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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI C.M.GARG & SHRI O.P.MEENA
आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal filed by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals)-II, Surat(in short “the CIT (A)”) dated 11.05.2015 pertaining to Assessment Year 2011-12 which in turn has arisen from the order passed by the Assistant Commissioner of Income Tax, Circle-4, Surat(in short
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 2 of 9 “the AO”) dated 31.03.2014 under section 143(3) of Income Tax Act,1961 (in short ‘the Act’).
Ground No.1 to 5 relates to confirming of disallowance made by the AO of Rs.20,65,250/- being depreciation claimed on goodwill u/s.32(1)(2) of the Act.
Briefly stated facts of the case are that the assessee company is engaged in investment of banking and broking services. It was noticed the M/s.Money Matters has sold its then existing running business to the assessee company on slump sale basis by executing on slump sale agreement on 07.04.2008. On perusal of the details, the AO observed that the total assets were not transferred to the VA advisory services Pvt. Ltd., as per the depreciation table of the M/s. Money Matters for A.Y.2008-09, building was added during the A.Y. 2008-09 and WDV (written down value) of that building as on 31.03.2008 was Rs.56,48,349/- . However, in the depreciation table for the A.Y. 2009-10 this asset is not reflected. Since the business of the assessee was sold particular and does not fall under the purview of slump sale. As per the statement A of slump sale agreement, the value of assets
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 3 of 9 taken over in slump sale agreement with M/s. Money Matters is for a consideration of Rs.1,60,00,000/- which inter-alia included given at page 4 of the assessment order. Therefore, the AO was of the view that the business sold does not fall under the terms going concern and the sale consideration is not a lump sum consideration as payment made of Rs.1.60 crores by the assessee to Money Matters was payment made for sum specific assets and liabilities attached to it. Therefore, the value of goodwill taken in the books of accounts will be nil. Accordingly, the claim of depreciation of goodwill amounting to Rs.20,06,250/- was disallowed.
Being aggrieved the assessee has filed an appeal before the CIT(A). It was submitted that as per the slump sale agreement, the appellant company had acquired the running business of M/s. Money Matters along with service right to the customers in respect of mutual fund investment, employees of Money Matters. The price consideration for individual assets was not specified and all the assets were taken over for lump sum value of Rs.1,60,00,000/- . It was further claimed that the assessee company had claimed depreciation on this purchase goodwill of Rs.1,07,00,000/-
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 4 of 9 u/s.32(1)(ii) of the Act. The finding of the AO that said transaction was not purchase of business who composite purchase of asset is erroneous as there was no Annexure-A to the slump sale agreement and the value of the individual asset was not specified in the slump sale agreement. The CIT(A) observed that the perusal of balance sheet of Money Matters for A.Y. 2009-10 shows that total asset were not transferred to VA Advisory Services Pvt. Ltd., as per the depreciation table of M/s. Money Matters for A.Y. 2008-09 building was added during A.Y. 2008-09 and WDV of that building as on 31.03.2008 was Rs.56,48,349/-. However, in the depreciation table for the A.Y. 2009-10 this asset was not reflected, therefore, CIT(a) of the view that WDV of building ought to have been included in calculating the net asset value of M/s. Money Matters. The contention of the assessee that there is no Annexure-A in the slump sale agreement is correct to the extent that there are only 2 Annexures namely Annexure 1 & 2, but the individual values of the assets are taken over as per details furnished by the appellant himself on 14.03.2014 wherein the appellant himself as admitted that the building whose WDV as on 31.03.2008 was Rs.56,48,349/- was not taken over and hence not recorded in the books of the
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 5 of 9 company. Therefore, CIT(A) was of the view that all composite sales were of the Act necessary slump sales of sale value of various items put together may not constitute slump sale unless it satisfies all the days of slump sale. Therefore, it is evident that the sale consideration is not a lump sum consideration made by the appellant to M/s. Money Matters and the complete assets were not transferred and therefore transaction does not fulfill the condition of slump sale as lays down in the case of Asia Brown Boveri Ltd., [2007] 14 SOT 18 (Mumbai), therefore, addition made by the AO of Rs.20,06,250/- was upheld.
