Gati Kintetsu Express Pvt. Ltd Vs Ass./DCIT (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal, Mumbai Bench “G”, disposed of the assessee’s consolidated appeals for AYs 2013-14 to 2017-18 arising from NFAC orders. The principal dispute concerned depreciation claimed on intangibles and goodwill arising from the Business Transfer Agreement dated 13.02.2012 under which the assessee acquired Gati Ltd.’s Express Distribution and Supply Chain business as a going concern. For AY 2013-14, the assessee had treated the excess of liabilities taken over over the value of assets as intangibles and goodwill and claimed depreciation of Rs. 31,26,46,956.
The lower authorities had rejected the claim principally on the grounds that no monetary consideration was paid, no goodwill was purchased, the transferor had treated the surplus differently in its books, and the fifth proviso to section 32(1) restricted the depreciation claim. The assessee relied on the terms of the BTA, which expressly transferred the business division together with properties, assets, resources, rights, privileges, licences, goodwill and intellectual property, as well as on an independent valuer’s report identifying distribution network, customer relations and marketing/trading reputation as intangible components.
The Tribunal held that the objection that no intangible asset or goodwill had been transferred was without basis in view of the BTA. It also accepted the assessee’s submission that the liabilities assumed in excess of tangible assets constituted consideration in substance, relying on the decision in DCIT v. Summit Securities Ltd. and other authorities concerning slump-sale transactions. The Tribunal relied on CIT v. Smifs Securities Ltd. and the decisions in I & B Seeds P. Ltd., Areva T & D Ltd. and ACIT v. Dorma India (P.) Ltd. in considering depreciation eligibility and the fifth proviso to section 32(1), and rejected the contrary authorities cited by the Revenue as decisions rendered before Smifs Securities.
The depreciation issue was therefore decided in favour of the assessee and the finding of the CIT(A) was set aside. On business advances and bad debts written off of Rs. 35,68,793 and Rs. 18,16,695 respectively, the Tribunal followed the Supreme Court decision in CIT v. T. Veerabhadra Rao & K. Koteswara Rao & Co., holding that a successor acquiring a business with its assets and liabilities can, in principle, claim the same treatment for transferred debts. However, the assessee was required to establish the statutory conditions, including that the bad debt formed part of the predecessor’s business debt and had been reflected as income where required, and that the advances were made for business purposes. The matter was consequently restored to the Assessing Officer for fresh decision and AY 2013-14 grounds 3.1 and 3.2 were allowed for statistical purposes. For AY 2014-15, the depreciation issue was decided mutatis mutandis in accordance with the AY 2013-14 finding, while the claim for Rs. 49,727 interest paid on late payment of TDS was not pressed and was dismissed as infructuous.
The depreciation issue was similarly followed for AYs 2015-16, 2016-17 and 2017-18. For AY 2017-18, the MAT credit claim of Rs. 2,67,15,179 was treated as consequential and the Assessing Officer was directed to give consequential effect. The consolidated result was that AY 2013-14 was allowed partly for statistical purposes, AY 2014-15 was partly allowed, AYs 2015-16 and 2016-17 were allowed, and AY 2017-18 was allowed partly.
Section 32 TaxGuru reference Smifs Securities Ltd. TaxGuru publication Areva T & D India Ltd. TaxGuru publication Section 50B Slump Sale TaxGuru reference
Cases Discussed
- DCIT v. Summit Securities Ltd. (135 ITD 99).
- I & B Seeds P. Ltd. v. DCIT (142 Taxmann.com 274).
- Borkar Packaging (P.) Ltd. v. ACIT (2010) 131 TTJ 99 (Panaji).
- Jeypore Sugar Co. Ltd. v. ACIT [2011] 9 taxmann.com 122 (Visakhapatnam).
- ACIT v. Dorma India (P.) Ltd., ITA Nos. 1664 to 1666/Chny/2019.
- Tube Investments of India Ltd. Vs JCIT (2016) 67 taxmann.com 59 (Madras).
- Pr. CIT Vs Khyati Realtors (P.) Ltd. (2022) 141 taxmann.com 461 (SC).
- CIT Vs T. Veerabhadra Rao & K. Koteswara Rao & Co., 155 ITR 152 (SC).
- Manipal Universal Learning P. Ltd., 255 ITR 26.
- Truine Energy Services (P.) Ltd., 65 taxmann.com 238.
- Urmin Marketing Pvt. Ltd., 122 taxmann.com 40.
