GATI KINTETSU EXPRESS PVT. LTD,MAHARASHTRA AND MUMBAI vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE 14(1)(2), MUMBAI, MAHARASHTRA AND MUMBAI

PER BENCH

These appeals by the assessee are directed against separate orders passed by the National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14 to 2017-18 respectively.

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1.1. On the fac 1.1. On the facts and in circumstances of the case and in law, the ts and in circumstances of the case and in law, the Learned National Faceless Appeals Centre ("Ld. NFAC") vide order Learned National Faceless Appeals Centre ("Ld. NFAC") vide order Learned National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 20, 2023 under section 250 of the Income tax Act, 1961 dated June 20, 2023 under section 250 of the Income tax Act, 1961 dated June 20, 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in confirming the order of the Learned Asst. ("the Act") erred in confirming the order of the Learned Asst. ("the Act") erred in confirming the order of the Learned Asst. Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated March 31, 2015 under section 143(3) of the Act ("impugned dated March 31, 2015 under section 143(3) of the Act ("impugned dated March 31, 2015 under section 143(3) of the Act ("impugned order") without appreciating that the same is contrary to law. order") without appreciating that the same is contrary to law. order") without appreciating that the same is contrary to law. 1.2 The Appellant prays that the impugned order dated March 31, The Appellant prays that the impugned order dated March 31, The Appellant prays that the impugned order dated March 31, 2015 be quashed and set 2015 be quashed and set 2.1 On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming the disallowance made by the Ld. AO of NFAC erred in confirming the disallowance made by the Ld. AO of NFAC erred in confirming the disallowance made by the Ld. AO of depreciation amounting to Rs. 31,26,46,956 claimed on intangibles depreciation amounting to Rs. 31,26,46,956 claimed on intangibles depreciation amounting to Rs. 31,26,46,956 claimed on intangibles and goodwill arising out of Busi and goodwill arising out of Business Transfer Agreement dated ness Transfer Agreement dated February 13, 2012 entered into with Gati Ltd. for acquiring Express February 13, 2012 entered into with Gati Ltd. for acquiring Express February 13, 2012 entered into with Gati Ltd. for acquiring Express distribution and Supply chain business on a going concern basis from distribution and Supply chain business on a going concern basis from distribution and Supply chain business on a going concern basis from the close of business hours on March 31, 2022. the close of business hours on March 31, 2022. 2.2 The Appellant prays that the Ld. AO be The Appellant prays that the Ld. AO be directed to allow deduction directed to allow deduction of depreciation amounting to Rs. 31,26,46,956 claimed on intangibles of depreciation amounting to Rs. 31,26,46,956 claimed on intangibles of depreciation amounting to Rs. 31,26,46,956 claimed on intangibles and goodwill. 3.1 On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the Ld. NFAC erred in confirming disallowance made by the Ld. AO of Ld. NFAC erred in confirming disallowance made by the Ld. AO of Ld. NFAC erred in confirming disallowance made by the Ld. AO of business advances written off amounting to Rs. 35,68,793 and bad dvances written off amounting to Rs. 35,68,793 and bad dvances written off amounting to Rs. 35,68,793 and bad debt written off amounting to Rs. 18,16,695. debt written off amounting to Rs. 18,16,695. 3.2 The Appellant prays that the Ld. AO be directed to allow deduction The Appellant prays that the Ld. AO be directed to allow deduction The Appellant prays that the Ld. AO be directed to allow deduction of business advances written off amounting to Rs. 35,68,793 and bad of business advances written off amounting to Rs. 35,68,793 and bad of business advances written off amounting to Rs. 35,68,793 and bad debt written off debt written off amounting to Rs. 18,16,695. 4. Brief facts of the case for assessment year 2013 Brief facts of the case for assessment year 2013 Brief facts of the case for assessment year 2013-14 are that assessee is engaged in the business of carg engaged in the business of cargo transport o transport, express distribution and supply chain and warehousing. The assessee filed distribution and supply chain and warehousing. The assessee filed distribution and supply chain and warehousing. The assessee filed its return of income for the year its return of income for the year under consideration on 30.09.2013 under consideration on 30.09.2013

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declaring total income declaring total income at Rs.26,42,09,390/-, which was further , which was further revised on 27.11.2014 declaring a loss of Rs.4,83,80,650/-. In the revised on 27.11.2014 declaring a loss of Rs.4,83,80,650/ revised on 27.11.2014 declaring a loss of Rs.4,83,80,650/ revised return of income, the assessee claimed depreciation of revised return of income, the assessee claimed depreciation of revised return of income, the assessee claimed depreciation of ble assets of Rs.125,05,87,823/- for Rs.31,26,46,956/- on intangi on intangible assets of Rs.125,05,87,823/ entire assessment year. The return of income filed by the assessee entire assessment year. The return of income filed by the assessee entire assessment year. The return of income filed by the assessee was selected for scrutiny was selected for scrutiny assessment. The Ld. Assessing Officer he Ld. Assessing Officer (AO) completed the assessment in terms of section 143(3) of the (AO) completed the assessment in terms of section 143(3) of the (AO) completed the assessment in terms of section 143(3) of the Income-tax Act, 1961 (in tax Act, 1961 (in short ‘the Act’) determining total income at short ‘the Act’) determining total income at Rs.26,95,94,880/-.

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(i) Disallowance of depreciation on intangible and goodwill arising (i) Disallowance of depreciation on intangible and goodwill arising (i) Disallowance of depreciation on intangible and goodwill arising out of Business transfer agreement transfer agreement (BTA) dated 13.02.2012 dated 13.02.2012 for acquiring express distribution and supply chain (EDSC) business of acquiring express distribution and supply chain (EDSC) busines acquiring express distribution and supply chain (EDSC) busines M/s Gati Ltd on going concern basis. going concern basis.

(ii) Disallowance of business advances and bad debt written off. (ii) Disallowance of business advances and bad debt written off. (ii) Disallowance of business advances and bad debt written off.

8.1 Before us, the Ld. Before us, the Ld. Counsel for the assessee has filed a Paper for the assessee has filed a Paper Book containing pages 1 to 308. Book containing pages 1 to 308.

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intangible assets. The The assessee claimed depreciation assessee claimed depreciation of Rs. 31,26,46,956/- at the rate of 25 at the rate of 25% of the goodwill/intangible asset /intangible asset of Rs. 125.06 crores arising out of business transfer agreement. arising out of business transfer agreement. arising out of business transfer agreement.

9.1 The Ld. Assessing Officer disallowed the claim of the The Ld. Assessing Officer disallowed the claim of the The Ld. Assessing Officer disallowed the claim of the depreciation by holding as under: ciation by holding as under:

(i) The goodwill was not purchased by the assessee which is evident not purchased by the assessee which is evident not purchased by the assessee which is evident from the BTA and no payment from the BTA and no payment was made by the assessee by the assessee for purchase of any commercial right commercial rights, business rights or or rights of similar nature. Goodwill shown shown by the assessee is nothing but assessee is nothing but accounting entry to the surplus liabilities to the surplus liabilities received by the assessee. received by the assessee.

(ii) The Gati Ltd. has not treated surplus of Rs.125.06 crores Gati Ltd. has not treated surplus of Rs.125.06 crores liability Gati Ltd. has not treated surplus of Rs.125.06 crores taken over as sale consideration and has shown the over as sale consideration and has shown the over as sale consideration and has shown the same as capital reserve in its books of account in its books of account. When the Gati Ltd. has not . When the Gati Ltd. has not transferred goodwill, , the question of assessee receiving the same the question of assessee receiving the same does not arise.

(iii) The treatment of surplus (iii) The treatment of surplus liability and claiming deprecation and claiming deprecation thereon , is nothing but a collusive transaction but a collusive transaction betwe between the assessee and the Gati Ltd.

9.2 On further appeal, the Ld. CIT(A) also rejected the various On further appeal, the Ld. CIT(A) also rejected the various On further appeal, the Ld. CIT(A) also rejected the various contention of the assessee and hel contention of the assessee and held that-

(i) the assessee accounted accounted excess amount of liabilities ove liabilities over the assets amounting to Rs.125 amounting to Rs.125 crores as goodwill in its books of account in goodwill in its books of account in

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accordance with accounting standard (AS accordance with accounting standard (AS-14) issued by the Institute 14) issued by the Institute of Chartered Accountant of India (ICAI). The Ld. CIT(A) held that AS- of Chartered Accountant of India (ICAI). The Ld. CIT(A) held that AS of Chartered Accountant of India (ICAI). The Ld. CIT(A) held that AS 14 is applicable in case of the amalgamation, however, the present 14 is applicable in case of the amalgamation, however, the present 14 is applicable in case of the amalgamation, however, the present case is not of amalgamation but amalgamation but of succession of business succession of business through going concern basis from holding company to subsidiary company going concern basis from holding company to subsidiary company going concern basis from holding company to subsidiary company and thus AS-14 is not applicable. 14 is not applicable.

(ii) No monetary consideration has been paid by the assessee for (ii) No monetary consideration has been paid by the assessee for (ii) No monetary consideration has been paid by the assessee for transfer of assets and liabilities under t transfer of assets and liabilities under the BTA. Therefore, there is no he BTA. Therefore, there is no question of any intangible asset in the nature of goodwill. question of any intangible asset in the nature of goodwill. question of any intangible asset in the nature of goodwill.

(iii) The Ld. CIT(A) distinguished the reliance placed by the assessee (iii) The Ld. CIT(A) distinguished the reliance placed by the assessee (iii) The Ld. CIT(A) distinguished the reliance placed by the assessee on the decision of the Hon’ble Supreme Court in the case of CIT v. on the decision of the Hon’ble Supreme Court in the case of on the decision of the Hon’ble Supreme Court in the case of Smiffs Securities Ltd. (202 Smiffs Securities Ltd. (2022) (348 ITR 302) (SC) on the ground that in 2) (348 ITR 302) (SC) on the ground that in the said ruling of the Hon’ble Supreme Court the issue the Hon’ble Supreme Court the issue decided is the Hon’ble Supreme Court the issue whether the goodwill falls in the category of intangible assets or in whether the goodwill falls in the category of intangible assets or in whether the goodwill falls in the category of intangible assets or in other business or commercial rights of similar in nature and hence other business or commercial rights of similar in nature and hence other business or commercial rights of similar in nature and hence eligible for depreciation as per provision of section 32(1)(ii) of the Act. for depreciation as per provision of section 32(1)(ii) of the Act. for depreciation as per provision of section 32(1)(ii) of the Act. But in the instant case issue is that no intangible assets in the nature But in the instant case issue is that no intangible assets in the nature But in the instant case issue is that no intangible assets in the nature of goodwill could be said to be arises in the hand of the assessee as of goodwill could be said to be arises in the hand of the assessee as of goodwill could be said to be arises in the hand of the assessee as a result of the transfer of the business. a result of the transfer of the business.

(iv) Further as per 5th th proviso to section 32(1) of the Act in case of proviso to section 32(1) of the Act in case of succession of business, the aggregate deduction in respect of succession of business, the aggregate deduction in respect of succession of business, the aggregate deduction in respect of depreciation on any tangible or intangible assets allowable to the depreciation on any tangible or intangible assets allowable to the depreciation on any tangible or intangible assets allowable to the predecessor and the successor shall not exceed, in any previous predecessor and the successor shall not exceed, in any previ predecessor and the successor shall not exceed, in any previ

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year, the deduction calculated at the prescribed rates as if the year, the deduction calculated at the prescribed rates as if the year, the deduction calculated at the prescribed rates as if the succession had not taken place and such deduction shall be succession had not taken place and such deduction shall be succession had not taken place and such deduction shall be apportioned between the predecessor and the successor in the ratio apportioned between the predecessor and the successor in the ratio apportioned between the predecessor and the successor in the ratio of the period of usage of assets. Since, the predecessor had not of the period of usage of assets. Since, the predecessor had of the period of usage of assets. Since, the predecessor had claimed any depreciation on goodwill as intangible claimed any depreciation on goodwill as intangible assets; assets; therefore, if the succession had not taken place there would not be claim of if the succession had not taken place there would not be claim of if the succession had not taken place there would not be claim of depreciation of the goodwill. Thus the assessee cannot be allowed depreciation of the goodwill. Thus the assessee cannot be allowed depreciation of the goodwill. Thus the assessee cannot be allowed the claim depreciation more than the depreciation depreciation more than the depreciation allowable to the allowable to the predecessor company in case of succession. predecessor company in case of succession.

9.3 On the allegation of the Assessing Officer that no intangible On the allegation of the Assessing Officer that no intangible On the allegation of the Assessing Officer that no intangible had been transferred to had been transferred to the assessee on account of BTA, t the assessee on account of BTA, the Ld. counsel for the assessee referred to the BTA (PB 83 and 75) and counsel for the assessee referred to the BTA (PB 83 and 75) and counsel for the assessee referred to the BTA (PB 83 and 75) and submitted that all the properties, assets, resources, rights, submitted that all the properties, assets, resources, rights, submitted that all the properties, assets, resources, rights, privileges and licenses forming part of express distribution and privileges and licenses forming part of express distribution and privileges and licenses forming part of express distribution and supply chain (EDSC) business of the Gati ltd has been transferred supply chain (EDSC) business of the Gati ltd has been transferred supply chain (EDSC) business of the Gati ltd has been transferred to the assessee as going concern. The to the assessee as going concern. The ‘EDSC’ in agreement has in agreement has been defined as business undertaking, properties, been defined as business undertaking, properties, and business and business of the Gati Ltd. The relevant part of the BTA referred by the Ld. the Gati Ltd. The relevant part of the BTA referred by the Ld. the Gati Ltd. The relevant part of the BTA referred by the Ld. counsel for the assessee is reproduced for ready reference: counsel for the assessee is reproduced for ready reference: counsel for the assessee is reproduced for ready reference:

“2 Transfer of the Business Division “2 Transfer of the Business Division Subject to the provisions of this Agreement, the Transferor hereby the provisions of this Agreement, the Transferor hereby the provisions of this Agreement, the Transferor hereby agrees to, transfer convey, assign and deliver, as the case may be, agrees to, transfer convey, assign and deliver, as the case may be, agrees to, transfer convey, assign and deliver, as the case may be, to the Transferee and the Transferee hereby agrees to acquire from to the Transferee and the Transferee hereby agrees to acquire from to the Transferee and the Transferee hereby agrees to acquire from the Transferor on the Closing Date, all rights, title and interes the Transferor on the Closing Date, all rights, title and interes the Transferor on the Closing Date, all rights, title and interest of the Transferor in and to the Transferor in and to the Business Division as of and effective from as of and effective from the Closing Date, together with all properties, Assets, resources, with all properties, Assets, resources, the Closing Date, together rights, privileges and licenses forming part of the Business rights, privileges and licenses forming part of the Business rights, privileges and licenses forming part of the Business Division, as a going concern Division, as a going concern, such that upon Closin , such that upon Closing, the

