Case Law Details
Brief of the Case: In the cited case, Delhi High Court held that the monopoly enjoyed by the assessee in respect of the product manufactured, the continuous functioning, the large volume of orders at hand when the collaboration transaction took place, were sufficient basis for valuation.
Facts of the Case: The assessee was taken over by a new company (i.e. M/s Motherson Sumi Systems Pvt. Ltd) in terms of a collaboration agreement dated 03-12-1986. The new company was promoted by the assessee and two Japanese companies. The Collaboration Agreement provided that the consideration of the unit as a going concern could be adjusted against the goodwill of the assessee. The valuation of the goodwill was to be based on “assumptions and projections” approved by the investing Japanese Companies and evaluated by a chartered accountant nominated with the concurrence of the Japanese companies. This agreement was approved by the Central Government. The total consideration (including the goodwill) agreed upon by the parties was Rs.60.90 lakhs.
During assessment proceedings for AY 1987-88, the assessee claimed the value of goodwill transferred to be Rs.51,30,338/-. AO was of the opinion that valuation of the goodwill was not based on any established or known principle and that the assessee had not acquired expertise of such order as to claim to possess such goodwill. Also, the assessee had incurred loss during the previous year and further the goodwill claimed was founded on the expertise drawn from the collaborating investors. Hence, the assessee’s claim was disallowed.
On aggrieved by AO’s order, assessee preferred appeal before the CIT(A) who rejected the assessee’s claims and confirmed the AO’s corresponding addition.
Assessee moved appeal before ITAT, which set aside the order of the CIT(A) and allowed the assessee’s appeal.
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