DCIT CORPORATE CIRCLE 1(1), CHENNAI vs. AIRPLAZA RETAIL HOLDINGS PVT LTD., CHENNAI

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ITA 1269/CHNY/2018Status: DisposedITAT Chennai09 July 2019AY 2014-156 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that excess consideration paid over the net worth of a business taken over is goodwill eligible for depreciation, following previous tribunal decisions. It also held that the disallowance on employee contributions was correctly deleted by the CIT(A) based on Supreme Court and High Court rulings.

What were the facts?

The Revenue appealed against the CIT(A)'s order deleting disallowances made on depreciation claimed on goodwill and on non-payment of employee contributions to EPF/ESI before the due date. The CIT(A) had followed various High Court and Supreme Court decisions.

What were the issues?

Whether goodwill acquired in a business acquisition is eligible for depreciation, and whether disallowance for delayed payment of employee contributions to EPF/ESI is justified.

Which sections of the Income-tax Act were involved?

Section 32(1)(ii),Section 36(1)(va),Section 43B

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI GEORGE MATHAN & SHRI INTURI RAMA RAO

Hearing: 09.07.2019

आदेश / O R D E R

PER GEORGE MATHAN, JUDICIAL MEMBER:

1.

Both these appeals are filed by the Revenue against the consolidated Order of the Commissioner of Income Tax (Appeals)-1, Chennai, in & 685/C.I.T(A)-1/2016-17, dated 31.01.2018 for the assessment years 2013-14 & 2014-15. & 1269/Chny/2018 :- 2 -:

2.

Mrs.M.Subashri represented on behalf of the Revenue and Mr.Sarat Chnadran represented on behalf of the assessee.

3.

The Revenue raised common grounds in both these appeals for assessment years 2013-14 & 2014-15. In Ground Nos.2.1 to 2.4, the Revenue has challenged the order of the ld.CIT(A) in deleting the disallowance made by the Assessing Officer in respect of depreciation claimed on ‘Goodwill’’ .

4.

It was submitted by ld.DR that ld.CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case for the assessment year 2011-12. Ld.DR submitted that the order of the ld. CIT(A) is liable to be reversed as the order of the Tribunal dated 01.05.2017 in assessee’s own case has been challenged before the Hon’ble Jurisdictional High Court u/s.260A of the Act.

5.

In reply, ld.AR placed before us a copy of the order of Co-ordinate Bench of this Tribunal in assessee’s own case for assessment year 2011- 12 in dated 01.05.2017, wherein the Tribunal hs held as under:-

“5. On appeal, the Ld.CIT(A) relying on the decision of the Hon’ble Apex Court in the case CIT v. Smifs Securities Ltd., reported in 24 taxmann.com 222 held the issue in favour of the assessee by observing as under: “19. In the present case under consideration, this is precisely what the appellant has done when it valued the fixed assets from Rs.315377571/- to Rs.131543344/- by referring to the valuation of assets by M/s.Axis Risk consulting being the valuer to claim depreciation for which assets the appellant has paid a consideration of Rs.31.53 cr.

& 1269/Chny/2018 :- 3 -:

20.

The question that immediately follows for consideration is that when the consideration paid for acquisition of fixed assets is higher than tile value of the assets on the date of acquisition as to how tile excess consideration paid ought to be treated for computation / Income tax purposes.

21.

The Supreme Court while considering the above question in the case of ‘CIT vs. Smifs Securities Ltd' (2012 24 taxmann.com 222) held that the excess consideration paid by the transferee over the value of the net assets acquired from the transferor should he considered as 'Goodwill' and the extra consideration paid In this regard towards the reputation which the transferer was enjoying in order to retain its existing clientele. The Supreme Court in he said decision further held that "Goodwill" is an asset under explanation 3(b) to section 32(1) of IT Act which is eligible for depreciation under the rates stipulated under the IT Rules. The plea of the appellant that the decision of the Apex court in the case of an amalgamation of companies equally applies with equal force for 'slump sales' as in its case also.

22.

Further, following the above decision, tile claim that the extra consideration of Rs.18,38,34,227/- paid by the appellant constitutes goodwill and becomes eligible for depreciation under the IT Act which the appellant has claimed for the Asst year: 2011- 12 has to be upheld. Substantively this would be the appropriate view with regard to valuation of goodwill following the 'Purchase cost method' as distinct from the 'pooling of interest method'.

23.

Taking the sum totality of the fads into account and the discussion in the foregoing, I am of the considered view that the plea advanced by the appellant with regard the claim of depreciation in respect of goodwill which was denied by the AO at Rs.2,29,79,278/- has to be upheld. The AO is direct to modify the order accordingly. This ground of appeal is allowed”

6. Before us the Ld. D.R argued relying on the orders of the Ld.AO while as the Ld. AR pleaded in support of the orders of the Ld.CIT(A).

7.

We have heard the rival submissions and carefully perused the materials on record. On perusing the decision of the Hon’ble Apex Court relied by the Ld.CIT(A) supra, we find the facts to be & 1269/Chny/2018 :- 4 -:

somewhat identical to the case of the assessee because the excess consideration paid over and above the net worth of the business taken over by the assessee can be only treated as goodwill or as any other asset in the nature of intangible asset which is eligible for depreciation as per Section 32(1)(ii) of the Act. Therefore we do not find it necessary to interfere with the order of the Ld.CIT(A) on this issue.”

6.

We have heard the rival contentions and perused the material available on record. As it is noticed that the issues in Grounds Nos.2.1 to 2.4 in Revenue’s both appeals are squarely covered by the decision of this Co-ordinate Bench of this Tribunal in assessee’s own case for assessment year 2011-12 referred to supra, respectfully following the decision of Co- ordinate Bench of this Tribunal in assessee’s own case for assessment year 2011-12, the findings of the ld.CIT(A) on this issue is confirmed.

Consequently, Grounds Nos.2.1 to 2.4 raised in Revenue’s appeals for assessment years 2013-14 & 2014-15 stand dismissed.

7. In respect of Grounds Nos.3.1 to 3.3, the Revenue has challenged the order of the ld.CIT(A) in deleting the disallowance made by the Assessing Officer u/s.36(1)(va) of the Act in respect of non-payment of employees part of contribution to EPF and ESI by the assessee before the due date.

8.

It was submitted by ld.DR that ld.CIT(A) had deleted the addition by following the decision of Hon’ble jurisdictional High Court in the case of C.I.T Vs. Industrial Security and Intelligence India (P) Ltd., in ITA & 1269/Chny/2018 :- 5 -:

Nos.2048 and 2049/Mds/2014. It was a prayer that the order of the ld. CIT(A) is liable to be reversed.

9.

In reply, the ld.AR drew our attention to the decision of the Bombay High Court in the case of C.I.T Vs. Ghatge Patil Transports Ltd., reported in 368 ITR 749(Bom.) wherein the Bombay High Court categorically held that the issue on both employees’ and employer’s contributions are covered under amendment to Section 43B of the Act and the judgment of Supreme Court in C.I.T Vs. Alom Extrusions Ltd., reported in (2009) 319 ITR 306(SC).

10.

We have heard the rival contentions and perused the material available on record. A perusal of order of the ld. CIT(A) shows that ld.CIT(A) has followed the decision of the Hon’ble Jurisdictional High Court in the case of C.I.T Vs. Industrial Security and Intelligence India (P) Ltd. referred to supra wherein also the Hon’ble Jurisdictional High Court has held that the decision of the Apex Court in the case of C.I.T Vs. Alom Extrusions Ltd., referred to supra is also applicable in respect of employees’ contribution and the amendment to Section 43B of the Act is curative in nature. As it is noticed that the ld.CIT(A) has followed the decisions of the Supreme Court and the Hon’ble Jurisdictional High Court in the case of C.I.T Vs. Industrial Security and Intelligence India (P) Ltd., referred to supra, we find no reason to interfere with the order of the ld. CIT(A). Consequently, Grounds Nos.3.1 to 3.3 raised in Revenue’s appeals stand dismissed. & 1269/Chny/2018 :- 6 -:

11.

In the result, both the appeals filed by the Revenue for the assessment years 2013-14 & 2014-15 are dismissed.

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