THE ACTI , CIRCLE-3(1)(1),, AHMEDABAD vs. NIRMA LIMITED,, AHMEDABAD

The assessee company, M/s Nirma Limited, is a public limited company engaged in the business of manufacturing and marketing a wide range of consumer and industrial products. Its principal consumer products include detergent powder, detergent cakes, toilet soaps and shampoos sold under the brand names “Nirma” and “Nima”. In addition, the company manufactures ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 3 intermediate industrial products such as sulphuric acid, Alpha Olephine Sulphonate (AOS), glycerine, acid slurry, fatty acid etc. The assessee has also diversified into large-scale industrial projects, namely the Soda Ash Project at Kala Talav, Bhavnagar and the Linear Alkyl Benzene (LAB) Project at Alindra, Baroda, both of which commenced production in F.Y. 1999–2000. The products from these units are partly consumed captively for the manufacture of soaps and detergents and partly sold to outside parties. The assessee also operates wind farm projects at Dhank, Bhavnagar District, Gujarat. Further, the Board for Industrial and Financial Reconstruction (BIFR) sanctioned a Modified Rehabilitation Scheme providing for amalgamation of Saurashtra Chemicals Ltd. (SCL) with the assessee, effective from 01.04.2011. SCL was engaged in manufacturing soda ash, sodium bicarbonate and bromine at its Birlasagar facility at Porbandar, besides operating five salt works near Jamnagar and limestone mines near Porbandar for captive use. Subsequently, by order dated 20.04.2015, the Hon'ble Gujarat High Court sanctioned a Composite Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956, whereby several associate and subsidiary companies were amalgamated with the assessee with effect from 01.04.2014. In the same scheme, the Healthcare Division of the assessee was demerged and transferred to Aculife Healthcare Pvt. Ltd. with effect from 01.10.2014. 3. For the Assessment Year 2015–16, the assessee filed its original return of income on 28.11.2015 declaring total income at Nil and book profit u/s 115JB at Rs.2,46,69,60,565/-. A revised ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 4 return was filed on 23.03.2017 declaring total income of Rs. 46,72,792/-. The case was selected for scrutiny, and assessment was completed u/s 143(3) vide order dated 30.03.2017 determining total income at Rs.103,21,96,073/-. In doing so, the AO made several additions and disallowances, notably: (i) treating sales-tax subsidy as revenue receipt, (ii) disallowance of excess depreciation on intangible assets, (iii) disallowance u/s 14A, (iv) disallowance of product registration expenses, (v) disallowance of delayed ESIC/PF payment, (vi) disallowance of depreciation on goodwill arising from amalgamation of SCL, and (vii) disallowance of deduction u/s 80IA in respect of power generation units. The AO also recomputed book profit at Rs.2,51,39,20,763/- by adding disallowance u/s 14A.

For Assessment Year 2016–17, the assessee filed its return of income on 29.11.2016 declaring total income of Rs. 4,12,91,90,560/- and book profit u/s 115JB at Rs. 8,15,15,29,966/-. The case was selected under CASS for scrutiny and assessment was completed u/s 143(3) vide order dated 14.03.2018 assessing total income at Rs.550,48,81,113/-. The AO made additions on account of: (i) excess depreciation on intangible assets, (ii) disallowance u/s 14A, (iii) depreciation on goodwill arising from SCL amalgamation, (iv) adjustment of income relatable to subsequent year, and (v) disallowance of deduction u/s 80IA for power units. Book profit was recomputed at Rs.8,15,36,38,898/-.

ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 5 Following is the tabulated summary of assessments for both the years: Sr Particulars Α.Υ. 2015-16 Α.Υ. 2016-17 1 Date of filing original Return of income 28-11-2015 29-11-2016 2 Total Income as per original Return of income in Rs. Nil 4,12,91,90,560 3 Book Profit as per section 115JB in Rs. 2,46,69,60,565/- | 8,15,15,29,966/ 4 Date of filing original Revised return of income 23-03-2017 5 Total Income as per Revised Return of income in Rs. 46,72,792/- - 6 Book Profit as per section 115JB in revised return Rs. 2,46,69,60,565/- 7 Date of Assessment Order u/s 143(3) 30-03-2017 14-03-2018 8 Additions / Disallowances Rs. Rs. - Sales Tax Subsidy 7,22,34,860/- 0 - Excess Claim of Depreciation on Intangible Assets 4,11,60,577/- 3,08,70,433/- - Disallowance u/s 14A r.w.r. 8D 4,69,60,198/- 21,08,932/- - Disallowance of Product Registration Expenses 15,79,142/- - Employee's Contribution towards ESIC/PF 9,70,103/- - Disallowance of Depreciation on Goodwill 9,71,72,064/- 7,28,79,048/- - Adjustment on account of income booked in 2017- 18 1,82,23,390/- Total Additions / Disallowance 26,00,76,944/- 12,40,81,803/- 6 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 6 9 10 11 12 - Disallowance of claim u/s 80IA Assessed Income after deductions u/Ch.VIA Addition to Book Profit due to disallowance u/s 14A r.w.r. 8D Book Profit As per section 115JB 74,00,90,123/- | 1,25,35,47,080/- 1,03,21,96,073/- | 5,50,48,81,113/- 4,69,60,198/- 21,08,932/- 2,51,39,20,763/- | 8,15,36,38,898/-

