INCOME TAX ACT, 1961

Section 32(1)

Depreciation - Intangible assets - Goodwill neither recorded in books nor computable -

While passing Assessment Order, the AO had noticed that the assessee claimed Depreciation of Rs. 106,30,21,315 as per Act, of which Depreciation on tangible assets was Rs. 407.88 lakhs and on intangible assets of Rs. 4404.43 lakhs. In detail, the assessee had purchased a packaging unit of M/s. ITW India Limited for a consideration of Rs. 1240 crores on slump sale and on 'as is where is' which includes various assets and capital work-in-progress, cash and equivalents, receivables, inventory, etc., the value of which was based on the valuation done by independent valuers M/s. B.S.R. & Co.--Whereas, M/s. ITW India Limited did not record any goodwill in its books of account but the assessee had determined the same on the pretext that the same was having a sizeable market share in the packaging activities and clientele basis, which was not acceptable to the AO. The AO further stated that M/s. ITW India Limited recorded goodwill on account of its acquisition of Wintek Flexo Prints, partnership firm, in the financial year ending 31-3-2012 and on similar analogy, it had recorded intangible assets on account of same transaction. The goodwill existing in the books of ITW India Limited was relatable M/s. Wintek unit acquired by it in earlier year and not pertain to the unit purchased by the assessee. AO thereby disallowed Rs. 44,04,03,000 on account of goodwill and other intangibles. The Commissioner (Appeals) confirmed the assessment order. The goodwill introduced in the assessee's books was completely new and artificial and was not equitable to commercial rights or business rights. Moreover, the valuation report made by the independent valuers M/s. B.S.R. & Co. also did not record any good will in its books. Held: The valuation is for the purpose of slump sale only and not for the purpose of arriving at a fictional goodwill after the slump sale. The BSR and Co. had relied only on the unaudited data provided by the Management without verifying the reliable financial data of the companies. The valuer has relied on the unaudited financial data which cannot give correct result/valuation of the assets and liabilities, financial projections etc. Therefore, the accuracy of the resultant valuation is not reliable. The authorities below have also questioned the valuation reports submitted by the assessee. Clause 5.2.6 of the report of the valuer, Signode recorded goodwill of Rs. 143.20 Cr in Calendar Year 2012 on account of acquisition of the partnership firm Wintek Flexi Prints. As per clause 6.1.2.4 of the report, goodwill of Rs. 143.20 Cr was expected to remain constant throughout the forecast period. However, a much higher value of fictional goodwill is computed merely on the basis of balancing charge based on arbitrary price fixed for transfer.

Distinguished:Sir Kikabhai Premchand v. CIT reported in (1953) 24 ITR 506 (SC) : 1953 TaxPub(DT) 0121 (SC), ITAT Delhi bench Dy. CIT v. Excelex Bio Polymers (P) Ltd., Hyderabad Bench of the ITAT Mylan Laboratories Ltd. v. ACIT and Bangalore Bench of the ITAT Sanyo BPL (P) Ltd. v. Dy. CIT, Bangalore Bench of the ITAT United Breweries Ltd. v. Addl. CIT.Relied:Sir Kikabhai Premchand (1953) 24 ITR 506 (SC) : 1953 TaxPub(DT) 0121 (SC)

REFERRED : Sharp Business System (2012) 27 taxmann.com 50 (Delhi) : 2013 TaxPub(DT) 0178 (Del-HC), Arkema Peroxides India (P) Ltd. (2013) 31 taxmann.com 4 (Chennai--Trib.) : 2013 TaxPub(DT) 0211 (Chen-Trib), Excelex Bio Polymers (P) Ltd., dated 1-3-2018 in ITA No. 1110/Del/2013 : 2018 TaxPub(DT) 2081 (Del-Trib), Mylan Laboratories Ltd. (2014) 46 taxmann.com 76 (Hyderabad), Pitney Bowes India (P) Ltd. (2012) 17 taxmann.com 116 (Delhi) : 2012 TaxPub(DT) 0811 (Del-HC), Sanyo BPL. Ltd. (2016) 75 taxmann.com 253 (Bangalore--Trib.)

FAVOUR : Against the assessee

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 32(1)

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