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Business Division shall be deemed to have been transferred and Business Division shall be deemed to have been transferred and Business Division shall be deemed to have been transferred and vested in the Transferee as of and effective from the Closing Date; vested in the Transferee as of and effective from the Closing Date; vested in the Transferee as of and effective from the Closing Date; and the Transferee would be entitled, subject to the terms and and the Transferee would be entitled, subject to the terms and and the Transferee would be entitled, subject to the terms and conditions of this Agreement, to all Assets and Assumed conditions of this Agreement, to all Assets and Assumed Liabilities of Liabilities of the Business Division as of and effective from the Closing Date, and the Business Division as of and effective from the Closing Date, and the Business Division as of and effective from the Closing Date, and have the full ability, rights, power and authority, necessary for have the full ability, rights, power and authority, necessary for have the full ability, rights, power and authority, necessary for conducting and carrying on the business of the Business Division for conducting and carrying on the business of the Business Division for conducting and carrying on the business of the Business Division for the benefit of the Transferee, in th the benefit of the Transferee, in the same manner, in which the e same manner, in which the Transferor has conducted and carried on the business of the Transferor has conducted and carried on the business of the Transferor has conducted and carried on the business of the Business Division." Business Division." The subject matter of transfer, that is, "Business Division" is as The subject matter of transfer, that is, "Business Division" is as The subject matter of transfer, that is, "Business Division" is as below: "Business Division" means all the business, undertaking, Business Division" means all the business, undertaking, Business Division" means all the business, undertaking, properties, asse properties, assets and liabilities, in possession or reversion, ts and liabilities, in possession or reversion, present or contingent of whatsoever nature and kind and present or contingent of whatsoever nature and kind and present or contingent of whatsoever nature and kind and wheresoever situate, relating to the express distribution and wheresoever situate, relating to the express distribution and wheresoever situate, relating to the express distribution and supply chain business of the Transferor comprising of supply chain business of the Transferor comprising of supply chain business of the Transferor comprising of domestic surjace (road express, air domestic surjace (road express, air express, Gati Transport express, Gati Transport Solutions ("GTS") and the third party logistics Redsun Solutions ("GTS") and the third party logistics Redsun Solutions ("GTS") and the third party logistics Redsun business comprising warehousing and value added services business comprising warehousing and value added services business comprising warehousing and value added services carried on by the Transferor, carried on by the Transferor, as on the Closing Date (collectively as on the Closing Date (collectively the "Transferred Business"), other than the Excluded the "Transferred Business"), other than the Excluded Business and Business and the Excluded Liabilities, to be transferred on a going concern basis, the Excluded Liabilities, to be transferred on a going concern basis, the Excluded Liabilities, to be transferred on a going concern basis, which shall mean and include (without limitation): which shall mean and include (without limitation): (i) all movable property of every kind, nature or description pertaining ) all movable property of every kind, nature or description pertaining ) all movable property of every kind, nature or description pertaining exclusively to the Business Division, whether tan exclusively to the Business Division, whether tangible or intangible, gible or intangible, including all current assets, loans and advances, plant and including all current assets, loans and advances, plant and including all current assets, loans and advances, plant and machinery, capital work in progress, furniture & fittings, office machinery, capital work in progress, furniture & fittings, office machinery, capital work in progress, furniture & fittings, office equipments, computers, appliances, accessories and vehicles, in equipments, computers, appliances, accessories and vehicles, in equipments, computers, appliances, accessories and vehicles, in terms of the broad description set out in Par terms of the broad description set out in Part A of Schedule I t A of Schedule I ("Moveable Assets") which will be updated as of the Closing Date; ("Moveable Assets") which will be updated as of the Closing Date; ("Moveable Assets") which will be updated as of the Closing Date; (ii) all the immoveable properties of every kind, all the immoveable properties of every kind, nature or description description pertaining exclusively to the Business Division including the freehold pertaining exclusively to the Business Division including the freehold pertaining exclusively to the Business Division including the freehold and leasehold land, building and leasehold land, buildings, warehouses, structures, offices, plant s, warehouses, structures, offices, plant and machinery thereon as more specifically described in Part B of and machinery thereon as more specifically described in Part B of and machinery thereon as more specifically described in Part B of Schedule 1 ("Immoveable Assets"); Schedule 1 ("Immoveable Assets"); (iii) all the current assets such as sundry debtors, accounts all the current assets such as sundry debtors, accounts all the current assets such as sundry debtors, accounts receivable (including refunds and rebates), advances receivable (including refunds and rebates), advances, earnest , earnest moneys, cash, bank accounts (including bank balances) the moneys, cash, bank accounts (including bank balances) the moneys, cash, bank accounts (including bank balances) the aggregate of such cash and bank balances being INR 126 million, aggregate of such cash and bank balances being INR 126 million, aggregate of such cash and bank balances being INR 126 million, bills of exchange, benefit of any deposits including security deposits, bills of exchange, benefit of any deposits including security deposits, bills of exchange, benefit of any deposits including security deposits, benefit of any bank guarantees and letters of credit benefit of any bank guarantees and letters of credit all exclusively all exclusively relating to the Business Division, loans (excluding inter divisional relating to the Business Division, loans (excluding inter divisional relating to the Business Division, loans (excluding inter divisional loans) and advances as appearing in the books of the Transferor as loans) and advances as appearing in the books of the Transferor as loans) and advances as appearing in the books of the Transferor as of the Accounts Date, in terms of the broad description set out in Part of the Accounts Date, in terms of the broad description set out in Part of the Accounts Date, in terms of the broad description set out in Part C of Schedule 1 ("Current Asset C of Schedule 1 ("Current Assets");

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(iv) all rights, entitlements, benefits, quotas (including without all rights, entitlements, benefits, quotas (including without all rights, entitlements, benefits, quotas (including without limitation rights under any customer contracts, or other contracts or limitation rights under any customer contracts, or other contracts or limitation rights under any customer contracts, or other contracts or agreements to which the Transfer is a party to and which relate to agreements to which the Transfer is a party to and which relate to agreements to which the Transfer is a party to and which relate to Division) tenancies, registrations goodwill associated goodwill associated the Business Div exclusively with the Business Division exclusively with the Business Division, all other rights, benefits , all other rights, benefits and entitlements including any tax exemptions, deferrals and other and entitlements including any tax exemptions, deferrals and other and entitlements including any tax exemptions, deferrals and other benefits or privileges, lease rights (including the benefit of benefits or privileges, lease rights (including the benefit of benefits or privileges, lease rights (including the benefit of any applications made therefore applications made therefore, rights to use and avail of any s to use and avail of any telephones, telexes, facsimile connections, telephones, telexes, facsimile connections, communication facilities communication facilities and installations, and installations, utilities, electricity and other services, insurance electricity and other services, insurance policies, funds, exclusively relating to the Business Division, policies, funds, exclusively relating to the Business Division, policies, funds, exclusively relating to the Business Division, including: (a) the Permit including: (a) the Permits and Licenses Properesten permit s and Licenses Properesten permited under applicable Laws), and ( applicable Laws), and (b) the intellectual Property.” (emphasis supplied) (emphasis supplied) 9.4 In view of the above, the Ld. In view of the above, the Ld. Counsel for the assessee for the assessee submitted that the agreement specifically provided that the goodwill submitted that the agreement specifically provided that the goodwill submitted that the agreement specifically provided that the goodwill associated with the business division as well as the intellectual associated with the business division as well as the intellectual associated with the business division as well as the intellectual property should be transferred to the assessee. property should be transferred to the assessee.

for the assessee further submitted that both 9.5 The Ld. Counsel Counsel for the assessee further submitted the lower authorities observed that the Gati Ltd. was in business of the lower authorities observed that the Gati Ltd. was the lower authorities observed that the Gati Ltd. was EDSC since the year 1989 and was engaged in courier/package EDSC since the year 1989 and was engaged in courier/package EDSC since the year 1989 and was engaged in courier/package services for a significant time. A for a significant time. As on 13.02.2012, when the BTA was when the BTA was entered into with the assessee with the assessee, the Gati Ltd. expanded its customer panded its customer base and it had about 3,275 major regular ongoing contracts. In base and it had about 3,275 major regular ongoing contracts. In base and it had about 3,275 major regular ongoing contracts. In addition to the same, it had walk dition to the same, it had walk-in-customers and non customers and non-regular ore than 300 branches customers in several lakhs customers in several lakhs catered though more than 300 branches spread all over the country. The Gati Ltd. spread all over the country. The Gati Ltd. had 608 offices which ad 608 offices which included branches, franchisee and huge warehouses numbering to branches, franchisee and huge warehouses numbering to branches, franchisee and huge warehouses numbering to about 60. It had about 5,000 delivery trucks at its disposal which about 60. It had about 5,000 delivery trucks at its disposal which about 60. It had about 5,000 delivery trucks at its disposal which comprises owned hired or belonging to its business associates. comprises owned hired or belonging to its business associates. comprises owned hired or belonging to its business associates. stribution and supply Thus it had developed a vast network of di Thus it had developed a vast network of distribution and supply

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chain. The Gati took about 23 years to develop chain. The Gati took about 23 years to develop its infrastructure, its infrastructure, customer base, brand name and other business and commercial customer base, brand name and other business and commercial customer base, brand name and other business and commercial rights attached to the EDSC business. The assessee used the name rights attached to the EDSC business. The assessee used the name rights attached to the EDSC business. The assessee used the name documents, vehicles, ads. Gati, its logo in all its correspondence, its logo in all its correspondence, documents, vehicles, ads. etc., which carry a great commercial advantage to its benefit. The etc., which carry a great commercial advantage to its benefit. The etc., which carry a great commercial advantage to its benefit. The name ‘Gati’ had developed a brand value, for time bound delivery, name ‘Gati’ had developed a brand value, for time bound delivery, name ‘Gati’ had developed a brand value, for time bound delivery, for delivery of merchandise without any damage and without any for delivery of merchandise without any damage and without any for delivery of merchandise without any damage and without any pilferage and shortage. It has dev pilferage and shortage. It has developed a brand name for eloped a brand name for customer The assessee company acquired all other benefits for satisfaction. The assessee company acquired all other benefits for The assessee company acquired all other benefits for carrying on the business which are all intangible assets having a carrying on the business which are all intangible assets having a carrying on the business which are all intangible assets having a tremendous commercial value. tremendous commercial value.

9.7 The Ld. Counsel Counsel for the assessee further for the assessee further rebutted the allegation of the Ld. AO that the assessee had not received any legation of the Ld. AO that the assessee had not received any legation of the Ld. AO that the assessee had not received any intangible asset pursuant to the BTA. He submitted that the intangible asset pursuant to the BTA. He submitted that the intangible asset pursuant to the BTA. He submitted that the assessee derived substantiate advantage by acquiring the above assessee derived substantiate advantage by acquiring the above assessee derived substantiate advantage by acquiring the above intangible assets, business and commercial rights and goodwill of intangible assets, business and commercial rights and goodwill of intangible assets, business and commercial rights and goodwill of Gati Ltd. and it could achieve substantial turnover having details as Ltd. and it could achieve substantial turnover having details as Ltd. and it could achieve substantial turnover having details as under: Amount in crores i. Financial year 2012 Financial year 2012 854.27 ii. Financial year 2013 Financial year 2013 1021.83 iii. Financial year 2014 Financial year 2014 1138.71 iv. Financial year 2015 Financial year 2015 1139.89 9.8 Without obtaining the business and commercial rights Without obtaining the business and commercial rights Without obtaining the business and commercial rights including all the advantages as described above, it would not have including all the advantages as described above, it would not have including all the advantages as described above, it would not have

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been possible for any new business to achieve the above turnover been possible for any new business to achieve the above turnover been possible for any new business to achieve the above turnover from day one.

9.9 The Ld. Counsel Counsel for the assessee further submitted t for the assessee further submitted that the consideration paid was was required to be apportioned between tangible required to be apportioned between tangible assets and intangible assets. It was submitted that for determining assets and intangible assets. It was submitted that for determining assets and intangible assets. It was submitted that for determining the value of the intangible assets, the assessee obtained an the value of the intangible assets, the assessee obtained an the value of the intangible assets, the assessee obtained an independent valuer’s report independent valuer’s report which was submitted duri which was submitted during the course of the assessment proceedings. The independent valuer vide its of the assessment proceedings. The independent valuer vide its of the assessment proceedings. The independent valuer vide its report dated 06.08.2015 (Refer PB port dated 06.08.2015 (Refer PB No. 28 to 40) accepted the value No. 28 to 40) accepted the value of tangible asset and with relation to intangible assets observed that of tangible asset and with relation to intangible assets observed that of tangible asset and with relation to intangible assets observed that Gati Ltd. had developed a huge supply cha Gati Ltd. had developed a huge supply chain, IT network and in, IT network and distribution network that would entail the assessee delivering its distribution network that would entail the assessee delivering its distribution network that would entail the assessee delivering its products in an efficient manner. The valuer also observed that Gati products in an efficient manner. The valuer also observed that Gati products in an efficient manner. The valuer also observed that Gati Ltd. had developed a large number of customer relations due to its Ltd. had developed a large number of customer relations due to i Ltd. had developed a large number of customer relations due to i supply chain and distribution netwo supply chain and distribution network. The assessee on account of rk. The assessee on account of that would have a continued relationship with customers and ready that would have a continued relationship with customers and ready that would have a continued relationship with customers and ready access market. Lastly, the valuer observed that the assessee also Lastly, the valuer observed that the assessee also Lastly, the valuer observed that the assessee also obtained marketing and trading obtained marketing and trading reputation of Gati with respect to of Gati with respect to EDSC business. The valuer h The valuer had identified intangible in the form ad identified intangible in the form of distribution network, customer relations and the balance of distribution network, customer relations and the balance of distribution network, customer relations and the balance amount has been recognized as goodwill amount has been recognized as goodwill.

9.10 In view of the above, the Ld. In view of the above, the Ld. Counsel submitted that AO’s submitted that AO’s allegations no intangibles have no intangibles have been transferred to the assessee on been transferred to the assessee on account of BTA is wholly account of BTA is wholly incorrect. The Ld. Counsel Counsel further

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submitted that the Ld. AO has not brought any material on record submitted that the Ld. AO has not brought any material on record submitted that the Ld. AO has not brought any material on record to disregard the report of an independent valuer. to disregard the report of an independent valuer.

