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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI N.K. BILLAIYA & SHRI AMARJIT SINGH
PER N.K. BILLAIYA, AM: This appeal by the assessee is directed against the order of the Ld. CIT(A)-7, Mumbai dated 11.2.2013 pertaining to Assessment year 2008-09. 2. The assessee has raised two substantive grounds of appeal. At the very outset, the Ld. Counsel for the assessee stated that he is not pressing ground No. 1 as the impugned grievance have been 2 considered by the AO while passing the rectification order. Ground No. 1 is accordingly dismissed.
Ground No. 2 relates to the denial of depreciation on goodwill. This issue has been considered by the AO at para-6 of the assessment order wherein he has mentioned that the assessee has claimed an expenditure on account of amortization of goodwill of Rs. 3,58,16,000/-. The AO further noted that this is the third year of the claim. The AO declined to entertain the claim for the reasons that assessee has not paid any consideration for the acquisition of goodwill and secondly similar claims made by the assessee in assessment years 2006-07 and 2007-08 have been examined by the AO and accordingly rejected the claim. Following the orders of his predecessors, the AO once again declined the claim and added the amortization of goodwill.
The assessee carried the matter before the Ld. CIT(A) and reiterated its claim. It was explained that as per the scheme of arrangement for merger of M/s. GIL with M/s. Ricoh India Ltd (assessee) approved by the Hon’ble Calcutta High Court and Bombay High Court, RIL has to record the assets and liabilities of GIL vested in it pursuant to the scheme becoming effective at the respective book values as appearing in the books of GIL at the close of business of the day immediately preceding the appointed date. Explaining the accounting statement of the scheme of arrangement, it was specified that the following treatment shall be given for goodwill:
“The deficit, if any, in the value of the assets over the value of the liabilities of the Transferor company vested in the Transferee company, pursuant to this scheme, as recorded in the books of account of the Transferee Company shall, after
3 adjusting the aggregate face value of the New Equity shares issued by the Transferee Company to the members of the Transferor company pursuant to this scheme and the amounts recorded in terms of Clause 13.3 above, be treated as goodwill in the books of the Transferee Company. The aforesaid goodwill shall be duly reflected in the Profit and Loss Account of the Transferee Company only as an amortization over a period of 5 years.
It was strongly contended that pursuant to this arrangement, the assessee has amortised the claim on account of goodwill. Strong reliance was placed on the decision of the Hon’ble Supreme Court in the case of Smifs Securities Ltd. 348 ITR 302. After considering the facts and the submissions, the Ld. CIT(A) observed that in assessee’s own case for A.Y. 2006-07, he has decided the claim against the assessee. Accordingly, following the rule of consistency, this year also assessee’s claim was denied.
Aggrieved by this, the assessee is before us.
The Ld. Counsel for the assessee reiterated what has been stated before the First Appellate Authority. Once again, strong reliance was placed on the decision of the Hon’ble Supreme Court in the case of Smifs Securities Ltd (supra). The Ld. Counsel further brought to our notice the decision of the First Appellate Authority for A.Y. 2009-10 wherein the claim of amortization of goodwill has been allowed in line with the ratio laid down by the Hon’ble Supreme Court in the case of Smifs Securities (supra).
Per contra, the Ld. Departmental Representative strongly stated that the claim of depreciation in the initial years i.e. 2006-07 and 2007-08 has not been entertained by the Revenue authorities therefore the claim cannot be entertained in subsequent years unless
4 the initial years are decided. The DR continued to state that even the creation of goodwill has not been properly explained before the lower authorities.
We have given a thoughtful consideration to the orders of the authorities below. We find that the creation of goodwill has not been properly appreciated by the AO who seems to be carried away by the swap ratio of shares between the shareholders of GIL and RIL. According to the AO, the difference between market value of the one share of GIL and 6 shares of assessee is treated as goodwill whereas it is the say of the Ld. Counsel that this is not the case the goodwill has been created after taking over the assets and the liabilities at their book value qua the market values.
In our considered opinion, this needs to be verified by the Ld. CIT(A). We, therefore, set aside and restore this issue to the file of the Ld. CIT(A). The assessee is directed to file necessary details in respect of the valuation of goodwill and the Ld. CIT(A) is directed to decide the issue afresh in the light of the ratio laid down by the Hon’ble Supreme Court in the case of Smifs Securities (supra). Ground No. 2 is treated as allowed for statistical purpose.
In the result, the appeal filed by the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 4th November, 2015. (AMARJIT SINGH ) (N.K. BILLAIYA) "या"यक सद"य/JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER मुंबई Mumbai; "दनांक Dated : 4th November, 2015 व."न.स./ Rj , Sr. PS
5 आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT(A)- 4. आयकर आयु"त / CIT
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.