 Page 10 of 47 the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
10. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend, or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
11. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
Additional grounds raised for Assessment Year 2015-16:
1. Grounds on the validity of the search under section 132 of theAct a) The learned Assessing Officer erred in assuming jurisdiction under section 153A of the Act the search under section 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) of the Act is bad in law on the facts and circumstances of the case. b) The learned Assessing Officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153A of the Act. c) The learned Assessing Officer failed to verify various aspects before issuing the notice under section 153A of the Act as the valid search under section 132 of the Act is sine qua non for a valid issue of notice under section 132 of the Act. d) The appellant itself himself liable to be assessed under section 153A of the Act under the impugned order on the ground that:- i) The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act; ii) That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment under section 153A is to 26/Bang/2024 Page 11 of 47 null and void-ab-inito on the parity of the ratio of thedecision of the Hon’ble Apex Court in the case of Ajith Jain,reported in 260 ITR 80. iii) The learned assessing officer has not discharged the burden of proving that there is a valid search under section 132 (1)(a),(b) & (c) of the Act, and consequently the assumption of jurisdiction to make an assessment under section 153A of the Act is untenable in law. iv) The learned assessing officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.
2. The notice issued under section 153A of the Act is bad in law in as much as it does not contain whether the learned Assessing Officer proposes to assess or reassess the income of the appellant and consequently the notice issued under section 153A of the Act is invalid and the entire assessment proceedings is bad in law and void ab initio on the facts and circumstances of the case.
3. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
4. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
Grounds raised for Assessment Year 2016-17:
1. The order of the learned Commissioner of Income Tax (Appeals) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) dated 31.10.2023 for Assessment Year 2016- 17 in so far as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The Appellant denies itself liable to be assessed on a total income of Rs.24,42,94,823/- as against the returned income of Rs.23,01,09,276/- under the facts and circumstance of the case.
3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the addition made of a sum of Rs. 1,41,85,547/- is not arising out of any incriminating material found during the course of search and consequently the addition made in a proceedings under section 153A of the Act which is not arising out of incriminating material is unsustainable in law on the facts and circumstances of the case.
4. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the Hon’ble Supreme Court has in the case of Abhisar Buildwell Pvt. Ltd. [(2023) 454 ITR 212(SC)], upheld the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla [(2016) 380 ITR 573 (Del.)] and consequently no addition can be made, which is not arising out of incriminating material in respect of an unabated/ completed assessment year on the facts and circumstances of the case. 5. The learned Commissioner of Income Tax (Appeals) is not justified in disallowing the depreciation on intangible assets of a sum of Rs.1,41,85,547/- on the facts and circumstances of the case. 6. The authorities below failed to appreciate that it is not for the Assessing Officer to sit on the armchair of the businessman and decide as to what consideration ought to have been paid for purchase of assets including intangible assets and consequently the disallowance of depreciation on intangible assets on the premise that the consideration is paid in excess is unsustainable in law on the facts and circumstances of the case. 7. The learned Commissioner of Income Tax (Appeals) erred in holding that the consideration of Rs. 13,60,00,000/- was paid for intangible assets in the form of property rights, technical know- how, client preferences, brand appeal, etc., were always owned by the appellant, when the appellant was, previously, only an operator of the restaurants and not an owner of all the intangible assets on the facts and circumstances of the case. to 26/Bang/2024 Page 13 of 47 8. The learned Commissioner of Income Tax (Appeals) erred in holding that the intangible assets that was transferred for which consideration has been paid by the appellant is arbitrary despite noting that the same has been paid towards goodwill, revenue rights, tenancy rights, permits, etc. and consequently is not justified in denying depreciation on such sum on the facts and circumstances of the case.
The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
10. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend, or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
11. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
Additional grounds raised for Assessment Year 2016-17:
1. Grounds on the validity of the search under section 132 of the Act a. The learned Assessing Officer erred in assuming jurisdiction under section 153A of the Act the search under section 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) of the Act is bad in law on the facts and circumstances of the case. b. The learned Assessing Officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153A of the Act. c. The learned Assessing Officer failed to verify various aspects before issuing the notice under section 153A of the Act as the valid search to 26/Bang/2024 Page 14 of 47 under section 132 of the Act is sine qua non for a valid issue of notice under section 132 of the Act. d. The appellant itself himself liable to be assessed under section 153A of the Act under the impugned order on the ground that:- i. The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act; ii. That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment under section 153A is null and void-ab-inito on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80. iii. The learned assessing officer has not discharged the burden of proving that there is a valid search under section 132 (1) (a), (b) & (c) of the Act, and consequently the assumption of jurisdiction to make an assessment under section 153A of the Act is untenable in law. iv. The learned assessing officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.
The notice issued under section 153A of the Act is bad in law in as much as it does not contain whether the learned Assessing Officer proposes to assess or reassess the income of the appellant and consequently the notice issued under section 153A of the Act is invalid and the entire assessment proceedings is bad in law and void ab initio on the facts and circumstances of the case.
3. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
4. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be to 26/Bang/2024 Page 15 of 47 allowed for the advancement of substantial cause of justice and equity.
Grounds raised for Assessment Year 2017-18:
1. The order of the learned Commissioner of Income Tax (Appeals) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) dated 31.10.2023 for Assessment Year 2017- 18 in so far as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The Appellant denies itself liable to be assessed on a total income of Rs.24,42,94,823/- as against the returned income of Rs.23,01,09,276/- under the facts and circumstance of the case.
3. The learned Commissioner of Income Tax (Appeals) is not justified in disallowing the depreciation on intangible assets of a sum of Rs.1,06,38,910/- on the facts and circumstances of the case.
4. The authorities below failed to appreciate that it is not for the Assessing Officer to sit on the armchair of the businessman and decide as to what consideration ought to have been paid for purchase of assets including intangible assets and consequently the disallowance of depreciation on intangible assets on the premise that the consideration is paid in excess is unsustainable in law on the facts and circumstances of the case.
5. The learned Commissioner of Income Tax (Appeals) erred in holding that the consideration of Rs. 13,60,00,000/- was paid for intangible assets in the form of property rights, technical know- how, client preferences, brand appeal, etc., were always owned by the appellant, when the appellant was, previously, only an operator of the restaurants and not an owner of all the intangible assets on the facts and circumstances of the case.
