INVESCO(INDIA) PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE -2 (1), HYDERABAD

2. That on the facts and in the circumstances of the case and in law, the Ld. TPO LA AO erred in making TP

4 ITA.No.111/Hyd./2022 adjustment/addition amounting to INR 3,49,915 by imputing interest, at a rate charged by SBI on short term fiend deposits, on outstanding receivables exceeding 30 days relating to sale of services to Al's as on March 31st 2017 and the Hon'ble DRP has further erred in upholding the action of Ld. TPO/AO. 2.1 That on the facts and in the circumstances of the case and in law, the Ld. TPO/Ld. AO erred in not appreciating the fact that receivables are not a separate international transaction and under the Transaction Net Margin method (TNMM) for determination of ALP of the services, the impact of outstanding, receivables on the working capital adjustments is already taken into account and that there is no requirement to impute interest on outstanding receivables separately and the Hon'ble DRP has further erred in upholding the action of Ld. TPO/AO. 2.2 Without prejudice to Ground No 2 and 2.1 above, that on the facts and in the circumstances of the case and in law, while computing the interest on the outstanding receivables which was in foreign currency, the Ld. TPO/AO erred in : (i) Applying SBI Term deposit rates instead of the rates prevalent in the international market for foreign currency loans. (i.e., at USD LIBOR plus); 5 ITA.No.111/Hyd./2022 (ii) Considering the arm’s length credit period as 30 days without any basis; and (iii) Computing interest on invoice-to-invoice basis without computing weighted average receivable in days for all the invoices raised during the year under consideration and after considering receivables received in advance and the Hon'ble DRP further erred in upholding the said action of the Ld. TPO/AO 3. That on the facts and in the circumstances of the case and in law, the Ld. AO erred and the Hon'ble DRP further erred in upholding the action of the Ld. AO in disallowing depreciation of INR 35,30,75,403 under section 32 of the Act in respect of goodwill arising on amalgamation and recognized in the books as per the Hon'ble NCLT order sanctioning the amalgamation.

4. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in disallowing INR 42.97.430 under section 14A of the Act and the Ilon'ble DRP further erred in upholding the said action of the Ld. AO. 4.1. That on the facts and in the circumstances of the case and in law, the Ld. AD erred in invoking Rule 8D for determining the disallowance under section 14A without analyzing the correctness of the disallowance offered by the Appellant in its return of income and the Hon'ble 6 ITA.No.111/Hyd./2022 DRP further erred in upholding the said action of the Ld. AO.

5. Without prejudice to Grounds 4 & 5 above, that on the facts and in the circumstances of the case and in law, the Ld. AO erred and the Hon'ble DRP further erred in not allowing consequential deduction under section 10AA of the Act on the "Profits and Gains from Business or Profession" derived by the SEZ unit based on the assessed income.

6. Without prejudice to Grounds 4 && above, that on the facts and in the circumstances of the case and in law, the Ld. AD erred and the Hon'ble DRP further erred in not allowing consequential deduction under section 80G of the Act in respect of eligible donations/ payments made by Appellant for the year under consideration based on the assessed Gross Total Income. 6.1. Without prejudice to Grounds 4 & 5 above, that on the facts and in the circumstances of the case and in law, Hon'ble DRP erred in holding that the donations/payments made by Appellant were part of CSR expenditure.

7. Without prejudice to grounds 4 & 5 above, that on the facts and in the circumstances of the case and in law, the Ld. AD erred in not granting consequential foreign tax credit under section 90 of the Act despite the specific 7 ITA.No.111/Hyd./2022 direction of the Hon'ble DRP to grant the same to the Appellant.

8. That on the facts and in the circumstances of the case and law, the Ld. AO erred in not granting appropriate Minimum Alternate Tax (MAT) credit at the time of determining the amount of tax payable by the Appellant.

9. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in not granting TDS credit and advance tax credit of the amalgamating entity to the Appellant (i.e. amalgamated company) of the AY 2017-18 at the time of determining the amount of tax payable by the Appellant.

10. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 2348 and 234D of the Act. The aforesaid grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, amend, modify or withdraw all or any of the Grounds of Appeal contained herein as may be considered necessary either before or during the hearing of the appeals. The Appellant prays that directions be given to grant all such relief arising from the Grounds of Appeal mentioned supra and all consequential relief thereto.”

8 ITA.No.111/Hyd./2022 3. Briefly stated facts of the case are that, the appellant-company viz., Invesco (India) Private Limited is part of Invesco India Group Companies, a leading independent global investment management company. The Company undertakes the business of providing I T Enabled Services [in short “ITES”], along with disaster recovery solutions, real-time data protection, and business continuity planning and offsite data storage solutions to it’s group companies. The appellant-company filed it’s return of income for the assessment year 2017-2018 on 30.11.2018 declaring Rs.NIL income and current year loss was claimed at Rs.5,31,39,096/-. The appellant-company has filed Form- 3CEB report along with return of income and reported international transactions entered into with it’s Associated Enterprises [in short “AEs”] which included ITES, issue of Compulsory Convertible Debentures [in short “CCDs”], on which, interest was paid by the appellant-company. The case was selected for scrutiny. During the course of assessment proceedings, a Reference u/sec.92CA(3) of the Income Tax Act, 1961 [in short “the Act”] was made to the 9 ITA.No.111/Hyd./2022 Transfer Pricing Officer [in short “TPO”] to determine the Arm’s Length Price [in short ALP] of international transactions of the appellant-company with it’s AEs. The TPO has passed order u/sec.92CA(3) of the Act on 30.01.2021 and proposed TP adjustment of Rs.9,06,85,341/- towards interest paid on CCDs by the appellant-company to it’s AE. The TPO had also made an addition of Rs.3,49,950/- towards interest on receivables from AE. In pursuance to the order passed by the TPO u/sec.92CA(3) of the Act, dated 30.01.2021, the Assessing Officer has passed Draft Assessment Order u/sec.144C of the Act, on 08.04.2021 and determined the total income of the appellant-company at Rs.95,18,58,880/- by making TP adjustment as suggested by the TP in terms of order u/sec.92CA(3) of the Act, addition towards disallowance of depreciation claimed on goodwill; addition towards disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962.

11 ITA.No.111/Hyd./2022 equity shares within 20 years from the date of subscription at the coupon rate of 10% interest. The assessee has paid interest of Rs.13,16,12,903/- on said CCDs for the year under consideration. The assessee has benchmarked interest paid on CCDs under “Other Method” and claimed that, coupon rate interest paid by the assessee on CCDs is less than the SBI-PLR rate applicable for the assessment year in question and, therefore, the transactions with its AE is at ALP. The TPO benchmarked the interest paid on CCDs by applying LIBOR plus 200 basis points and has worked-out interest ALP of Rs.4,09,27,562/-. Since, the assessee has paid interest of Rs.13,16,12,903/-, the excess interest over and above the interest ALP of Rs.9,06,85,341/- has been treated as excess interest paid on CCDs and made adjustment under section 92CA of the Act. The learned DRP, in it’s Directions dated 10.01.2022 has upheld the TP adjustment made by the TPO for benchmarking of interest paid on CCDs.

13 ITA.No.111/Hyd./2022 payable on CCDs by applying LIBOR plus 200 basis points. Therefore, the order of the TPO/DRP should be upheld.

14 ITA.No.111/Hyd./2022 benchmarked interest by LIBOR plus 200 basis points. The DRP simply sustained the addition made by the Assessing Officer. Therefore, we set-aside the Final Assessment Order passed by the Assessing Officer on this issue and direct the Assessing Officer/TPO to delete the addition made towards interest paid on CCDs.

