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Before: Shri S.S. Viswanethra Ravi & Shri S.R. Raghunatha
आयकर अपीलीय अिधकरण, ’सी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी एसएस िव�ने� रिव, �ाियक सद� एवं �ी एस.आर. रगुनाथॎ, लेखा सद� के सम� Before Shri S.S. Viswanethra Ravi, Judicial Member & Shri S.R. Raghunatha, Accountant Member आयकर अपील सं./I.T.A. No.1028/Chny/2024 िनधा�रण वष�/Assessment Year: 2016-17 The Income Tax Officer, Vs. Sunedison Solar Power India Private Corporate Ward 6(1), Room No. 704, Limited, No. 6J, Century Plaza,560- Wanaparthy Block, Aayakar Bhawan, 565, Anna Salai, Chennai 600 040 Nungambakkam, Chennai 600 034. [PAN: AASCS6905K] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Shri Aroon Prasad, Addl. CIT ��थ� की ओर से/Respondent by : Shri S.K. Gupta, Advocate सुनवाई की तारीख/ Date of hearing : 22.07.2024 घोषणा की तारीख /Date of Pronouncement : 24.07.2024 आदेश /O R D E R PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order dated 09.02.2024 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2016-17.
We find that this appeal is filed with a delay of four days. The Revenue filed a petition for condonation of delay explaining reasons for the said delay and prayed for condonation of that delay. On perusal of the condonation petition and upon hearing both the parties, we find that the
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reasons explained by the Revenue are bonafide and therefore, the delay is condoned.
The only effective ground raised in the appeal of the Revenue relates to allowance of depreciation on goodwill by placing reliance on the order of the ITAT in assessee’s own case for earlier assessment years.
At the outset, we note that the assessment was completed under section 147 read with section 144B of the Income Tax Act, 1961 [“Act” in short] determining the total income of the assessee at ₹.13,98,05,870/- against NIL income returned by the assessee by disallowing the claim of depreciation on goodwill amounting to ₹.13,98,05,871/-. On perusal of the appellate order, we note that by following the decision of the jurisdictional ITAT in assessee’s own case for the assessment years 2013-14, 2014-15 and 2015-16, the ld. CIT(A) directed the Assessing Officer to allow depreciation on goodwill to the assessee.
The ld. DR Shri Aroon Prasad, Addl. CIT submits that the decision of the ITAT in assessee’s own case for the assessment years 2013-14 to 2015-16 was not accepted by the Department and
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preferred further appeal under section 260A of the Act and pleaded for reversing the order passed by the ld. CIT(A).
The ld. AR Shri S.K. Gupta, Advocate submits that the issue involved in this appeal is squarely covered in favour of the assessee by the decision of the ITAT in assessee’s own case for the assessment years 2013-14, 2014-15 and 2015-16 and prayed to follow the same.
Heard both the sides, perused the material available on record. The assessee claimed depreciation on goodwill. However, the Assessing Officer held that the assessee is not entitled to claim depreciation on goodwill by holding that the assessee’s claim of depreciation on goodwill has been disallowed and added to the returned income in the earlier assessment order for the AY 2013-14, 2014-15 and 2015-16. Accordingly, the Assessing Officer disallowed the claim of depreciation on goodwill and added to the total income of the assessee.
On appeal, by following the decision of the ITAT in assessee’s own case for the assessment years 2013-14, 2014-15 and 2015-16, the ld. CIT(A) directed the Assessing Officer to allow depreciation on goodwill to the assessee. We have perused the order of the Tribunal in
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assessee’s own case in I.T.A. Nos. 1520/Chny/2018, 2164/Chny/2019 & 570/Chny/2020 for assessment years 2013-14, 2014-15 & 2015-16 dated 12.04.2023, wherein, by elaborately discussing the issue, the Tribunal has directed the Assessing Officer to allow depreciation on goodwill as claimed by the assessee by observing as under: “11. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. There is no dispute with regard to the fact that in a scheme of demerger approved by the Hon’ble High Court of Madras vide its order dated 28.01.2014, the EPC business of Sunedision Energy India Private Limited has been demerged into resulting company Sunedison Solar Power India Private Limited with effect from 01.04.2012. As per the approved scheme of demerger, the method and manner of accounting terms of assets and liabilities taken over by the Resulting company and consideration to be payable to Demerged company has been specified. As per para 22.1 of scheme document, details that the consideration to be paid by resulting company to be paid to the shareholders of Demerged company upon coming into effect of this scheme and in consideration for the transfer and vesting of the Demerged Undertaking in the Resulting company, the Resulting company shall issue and allot shares of ₹.10/- each at a premium, based on the valuation done by the valuer and adopted by the Board of Directors. Further, clause 24 under Part III, more particularly, clause 24.7 deals with accounting treatment of demerged entity in the books of accounts of Resulting company and as per which, surplus arising out of the excess of net assets of the Demerged Undertaking and transferred from the Demerged Company and recorded by the Resulting company in terms of clause 24.4, over the amount credited as share capital and securities premium and after making adjustment shall be credited to General Reserve Account of the Resulting company and deficit, if any, shall be debited to the goodwill account of the Resulting Company. The assessee has issued 6,61,25,780 CCPS valued at ₹.22.92 which includes ₹.12.96 as share premium aggregating to ₹.151.82 crores to the shareholders of Demerged company. The net asset taken over by the Resulting company was valued at ₹.19.27 crores. Thus, there is a difference of ₹.132.57 crores being value of CCPS issued to shareholders of demerged company and net asset taken over by the resulting company and the same has been accounted as goodwill in the books of assessee company. Further, the accounting term given by the assessee in its books of accounts towards assets and liabilities taken over in a scheme of demerger approved by the Hon’ble High Court of Madras and consideration paid for acquisition of such business
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undertaking by issue of shares in accordance with scheme approved by the Hon’ble High Court, which is further strengthen by the guidelines issued by the Institute of Chartered Accountants of India for accounting goodwill, as per which, the assessee has followed the purchase method for accounting the assets and liabilities taken over under a scheme of demerger, which resulted in deficit as specified in clause 24.7 of scheme document, which has been rightly accounted as goodwill. 12. In this factual background, if it is examined the legal position on the issue of depreciation on goodwill, the issue is no longer res integra. The Hon’ble Supreme Court has considered identical issue in the case of CIT v. Smifs Securities Limited (supra), where the question of law before the Hon’ble Supreme Court was whether goodwill arises on account of amalgamation is an intangible asset eligible for depreciation under section 32(1) of the Income Tax Act or not. The Hon’ble Supreme Court, after considering relevant facts and also provisions of Explanation (3) to section 32(1) of the Act, held that the expression “asset” shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. The words “any other business or commercial rights of similar nature” in clause (b) of Explanation 3 indicates that goodwill would fall under the expression “any other business or commercial rights of a similar nature”. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b) to section 32(1) of the Act. Consequently, goodwill is an asset as per Explanation 3(b) to section 32(1) of the Act and eligible for depreciation. The Hon’ble Karnataka High Court in the case of CIT v. Manipal Universal Learning (P.) Ltd. [2013] 359 ITR 369 (Kar), wherein, the Hon’ble High Court followed the decision of the Hon’ble Supreme Court in the case of CIT v. Smifs Securities Limited (supra) and held that depreciation is allowable on amount paid for goodwill being future profits. 13. In the light of factual and legal background, if it is examined the facts, there is no dispute with regard to the fact that the assessee has paid excess consideration over and above the value of net asset taken over from EPC undertaking by issue of shares to shareholders of demerged company and such difference has been treated as goodwill in the books of account by following purchase method as prescribed under Accounting Standard for accounting goodwill by ICAI. Further, the method followed by the assessee is specified in the scheme document submitted before the Hon’ble High Court of Madras and approved vide its order dated 28.01.2014. Therefore, we are of the considered opinion that to this extent, there is no error in the reasons given by the assessee to claim depreciation of goodwill, which is supported by the decision of the Hon’ble Supreme Court in the case of CIT v. Smifs Securities Limited (supra).
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In so far as the observations of the Assessing Officer and the ld. CIT(A) are concerned, we find that neither the Assessing Officer nor the ld. CIT(A) had any dispute regarding manner in which quantum of goodwill was arrived at. In fact, both the authorities have accepted the valuation of net asset acquired by the assessee company and the valuation for arriving at the consideration to be paid to the shareholders of the demerged company. It is also a fact that no goodwill was appeared in the books of Demerged company before appointing date. The fact that the depreciation on goodwill was specifically omitted by amending section 32 by the Finance Act, 2021 w.e.f. 01.04.2021 also demonstrate that depreciation on goodwill was allowable before the amendment. Further, the Assessing Officer and the ld. CIT(A) have stated that goodwill recorded by the assessee company is self-generated, but, fact remains that goodwill recorded in the books of accounts in resulting company is not self- generated goodwill but falls into the category of purchased goodwill. From the above facts, it is clear that goodwill recorded in the books of assessee company is purchased goodwill and cost of the same has been rightly arrived at. 15. In so far as observations of the Addl. CIT in the order under section 144A of the Act, for the assessment year 2014-15 is concerned, the conclusion drawn by the Addl. CIT which has been accepted both by the Assessing Officer and the ld. CIT(A) is totally flawed for the reason that the Addl. CIT went on the wrong premise that goodwill recorded in the books of the assessee company is self-generated. In pursuance to the scheme of demerger, goodwill recorded in books of accounts of resulting company was acquired, but not self-generated as per the order of the Hon’ble High Court of Madras in a scheme document. Therefore, we are of the considered opinion that once the assessee proves that goodwill accounted in the books of accounts in a scheme of demerger is only of purchased goodwill by paying consideration then the same fall within the ambit of purchased goodwill and entitled for depreciation under section 32(1) of the Act. 16. At this stage, it is necessary to consider various case law relied upon by the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee has relied on the decision of the Hon’ble Supreme Court in the case of CIT v. Smifs Securities Limited (supra) and the Hon’ble Supreme Court, in light of scheme of amalgamation and goodwill, has held as under: "6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court