6. The learned Commissioner of Income Tax (Appeals) erred in holding that the intangible assets that was transferred for which consideration has been paid by the appellant is arbitrary despite noting that the same has been paid towards goodwill, revenue rights, tenancy rights, permits, etc. and consequently is not justified in denying depreciation on such sum on the facts and circumstances of the case. to 26/Bang/2024 Page 16 of 47 7. The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
8. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend, or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
9. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
ADDITIONAL GROUNDS OF APPEAL
FOR ASSESSMENT YEAR 2017-18
1. Grounds on the validity of the search under section 132 of the Act a. The learned Assessing Officer erred in assuming jurisdiction under section 153A of the Act the search under section 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) of the Act is bad in law on the facts and circumstances of the case. b. The learned Assessing Officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153A of the Act. c. The learned Assessing Officer failed to verify various aspects before issuing the notice under section 153A of the Act as the valid search under section 132 of the Act is sine qua non for a valid issue of notice under section 132 of the Act. d. The appellant itself himself liable to be assessed under section 153A of the Act under the impugned order on the ground that:- i. The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act; ii. That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment under section 153A is null and void-ab-inito on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80. iii. The learned assessing officer has not discharged the burden of proving that there is a valid search under section 132 (1) (a), (b) & (c) of the Act, and consequently the assumption of jurisdiction to make an assessment under section 153A of the Act is untenable in law. iv. The learned assessing officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.
2. The notice issued under section 153A of the Act is bad in law in as much as it does not contain whether the learned Assessing Officer proposes to assess or reassess the income of the appellant and consequently the notice issued under section 153A of the Act is invalid and the entire assessment proceedings is bad in law and void ab initio on the facts and circumstances of the case.
3. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
4. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
Grounds raised for Assessment Year 2018-19:
1. The order of the learned Commissioner of Income Tax (Appeals) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) dated 31.10.2023 for Assessment Year 2018- 19 in so far as it is against the appellant is opposed to law, weight to 26/Bang/2024 Page 18 of 47 of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The Appellant denies itself liable to be assessed on a total income of Rs.44,58,67,779/- as against the returned income of Rs.43,78,88,596/- under the facts and circumstance of the case.
3. The learned Commissioner of Income Tax (Appeals) is not justified in disallowing the depreciation on intangible assets of a sum of Rs.79,79,183/- on the facts and circumstances of the case.
4. The authorities below failed to appreciate that it is not for the Assessing Officer to sit on the armchair of the businessman and decide as to what consideration ought to have been paid for purchase of assets including intangible assets and consequently the disallowance of depreciation on intangible assets on the premise that the consideration is paid in excess is unsustainable in law on the facts and circumstances of the case.
5. The learned Commissioner of Income Tax (Appeals) erred in holding that the consideration of Rs. 13,60,00,000/- was paid for intangible assets in the form of property rights, technical know- how, client preferences, brand appeal, etc., were always owned by the appellant, when the appellant was, previously, only an operator of the restaurants and not an owner of all the intangible assets on the facts and circumstances of the case.
6. The learned Commissioner of Income Tax (Appeals) erred in holding that the intangible assets that was transferred for which consideration has been paid by the appellant is arbitrary despite noting that the same has been paid towards goodwill, revenue rights, tenancy rights, permits, etc. and consequently is not justified in denying depreciation on such sum on the facts and circumstances of the case.
The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case. to 26/Bang/2024 Page 19 of 47 8. The appellant craves leave of this Hon’ble Tribunal, to add, alter, delete, amend, or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing.
9. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
2. From the above grounds, it is clear that the issues are similar except the difference in figures reported in the grounds of appeal.
Briefly stated the facts of the case are that a search under section 132 of the Act was conducted in the case of assessee M/s. Barbeque-Nation Hospitality Ltd., (BNHL) at Survey No.62, Site No.13 6th Cross, NS Palya, BTM Layout, Bangalore – 560 076, on 10.01.2018 in connection with the search proceeding in the group case of M/s. MRG Hospitality Group. Assessee is in the business of operating casual dining restaurant chain in India and the income is from business of said activities. Assessee filed its return of income under section 139(1) of the Act and in response to notice under section 153A of the Act, income offered are as under:
Assessment As per R/I As per Order As per R/I Addition Assessed Year under section under section under section made income as 139 (in Rs.) 143(3) (in 153A (in Rs. per 143(3) Rs.) r.w.s. 153A (in Rs.) 2013-14 4,72,95,000 4,79,75,550 5,10,21,920 3,43,05,550 8,53,27,470 2014-15 21,66,88,850 21,96,52,667 22,30,62,972 2,87,64,411 25,18,27,383 2015-16 25,87,10,990 - 26,74,86,572 1,89,53,731 28,64,40,303 2016-17 21,56,02,560 - 23,01,09,276 1,41,85,547 24,42,94,823 2017-18 20,40,17,960 - 22,48,58,255 2,06,38,910 31,36,48,443 2018-19 43,78,88,596 - - 79,79,183 44,58,67,779
