Consideration paid excess than Market Value of Net Tangible Assets is treated as Goodwill: ITAT

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that consideration paid in excess than market value of net tangible assets is treated as goodwill.

The assessee Gea Process Engineering Pvt. Ltd. was a joint venture between L&T Ltd., India and Niro A/s, Denmark which was later discontinued and the entire stake of L&T in the assessee company was bought over by Niro. Later the assessee company changed its name to Jewel Process Engineering India Pvt. Ltd. And became a wholly-owned subsidiary of Niro A/s, Denmark. While executing Erection, Procurement and Commissioning (EPC) contracts the assessee company designs the installation, procures the necessary materials, erects the plants as per the agreed design and ensures commissioning of same, which is engaged primarily in the execution of EPC turnkey projects in the food, dairy and chemical and pharma sectors. The assessee company entered into international transactions with its Associate Enterprise (AE),

The assessee company claimed a net loss of Rs.23,32,26,686/-. The Transfer Pricing Officer (TPO) called up the assessee to show cause as to why the segmental profit and loss should not be rejected and Transactional Net Margin Method (TNMM) be applied at the entity level.

CIT(A) upheld the disallowance made by the AO on the ground that the claim of the assessee for depreciation on its so-called unidentifiable intangible assets including goodwill based on a valuation report prepared much after the acquisition of the concerned business unit is not factual.

Shri Baskaran B R, accountant member and Shri Kuldip Singh, judicial member viewed that the assessee has acquired the food and pharma division of L&T by virtue of the agreement dated by paying excess consideration of net asset value, the excess was reflected as goodwill in the books of accounts of the assessee under the head “intangibles.

In light of the decision in the case of CIT vs. Sumit Securities Ltd. (supra) the Tribunal held that the assessee was entitled for claiming depreciation on the intangible assets/goodwill and allowed the appeal of the assessee. The Assessee was represented by Shri Sunil M. Lala and the Revenue was represented by Shri Rajesh Mishra.

Service Tax is not payable until consideration is received: ITATRead More: https://www.taxscan.in/

The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ), in a significant ruling has held that service tax is not payable until consideration was received.

The appeal was against the disallowance of Service Tax payable by the assessee u/s. 43B of the Act for Rs. 89.18 Lacs. The assessee had paid an amount of Rs.4,99,795/- before the due date of filing of return of income where a sum of Rs.94,17,953/- representing Service Tax was shown to be payable and the balance amount of Rs.89,18,158/- was disallowed u/s 43B. They stated that the Service Tax amount was not routed through the Profit & Loss Account.

The Tribunal comprises Shri Mahavir Singh, vice president, and Shri Manoj Kumar Aggarwal, AM observed that the assessee was following an exclusive method to account for Service Tax liability in the Books of Accounts and the argument that the Service Tax was not routed through profit & Loss Account would not stand.

Further observed that as per extant Service Tax Rules, the Service Tax liabilities arise in the hands of the assessee on a receipt basis. As the liability to pay Service Tax, at year-end, may not have actually arisen, the disallowance has to be made only to the extent the liability to pay Service Tax Liability had arisen.

The Coram directed the AO to verify and restrict the disallowance to that extent. The appeal filed by the assessee was allowed for statistical purposes. Shri. ARV Sreenivasan appeared on behalf of the respondent while none appeared for the assessee.

VAT Dealer opting Composition Scheme cannot be subject to Regular Assessment: Telangana HC

A division bench of Justice Ujjal Bhuyan and Justice Surepalli Nanda has held that a VAT dealer who has opted for a composition scheme under the Telangana VAT Act, 2005 shall not be subjected to regular assessment under the Act.

The petitioner, Sri Raghavendra, is a special class civil contractor registered with the Government of Telangana. It is carrying on the business of execution of civil work relating to construction of roads etc. Petitioner is a registered dealer under the Telangana Value Added Tax Act, 2005 (TVAT Act) as well as under the Goods and Services Tax (GST).

The petitioner had opted for composition of tax and therefore filed applications under Form VAT 250 on monthly basis covering the aforesaid assessment periods along with the returns filed under Form VAT 200. On July 2019, the petitioner received an urgent payment notice from the Commercial Tax Officer, Bhongir Circle, Bhongir. The petitioner challenged the notice contending that the same is illegal.

The bench observed that as per the relevant provision, any VAT dealer who executes a contract and opts to pay tax by way of composition, must register himself as a VAT dealer and he shall pay tax at the rate of 5% of the total consideration received or receivable. In a case where the VAT dealer opts for composition he shall before commencing execution of the work notify the prescribed authority in Form VAT 250 details of the contract on which composition option has been exercised. On receipt of the payment by the VAT dealer, he shall calculate the tax at 5% of the amount received and shall enter such details in Form VAT 200 whereafter the tax due shall be paid along with the return in Form VAT 200.

“According to the Supreme Court, payment of tax under the composition scheme is a bilateral agreement between the parties. The scheme provides for a bilateral agreement between an assessee and the taxing authority with an object to dispense with the requirement of regular assessment and for the easy purpose of levy and collection of tax. It is the choice of a dealer to opt for compounded payment of tax and if the said choice is in accordance with the scheme and is accepted by the taxing authority, it becomes an agreed amount of tax,” the Tribunal said.

“Once the contract is affected by way of payment of composition tax and acceptance thereof, both the parties are bound by the contract,” the bench held.

Concluding the order, the Court held that “We agree with the submission made by Mr. Srinivas, learned senior counsel for the petitioner that this is a jurisdictional fact which goes to the root of the matter. If there is payment of tax under the composition scheme, question of regular assessment would not arise. In such circumstances receipt or nonreceipt of pre-assessment notices or assessment orders would have no significance or bearing as those are besides the point. When an action is without jurisdiction, the fact that the same has been put to challenge after two years would not be of material consequence.”