For the A.Y. 2015–16 vide order dated 03.07.2019, the Ld. CIT(A) partly allowed the appeal. Relief was granted by treating sales-tax subsidy as a capital receipt, deleting disallowance of excess depreciation on intangible assets, allowing product registration expenses as revenue in nature, allowing deduction u/s 80IA of Rs.74,00,90,123/-, and holding that notional income on corporate guarantee to subsidiary was not taxable. However, the disallowance of delayed ESIC payment and depreciation on goodwill was confirmed.

For the A.Y. 2016–17 vide order dated 08.07.2019, the Ld. CIT(A) again partly allowed the appeal. Relief was granted by deleting disallowance of excess depreciation on intangible assets and allowing deduction u/s 80IA of Rs.1,25,35,47,080/-. However, disallowance of delayed ESIC payment and depreciation on goodwill were confirmed.

Aggrieved by the orders of CIT(A) both Assessee and Revenue are in cross appeals before us. The assessee has also filed cross objections against the appeals of the revenue. Following are the respective grounds before us:

In Assessee's Appeal for A.Y. 2015-16 ITA No. 1412/Ahd/2019

In Assessee's Appeal for A.Y. 2016-17 ITA No. 1413/Ahd/2019

On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess (education cess') paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, 1961 ('the Act') while computing the taxable income. Revenue's Appeal for A.Y. 2015-16 ITA No. 1436/Ahd/2019

It is, therefore, prayed that the order of Ld CIT(A) may be set aside and that of the Assessing Officer be restored.

Revenue's Appeal for A.Y. 2016-17

Grounds of Assessee's Cross Objection No. 11/Ahd/2020 in Revenue’s Appeal No. 1436/Ahd/2019 in A.Y. 2015-16

Grounds of Assessee's Cross Objection No. 12/Ahd/2020 in Revenue's Appeal No. 1437/Ahd/2019 for A.Y. 2016-17. 1. In law and in the facts and circumstances of the Respondent's case, the learned A.O. has grossly erred in points of law and facts.

In law and in the facts and circumstances of the Respondent's case, the learned A.O. has grossly erred in not allowing net previous year expenses of Rs.60,17,072/- in Asst. Year: 2016-17. 3. Your respondent reserves the right to add, alter, amend or vary all or any of the above Grounds of Cross Objection as may be advised from time to time.

At the very outset, the learned Authorised Representative (AR) for the assessee submitted that the various issues arising in the present appeals for the years under consideration are squarely covered in favour of the assessee by the decision of the Co-ordinate Bench rendered in the assessee's own case for the earlier assessment years. The AR further placed on record a copy of the said order dated 30.06.2025 (ITA No. 2007 & 2008/Ahd/2017 and ITA No. 516/Ahd/2018 for Assessment Years 2012-13, 2013-14 and 2014-15) and submitted that the matters in dispute are identical on facts as well as in law, and therefore, following the principle of consistency, the issues may be 11 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 11 decided in favour of the assessee. Since the said decision is already on record, we shall examine, issue-wise, whether the ratio laid down therein is applicable mutatis mutandis to the facts of the present assessment years under appeal, or whether there are any distinguishing features that warrant a departure. • Issue relating to Sales Tax Subsidy – Revenue's Ground No. 1 for A.Y. 2015-16 and additional ground No. 1 in assessee's appeal for the same year.

During the year, the assessee claimed sales tax subsidy of Rs.7,67,88,328/- in the return, later revised to Rs.7,22,34,860/- in respect of its Kala Talav Unit, Bhavnagar. The assessee treated this subsidy as a capital receipt not chargeable to tax, relying upon the order of the Co-ordinate Bench in its own case for A.Y. 1992–93. The Assessing Officer, however, rejected the claim, observing that the subsidy was linked to sale of finished goods and purchase of raw material, rather than to capital investment. The AO further noted that the assessee made no entries in its books of account to reflect the subsidy, claimed deduction only in the computation of income, and thereby avoided inclusion of such receipts in profit while at the same time reducing taxable income.

On appeal, the CIT(A) disagreed with the AO's conclusions. The CIT(A) reproduced the Co-ordinate Bench's reasoning that the scheme of the State Government was aimed at encouraging industries to set up or expand units in backward areas, and the form of incentive (i.e., sales tax exemption) was only a modality. The CIT(A) also took note of subsequent judicial developments, 12 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 12 including the dismissal of Revenue's appeal by Hon'ble Gujarat High Court in Tax Appeal No. 226 of 2010 dated 08.06.2016, and further reliance on the judgement of Hon'ble Supreme Court in CIT v. Chaphalkar Brothers [(2017) 88 taxmann.com 178 (SC)], which affirmed the capital nature of incentives granted to promote industrial growth. Following these, the CIT(A) concluded that the subsidy in assessee's case was a capital receipt not liable to tax and directed deletion of the addition made by AO.

