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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI, M. BALAGANESH
आदेश /O R D E R
PER M. BALAGANESH, ACCOUNTANT MEMBER:
These appeals of the assessee arise out of the order of the ld Commissioner of Income Tax (Appeals)–I, Coimbatore, in dated 29.03.2017 for assessment year 2013-14 and in ITA No.163/16-17 dated 29.03.2017 for assessment year 2014-15. As identical issue is involved in both these appeals ,they are taken up ITA Nos.1511 & 1512/Mds./2017 :- 2 -: together for the sake of convenience and disposed off by this common order.
The first common issue to be decided in these appeals is as to whether the Ld.CIT(A) was justified in upholding the disallowance of amortization of goodwill amounting to `62,89,265/- in both the assessment years, in the facts and circumstances of the case.
The brief facts of the issue are that the assessee is a limited company, engaged in the business of processing and distribution of spectacle lenses. The assessee entered into Business Purchase Agreement with one M/s.Shankar & Co., a partnership firm and Mr.Deepak Sundaram, who were carrying on the business of processing and distribution of spectacle lenses. Under the Business Purchase Agreement, the assessee took over the entire business for a lump sum consideration of `4,70,49,000/-. Since the acquisition resulted in payment of consideration over and above the value of assets, the difference was treated by the assessee as payment made towards goodwill. In other words, though the acquisition was made on ‘Slump Sale basis’, the assessee indeed paid excess consideration over and above the asset value, the difference was attributed towards acquisition of goodwill.
Accordingly, the assessee attributed a sum of `2,51,57,060/- towards value of goodwill. The assessee wrote off one tenth (1/10th ) of the amount of goodwill i.e `2,51,57,060/-. Commencing from the assessment year 2009-10 onwards in its books of accounts, and added & 1512/Mds./2017 :- 3 -: back the same in the computation of total income as the same was not an allowable expenditure. The assessee did not claim any deduction towards amortization of goodwill during assessment years 2009-10, 2010-11, 2011-12 & 2012-13. The assessee, pursuant to being made aware of the decision of the Hon’ble Supreme Court in the case of CIT Vs. Smifs Secruties Ltd., reported in 348 ITR 302 (SC) decided to claim depreciation on value of goodwill treating the same as intangible assets.
Accordingly, assessee claimed depreciation on goodwill amounting to `62,89,265/- (25% of `2,51,57,060/-) for assessment year 2013-14 for the first time. This sum of depreciation claimed by the assessee was disallowed by the ld. Assessing Officer on the ground that since assessee had purchased only on ‘Slump Sale basis’, no value could be attributed towards goodwill as done by the assessee and hence, in the opinion of the ld. Assessing Officer, the assessee was not entitled to depreciation on goodwill thereon. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A).
Before the ld.CIT(A), the assessee reiterated its claim made before the ld. Assessing Officer and argued that the claim of depreciation was made for the first time only in assessment year 2013-14 by the assessee.
The Ld.CIT(A) did not heed to the contentions of the assessee and also held that since the value of goodwill arises in the assessment year 2009- 10, the amortization thereon calculated at 25% would have got exhausted and the same would be eligible only during the assessment & 1512/Mds./2017 :- 4 -: years 2009-10 to 2012-13 and not in assessment year 2013-14.
Aggrieved by the order of Ld.CIT(A), now the assessee is in appeal before us on the following grounds:-
“2. That the Ld.CIT(A) erred in law and on facts in holding that the appellant is not entitled to depreciation on goodwill.
3. That the Ld.CIT(A) ought to have arrived at the correct written down value as on 1.4.2012 and allowed the depreciation accordingly.
4. That the Ld.CIT(A) erred in law and on facts in holding that the entire sum of `2,51,57,060/- has been deemed to have been allowed as depreciation in the assessment years 2009-10 to 2012-13 and such a finding is perverse in law as not being in accordance with the facts.
5. That the Ld.CIT(A) erred in law and on facts in not allowing the goodwill by taking the original cost as written down value as on 1.4.2012 because no depreciation was ever claimed earlier.
6. That the Ld.CIT(A) ought to have allowed the amortized amount of `62,89,265/-.”
The decision rendered herein for assessment year 2013-14 would apply with equal force for assessment year 2014-15 also in view of identical facts.
