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Judgment
PER MADHUMITA ROY, JM:
The instant appeal, preferred by the assessee, is directed against the order dated 07.11.2025 (DIN & Order No. ITBA/NFAC/S/250/2025-26/1082371543(1)), passed by the Ld. CIT(A)/National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 25.12.2019 (Order No. ITBA/AST/S/143(3)/2019-20/1023050625(1)), passed by the Ld. ACIT, Circle 4(1), Gurgaon, under Section 143(3)of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2017-18.
Brief facts leading to the case are that the appellant a Limited liability Partnership firm (hereinafter referred to as ‘LLP’), was converted from Private Limited Company on October 26, 2016. The appellant is engaged in the business of providing tooth replacement solutions including dental implants, prosthetics and regenerative products. The Designated partner of appellant LLP, as per audited financial statement placed before us at pages 1-46 of Paper Book, on record are Mr. Andreas Leo Meler Gadient and Dr. Shavir Noorezdan. The appellant has furnished Return of Income on 29.10.2017 declaring a total loss of Rs. 14,41,78,354/. The appellant has claimed to have entered into a Business Transfer Agreement on 23.08.2016 i.e. date before conversion from Private Limited Company into LLP with M/s Equinox Sales India (hereinafter referred to as ESI), a sole proprietorship of Dr. Shavir S Nooryezdan. A copy of said agreement is annexed at pages 61-102 of Paper Book filed by appellant.
M/s ESI was engaged in the business of marketing, promotion, distribution and sales of dental implants. All the assets and liabilities recorded in the Books of ESI has been transferred and vested in the appellant w.e.f. 23.08.2016. The Learned AR has filed written submission, wherein it has been stated that “The business was acquired for an aggregate amount of Rs. 134,51,65,738/- out of which consideration of tangible assets was Rs. 5,23,47,134/- and balance Rs. 129,28,18,604/- was on account of several business and commercial rights collectively termed as ‘goodwill’.” A copy of audited financial statement of ESI for Financial Year 2015-16 relevant to Assessment Year 2016-17 is placed at pages 105-106 of the Paper Book and Copy of Report titled as “Value Analysis of Specified Assets acquired from Equinox Sales India and Equinox Precision Technologies Private Limited – Indian GAAP purposes” is annexed at pages 107-165 of the Paper Book filed by the appellant.
4 Learned Assessing Officer has noted that the appellant has claimed a deduction amounting to Rs. 16,16,02,326/- as depreciation on intangible asset i.e. goodwill. He further stated that the Goodwill is the amount of purchase consideration exceeding the book value of net assets of ESI and as the agreement is dated 23.08.2016; the appellant claimed 50% depreciation on goodwill. As the intangible assets in the form of goodwill were owned/held by the ESI prior to acquisition as NIL value only, therefore, the Ld. AO, after acquisition has taken the value of goodwill, as NIL cost, in the hands of appellant also. The Ld. AO in the context of judgment passed by the Hon’ble Apex Court in case of CIT vs. Smifs Securities Ltd., reported in 348 ITR 0302 has stated that the question that has been answered by the Court is whether goodwill is included in the definition of intangible assets being any other business or commercial right of a similar nature. The question of allowbility of depreciation on Goodwill arising out of valuation done for the purpose of acquisition was not posed before the Hon’ble Court in Smifs Securities (Supra). Assessing Officer has also referred to 5th Proviso to Section 32(1)(ii) of the Act, which according to him provides that, the aggregate deduction in respect of depreciation on any tangible or intangible assets allowable to predecessor or successor shall not exceed the deduction calculated at the prescribed rates as if the acquision had not taken place. Thus, finally the Ld. AO concluded that the opening written down value of the intangible asset which has been recorded in the books to give effect to the acquisition is to be treated as NIL and consequently, the claim of the appellant regarding allowability of depreciation on goodwill of Rs. 16,16,02,326/-has been disallowed by invocation of Section 32(1) and Explanation 3 thereof; read with section 43(1) and Explanation (7) thereof; read with Section 43(6) and Explanation -2 thereof.
The appellant challenged the aforesaid order of assessment before the Learned First Appellate Authority, however, remained unsuccessful, and therefore, has challenged the orders of lower authorities before us.
6 We have heard the rival submissions made by the respective parties and have also perused the material placed on record, including the orders of the lower authorities, written submission, paper books and additional grounds of appeal filed by appellant.
The appellant has filed application for admission of additional grounds of appeal, which reads as under:
However at the time of hearing, the Learned Counsel appearing for the appellant has submitted that he will not press the additional ground and, therefore, the same is dismissed as not pressed.
8 Now the original grounds of appeal as raised by appellant are reproduced hereunder:
“1.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs. 16,16,02,326/- on account of depreciation on intangible asset i.e. goodwill and that too by recording incorrect facts and findings and violation of principles of natural justice and without appreciating/considering the submissions and evidences filed by the assessee in company.
2.That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs. 16,16,02,326/-on account of depreciation on intangible asset, is bad in law and against the facts and circumstances of the case.
3.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B and 234D of the Income Tax Act, 1961.