The AR of the assessee submitted that identical issue had arisen in earlier years and consistently the Co-ordinate Bench, the Hon'ble Gujarat High Court, and later even the Hon'ble Supreme Court have upheld the capital nature of the subsidy. Reliance was placed on ITAT's order dated 30.06.2025 in assessee's own case. The DR, however, relied upon the AO's findings.

We have considered rival submissions, examined the assessment order, the appellate order, and judicial precedents. The scheme under which the assessee received sales tax subsidy was a Backward Area Development Scheme of the Government of Gujarat, aimed at encouraging setting up of industries in backward regions. The Hon'ble Supreme Court in CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392) has laid down the purpose test to determine the character of subsidy. If the object of subsidy is to promote capital investment, the receipt is capital in nature, irrespective of the form or manner of quantification. Conversely, if the object is to supplement trade receipts, it would be revenue. 13 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 13 Applying this test, we find that the object of the State scheme in question was clearly to promote capital investment and industrialisation in backward areas, and the modality of exemption from sales tax is only incidental. This view has been consistently accepted in assessee's own case for earlier years by the Co-ordinate Bench, which has been upheld by Hon'ble Gujarat High Court (Tax Appeal No. 226 of 2010, order dated 08.06.2016), and ultimately fortified by the Hon'ble Supreme Court in CIT v. Chaphalkar Brothers, Pune (2017) 88 taxmann.com 178 (SC). We therefore see no reason to depart from the settled judicial view. Respectfully following the binding precedents and in absence of any material change in facts or legal position, we uphold the order of the CIT(A) and hold that the sales tax subsidy of Rs.7,22,34,860/- is a capital receipt not chargeable to tax. Accordingly, the Revenue's ground is dismissed.

By way of an additional ground, the assessee has contended that the sales tax subsidy of Rs.7,22,34,860/-, already held to be a capital receipt not chargeable to tax under the normal provisions, ought to be excluded from the computation of book profit under Section 115JB as well. It was submitted that Explanation 1 to Section 115JB is exhaustive and provides specific adjustments to be made to the net profit as per the profit and loss account. Since a receipt of capital nature, not liable to tax under the Act, cannot be brought to tax indirectly through the deeming fiction of Section 115JB unless specifically included in the adjustments under Explanation 1, the subsidy must be excluded. Reliance was placed on the decision of the Co-ordinate 14 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 14 Bench in assessee's own case for earlier years, wherein it was held that capital receipts which are not liable to tax under the Act cannot form part of book profit unless specifically mandated. We have carefully considered the rival contentions. The nature of sales tax subsidy has already been adjudicated hereinabove as a capital receipt not chargeable to tax under the Act. The only question is whether such subsidy should nevertheless be included in the computation of book profit u/s 115JB.

It is a settled proposition that the adjustments under Explanation 1 to Section 115JB are exhaustive, and unless a particular item is specifically required to be added back, it cannot be included in book profits. Since the sales tax subsidy in question is admittedly a capital receipt, not chargeable to tax under the normal provisions of the Act, the same cannot be subjected to tax indirectly under the MAT provisions. Respectfully following the binding precedents and in absence of any material change in facts or legal position, we direct that the subsidy of Rs. 7,22,34,860/- be excluded from the computation of book profit under Section 115JB. Accordingly, the assessee's additional ground is allowed. • Issue Relating to Excess Claim of Depreciation on Intangible assets – Revenue's Ground No. 2 in A.Y. 2015-16 and Ground No.1 in A.Y. 2016-17

In A.Y. 2015–16, the assessee claimed depreciation of Rs. 4,39,14,935/- on intangible assets being brand/trade name 15 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 15 transferred from the demerged unit of Nirma Industries Ltd. The AO, however, held that as per assessment records, only depreciation of Rs.27,54,358/- was allowable (25% of Rs. 1,10,17,431/- being the WDV as per earlier year's order). Therefore, the excess claim of Rs.4,11,60,577/- was disallowed.

Similarly, in A.Y. 2016-17, the assessee claimed depreciation of Rs.3,29,36,201/- on the same intangible assets. The AO restricted the allowance to Rs.20,65,768/- (25% of Rs. 82,63,073/- being the WDV carried forward as per his computation) and disallowed Rs.3,08,70,433/-.

The AO justified this on the ground that the ITAT's decision in assessee's favour for earlier years (allowing depreciation on WDV of Rs.500 crores) had not attained finality as the Revenue had filed appeals before the Hon'ble Gujarat High Court.

In appeal, the learned CIT(A) examined the issue in detail. The CIT(A) referred to the order of the Co-ordinate Bench in the case of M/s. Nirma Industries Pvt. Ltd. for A.Y. 2001–02 in ITA No. 386/Ahd/2010 dated 24.01.2013, wherein the Bench had accepted the valuation of intangible assets at Rs.500 crores, transferred into the assessee company under the scheme of demerger. The CIT(A) also noticed that in subsequent years from A.Ys.2006–07 onwards, similar claims were consistently allowed either by the CIT(A) or by the Co-ordinate Bench, including in ITA No. 2022/Ahd/2009 order dated 31.07.2017 for A.Y. 2005–06. It was further observed that Explanation (3) to Section 43(1), 16 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 16 invoked by the Assessing Officer, had been considered by the Co- ordinate Bench in earlier years and rejected, since the Assessing Officer had not established that the main purpose of acquisition of the intangible assets was reduction of liability to tax by claiming extra depreciation. On these facts, the CIT(A) held that the assessee was entitled to depreciation on the written down value of intangible assets taking Rs.500 crores as the base cost and directed the Assessing Officer to delete the disallowances of Rs.4,11,60,577/- (A.Y. 2015–16) and Rs.3,08,70,433/- (A.Y. 2016-17).

Before us, the learned AR reiterated that the issue is fully covered by the orders of the Co-ordinate Bench in assessee's own case for earlier years, which have attained finality. The AR also pointed out relevant pages form the order of Co-ordinate Bench in assessee's own case in ITA No. 2224/Ahd/2017 and ITA No. 791/Ahd/2018 for A.Y. 2013-14 and 2014-15. 27. We find merit in the contention of the assessee. The Co- ordinate Bench, while deciding the issue for A.Y. 2001–02 in ITA No. 386/Ahd/2010, had held that the valuation of intangible assets at Rs.500 crores is acceptable and depreciation is to be allowed accordingly. The relevant portion of the order has been reproduced by the CIT(A). The Co-ordinate Bench has also, in later years including assessment years up to 2014-15, consistently upheld the assessee's claim. It is well settled that in absence of any change in facts or law, a view taken in earlier years in assessee's own case should be followed in subsequent 17 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 17 years as a matter of judicial discipline. We also note that the Hon'ble Gujarat High Court, while considering connected issues, has not disturbed the findings of Co-ordinate Bench on this aspect.

Accordingly, respectfully following the consistent orders of the Co-ordinate Bench in assessee's own case, we uphold the order of the CIT(A) in deleting the disallowances made by the Assessing Officer in both years. The related grounds raised by the Revenue are therefore dismissed. • Issue relating to disallowance relating to claim of Product Registration Expenses in Revenue's Ground No. 3 in A.Y. 2015-16. 29. The Assessing Officer noted that the assessee had debited product registration expenses aggregating to Rs.92,44,087/- towards registration of its products in various foreign juri ictions. While examining this claim, the Assessing Officer was of the view that in the assessee's line of business, export of goods to foreign countries is not permissible unless and until such products are duly registered with the regulatory authorities of the concerned countries. According to the AO, the process of registration grants the assessee a right to sell its products in those juri ictions, thereby conferring a benefit of enduring nature in the form of marketing rights which are in the capital field. He therefore treated the registration rights as intangible assets within the meaning of Section 32(1)(ii) of the Act, held the expenditure to be capital in nature, and disallowed the claim of 18 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 18 revenue deduction. However, the AO allowed depreciation on such intangible assets, including depreciation of Rs.76,64,945/- pertaining to earlier years and added back the balance disallowance of Rs.15,79,142/- to the income of the assessee.

Before the CIT(A), the assessee contended that the expenditure incurred towards registration of products in foreign countries was wholly and exclusively for the purpose of carrying on its business. It was submitted that without such registration, the assessee would not be able to export its products, and therefore the expenditure is in the nature of facilitating the carrying on of business rather than resulting in acquisition of any new capital asset. It was further emphasized that the expenses were non-refundable in nature, did not bring into existence any new asset, and only enabled the company to continue its business in the ordinary course. The assessee placed reliance upon the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Torrent Pharma Ltd. (2013) 29 taxmann.com 405 (Guj.) and also on the decision in the case of Cadila Healthcare Ltd. (Tax Appeal No. 752 of 2012 dated 28.01.2013), wherein product registration charges were held to be allowable as revenue expenditure. The assessee also pointed out that in earlier assessment years 2009- 10 to 2014-15, the CIT(A) had accepted this claim, following the ratio laid down by the Hon'ble High Court, and therefore on the principle of consistency the claim deserved to be allowed.

The learned CIT(A) examined the rival contentions and noted that the Hon'ble Gujarat High Court in Torrent Pharma Ltd. 19 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 19 (supra) had clearly held that foreign country registration charges for marketing pharmaceutical products are to be allowed as revenue expenditure under Section 37(1) of the Act. The High Court had observed that such expenditure neither creates a new asset nor brings into existence an advantage of enduring nature in the capital field but is integrally connected with the carrying on of business. Similarly, reliance was placed on Cadila Healthcare Ltd. (supra), where the Hon'ble High Court had reiterated the same principle. The CIT(A) also observed that in assessee's own case for assessment years 2009-10 to 2014-15, the claim had been consistently allowed by the appellate authorities. Although the Revenue had preferred further appeals before the Co-ordinate Bench against some of those orders, in the absence of any contrary decision reversing the ratio of the juri ictional High Court, he followed the binding precedent and directed the AO to allow the claim of product registration expenses for the current year as well. Accordingly, the disallowance of Rs.15,79,142/- was deleted and the ground of appeal was allowed.

We have carefully considered the rival submissions, the orders of the authorities below, and the judicial precedents cited. The issue whether product registration expenses are capital or revenue in nature is no longer res integra in view of the binding judgment of the Hon'ble Gujarat High Court in CIT v. Torrent Pharma Ltd. (2013) 29 taxmann.com 405 (Guj.), wherein it was categorically held that such expenses, though resulting in enabling the assessee to export its products in a particular territory for a certain period, do not bring into existence any asset 20 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 20 of enduring nature in the capital field, but are part of the process of carrying on business and hence allowable as revenue expenditure. The Hon'ble High Court in Cadila Healthcare Ltd. (Tax Appeal No. 752 of 2012 dated 28.01.2013) has further reiterated this view. We also notice that in assessee's own case for earlier assessment years, the appellate authorities have consistently accepted this claim and there is no material on record to suggest that the said decisions have been overturned by any higher forum. In such circumstances, judicial discipline demands that we follow the binding precedent of the juri ictional High Court and the consistent view taken in assessee's own case.

Accordingly, we hold that the product registration expenses incurred by the assessee during the year under consideration are allowable as revenue expenditure under Section 37(1) of the Act. The contrary stand of the Assessing Officer treating the same as capital expenditure and allowing depreciation thereon cannot be sustained. We therefore uphold the order of the CIT(A) in deleting the disallowance of Rs.15,79,142/-. Related ground of the Revenue is dismissed. • Issue relating to Deduction under Section 80IA (Power Generation Units) – Revenue's Ground No. 4 for A.Y. 2015- 16 and Ground No. 2 for A.Υ. 2016-17

For the A.Y. 2015-16, the Assessing Officer, while framing the assessment, noted that the assessee had claimed deduction under Section 80IA amounting to Rs.74,00,90,123/-, comprising 21 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 21 Rs.55,99,95,400/- in respect of Porbandar location and Rs. 18,00,94,723/- in respect of Bhavnagar – Unit III. For A.Y. 2016- 17 these amounts were noted as Rs.52,88,59,080/- and Rs. 72,46,88,000/- respectively. The AO rejected the claim on the reasoning that the power generated from these units was consumed entirely on captive basis within the group concerns, and hence, in his opinion, the benefit of Section 80IA could not be availed. The AO relied upon earlier disallowances in similar circumstances in the assessee's case and concluded that captive consumption could not qualify for deduction under Section 80IA. Accordingly, the claim was disallowed.

The CIT(A), however, after considering the detailed submissions of the assessee and relying upon binding judicial precedents, allowed the claim. The CIT(A) noted that an identical issue had been decided in favour of the assessee for earlier

In view of the above consistent decisions of the Co-ordinate Bench in assessee's own case and the binding ratio of the Hon'ble Gujarat High Court, we see no infirmity in the order of the CIT(A) in allowing the assessee's claim of deduction u/s 80IA in respect of its Bhavnagar and Porbandar power generation units. We also note that the Revenue has not brought any contrary decision of the juri ictional High Court to our notice. Accordingly, we uphold the order of the CIT(A) in deleting the disallowance of Rs. 74,00,90,123/- for A.Y. 2015-16 and Rs.1,25,35,47,080/- for Α.Υ. 2016-17. 37. We also take note of the alternate finding recorded by the Assessing Officer in para 11.2 of the assessment order. The Assessing Officer had, without prejudice to the main rejection, observed that if deduction under Section 80IA was to be held allowable at any appellate stage, then such deduction had to be restricted after - (i) excluding other income not derived from the eligible business as laid down by the Hon'ble Supreme Court in Liberty India Ltd. v. CIT (317 ITR 218), (ii) setting off the brought forward losses of the eligible undertaking before computing the current year's profits, and 23 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 23 (iii) allocating the administrative and financial costs to the eligible unit on a reasonable basis.

