GILBARCO VEEDER ROOT INDIA PVT. LTD.,COIMBATORE vs. ACIT, CORPORATE CIRCLE-1,, COIMBATORE

2.3 Without prejudice to the above, the A0 and NFAC ought to have appreciated that the employee related intangible is covered within the definition of employee related intangible assets due to its wide import of "any other business commercial right of similar nature" under Section 32 of the Act.

2.4 The AO and NFAC ought to have appreciated that even if the 'key employees and assembled workforce' are considered as intangible asset other than goodwill, the same would still be added to the block of intangible assets and the Appellant would be eligible for depreciation at the 25% and by this the Appellant does not derive any undue benefit in the form of depreciation from the above reclassification of the assets. to 286/Chny/2025 Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant.

The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Honourable Income Tax Appellate Tribunal to decide this appeal according to law.

Grounds for A.Y. 2014-15

1. General 1.1 The order of the learned Assessing Officer ("AO")/ Commissioner of Income Tax (Appeals), National Faceless Appeal Centre ("NFAC") is contrary to canons of equity and natural justice, contrary to law and facts involved, not based on facts and circumstances of the case, contrary to mandatory provisions of the Income-tax Act, 1961 ("Act"), lacks jurisdiction and is liable to be struck down.

2. Disallowance of depreciation on goodwill 2.1 The AO and NFAC has erred, in law and in facts in disallowing the claim on depreciation of arising out of acquired employee related intangible in the course of slump sale. 2.2 The AO and NFAC erred in law and in facts by not considering the decision of the Hon'ble Supreme Court of India in the case of CIT v SMIFS Securities Ltd. (2012] 24 taxmann.com 222/210 Taxman 428/348 ITR 302 wherein it was held that any payment over and above the book value of net assets would be classified as goodwill and is eligible for depreciation. 2.3 Without prejudice to the above, the A0 and NFAC ought to have appreciated that the employee related intangible is covered within the definition of employee related intangible assets due to its wide import of "any other business commercial right of similar nature" under Section 32 of the Act. 2.4 The AO and NFAC ought to have appreciated that even if the key employees and assembled workforce' are considered as intangible asset other than goodwill, the same would still be added to the block of intangible assets and the Appellant would be eligible for depreciation at the 25% and by this the Appellant does not derive any undue benefit in the form of depreciation from the above reclassification of the assets. Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. to 286/Chny/2025

3. The brief facts of the case are that M/s. Gilbarco Veeder Root India Private Limited ("the assessee") is engaged in the business of manufacturing, marketing, selling and maintenance of fuel dispensers and marketing and selling of other related items. The assessee filed its original return of income for the Assessment Year ("AY") 2013-14, relevant to the financial year ("FY") 2012-13, on 29.11.2013, declaring a loss of Rs.22,42,91,175/-. Subsequently, the return of income was revised declaring a total loss of Rs.23,24,53,400/-. The case was selected for scrutiny and a notice under section 143(2) of the Income-tax Act, 1961 ("Act") was issued on 16.09.2014, by the Assessing Officer (AO") and time to time hearings were attended and submissions were filed. Subsequent to the same, the AO passed an order u/s.143(3) of the Act on 29.03.2016, disallowing the depreciation claimed on acquired goodwill. Aggrieved by the abovementioned order of the AO, the assessee preferred an appeal to the Commissioner of Income Tax- Appeals ("CIT(A)") wherein the grounds of the assessee were partly allowed in favour of the assessee. Subsequently, the Department filed an appeal to the Income Tax Appellate Tribunal ("ITAT") against the order of the Ld.CIT(A) wherein the cross objections were filed by the assessee on subject disallowance. The Hon'ble ITAT vide its order to 286/Chny/2025 dated 13.07.2020 upheld the order of the Ld.CIT(A) and remitted back to the file of AO for limited matter of verification and quantification of acquired goodwill.

3.1 In this regard, time to time notices were issued calling for relevant information/ documents for which the assessee had duly furnished its response. Subsequently, the AO had passed an order u/s.143(3) r.w.s.254 of the Act disallowing a sum of Rs.4,24,90,000/- paid towards ‘key employee and assembled work force’ acquired on business acquisition. Aggrieved by the abovementioned order of the AO, the assessee preferred an appeal before the CIT(A), NFAC.