None appeared on behalf of the assessee. We have heard the submissions of ld.D.R and perused the materials available on record. At the outset, we find that the assessee had paid total purchase
`4,70,49,000/- consideration of pursuant to Business Purchase & 1512/Mds./2017 :- 5 -:
Agreement with one M/s.Shankar & Co., entered by the assessee during assessment year 2009-10. It is not in dispute that the said purchase was made on ‘Slump Sale basis’. It is not in dispute that the assessee had indeed made payment over and above the value of actual assets and accordingly, was forced by the operation of law, to treat the difference of excess consideration paid towards acquisition of goodwill. Hence, it could be safely concluded that the instant case resulted in payment made towards acquisition of goodwill, i.e there was an actual payment of consideration for acquiring goodwill. Though the entire transaction was carried out on ‘Slump Sale basis’, wherein no individual attribution of values could be made towards individual assets, in the instant case, the assessee was forced to attribute the value of `2,51,57,060/- towards goodwill portion as it had made payment over and above the value of existing assets. So, this is effectively done, only pursuant to the operation of law. We are not in agreement with the observations of the Ld.CIT(A) that assessee should have claimed this in assessment years 2009-10 to 2012-13 and not in assessment year 2013-14. It is not in dispute that the assessee had not claimed any deduction either in the form of depreciation / amortization of goodwill during assessment years 2009-10 to 2012-13. Since the goodwill of `2,51,57,060/- had been actually acquired by the assessee by payment of purchase consideration, and since no claim on depreciation / amortization of goodwill was made by the assessee upto assessment year 2012-13, we hold that the assessee & 1512/Mds./2017 :- 6 -: would be entitled to claim of depreciation thereon as per the ratio laid down by Hon’ble Supreme Court in the case of CIT Vs. Smifs Secruties Ltd.,(supra) wherein it was held that goodwill has to be treated as an intangible asset and thereby, the assessee is entitled for depreciation thereon. Hence, the Ground Nos.2 to 6 raised by the assessee in its appeals for assessment years 2013-14 & 2014-15 are allowed.
The next ground raised in assessment year 2013-14 pertains to whether the Ld.CIT(A) was justified in upholding the disallowance made towards employees’ contribution to PF / ESI amounting to `6,50,447/- in the facts and circumstances of the case.
The brief facts of the issue are that assessee did not make the remittance of PF / ESI within the due date prescribed under the respective Acts, but instead made remittance of the same before the due date of filing return of income u/s.139(1) of the Income Tax Act and hence, the ld. Assessing Officer disallowed the same in the assessment by treating the same as income u/s.2(24)(x) r.w.s. 36(1)(va) of the Act.
This action of the ld. Assessing Officer was upheld by the Ld.CIT(A).
Against the order of lower authorities, now the assessee is in appeal before Tribunal on the following grounds:-
“7. The Ld.CIT(A) ought to have disposed off the ground regarding the disallowance of employees contribution of ESI.
& 1512/Mds./2017 :- 7 -:
8. That the Ld.CIT(A) ought to have allowed the sum of `6,50,447/- being the employees contribution which has been paid even before the end of the previous year.”
We have heard the submissions of ld.D.R and perused the materials on record. We find that the grievance of the assessee pertaining to employee’s contribution towards PF & ESI after due date as prescribed under the respective Acts is squarely covered by the judgment of jurisdictional High Court in the case of CIT v. MIs.
Industrial Security & Intelligence India Pvt. Ltd. in TC(Appeal) Nos.585 & 586 of 2015 dated 24.7.2015 and held as under:-
“5. We find that the Tribunal has rightly relied on the decision of the Supreme Court in the case of CIT v. Alom Extrusions Ltd. reported in 319 ITR 386, whereby, the Supreme Court held that omission of second proviso to Section 43B and amendment to first proviso by Finance Act, 2003 are curative and are effective retrospectively, i.e., with effect from 1.4.1988 i.e., the date of insertion of first proviso. The Delhi High Court in the case of CIT v. Amil Ltd. reported in 321 ITR 508 held that if the assessee had deposited employee’s contribution towards Provident Fund and ESI after due as prescribed under the relevant Act, but before the due date of filing of return under the Income Tax Act, no disallowance could be made in view of the provisions of Section 43B as amended by Finance Act, 2003.
6. In the present case, the assessee had remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income. Hence, following the above-said decisions, we find no reason to differ with the findings of the Tribunal. Accordingly, we find no question of law much less any substantial question of law & 1512/Mds./2017 :- 8 -:
arises for consideration in these appeals. Accordingly, both the Tax Case (Appeals) stand dismissed. No costs. Consequently, M.P.No. 1 of 2015 is also dismissed.”
We also find that the issue in dispute is also covered by the judgement of Hon’ble Calcutta High Court in the case of ACIT Vs. Vijay Shree Ltd reported in 43 Taxmann.com 396. Respectively following the same, we have no hesitation in directing the ld. Assessing Officer to grant deduction towards employees contribution of PF/ESI amounting to `6,50,447/-.
Accordingly, Ground Nos.7 & 8 raised by the assessee in its appeal in assessment year 2013-14 stands allowed.
The ground No.1 raised by the assessee in both the appeals are general in nature and does not require any specific adjudication.
In the result, both the appeals of the assessee for the assessment years 2013-14 & 2014-15 are allowed. Order pronounced on 16th January, 2018 at Chennai.