17 ITA.No.111/Hyd./2022 India, in our considered view, the internationally recognised rate of interest is appropriate for benchmarking interest receivable from AE. This legal position is supported by the decision of Hon’ble Bombay High Court in the case of PCIT- 13, Mumbai vs., Tecnimont (P.) Ltd., (supra). Similar view has been taken by the ITAT Chennai Bench in the case of M/s. Serviont Global Solutions Ltd., vs., The ACIT, Corporate Circle-6(1), Chennai (supra). Therefore, we are of the considered view that, the Assessing Officer and TPO has erred in benchmarking the interest receivable on trade receivables from AE by applying SBI short term deposit rate. The DRP without appreciating the relevant facts, simply sustained the addition made by the Assessing Officer. Thus, we set aside the order of the Assessing Officer and direct the Assessing Officer/TPO to compute interest receivable on outstanding receivables from AE by applying LIBOR plus 200 basis points after allowing credit period of 30 days. In so far as the argument of the Learned Counsel for the Assessee on the issue of weighted average credit period, in our view, when the TPO is able to compute the exact

18 ITA.No.111/Hyd./2022 number of days credit period, then, aggregating the invoices for the purpose of computing credit period is contrary to the procedure provided u/sec.92CA of the Income Tax Act, 1961. Thus, we reject the arguments of Counsel for the Assessee on the issue of computing the weighted average credit period.

19 ITA.No.111/Hyd./2022 of amalgamation which was approved by the NCLT vide order dated 15.05.2017 and appointed date for amalgamation was 01.04.2016. The assessee further submitted that, the assessee company had invested a sum of Rs.244,09,03,945/- in the shares of subsidiary M/s. Invesco Hyderabad Private Limited and the fair value of tangible net assets of subsidiary as on 01.04.2016 was at Rs.102,86,02,339/- and that the excess cost of investment over the value of net tangible asset was determined as value of ‘goodwill’ on account of amalgamation. In this regard, the assessee has relied upon the decision of Hon’ble Supreme Court in the case of CIT vs., Smifs Securities Limited [2012] 348 ITR 302 (SC). The assessee further submitted that, it has made investment of Rs.244,09,03,945/- in 12,600 equity shares of the face value at Rs.10/- each on 01.08.2016 and that, on amalgamation investment was cancelled and the net value of assets of the amalgamating company was recorded in the books of the assessee company.

20 ITA.No.111/Hyd./2022 16.1. The Assessing Officer, however, was not convinced with the explanation of assessee and according to the Assessing Officer, the amalgamation of subsidiary company, M/s. Invesco Hyderabad Private Limited with appellant-company is not on commercial or business exigencies, but, it is a business combination in the intra group so as to create an ordinary intangible asset in the form of huge goodwill and, thereby, claiming depreciation on it to lower the tax liability of the assessee-company. The creation of an artificial intangible asset by the assessee company in the intra-group companies without proper justification is, in the nature of employing a device of avoidance of tax. Therefore, the Assessing Officer rejected the explanation of assessee and disallowed depreciation claimed on ‘goodwill’ of Rs.141,23,01,606/- and made addition of Rs.35,30,75,402/-.

21 ITA.No.111/Hyd./2022 the reasons given by the Assessing Officer to disregard the recognition of goodwill in the books of accounts of the assessee for cancellation or extinguishment of investment in shares of subsidiary company by virtue of amalgamation it becomes Zero or NIL and thereby, the value of investments in excess of net asset value of the amalgamating company becomes goodwill in the books of accounts of the assessee company and on which, the assessee has rightly claimed depreciation in terms of section 32(1)(ii) of the Act. In this regard, the assessee relied upon various judicial precedents including the decision of Hon’ble Supreme court in the case of CIT vs., Smifs Securities Limited (supra).

17.1. The DRP after considering the relevant submissions of the assessee and also taken note of various judicial precedents, upheld the reasons given by the Assessing Officer to disallow the depreciation claimed on goodwill arising on account of amalgamation on the ground that, as per 6th proviso to section 32(1) and Explanation-7 to section 43(1) of the Act, the depreciation to the amalgamated company is allowable only to the extent, as if 22 ITA.No.111/Hyd./2022 such succession or amalgamation has not taken place. The DRP has discussed the issue at length in light of provisions of section 32(1), 43(1) and 43(6)(c) of the Act and held that, as per 6th provision to section 32(1) of the Act, the aggregate deduction in respect of depreciation on tangible and intangible assets allowable to the predecessor and the successor, in the case of succession or to the amalgamating company and the amalgamated company in the case of amalgamation as the case maybe, shall not exceed in any previous year the deduction calculated at the prescribed rates as if so succession or the amalgamation as the case may be, had not taken place and such depreciation shall be apportioned between the predecessor and the successor in the ratio of the number of days, for which, the assets were used by them. The DRP had also discussed the argument of the assessee in light of the method of the accounting followed for giving treatment to amalgamation in terms of Accounting Standards prescribed by the ICAI by following the decision of Hon’ble Supreme Court in the case of CIT vs., UP State Industrial Development Corporation [1997]