3.2 The CIT(A), NFAC Vide its order dated 21.11.2024 upheld the order passed by the AO. Aggrieved by the order of the ld. CIT(A), NFAC, the assessee is before us.

In support of the above claim, the Ld.AR relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. SMIFS Securities Ltd., [2012] 24 taxmann.com 222/210 Taxman 428/348 ITR 302, wherein it was held that any payment over and above the book value of net tangible assets would be classified as goodwill and is eligible for depreciation.

6.1 We note that in the case of SMIFS Securities Ltd., (supra), the Hon’ble Supreme Court has held that any payment over and above the book value of net tangible assets would be classified as ‘Goodwill’. Therefore, in the present case, the assessee has rightly revised the value assigned towards ‘key employees and assemble work force’ as to 286/Chny/2025 ‘intangible assets’ to the tune of Rs.4,24,90,000/- as the Employees & Work force is not a tangible asset.

6.2 In light of the above discussion, we are setting aside the order of the ld.CIT(A) for the A.Y. 2013-14 & 2014-15 and direct the AO consider the ‘Key Employees and Assembled work force’ to the tune of Rs.4,24,90,000/- as intangible asset and recompute the depreciation and income accordingly.

& 286/CHNY/2025 for AY 2018-19 & 2019-20 8. The next issue raised by the assessee in the following appeals are given below: Grounds for A.Y. 2018-19 1. General 1.1 The order of the Assessing Officer ("A0")/ Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) IS Contrary to canons of equity and natural justice, contrary to law and facts involved, not based on facts and circumstances of the case, contrary to mandatory provisions of the Income-tax Act, 1961 ("Act"), lacks jurisdiction and is liable to be struck down.

2. Restriction on the deduction of Notional IND AS interest income worth INR 14,86,890 2.1 On the facts and the circumstances of the case and in law, the A0 and NFAC has erred in adding the notional interest of INR 14,86,890 under the head "Income from business or profession". to 286/Chny/2025 2.2 On the facts and circumstances of the case and in law, the AO and NFAC ought to have appreciated that the amount of INR 14,86,890 is pertaining to the notional interest income on security deposit determined in line with the Indian Accounting Standards ("IND AS"). 2.3 The AO and NEAC, has failed to appreciate that the Appellant is covered under IND AS as mandated by the Ministry of Corporate Affairs, Government of India. Under IND AS, all financial assets and liabilities are required to be recorded at fair value at initial recognition instead of the actual cost, and the difference between the same is required to be accounted in the statement of Profit and Loss Account. 2.4 The AO and NFAC has failed to appreciate that the notional interest disclosed in the Statement of Profit and Loss account is in line with the requirement of IND AS and cannot be considered as real income as the same does not accrue to the Appellant.

Grounds for A.Y. 2019-20

2. Restriction on the deduction of Notional IND AS interest income worth Rs.16,54,163/-. 2.1. On the facts and the circumstances of the case and in law, the A0/NFAC has erred in adding the notional interest of INR 16,54,163 under the head "Income from business or profession'". 2.2. On the facts and circumstances of the case and in law, the A0/NFAC ought to have appreciated that the amount of INR 16,54,163 is pertaining to the notional interest income on security deposit determined in line with the Indian Accounting Standards ("IND AS").

2.3 Without prejudice The AO/NFAC, has failed to appreciate that the Appellant is covered under IND AS as mandated by the Ministry of Corporate Affairs, Government of India. Under IND AS, all financial assets and liabilities are required to be recorded at fair value at initial recognition instead of the actual cost, with the difference between the same is required to be accounted in the statement of Profit and Loss Account. to 286/Chny/2025 2.4 The AO/NFAC has failed to appreciate that the notional interest disclosed in the Statement of Profit and Loss account is in line with the requirement of IND AS and cannot be considered as real income as the same does not accrue to the Appellant.