9.11 In relation to the allegation of the L In relation to the allegation of the Ld. AO as well as the Ld. d. AO as well as the Ld. CIT(A) that no consideration has been paid for acquiring the CIT(A) that no consideration has been paid for acquiring the CIT(A) that no consideration has been paid for acquiring the intangible as well as goodwill, the Ld. counsel for the assessee intangible as well as goodwill, the Ld. counsel for the assessee intangible as well as goodwill, the Ld. counsel for the assessee submitted that assessee has taken over the obligation to discharge submitted that assessee has taken over the obligation to discharge submitted that assessee has taken over the obligation to discharge the liabilities of the Gati Ltd., whic the liabilities of the Gati Ltd., which is nothing but agreeing to pay h is nothing but agreeing to pay creditors directly instead of paying creditors directly instead of paying to Gati Ltd. Therefore, it is a Gati Ltd. Therefore, it is a consideration in monetary value only and not a book entry. This consideration in monetary value only and not a book entry. This consideration in monetary value only and not a book entry. This liability taken over is in lieu of payment for taking over the tangible liability taken over is in lieu of payment for taking over the tangible liability taken over is in lieu of payment for taking over the tangible and intangible assets, which the assessee considers as valuable. ets, which the assessee considers as valuable. ets, which the assessee considers as valuable. The assessee further submitted that the liabilities have been The assessee further submitted that the liabilities have been The assessee further submitted that the liabilities have been discharged over a period by the assessee. discharged over a period by the assessee.

9.11 The Ld. Counsel Counsel for the assessee further submitted that the for the assessee further submitted that the assessee under BTA, instead of making m assessee under BTA, instead of making monetary payment to Gati onetary payment to Gati took over liability of of more than the value of its assets. The total more than the value of its assets. The total liabilities taken over is Rs.380.11 crores which is broken up into liabilities taken over is Rs.380.11 crores which is broken up into liabilities taken over is Rs.380.11 crores which is broken up into Rs.255.05 crores towards the value of tangible assets (movable and Rs.255.05 crores towards the value of tangible assets (movable and Rs.255.05 crores towards the value of tangible assets (movable and immovable) and the remaining l immovable) and the remaining liability of Rs.125.06 crores towards iability of Rs.125.06 crores towards the value intangible assets. the value intangible assets.

9.12 The Ld. counsel for the assessee submitted that the negative The Ld. counsel for the assessee submitted that the negative The Ld. counsel for the assessee submitted that the negative net worth which has been taken over itself is a consideration and net worth which has been taken over itself is a consideration and net worth which has been taken over itself is a consideration and the same has to be consider the same has to be considered for working out capital gai ed for working out capital gain in case

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of the slump sale by treating the negative net worth as taxable u/s of the slump sale by treating the negative net worth as taxable u/s of the slump sale by treating the negative net worth as taxable u/s 50B(2) of the Act. In this regard, the Ld. counsel for the assessee 50B(2) of the Act. In this regard, the Ld. counsel for the assessee 50B(2) of the Act. In this regard, the Ld. counsel for the assessee placed reliance upon the decision of the Hon’ble Special Bench in placed reliance upon the decision of the Hon’ble Special Bench in placed reliance upon the decision of the Hon’ble Special Bench in the case of DCIT v. Summit Securities Ltd. ( DCIT v. Summit Securities Ltd. (135 ITD 99) 135 ITD 99) wherein the Hon’ble Special Bench has held that negative figure of network the Hon’ble Special Bench has held that negative figure of network the Hon’ble Special Bench has held that negative figure of network should be considered should be considered for working out of capital gain for working out of capital gain in case of slump sale. Therefore, the allegation of the Ld. AO as well as the Ld. slump sale. Therefore, the allegation of the Ld. AO as well as the Ld. slump sale. Therefore, the allegation of the Ld. AO as well as the Ld. CIT(A) that no consideration has b CIT(A) that no consideration has been paid is incorrect. een paid is incorrect.

9.13 In relation to the allegation of the Ld. AO and Ld. CIT(A) that In relation to the allegation of the Ld. AO and Ld. CIT(A) that In relation to the allegation of the Ld. AO and Ld. CIT(A) that the holding company Gati has not offered the income nor has the holding company Gati has not offered the income nor has the holding company Gati has not offered the income nor has reduced the same from cost of its assets, t e same from cost of its assets, therefore, the intangible herefore, the intangible and goodwill is nothing but a book and goodwill is nothing but a book entry, the Ld. counsel for the entry, the Ld. counsel for the assessee submitted that in the hands of the Gati Ltd. vide assessee submitted that in the hands of the Gati Ltd. vide assessee submitted that in the hands of the Gati Ltd. vide assessment order dat assessment order dated 31.03.2015 (PB 121 to 133), t ed 31.03.2015 (PB 121 to 133), the Ld. Assessing Officer has treated the surplus arising out of transfer of Assessing Officer has treated the surplus arising out of transfer of Assessing Officer has treated the surplus arising out of transfer of EDSC on a going concern basis under in EDSC on a going concern basis under income from other sources, come from other sources, which was deleted by the Ld. CIT(A). However, on further appeal by by the Ld. CIT(A). However, on further appeal by by the Ld. CIT(A). However, on further appeal by the Revenue, the Tribunal reversed decision of the Revenue, the Tribunal reversed decision of ld CIT(A) following ld CIT(A) following the Hon’ble Special Bench in the case of Summit Securities Ltd. the Hon’ble Special Bench in the case of Summit Securities Lt the Hon’ble Special Bench in the case of Summit Securities Lt (supra) holding that negative (supra) holding that negative net worth of a going concern is taxable worth of a going concern is taxable u/s 50B of the Act. During the pendency u/s 50B of the Act. During the pendency of the appeal, the Gati of the appeal, the Gati settled the issue under the Vivad Se Vishwas Scheme and paid the settled the issue under the Vivad Se Vishwas Scheme and paid the settled the issue under the Vivad Se Vishwas Scheme and paid the taxes thereon. Therefore, the allegation of the Ld. Assessing Officer taxes thereon. Therefore, the allegation of the Ld. Assessing Officer taxes thereon. Therefore, the allegation of the Ld. Assessing Officer that Gati Ltd. has not offered t ot offered the said surplus income for tax and he said surplus income for tax and

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the treatment given in the books of accounts of the assessee is the treatment given in the books of accounts of the assessee is the treatment given in the books of accounts of the assessee is merely as book entry, is incorrect. merely as book entry, is incorrect.

9.14 The Ld. counsel for the assessee further submitted that the The Ld. counsel for the assessee further submitted that the The Ld. counsel for the assessee further submitted that the reliance placed by the Ld. CIT(A) on AS reliance placed by the Ld. CIT(A) on AS-14 is incorrect, as AS is incorrect, as AS-14 is applicable only in case of amalgamation and demerger whereas applicable only in case of amalgamation and demerger whereas applicable only in case of amalgamation and demerger whereas assessee has acquired EDSC business on a slump sale basis as a assessee has acquired EDSC business on a slump sale basis as a assessee has acquired EDSC business on a slump sale basis as a going concern.

9.15 In relation to the allegation of the Ld. CIT(A) that 5 In relation to the allegation of the Ld. CIT(A) that 5 In relation to the allegation of the Ld. CIT(A) that 5th proviso (now 6th proviso) to section 32(1) of the Act is applicable to the facts section 32(1) of the Act is applicable to the facts section 32(1) of the Act is applicable to the facts of the assessee’s case as it is a case of succession ,therefore, of the assessee’s case as it is a case of succession of the assessee’s case as it is a case of succession depreciation on goodwill for the year under consideration on goodwill for the year under consideration on goodwill for the year under consideration in the hands of the successor i.e. the assessee hands of the successor i.e. the assessee, and predecessor , and predecessor shall be apportioned in the ratio of apportioned in the ratio of period of use of assets, t period of use of assets, the Ld. counsel for the assessee submitted that since no depreciation on goodwill as for the assessee submitted that since no depreciation on goodwill as for the assessee submitted that since no depreciation on goodwill as intangible assets was claimed by the intangible assets was claimed by the “Gati Ltd.”, the assessee being , the assessee being the successor cannot claim any deprecia the successor cannot claim any depreciation invoking 5 invoking 5th Proviso of section 32(1) of the Act section 32(1) of the Act. The Ld. Counsel for the assessee submitted for the assessee submitted that for three reasons 5 that for three reasons 5th proviso (now 6th proviso) to section 32(1) proviso) to section 32(1) of the Act is not applicable to the facts of the assessee’s case. of the Act is not applicable to the facts of the assessee’s case. of the Act is not applicable to the facts of the assessee’s case. Firstly, 5th proviso i proviso is applicable only to succession referred to in s applicable only to succession referred to in clause (xiii), (xiib) and (xiv) clause (xiii), (xiib) and (xiv) of section 47 of the Act or section 170 or 47 of the Act or section 170 or amalgamation or demerger and not the case of transaction of the amalgamation or demerger and not the case of transaction of the amalgamation or demerger and not the case of transaction of the slump sale. The Ld. Counsel Counsel submitted that the assessee has taken submitted that the assessee has taken over business EDSC of Gati business EDSC of Gati ltd. on the slump sale basis as a going sale basis as a going

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concern and it is not a case of any of the modes referred to in 5 t is not a case of any of the modes referred to in 5th t is not a case of any of the modes referred to in 5 proviso to section 32(1) of the Act. Therefore, the question of proviso to section 32(1) of the Act. Therefore, the question of proviso to section 32(1) of the Act. Therefore, the question of proviso does not arise. Secondly, invoking 5th proviso does not arise. 5th proviso is applicable when the succession has taken place during the year applicable when the succession has taken place during the year applicable when the succession has taken place during the year and not at the beginning of the year or at the end of the year. The and not at the beginning of the year or at the end of the year. The and not at the beginning of the year or at the end of the year. The BTA was entered into on 13.02.2012 and the business was BTA was entered into on 13.02.2012 and the business was BTA was entered into on 13.02.2012 and the business was transferred from the closing date i.e. 31.03.2012 relevant to transferred from the closing date i.e. 31.03.2012 relevant to transferred from the closing date i.e. 31.03.2012 relevant to assessment year 2012 ment year 2012-13. The transfer had taken place at the close 13. The transfer had taken place at the close of the business hours on 31.03.2012. Therefore, 5th proviso shall of the business hours on 31.03.2012. Therefore, 5 of the business hours on 31.03.2012. Therefore, 5 have no applicability. have no applicability. Thirdly, 5th proviso is applicable only if the proviso is applicable only if the asset is also appearing in the books of accounts of the predecessor asset is also appearing in the books of accounts of the pre asset is also appearing in the books of accounts of the pre company. The Ld. Counsel Counsel for the assessee submitted that since, for the assessee submitted that since, the intangible and goodwill were self and goodwill were self-generated assets, assets, same were not appearing in the books of Gati Ltd. Therefore, the question of not appearing in the books of Gati Ltd. Therefore, the question of not appearing in the books of Gati Ltd. Therefore, the question of claiming any depreciation claiming any depreciation by the predecessor on the same does not the same does not arise. The 5th proviso is applicable only when the predecessor proviso is applicable only when the predecessor proviso is applicable only when the predecessor company is also claiming depreciation. In this case, the question of company is also claiming depreciation. In this case, the question of company is also claiming depreciation. In this case, the question of Gati ltd claiming any depreciation does not arise. In view of the claiming any depreciation does not arise. In view of the claiming any depreciation does not arise. In view of the above three reasons, the , the proviso to section 31(1) of the Act is no ion 31(1) of the Act is no applicability to the facts of the case of the assessee. applicability to the facts of the case of the assessee.

9.16 In this regard, the Ld. counsel for the assessee relied on the In this regard, the Ld. counsel for the assessee relied on the In this regard, the Ld. counsel for the assessee relied on the Tribunal in the case of Thermo decision of the coordinate bench of coordinate bench of Tribunal in the case of Fisher Scientific India (P) Ltd. v. D Fisher Scientific India (P) Ltd. v. DCIT (155 taxmann.com 346), CIT (155 taxmann.com 346), wherein the Tribunal has held that 5 wherein the Tribunal has held that 5th proviso will not be applicable proviso will not be applicable

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in a case where goodwill was not in a case where goodwill was not in existence as an intangible asset existence as an intangible asset in the case of the predecessor company from whom the assessee in the case of the predecessor company from whom the assessee in the case of the predecessor company from whom the assessee acquired a corresponding uni acquired a corresponding units under slump sale. In the said case ts under slump sale. In the said case also business was taken over on a slump sale basis and the also business was taken over on a slump sale basis and the also business was taken over on a slump sale basis and the Tribunal held that assessee is eligible for depreciation of goodwill Tribunal held that assessee is eligible for depreciation of goodwill Tribunal held that assessee is eligible for depreciation of goodwill arising pursuant to slump sale. arising pursuant to slump sale.

9.17 The Ld. counsel for the assessee further placed reli The Ld. counsel for the assessee further placed reli The Ld. counsel for the assessee further placed reliance on the decision of the Coordinate bench Coordinate bench Bangalore Tribunal in the case of Bangalore Tribunal in the case of I & B Seeds P. Ltd. v. DCIT (142 Taxmann.com 274). In said case, & B Seeds P. Ltd. v. DCIT (142 Taxmann.com 274). & B Seeds P. Ltd. v. DCIT (142 Taxmann.com 274). the assessee company had taken over a business of a negative net the assessee company had taken over a business of a negative net the assessee company had taken over a business of a negative net worth company on a slump sale basis. The Tribunal held that 5th worth company on a slump sale basis. The Tribun worth company on a slump sale basis. The Tribun proviso to section 32(1) of the Act restricts aggregate deduction both to section 32(1) of the Act restricts aggregate deduction both to section 32(1) of the Act restricts aggregate deduction both by the predecessor and the successor and has no effect in a by the predecessor and the successor and has no effect by the predecessor and the successor and has no effect particular year where there is no aggregate r ar where there is no aggregate reduction. The 5 eduction. The 5th proviso in any case, will apply only in the y proviso in any case, will apply only in the year of succession and ear of succession and not in subsequent years. Further, the Tribunal held that 5th proviso not in subsequent years. Further, the Tribunal held that 5 not in subsequent years. Further, the Tribunal held that 5 is applicable only in the case of a is applicable only in the case of an asset already existing and it is asset already existing and it is not applicable on assets recognized only by the successor company not applicable on assets recognized only by the successor company not applicable on assets recognized only by the successor company pursuant to slump of purchase pursuant to slump of purchase. Further, the Tribunal held that . Further, the Tribunal held that depreciation is allowable on goodwill arising pursuant to slump sale depreciation is allowable on goodwill arising pursuant to slump sale depreciation is allowable on goodwill arising pursuant to slump sale transaction. The Ld. counsel for the assessee further relied on the transaction. The Ld. counsel for the assessee further relied on the transaction. The Ld. counsel for the assessee further relied on the decision of the Hon’ble Delhi High Court in the case of Areva T & D decision of the Hon’ble Delhi High Court in the case of decision of the Hon’ble Delhi High Court in the case of Ltd. v. DCIT (345 ITR 421) wherein the intangibles acquired wherein the intangibles acquired

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pursuant to a slump sale agreement are held to be eligible for pursuant to a slump sale agreement are held to be eligible for pursuant to a slump sale agreement are held to be eligible for depreciation.

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slump sale. Further, the Ld. slump sale. Further, the Ld. Counsel for the assessee has also for the assessee has also brought on record the effect of increasing turnover and the profit of brought on record the effect of increasing turnover and the profit of brought on record the effect of increasing turnover and the profit of the assessee consequent to business and transfer rights along with the assessee consequent to business and transfer rights along with the assessee consequent to business and transfer rights along with . Further, we also do not agree with goodwill received under the BTA goodwill received under the BTA. Further, we also do not agree with the allegation of the lower authorities that no consideration has the allegation of the lower authorities that no consideration has the allegation of the lower authorities that no consideration has been paid to the Gati Ltd. for acquiring such intangibles including been paid to the Gati Ltd. for acquiring such intangibles including been paid to the Gati Ltd. for acquiring such intangibles including business and commercial rights and the goodwill. It is evident that business and commercial rights and the goodwill. It is evident that business and commercial rights and the goodwill. It is evident that assessee has acquired liabilities in excess of the assets amounting ired liabilities in excess of the assets amounting ired liabilities in excess of the assets amounting to Rs.125 crores and such liability is discharged by the assessee in to Rs.125 crores and such liability is discharged by the assessee in to Rs.125 crores and such liability is discharged by the assessee in subsequent years and therefore, that liability discharged and paid subsequent years and therefore, that liability discharged and paid subsequent years and therefore, that liability discharged and paid is in the form of consideration for acquiring intangibles in the form the form of consideration for acquiring intangibles in the form the form of consideration for acquiring intangibles in the form of business and commercial rights and goodwill. Regarding the of business and commercial rights and goodwill. Regarding the of business and commercial rights and goodwill. Regarding the allegation of the lower authorities that Gati Ltd. has not shown any allegation of the lower authorities that Gati Ltd. has not shown a allegation of the lower authorities that Gati Ltd. has not shown a Ld. counsel for the assessee has such gain on the slump sale, t such gain on the slump sale, the Ld. counsel for the assessee has brought on record th brought on record that in the case of the Gati Ltd., at in the case of the Gati Ltd., the Co-ordinate Bench of the Tribunal Bench of the Tribunal (supra) held the transaction of the slump sale held the transaction of the slump sale resulting into capital gain in the hand of the Gati Ltd. The Ld resulting into capital gain in the hand of the Gati Ltd. resulting into capital gain in the hand of the Gati Ltd. counsel has submitted that t submitted that the said decision of the Tribunal has he said decision of the Tribunal has been accepted by the Gati Ltd. and the been accepted by the Gati Ltd. and the tax on such capital gain has uch capital gain has been paid under ‘Vivad se vishvas’ ‘Vivad se vishvas’ scheme of the CBDT i.e. dispute of the CBDT i.e. dispute resolution scheme. This fact has not been disputed by the Ld. DR . This fact has not been disputed by the Ld. DR . This fact has not been disputed by the Ld. DR and therefore, this allegation of the lower authorities that Gati Ltd. and therefore, this allegation of the lower authorities that Gati Ltd. and therefore, this allegation of the lower authorities that Gati Ltd. has not treated the transaction has not treated the transaction as capital gain, is now is now no more valid. Further, regarding the allegation of the transaction being Further, regarding the allegation of the transaction being Further, regarding the allegation of the transaction being treated in the books of accounts as und treated in the books of accounts as under accounting standard (AS er accounting standard (AS-

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14), we are of the view that treatment of transaction in books of e are of the view that treatment of transaction in books of e are of the view that treatment of transaction in books of account of the assessee is account of the assessee is not determinative of its taxability under not determinative of its taxability under the provisions of the Income the provisions of the Income-tax Act and the transaction has to be tax Act and the transaction has to be examined as per the provisions of the Act only. Regarding the examined as per the provisions of the Act only. Regarding the examined as per the provisions of the Act only. Regarding the allegation of the transaction falling under the 5 allegation of the transaction falling under the 5th proviso (now 6 proviso (now 6th proviso) to section 32(1) of the Act is concerned, w 32(1) of the Act is concerned, we are of the 32(1) of the Act is concerned, w opinion that said proviso only relate to the transaction in the nature opinion that said proviso only relate to the transaction in the nature opinion that said proviso only relate to the transaction in the nature of the succession/amalgamation or demerger and not in case of of the succession/amalgamation or demerger and not in case of of the succession/amalgamation or demerger and not in case of succession through slump sale. Further, the business and succession through slump sale. Further, the business and succession through slump sale. Further, the business and commercial rights and goodwill have s and goodwill have been self-generated generated and were not appearing in the books of account of the Gati Ltd. , therefore, not appearing in the books of account of the Gati Ltd. not appearing in the books of account of the Gati Ltd. there was no question of claiming depreciation by the Gati Ltd. there was no question of claiming depreciation by the Gati Ltd. there was no question of claiming depreciation by the Gati Ltd. Hence, the question of question of depreciation in the hands of the Gati Ltd. depreciation in the hands of the Gati Ltd. proviso to section 32(1) of the Act and the assessee invoking 5 assessee invoking 5th proviso to section 32(1) of the Act does not arise. Accordingly, the Accordingly, the contentions of the Ld. DR are contentions of the Ld. DR are rejected. The Co-ordinate Bench of the Tribunal in the case of ordinate Bench of the Tribunal in the case of ordinate Bench of the Tribunal in the case of Thermo Fisher Scientific India (P) Ltd. (supra) Thermo Fisher Scientific India (P) Ltd. (supra) has examined the has examined the issue of depreciation or goodwill recognized on purchase of unit f depreciation or goodwill recognized on purchase of unit f depreciation or goodwill recognized on purchase of unit under slump sale and held that depreciation is allowable on the under slump sale and held that depreciation is allowable on the under slump sale and held that depreciation is allowable on the goodwill acquired under the slump sale. The relevant finding of the goodwill acquired under the slump sale. The relevant finding of the goodwill acquired under the slump sale. The relevant finding of the Tribunal is reproduced as under: Tribunal is reproduced as under:

“5.18 We have heard rival submission of parties. The issue in dispute is 5.18 We have heard rival submission of parties. The issue in dispute is 5.18 We have heard rival submission of parties. The issue in dispute is claim of depreciation on Goodwill recognised by the assessee in two claim of depreciation on Goodwill recognised by the assessee in two claim of depreciation on Goodwill recognised by the assessee in two transaction of acquisition of two units. The assessee claimed that those transaction of acquisition of two units. The assessee claimed that those transaction of acquisition of two units. The assessee claimed that those acquisitions are for purchase of unit for l acquisitions are for purchase of unit for lumpsum consideration, as going umpsum consideration, as going concerns in the nature of slump sale, which is subject to capital gain tax concerns in the nature of slump sale, which is subject to capital gain tax concerns in the nature of slump sale, which is subject to capital gain tax u/s 50B in the hand of seller. Whereas the according the Assessing officer u/s 50B in the hand of seller. Whereas the according the Assessing officer u/s 50B in the hand of seller. Whereas the according the Assessing officer the acquisitions are in the nature of amalgamation. Before us, the learned the acquisitions are in the nature of amalgamation. Before us, the learned the acquisitions are in the nature of amalgamation. Before us, the learned

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counsel has referred to various clauses of business transfer agreement counsel has referred to various clauses of business transfer agreement counsel has referred to various clauses of business transfer agreement (BTA) in respect of units acquired from GSK and CTPL respectively. On (BTA) in respect of units acquired from GSK and CTPL respectively. On (BTA) in respect of units acquired from GSK and CTPL respectively. On perusal of relevant clauses referred, we find that transaction in both the perusal of relevant clauses referred, we find that transaction in both the perusal of relevant clauses referred, we find that transaction in both the cases are of slump sale and not, amalgam cases are of slump sale and not, amalgamation as stated by the Assessing ation as stated by the Assessing Officer. 5.19 The learned Assessing Officer has further relied on the Explanation The learned Assessing Officer has further relied on the Explanation The learned Assessing Officer has further relied on the Explanation 7 to section 43(1) of the Act, to hold that assessee is not entitled for 7 to section 43(1) of the Act, to hold that assessee is not entitled for 7 to section 43(1) of the Act, to hold that assessee is not entitled for depreciation on the Goodwill recognised. For ready reference, the depreciation on the Goodwill recognised. For ready reference, the depreciation on the Goodwill recognised. For ready reference, the relevant explanation is reproduced as under: explanation is reproduced as under: “Explanation 7. “Explanation 7.—Where, in a scheme of amalgamation, any capital Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the asset is transferred by the amalgamating company to the asset is transferred by the amalgamating company to the amalgamated company and the amalgamated company is an amalgamated company and the amalgamated company is an amalgamated company and the amalgamated company is an Indian company, the actual cost of th Indian company, the actual cost of the transferred capital asset to e transferred capital asset to the amalgamated company shall be taken to be the same as it the amalgamated company shall be taken to be the same as it the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to would have been if the amalgamating company had continued to would have been if the amalgamating company had continued to hold the capital asset for the purposes of its own business. hold the capital asset for the purposes of its own business. hold the capital asset for the purposes of its own business. Explanation 7A. Explanation 7A.—Where, in a demerger, any capital asset is apital asset is transferred by the demerged company to the resulting company transferred by the demerged company to the resulting company transferred by the demerged company to the resulting company and the resulting company is an Indian company, the actual cost of and the resulting company is an Indian company, the actual cost of and the resulting company is an Indian company, the actual cost of the transferred capital asset to the resulting company shall be the transferred capital asset to the resulting company shall be the transferred capital asset to the resulting company shall be taken to be the same as it would have been if th taken to be the same as it would have been if th taken to be the same as it would have been if the demerged company had continued to hold the capital asset for the purpose of company had continued to hold the capital asset for the purpose of company had continued to hold the capital asset for the purpose of its own business : its own business : Provided Provided that such actual cost shall not exceed the written down that such actual cost shall not exceed the written down value of such capital asset in the hands of the demerged value of such capital asset in the hands of the demerged value of such capital asset in the hands of the demerged company.” company.” 5.20 On perusal of the abov On perusal of the above Explanation, we find that same is in e Explanation, we find that same is in relation to transactions of amalgamation and not related to slump sale relation to transactions of amalgamation and not related to slump sale relation to transactions of amalgamation and not related to slump sale transactions, which is the case of the assessee. transactions, which is the case of the assessee. 5.21 The learned Assessing Officer has further relied on Explanation The learned Assessing Officer has further relied on Explanation The learned Assessing Officer has further relied on Explanation-2 to section 43(6) of the Act, which reads as under: to section 43(6) of the Ac “Explanation 2. “Explanation 2.—Where in any previous year, any block of assets Where in any previous year, any block of assets is transferred, is transferred,— (a) by a holding company to its subsidiary company or by a by a holding company to its subsidiary company or by a by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of subsidiary company to its holding company and the conditions of subsidiary company to its holding company and the conditions of clause (iv) or, as the cas clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or satisfied; or (b) by the amalgamating company to the amalgamated company by the amalgamating company to the amalgamated company by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated c in a scheme of amalgamation, and the amalgamated c in a scheme of amalgamation, and the amalgamated company is an Indian company, an Indian company, then, notwithstanding anything contained in clause (1), the actual then, notwithstanding anything contained in clause (1), the actual then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee cost of the block of assets in the case of the transferee cost of the block of assets in the case of the transferee-company or

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the amalgamated company, as the case may be, shall be the the amalgamated company, as the case may be, shall be the the amalgamated company, as the case may be, shall be the written down value of the block o written down value of the block of assets as in the case of the f assets as in the case of the transferor transferor-company company or or the the amalgamating amalgamating company company for for the the immediately preceding previous year as reduced by the amount of immediately preceding previous year as reduced by the amount of immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding depreciation actually allowed in relation to the said preceding depreciation actually allowed in relation to the said preceding previous year. previous year. 5.22 On perusal of above Ex On perusal of above Explanation, we find that it is in relation to planation, we find that it is in relation to acquisition of a subsidiary company by its holding company or vice versa acquisition of a subsidiary company by its holding company or vice versa acquisition of a subsidiary company by its holding company or vice versa and in relation to transactions of amalgamation and not in respect of and in relation to transactions of amalgamation and not in respect of and in relation to transactions of amalgamation and not in respect of slump sale. 5.23 The learned Assessing Officer has further relied o The learned Assessing Officer has further relied on fifth proviso ( n fifth proviso ( now sixth proviso) to section 32(1)(ii) of the Act, which is reproduced for now sixth proviso) to section 32(1)(ii) of the Act, which is reproduced for now sixth proviso) to section 32(1)(ii) of the Act, which is reproduced for ready reference: ready reference: “Provided also “Provided also that the aggregate deduction, in respect of that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being depreciation of buildings, machinery, plant or furniture, being depreciation of buildings, machinery, plant or furniture, being tangible assets or kno tangible assets or know-how, patents, copyrights, trademarks, how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of licences, franchises or any other business or commercial rights of licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor similar nature, being intangible assets allowable to the predecessor similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause and the successor in the case of succession referred to in clause and the successor in the case of succession referred to in clause (xiii), clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamatin to the amalgamating company and the amalgamated company in g company and the amalgamated company in the case of amalgamation, or to the demerged company and the the case of amalgamation, or to the demerged company and the the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, resulting company in the case of demerger, as the case may be, resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at shall not exceed in any previous year the deduction calculated at shall not exceed in any previous year the deduction calculated at the prescribed rates as i the prescribed rates as if the succession or the amalgamation or f the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such the demerger, as the case may be, had not taken place, and such the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the deduction shall be apportioned between the predecessor and the deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated successor, or the amalgamating company and the amalgamated successor, or the amalgamating company and the amalgamated company, or the demerged compa company, or the demerged company and the resulting company, as ny and the resulting company, as the case may be, in the ratio of the number of days for which the the case may be, in the ratio of the number of days for which the the case may be, in the ratio of the number of days for which the assets were used by them.” assets were used by them.” 5.24 On plain reading of the above proviso, it is clear that same is in On plain reading of the above proviso, it is clear that same is in On plain reading of the above proviso, it is clear that same is in relation to allocation of the depreciation on the asset be relation to allocation of the depreciation on the asset between predecessor tween predecessor and successor entities, whereas in the instant case goodwill was not in and successor entities, whereas in the instant case goodwill was not in and successor entities, whereas in the instant case goodwill was not in existence as intangible asset in the case of predecessor companies from existence as intangible asset in the case of predecessor companies from existence as intangible asset in the case of predecessor companies from whom the assessee has acquired corresponding units under slump sale. whom the assessee has acquired corresponding units under slump sale. whom the assessee has acquired corresponding units under slump sale. Therefore, the said provi Therefore, the said provision is also not applicable of the facts of the sion is also not applicable of the facts of the instant case. 5.25 The ratio is in the case of United Breweries (supra) is also not The ratio is in the case of United Breweries (supra) is also not The ratio is in the case of United Breweries (supra) is also not applicable over the facts of case as in the said case there was applicable over the facts of case as in the said case there was applicable over the facts of case as in the said case there was amalgamation of the three wholly owned subsidiaries whereas amalgamation of the three wholly owned subsidiaries whereas amalgamation of the three wholly owned subsidiaries whereas in the instant case there is a acquisition of units of third parties by way of slump instant case there is a acquisition of units of third parties by way of slump instant case there is a acquisition of units of third parties by way of slump sale. 5.26 The learned DR before us submitted that allocation of values to the The learned DR before us submitted that allocation of values to the The learned DR before us submitted that allocation of values to the fixed asset acquired has been on lower side for creating goodwill as fixed asset acquired has been on lower side for creating goodwill as fixed asset acquired has been on lower side for creating goodwill as intangible asset. But intangible asset. But in our opinion, if the quantum of goodwill is reduced, in our opinion, if the quantum of goodwill is reduced,

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the valuation of the fixed asset will increase, which are also eligible for the valuation of the fixed asset will increase, which are also eligible for the valuation of the fixed asset will increase, which are also eligible for depreciation and thus in the exercise of reallocation of values among the depreciation and thus in the exercise of reallocation of values among the depreciation and thus in the exercise of reallocation of values among the goodwill and other fixed asset ,will be a revenue goodwill and other fixed asset ,will be a revenue neutral exercise. neutral exercise. 5.27 In view of the above discussion, we concur with the arguments of In view of the above discussion, we concur with the arguments of In view of the above discussion, we concur with the arguments of the learned counsel of the assessee that goodwill arising from transactions the learned counsel of the assessee that goodwill arising from transactions the learned counsel of the assessee that goodwill arising from transactions of acquisition of units of GSK and CTPL, is eligible for depreciation under of acquisition of units of GSK and CTPL, is eligible for depreciation under of acquisition of units of GSK and CTPL, is eligible for depreciation under the provisions the provisions of the Act. As far as claim of the assessee for allowing of the Act. As far as claim of the assessee for allowing depreciation on said goodwill corresponding to assessment year 2008 depreciation on said goodwill corresponding to assessment year 2008 depreciation on said goodwill corresponding to assessment year 2008-09, we are of the opinion that claim with respect to depreciation for we are of the opinion that claim with respect to depreciation for we are of the opinion that claim with respect to depreciation for assessment years 2008 assessment years 2008-09, cannot be allowed in the appeal fo 09, cannot be allowed in the appeal for assessment year 2009 assessment year 2009-10. It is for the assessee to explore necessary 10. It is for the assessee to explore necessary remedy under the provisions of the Act or any other legal remedy as remedy under the provisions of the Act or any other legal remedy as remedy under the provisions of the Act or any other legal remedy as advised. The ground No.2 (two) of the appeal of the a advised. The ground No.2 (two) of the appeal of the a advised. The ground No.2 (two) of the appeal of the assessee is accordingly allowed.” accordingly allowed.” he Tribunal in the case of I & B 11.1 The Co-ordinate Bench of t ordinate Bench of the Tribunal in the case of Seeds P. Ltd. (supra) Seeds P. Ltd. (supra) also held that goodwill arising also held that goodwill arising on slump sale is eligible for depreciation and 5 depreciation and 5th proviso to section 32(1) of the Act proviso to section 32(1) of the Act is not applicable on slump sale. The relevant finding of the Tribunal slump sale. The relevant finding of the Tribunal slump sale. The relevant finding of the Tribunal is reproduced as under: is reproduced as under:

“13.10. In this case, the AO did not principally contend against the position 13.10. In this case, the AO did not principally contend against the position 13.10. In this case, the AO did not principally contend against the position of the Appellant, that the goodwill recorded by it is an intangible asset of the Appellant, that the goodwill recorded by it is an intangible asset of the Appellant, that the goodwill recorded by it is an intangible asset eligible for depreciation unde eligible for depreciation under Section 32(1) of the Act. In our opinion, the r Section 32(1) of the Act. In our opinion, the claim of assessee is to be allowed on the following lines: claim of assessee is to be allowed on the following lines:- i. The said goodwill is in the nature of any other The said goodwill is in the nature of any other commercial or business commercial or business right under the category of an right under the category of an intangible asset that is eligible for intangible asset that is eligible for depreciation under depreciation under section 32 of the Act. The issue whether Goodwill section 32 of the Act. The issue whether Goodwill arising on transfer is eligible for depreciation or not, is arising on transfer is eligible for depreciation or not, is no longer Res- Integra, and has been settled by the Integra, and has been settled by the Hon'ble SC in the case of Smifs Hon'ble SC in the case of Smifs Securities Ltd. (348 Securities Ltd. (348 ITR 302), wherein held that “in the present case, it is that “in the present case, it is the valuation that is challenged and not the eligibility the valuation that is challenged and not the eligibility of depreciation on of depreciation on goodwill.” The position of law held goodwill.” The position of law held by the Hon'ble SC constitutes the law of by the Hon'ble SC constitutes the law of the land and is binding on all the lower authorities, in terms of is binding on all the lower authorities, in terms of Article 141 is binding on all the lower authorities, in terms of of the Constitution of India. of the Constitution of India. ii. In this regard, we place further reliance on the ii. In this regard, we place further reliance on the decision of the Hon'ble decision of the Hon'ble Karnataka High in the case of Karnataka High in the case of Manipal Universal Learning P. Ltd., 255 ITR Manipal Universal Learning P. Ltd., 255 ITR 26, the facts and circumstances of which are similar to the facts and circumstances of which are similar to the facts and circumstances of which are similar to the present case, wherein the Hon'ble HC allowed the wherein the Hon'ble HC allowed the claim of depreciation on goodwill claim of depreciation on goodwill arising on acquisition arising on acquisition of business under slump sale model, reiterating the of business under slump sale model, reiterating the decision of the Hon'ble SC in the case of Smifs decision of the Hon'ble SC in the case of Smifs Securities (Supra). Securities (Supra).

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iii. Further, we place reliance on iii. Further, we place reliance on the following decisions, wherein it was wherein it was principally held that goodwill is an principally held that goodwill is an intangible asset eligible for depreciation intangible asset eligible for depreciation under section 32 of the Act in the context of business transfer 32 of the Act in the context of business transfer through slump sale: Areva T & D India Ltd. 345 ITR 21 Areva T & D India Ltd. 345 ITR 21 Truine Energy Services (P) Ltd. 65 taxmann.com 238 Services (P) Ltd. 65 taxmann.com 238 Toyo Engineering India India Limited TS Toyo Engineering India India Limited TS-811-HC-2012 Volvo India Pvt. Ltd. TS Volvo India Pvt. Ltd. TS-391-ITAT-2019 Dorma India Pvt. Ltd. TS Dorma India Pvt. Ltd. TS-735-ITAT-2019 13.11. The sixth proviso to Section 32(1) of the Act also 13.11. The sixth proviso to Section 32(1) of the Act also not applicable. It is not applicable. It is applicable, only in case of assets already e, only in case of assets already existing in the books of existing in the books of predecessor company on which predecessor predecessor company on which predecessor company was claiming company was claiming depreciation before slump purchase, and it depreciation before slump purchase, and it is not applicable on assets is not applicable on assets recognized only by successor company recognized only by successor company pursuant to such slump purc pursuant to such slump purchase. The legislative intent behind the The legislative intent behind the introduction of the said proviso was to introduction of the said proviso was to curb the practice of claiming' curb the practice of claiming' depreciation on the 'same assets' by both the depreciation on the 'same assets' by both the predecessor company predecessor company and the successor company. This evident from the and the successor company. This evident from the memorandum explaining the provisions of Finance Bill, 1996, which isions of Finance Bill, 1996, which introduced the sixth proviso (erstwhile fifth proviso) to section 32(1) of the the sixth proviso (erstwhile fifth proviso) to section 32(1) of the the sixth proviso (erstwhile fifth proviso) to section 32(1) of the Act. Thus, a commonality of assets should exist between predecessor Thus, a commonality of assets should exist between predecessor and Thus, a commonality of assets should exist between predecessor the successor goodwill arising pursuant to acquisition belongs the successor goodwill arising pursuant to acquisition belongs the successor goodwill arising pursuant to acquisition belongs only to successor company. successor company. 13.12. Further, the Ahmedabad Bench of the Tribunal, 13.12. Further, the Ahmedabad Bench of the Tribunal, in the case of Urmin in the case of Urmin Marketing Pvt. Ltd., 122 taxmann.com 40 Marketing Pvt. Ltd., 122 taxmann.com 40 rejected invocation of the said rejected invocation of the said proviso and held that the same is not proviso and held that the same is not applicable in a case where goodwill applicable in a case where goodwill is recorded pur is recorded pursuant to a merger, on the basis of purchase consideration merger, on the basis of purchase consideration paid (which is determined based on a valuation report), and no goodwill determined based on a valuation report), and no goodwill from the books of the transferor is recorded by the transferee. books of the transferor is recorded by the transferee.” books of the transferor is recorded by the transferee. 11.2 We find that the Co We find that the Co-ordinate Bench of the Tribunal ordinate Bench of the Tribunal Chennai in the case of ACIT v. Dorma India (P.) Ltd. [IT Appeal Nos. 1664 to ACIT v. Dorma India (P.) Ltd. [IT Appeal Nos. 1664 to ACIT v. Dorma India (P.) Ltd. [IT Appeal Nos. 1664 to 1666/Chny/2019 dealt with the eligibility of depreciation of dealt with the eligibility of depreciation of dealt with the eligibility of depreciation of goodwill under the slump sale agreement and held that excess goodwill under the slump sale agreement and held that excess goodwill under the slump sale agreement and held that excess payment made over the tangible immovable assets (net of liabilities) the tangible immovable assets (net of liabilities) the tangible immovable assets (net of liabilities) acquired is towards intangible assets acquired by the taxpayer acquired is towards intangible assets acquired by the taxpayer acquired is towards intangible assets acquired by the taxpayer under business contract and thus the payments by the taxpayers business contract and thus the payments by the taxpayers business contract and thus the payments by the taxpayers over and above is to be over and above is to be treated as goodwill and depreciation is goodwill and depreciation is allowed on the same. The case laws relied same. The case laws relied upon by upon by the Ld. DR

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pertain to the period prior to the decision of the Hon’ble Supreme to the period prior to the decision of the Hon’ble Supreme to the period prior to the decision of the Hon’ble Supreme Court in the case of Smiff Securities Pvt. Ltd. (supra) and therefore, Court in the case of Smiff Securities Pvt. Ltd. (supra) and therefore, Court in the case of Smiff Securities Pvt. Ltd. (supra) and therefore, ratio of the said case ratio of the said cases is not applicable over the facts of the instant is not applicable over the facts of the instant se cases the excess of assets over the liabilities was not case. In those cases the excess of assets over the liabilities was not se cases the excess of assets over the liabilities was not held to be in the nature of goodwill. held to be in the nature of goodwill.

11.3 In view of the above discussion and relying on the decisions In view of the above discussion and relying on the decisions In view of the above discussion and relying on the decisions discussed above, we set aside the finding of the Ld. CIT(A) on the discussed above, we set aside the finding of the Ld. CIT(A) on the discussed above, we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Assessing Officer to allow the ute and direct the Assessing Officer to allow the ute and direct the Assessing Officer to allow the depreciation on the amount of the goodwill recorded in the books of depreciation on the amount of the goodwill recorded in the books of depreciation on the amount of the goodwill recorded in the books of accounts of the assessee under the BTA between the assessee and accounts of the assessee under the BTA between the assessee and accounts of the assessee under the BTA between the assessee and the Gati Ltd. The ground No the Gati Ltd. The ground Nos. 2.1 and 2.2 of the appeal are . 2.1 and 2.2 of the appeal are accordingly allowed.