We find that the learned CIT(A) while allowing the claim in principle, has not dealt with these consequential aspects. In our considered opinion, these adjustments are integral to the manner of computing the deduction under Section 80IA. We, therefore, while upholding the order of the CIT(A) on the allowability of deduction under Section 80IA in principle, direct the Assessing Officer to recompute the eligible profits in accordance with law after giving effect to the aforesaid directions. This ground of appeal raised by the Revenue is partly allowed. • Issue relating to Guarantee Commission – Ground No. 5 in Revenue's appeal in A.Y. 2015-16

The assessee company had extended corporate guarantees to foreign banks on behalf of its Associated Enterprise (AE), namely Karnavati Holdings Inc., USA, which is a wholly owned subsidiary. Such guarantees were issued in respect of financial assistance/loans obtained by the subsidiary from foreign banks. The assessee, before CIT(A), filed an additional ground stating that, “In law and in the facts and circumstances of the Appellant's case, Rs.21,92,625/- pertaining to corporate guarantees for financial assistance given to wholly owned subsidiary, Karnavati Holding Inc., USA, is not income chargeable to tax.”

In its written submission dated 10.08.2018 on the additional ground, the assessee explained that it had given corporate guarantees to foreign banks on behalf of its Associated Enterprise 24 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 24 in USA. It further stated that it had itself computed and offered guarantee commission to tax at 1 percent of the outstanding guarantee and that there was a foreign exchange rate fluctuation component of Rs.21,92,625/- in such commission, which was offered for tax during the year under consideration. The assessee also pointed out that the income so offered in earlier years was reversed in the financial year relevant to A.Y. 2016-17 in respect of corporate guarantee commission including foreign exchange difference for A.Ys.2012-13 to 2015-16. The assessee contended that a corporate guarantee is a shareholder activity, does not entail cost, and does not have any impact on profits, income, losses or assets; therefore, it is outside Section 92B. Reliance was placed inter alia on Bharti Airtel Ltd. v. CIT [2014] 43 taxman 150 (Delhi ITAT).

Following the consistent view taken in the assessee's own case for the earlier assessment years 2009-10 to 2011-12, the learned CIT(A) held that the corporate guarantees furnished by the assessee to its subsidiary abroad did not constitute income chargeable to tax. Accordingly, he directed the Assessing Officer to delete the addition of Rs.21,92,625/- made on this account and to exclude the same while giving effect to the appellate order.

We have considered the rival submissions, examined the order of the learned CIT(A), and perused the material available on record. We note that similar issues had come up for consideration in the assessee's own case for A.Ys.2009-10 to 2011-12, wherein the Co-ordinate Bench had held, following the decision of the 25 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 25 Hon'ble Delhi Tribunal in Bharti Airtel Ltd. v. CIT (43 taxmann.com 150), that corporate guarantees extended without incurring any cost do not fall within the ambit of “international transaction” under Section 92B, and accordingly deleted the additions made.

However, in subsequent years i.e., A.Ys.2013-14 and 2014- 15, the Co-ordinate Bench, which followed the decision of Co- ordinate Bench in assessee's own case for AYs 2009-10 to 2011- 12, had an occasion to revisit this issue in the assessee's own case in light of the later judgment of the Hon'ble Madras High Court in PCIT v. Redington (India) Ltd. (122 taxmann.com 136). The Bench, after considering the binding precedent as well as several coordinate Bench rulings, came to the conclusion that the act of furnishing corporate guarantees to Associated Enterprises is to be regarded as an “international transaction” within the meaning of Section 92B of the Act, and accordingly requires benchmarking. At the same time, the Co-ordinate Bench also held that a corporate guarantee issued by a parent company in favour of its subsidiary cannot be equated with a bank guarantee issued by a commercial bank. Relying on the decisions, the Bench determined the arm's length commission rate at 0.50% of the value of the corporate guarantee.

In the present year, the facts and circumstances are materially similar. Respectfully following the Co-ordinate Bench decision in assessee's own case for A.Ys.2013-14 and 2014-15, 26 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 26 we hold that the appropriate arm's length commission rate is to be taken at 0.50% of the amount guaranteed.

Accordingly, we uphold the adjustment to the extent of 0.50% of the value of the corporate guarantees and direct the Assessing Officer to recompute the addition on this basis. The Revenue thus gets part relief on this ground. • Issue relating to Depreciation on Goodwill arising out of amalgamation of Saurashtra Chemicals Ltd. Assessee's Ground No. 3 in case of A.Y. 2015-16 and A.Y. 2016-17. 46. The assessee company has raised a common ground in both the years under appeal relating to disallowance of depreciation on goodwill arising on amalgamation of Saurashtra Chemicals Ltd. (hereinafter referred to as “SCL”) with the assessee company pursuant to a scheme sanctioned by the BIFR. In A.Y. 2015–16, the assessee claimed depreciation of Rs.9,71,72,064/- on the written down value of goodwill of Rs.38,86,88,257/- as on 31.03.2015, while in A.Y. 2016–17 depreciation of Rs. 7,28,79,048/- was claimed on the written down value of Rs. 29,15,16,193/- as on 31.03.2016. The assessee contended that goodwill had arisen as a balancing figure on account of the difference between net assets taken over and the liabilities assumed under the approved scheme of amalgamation and being an intangible asset within the meaning of Section 32(1)(ii) of the Act, depreciation thereon was allowable. 27 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 27

The Assessing Officer, however, disallowed the claim for both the years following the stand taken in earlier assessment years. In earlier year, the Assessing Officer observed that SCL was a sick company before the BIFR and had incurred heavy accumulated losses. According to him, it was inconceivable that any commercial reputation or goodwill could be attached to SCL which could pass on to the amalgamated company. It was further held that no consideration had in fact been paid by the assessee company for acquisition of any goodwill; the alleged goodwill was only an accounting entry created to balance the debit and credit sides of the balance sheet. Referring to Explanation 7 to Section 43(1) of the Act, the Assessing Officer noted that in a scheme of amalgamation the cost of any asset in the hands of the amalgamated company has to be taken as the cost in the hands of the amalgamating company, and since SCL did not have any goodwill recorded in its books, the cost in the hands of the assessee was Nil. Reliance was also placed by the Assessing Officer on the judgments of the Hon'ble Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India (1970) 1 SCC 248 and CIT v. B.C. Srinivasa Shetty (1981) 128 ITR 294 (SC) for the proposition that self-generated goodwill is nebulous in character and cannot be depreciated. The Assessing Officer further distinguished the judgment of the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC), holding that although the Apex Court had held goodwill to be an intangible asset, the decision did not deal with the situation where goodwill itself was not proved to have come into existence or any cost incurred. He therefore disallowed depreciation of Rs. 28 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 28 9,71,72,064/- in A.Y. 2015–16 and Rs.7,28,79,048/- in A.Y. 2016-17. 48. On appeal, the learned CIT(A) confirmed the disallowance for both the years. The CIT(A) observed that similar disallowances were made in the assessee's own case for A.Ys.2012–13 to 2014– 15 and were upheld in the appellate proceedings. Following the earlier orders, the CIT(A) held that there was no actual consideration paid for the so-called goodwill, and the difference between net assets and purchase consideration, if any, was in the nature of capital reserve and not goodwill. The CIT(A) further placed reliance on the decisions of coordinate benches including Chowgule & Co. (P.) Ltd. v. ACIT [2011] 10 taxmann.com 224 (Panaji), Borkar Packaging Pvt. Ltd. v. ACIT [2010] 101 TTJ 99 (Panaji), Sooraj Automobiles Ltd. v. DCIT [2006] 9 SOT 87 (Delhi), and DCIT v. Toyo Engg. Ltd. [2013] 33 taxmann.com 560 (Mumbai), to hold that depreciation on self-generated goodwill is not allowable. The CIT(A) accordingly upheld the Assessing Officer's action in disallowing depreciation on goodwill of Rs. 9,71,72,064/- in A.Y. 2015–16 and Rs.7,28,79,048/- in A.Y. 2016-17. 49. Before us, the learned AR reiterated the claim of the assessee and submitted that depreciation on goodwill arising on amalgamation is allowable in view of the judgment of the Hon'ble Supreme Court in Smifs Securities Ltd. (supra). It was contended that identical issue had come up in assessee's own case in earlier years, and the co-ordinate Bench in ITA Nos.2007 & 29 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 29 2008/Ahd/2017 for A.Ys.2012–13 and 2013–14, had allowed the assessee's claim for depreciation on goodwill. Reliance was placed on the said decision to submit that the issue is squarely covered in favour of the assessee, and no disallowance is warranted in the years under appeal.

We have carefully considered the rival submissions, the detailed reasoning given by the Assessing Officer as well as the relief granted by the learned CIT(A). Before us, the learned AR placed reliance on the decision of the Co-ordinate Bench in assessee's own case for A.Ys.2012-13 to 2014-15 (ITA Nos.2007 & 2008/Ahd/2017 and ITA No. 516/Ahd/2018, order dated 30.06.2025). We find that the issue relating to allowability of depreciation on goodwill arising on amalgamation of Saurashtra Chemicals Ltd. with the assessee stood adjudicated by the Co- ordinate Bench in favour of the assessee.

The Co-ordinate Bench in the aforesaid order, after an elaborate discussion of the scheme of amalgamation, provisions of Section 32, Explanation 3, judicial precedents including Smifs Securities Ltd. (348 ITR 302, SC), and the subsequent amendment by Finance Act, 2021, recorded the following findings at paras 6.3 to 6.6:

3 We also find that in the case of Aditya Birla Nuvo Ltd., the Hon'ble High Court of Mumbai has followed Hon'ble Supreme Court in ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 30 income. In both the cases the authorities have relied upon the judgment of Hon'ble Supreme Court in the case of Smifs Securities Ltd. In the case of Smifs Securities Ltd. (supra), paras 4 to 7 read as under:

Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature'. The principle of eju em generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).

4 We find that Section 32(1)(ii) 'Goodwill of a Business or Profession' has been specifically excluded from the definition of assets on which depreciation shall be calculated. Explanation 3(b) of Section 32(1): 'Goodwill of a Business or Profession' has been specifically excluded from the definition of intangible assets. The Finance Act, 2021 has amended following provisions of the IT Act: Section 2(11): Definition of 'Block of Assets' has been amended to specifically provide that 'Goodwill of a Business or Profession' shall not form part of block of assets comprising of 'Intangible Assets'. Section 32(1)(ii): 'Goodwill of a Business or Profession' has been specifically excluded from the definition of assets on which depreciation shall be calculated. Explanation 3(b) of Section 32(1): 'Goodwill of a Business or Profession' has been specifically excluded from the definition of intangible assets. Section 43(6)(c)(ii): Definition of WDV of the block of assets has been amended to provide that written down value of Goodwill is required to be reduced from the Opening WDV in such cases, where the Goodwill is already forming part of Block of Assets. Section 50: Computation of capital gains in case of depreciable assets has been amended to provide that where goodwill forms part of block of asset for assessment year 2020-21 and depreciation has been claimed, the written down value of the block and short-term capital gains would be determined in the prescribed manner. Rule 8AC has been prescribed for this purpose. 31 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 31 Section 55: Meaning of 'Cost of Acquisition' in case of Goodwill of Business or Profession has been amended to provide that in case it is acquired from a previous owner, the cost would be the amount of purchase price paid. in case it is acquired as a result of gift, amalgamation etc. and goodwill was acquired by previous owner, cost will be the cost to the previous owner. all other cases- cost will be NIL.

5 The reasoning given in the Memorandum explaining the Finance Bill, 2021 for excluding goodwill from the ambit of intangible assets is that the actual calculation of depreciation of goodwill is required to be carried out in accordance with various other provision of the Act. Once those provisions are applied, in some situations there could be no depreciation on account of actual cost being zero and the WDV of that asset in the hands of the amalgamating company being zero. It is further stated that goodwill, in general, is not a depreciable asset and it depends upon how the business runs, goodwill may see appreciation and in the alternative no depreciation to its value. Hence, for the said reasons assessees have been barred from claiming depreciation on goodwill.

6 Since the above amendments are applicable prospectively from the AY 2021-22, the appeal of the assessee on this issue for the AY 2012-13 is hereby allowed based on the judgment of the juri ictional High Court in the case of Aculife Healthcare Pvt Ltd. (supra) and judgment of Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra). In the result, the appeals of the assessee on this ground are allowed.

Respectfully following the above binding decision of the Co- ordinate Bench in assessee's own case, and there being no change in facts or law for the years under consideration, we hold that the assessee is entitled to depreciation on goodwill arising on amalgamation of Saurashtra Chemicals Ltd.

We also note that once depreciation has been granted in earlier years, the resultant Written Down Value (WDV) becomes final for the purpose of subsequent assessments and cannot be tinkered with by the Assessing Officer. The settled law is that 32 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 32 depreciation is a statutory allowance linked with the block of assets, and the WDV of such block has to be carried forward year after year in terms of Section 43(6). The Assessing Officer is not permitted to artificially alter the WDV by re-examining the allowability of depreciation already accepted in earlier years.

Accordingly, the disallowance made by the Assessing Officer of Rs.9,71,72,064/- for A.Y. 2015-16 and Rs.7,28,79,048/- for A.Y. 2016-17, sustained by the CIT(A), is directed to be deleted. Thus, the grounds raised by the assessee on this issue are allowed.

Grounds of Cross Objection and additional grounds of the assessee

The learned AR submitted that Ground No. 2 related to delayed payment of ESIC, raised by the assessee in A.Y. 2015-16 and A.Y. 2016-17, all the grounds raised in the cross objections, and the additional grounds, except the ground relating to exclusion of sales tax subsidy in the computation of book profits under Section 115JB, are not being pressed. It was further submitted that the general grounds are in the nature of arguments and do not call for specific adjudication. The learned Departmental Representative did not raise any serious objection to the above.

In view of the above submissions, Ground No. 2 of the assessee's appeal for both the years under consideration, all the grounds of the cross objections and the additional grounds 33 ITA Nos.1412-1413/Ahd/2019 with others Assessment Years (2015-16 & 2016-17) 33 (except the ground relating to sales tax subsidy under Section 115JB which is adjudicated in earlier paras) are dismissed as not pressed. The general grounds being argumentative in nature and not requiring specific adjudication are not adjudicated.

In the combined result, the appeals of the assessee as well as the Revenue are partly allowed in terms indicated hereinabove, whereas the cross objections filed by the assessee stand dismissed. Order pronounced in the Open Court on 28th August, 2025 at Ahmedabad. (SANJAY GARG) JUDICIAL MEMBER () Ahmedabad, Dated 28/08/2025 Manish, Sr. PS (MAKARAND V.MAHADEOKAR) ACCOUNTANT MEMBER आदेश की प्रतिलिपि अग्रेषित/