23 ITA.No.111/Hyd./2022 225 ITR 703 (SC) held that, for the purpose of ascertaining profits and gains, the ordinary principles of commercial accounting should be applied, so long as they do not contradict with express provision of the relevant Statute. In other words, it can be said that, accounting treatment of any transaction is relevant only to the extent they are not in contradiction with the express provision of the Income Tax Act. In the case of amortization and acquisition, the Income Tax Act expressly requires recording of capital asset at the price appearing in the books of amalgamating company. Accordingly, the recognition of goodwill in accordance with Accounting Standard-14 and amortization of the same in accordance with Accounting Standard-26 may not be of any help in claiming depreciation under the Income Tax Act, in view of the express provisions provided therein. Therefore rejected the explanation of the assessee and sustained the addition made by the Assessing Officer.

24 ITA.No.111/Hyd./2022 M/s. Invesco Hyderabad Private Limited and the said shares has been acquired on 01.08.2016 from IVZ Mauritius Services Private Limited and the said investment was made, out of amounts raised on issue of CCDs issued to it’s holding company. Further, the appellant company has acquired 12,600 equity shares with a face value of Rs.10/- @ Rs.1,93,723/- per share and the same has been valued on the basis of valuation report dated 16.06.2016 prepared on the basis of Discounted Cash Flow Method [in short “DCF”] and fair value of the share of the amalgamating company as on 31.03.2016. Further, the appellant-company amalgamated with the subsidiary by an order of National Company Law Tribunal [in short “NCLT”] dated 15.05.2017 with appointed date for amalgamation on 01.04.2016 and as per the valuation report dated 11.03.2017, the net assets value of the amalgamated company as on 01.04.2016 was at Rs.102,86,02,342/-. Since the value of investment in the shares of subsidiary was at Rs.244,09,03,945/-, the excess of net value of tangible assets was determined as value of goodwill on account of amalgamation, on which, the 25 ITA.No.111/Hyd./2022 assessee has claimed depreciation in terms of section 32(1)(ii) of the Act. Learned Counsel for the Assessee further referring to the decision of Hon’ble Supreme Court in the case of CIT vs., Smifs Securities Limited (supra), submitted that, depreciation on goodwill on account of amalgamation is allowable in terms of section 32(1)(ii) of the Act and the same has been upheld by the Hon'ble Supreme Court. Further, in the case before the Hon'ble Supreme Court, the assessee claimed depreciation on goodwill arising on account of amalgamation. Learned Counsel for the Assessee further, referring to the decision of Hon’ble Supreme Court in the case of Pr. CIT-4 vs., Zydus Wellness Ltd., [2020] 113 taxmann.com 154 (SC) submitted that, the Hon’ble Supreme Court by following the decision of CIT, Kolkata vs., Smifs Securities Limited [2012] 13 SCC 488 (SC), has dismissed the SLP filed by the assessee and upheld the order of Hon’ble High Court of Gujarat wherein it has been clearly held that, assessee-company entitled to claim depreciation on goodwill expended at the time of amalgamation of companies. He further referred to the 26 ITA.No.111/Hyd./2022 decision of Hon’ble High Court of Calcutta in the case of CIT, Kolkata-IV vs., M/s. Smifs Securities Ltd., ITA.No.116 of 2010 which is placed at page-89 of the paper book and submitted that, Revenue has conceded the issue before the Hon’ble High Court and claimed that, this issue is covered in favour of the assessee by the decision of Hon’ble Supreme Court by following the decision of CIT, Kolkata vs., Smifs Securities Limited [2012] 348 ITR 302 (SC). Further, various Benches of the Tribunal including ITAT Ahmedabad in the case of Urmin Marketing (P.) Limited vs., DCIT, Circle- 4(1)(1), Ahmedabad [2020] 122 taxmann.com 40 (Ahmedabad-Tribu.) has very clearly held that, excess payment over net book value of assets and liabilities acquired on account of amalgamation is treated as goodwill and since in view of decision of Hon’ble Supreme Court by following the decision of CIT, Kolkata vs., Smifs Securities Limited (supra), ‘goodwill’ is part and parcel of intangible asset and eligible for depreciation. Learned Counsel for the Assessee further referring to decision of ITAT, Hyderabad Bench in the case of DCIT, Circle-8(1) vs. East India

27 ITA.No.111/Hyd./2022 Petroleum Ltd., [2025] 171 taxment.com 692 (Hyderabad- Tribu.) submitted that, a similar view has been taken by the Coordinate Bench and held that, excess consideration paid over and above the net asset value of the company, is treated as ‘goodwill’ and eligible for depreciation under section 32(1)(ii) of the Act. In this regard he relied upon decision of ITAT, Hyderabad Bench in the case of S & P Capital IQ (India) (P.) Ltd., vs., ACIT [2024] 205 ITD 217 (Hyderabad-Trib.) and decision of ITAT, Mumbai Bench, Mumbai in the case of Disney Broadcasting (India) (P.) Ltd., vs., PCIT [2024] 163 taxment.com 40 (Mumbai-Trib.).

18.1. Learned Counsel for the Assessee, further referring to the observation of the Assessing Officer with regard to valuation report submitted for acquiring shares of subsidiary company from another related party on 01.08.2016 and subsequent valuation report dated 11.03.2017 for the purpose of amalgamation submitted that, although, there are two different valuation reports determined different values, but the fact remains that, when it comes to acquiring shares, it is always the valuation, on 28 ITA.No.111/Hyd./2022 the basis of Discounted Cash Flow [in short “DCF”] method. However, when it comes to accounting treatment for amalgamation of two companies, it is Net Asset Value [in short “NAV”] method. Therefore, the observation of the Assessing Officer in light of valuation reports that, the assessee has designed tax evasion plan with the creation of an artificial intangible asset, is only on the basis of surmises and conjectures and not backed by any evidences. Learned Counsel for the Assessee further referring to TP report submitted by the assessee and various provisions of Companies Act, 2013 and RBI Circular submitted that, the appellant-company has reported purchase of shares from related party in the TP study report and it was subjected to TP analysis carried-out by the TPO. Further, the appellant company has acquired shares from Mauritius based company through prior approval from the NCLT and the RBI which have not raised any objections. Further, the amalgamation was approved by the NCLT by an Order dated 15.05.2017 and the Department was subjected to notice of amalgamation before the NCLT passes it's Order. The 29 ITA.No.111/Hyd./2022 Department has not raised objection. Further, the Assessing Officer has not rejected the valuation report submitted by the assessee. However, made observation contrary to the fats and, therefore, the allegation of the Assessing Officer that, the assessee has created an artificial intangible asset through layered transactions between intra-group companies is devoid of merits and should be rejected. Therefore, he submitted that, addition made by the Assessing Officer towards disallowance on depreciation on ‘goodwill’ should be deleted.

30 ITA.No.111/Hyd./2022 Limited, a 100% subsidiary of appellant-company w.e.f. 01.04.2016. The assessee has considered two different values for an enterprise on very same day which is evident from amount paid by the appellant-company for acquiring shares from Mauritius based company and the amount recorded in terms of amalgamation approved by the NCLT w.e.f. 01.04.2016. Admittedly, the appellant-company has acquired 12000 equity shares of Invesco Hyderabad Private Limited @ Rs.1,93,723/- per share on 18.02.2016 even though the fair market value of the share was at Rs.81,635/- as on the date of acquisition. Although, the assessee claims that it has followed DCF method for purchase of shares and NAV method for recording asset and liabilities for the purpose of amalgamation, but, there cannot be two enterprise value for any entity on the very same day. Therefore, the Assessing Officer and DRP after considering relevant facts, has rightly treated the accounting on ‘goodwill’ arising on account of amalgamation is not genuine and created only for the purpose of reducing the profit is backed by evidences. Therefore, he submitted

31 ITA.No.111/Hyd./2022 that, there is no merit in the arguments of the Learned Counsel for the Assessee and the same needs to be rejected.

20.1. The assessee has paid Rs.1,93,723/- per share on this date i.e., on 01.04.2016 and the same has been determined by adopting DCF method. At the same time, the assessee has determined the net assets value of the amalgamated company as on 01.04.2016 at Rs.102,86,02,342/- and the intrinsic value of each share works-out at Rs.81,635/- per share. Thus, for showing investment in shares, the assessee has adopted DCF method of valuation of shares and in order to record ‘goodwill’, the assessee has adopted fair market value of assets, both on the same date. The Assessing Officer has 34 ITA.No.111/Hyd./2022 brought-out various defects in DCF method followed by the assessee to arrive the intrinsic value of shares as on 31.03.2016. As per the Assessing Officer, the Valuer has considered DCF method for the financial year 2016-2017 to financial year 2020-2021, even though, it was fully aware the fact that Company had already been amalgamated w.e.f. 01.04.2016 and, therefore, in our considered view, the method adopted for arriving at fair market value of shares as on 31.03.2016 under DCF method last it’s sanctity and it is not acceptable. Another important factor to be considered at this juncture is that, the assessee-company has made investment of Rs.244,09,03,345/- on 01.08.2016 and the Board of Directors adopted resolution for acquisition of these subsidiary company on 02.08.2016. This fact clearly shows that, affairs of amalgamation were created with a view to create goodwill by adopting different valuation methods for investment and recording the value of assets for amalgamation. Further, the amalgamating company was fully owned subsidiary of the assessee-company and IVZ Mauritius Private Limited from whom shares were acquired,

35 ITA.No.111/Hyd./2022 is also a subsidiary of parent company of the assessee. These are intra-group transactions. Although, the assessee claims to have reported related party transaction in TP study report and it was subjected to analysis by the TPO and further, the purchase of shares from IVZ Mauritius Private Limited is also subjected to approvals from NCLT and RBI, in our considered view, the said facts does not alter the position that, the assessee has inflated enterprise value of the subsidiary, while purchasing the shares from it’s related party and at the same time, while recording goodwill in terms of amalgamation, has considered real value of the company which resulted in an artificial excess consideration in the nature of goodwill. Therefore, in our considered view, the arguments of the assessee that, it has always recognized two methods for the purpose of valuation of enterprise value, i.e., one for the purpose of acquiring shares which is DCF method and the another for the purpose of recording ‘goodwill’ which is NAV method, is a self-serving statement and cannot be accepted.

36 ITA.No.111/Hyd./2022 20.2. We further note that, an analysis of the closed transactions between the parties, it is abundantly clear that, the assessee company in association with it’s related parties has designed a transaction so as to create an artificial intangible asset in the form of ‘goodwill’ and thereby, claim the depreciation on it, to lower the tax liability of the assessee-company. This creation of artificial intangible asset by assessee-company in the intra-group companies, without proper justification is, in the nature of an implied device to evade taxes. Although, the assessee claims that, agreement between the assessee-company and it’s wholly owned subsidiary-company i.e., Invesco Hyderabad Private Limited is approved by the NCLT and the Department is also party to the said transaction, in our considered view, merely because this Scheme of amalgamation has been approved by the NCLT, it does not take away the right of the Assessing Officer to examine the transactions in light of relevant provisions of the Income Tax Act. Therefore, we reject the arguments of the Counsel for the Assessee on this aspect. Further, the assessee even now

37 ITA.No.111/Hyd./2022 could not able to explain as to how an enterprise can be valued on two different enterprise values on the same date i.e., one for the purpose of acquiring shares from another related party which is based in Mauritius and one for the purpose of amalgamation into the assessee-company at a different enterprise value. Going by the transactions between the parties and the location of the selected entity situated at Mauritius, in our considered view, the Mauritius based entity is not liable to pay capital gains tax in India on account of DTAA benefit and, therefore, the assessee has designed a plan to transfer the funds to the parent company through the structured transactions via Mauritius based company. Since the appellant-company is unable to explain as to how a company can be valued on very same day for different purposes, in our considered view, the argument of the assessee that, DCF method is the recognised method for the purpose of valuation of shares and the assessee has acquired shares as per DCF method is devoid of merits and cannot be accepted. In our considered view, whether assessee follows DCF method or NAV method, an enterprise

38 ITA.No.111/Hyd./2022 value of any entity cannot be so much difference as explained by the assessee, which is evident from the fact that, although, the enterprise value of amalgamated company was at Rs.102,86,02,342/-, but, the assessee has paid an amount of Rs.244,09,03,945/- for acquiring 12,600 equity shares at Rs.1,93,725/- per share, even though, it was fully aware that, the fair market value of the share as on 31.03.2016 was at Rs.81,635/- per share.

20.3. Therefore, we reject the arguments of the Counsel for the Assessee. Further, amalgamation between two companies is, for the furtherance of their business or consolidation of business for smooth operation for business. In the present case, going by the reasons given by the assessee for amalgamation of companies, in our considered view, it is only a self-serving document, but, in reality, there is no furtherance of business between the two companies and because of amalgamation, the assessee failed to prove the benefit derived by the assessee-company by creating goodwill in the books of accounts on account of amalgamation. Further, in our considered view, when the 39 ITA.No.111/Hyd./2022 assessee-company was aware of the enterprise value of the subsidiary company as on 31.03.2016 which was at Rs.102,86,02,342/- and the assessee has paid Rs.244,09,03,945/-, then, the assessee should have accounted the value of goodwill in the books of the subsidiary company. However, the assessee conveniently ignored the transactions and has entered into separate transactions of amalgamation to create an artificial intangible asset in the form of goodwill and thereby, claimed depreciation on it, to lower the tax liability of the assessee company. Further, it is also an admitted fact that, no goodwill was existed in the books of accounts of the amalgamating company and that, it has not been acquired any know-how, patent, copyright, trademark or franchise of amalgamation. The very fact that, such a goodwill is not valued and is not shown in the assets side of the amalgamating company shows that, the assessee has not capitalised any value of the goodwill and hence, the value of such goodwill in the form of intangible, should be taken as NIL. Therefore, we are the considered view that, there is no 40 ITA.No.111/Hyd./2022 merit in the arguments of the Counsel for the Assessee that, ‘goodwill’ accounted in the books of accounts on account of amalgamation is backed by evidences and thus, we reject the arguments of the Counsel for the Assessee.

20.4. Coming back to the legal proposition canvassed by the learned Counsel for the Assessee. Learned Counsel for the Assessee has argued at length in light of decisions of Hon’ble Supreme Court in the case of CIT vs., Smifs Securities Limited (supra) and also in light of Zydus Wellness Limited (supra). In our considered view, although, the Hon’ble Supreme Court has decided the issue of goodwill as an intangible asset and eligible for depreciation under section 32 (1)(ii) of the Act, in light of accounting of ‘goodwill’ on account of amalgamation of two companies, but, in our considered view, the proposition canvased by the assessee becomes infructuous, in view of the fact that, the ‘goodwill’ created by the assessee on account of amalgation as held to be not genuine and assessee is not entitled for claiming depreciation on the said goodwill. Further, although, the assessee has relied upon decision of 41 ITA.No.111/Hyd./2022 Coordinate Benches of ITAT, Hyderabad in the cases of DCIT, Circle-8(1) vs., East India Petroleum Ltd., (supra); S & P Capital IQ (India) (P.) Ltd., ACIT (supra), decision of ITAT, Mumbai in the case of Disney Broadcasting (India) (P.) Ltd., vs., PCIT (supra) and ITAT, Ahmedabad Bench decision in the case of Urmin Marketing (P.) Ltd., vs., DCIT, Circle- 4(1)(1), Ahmedabad (supra), in our considered view, in all the cases the Co-ordinate Benches of the Tribunal has considered the issue of ‘goodwill’ in light of decision of Hon’ble Supreme Court in the case of CIT, Kolkata vs., Smifs Securities Ltd., (supra) and held that, ‘goodwill’ arising on account of amalgamation is an intangible asset and eligible for depreciation under section 32(1)(ii) of the Act. In our considered view, since in the present case, we held that, ‘goodwill’ created by the assessee, is not a real one or genuine one, the question of considering the ratio laid down by the Hon’ble Supreme Court and various Benches of the Tribunal for the purpose of allowing depreciation does not arise and thus, we reject the various

42 ITA.No.111/Hyd./2022 case laws relied upon by the Learned Counsel for the Assessee.

20.5. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the assessee is not entitled for depreciation on ‘goodwill’ accounted on account of amalgamation. The Assessing Officer and DRP after considering the relevant facts, has rightly rejected the claim of the assessee. Thus, we are inclined to uphold the Directions of the DRP / Order of Assessing Officer and reject the grounds raised by the assessee on this issue.

44 ITA.No.111/Hyd./2022 by the Assessing Officer towards disallowance of expenditure u/sec.14A should be deleted.

45 ITA.No.111/Hyd./2022 relatable to exempt income and after considering the relevant facts has clearly arrived at satisfaction that, disallowance computed by the assessee is not in accordance with the provisions of sec.14A(2) of the Act. Therefore, in our considered view, the argument of the Counsel for the Assessee on the issue of satisfaction fails and thus, rejected.

25.1. Having said so, let us come back to the disallowance computed by the Assessing Officer. The assessee has computed adhoc disallowance of Rs.11,59,197/- towards expenditure relatable to exempt income and claimed that, it has computed such expenditure on the basis of time spent by the employee to manage the investments’. Although, the assessee claimed that, it has computed expenditure on the basis of time spent by the employee, but, in absence of relevant details as to how the assessee has fixed the cost of an employee, in our considered view, the method followed by the assessee to arrive on direct expenses cannot be accepted. Further, the assessee has considered adhoc indirect expenditure to arrive on total disallowance u/sec.14A of the act. The 46 ITA.No.111/Hyd./2022 assessee has not justified the method followed for computing suo motu disallowance. Therefore, in our considered view, the disallowance computed by the assessee cannot be accepted.

25.2. Coming back to the ‘method’ followed by the Assessing Officer. The Assessing Officer has followed the amended Rule 8D w.e.f. 01.04.2016, as per which, an amount equal to 1% of the annual average of the monthly average of opening and closing balance of the value of such investment, income from which does not form part of the total income has to be disallowed. In the present case, there is no dispute with regard to the fact that, the Assessing Officer has computed 1% of the average of the monthly average of opening and closing balance of the value of such investment income from which does not form part of the total income to arrive at a total disallowance of Rs.42,97,430/-. Further, the Assessing Officer has made addition of Rs.42,97,430/-, which includes the expenditure directly relating to income which does not form part of total income. In our considered view, making addition towards

47 ITA.No.111/Hyd./2022 suo motu disallowance made by the assessee is incorrect. Since the total disallowance computed by the Assessing Officer was at Rs.42,97,430/-, in our considered view, out of said disallowance, the expenditure already disallowed by the assessee was at Rs.11,59,197/- should be deducted. Therefore, we direct the Assessing Officer to allow deduction of suo motu disallowance of expenditure of Rs.11,59,197/- made by the assessee out of total disallowance computed in terms of Rule 8D of I.T. Rules, 1962 and make balance addition of Rs.31,38,233/- u/sec.14A read with Rule 8D of I.T. Rules, 1962. Accordingly, ground no.4 of assessee’s appeal is partly allowed.

50 ITA.No.111/Hyd./2022 of Assessing Officer to verify the facts and allow deduction as per law.

53 ITA.No.111/Hyd./2022 Officer to allow credit in case the assessee satisfies the conditions for claiming such FTC.

Order pronounced in the open Court on 30.06.2025