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transfer agreement. However, the assessee could not recover both transfer agreement. However, the assessee could not recover both transfer agreement. However, the assessee could not recover both these amounts and therefore, suffered loss. The Ass these amounts and therefore, suffered loss. The Assessing Officer as essing Officer as well as the Ld. CIT(A) rejected the claim the deduction for the said well as the Ld. CIT(A) rejected the claim the deduction for the said well as the Ld. CIT(A) rejected the claim the deduction for the said loss by holding that firstly, the advances written off amounting to , the advances written off amounting to loss by holding that Rs.35,68,795/- were not offered income in earlier years in the were not offered income in earlier years in the were not offered income in earlier years in the hands of the assessee. Further, the As hands of the assessee. Further, the Assessing Officer observed that sessing Officer observed that assessee has not adduced any evidence that those advances were assessee has not adduced any evidence that those assessee has not adduced any evidence that those business advances. business advances. Secondly, regarding receivables written off , regarding receivables written off it is observed that same were not amounting to Rs.18,16,695/ amounting to Rs.18,16,695/- it is observed that same were not offered income by the assessee in the offered income by the assessee in the earlier year therefore, cannot earlier year therefore, cannot be allowed as bad debt bad debt written off u/s 32(2) of the Act in the hands u/s 32(2) of the Act in the hands of the assessee. The relevant finding of the Ld. CIT(A) is reproduced of the assessee. The relevant finding of the Ld. CIT(A) is reproduced of the assessee. The relevant finding of the Ld. CIT(A) is reproduced as under:

“7.3 I have carefully considered the relevant and material facts on record, 7.3 I have carefully considered the relevant and material facts on record, 7.3 I have carefully considered the relevant and material facts on record, in respect of this ground of appeal, as brought out in the assessment in respect of this ground of appeal, as brought out in the assessment in respect of this ground of appeal, as brought out in the assessment order and submissions made during appeal proceedings. This is an order and submissions made during appeal proceedings. This is an order and submissions made during appeal proceedings. This is an undisputed fact that a sum of Rs. 53,85,488/ undisputed fact that a sum of Rs. 53,85,488/- being bad debts written being bad debts written off has been charged against profits chargeable to off has been charged against profits chargeable to tax. The said sum tax. The said sum comprises of -(i) bad debt of Rs. 18,16,695/ (i) bad debt of Rs. 18,16,695/- which has been offered as which has been offered as income in the hands of M/s Gati Limited in earlier years; and ii) business income in the hands of M/s Gati Limited in earlier years; and ii) business income in the hands of M/s Gati Limited in earlier years; and ii) business advances of Rs. 35,68,793/ advances of Rs. 35,68,793/- which was written off as irrecoverable. On which was written off as irrecoverable. On these facts, it is e these facts, it is evident that the said sum of Rs. 53,85,488/ vident that the said sum of Rs. 53,85,488/- has not been taken into account in computing income of the appellant in any been taken into account in computing income of the appellant in any been taken into account in computing income of the appellant in any previous years. The debt of Rs. 18,16,695/ previous years. The debt of Rs. 18,16,695/- has been offered as income has been offered as income in the hands of M/s Gati Limited, the holding company, and not in in the hands of M/s Gati Limited, the holding company, and not in in the hands of M/s Gati Limited, the holding company, and not in the hands of the appellant company. The remaining sum of Rs. 35,68,793/ hands of the appellant company. The remaining sum of Rs. 35,68,793/ hands of the appellant company. The remaining sum of Rs. 35,68,793/- being in the nature of irrecoverable business advance has also not been being in the nature of irrecoverable business advance has also not been being in the nature of irrecoverable business advance has also not been offered as income in the hands of the appellant in any previous year. offered as income in the hands of the appellant in any previous year. offered as income in the hands of the appellant in any previous year. 7.4 The clause (vii) of section 36 (1) p 7.4 The clause (vii) of section 36 (1) provides that the amount of any bad rovides that the amount of any bad debt or part thereof which is written off as irrecoverable in the account of debt or part thereof which is written off as irrecoverable in the account of debt or part thereof which is written off as irrecoverable in the account of the assessee for the previous year, shall be allowed as deduction in the assessee for the previous year, shall be allowed as deduction in the assessee for the previous year, shall be allowed as deduction in computing business income, subject to the provisions of section 36(2). computing business income, subject to the provisions of section 36(2). computing business income, subject to the provisions of section 36(2). Section 36(2) lays down several conditions for allow ability of deduction ion 36(2) lays down several conditions for allow ability of deduction ion 36(2) lays down several conditions for allow ability of deduction for a bad debt or part thereof. One of such conditions, specified in clause for a bad debt or part thereof. One of such conditions, specified in clause for a bad debt or part thereof. One of such conditions, specified in clause i) thereof, is that no such deduction shall be allowed unless such debt or i) thereof, is that no such deduction shall be allowed unless such debt or i) thereof, is that no such deduction shall be allowed unless such debt or part thereof has been taken into ac part thereof has been taken into account in computing the income of the count in computing the income of the

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assessee of the previous year in which the amount of such debt or part assessee of the previous year in which the amount of such debt or part assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. In the instant case, it thereof is written off or of an earlier previous year. In the instant case, it thereof is written off or of an earlier previous year. In the instant case, it is clear from facts that the sum of Rs. 53,85,488/ is clear from facts that the sum of Rs. 53,85,488/-, which has been , which has been charged to profits for the year on account of bad debts written off, cannot harged to profits for the year on account of bad debts written off, cannot harged to profits for the year on account of bad debts written off, cannot be allowed as deduction in computing income under section 28, for be allowed as deduction in computing income under section 28, for be allowed as deduction in computing income under section 28, for reason that the said sum has not been taken into account in computing reason that the said sum has not been taken into account in computing reason that the said sum has not been taken into account in computing income of the appellant company in any previo income of the appellant company in any previous year. 7.4.1 Hon'ble Madras High Court in the case of Tube Investments of India 7.4.1 Hon'ble Madras High Court in the case of Tube Investments of India 7.4.1 Hon'ble Madras High Court in the case of Tube Investments of India Ltd. Vs JCIT(2016) (67 taxmann.com 59) (Madras) has taken note of the Ltd. Vs JCIT(2016) (67 taxmann.com 59) (Madras) has taken note of the Ltd. Vs JCIT(2016) (67 taxmann.com 59) (Madras) has taken note of the finding reverted by the Assessing Officer that the debt was not part of the finding reverted by the Assessing Officer that the debt was not part of the finding reverted by the Assessing Officer that the debt was not part of the assessee's stock assessee's stock-in-trade and that it has not been incurred while d that it has not been incurred while purchasing or selling the goods in which the company was dealing with purchasing or selling the goods in which the company was dealing with purchasing or selling the goods in which the company was dealing with and, on these facts upheld that the expenditure involved cannot be and, on these facts upheld that the expenditure involved cannot be and, on these facts upheld that the expenditure involved cannot be treated as a debt and therefore, it is not an admissible deduction. treated as a debt and therefore, it is not an admissible deduction. treated as a debt and therefore, it is not an admissible deduction. 7.4.2 Hon'ble Supreme Court in the case of Pr. CIT Vs Khyati Realtors Supreme Court in the case of Pr. CIT Vs Khyati Realtors (P.) Supreme Court in the case of Pr. CIT Vs Khyati Realtors Ltd. (2022) (141 taxmann.com 461) (SC) has held that where assessee Ltd. (2022) (141 taxmann.com 461) (SC) has held that where assessee Ltd. (2022) (141 taxmann.com 461) (SC) has held that where assessee- company, engaged in business of real estate and financing, failed to company, engaged in business of real estate and financing, failed to company, engaged in business of real estate and financing, failed to prove that amount paid to a developer as advance for prove that amount paid to a developer as advance for prove that amount paid to a developer as advance for booking commercial space was in its ordinary course of business, said amount commercial space was in its ordinary course of business, said amount commercial space was in its ordinary course of business, said amount being written off as bad debt could not be allowed. being written off as bad debt could not be allowed. 7.4.3 In the instant case, the issue and the material facts for the year 7.4.3 In the instant case, the issue and the material facts for the year 7.4.3 In the instant case, the issue and the material facts for the year under consideration i.e. Assessment Year 2013 under consideration i.e. Assessment Year 2013-14 are i 14 are identical. Therefore, I see no reason to deviate from the ratio of above Court rulings. Therefore, I see no reason to deviate from the ratio of above Court rulings. Therefore, I see no reason to deviate from the ratio of above Court rulings. 7.5 In view of the facts and circumstances of the case, and respectfully 7.5 In view of the facts and circumstances of the case, and respectfully 7.5 In view of the facts and circumstances of the case, and respectfully following the judicial precedent, I find that the disallowance of bad debts following the judicial precedent, I find that the disallowance of bad debts following the judicial precedent, I find that the disallowance of bad debts of Rs. 53,85,488/ of Rs. 53,85,488/- charged to profits for the year has been correctly harged to profits for the year has been correctly made by the Assessing Officer, as the said sum has not been taken into made by the Assessing Officer, as the said sum has not been taken into made by the Assessing Officer, as the said sum has not been taken into account in computing income of the appellant in any previous year. The account in computing income of the appellant in any previous year. The account in computing income of the appellant in any previous year. The action of AO in making the disallowance of Rs. 53,85,488/ action of AO in making the disallowance of Rs. 53,85,488/ action of AO in making the disallowance of Rs. 53,85,488/- on this account does not call for any interference, hence sustained. These account does not call for any interference, hence sustained. These account does not call for any interference, hence sustained. These grounds of appeal are dismissed. grounds of appeal are dismissed.” 14. Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the aforesaid receivables as well as advances of Gati Ltd. were taken aforesaid receivables as well as advances of Gati Ltd. were taken aforesaid receivables as well as advances of Gati Ltd. were taken over by the assessee under the BTA. Those receivables were duly e under the BTA. Those receivables were duly e under the BTA. Those receivables were duly taken into consideration by the Gati Ltd. in the income offered and taken into consideration by the Gati Ltd. in the income offered and taken into consideration by the Gati Ltd. in the income offered and therefore, the assessee meets the condition of therefore, the assessee meets the condition of section 36(2) of the section 36(2) of the Act and deduction for same is allowable. Regarding the advances Act and deduction for same is allowable. Regarding the advances Act and deduction for same is allowable. Regarding the advances and loans written off it was submitted that the losses arising were ritten off it was submitted that the losses arising were ritten off it was submitted that the losses arising were incidental to the busines incidental to the business of the assessee and therefore same s of the assessee and therefore same are to

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be allowed as deduction while computing profit and gains of be allowed as deduction while computing profit and gains be allowed as deduction while computing profit and gains business or profession. Further, the Ld. counsel submitted that business or profession. Further, the Ld. counsel submitted that business or profession. Further, the Ld. counsel submitted that there was no requirement of furnishing any evidence in respect of was no requirement of furnishing any evidence in respect of was no requirement of furnishing any evidence in respect of advances made during the course of business because once the advances made during the course of business because once the advances made during the course of business because once the assessee has entered into shoes of the Gati Ltd. there is no further assessee has entered into shoes of the Gati Ltd. there is no further assessee has entered into shoes of the Gati Ltd. there is no further obligation on the part of obligation on the part of assessee to adduce evidence in respect o evidence in respect of transaction undertaken by the Gati Ltd. transaction undertaken by the Gati Ltd.

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predecessor firm passed on to the assessee firm, which included a predecessor firm passed on to the assessee firm, which included a predecessor firm passed on to the assessee firm, which included a debt of ₹ 23,577/- - due from luxury trading compa due from luxury trading company to the predecessor firm. The total amount due in the account relating to predecessor firm. The total amount due in the account relating to predecessor firm. The total amount due in the account relating to the Laxmi trading company was the Laxmi trading company was ₹ 40,549/- -comprising an outstanding amount of outstanding amount of ₹ 29, 200/-and interest thereon in the sum and interest thereon in the sum of ₹ 11, 349/-for the period 31 for the period 31st April, 1960 to 31/03/1961. to 31/03/1961. The amount of interest was tax amount of interest was taxed in the hands of the assessee for the in the hands of the assessee for the assessment year 1963 ent year 1963-64 on 31/03/1965. The parties affected he parties affected a settlement under which a sum of settlement under which a sum of ₹ 25,000 was acc 25,000 was accepted by the assessee in full settlement of said debt and the balance amount of assessee in full settlement of said debt and the balance amount of assessee in full settlement of said debt and the balance amount of ₹15,100/-was written off as a recoverable. In background of the was written off as a recoverable. In background of the was written off as a recoverable. In background of the above facts, the Hon’ble Supreme Court observed that if the above facts, the Hon’ble Supreme Court observed that above facts, the Hon’ble Supreme Court observed that business along with its assets and liabilities is tr business along with its assets and liabilities is transferred by one ansferred by one owner to the another, there is no reason why a debt so transferred owner to the another, there is no reason why a debt so transferred owner to the another, there is no reason why a debt so transferred should not be entitled to the same treatment in the hands of the should not be entitled to the same treatment in the hands of the should not be entitled to the same treatment in the hands of the successor. The Hon’ble Supreme Court observed that the recovery of successor. The Hon’ble Supreme Court observed that the recovery of successor. The Hon’ble Supreme Court observed that the recovery of the debt is right transferred along with the debt is right transferred along with numerous other rights numerous other rights comprising the subject of the transfer any of the law permits the comprising the subject of the transfer any of the law permits the comprising the subject of the transfer any of the law permits the transfer to treat the whole or part of the debt as a recoverable and to transfer to treat the whole or part of the debt as a recoverable and to transfer to treat the whole or part of the debt as a recoverable and to claim a deduction on that account, it seems difficult to accept that claim a deduction on that account, it seems difficult to accept that claim a deduction on that account, it seems difficult to accept that same right should not be r same right should not be recognised in the hands of the transferee. ecognised in the hands of the transferee. The relevant observations of the Hon’ble Supreme Court are observations of the Hon’ble Supreme Court are observations of the Hon’ble Supreme Court are reproduced as under: reproduced as under:

“It is not disputed that the assessee succeeded to the business of the It is not disputed that the assessee succeeded to the business of the It is not disputed that the assessee succeeded to the business of the predecessor firm and took over all its assets and liabilities, predecessor firm and took over all its assets and liabilities, predecessor firm and took over all its assets and liabilities, including the debt due from Laxmi Trading Company. The business carried on by the debt due from Laxmi Trading Company. The business carried on by the debt due from Laxmi Trading Company. The business carried on by the

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predecessor firm was now carried on by the assessee. The facts also predecessor firm was now carried on by the assessee. The facts also predecessor firm was now carried on by the assessee. The facts also show that the assessee paid income tax on the interest income accruing show that the assessee paid income tax on the interest income accruing show that the assessee paid income tax on the interest income accruing on the debt for the assessment year on the debt for the assessment year 1963-64. It is also not disputed that 64. It is also not disputed that the parties effected a settlement on March 31, 1965 whereby a sum the parties effected a settlement on March 31, 1965 whereby a sum the parties effected a settlement on March 31, 1965 whereby a sum of Rs. 25,000 was accepted by the assessee in satisfaction of the debt Rs. 25,000 was accepted by the assessee in satisfaction of the debt Rs. 25,000 was accepted by the assessee in satisfaction of the debt and that the balance of Rs.15,100 was written off by the assessee as and that the balance of Rs.15,100 was written off by the assessee as and that the balance of Rs.15,100 was written off by the assessee as irrecoverable. The question is whether money owed by a debtor under a le. The question is whether money owed by a debtor under a le. The question is whether money owed by a debtor under a transaction with a predecessor firm can be written off as irrecoverable in transaction with a predecessor firm can be written off as irrecoverable in transaction with a predecessor firm can be written off as irrecoverable in the accounts of its successor, the assessee, in a subsequent year and the accounts of its successor, the assessee, in a subsequent year and the accounts of its successor, the assessee, in a subsequent year and could be claimed as a bad debt under cl.(vii) of sub could be claimed as a bad debt under cl.(vii) of sub-s.(1) of s.(1) of s.36 of the Income Tax Act, 1961. Income Tax Act, 1961. Cl.(vii) of sub-s.(1) of s.(1) of s.36 of the Income Tax Act, 1961 provides : of the Income Tax Act, 1961 provides : "36.(1). The deductions provided for in "36.(1). The deductions provided for in the following clauses shall be the following clauses shall be allowed in respect of the matters dealt with therein, in computing the allowed in respect of the matters dealt with therein, in computing the allowed in respect of the matters dealt with therein, in computing the income referred to in income referred to in section 28 - ................................................. ................................................. (vii) subject to the provisions of sub the provisions of sub-s.(2), the amount of any debt, or part s.(2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous thereof, which is established to have become a bad debt in the previous thereof, which is established to have become a bad debt in the previous year". Sub-s.(2) of s.36 s.36 declares :- "(2). In making any deduction for "(2). In making any deduction for a bad debt or part thereof, the following a bad debt or part thereof, the following provisions shall apply : provisions shall apply :- (i) no such deduction shall be allowed unless such debt or part thereof (i) no such deduction shall be allowed unless such debt or part thereof (i) no such deduction shall be allowed unless such debt or part thereof - (a) has been taken into account in computing the income of the assessee (a) has been taken into account in computing the income of the assessee (a) has been taken into account in computing the income of the assessee of the previous year or of an earlier prev of the previous year or of an earlier previous year, or represents money ious year, or represents money lent in the ordinary course of the business of banking or money lending lent in the ordinary course of the business of banking or money lending lent in the ordinary course of the business of banking or money lending which is carried on by the assessee, and which is carried on by the assessee, and (b) has been written off as irrecoverable in the accounts of the assessee (b) has been written off as irrecoverable in the accounts of the assessee (b) has been written off as irrecoverable in the accounts of the assessee for that previous year; for that previous year; (ii) if the amount ultimately recovered on any such debt or part of debt is ount ultimately recovered on any such debt or part of debt is ount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so less than the difference between the debt or part and the amount so less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which deducted, the deficiency shall be deductible in the previous year in which deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; the ultimate recovery is made; (iii) any such debt (iii) any such debt or part of debt may be deducted if it has already been or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year, written off as irrecoverable in the accounts of an earlier previous year, written off as irrecoverable in the accounts of an earlier previous year, but the Income but the Income-tax Officer had not allowed it to be deducted on the tax Officer had not allowed it to be deducted on the ground that it had not been established to have become a ba ground that it had not been established to have become a ba ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in (iv) where any such debt or part of debt is written off as irrecoverable in (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year and the Income the accounts of the previous year and the Income-tax Officer is satisfied tax Officer is satisfied that such debt or part became a bad debt in any earlier previous year not that such debt or part became a bad debt in any earlier previous year not that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the ond a period of four previous years immediately preceding the ond a period of four previous years immediately preceding the

