No Adjustments required for Intangible Asset Amortization u/s 115JB: ITAT rules for Sun Pharma Labs Ltd. [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) stating that no adjustments were required for the amortization of intangible assets while calculating book profits under Section 115JB of Income Tax Act,1961.

Sun Pharma Laboratories Ltd., the appellant-assessee, appealed against the Commissioner of Income Tax(Appeals)[CIT(A)] order dated 28.02.2019 for Assessment Year (AY) 2015-16, arising from the assessment under Section 143(3) of the Income Tax Act.

The ground mentioned by the assessee related to the addition of ₹15,239,750,000 for the amortization of intangibles while calculating book profits under section 115JB.

The Domestic Formulation Unit (DFU) of Sun Pharmaceutical Industries Ltd. ( SPIL ) had been transferred to the assessee company under a Scheme of Arrangement approved by the Gujarat High Court on May 3, 2013. This arrangement resulted in the transfer of certain tangible and intangible assets from SPIL to the assessee company.

The Assessing Officer (AO) noticed that the assessee company debited ₹15,239,750,000 under depreciation/amortization for intangibles amounting to ₹182,877,000,000 for the first time in the relevant column of the e-ITR. The assessee added back the depreciation/amortization in its income computation but did not make any adjustments while calculating book profit under section 115JB(1).

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

 The AO issued a show-cause notice, and upon considering the assessee’s reply, rejected it. The AO argued that the assessee revalued and claimed the intangibles, leading to the addition of ₹15,239.75 million to the book profit calculation and the initiation of penalty proceedings for inaccurate income particulars.

On appeal, the CIT(A) upheld the AO’s order, citing similar appellate decisions for assessment years 2013-14 and 2014-15. The assessee’s senior counsel, Sri S.N. Soparkar, pointed out that the issue had been resolved in favor of the assessee in a prior decision by a Co-ordinate Bench (ITA Nos. 1464 & 1465/Ahd/2018) dated October 6, 2023.

The tribunal reviewed the materials and noted that the issue had already been addressed, concluding that the recording of assets at fair value due to the Scheme of Arrangement was not a revaluation of assets. The intangibles had been recorded for the first time at their fair value based on independent valuations as of March 31, 2012. The AO had incorrectly interpreted this process as a revaluation, failing to recognize that the assets were transferred to the assessee.

The appellate tribunal affirmed that the assets were recorded in compliance with the High Court’s approved Scheme, which allowed the assessee to recognize the assets at fair value. They reiterated that section 115JB did not permit adjustments beyond those specified, emphasizing that the AO could not alter the net profit certified under the Companies Act.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Annapurna Gupta(Accountant Member) concluded that the AO's adjustments to the book profit were unjustified because the assets were recorded at fair value and not revalued, leading to the quashing of the AO's adjustment and the directive to delete the adjustment to the book profit under Section 115JB.

In conclusion, the appeal was allowed.

To Read the full text of the Order CLICK HERE

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