Assessment against non-existent entity void; depreciation on goodwill allowed under Section 32 after approved amalgamation scheme

The ITAT Ahmedabad held that the assessment framed against a non-existent entity was void ab initio and lacked jurisdiction, ruling in favor of the assessee. Regarding depreciation on goodwill arising from a scheme of amalgamation, the tribunal found the valuation and disallowance by the AO unjustified, noting the scheme was approved by the HC without objection from the Revenue. The tribunal emphasized that goodwill acquired in amalgamation qualifies for depreciation under section 32, rejecting the AO's claim of a colorable device. It also held that the AO should have sought expert valuation if dissatisfied with the assessee's report. Consequently, the claim for depreciation on goodwill was allowed, and the impugned assessment was set aside.

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Issues Involved:
1. Validity of the assessment order framed in the name of a non-existent company.
2. Disallowance of depreciation on goodwill arising from amalgamation.

Detailed Analysis:

Issue 1: Validity of the Assessment Order
The primary issue raised by the assessee was the validity of the assessment order framed by the Assessing Officer (AO) in the name of a non-existent company. The assessee argued that the assessment order dated 27th December 2018 was framed on M/s Urmin Marketing Pvt. Ltd., which had ceased to exist due to amalgamation with M/s Urmin Flavoroma Pvt. Ltd. effective from 1st April 2015. The amalgamation was approved by the Gujarat High Court on 5th January 2016, and the resulting entity was later converted into a Limited Liability Partnership (LLP).

The Tribunal noted that the AO was aware of the amalgamation and subsequent changes, as evidenced by the assessment order itself and various correspondences between the assessee and the tax authorities. The Tribunal cited the Supreme Court's decision in PCIT Vs. Maruti Suzuki India Ltd., which held that an assessment order passed in the name of a non-existent entity is void ab initio and a nullity in the eye of law.

The Tribunal concluded that the assessment order was invalid because it was framed in the name of a non-existent entity. Therefore, the additional ground raised by the assessee was allowed, and the assessment order was quashed.

Issue 2: Disallowance of Depreciation on Goodwill
The second substantive issue involved the disallowance of depreciation on goodwill amounting to Rs. 1,17,18,39,228/- claimed by the assessee. The goodwill arose from the amalgamation of M/s Unicorn Packers Private Limited (UPPL) with M/s Urmin Marketing Pvt. Ltd. (UMPL). The assessee argued that the goodwill was a result of the excess consideration paid over the net value of assets acquired in the amalgamation, and therefore, it should be eligible for depreciation under section 32 of the Income Tax Act.

The AO disallowed the depreciation, arguing that the goodwill was not a tangible asset transferred from the amalgamating company and was created due to revaluation of assets. The AO also contended that the amalgamation was a controlled transaction designed to evade taxes.

The Tribunal examined the facts and legal provisions, including section 32, section 43, and relevant accounting standards. It noted that the purchase consideration was based on a valuation report from a qualified valuer and was approved by the Gujarat High Court. The Tribunal also referred to the Supreme Court's decision in CIT vs. Smifs Securities Ltd., which held that goodwill falls under the category of "any other business or commercial rights of similar nature" and is eligible for depreciation.

The Tribunal rejected the AO's argument that the goodwill was self-generated and not acquired, noting that the excess consideration paid over the net value of assets represented the cost of acquiring goodwill. The Tribunal also dismissed the AO's contention that the amalgamation was a colorable device, pointing out that the scheme was approved by the High Court after inviting objections from the Income Tax Department, which did not raise any objections.

The Tribunal concluded that the assessee was entitled to claim depreciation on the goodwill arising from the amalgamation. It directed the AO to allow the depreciation claim and set aside the order of the CIT(A).

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the assessment order framed on a non-existent entity and directing the AO to allow the claim of depreciation on goodwill arising from the amalgamation. The judgment emphasized the importance of adhering to legal principles and procedural fairness in tax assessments, particularly in cases involving corporate restructuring and amalgamation.

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