4. After centralization of the case, notice under section 153A of the Act was issued on 05.02.2019. In response to notice under section 153A of the Act, assessee filed return on 30.03.2019 and declared income as stated in the to 26/Bang/2024 Page 20 of 47 above table. Thereafter, notice under section 143(2) of the Act was issued to the assessee on 17.03.2019. Subsequently, other statutory notices were issued to the assessee. During the course of search proceedings in the office premises of BNHL(assessee) evidences with regard to bogus revenue expenditure were found and made part of the seized material. The evidences were confronted with Chickasha Kumar Verma, VP (Accounts and Finance) of the assessee. A Sworn statement was recorded from Sri.Kaushal Kumar Verma, VP (Accounts & Finance). He has admitted that expenditure booked under the head 'establishment expenses' are in the nature of illegal payments which are inadmissible amounting to Rs.6,68,30,289/- for various FYs in the case of BNHL. A Sworn statement was also recorded from Shri Kayum Dhanani, Director of BNHL and the above issue was confronted to him. He agreed to offer the same as additional income in the hands of assessee. During the course of assessment proceedings, the assessee was asked to give the year wise breakup of the above bogus revenue expenditure vide show cause notice letter dated 12.11.2019 and assessee vide its letter submitted on 27.11.2019 has stated that the establishment expenses has been disallowed while considering the return of income filed on 30.03.2019 and offered to tax and has submitted the relevant details as under: Assessment Year Amount (in Rs.) 2013-14 37,26,920 2014-15 63,74,123 2015-16 87,75,587 2016-17 1,45,06,720 2017-18 1,83,40,290 2018-19 1,64,24,579
Further, from the documents submitted it was found that during the year assessee has purchased five outlets from Holding Company Sayaji Hotels Ltd., in consideration of Rs.28.10 crores which includes goodwill amounting to Rs.13.45 crores. The fixed assets of all the five outlets are valued at Rs.14.50 Crores by the valuator and the same is also evident in the purchase to 26/Bang/2024 Page 21 of 47 agreement made between the assessee and M/s. Sayaji Hotels Ltd., dated 01.04.2012 and relevant part of the same is reproduced below:
It was observed that M/s. Sayaji Hotels Ltd., was holding 67.59% of the shareholding in the assessee company and Blue Deebaj Chemicals LLC was holding 29.27%of the shareholding in the assessee company. The hotels were valued at an amount of Rs.14.50 crores and assessee company has purchased the same at 193.79% from its own holding company and booked a difference of Rs.13.45 Crores in the books as goodwill and depreciation was claimed @ 25% as per section 32(1)(ii) of the Act. The valuation of Rs.28.10 Crores was made without any scientific basis and only on the basis of assumption and exaggeration of valuation by Rs.13.45 Crores and the same is not substantiated by the assessee with any scientific basis. The transaction from the holding company should have been done at book value of assets / valuation of fixed assets by the valuator and should not be done on the basis of projections/ assumptions as evident from the agreement and relevant portion of the same is reproduced here as under:
7. Further, the AO noted that assessee is eligible for depreciation only on the fixed assets in tangible forms transferred to the assessee and the depreciation claimed on intangible assets @ 25% were disallowed and added back to the income as under:
Assessment Year Amount (in Rs.) 2013-14 3,36,25,000 2014-15 2,52,18,750 2015-16 1,89,14,063 2016-17 1,41,85,547 2017-18 1,06,38,910 2018-19 79,79,183
8. Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). During the appellate proceedings, assessee filed detailed written submissions and relied on various judgments. The learned CIT(A) observed that AO has disallowed depreciation on the goodwill by stating that tangible assets of five restaurants as per the valuation is Rs.14,50,00,000/-. However, assessee has got is holding at 193.79% and took 13.45 Crores as goodwill. Further, AO noted that the transactions should have been done with its holding company at the book value of physical assets. He referred to clauses of the business transfer agreements and observed that as per the agreement intangible assets in the form of property rights, technical know- how, client preferences, brand appeal, etc., which constitute goodwill was always owned by the assessee BNHL and therefore any payments towards its to 26/Bang/2024 Page 23 of 47 purchases is not justified and there should not be claim of depreciation on such excess payments made to the holding company for the intangible assets and dismissed the appeal of the assessee.
9. Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and he argued his case at length. He has filed written synopsis giving gist of the arguments which is as under:
These income tax appeals are filed by the appellant for the Assessment Years 2013-14 to 2018-19.
2. The appellant is a domestic company engaged in the restaurant business under the name and style of “Barbeque Nation”.
3. There was a search action under section 132 of the Act in the case of the appellant on 10.01.2018 (Panchanama at Pages 531 to 534 of the Paperbook No.1). Pursuant to the search action, the case of the appellant was centralized to the office of the Deputy Commissioner of Income Tax, Central Circle – 1(2), Bengaluru (hereinafter referred to as the learned AO).
The learned AO issued notices dated 05.02.2019 under section 153A of the Act for the A.Ys. 2013-14 to 2017-18 requiring the appellant to file income tax returns in response to the same (Pages 22, 147, 230, 318 & 383 for A.Ys. 2013-14 to 2017-18 respectively). The appellant filed return of income for the impugned assessment years in accordance with the notice issued under section 153A of the Act.
5. The returns filed was selected for scrutiny and the learned AO issued statutory notices and the appellant furnished the details/ information as sought for by the learned AO. to 26/Bang/2024 Page 24 of 47 6. The learned AO completed the assessment proceedings vide orders dated 30.12.2019 passed under section 143(3) r.w.s. 153A of the Act for the A.Ys. 2013-14 to 2017-18 and under section 143(3) of the Act for the A.Y. 2018-19. The only disputed addition is the disallowance of depreciation on goodwill.
7. The appellant being aggrieved by the orders of the learned AO, filed appeal before the learned CIT(A). The learned CIT(A) vide orders dated 31.10.2023 dismissed the appellant’s appeals.
8. The appellant being aggrieved by the orders of the learned CIT(A) has filed these appeals before this Hon’ble Tribunal in to 26/Bang/2024.
9. The issues arising out of this appeal are as follows - a. The disallowance of depreciation on goodwill is bad in law (For the A.Ys. 2013-14 to 2018-19).
b. The proceedings under section 153A of the Act in the absence of any incriminating material and consequently the assessment orders passed are without jurisdiction (For the A.Ys. 2013-14 to 2016-17). c. The search action under section 132 of the Act is invalid and consequently the entire assessment proceedings are void-ab- initio (For the A.Ys. 2013-14 to 2017-18). d. The notices issued under section 153A of the Act are materially defective and consequently the entire proceedings pursuant to such invalid notice are bad in law (For the A.Ys. 2013-14 to 2017-18).
10. The disallowance of depreciation on goodwill is bad in law (For the A.Ys. 2013-14 to 2018-19). a. The appellant is a domestic company in engaged in the restaurant business under the name and style of “Barbeque to 26/Bang/2024 Page 25 of 47 Nation”. The appellant operates several restaurants across the country. b. The appellant entered into an Agreement for the Transfer of Business of Restaurant Division dated 01.04.2009 with M/s. Sayaji Hotels Ltd. wherein M/s. Sayaji Hotels Ltd. agreed to transfer the business by way of transfer of operating rights of the Barbeque-Nation restaurants in (i) Mumbai, (ii) Bangalore-Indra Nagar, (iii) Bangalore-Koramangala, (iv) Hyderabad and (v) Gurgaon to the appellant with the right to use all movable and immovable assets of the said restaurants for a consideration of 22% revenue sharing or Rs. 4.50 crores per annum, which is higher, during the tenure of the Agreement (Pages 555 – 559 of Paperbook No.1). c. The appellant operated the above five restaurants in accordance with the agreement dated 01.04.2009 and paid 22% of the revenue to M/s. Sayaji Hotels Ltd. in respect of the revenue earned from the five restaurants. d. Subsequently, the appellant entered into an assets transfer agreement dated 01.04.2012 with M/s. Sayaji Hotels Ltd. for transfer of the restaurant assets on an as is where is basis and termination of the agreement dated 01.04.2009 for a total consideration of Rs. 28,10,00,000/-. In the agreement dated 01.04.2012, it was determined that Rs. 14,50,00,000/- is consideration towards the transfer of tangible assets and the balance consideration of Rs. 13,60,00,000/- was towards the transfer of intangible assets such as goodwill, revenue rights, tenancy rights, permits, etc. (Pages 535 – 546 of Paperbook No.1). The valuation report issued by a Govt. Regd. Valuer is at Pages 547 to 554 of Paperbook No.1. e. It is relevant to state that the appellant has accounted goodwill of Rs. 13,45,96,492/- in its books of account after reducing the value of the tangible assets from the total consideration of Rs. 28,10,10,000/-. The revenue has considered the round off f. The learned AO held that the valuation of Rs. 28,10,00,000/- was made without any scientific basis and only on the basis of assumption and exaggeration of valuation and that the same was not substantiated. Hence, the learned AO held that to 26/Bang/2024 Page 26 of 47 the appellant is eligible to claim depreciation on the assets as valued by the valuators and not on the goodwill. g. The disallowances of depreciation on goodwill made during the various years is available in tabulation in Para 10.1 of the assessment order passed for the A.Y. 2018-19 (Page 26 of the appeal memo for A.Y. 2018-19).
h. The learned CIT(A) upheld the view of the learned AO. i. The relevant extracts of the various clauses of the assets transfer agreement dated 01.04.2012, which are important and relevant, are reproduced below for ready reference – Clause C of the agreement C. SHL vide an agreement dt. 1st April, 2009 had ceded operational control of five restaurants owned by it situated at various locations in India to BNHL in consideration of 22% of the revenues of such restaurants, along with the right to use the movables assets of such restaurants. Clause 2.3 of the agreement 2.3 SHL further agrees that in view of the transfer of its Restaurant Assets to BNHL, the revenue sharing agreement executed with BNHL on 1st April, 2009 for the operations of the said restaurants shall stand terminated from the effective date and that the discharge of the purchase consideration stated in Article 3 shall be sufficient compensation for termination of the said agreement. Clause 3.4 of the agreement 3.4. It is further agreed by both the parties that the balance purchase consideration of Rs. 13.60 crores shall be towards transfer of intangible assets of SHL to BNHL such as goodwill, revenue rights, tenancy rights, permits, etc. j. The appellant submits that M/s. Sayaji Hotels Ltd. had ceded operation control of the five Barbeque-Nation restaurants owned by it vide Agreement for the Transfer of Business of Restaurant Division dated 01.04.2009 as per which the restaurants were to by to 26/Bang/2024 Page 27 of 47 operation and run by the appellant in consideration of 22% of the revenue from such restaurants. The appellant has adhered to the agreement and operated the five restaurants from 01.04.2009 to 31.03.2012 and accordingly paid consideration of 22% of the revenue to M/s. Sayaji Hotels Ltd. k. In the beginning of 2012, the parties thought it fit to transfer to restaurant business along with it assets to the appellant and accordingly entered into an assets transfer agreement dated 01.04.2012 for a total consideration of Rs. 28,10,00,000/- for transfer of the running business on an as is where is basis and for termination of the agreement dated 01.04.2009. l. The parties to the agreement apportioned the total consideration of Rs. 28,10,00,000/- between the tangible assets of the restaurants to the extent of Rs. 14,50,00,000/- and the balance towards goodwill, revenue rights, tenancy rights, etc. of Rs. 13,60,00,000/-. m. The authorities below have not disputed the depreciation claimed on the goodwill to the extent its relates to the tangible assets of Rs. 14,50,00,000/-. Further, the authorities have not disputed the fact that five operating restaurants have been transferred to the appellant. The only dispute is with respect of the depreciation claimed on the sum of Rs. 13,60,00,000/- (Rs. 13,45,96,492/-) attributable to the intangible assets transferred to the appellant. n. The appellant submits that as per the erstwhile agreement dated 01.04.2009, M/s. Sayaji Hotels Ltd. was entitled to receive 22% share of the revenue earned from the five restaurants which stood terminated by virtue of the agreement dated 01.04.2012 which is categorically enunciated in Clause 2.3 of the agreement dated 01.04.2009. The authorities below failed to appreciate that M/s. Sayaji Hotels Ltd., apart from transferring the physical tangible assets of the five restaurants, has transferred ownership of a running business from which it was entitled to receive 22% of the revenue as its income. to 26/Bang/2024 Page 28 of 47 o. The contention of the authorities below that a running business has to be transferred only at the book value of the assets is against all accepted and known commercial principles and unacceptable in law. It amounts to giving the business that was yielding 22% revenue free of cost. Further, it amounts to sitting in the armchair of a businessman and making decisions which impermissible in law. The appellant places reliance on the decision of the Hon’ble Supreme Court in the case of S.A. Builders Ltd. v. CIT (2007) 288 ITR 1 (SC). p. The revenue’s contention that the tangible assets alone should be valued and intangible should be simply given free of cost is a proposition not known to the commercial world as well as the provisions of the Act and consequently the entire factual foundation of the revenue lacks any cogent line of thinking, and hence the denial of depreciation is not only unsustainable in law but also perverse on facts. q. The appellant submits that, in the event, the parties had not entered into the assets transfer agreement dt. 01.04.2012, the appellant would have had to part with 22% of the revenue from the five restaurants towards M/s. Sayaji Hotels Ltd. as per the agreement dated 01.04.2009. The revenue earned from the five restaurants for the F.Ys. 2012-13 to 2017-18 works out to Rs. 283.44 crores and 22% of the same works out to Rs. 62.36 crores. The tabulated workings in respect of the same are at Page 746 of Paperbook No.1. r. The appellant has, by paying Rs. 28,10,00,000/-, saved substantial sum of expenditure which would have been incurred, if not for the assets transfer agreement dated 01.04.2012. Consequently, the contention of the authorities below that the appellant ought to have not paid anything more than the value of tangible assets is unsustainable in law. s. The revenue has not considered the savings of Rs. 62.36 crores paid on account of the 22% revenue share that the appellant has made by entering into the asset transfer agreement by paying a lump sum consideration of Rs. 28.10 crores/- for both tangible and intangible assets. This revenue share would have also been payable to 26/Bang/2024 Page 29 of 47 for subsequent years also and tabulation for the purpose of demonstration has been shown for the years under appeal (Page 746 of Paperbook No.1). The savings of the revenue share in perpetuity cannot be given free of cost. t. The appellant places reliance on the decision of the Hon’ble Delhi High Court in the case of Triune Energy Services (P.) Ltd. v. DCIT (2016) 65 taxmann.com 288 (Del.) wherein it was held as under – 19. In view of the above, we are inclined to accept the contention advanced on behalf of the Assessee that the consideration paid by the Assessee in excess of its value of tangible assets was rightly classified as goodwill.
In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting up of the intangibles into separate components. Indisputably, the transaction in question is a slump sale which does not contemplate separate values to be ascribed to various assets (tangible and intangible) that constitute the business undertaking, which is sold and purchased. The Agreement itself indicates that slump sale included sale of goodwill and the balance sheet drawn up on 22nd September, 2006 specifically recorded goodwill at Rs.40,58,75,529.40/-. As indicated hereinbefore Goodwill includes a host of intangible assets, which a person acquires, on acquiring a business as a going concern and valuing the same at the excess consideration paid over and above the value of net tangible assets is an acceptable accounting practice. Thus, a further exercise to value the goodwill is not warranted. Copy of the decision was furnished during the course of the hearing and the same is enclosed once again for ready reference.
u. The appellant submits that amount paid towards the intangible assets includes goodwill, revenue rights, tenancy rights, permits, etc. Without prejudice, merely because the nomenclature in the books of accounts is stated as goodwill the same cannot lead to a conclusion that other intangible assets are excluded. It is a settled to 26/Bang/2024 Page 30 of 47 position of law that nomenclature in books of accounts are not decisive or conclusive. v. The appellant places reliance on the parity of reasoning of the decision of the Hon’ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC). The appellant also places reliance on the decision of the Hon’ble Bombay High Court in the case of CIT v. Bangalore Clothing co. (2003) 260 ITR 371 (Bom.) wherein it was held as under – 8. However, we find that the Department just looks at the nomenclature of the receipt and if it finds that the nomenclature is rent, interest, commission then without any further inquiry into the nature of business, the Department invokes Explanation (baa) which is not the purpose and the object of that Explanation. In the present case, the receipt in question is labour charges. However, this nomenclature may not be accurate. The appellant also places reliance on the decision of the Hon’ble Madras High Court in the case of CIT v. Sakthi Sugars Ltd. (2025) 175 taxmann.com 799 (Mad.) wherein it was held as under – 19. It is clear, therefore, that the payment on this account was made by assessee for procurement and uninterrupted supply of sugarcane and therefore, the expenditure was closely related to the business of assessee. When the payment is not disputed and the purpose of payment is also not in dispute, we see no justification in denying the claim of the said expenditure as business expenditure only on the ground that the assessee treated the said payment as advance to the farmers under the nomenclature of 'goodwill w. The appellant submits that the reliance placed by the departmental representative on the agreement for the transfer of brand name of restaurant division dated 31.03.2009 (Pages 560 – 563 of the Paperbook No.1) to contend that the brand was already transferred and therefore there was no need to pay any amount in excess of the value of the tangible assets is incorrect. The appellant submits that the agreement for the transfer of brand name of restaurant division was to enable the appellant to use the brand name Barbeque Nation in order to operate the restaurants for which operational control was ceded to the appellant. However, M/s. Sayaji Hotels Ltd. has vide asset transfer agreement dated to 26/Bang/2024 Page 31 of 47 01.04.2012 transferred the tangible assets along with other intangible assets such as goodwill, revenue rights, tenancy rights, permits, etc. The subject matter of transfer vide the agreement dated 01.04.2012 was a running business on an as is where is basis which includes various intangible assets and also the right of M/s. Sayaji Hotels Ltd. to receive the 22% share in the revenue of the five restaurants. Consequently, the brand transfer agreement does not have any bearing on the consideration paid by the appellant of a sum of Rs. 28,10,00,000/-. x. The reliance by the revenue on the brand transfer agreement dated 31.03.2009 has no relevance to this transaction as both are independent dealing with transfer of independent assets and consequently linking the same in the arguments advanced before this Hon’ble Tribunal is not only perverse but also has no factual foundation as the authorities below have not taken that as the basis. y. The authorities below have placed extreme reliance on clause C of the asset transfer agreement and have ignored clause 2.3 and 3.4 which are vital for the issue under consideration. The failure to consider clauses 2.3 and 3.4 of the asset transfer agreement is fatal to the decision making process as the same clearly indicate that the agreement entered into is to compensate for the termination of agreement and also for transfer of goodwill, tenancy rights, revenue rights, permits, etc. The revenue has selectively read the agreement and ignored all important clauses thereby the very primary assumption of denying the appellant depreciation is unsustainable in law. z. The authorities below failed to appreciate that permits are one of the very important assets in relation to a restaurant business, and consequently the transfer of the same to the appellant cannot be given free of cost and the expectation of the revenue that such asset should not be valued is contrary to the accepted norms of conducting business. Further, the revenue is expecting the tenancy rights to be given free of cost and these intangible assets are the major contributors for turnover and business and expecting these tenancy rights to be given free of cost is unsustainable in law. The customers in a particular location also contribute to the goodwill to 26/Bang/2024 Page 32 of 47 of the business which the department is expecting to be given free of cost. aa. The revenue failed to take note of the fact that the amount is payable for termination of the agreement entitling M/s. Sayaji Hotels Ltd. to receive 22% of the revenue i.e., the revenue rights tenancy rights and permits which are all important aspects of the business and expecting to be given free of costs is very unsustainable in law. bb. The expectation of the department that a running business should be parted with by the seller for the book value of the assets is contrary to all principles of valuation and further the brand transfer agreement as stated above has no relevant to the issue as even after the transfer of the brand the appellant has undertaken the operation from 01.04.2009 to 31.03.2012 by paying 22% of the revenue which has not been disputed by the revenue. This, the agreement dated 01.04.2012 has to be given total effect. The revenue is attempting to re-write the agreement entered between the parties