Income Tax Appellate Tribunal - Mumbai
Abhishri Packaging P. Ltd, Mumbai vs Dcit 9(1)(1), Mumbai on 21 February, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL "A", BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER IT A No.6485/M um/2018 (Assessment Year: 2013-14) Abhishri Packaging Pvt.Ltd. Vs. DCIT-9(1)(1) 118, Tainwala House Aaykar Bha wan Road NO.18 M.K.Road MIDC, Andheri (East) Mumbai-400 020 Mumbai-400 093 PAN/GIR No.AAFCA6446G Appellant) .. Respondent) Assessee by Shri Haridas Bhat, AR Revenue by Shri Michael Jerald, DR Date of Hearing 12/02/2020 Date of Pronouncement 21/02/2020 आदेश / O R D E R PER G.MANJUNATHA (A.M):
This appeal filed by the assessee is directed against, the order of the Ld. Commissioner of Income Tax (Appeals)-16, Mumbai, dated 29/08/2018 and it pertains to Assessment Year 2013-14.
2. The assessee has raised the following grounds of appeal.
Ground 1:
1. On the facts and circumstances of the case, and in Law, the CJT (Appeals) erred in restricting Depreciation on Goodwill by considering the Goodwill as the net worth of the Seller, i.e. Rs. 6.38,707/- instead of Assets as per valuation report as reduced by the Liabilities i.e. Rs 27,43,135/-
2 On the facts and circumstances of the case and in law the CIT(A) failed to appreciate that 2 ITA No.6485/Mum/2018 Abhishri Packaging Pvt.Ltd.
a) The Goodwill booked by the Assesse is the Net difference in Consideration paid on purchase of the Unit under Slump Sale, as reduced by the individual Assets other than Assets except Goodwill accounted for as per valuation Report
b) The individual Value of assets is reduced as per valuation report and accordingly Depreciation is calculated on all assets on reduced value.
c) The Individual assets value cannot match the Assets as in the hooks of the seller before the slump safe since the assets are carried in the books of the Assesses as per valuation report.
d) By considering the depreciation as claimed on other assets and not on the Goodwill denies the depreciation allowance of the assessee.
3. The appellant, therefore, prays that the depreciation may by allowed on Goodwill of Rs 27,43,135/- as claimed in the Return of Income.
3. The brief facts of the case are that the assessee company is engaged in the business of job-work of soft and hard luggage(bags) and manufacturing and sale of luggage bags and their components, filed its return of income for AY 2013-14 on 29/09/2013, declaring total income at Rs. 49,00,230/- under normal provisions of the I.T.Act,1961 and book profit of Rs. 1,45,40,157/- u/s 115JB of the I.T.Act, 18961. The case was selected for scrutiny and during the course of assessment proceedings, the Ld. AO noticed that the assessee has claimed depreciation @25% applicable to intangible assets on goodwill and hence, called upon the assessee to file necessary evidences, including acquisition/purchases of goodwill and claim of depreciation @25% as applicable to intangible assets. In response, the assessee submitted that it has acquired the business of Shri Rakesh Tainwala, by way of slump sale w.e.f 01/04/2012 and the acquisition has been accounted for under the purchase method, as prescribed by the Accounting Standard AS-14 " Accounting For Amalgamation" notified under Companies (Accounting Standards) Rules, 2006 and accordingly, difference between assets and liabilities of the proprietorship firm and 3 ITA No.6485/Mum/2018 Abhishri Packaging Pvt.Ltd.
consideration paid for acquisition of business has been treated as goodwill in books of accounts of the assessee. The assessee, further submitted that although, the net-worth of proprietorship firm is less than full value of consideration paid for acquisition of business, but the assessee has revalued certain assets, for which necessary valuation report has been obtained from registered valuer and as per said valuation report, the net worth of the undertaking acquired (M/s Rakesh Tainwala) as on 31/03/2012 is at Rs. 1,92,56,865/-. Since, the assessee has paid full value of consideration for acquisition of business at Rs. 2,20,00,000/-, the difference amount of Rs.27,43,135/- has been considered as goodwill and depreciation @25% as applicable to intangible assets has been claimed u/s 32(1)(ii) of the I.T.Act, 1961.