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previous year in which such debt or part is written off, the provisions of previous year in which such debt or part is written off, the provisions of previous year in which such debt or part is written off, the provisions of sub-section (6) of section (6) of section 155 shall apply". S.28, referred to in sub , referred to in sub-s.(1) of s.36, provides that income under the , provides that income under the head "Profits and gains of business or profession", shall be chargeable to head "Profits and gains of business or profession", shall be chargeable to head "Profits and gains of business or profession", shall be chargeable to income-tax. The profits and ga tax. The profits and gains of a business are charged to income ins of a business are charged to income- tax. To compute the profits and gains so chargeable, s.36 provides for tax. To compute the profits and gains so chargeable, s.36 provides for tax. To compute the profits and gains so chargeable, s.36 provides for allowing a number of deductions. Each of the deductions must relate to allowing a number of deductions. Each of the deductions must relate to allowing a number of deductions. Each of the deductions must relate to the business. If the same assessee was carrying on a business and he the business. If the same assessee was carrying on a business and he the business. If the same assessee was carrying on a business and he wrote off a debt relating to the business as irrecoverable, he would off a debt relating to the business as irrecoverable, he would off a debt relating to the business as irrecoverable, he would without doubt be entitled to a corresponding deduction under cl.(vii) of without doubt be entitled to a corresponding deduction under cl.(vii) of without doubt be entitled to a corresponding deduction under cl.(vii) of sub- s.(1) of s.36 subject to the fulfilment of the conditions set forth in s.(1) of s.36 subject to the fulfilment of the conditions set forth in s.(1) of s.36 subject to the fulfilment of the conditions set forth in sub-s.(2) of s.36 s.36. If a business, along with its assets and liabilities, is . If a business, along with its assets and liabilities, is transferred by one owner to another, we see no reason why a debt so transferred by one owner to another, we see no reason why a debt so transferred by one owner to another, we see no reason why a debt so transferred should not be entitled to the same treatment in the hands of transferred should not be entitled to the same treatment in the hands of transferred should not be entitled to the same treatment in the hands of the successor. The recovery of the successor. The recovery of the debt is a right transferred along with the debt is a right transferred along with the numerous other rights comprising the subject of the transfer. If the the numerous other rights comprising the subject of the transfer. If the the numerous other rights comprising the subject of the transfer. If the law permits the transferor to treat the whole or part of the debt as law permits the transferor to treat the whole or part of the debt as law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account, it seems diffi irrecoverable and to claim a deduction on that account, it seems diffi irrecoverable and to claim a deduction on that account, it seems difficult to accept that the same right should not be recognised in the transferee. It to accept that the same right should not be recognised in the transferee. It to accept that the same right should not be recognised in the transferee. It is merely an incident flowing from the transfer of the business, together is merely an incident flowing from the transfer of the business, together is merely an incident flowing from the transfer of the business, together with its assets and liabilities, from the previous owner to the transferee. with its assets and liabilities, from the previous owner to the transferee. with its assets and liabilities, from the previous owner to the transferee. It is a right which shou It is a right which should, on a proper appreciation of all that is implied in ld, on a proper appreciation of all that is implied in the transfer of a business, be regarded as belonging to the new owner. the transfer of a business, be regarded as belonging to the new owner. the transfer of a business, be regarded as belonging to the new owner. Unless the language of the statute plainly and clearly compels a Unless the language of the statute plainly and clearly compels a Unless the language of the statute plainly and clearly compels a construction to the contrary, the normal rule of the law should b construction to the contrary, the normal rule of the law should b construction to the contrary, the normal rule of the law should be given its proper play. It is true that cl.(i) of sub proper play. It is true that cl.(i) of sub-s.(2) of s.36 declares that a declares that a deduction can be allowed only deduction can be allowed only if the debt, or part thereof, has been if the debt, or part thereof, has been taken into account in computing the income of the taken into account in computing the income of the assessee of that assessee of that previous year or an earlier previous year and that it has also been previous year or an earlier previous year and that it has also been previous year or an earlier previous year and that it has also been written off as irrecoverable in the accounts of the assessee for that written off as irrecoverable in the accounts of the assessee for that written off as irrecoverable in the accounts of the assessee for that previous year. In the present case, the debt was taken into account in the previous year. In the present case, the debt was taken into account in the previous year. In the present case, the debt was taken into account in the income of the assessee for income of the assessee for the assessment year 1963- -64 when the interest income accruing thereon was taxed in the hands of the assessee. interest income accruing thereon was taxed in the hands of the assessee. interest income accruing thereon was taxed in the hands of the assessee. The interest was taxed as income because it represented an accretion The interest was taxed as income because it represented an accretion The interest was taxed as income because it represented an accretion accruing during the earlier year on money owed to the assessee by the accruing during the earlier year on money owed to the assessee by the accruing during the earlier year on money owed to the assessee by the debtor. The item constituted income because it represented interest on a . The item constituted income because it represented interest on a . The item constituted income because it represented interest on a loan. The nature of the income indicated the transaction from which it loan. The nature of the income indicated the transaction from which it loan. The nature of the income indicated the transaction from which it emerged. The transaction was the debt, and that debt was taken into emerged. The transaction was the debt, and that debt was taken into emerged. The transaction was the debt, and that debt was taken into account in computing the income of the assessee of account in computing the income of the assessee of the relevant previous the relevant previous year. It is the same assessee who has subsequently, pursuant to a year. It is the same assessee who has subsequently, pursuant to a year. It is the same assessee who has subsequently, pursuant to a settlement, accepted part payment of the debt in full satisfaction and has settlement, accepted part payment of the debt in full satisfaction and has settlement, accepted part payment of the debt in full satisfaction and has written off the balance of the debt as irrecoverable in his accounts. It written off the balance of the debt as irrecoverable in his accounts. It written off the balance of the debt as irrecoverable in his accounts. It appears therefore t appears therefore that the conditions in both sub-clauses (a) and (b) of cl.(i) of sub (a) and (b) of cl.(i) of sub-s.(2) of s.36 are satisfied in the present case, are satisfied in the present case, and the High Court as well as the Appellate Tribunal and the Appellate and the High Court as well as the Appellate Tribunal and the Appellate and the High Court as well as the Appellate Tribunal and the Appellate Assistant Commis Assistant Commissioner are right in the view which they took. sioner are right in the view which they took. It seems to us that even if the debt had been taken into account in It seems to us that even if the debt had been taken into account in It seems to us that even if the debt had been taken into account in computing the income of the predecessor firm only and had subsequently computing the income of the predecessor firm only and had subsequently computing the income of the predecessor firm only and had subsequently been written of as irrecoverable in the accounts of the assessee, the been written of as irrecoverable in the accounts of the assessee, the been written of as irrecoverable in the accounts of the assessee, the

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assessee would still have been entitled to a deduction of the amount ssessee would still have been entitled to a deduction of the amount ssessee would still have been entitled to a deduction of the amount written off as a bad debt. It is not imperative that the assessee referred written off as a bad debt. It is not imperative that the assessee referred written off as a bad debt. It is not imperative that the assessee referred to in sub-cl.(a) must necessarily mean the identical assessee referred to cl.(a) must necessarily mean the identical assessee referred to cl.(a) must necessarily mean the identical assessee referred to in sub-cl (b). A successor to the perti cl (b). A successor to the pertinent interest of a previous assessee nent interest of a previous assessee would be covered within the terms of sub would be covered within the terms of sub-cl.(b). The successor assessee, cl.(b). The successor assessee, in effect, steps into the shoes of his predecessor. in effect, steps into the shoes of his predecessor. Accordingly, we hold that the assessee in the instant case was entitled to Accordingly, we hold that the assessee in the instant case was entitled to Accordingly, we hold that the assessee in the instant case was entitled to the deduction as a the deduction as a bad debt of the sum of Rs. 15,100 written off by it in bad debt of the sum of Rs. 15,100 written off by it in its accounts of the previous year as irrecoverable. its accounts of the previous year as irrecoverable. We may add that although a number of decisions of various High Courts We may add that although a number of decisions of various High Courts We may add that although a number of decisions of various High Courts were cited before us on behalf of the assessee we consider it were cited before us on behalf of the assessee we consider it were cited before us on behalf of the assessee we consider it unnecessary to re unnecessary to refer to them. As regards the sum of Rs.6,880 claimed by the assessee as legal As regards the sum of Rs.6,880 claimed by the assessee as legal As regards the sum of Rs.6,880 claimed by the assessee as legal expenses in connection with an appeal filed in this Court to recover an expenses in connection with an appeal filed in this Court to recover an expenses in connection with an appeal filed in this Court to recover an amount due from the Central Government, it is apparent that the amount due from the Central Government, it is apparent that the amount due from the Central Government, it is apparent that the transaction related to the predecessor firm transaction related to the predecessor firm and the suit instituted by it and the suit instituted by it was continued by the assessee on taking over the assets and liabilities of was continued by the assessee on taking over the assets and liabilities of was continued by the assessee on taking over the assets and liabilities of the predecessor firm. The Income Tax Officer, the Appellate Assistant the predecessor firm. The Income Tax Officer, the Appellate Assistant the predecessor firm. The Income Tax Officer, the Appellate Assistant Commissioner, the Appellate Tribunal and the High Court dealt with this Commissioner, the Appellate Tribunal and the High Court dealt with this Commissioner, the Appellate Tribunal and the High Court dealt with this claim on the same basis as the claim made in respect of the bad debt. We the same basis as the claim made in respect of the bad debt. We the same basis as the claim made in respect of the bad debt. We are satisfied that the view we are taking in respect of the sum of Rs. are satisfied that the view we are taking in respect of the sum of Rs. are satisfied that the view we are taking in respect of the sum of Rs. 15,100 claimed as a bad debt should also form the basis for 15,100 claimed as a bad debt should also form the basis for 15,100 claimed as a bad debt should also form the basis for acknowledging the claim to deduction of Rs.6,880. acknowledging the claim to deduction of Rs.6,880.” 17.1 Respectfully following the above ectfully following the above decision, we are of the opinion decision, we are of the opinion that in principle deduction for the bad debt written off and that in principle deduction for the bad debt written off and that in principle deduction for the bad debt written off and advances written off cannot be disallowed advances written off cannot be disallowed in the hands of the in the hands of the assessee for the reason that same were not transacted by the for the reason that same were not transacted by the for the reason that same were not transacted by the assessee and only received under the transaction of slum sale. received under the transaction of slum sale. We received under the transaction of slum sale. reject the finding of the ld CIT(A) on this issue. However, the reject the finding of the ld CIT(A) on this issue. reject the finding of the ld CIT(A) on this issue. assessee has to satisfy the requirement of assessee has to satisfy the requirement of section 32(2) section 32(2) of the Act in respect of amount of respect of amount of ₹ 18,16,695/- and demonstrate that said sum and demonstrate that said sum was part of the debt under the ordinary course of the business and was part of the debt under the ordinary course of the business and was part of the debt under the ordinary course of the business and shown as income in earlier years shown as income in earlier years by the predecessor by the predecessor . The assessee has also to demonstrate whether any interest income was shown in has also to demonstrate whether any interest income was shown in has also to demonstrate whether any interest income was shown in its books of accounts in respect of those debts. Regarding the loans its books of accounts in respect of those debts. Regardin its books of accounts in respect of those debts. Regardin

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and advances written off amounting to and advances written off amounting to ₹ 35,68,793/ 793/-, the assessee is required to demonstrate whether those loans and advances were to demonstrate whether those loans and advances were to demonstrate whether those loans and advances were for the purpose of the business of the for the purpose of the business of the predecessor predecessor. The assessee fer agreement and cannot take the shelter under the business trans cannot take the shelter under the business transfer agreement and claim that the assessee is not required to satisfy the requirement of claim that the assessee is not required to satisfy the requirement of claim that the assessee is not required to satisfy the requirement of law. Accordingly, we set aside the finding of the Ld. CIT(A) and the law. Accordingly, we set aside the finding of the Ld. CIT(A) and the law. Accordingly, we set aside the finding of the Ld. CIT(A) and the Assessing Officer on this issue in dispute, and restore the matter Assessing Officer on this issue in dispute, and restore the matter Assessing Officer on this issue in dispute, and restore the matter back to the file of the Assessin back to the file of the Assessing Officer for deciding a for deciding afresh in the direction to the assessee to produce accordance with law, with accordance with law, with the direction to the assessee to produce all the relevant document to support its claim as discussed above. all the relevant document to support its claim as discussed above. all the relevant document to support its claim as discussed above. Accordingly, ground Nos. 3.1 to 3.2 of the appeal are allowed for Accordingly, ground Nos. 3.1 to 3.2 of the appeal are allowed for Accordingly, ground Nos. 3.1 to 3.2 of the appeal are allowed for statistical purposes.