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ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee- Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee- Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal [ITAT, for short]. We see no reason to interfere with the factual finding". 17. The ld. Counsel for the assessee also relied upon the decision of the Hon’ble Gujarat High Court in the case of PCIT-4 v. Zydus Wellness Ltd. [2017] 87 taxmann.com 82 (Gujarat), wherein, the Hon’ble High Court, in an identical set of facts and following the decision of the Hon’ble Supreme Court in the case of CIT v. Smifs Securities Limited, held as under: "6. With respect to the claim of depreciation) the decision of Supreme Court in case of Smifs Securities Ltd. (supra) would squarely apply. There is no material referred to by the Assessing Officer to hold that the claim of depreciation was fictitious. If we read his entire expression in this respect) he seems to be suggesting that being an intangible asset acquisition thereof would not qualify for depreciation. If that be so) the view of the Assessing Officer was opposed to the decision of the Supreme Court in case of Smifs Securities Ltd. (supra). On the other hand, if the observations of the Assessing Officer can be seen as his findings that the claim itself was baseless, there was no discussion or reference to any material to enable him to come to such a conclusion". 18. Even the Hon’ble High Court of Delhi in the case of Triune Energy Services (P.) Ltd. v. DCIT [2016] 65 taxmann.co 288 (Delhi) while deciding the issue regarding "Where assessee purchased business as going concern, consideration paid in excess of value of tangible assets was classifiable as goodwill eligible for depreciation and, therefore, further exercise to value goodwill was not warranted" Concluded that "it is well established that 'goodwill' is an intangible asset, which is required to be accounted for when a purchaser acquires a business as a going concern by paying more than the fair market value of the net tangible assets, that is, assets less liabilities. The difference in the purchase consideration and the net value of assets and liabilities is attributable to the commercial benefit that is acquired by the purchaser. Such goodwill is also commonly understood as the value of the whole undertaking less the sum total of its parts"
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In the case of CIT v. Manipal Universal Learning (P.) Ltd. [2013] 34 taxmann.com 9 (Karnataka), the Hon’ble Karnataka High Court has observed that: ".........Assessing Officer held that excess consideration paid over value of net assets was in nature of goodwill paid for future profits and, therefore, allowed depreciation only on value mentioned in agreement-Supreme Court in CIT v. SMIFS Securities Ltd. [2012] 24 taxmann.com 222 has held that goodwill is an asset under Explanation 3(b) to section 32(1) and, therefore, depreciation is allowable even on goodwill – Whether following same, depreciation was to be allowed on revalued rights-Held, yes”. 20. In so far as case law relied upon by the ld. DR in the case of Chowgule & Co. (P) Ltd. v. ACIT [2011] 137 TTJ 596 (Panaji) and in the case of United Breweries Ltd. v. Addl. CIT [2016] 76 taxmann.com 103 (Bangalore – Trib.) and also in the case of Signode India Ltd. v. DCIT in ITA No. 954/H/2019 dated 24.02.2021 are concerned, we find that the facts of above cases are not applicable to the present case because in the case before the ITAT, Hyderabad, the Tribunal has discussed the issue of valuation of goodwill, but not discussed how depreciation of goodwill had been accounted on demerger is not allowable . The other two case law also discuss the issue but facts remain that subsequent judgement of Hon’ble Karnataka High Court has overruled the decision of the ITAT, Bangalore in the case of United Breweries Ltd. (supra) and then when the Hon’ble High Court is in favour of the assessee, the question of following ITAT decision, which is against the assessee does not arise. Therefore, we reject the case law relied upon by the ld. DR. 21. In view of the matter and considering the facts and circumstances of the case and also by following the case law discussed hereinabove, we are of the considered opinion that the assessee has rightly claimed depreciation on goodwill accounted in the scheme of demerger approved by the Hon’ble High Court of Madras and thus, we direct the Assessing Officer to allow depreciation on goodwill as claimed by the assessee for all the three assessment years.” 9. Before us, the ld. DR could not controvert the above decision of the Coordinate Bench of the Tribunal by filing any higher Court’s decision having reverted or modified. Just because the Department preferred further appeal against the decision of the Tribunal, we cannot
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take a different view. Respectfully following the above decision of the ITAT, the ld. CIT(A) has rightly directed the Assessing Officer to allow depreciation on goodwill as claimed by the assessee and we find no infirmity in the order passed by the ld. CIT(A). Thus, the grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 24th July, 2024 at Chennai.
Sd/- Sd/- (S.R. RAGHUNATHA) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 24.07.2024 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR & 5. गाड� फाईल/GF.