2021 (4) TMI 759 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on goodwill attribution, dismissing revenue's appeals

The Assistant Commissioner of Income Tax-9 (3) (1), Mumbai Versus M/s Fedex Express Transportation and Supply Chain Services (India) Private Limited

The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeals for A.Y. 2014-15 and A.Y. 2015-16. The Tribunal ruled that the entire goodwill ... Disallowance of depreciation on goodwill - whether goodwill acquired by the assessee enhances the value of entire FedEx brand? - CIT vacated the disallowance on deprecation of goodwill so made by the A.O - A.O relying on the order passed by the Pr. CIT under Sec. 263 for A.Y. 2011-12 wherein the latter had observed that if some goodwill had been acquired by the assessee then, partially such goodwill was for the business of the international affiliates of the assessee company and only a reasonable part of the same would be relatable to the assessee company, had thus, adopting the same line of action attributed 25 % of the value of goodwill to the assessee and disallowed the balance 75% of its value - HELD THAT:- Admittedly, the order passed by the Pr. CIT under Sec. 263, for A.Y. 2011-12had been quashed by the Tribunal [2017 (11) TMI 1215 - ITAT MUMBAI] As observed by us hereinabove, the Tribunal while quashing the order passed by the Pr.CIT under Sec. 263 had categorically observed that as the agreement for acquiring the business of AFL and UFL was between the assessee and AFL/UFL and none of the affiliates of the FedEx Group were a party to the same thus, it cannot be said that the affiliates had acquired the goodwill along with the assessee. Thus the controversy in hand had its genesis in A.Y. 2011-12, we find, that the CIT(A) had rightly, observed that now when the order of the Pr.CIT under Sec. 263, dated 21.02.2016 had been quashed by the Tribunal, therefore, the disallowance of depreciation on goodwill made by the A.O by relying on the order passed by his predecessor under Sec. 143(3) r.w.s 263, dated 30.12.2016, cannot survive on a standalone basis and was liable to be vacated. Accordingly, finding no infirmity in the view taken by the CIT(A), we herein uphold his order. - Decided against revenue. Issues Involved:1. Disallowance of depreciation on goodwill.2. Apportionment of goodwill between the assessee company and its affiliates.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on Goodwill:The primary issue revolves around whether the depreciation claimed by the assessee on goodwill should be disallowed. The assessee, a courier and logistics service provider, had acquired certain business undertakings on a slump sale basis, resulting in the creation of goodwill in its books. The assessee claimed depreciation on this goodwill under Section 32 of the Income Tax Act, 1961. The Assessing Officer (A.O) disallowed 75% of the depreciation claimed, attributing only 25% to the assessee and the rest to its parent company and affiliates.The CIT(A) observed that the Tribunal had previously quashed the Pr.CIT’s order under Section 263 for A.Y. 2011-12, which had directed the apportionment of goodwill between the assessee and its affiliates. The Tribunal found that the affiliates were not parties to the agreement for acquiring the business, and thus, the entire goodwill should be attributable to the assessee alone. Consequently, the CIT(A) directed the A.O to delete the disallowance of depreciation on goodwill.2. Apportionment of Goodwill:The A.O had followed the reasoning from the Pr.CIT’s order for A.Y. 2011-12, which suggested that the goodwill should be apportioned between the assessee and its affiliates. However, the Tribunal had quashed this order, stating that there was no material basis for such apportionment. The Tribunal noted that the agreement for acquiring the business was solely between the assessee and the sellers, with no involvement of the affiliates. Hence, the goodwill could not be apportioned.The Tribunal also highlighted that the provisions of Section 43(1) and Section 38 of the Income Tax Act do not support the apportionment of cost in this manner. Furthermore, the Tribunal referenced the Supreme Court’s ruling in the case of Vodafone International, which emphasized the economic independence of parent and subsidiary companies for tax purposes.Conclusion:The Tribunal upheld the CIT(A)’s decision for both A.Y. 2014-15 and A.Y. 2015-16, dismissing the revenue’s appeals. The Tribunal found no infirmity in the CIT(A)’s order, which relied on the Tribunal’s earlier decision that the entire goodwill should be attributable to the assessee and not apportioned with its affiliates. Consequently, the disallowance of depreciation on goodwill was deleted, and the appeals filed by the revenue were dismissed.Order Pronounced:The appeals for A.Y. 2014-15 and A.Y. 2015-16 were dismissed, and the order was pronounced in the open court on 24.02.2021.