1.1. On the facts and in cireumstances of the case and in law, the Learned 1.1. On the facts and in cireumstances of the case and in law, the Learned 1.1. On the facts and in cireumstances of the case and in law, the Learned National Faceless Appeals Centre ("Ld. NFAC") vide order dated National Faceless Appeals Centre ("Ld. NFAC") vide order dated National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 13, 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in confirming the order of the Learned Asst. confirming the order of the Learned Asst. Commissioner of Income tax 2(2), Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated December 9, 2016 under section Hyderabad ("Ld. AO") vide order dated December 9, 2016 under section Hyderabad ("Ld. AO") vide order dated December 9, 2016 under section 143(3) of the Act ("impugned 143(3) of the Act ("impugned order") without appreciating that the same is order") without appreciating that the same is contrary to law. contrary to law. 1.2 The Appellant prays that the impugned order dated December 9, 2016 The Appellant prays that the impugned order dated December 9, 2016 The Appellant prays that the impugned order dated December 9, 2016 be quashed and set be quashed and set aside. 2.1 On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming t NFAC erred in confirming the disallowance made by the Ld. AO of he disallowance made by the Ld. AO of depreciation amounting to Rs. 23,44,85,217 claimed on intangibles and depreciation amounting to Rs. 23,44,85,217 claimed on intangibles and depreciation amounting to Rs. 23,44,85,217 claimed on intangibles and goodwill arising out of Business Transfer Agreement dated February 13, goodwill arising out of Business Transfer Agreement dated February 13, goodwill arising out of Business Transfer Agreement dated February 13, 2012 entered into with Gati Ltd. for acquiring Express distribution and 2012 entered into with Gati Ltd. for acquiring Express distribution and 2012 entered into with Gati Ltd. for acquiring Express distribution and Supply chain business on a going concern basis from the close of business y chain business on a going concern basis from the close of business y chain business on a going concern basis from the close of business hours on March 31, 2022. hours on March 31, 2022.

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2.2 The Appellant prays that the Ld. AO be directed to allow deduction of The Appellant prays that the Ld. AO be directed to allow deduction of The Appellant prays that the Ld. AO be directed to allow deduction of depreciation amounting to Rs. 23,44,85,217 claimed on intangibles and depreciation amounting to Rs. 23,44,85,217 claimed on intangibles and depreciation amounting to Rs. 23,44,85,217 claimed on intangibles and goodwill. 3.1 On the facts and in the circumstances of the case and in law, the Ld. he facts and in the circumstances of the case and in law, the Ld. he facts and in the circumstances of the case and in law, the Ld. NFAC erred in confirming disallowance made by the Ld. AO of interest NFAC erred in confirming disallowance made by the Ld. AO of interest NFAC erred in confirming disallowance made by the Ld. AO of interest amounting to Rs. 49,727 paid on late payment of tax deducted at source. amounting to Rs. 49,727 paid on late payment of tax deducted at source. amounting to Rs. 49,727 paid on late payment of tax deducted at source. 3.2 The Appellant prays that the Ld. AO be direct The Appellant prays that the Ld. AO be directed to allow deduction of ed to allow deduction of interest amounting to Rs. 49,727 paid on late payment of tax deducted at interest amounting to Rs. 49,727 paid on late payment of tax deducted at interest amounting to Rs. 49,727 paid on late payment of tax deducted at source. 18.1 The ground No. 1 The ground No. 1 is general in nature. The ground No. 2.1 and general in nature. The ground No. 2.1 and 2.2 relates to depreciation 2.2 relates to depreciation on intangible and goodwill. This issue intangible and goodwill. This issue has already been adjudicated by us in the appeal of the assessee for adjudicated by us in the appeal of the assessee for adjudicated by us in the appeal of the assessee for assessment year 2013 assessment year 2013-14. Respectfully following our finding the 14. Respectfully following our finding the issue in dispute is decided issue in dispute is decided mutatis mutandis.

18.2 The ground No. 3.1 and 3.2 of the appeal relates to The ground No. 3.1 and 3.2 of the appeal relates to The ground No. 3.1 and 3.2 of the appeal relates to disallowance of interest amounting disallowance of interest amounting to Rs.49,727/ to Rs.49,727/- paid for late payment of tax deducted at source. Before us, the Ld. counsel for payment of tax deducted at source. Before us, the Ld. counsel for payment of tax deducted at source. Before us, the Ld. counsel for the assessee submitted that assessee did not press the said ground. the assessee submitted that assessee did not press the said ground. the assessee submitted that assessee did not press the said ground. Therefore, the said ground is dismissed as infructuous. Therefore, the said ground is dismissed as infructuous. Therefore, the said ground is dismissed as infructuous.

1.1 On the facts and in circumstances of the case and in law, the Learned On the facts and in circumstances of the case and in law, the Learned On the facts and in circumstances of the case and in law, the Learned National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, 2023 under section 2023 under section 250 of the Income tax Act, 1961 ("the Act" erred in 250 of the Income tax Act, 1961 ("the Act" erred in confirming the order of the Learned Asst. confirming the order of the Learned Asst. Commissioner of Income tax 2(2), Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated December 12, 2017 under section Hyderabad ("Ld. AO") vide order dated December 12, 2017 under section Hyderabad ("Ld. AO") vide order dated December 12, 2017 under section 143(3) of the Act ("impugned order") without appreciating t 143(3) of the Act ("impugned order") without appreciating that the same is hat the same is contrary to law. contrary to law. 1.2 The Appellant prays that the impugned order dated December 12, The Appellant prays that the impugned order dated December 12, The Appellant prays that the impugned order dated December 12, 2017 be quashed and set aside. 2017 be quashed and set aside.

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2.1. On the facts and in circumstances of the case and in law, the Ld. 2.1. On the facts and in circumstances of the case and in law, the Ld. 2.1. On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming the disallowance of made by t NFAC erred in confirming the disallowance of made by t NFAC erred in confirming the disallowance of made by the Ld. AO of depreciation amounting to Rs. 17,58,63,913/ depreciation amounting to Rs. 17,58,63,913/-claimed on intangibles and claimed on intangibles and goodwill arising out of Business Transfer Agreement dated February 13, goodwill arising out of Business Transfer Agreement dated February 13, goodwill arising out of Business Transfer Agreement dated February 13, 2012 entered into with Gati Ltd. for acquiring Express distribution and 2012 entered into with Gati Ltd. for acquiring Express distribution and 2012 entered into with Gati Ltd. for acquiring Express distribution and Supply chain business on a go Supply chain business on a going concern basis from the close of business ing concern basis from the close of business hours on March 31, hours on March 31, 2022. 2.2. The Appellant prays the Ld. AO be directed to allow deduction of 2.2. The Appellant prays the Ld. AO be directed to allow deduction of 2.2. The Appellant prays the Ld. AO be directed to allow deduction of depreciation amounting to Rs. 17,58,63,913/ depreciation amounting to Rs. 17,58,63,913/- claimed on intangibles and claimed on intangibles and goodwill. 19.1 The ground No. 1 The ground No. 1 is general in nature. The ground No. 2.1 and n nature. The ground No. 2.1 and 2.2 relates to depreciation 2.2 relates to depreciation on intangible and goodwill. This issue intangible and goodwill. This issue has already been adjudicated by us in the appeal of the assessee for has already been adjudicated by us in the appeal of the assessee for has already been adjudicated by us in the appeal of the assessee for assessment year 2013 assessment year 2013-14. Respectfully following our finding 14. Respectfully following our finding, the issue in dispute is decided issue in dispute is decided mutatis mutandis.

1.1 On the facts and in circumstances of the case and in law, the Learned On the facts and in circumstances of the case and in law, the Learned On the facts and in circumstances of the case and in law, the Learned National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, ional Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, ional Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in confirming the order of the Learned Asst. confirming the order of the Learned Asst. Commissioner of Income tax 2(2), Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated De Hyderabad ("Ld. AO") vide order dated December 13, 2018 under section cember 13, 2018 under section 143(3) of the Act ("impugned order") without appreciating that the same is 143(3) of the Act ("impugned order") without appreciating that the same is 143(3) of the Act ("impugned order") without appreciating that the same is contrary to law. contrary to law. 1.2. The Appellant prays that the impugned order dated December 13, 1.2. The Appellant prays that the impugned order dated December 13, 1.2. The Appellant prays that the impugned order dated December 13, 2018 be quashed and set 2018 be quashed and set aside. 2.1. On the facts and in circumstan 2.1. On the facts and in circumstances of the case and in law, the Ld. ces of the case and in law, the Ld. NFAC erred in confirming the disallowance made by the Ld. AO of NFAC erred in confirming the disallowance made by the Ld. AO of NFAC erred in confirming the disallowance made by the Ld. AO of depreciation amounting to Rs. 13,18,97,934 claimed on intangibles and depreciation amounting to Rs. 13,18,97,934 claimed on intangibles and depreciation amounting to Rs. 13,18,97,934 claimed on intangibles and goodwill arising out of Business Transfer Agreement dated February 13, goodwill arising out of Business Transfer Agreement dated February 13, goodwill arising out of Business Transfer Agreement dated February 13, 2012 entered in 2012 entered into with Gati Ltd. for acquiring Express distribution and to with Gati Ltd. for acquiring Express distribution and Supply chain business on a going concern basis from the close of business Supply chain business on a going concern basis from the close of business Supply chain business on a going concern basis from the close of business hours on March 31, 2022. hours on March 31, 2022.

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2.2 The Appellant prays that the Ld. AO be directed to allow deduction of The Appellant prays that the Ld. AO be directed to allow deduction of The Appellant prays that the Ld. AO be directed to allow deduction of depreciation amounting to depreciation amounting to Rs. 13,18,97,934 claimed on intangibles and Rs. 13,18,97,934 claimed on intangibles and goodwill. 20.1 The ground No. 1 The ground No. 1 is general in nature. The ground No general in nature. The ground Nos. 2.1 and 2.2 relates to depreciation of intangible and goodwill. This issue and 2.2 relates to depreciation of intangible and goodwill. This issue and 2.2 relates to depreciation of intangible and goodwill. This issue has already been adjudicated by us in the appeal of the assessee for has already been adjudicated by us in the appeal of the assessee fo has already been adjudicated by us in the appeal of the assessee fo assessment year 2013 assessment year 2013-14. Respectfully following our finding 14. Respectfully following our finding, the issue in dispute is decided issue in dispute is decided mutatis mutandis.

1.1. On the facts and in circu 1.1. On the facts and in circumstances of the case and in law, the Learned mstances of the case and in law, the Learned National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, National Faceless Appeals Centre ("Ld. NFAC") vide order dated June 14, 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in 2023 under section 250 of the Income tax Act, 1961 ("the Act") erred in confirming the order of the Learned Asst. confirming the order of the Learned Asst. Commissioner of Income Commissioner of Income tax 2(2), Hyderabad ("Ld. AO") vide order dated November 25, 2019 under section Hyderabad ("Ld. AO") vide order dated November 25, 2019 under section Hyderabad ("Ld. AO") vide order dated November 25, 2019 under section 143(3) of the Act ("impugned order") without appreciating that the same is 143(3) of the Act ("impugned order") without appreciating that the same is 143(3) of the Act ("impugned order") without appreciating that the same is contrary to law. contrary to law. 1.2. The Appellant prays that the impugned order dated November 25, 1.2. The Appellant prays that the impugned order dated November 25, 1.2. The Appellant prays that the impugned order dated November 25, 2019 be quashed 2019 be quashed and set aside. 2.1 On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming the disallowance of made by the Ld. AO of NFAC erred in confirming the disallowance of made by the Ld. AO of NFAC erred in confirming the disallowance of made by the Ld. AO of depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and goodwill arising out of Business Tr goodwill arising out of Business Transfer Agreement dated February 13, ansfer Agreement dated February 13, 2012 entered into with Gati Ltd. for acquiring Express distribution and 2012 entered into with Gati Ltd. for acquiring Express distribution and 2012 entered into with Gati Ltd. for acquiring Express distribution and Supply chain business on a going concern basis from the close of business Supply chain business on a going concern basis from the close of business Supply chain business on a going concern basis from the close of business hours on March 31, 2022. hours on March 31, 2022. 2.2 The Appellant prays that the Ld. AO be direct The Appellant prays that the Ld. AO be directed to allow deduction of ed to allow deduction of depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and depreciation amounting to Rs. 9,89,23,451 claimed on intangibles and goodwill. 3.1 On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. On the facts and in circumstances of the case and in law, the Ld. NFAC erred in confirming the treatment of denial of MAT Credit by the Ld. NFAC erred in confirming the treatment of denial of MAT Credit by the Ld. NFAC erred in confirming the treatment of denial of MAT Credit by the Ld. AO amounting to Rs. 2,67,15,179. ting to Rs. 2,67,15,179. 3.2 The Appellant prays that the Ld. AO be directed to allow MAT credit The Appellant prays that the Ld. AO be directed to allow MAT credit The Appellant prays that the Ld. AO be directed to allow MAT credit amounting to Rs. amounting to Rs. 2,67,15,179.

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21.1 The ground No. 1 The ground No. 1 is general in nature. The ground No. 2.1 and general in nature. The ground No. 2.1 and 2.2 relates to depreciation 2.2 relates to depreciation on intangible and goodwill. This i intangible and goodwill. This issue has already been adjudicated by us in the appeal of the assessee for has already been adjudicated by us in the appeal of the assessee for has already been adjudicated by us in the appeal of the assessee for 14. Respectfully following our finding the assessment year 2013 assessment year 2013-14. Respectfully following our finding the issue in dispute is decided issue in dispute is decided mutatis mutandis.

21.2 The ground No. 3.1 and 3.3 relate to denial of MAT credit by The ground No. 3.1 and 3.3 relate to denial of MAT credit by The ground No. 3.1 and 3.3 relate to denial of MAT credit by the Assessing Officer. The Ld. counsel for the assessee submitted the Assessing Officer. The Ld. counsel for the assessee submitted the Assessing Officer. The Ld. counsel for the assessee submitted that this ground is consequential. Accordingly, we are not required that this ground is consequential. Accordingly, we are not required that this ground is consequential. Accordingly, we are not required to adjudicate upon and the Assessing Officer is directed to give to adjudicate upon and the Assessing Officer is directed to g to adjudicate upon and the Assessing Officer is directed to g consequential effect. consequential effect.

Order pronounced in the open Court nounced in the open Court on 13/0 /05/2024. Sd/ Sd/- Sd/- Sd/ (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 13/05/2024 Rahul Sharma, Sr. P.S.

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Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai