ACIT, CIRCLE-1(1)(1), VEJALPUR, AHMEDABAD vs ACULIFE HEALTHCARE PVT. LTD., AHMEDABAD

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL

For Appellant: Shri Chirag Patel on behalf of Shri Hemanshu

For Respondent: Shri Akhilendra Pratap Yadaw, CIT D.R

Hearing: 17.01.2024Pronounced: 24.01.2024

O R D E R PER SIDDHARTHA NAUTIYAL, JM: These are appeals filed by the Department and the Cross Objections filed by the Assessee against the order passed by Ld. CIT(A) allowing the appeal of the assessee, against the order passed by the assessing officer under Section 143(3) of the Act, which was passed & 790/Ahd/2023 with C.O. Nos. 20&21/A/2023 ACIT vs. Aculife Healthcare Pvt. Ltd. Asst. Years –2015-16 & 2016-17 - 2 - pursuant to order passed under Section 263 of the Act by PCIT, for Assessment Years 2015-16 and 2016-17.

The Department has raised the following grounds of appeal:

ITA No. 789/Ahd/2023 (A.Y. 2015-16):-

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in setting aside the order u/s 143(3) r.w.s. 263 of the Income tax Act passed by the Assessing Officer without considering the provisions of Sec.43(6) of the Act? 2. Whether, Hon. CIT(A) has erred in not considering the legality of issue in ash much as the goodwill was created on account of demerger of two companies, which never existed in the books of account of transferor or demerged company prior to such demerger? 3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.

4. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”

& 790/Ahd/2023 with C.O. Nos. 20&21/A/2023 ACIT vs. Aculife Healthcare Pvt. Ltd. Asst. Years –2015-16 & 2016-17 - 3 -

The Assessee has raised the following grounds of appeal in the Cross Objections:

C.O. No. 20/Ahd/2023(A.Y. 2015-16):- “1) In law and in facts and circumstances of the Respondent's case, the learned Assessing Officer has grossly erred in points of law and facts 2) In law and in facts and circumstances of the Respondent's case, learned Assessing Officer has grossly erred in not appreciating the fact that the Hon'ble Tribunal quashed the revision order passed by Ld. Commissioner of Income-tax u/s 263 of I.T. Act. Hence the appellate order passed by Ld Commissioner of Income (Appeals) in the second round giving effect to order u/s 263 of I.T. Act cannot be subject matter of appeal before Hon'ble Tribunal on merits. 3) In law and in facts and circumstances of the Respondent's case, learned Assessing Officer has grossly erred in not appreciating the fact that Hon'ble Gujarat High Court dismissed the revenue's appeal vide Tax Appeal No.404 of 2023 challenging Tribunal's order wherein Hon'ble Tribunal quashed the revision order passed u/s 263 of I.T. Act on 24-08-2021. The appellate order passed by Ld Commissioner of Income (Appeals) in the second round giving effect to order u/s 263 of I.T. Act cannot be subject matter of appeal before Hon'ble Tribunal on merits.

4) Your respondent reserves the right to add, alter, amend or vary all or any of the above Grounds of Cross Objection as may be advised from time to time” C.O. No. 21/Ahd/2023(A.Y. 2016-17):- “1) In law and in facts and circumstances of the Respondent's case, the learned Assessing Officer has grossly erred in points of law and facts 2) In law and in facts and circumstances of the Respondent's case, learned Assessing Officer has grossly erred in not appreciating the fact that the Hon'ble Tribunal quashed the revision order passed by Ld. Commissioner of Income-tax u/s 263 of I.T. Act. Hence the appellate order passed by Ld Commissioner of Income (Appeals) in the second round giving effect to order u/s 263 of I.T. Act cannot be subject matter of appeal before Hon'ble Tribunal on merits. 3) In law and in facts and circumstances of the Respondent's case, learned Assessing Officer has grossly erred in not appreciating the fact that Hon'ble Gujarat High Court dismissed the revenue's appeal vide Tax Appeal No.405 of 2023 challenging Tribunal's order wherein Hon'ble Tribunal quashed the revision order passed u/s 263 of I.T. Act on 01-09-2021. The appellate order passed by Ld & 790/Ahd/2023 with C.O. Nos. 20&21/A/2023 ACIT vs. Aculife Healthcare Pvt. Ltd. Asst. Years –2015-16 & 2016-17 - 4 - Commissioner of Income (Appeals) in the second round giving effect to order u/s 263 of I.T. Act cannot be subject matter of appeal before Hon'ble Tribunal on merits. 4) Your respondent reserves the right to add, alter, amend or vary all or any of the above Grounds of Cross Objection as may be advised from time to time”

The brief facts of the case are that the Ld. CIT(A) allowed the appeal of the assessee against the assessment order, on the ground that the ITAT Ahmedabad in the case of the assessee vide order dated 14.10.2022 had quashed the revisional order passed by Principal CIT under Section 263 of the Act of the Act holding the original assessment order to be erroneous and prejudicial to interest of the Revenue, for the impugned assessment years. Notably, the Gujarat High Court dismissed the Department’s appeal against the aforesaid order passed by ITAT setting aside the 263 order passed by Principal CIT, in Tax Appeal No. 404 vide order dated 28.08.2023.

5. The Department is in appeal before us against the order passed by Ld. CIT(A) allowing the appeal of the assessee against the order passed by assessing Officer pursuant to 263 order passed by PCIT. The assessee has filed cross objections to the appeals filed by the Department against the order passed by Ld. CIT(A) for the impugned assessment years. The counsel for the assessee submitted that once the order passed under Section 263 of the Act has been set aside by the ITAT vide order dated 14.10.2022 (and the Revenue’s appeal against the order passed by ITAT has also been dismissed by the Gujarat High Court), then the order passed by the assessing officer giving effect to the 263 order is not liable & 790/Ahd/2023 with C.O. Nos. 20&21/A/2023 ACIT vs. Aculife Healthcare Pvt. Ltd. Asst. Years –2015-16 & 2016-17 - 5 - to be sustained. Accordingly, there is no infirmity in the order passed by Ld. CIT(A) allowing the appeal of the assessee against the order passed by the assessing officer giving effect to the 263 order, (under Section 263 order having been set aside by ITAT).

6. In view of the above facts, in our considered view, once the ITAT vide order dated 14.10.2022 has set aside the 263 order passed by Principal CIT (and the Revenue’s appeal against the order passed by ITAT dated 14.10.2022 has also been dismissed by Hon'ble Gujarat High Court), then the Ld. CIT(A) has not erred in facts and in law in holding that the assessment order passed by the Assessing Officer pursuant to / Assessing Officer give effect to the 263 order is liable to be set aside. Accordingly, we find no infirmity in the order of Ld. CIT(A) so as to call for any interference. It would be useful to reproduce the relevant extracts of the ruling by the Gujarat High Court in Tax Appeal No. 404 of 2023, in which the Revenue’s appeal against the ITAT order dated 14.10.2022 has been dismissed, for ready reference:

“6. We have perused the order of the Principal CIT and that of the Tribunal. The Tribunal by the order held as under: “8. We have heard the rival contentions and perused the material on record. We observe that the issue regarding the claim of depreciation in the hands of the demerged company was inquired during the course of assessment proceedings. Further, we also observe that during the course of assessment, the assessee had furnished various factual and legal submissions in respect of its claim of depreciation on goodwill vide submission dated 19- 12-2017, wherein the assessee relied on the case of Smifs Securities 348 ITR 302 (SC) in support of its claim for deprecation of goodwill by assessee company. We also observe that the extract of board resolution passed by the meeting of board of directors and order passed by the Hon’ble Gujarat High Court granting approval to the aforesaid said of demerger and also the valuation & 790/Ahd/2023 with C.O. Nos. 20&21/A/2023 ACIT vs. Aculife Healthcare Pvt. Ltd. Asst. Years –2015-16 & 2016-17 - 6 - report prepared by the approved valuer dated 04-10-2014 were all submitted before the Assessing Officer during the course of assessment proceedings, for his consideration. Accordingly, in the light of the above, we are of the considered view that the Assessing Officer had examined the aspect of assessee’s claim of depreciation during the course of assessment proceedings, factually as well as legally, while allowing the assessee’s claim of depreciation on goodwill.

Now, the second issue that arises for our consideration is whether the assessee took a view which is legally plausible/sustainable in law.”

7. Reading the order indicates that the Tribunal found that the assessee had furnished various factual and legal submissions dated 19.12.2017 where the assessee relied upon the case of Commissioner of Income Tax, Kolkata vs. Smifs Securities Ltd [348 ITR 302 (SC)]. As observed by the Tribunal that the Assessing Officer had considered the action of granting approval and also the Valuation Report. Since therefore the Assessing Officer had examined the aspect of the assessee’s claim during the course of acceptance, in the opinion of the Tribunal, the Assessing Officer while passing order under Section 143(3) of the Act had taken a plausible view sustainable in the eye of law. Relying on the decision, it was held that the assessee company is entitled to claim depreciation on goodwill expended at the time of amalgamation of companies.

In the case of Smifs Securities Ltd. (supra), paras 4 to 7 read as under: “4. Explanation 3 states 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. A reading 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 right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).

In the circumstances, we are of the view that `Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act.

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 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 & 790/Ahd/2023 with C.O. Nos. 20&21/A/2023 ACIT vs. Aculife Healthcare Pvt. Ltd. Asst. Years –2015-16 & 2016-17 - 7 - 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.

One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove.”

9. The Assessing Officer had also relied on the case of Smifs Securities Ltd. (supra) and allowed the claim for depreciation.

10.

For the aforesaid reasons, no substantial question of law arises for consideration and the appeals are accordingly dismissed.”

7. Accordingly, in light of the above discussion, the Department’s appeal for Assessment Years 2015-16 and 2016-17 are dismissed, and the assessee’s Cross Objections are allowed for the impugned assessment years. This Order pronounced in Open Court on 24/01/2024

ACIT, CIRCLE-1(1)(1), VEJALPUR, AHMEDABAD vs. ACULIFE HEALTHCARE PVT. LTD., AHMEDABAD