9.2 The assessee, aggrieved by the order of the AO, filed an appeal before the Ld.CIT(A), NFAC u/s.250 of the Act. In response, the NFAC, in its order dated 20.11.2024, nullified the addition made by the AO in respect to the deferred tax amounting to Rs.9,70,01,073/- and upheld the addition of notional interest income of Rs.14,86,890/-. Aggrieved by the order passed by the NFAC, against which the present application is being filed before us. to 286/Chny/2025 10. During the course of hearing the ld.DR raised an objection that the assessee has filed these appeals against the orders u/s.154 of the Act, dated 02.08.2022, whereas the assessee was supposed to file appeal against the order u/s.143(1) of the Act dated 21.12.2019. The ld.AR for the assessee vehemently opposed the preliminary objection of the ld.DR and submitted the case laws of the Tribunal to support his contention that the present appeals are maintainable despite the fact that the order u/s.143(1) of the Act dated 21.12.2019 were not challenged. He relied upon the decision of Tribunal in the following cases:

1. Akbar Mohammad Vs.The ACIT, in & 109/Jodh/2021 dated 31.01.2022 2. Shivganga Drillers Pvt Ltd Vs.CPC, Income Tax, Bangalore [2022] 139 taxmann.com 538 (Indore – Trib)

10.1 In the case of Shivganga Drillers Pvt Ltd (supra), the Tribunal held as under: 6. Facts qua this Ground are such that while passing Intimation u/s 143(1) of the Act, the Ld. AO made two adjustments, viz. (i) disallowance of Rs. 1,02,513/- on account of delayed payment of employees’ contributions to Provident Fund / Employees State Insurance (“PF / ESI”), and (ii) disallowance of the credit of TDS of Rs. 60,49,627/-. Though the assessee did not file any appeal against this Intimation u/s 143(1), an application for rectification u/s 154 of the Act was filed to the Ld. AO within the time permissible u/s 154 of the Act for seeking redressal of the grievances arising out of the two adjustments made by Ld. AO. However, the Ld. AO rejected the application filed by the assessee. Being aggrieved by rejection, the assessee filed appeal to Ld. CIT(A) and technically such appeal happened to be against the order of rectification u/s 154 and not against the original Intimation u/s 143(1). The Ld. CIT(A) dismissed the appeal of assessee in limine by observing in Para No. 5 to 6 of his order as under: to 286/Chny/2025 “5. It is pertinent to mention here that the appeal is not against the intimation order u/s 143(1). The appellant had filed an application u/s 154 before CPC. Thereafter, the CPC had passed order u/s 154 rejecting the request of the appellant for rectification of the mistake. It is against this order, the appellant has filed the present appeal. The original cause of action arises at the stage of 143(1) itself when the CPC had processed the return of income. Thereafter, the appellant has filed rectification application which has been rejected and against this, the appellant had filed the present appeal. 5.1 On perusal of these facts, it appears that the appellant is trying to take back door entry by filing an appeal against order u/s 154 for which the original cause of action has arisen at the stage of 143(1) itself. As per the provisions of the Act, the appellant could have filed an appeal against the intimation u/s 143(1) of the CPC dated 09.11.2018. However, the appellant has not filed an appeal against the intimation u/s 143(1). Thereafter, the appellant has filed a rectification application u/s 154 before the CPC. As per the rectification order u/s 154 dated 17.12.2018, the CPC has rejected the request of the appellant for rectification of mistake. There is no mistake apparent from record at the stage of 154 application. If, at all, the issue under consideration would arise only at the stage of intimation u/s 143(1). Therefore, the issue is not adjudicated herein. Accordingly, the grounds of appeal are dismissed.

6. In the result, the appeal is dismissed.”

7. Before us, the Ld. AR submitted that the assessee has claimed the deduction of employee’s contribution to PF / ESI as well credit of TDS in the Return of Income and it is the Ld. AO who has disallowed both of these claims in the Intimation passed u/s 143(1), though both of these claims were very much allowable in accordance with the law. The Ld. AR went on submitting that under the scheme of the Act, the assessee has two remedies against the Intimation u/s 143(1), viz. (i) file rectification application u/s 154, or (ii) file appeal u/s 246A. According to Ld. AR, the assessee filed a rectification-application u/s 154 which is not only one of the available remedy but also a simpler remedy and practically resorted to by many of the assessees, particularly in the matter of the two adjustments involved in the present appeal. Accordingly to Ld. AR, it is not a case that the rectification-application u/s 154 against the Intimation u/s 143(1) is absolutely barred in the scheme of Act. Finally the Ld. AR made a submission that in the law and on facts, the assessee is very much entitled to the deduction of employees’ contribution to PF / ESI as well TDS credit and by not allowing the same, would result in computation of taxable income and tax liability beyond and against the scheme of the Act. With these submissions the Ld. AR prayed that the lower authorities be directed to accept the claim of assessee on merit, in accordance with the decision of this Bench on the subsequent Grounds.