Being aggrieved, the assessee has filed this appeal before this Tribunal. The ld.Counsel for the assessee submitted that the assessee has purchased existing business of Money Matters by an agreement dated 07.04.2008 placed at paper book, page 54 by which an amount of Rs.1,60,00,000/- was paid by the assessee for acquiring clients and employees of M/s. Money Matters during the A.Y. 2009-10. The assessee has recorded assets taken over on the basis of Form No.3CEA by CA certifying value of the assets as per agreement Rs.1,60,00,000/- and claimed depreciation of
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 6 of 9 difference of Rs.1,07,00,000/- in A.Y. 2009-10 and that was allowed by the AO vide order u/s.143(3) of the Act dated 15.12.2011 placed at paper book, page 162 – 163. The AO and CIT(A) has disallowed depreciation on the goodwill by placing reliance on the decision in the case of Asia Brown Boveri [2007] 14 SOT 18 Mumbai which is applicable in the case of seller whereas the assessee is a purchaser of business. Hence, same is not applicable to the assessee. Therefore, it was contended that once the assets found part of block, WDV of assets cannot be disturbed in succeeding year as held in the case of DCIT vs. HSBC Asset Management Pvt. Ltd., 228 taxmann 365 Bombay and Johnson Matthey Chemicals India Pvt. Ltd., vs. DCIT [ITA No.1507/Pun/2012] dated 12.12.2017 (copy filed.). It was further submitted that depreciation u/s.32 of the Act on goodwill being a capital asset allowable as held by the Apex Court in the case of CIT vs. Smifs Securities Ltd., 348 ITR 302(SC), the assessee has purchased the cliental business as a right that could have used as a tool to carry on business and the assessee is eligible for depreciation on goodwill u/s.32(1)(ii) of the Act as held by ITAT in India Capital market Pvt Ltd., vs. DCIT 56 SOT 32 Mumbai.
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 7 of 9
Per Contra, the ld.Senior Departmental Representative relied on the order of the Lower Authorities.
We have heard the rival submissions and perused the material on record. The perusal of slump sale agreement dated 07.04.2008 placed at PB, Page 54-62 reveals that the assessee as acquired the running business of M/s. Money Matters as a going concern on as is where basis for a total consideration of Rs.1,60,00,000/-. The para, clause 2.2 of the agreement shows that the himself of the sellers shall continue working in the transferred business that the same service terms and conditions. Thus, the assessee has acquired clients and employees of M/s. Money Matters during the A.Y. 2009-10. The value of assets taken over in the books is as per the basis of Form 3CEA by CA certifying the value of assets as per agreement and claimed depreciation thereon. Depreciation on the difference of Rs.1.60 crores in A.Y. 2009-10 that was allowed by the AO vide order passed u/s.143(3) of the Act. As per the statement A, the assessee has assigned the value of goodwill at Rs.1,07,00,000/- placed at PB, Page No.62. Since the AO has already allowed depreciation on goodwill in
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 8 of 9 earlier years on the acquisition of business by the assessee, therefore, depreciation on existing assets with opening WDV could not be disallowed as held by the Hon'ble High Court of Bombay in the case of Director of Income Tax (International Taxation-II) vs. HSBC Asset Management Pvt. Ltd., [2014] 47 taxmann.com 286 (Bombay) and also by the Coordinate Bench in the case of Johnson Mattey Chemicals India Pvt. Ltd., of Pune Bench (supra). We further find that the CIT(A) has relied in the case of ACIT vs. Asia Brown Boveri (supra) which is applicable in the case of seller and not in the case of purchaser. The assessee has purchased the business as going concern for lump sum consideration without allocation of slump price to individual assets of the business on which value of goodwill has been assigned on the basis of CA certificate Form 3CEA. The depreciation on goodwill is allowable as per provision of section 32(1)(ii) of the Act and has held by the Hon'ble Supreme Court in the case of CIT vs. Smifs Securities Ltd.,(supra) and further the right purchase of cliental business is a right that could be used as a took to carry on business and the assessee is therefore eligible for depreciation of goodwill u/s.32(1)(ii) of the Act as held by Tribunal in the case of India
VA Advisory Services Pvt. Ltd., Vs. ACIT, Circle-4, Surat /ITA No.2434/Ahd/2015/SRT/AY.2011-12 Page 9 of 9 Capital Market (P.) Ltd., vs. DCIT 56 SOT 32 (Mumbai). In view of these facts, we are of the considered opinion that Lower Authorities are not justified in disallowing the claim of depreciation of Rs.20,06,250/-, accordingly, same is directed to be deleted. In view of these facts all the above grounds 1 to 5 in consolidate manner are treated as allowed. Ground No.6 related to charging of interest u/s.234A, 234B, 234C, 234D is consequential in nature, hence not required any adjudication.
Similarly, ground no.7 for initiation of penalty u/s.271(1)(c) is also consequential in nature.
In the result, appeal of the assessee is allowed.
The order pronounced in the open court on 14.11.2018.
Sd/- Sd/- (सी.एम.गग� /C.M. GARG) (ओ.पी.मीना/O.P.MEENA) �याियकसद�यतथा/JUDICIAL MEMBER लेखासद�यकेसम� /ACCOUNTANT MEMBER सुरत/ Surat, �दनांक Dated: 14th November, 2018/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat