DCIT 10(2), MUMBAI vs. AADHAR RETAILING LTD, NAVI MUMBAI

order ,dtd.12.12.2013 of CIT(A)-21,Mumbai the Assessing Officer ( AO) has filed the present appeal. Assessee-company, engaged in retailing business of Agri products , FMCG grocery consumer durables, general merchandise etc.,filed its return of income on 29/09/2008 declaring loss of Rs.9.04 crores. The AO completed the assessment on 24.12.12, u/s. 143(3) of the Act determining income at Rs.(-)4.35 crores. 2.Effective Ground of appeal is about allowing claim of depreciation of Rs.4.57 crores. During the assessment proceedings,the AO found that the assessee had shown goodwill of Rs.36.62 crores,that it had claimed depreciation of Rs.4.57 crores on goodwill, that the assessee had transferred assets from M/s. Godrej Agrovet Ltd.(GAL)that included goodwill. He directed the assessee to file complete details in respect of transfer of assets as per the asset -register along with the copies of agreement thereof showing the goodwill as per asset register of transfer.He further directed assessee to explain as to why the claim of depreciation on goodwill should not be disallowed. As per the AO,the assessee furnished copy of business transfer agreement between it and AGL,that it did not file any evidence indicating the basis for ascertaining goodwill and its claim of depreciation. He held that in absence of explanation valuation of goodwill as well as allowability of depreciation was not acceptable, that the assessee had claimed depreciation so the onus was upon it to substantiate claim with necessary details,that merely showing the asset in the balance sheet and claiming depreciation would not suffice the purpose, that the assessee had not proved genuineness of the goodwill 1586/M/14- Aadhar Retailing Ltd.(08-09)

shown in the accounts. He referred to the case of Calcutta Agency Ltd. (19 ITR191) and held that the assessee had shown amount of goodwill in respect of receipt of asset from GAL, that assessee had shown to have received the value of good will of Rs.36.62 crores as per tax audit report, that no such goodwill was appearing in the fixed asset register of GAL, that as per the business transfer agreement dated 10/03/2008 there is no mention about value of goodwill in the books of account of GAL,that assessee had not submitted any details in respect of purchase of goodwill from transferor as well as basis of valuation of goodwill, that the assessee had created the fictitious assets in the books of account in the name of goodwill, that depreciation claimed on such goodwill was not allowed. He referred to provision of section 32(1)(ii) and the case of RG Keswani (116 ITD 133) and rejected claim of assessee of Rs.4,57,75,375/- 3.Aggrieved by order of assessee the assessee preferred an appeal before First Appellate Authority(FAA)and made elaborate submissions.After considering available material,he held that the assessee had acquired running concern from GAL for an amount of Rs.80 crores , it accounted Rs.43.37crores as tangible assets, that rest of the amount i.e. Rs.36.62 crores were shown under the head goodwill, being intangible assets in the form of trademark and other commercial assets.He further observed that the assessee claimed depreciation @ 12.5% on goodwill as acquisition of asset was below 180 days.Referring to the judgment of Hon'ble Supreme Court in case of Smifs Securities Ltd. (348ITR302),the FAA held that the assessee was entitled to claim depreciation on goodwill.Finally, he deleted the addition made by AO. 4.Before us, the Departmental Representative (DR) that there was no basis for determining the value of the goodwill,that FAA had wrongly allowed the depreciation.The Authorised Representative (AR)supported the order of the FAA and relied upon the case of case of Smifs Securities Ltd. (supra).She also referred to page 71 of the paper book. 5.We have heard the rival submissions and perused the material on record.We find that this the second round of litigation before the Tribunal,that the assessee had preferred an appeal challenging the order of the FAA,that vide its order dated 04/09/2013,the Tribunal restored back the matter to him to decide the issue afresh.It is observed that that the assessee had purchased retail division for a sum of Rs. 80 crores, that GAL had issued Rs.99.50 lakhs equity shares of Rs.10 each at a premium of Rs.33 per share aggregating to Rs.42.78 crores,that balance Rs.37.21 crores were paid in cash,that GAL had transferred movable property/immovable property,contracts, license and permit,records,software, debtors and creditors, intellectual property rights including goodwill, trademarks and knowhow, that the 2 1586/M/14- Aadhar Retailing Ltd.(08-09) assessee reflected assets and liabilities of GAL at their representative value as on acquisition date.The fair value of tangible assets received from transfer was Rs.43.37 crores. So,the assessee accounted balance amount of Rs.33.60 crores as goodwill,being tangible assets in the form of trademarks and other commercial rights acquired as per business transfer agreement.It is observed that the assessee claimed depreciation on goodwill @25% on yearly basis .As the asset was put to use for less than 180 days during the year, so it claimed depreciation @ 12.5% amounting to Rs.4.75 crores.AO disallowed the claim of the assessee, as he was of the opinion that in the asset register of transferor no value was assigned to goodwill.We find that as per the business agreement,dt. 10/03/2008,the parties entering into agreement had agreed to sell/purchase the business on going concern basis.Whenever an assessee acquires a going concern it has to assign value to the assets acquired by it from transferor. The entries in books of account of transferor have no role to play for the purchaser while it assigns value to the acquired tangible and intangible assets. It is a fact that assessee had acquired trademarks and goodwill along with the tangible assets. The value of tangible asset was determined at Rs.43.37crores.Therefore, the balance amount was assigned to goodwill,being intangible asset in the form of trade mark and other commercial assets. We find that the FAA had relied upon the case of Hon'ble Supreme Court in case of Smifs Securities Ltd. (supra), wherein it has been allowed that depreciation is allowed on intangible assets including goodwill. Therefore, in our opinion the order of the FAA does not suffer from any legal or factual infirmity. Confirming the same we hold that assessee had rightly claimed depreciation and that FAA had rightly allowed the appeal filed by it.Effective Ground of appeal is decided against the AO. As a result, appeal filed by AO stands dismissed. फलतः िनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 15th November , 2017. आदेश क� घोषणा खुले �यायालय म� दनांक 15 नवंबर , 2017 को क� गई । Sd/- Sd/- (अमरजीत �सह / Amarjit Singh ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; दनांक/Dated : 15.11.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ"

2. Respondent /#$यथ" 3 1586/M/14- Aadhar Retailing Ltd.(08-09)