4. The Ld. AO after considering relevant submissions of the assessee and also taken note of valuation report submitted by the assesse in support of value of goodwill, opined that the proprietor of erstwhile firm and the director of present assessee are one and of the same and the present director has holding 21% shareholding in the assessee company. Thus, there is an arrangement between the proprietor, who also happened to be the promoter of the private company to show different net-worth for the purpose of calculation of goodwill in the books of accounts of the assessee company and different net-worth for the purpose of computation of long term capital gain in the hands of the proprietor of erstwhile firm. Therefore, he opined that there is no merit in the arguments of the assessee that as per purchase method the net-worth of the erstwhile firm would be different from that of net-worth, as per books of account of firm acquired as on the date of acquisition and 4 ITA No.6485/Mum/2018 Abhishri Packaging Pvt.Ltd.
accordingly, arrived at goodwill of Rs. 6,38,707/- being difference between full value of consideration paid for acquisition of business minus net worth of the undertaking acquired, as on the date of acquisition and accordingly, disallowed excess depreciation claimed on goodwill amounting to Rs. 6,85,784/-.
5. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed elaborate written submissions on the issue, which has been reproduced at para 5 on page 2 to 12 of Ld.CIT(A) order. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that, it has accounted acquisition of business of erstwhile proprietorship firm, as per accounting standard AS-14 ,accounting for amalgamation notified under the Companies (Accounting Standards) Rule, 2006 and accordingly, determined net-worth of the proprietorship firm at 1,92, 56, 865/- and the difference between full value of consideration paid for acquisition of business and the net- worth of the undertaking acquired as on the 31/03/2012 has been recognized as goodwill in the books of account of the assessee and depreciation on said amount has been claimed @ 25% as applicable to intangible assets.. The Ld.CIT(A) after considering relevant submission of the assesse and also taken note of the decision relied upon by the assessee in the case of Chowgule & Company Pvt.Ltd. vs Addl.CIT ( 2016) ( 95 CCH 021) (Mum. HC) observed that since, the seller of the assets have shown the net -worth of the undertaking acquired at Rs.2,13,61,293/-, the assessee is only eligible for depreciation on goodwill amounting to Rs. 6,38,707/- ( 2,20,00,000-2,13,61,320) and accordingly, upheld additions made by the Ld. AO towards disallowances of excess depreciation claimed on 5 ITA No.6485/Mum/2018 Abhishri Packaging Pvt.Ltd.
goodwill. Aggrieved by the Ld.CIT(A) order, the assessee is in appeal before us.
6. The Ld. AR for the assessee, at the time of hearing submitted that the Ld.CIT(A) has erred in confirming additions made by the Ld. AO towards depreciation on goodwill by re-computing the amount of goodwill, without appreciating the fact that the assessee has arrived at value of goodwill, as per accounting standard AS-14 notified under the Companies (Accounting Standard) Rules, 2006 and also, such method is supported by valuation report of registered valuer, in respect of assets and liabilities taken over by the assessee. The Ld. AR, further submitted that the assessee has valued individual assets, which is supported by valuation report and hence, the Ld. AO, as well as the Ld.CIT(A) were incorrect in taking the value of assets, as per the balance sheet of erstwhile proprietorship firm without appreciating the fact that certain assets and liabilities cannot be taken over by the assessee. In this regard, he relied upon by the decision of Hon'ble Delhi High Court, in the case of De Nora India Limited vs CIT (2015) 370 ITR 0391.
7. The ld. DR, on the other hand strongly supporting order of the Ld. AO, as well as the Ld.CIT(A) submitted that the assessee has adopted different net- worth for different purpose ,which is evident from the fact that for the purpose of goodwill, it has revalued its assets and liabilities, whereas for the purpose of payment of capital gain in the hands of proprietor of erstwhile firm, the net-worth has been adopted, as per books of accounts. Therefore, the Ld. AO, as well as the Ld.CIT(A) has rightly observed that there cannot be two different net-worth for two purposes. Therefore, it is clear that the 6 ITA No.6485/Mum/2018 Abhishri Packaging Pvt.Ltd.
assesee has inflated the value of goodwill in books of accounts for the purpose of claiming higher depreciation and accordingly, disallowed excess depreciation claim on goodwill.
8. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. There is no dispute with regard to the facts that the assesee has acquired business of erstwhile proprietorship firm by way of slump sale on 01/04/2012. It is also an admitted fact that when, the business has been sold or acquired on slump sale, then all assets and liabilities of erstwhile firm would be the asset and liabilities of the continuing or the firm, who had acquired the business. In this factual background, if you go through the method followed by the assessee for accounting acquisition of business of erstwhile proprietorship firm in its books of accounts, we find that the assessee has followed accounting standard AS-14 notified under the Companies (Accounting Standard) Rules, 2006,for accounting for amalgamations. No doubt, AS-14 prescribed method of accounting for acquisition of business under amalgamations, as per which any difference in full value of consideration paid for acquisition of business and net value of assets and liabilities shall be treated as goodwill of the business. But, fact remains that whether, an assessee can follow different method of valuation or computation of net-worth for different purposes and such method has been prescribed by AS-14 or not has to be seen. Admittedly, AS-14, nowhere prescribed for different method of computation of net worth of undertaking acquired by way of slump sale for different purposes. In this case, the assessee although, followed AS-14 for accounting of acquisition of business, while arriving at goodwill, it has revalued 7 ITA No.6485/Mum/2018 Abhishri Packaging Pvt.Ltd.
its assets, which is different from value of assets, as per books of accounts of erstwhile proprietorship firm. However, when it comes to payment of capital gain on slump sale, the proprietor of erstwhile firm has taken net worth as per books of accounts of firm as on the date of acquisition. From the above, it is very clear that the assessee has taken different values for the purpose of accounting of acquisition of business and the proprietor has followed different method for computation of net-worth for the purpose of computation of capital gain on slump sale. Since, the seller of assets i.e proprietor of erstwhile firm and the director of the present assessee are one and the same and also, fact that the director has holding more than 21% in present company, it is undoubtedly clear that the assessee has followed a different method for accounting goodwill in books of accounts, so as to claim higher depreciation, although such method has been followed in accordance with prescribed accounting standard. Therefore, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were right in, coming to the conclusion that the assessee has arrived at inflated value of goodwill to claim higher depreciation on intangibles. Insofar as, the case laws relied upon by the assessee in the case of De Nora India Limited vs CIT (supra), we find that there is no dispute with regard to the ratio laid down by the Hon'ble High Court, insofar as, valuation of assets and adoption of value, as per valuation report for the purpose of acquisition or sale of an asset. But, fact remains that since, the assesee has taken different values for different purposes, we are of the considered view that the ratio laid down by the Hon'ble Bombay High Court, in the said case is not applicable to the case of the assessee and hence, the same is hereby rejected.
8 ITA No.6485/Mum/2018Abhishri Packaging Pvt.Ltd.
9. In this view of the matter and considering the facts and circumstances of this case, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were right in disallowed excess depreciation claimed on goodwill and hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismissed, appeal filed by the assessee.
10. In the result, appeal filed by the assessee is dismissed.
Order pronounced in the open court on this 21 /02/2020 Sd/- Sd/-
(SAKTIJIT DEY) (G. MANJUNATHA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 21/02/2020
Thirumalesh Sr.PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
DR, ITAT, Mumbai
5.
BY ORDER,
6. Guard file.
स यािपत ित //True Copy//
(Asstt. Registrar)
ITAT, Mumbai