Delhi High Court - Orders
Pr. Commissioner Of Income Tax- 1 vs M/S Clc & Sons Pvt. Ltd on 27 May, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
$~20
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 194/2022
PR. COMMISSIONER OF INCOME TAX- 1 ..... Appellant
Through: Mr.Siddhartha Sinha, Sr.SC
with Ms.Dacchita Shahi and
Ms.Anuja Pethia, Jr.SCs.
versus
M/S CLC & SONS PVT. LTD. ..... Respondents
Through: Mr. Kumail Abbas, Adv.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
ORDER
% 27.05.2024
1. The Principal Commissioner of Income Tax ["PCIT"] impugns the order of the Income Tax Appellate Tribunal ["ITAT"] dated 28 May 2019 and has proposed the following questions of law for our consideration:-
"a)Whether the Hon'ble ITAT has erred both on facts and in law in directing the AO to delete the foreign travel expenditure's disallowance, despite the Assessee's failure to establish the business purpose of these tours or to establish the benefit derived from these tours to the business?
b) Whether the Hon'ble ITAT has erred both on facts and in law, in directing the AO to grant depreciation on goodwill to the Assessee despite the AO categorically pointing out the flaws in the valuation of goodwill done by the valuer?
c) Whether the Hon'ble ITAT has erred both on facts and in law in directing the AO to grant depreciation on goodwill to the Assessee despite the fact that there was no transfer of goodwill involved in the real sense?"
2. We note that insofar as the issue of valuation of goodwill is This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 31/05/2024 at 23:15:05 concerned, the ITAT has held as follows:-
"10. Learned CIT DR also argued that valuation report has a disclaimer stating that valuation has been prepared on basis of information and data supplied by management of group and same is believed to be reliable by valuer. It is further mentioned that scope of work does not include verification of data submitted by management but are relied upon by valuer. He further referred to valuation report and stated that information contained therein is based on certain assumptions and managements analysis of information available at time of report which was prepared by auditor. Therefore relying upon decision of coordinate bench in 171 ITD 74, he submitted that such valuation report deserves to be rejected. We have given careful thought to argument made and found that in judicial precedent cited before us, sole reason for rejection was that there was a long disclaimer made by merchant banker, who did not do anything reflecting expert eyes except merely applying formula on data provided by assessee. Therefore, coordinate bench was of view that it is not possible to brush aside contention of revenue that possibility of tailoring data by applying reverse engineering to predetermined conclusions. In present case, we have perused valuation report prepared by auditor which is placed at page number 14 - 31 of paper book. No doubt chartered accountant has given a notice to reader stating scope of assignment. He mentioned that information contained in valuation report is based 'on' certain assumptions and management's analy.sis of information available at time of report and does not give any representation, warranty or other assurance in relation to valuation report. However, valuation report gives a detailed analysis of factors affecting determination of goodwill, factors contributing to goodwill, and justification for various assumptions made therein. Detailed calculation of goodwill has also been made based on various agency agreement and past history of business of firm which was acquired. Valuation report after giving justification for various workings was also supported by several judicial precedents. Further at page number 15 of valuation report it has been specifically mentioned that management of company has vetted projections. Further projection made by valuer were also not found to be vague but were near to reality, as average profit assumed by valuer was far less than actual profit in subsequent years earned by business. Further we must understand that each professional will do his duty according to norms prescribed by regulatory authority of that professional. Many times such regulatory authorities also prescribe certain disclaimers required to be given in such expert opinions. But when disclaimer is given, it cannot always be stated that such an expert opinion is not reliable. To prove that various assumption and presumptions are unreliable, revenue must bring on record credible evidences. It must prove that such assumptions were This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 31/05/2024 at 23:15:05 not at all valid and subsequent financial results also supports that assumptions are wayward. In absence of this, opinion of an expert cannot be brushed aside. In present case subsequent financial performances were far more exceedingly well then performance projected by valuer. In view of this there is a vast difference between facts of case cited before us and facts of case decided by us."
3. According to learned counsel for the appellant, goodwill would not be covered under Section 32(1) of the Income Tax Act, 1961 ["Act"]. This is addressed firstly in the backdrop of the provisions introduced by virtue of Finance Act, 2021 and which has added the expression "not being goodwill of a business or profession". According to learned counsel, the aforesaid is only clarificatory in nature and that goodwill even otherwise and de hors those amendments would not fall within the meaning of the phrase 'any other business or commercial rights of similar nature'.
4. In order to enable learned counsel for the appellant, to study the matter further and address submissions, let the appeal be re-notified on 10.09.2024.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J.
MAY 27, 2024/MJ This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 31/05/2024 at 23:15:06