8. Per contra, the Ld. DR submitted that the assessee has not filed any appeal against the Intimation u/s 143(1), which necessarily should have been filed. According to Ld. DR, the assessee filed rectification-application u/s 154 against the Intimation u/s 143(1) and thereafter carried the matter to Ld. CIT(A) when the rectification-application itself was rejected. The Ld. DR submitted that this route adopted by the assessee was not permissible in the issues involved and therefore the Ld. CIT(A) was justified in dismissing the appeal of assessee in limine. With these submissions, the Ld. DR prayed to uphold the order of Ld. CIT(A). to 286/Chny/2025

9. We have considered the rival submissions of both sides and also perused the record. We are very much aware of the recent decision of ITAT, Jodhpur Bench in the case of Akbar Mohammad, Nagaur Vs. ACIT, CPC, Bangalore & 109/Jodh/2021 order dated 31.01.2012 in which the Hon’ble Co-ordinate Bench had resolved an identical controversy by holding as under: “6.1 Of course, it is a case in point that the assessee did not file any appeal against the intimations passed us 143(1) of the Act and the Ld. Sr. DR is right to the extent that the assessee cannot be given relief for that reason. However, it is also a settled law that the assessee cannot be taxed on an amount on which tax is not legally imposable. Although, the assessee might have chosen a wrong channel for redressal of his grievance, all the same, it is incumbent upon the Tax authorities to burden the assessee only with correct amount of tax and not to unjustly benefit at the cost of tax payer. Therefore, in the interest of substantial justice, we deem it expedient to restore the issue to the file of the Assessing officer with a direction to pass appropriate orders deleting the addition / disallowance after duly considering the settled judicial position in this regard, which have been decided in the three cases as enumerated above in Para 5.” During hearing, we have apprised both sides about this recent decision of the Hon’ble Co-ordinate Bench.

10. Therefore, respectfully following the decision of Hon’ble Co-ordinate Bench, we are inclined to accept the request of assessee. Therefore, Ground No. 2 is allowed.

10.2 Therefore, respectfully following the decision of the coordinate bench we are inclined to accept the prayer of the assessee and proceed to adjudicate the present appeals on merit.

The ld.AR submitted that in the AY 2018-19, the financial statements of the Company have been prepared in accordance with the Indian Accounting Standards as per the Companies (Indian Accounting Standards) Rules, 2015 as amended and notified under Section 133 of the Companies Act, 2013 and other relevant provisions of the Act.

As per the IND AS 109, when a financial asset is recognized initially, an entity shall measure it at the transaction price unless the arrangement constitutes, in effect, a financing transaction for either the entity or the counterparty to the arrangement. An arrangement constitutes a financing transaction if payment is deferred beyond normal business terms, for example, providing interest-free credit to a buyer for the sale of goods, or is financed at a rate of interest that is not a market rate, for example, an interest-free or below market interest rate loan made to an employee. If the arrangement to 286/Chny/2025 constitutes a financing transaction, the entity shall measure the financial asset at the present value of the future payments discounted at a market rate of interest for a similar debt instrument as determined at initial recognition.

After Initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. The EIR amortisation is included as finance income in the statement profit or loss.

As per IND AS 32 - Financial Instruments: Presentation, a financial asset includes any asset that gives rise to a contractual right to receive cash or another financial asset from another asset. Given the same, the refundable security deposits recorded in the Appellant's balance sheet shall qualify as financial assets, as they confer the right to receive cash in the future.

Following the adoption of IND AS from the AY 2018-19, the assessee re-valued the security deposits at fair value, separating the notional interest component from the principal amount of the deposits. Every year, this notional interest will be unwound to reflect the present value of the security deposits, resulting in an increase in the value of to 286/Chny/2025 security deposit and notional income to the extent Rs.14,86,890/-. This is only an accounting adjustment, and it has no impact as the computation of taxable income.

The ld.AR argued that the inclusion of such notional adjustments in taxable income would result in the taxation of income that has neither accrued, been earned, nor received, which is contrary to the principles of the Act. The notional interest component recorded due to IND AS provisions does not constitute actual income, as it merely represents a fair value adjustment without any real inflow of funds. Therefore, taxing such notional adjustments would be inappropriate and inconsistent with the established principles of taxation.