4.That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
From prefatory facts on perusal of documents placed on record, the appellant is a LLP and the date of formation is 26.10.2016, whose designated partners are Mr. Andreas Leo Meler Gadient and Dr. Shavir Noorezdan as is evident from pages 6 and 21 of Paper Book filed before us. The relevant pages whereof are reproduced hereinbelow:-
The appellant on 23.08.2026, i.e. the date before formation of appellant, has entered into an Business Transfer Agreement, a copy of the said agreement is placed at pages 61 to 102 of the paper book filed before us in the status of a Company, with ESI, a sole proprietorship of Dr. Shavir S Nooryezdan, who is otherwise designated partner of LLP as before us.
The assessee filed written submissions with the following contents:-
It is noted from the written submission filed by the Learned AR wherein it has been stated that “There was no relationship between the seller and the appellant”, and therefore, the stand taken by the assessee before us is not only contrary to the records but also an approach to mislead the court which is not appreciable.
Further perusal of said Business Transfer Agreement dated 23.08.2016, it is found to be unregistered one. Also particularly from page 102 it is evident that such agreement is otherwise unsigned to the extent of “signed and delivered for and on behalf of [Buyer]”.
The relevant pages of the Business Transfer Agreement, i.e., pgs. 60, 61, 62, 100, 101 and 102 of the paper book are reproduced hereinbelow:-
The other documents filed by the assessee before us are only the three paper books contents whereof are as follows:-
None of the paper books contained any other agreement dated 23.08.2006 entered into by the assessee with ESI filed before us to justify that the agreement is a registered one or duly signed by the parties.
Having regard to aforesaid, we are of the considered view that in view of the fact that the aforesaid Business Transfer Agreement dated 23.08.2016, which is admittedly unregistered and unsigned, is just a piece of paper in the eyes of law having no legal sanctity. Our view is fortified with the judgment passed by the Hon’ble Jurisdictional High Court of Punjab and Haryana in case of The Principal Commissioner of Income Tax, Gurgaon vs. Prahalad Singh in ITA No. 91 of 2019, wherein Hon’ble Court has been pleased to hoeld as under:
“[2] Brief facts of the case are that the assessee had offered some income for tax. The assessment was complete under Section 143(1) of the Act but subsequently notice under section 148 was given. What weighed with the Tribunal was that reasons recorded under Section 147 of the Act to reach the belief that income and escaped assessment was unsigned and undated and consequently, the Tribunal set aside the proceedings on this ground.
[3] Following questions have been framed:
“A. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in quashing the assessment order passed in re-assessment by treating the notice issued u/s 148 of the Act as invalid on the ground that reasons recorded are unsigned which is not justified because assessee neither obtained copy of reasons recorded nor submitted any objection against validity of notice u/s 148 of the Act as per guidelines contained in decision of Hon'ble Supreme Court in the case of M/S GKN Driveshafts (India) Ltd. Vs. Income Tax Officer 259 ITR 19 (SC) before Assessing Officer before completion of re-assessment proceedings?
B. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in quashing the reassessment proceedings without appreciating the fact that the assessee himself admitted long term capital gain in the return of income filed in compliance to notice issued u/s 148?
C. Whether on the facts and in the cicumstances of the case, the Hon'ble ITAT was justified in admitting the fresh evidence as well as accepting the copy of reasons obtained by the assessee under RTI Act, 2005 on 02/06/2016 after completion of re-assessment on 31/03/2016 which is a personal information under RTI Act, 2005 and not a documentary evidence?
D. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in accepting assessee's argument that land sold during relevant previous year was not a capital asset without appreciating the fact that the assessee himself had admitted long terms capital gain on sale of such land in the return filed u/s 148 and it was a capital asset?”
[4] The primary question which has to be decided is Question A.
[5] We find that the order of the Tribunal is correct. The mere fact that reasons exist on the file cannot sanctify them and the only way to ascertain whether the requirements under Section 147 of the Act have been met out would be at the very least that the assessing officer sign the same. Without signatures, the document becomes anonymous piece of paper to which no credence can be given. The action under Section 147 of the Act is quasi-judicial action and if it is permitted that such action can be done as anonymously, it would have very serious consequences in other cases also. If the Court accepts such pieces of paper who can tomorrow stop an assessee from substituting a signed paper with another unsigned paper?
[6] Moreover the reasons are undated, hence do not establish that they were recorded prior to issuance of notice.
[7] In the circumstances, the appeal is dismissed.
[8] Since the appeal is dismissed, the pending application, if any, stands disposed of.”
Further, this agreement is unregistered one and therefore, the adjudication of Hon’ble Supreme Court in the case of CIT vs. Balbir Singh Maini, reported in 398 ITR 531 (SC) would apply, wherein court was of the view that after the commencement of Amendment Act, 2001, an unregistered agreement would have no effect in law, in other words, there would be no agreement in the eyes of law which could be enforced.
Apart thereof in the case before us, the Business Transfer Agreement entered into a date prior to formation of LLP, i.e. the appellant, entered into related parties, contrary to submission made before us, that there is no relationship between the seller and the buyer (supra), also support our conclusion that said unregistered, unsigned Business Transfer Agreement is just an anonymous piece of paper to which no credence can be given. Thus, consequential Goodwill, emerges from unregistered, unsigned Business Transfer Agreement has no value and therefore, depreciation claimed thereon deserves to be disallowed, as such, we direct accordingly.
14 In the result appeal of the assessee is dismissed.