by varying the consideration paid which is impermissible in law. The appellant places reliance on the decision of the Hon’ble Supreme Court in the case of Mangalore Ganesh Beedi Works v. CIT (2015) 378 ITR 640 (SC). cc. The appellant submits that the payment of amounts in excess of the value of the tangible assets has to be either revenue expenditure or a capital expenditure, on which depreciation is to be granted. The appellant submits that, if the appellant had claimed the entire sum as revenue expenditure, the same would have been allowed as expenditure in the first year itself in accordance with the decision of the Hon’ble Supreme Court in the case of Taparia Tools Ltd. v. JCIT (2015) 372 ITR 605 (SC). In the instant case, the appellant has capitalized the amounts paid and claimed depreciation on the same which is also in accordance with the reasoning of the decision of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT (1997) 225 ITR 802 (SC). Therefore, the appellant is entitled to claim the amount paid as either revenue and claim in the first year totally or capital and claim depreciation or amortisation. Copy of the decisions in the case of Taparia Tools and Madras Industrial Investment Corpn. Ltd. are enclosed. dd. The attitude of the revenue is to neither give the same as capital or revenue and therefore causing irreversible detriment to the appellant. In fact as per the revenue the said amount has to be completely ignored on both the capital and revenue account. This aspect is not only unsustainable in law but also perverse on facts. ee. During the course of the hearing, the Hon’ble Bench sought for details regarding the income offered by M/s. Sayaji Hotels Ltd. in the income tax return filed for A.Y. 2013-14. In this connection, we are herewith furnishing copy of the relevant extracts of the audited financial statements and the computation of income for A.Y. 2013- 14 in the case of M/s. Sayaji Hotels Ltd. M/s. Sayaji Hotels Ltd. has offered the sum of Rs.13,45,96,492/- as long term capital gains in its computation of income. Therefore, the revenue has failed to appreciate that the seller had paid taxes on the same and even on this count the claim of depreciation by the appellant cannot be denied. ff. In view of the above, the appellant submits that the disallowance of depreciation claimed on goodwill is unsustainable in law.
The proceedings under section 153A of the Act in the absence of any incriminating material and consequently the assessment orders passed are without jurisdiction (For the A.Ys. 2013-14 to 2016-17). a. The date of search in the case of the appellant is 10.01.2018 (Panchanama at Page 532 of Paperbook No.1). b. The assessment years 2013-14 to 2016-17 are unabated assessment years for the purpose of section 153A of the Act. The details of the same are as under –
ITA Nos.21 to 26/Bang/2024 Page 34 of 47 Reference to Asst. Year Particulars Paperbook No.1 i. Original asst. order dated 23.03.2016 Pages 2 - 4 passed under section 143(3) ii. Order of this Hon’ble Tribunal in 2013-14 holding that proceedings under Pages 11 - 17 section 263 could not be initiated on account of absence of incriminating material 2014-15 Original asst. order dated 23.08.2016 passed Pages 95 - 120 under section 143(3) 2015-16 Order of this Hon’ble Tribunal in holding that proceedings under Pages 219 - 225 section 263 could not be initiated on account of absence of incriminating material 2016-17 Due date of issue of notice under section 143(2) NA of the Act expired on 31.03.2017 c. It can be seen from the above, that the A.Ys. 2013-14 to 2016-17 are unabated assessment years for the purpose of proceedings under section 153A of the Act. Further, for the A.Ys. 2013-14 and 2015-16, the department had initiated proceedings under section 263 of the Act on the orders passed under section 153A of the Act, proposing to treat certain revenue expenditure as capital expenditure. This Hon’ble Tribunal held that the proceedings to 26/Bang/2024 Page 35 of 47 under section 263 of the Act dealing with issues which are not arising out of incriminating material is bad in law. The order of the Tribunal was for a period of three years i.e., A.Y. 2012-13, 2013- 14 and 2015-16. The order of the Tribunal was challenged before the Hon’ble High Court. The Hon’ble High Court dismissed the appeal for the A.Y. 2012-13 in dated 19.08.2024 following the decision of the Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 212(SC). Copy of the decision of the Hon’ble High Court for A.Y. 2012-13 is enclosed. The appeals filed for the A.Y. 2013-14 and A.Y. 2015-16 were dismissed on account of monetary limits. d. It is clear from the assessment order that the disallowance of depreciation on goodwill is not arising out of any incriminating material and consequently the disallowance made in a proceedings under section 153A of the Act for the A.Ys. 2013-14 to 2016-17 are without jurisdiction and requires to be deleted. e. During the course of hearing, the Hon’ble Bench has directed the departmental representative to file copies of the statements recorded during the course of search. The appellant submits that it does not have a copy of the statements recorded during the course of search or the post search proceedings. In case the revenue files copies of the any statements recorded, the appellant craves leave of this Hon’ble Tribunal to file rejoinder to the same. f. However, the appellant submits that it is a settled position of law that additions/ disallowances made based solely on the statements recorded without any incriminating material are bad in law. The appellant places reliance on the following decisions – i. CIT v. Harjeev Aggarwal (2016) 290 CTR 263 (Del.) ii. CIT v. Sunil Aggarwal (2015) 379 ITR 367 (Del.) iii. PCIT v. PGF Ltd. in dated 14.11.2022 (Del.) iv. Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18 (SC) v. CIT v. Jayalakshmi Ammal (2017) 390 ITR 189 (Mad.) vi. ITO v. Ramachandra Setty & Sons (2024) 163 taxmann.com 666 (Bang. - Trib.) to 26/Bang/2024 Page 36 of 47 g. The appellant also places reliance on the Board’s Circular in F. No. 286/2/2003-IT(Inv.) dated 10.03.2003 wherein the CBDT has given categorical directions to the departmental officer that undue emphasis should not be placed on obtaining confessions in the statements recorded in the course of search and instead emphasis should be placed on collection of evidence. Therefore, any addition based solely on admission de hors evidence or material found in the course of search cannot be sustained and more so when the same is retracted with evidence. h. In view of the above submissions, the appellant submits that the disallowances made for the A.Ys. 2013-14 to 2016-17 are without jurisdiction and bad in law.
The appellant craves leave of this Hon’ble Tribunal to make submissions on the issue of validity of the search and defective notices issued under section 153A of the Act, if necessary.
The appellant wishes to concise its contentions as under – a. The revenue is not justified in disregarding the consideration paid towards the intangible assets and the termination of the agreement dated 01.04.2009. b. The revenue cannot re-write the agreement entered into between the parties which is impermissible in law. c. The revenue cannot selectively read the clauses of the asset transfer agreement and has to give total effect to the said agreement. d. The revenue cannot expect any person to part with a running business by accepting only the net asset value as the consideration. e. The revenue cannot sit in the arm chair of a business and decide what is the reasonable value of a running business. f. The revenue is not justified in ignoring clause 2.3 and 3.4 of the asset transfer agreement which is critical in determining the consideration. g. The revenue cannot expect the appellant to get a benefit of 22% of the revenue in perpetuity from the five restaurants without paying any consideration. h. The revenue failed to appreciate that the consideration paid is for various intangible rights apart from goodwill as per clause 3.4 which includes tenancy rights, licenses, permits, etc., without which the business cannot function.
to 26/Bang/2024 Page 37 of 47 i. The revenue cannot expect the appellant to receive the tenancy rights, revenue rights, permits, etc. and customer base free of cost which is a proposition unknown to the commercial world. j. The revenue failed to appreciate that permits are one of the very important asset in relation to restaurant business and consequently the transfer of the same to the appellant cannot be given free of cost and the expectation of the revenue that such asset should not be valued is contrary to the accepted norms of conducting business. k. The revenue is expecting the tenancy rights to be given free of costs and these intangible assets are the major contributors for turnover and business and expecting this tenancy rights to be given free of costs is unsustainable in law. l. The customer in a particular location also contribute to the goodwill of the business which the revenue is expecting to be given free of cost. m. The revenue has failed to consider the savings of Rs. 62.36 crores that the appellant has made by entering into the asset transfer agreement by paying a consideration of Rs. 28.10 crores. n. The reliance by the revenue on the brand transfer agreement dated 31.03.2009 has no relevance to this transaction and both are independent and have transferred independent assets and consequently linking the same in the argument before the tribunal is not only perverse but also has no factual foundation as the authorities below have not taken that as the basis. o. The revenue has failed to appreciate that M/s. Sayaji Hotels Ltd. has considered the amount received as long term capital gains and paid taxes thereon and consequently the denial of depreciation on the same is unsustainable in law. p. The revenue is neither considering the amount as capital or revenue expenditure and therefore causing irreversible detriment to the appellant. q. The appellant is entitled to claim the amount paid as either revenue and claim in the first year totally or capital and claim depreciation or amortisation. Reliance is placed on the parity of reasoning of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT (1997) 225 ITR 802 (SC) and Taparia Tools Ltd. v. JCIT (2015) 372 ITR 605 (SC). r. The disallowance of depreciation in a proceedings under section 153A of the Act is further bad in law as for some of the assessment years scrutiny assessments have been completed under section 143(3) of the Act and hence the question of disallowance of depreciation invoking without any incriminating materials in search assessments are unsustainable in law.
14. The appellant in view of the above submissions prays this Hon’ble Tribunal – a. To allow the appeals filed by the appellant.
b. Pass such orders as this Hon’ble Tribunal may deem fit on the facts and circumstances of the case.
10. The learned Counsel relied on the judgment of Hon’ble Delhi High Court in the case of Triune Energy Services (P) Ltd., Vs. DCIT reported in [2016] 65 taxmann.com 288 (Delhi) at para 20 which is as under:
11. The learned Counsel further submitted that for the Assessment Year 2013-14, assessment was completed under section 143(3) of the Act vide Order dated 23.03.2016 where the depreciation on goodwill was made. The AO has scrutinized the case of the assessee and accepted the depreciation claimed on the goodwill. Once it is allowed in the initial year of assessment Order, to maintain parity in subsequent Assessment Years, the claim of depreciation cannot be disallowed on the depreciation claimed on the WDV. Later on the Order passed under section 143(3) of the Act, the learned Pr.CIT exercised his power under section 263 of the Act and this issue was also not touched by the learned Pr.CIT in his Order dated 30.03.2022 and the same order of the learned PrCIT was challenged before the Tribunal in for Assessment Year 2013-14 and the Hon’ble Co- to 26/Bang/2024 Page 39 of 47 ordinate Bench dismissed the power exercised by the learned PrCIT. The Revenue against the Order of the Tribunal approached jurisdictional Hon’ble High Court in of 2023. The jurisdictional Hon’ble High Court confirmed the Order of the Tribunal vide its Order dated 19.08.2024. He further submitted that in support of his additional grounds, the assumption of jurisdiction under section 153A of the Act is also not valid in the eyes of law and before issue of notice under section 153A of the Act, the AO has not verified the various aspects of the Act in terms of section 153A of the Act and the search conducted in the case of the assessee is illegal and he further submitted that it is null and void on the parity of ratio of the decision of Hon’ble Apex Court in the case of Union of India vs. Ajit Jain reported in 260 ITR 80. The AO has also stated that there was valid search conducted under section 132(1)(a),(b),(c) of the Act. The AO has not followed the judgment of Hon’ble Apex Court in the case of Ajit Jain (supra). Therefore, Assessment Order passed under section 143(3) r.w.s. 153A of the Act is illegal. The learned Counsel submitted that initially there was an agreement made on 01.04.2009 as revenue sharing agreement and 22% of revenue sharing was agreed or Rs. 4,50,00,000 whichever was higher. In pursuance to the said agreement and in consideration was for the five restaurants at (1) Mumbai (2) Indiranagar, Bangalore (3)Koramangala, Bangalore (4) Hyderabad (5) Gurgaon for Rs.4,50,00,000/- or 22% whichever is higher and as per para No.9 of the said agreement in which it has been stated that "Owner" shall obtained and keep all the necessary licenses required under the law to run and operate the Restaurant in its name and renewed by the “Owner” from time to time as required. The Owner shall inform the Operator of any Act or things required to be performed by the Service Provider and in line with its obligations under the Agreement.”. Therefore, as per the agreement clause No.9 finding recorded by the learned CIT(A) that assessee was the owner of intangible assets since begining is wrong because the entire obligations, to 26/Bang/2024 Page 40 of 47 licence, etc., as per the above clause were required to be fulfilled by M/s. Sayaji Hotels Ltd., (holding company). He also referred to asset transfer agreement dated 01.04.2012 especially to clause (c) which is as under:
c. SHL vide an agreement dt. 1st April, 2009 had ceded operational control of five restaurants owned by it situated at various locations in India to BNHL in consideration of 22% of the revenues of such restaurants, along with the right to use the movables assets of such restaurants.
Page 41 of 47 to 26/Bang/2024 Page 42 of 47 12. On the other hand, learned DR relied on the Order of lower authorities and submitted that assessee has raised additional grounds challenging the validity under section 132 of the Act and submitted that the Hon’ble Tribunal has no jurisdiction to decide the case . If the assessee had any objection for the search it could have approached the Hon’ble High Court. It is mandatory for the AO to issue notice u/s 153A and complete the assessment accordingly. The asssessee itself has offered income in the return filed under section 153A of the Act towards bogus revenue expenditure found during the course of search and seizure operations which was accepted in the statement recorded and the statement was confronted to the VP (Finance & Accounts) of assessee company and assessee has accepted to offer income. Therefore, issue regarding validity of search and issuance of notice under section 153A of the Act is not correct before this Hon’ble Tribunal and he further submitted that once the additional income is offered by the assessee in 153A return, the same cannot be challenged at any forum. He appeared / participated in the assessment proceedings as well as first appellate proceedings and did not raise any objection at the assessment stage. Therefore the entire additional grounds raised by the assessee are not sustainable. He further submitted on the merits of the case that there was no goodwill appearing in the books of accounts of SHL and the assessee has paid over and above to the tangible assets. Assessee was using entire tangible and intangible assets since 01.04.2009. Therefore, there is no need to make further payments over and above of the tangible assets appearing in the books of SHL. There is no slump sale agreement. The valuation made by the valuer is also not correct. It is on projected basis which cannot be accepted. In the rejoinder the learned Counsel for the assessee submitted that as per the agreement clause dated 01.04.2009, clause 9 is very much clear that all necessary licences required under the law has to be borne by SHL but not by assessee. Therefore it cannot be said that entire intangible rights were transferred since 01.04.2009.
13. Considering the rival submissions and on perusal of entire material available on record and Orders of authorities below, we noted that consequent upon search under section 132(1) of the Act on 13.01.2018, the notice was issued under section 153A of the Act on the basis of seized materials found in the form of bogus revenue expenditure claimed and assessee filed return of income and total declaration was made of Rs.6,68,30,289/- which was spread over number of years as stated in the above table and offered in 153A return filed by the assessee and paid due taxes thereon. Therefore the entire additional grounds raised by the assessee regarding issue of notice under section 153A of the Act are not correct, since during the course of search and seizure proceedings some incriminating documents were found. However, the assessee raised validity of search before us under section 132(1)(a)(b)(c) of the Act on this point we are in agreement with the arguments advanced by the learned DR that we do not have power to decide the validity of search. Therefore this issue is rejected. Assessee has challenged before us regarding depreciation claimed on the goodwill arising out of the business transfer as per agreement dated 01.04.2012 where consideration was paid of Rs.28.10 Crores and goodwill was recorded of Rs.13.45 Crores for the difference of business transfer price and tangible assets as noted supra since Assessment Year 2013-14 is the first year of claim of goodwill. As per computation of income, M/s. Sayaji Hotels Ltd., capital gain of Rs.13.45 Crores has been offered as long term capital gain. During the course of assessment proceedings, AO found from the books of accounts and materials available before him that assessee has claimed depreciation on goodwill and this issue was not raised at the time of 143(3) of the Act assessment but while disallowing the depreciation on goodwill are not borne out from seized material found during the course of search and seizure proceedings. It is only to 26/Bang/2024 Page 44 of 47 on the basis of materials available which is clear from the findings of learned CIT(A) at para 7.1 of his Order which is as under:
The addition has been made by the AO of Rs.37,26,920/- for the Assessment Year 2013-14 and total declaration made of Rs.6,68,30,289/- for all the years which was spread over years as per above table. The addition made was not on the basis of seized material or any incriminating material found during the course of search. The learned Pr. CIT invoked his revisionary power under section 263 of the Act this particular issue regarding depreciation on goodwill was also not touched upon whereas the entire materials were available before the learned Pr. CIT. The order of learned Pr. CIT has been decided by the jurisdictional Hon’ble High Court and Co- ordinate Bench in favour of the assessee noted supra for the Assessment Year 2013-14 in the first year. For the claim of depreciation we noted that assessee has claimed depreciation on goodwill on the additional amounts payments over the net assets acquired. Once depreciation on goodwill is allowed in initial year and WDV was determined, depreciation allow become in to 26/Bang/2024 Page 45 of 47 subsequent years automatically as per computation under section 32(1)(ii) of the Act and there are no material changes in the facts or law. The Revenue is bound to maintain consistency and cannot be disallowed in subsequent Assessment Years. In support of his arguments, we relied on the judgment of ITAT Ahmedabad Bench in for Assessment Year 2018-19 reported in (2025) 174 taxmann.com 972 (Ahd. Trib.).
We further noted that addition made by the AO on the basis of documents available before him but not found during the course of search proceeding, in the initial for Assessment Year 2013-14, AO completed assessment and search was conducted on 10.01.2018. Therefore it is unabated Assessment Year. The view taken in one assessment should not be changed in other provisions of the Act for assessment in same set of facts. In the case of completed assessment the addition can be made only on the basis of incriminating material found during the course of search and seizure operation. The Hon’ble Apex court in the case of Pr. CIT Vs. Abhisar Buildwell (P.) Ltd. [2023] 149 taxman.com 399 held :
(i) that in case of search under section 132 r.w.s. 132A of the Act, AO assumes the jurisdiction for block assessment under section 153A of the Act, (ii) all pending assessments/reassessments shall stand abated, (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessment. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act,1961.
However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 47/148 of the Act and those powers arc saved"
The Hon. Supreme Court in its conclusion in point No. iii. has concluded as under: "in case of unabated assessments wherein any incriminating material is found or unearthed, the AO would assume jurisdiction to assess or reassess the total income taking into consideration, the incriminating unearthed during the search and the other material available with the AO including income declared in the returns".
Respectfully following the above Order of the Hon’ble Apex Court, disallowance of depreciation and consequential assessment for subsequent Assessment Years are not justified. Accordingly, we delete the addition made towards goodwill. For all the years and we hold that assessee is eligible for depreciation on goodwill for the above impugned Assessment Years.
In the result, appeals filed by the assessee are partly allowed.