The ld.AR further submitted that the income tax is a tax on real income. Section 2(45) of the Act defines total income to mean the total amount of income referred to in section 5 of the Act, computed in the manner laid down in the Act that includes all income from any source received/accrued/arising in India, or is deemed to be received/accrued in India, or accrues or arises to the resident taxpayer outside India. Thus, no income can be taxed under the Act unless it is accrued to the taxpayer. to 286/Chny/2025 12.1 Further, the principle that a taxpayer cannot be made to pay tax on the income that he has not earned or has not been accrued to him has been upheld by various courts. Few such judicial decisions are quoted below:

"Assistant Commissioner of Income Tax vs Kesar Terminals and Infrastructure Ltd. (A.Y. 2018-19)- Wherein the Hon'ble Mumbai Tribunal had held that: "The Ld D.R, however, placed heavy reliance on the intimation issued under section 143(1) (a) of the Act. We noticed that the Coordinate Bench of Tribunal has held that the notional income credited to the profit and loss account cannot be said to have a accrued to the assessee, when there is no contractual obligation to pay the same. In the instant case, it was not shown to Us by the revenue that there existed a contractual obligation to collect interest from the debtors. Accordingly, following the decision rendered by the Chennai bench of Tribunal in the above said case, we hold that the notional interest Income credited by the assessee to the profit and loss account as per the requirement of Indian Accounting Standard has not actually accrued to the assessee and hence the same is not liable for taxation under Real Income principle. Accordingly, we are of the view that the learned CIT(A) was justified in directing the Assessing Officer to exclude the Same "

M/s. Shriram Properties Limited vs Principal Commissioner of Income Tax (Central), Chennai-1 ITA No.:431/Chny/2022 - The case before the Hon'ble Chennai Tribunal was related to 263 order passed by Ld. PCIT, who had passed the revision order directing the AO to assess the notional guarantee commission. The ITAT held as under: to 286/Chny/2025 “Let us come back to each of the amount credited into P&L account and examine whether any tax implication for the impugned assessment year. The assessee has recognized income from guarantee commission of Rs. 2.06 crores and credited into P&L account. Said entry represents notional income towards guarantee commission in respect of guarantee given to Central bank of India and Andhra bank, in terms of IND-AS standards which mandate disclosure of necessary income which effects the financial position of the appellant company. But fact remains that, as per terms of agreement between the appellant company and bankers, there is a restrictive covenant for not charging any kind of monetary benefits including commission. Therefore, although for the purpose of books the assessee recognized notional in come from guarantee commission, but because it has not receive consideration for providing guarantee, the same has 'been reduced from the total income in the computation of income. In our Considered view, when there İs a contractual obligation for not charging any commission, merely for the reason that the assessee has passed notional entries in the books for better representation of financial statements, it cannot be said that income accrues to the assessee which is chargeable to tax for the impugned assessment year. Therefore, we are of the considered view that on this issue it cannot be said that there is an error in the order of the Assessing Officer.

"E.D. Sassoon & Co. Ltd. v. Commissioner of Income Tax [1954] 26 ITR 27 (SC)" - Wherein the Hon’ble Supreme court had held that:

It is not the work done or the services rendered by the person, but the income received or the income which has accrued to the person within the chargeable accounting period that is the subject-matter of taxation. That is the proper method of approach while considering the taxability or otherwise of income and no considerations of the work done for broken periods or contribution made towards the ultimate income derived from the source of income nor any equitable considerations can make any difference to the position which rests entirely on a strict interpretation of the provisions of section 4(1) (a) of the 1922 Act. to 286/Chny/2025 Income may accrue to an assessee without the actual receipt of the same, If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in future Unless and Until there is created in favour of the assessee a debt due by some.

12.2 In view of the above, the ld.AR submitted that the income in the form of notional interest amounting to Rs.14,86,890/- under IND AS is not taxable under the provisions of the Act and prayed for allowing the deduction of Rs.14,86,890/- as claimed by the assessee in the return of income.

Thus, in the present facts of the case and respectfully following the judicial precedents (supra), we are inclined to set aside the order of the ld.CIT(A) and direct the AO to delete the addition on account of notional interest made for both the A.Y. 2018-19 and 2019-20 and recompute the income accordingly.

Order pronounced in the open court on 26th May, 2025 at Chennai.