2025 (7) TMI 1891 - AT - Income Tax

Assessment officer to allow depreciation on business rights, adjust brought-forward unabsorbed depreciation and verify short TDS credit

Thermo Fisher Scientific India Private Limited Versus Deputy Commissioner of Income Tax 15 (3) (1), Mumbai

ITAT MUMBAI - AT allowed the assessee's depreciation claim for business/commercial rights arising from manufacturing, supply and maintenance contracts, ... Denial of depreciation claimed on manufacturing, supply and maintenance contracts - HELD THAT:- It is admitted position that the depreciation claimed by the Assessee for the AY 2015-2016 pertains to the same business/commercial rights in respect of which depreciation claim of the Assessee has already been allowed in the appeal preferred by the Assessee for the Assessment Year 2010-2011. Revenue has failed to bring on record any material to differentiate the above decision of the Tribunal either on facts or in law. Therefore, respectfully following the decision of the Tribunal in the case of the Assessee for the Assessment Year 2010-2011[2025 (7) TMI 1167 - ITAT MUMBAI] we direct the Assessing Officer to allow deprecation claimed by the Assessee in respect of business/commercial rights arising from the manufacturing contracts, supply contracts and maintenance contracts. Thus, Ground No. 2 & 3 raised by the Assessee are allowed. Assessee pertaining to the claim for brought forward unabsorbed depreciation - On perusal of record we find that the AO did not allow Assessee’s claim of brought forward unabsorbed depreciation on account of disallowances made in the preceding years. Since the allowance of unabsorbed depreciation is linked to the outcome of the appeals for the AY 2008-2009 to 2014-2015, we deem it appropriate to direct the AO to consider the claim of the Assessee in respect of unabsorbed depreciation as per the orders passed by the Tribunal in the appeals for each of the preceding assessment years (i.e. Assessment Years 2008-2009 to 2014-2015). In terms of the aforesaid directions Ground raised by the Assessee are treated as allowed for statistical purposes. Short grant of credit of Tax Deducted at Source (TDS) -Assessee had claimed TDS Credit which was reflected in Form 26AS of the Assessee-Company and the merged entities for the year Assessment Year 2015-2015 - As contended on behalf of the Assessee that the income corresponding to the TDS Credit claimed by the Assessee was offered to tax during the relevant previous year and therefore, the Assessee was entitled to claim TDS Credit - HELD THAT:- In order to redress the grievance of the Assessee, we deem it appropriate to direct the AO to verify the records. In case on verification it is found that the income corresponding to the differential TDS Credit claimed by the Assessee has been offered to tax, and the said TDS Credit is reflected in Form 26AS for the Assessment Year 2015-2016 of the Assessee Company and/or the merged entities, the Assessing Officer is directed to allow Credit for the TDS Credit. ISSUES PRESENTED AND CONSIDERED 1. Whether depreciation under section 32(1) read with section 2(11) of the Income Tax Act is allowable on business/commercial rights in the form of manufacturing, supply and maintenance contracts acquired in slump-sale acquisitions, or alternatively on goodwill representing excess consideration paid. 2. Whether excess consideration paid over fair value of acquired assets in slump-sale acquisitions can be treated as goodwill eligible for depreciation under the Act. 3. Whether brought forward unabsorbed depreciation from earlier assessment years must be allowed in the impugned year to the extent it becomes allowable consequent to appellate decisions in those earlier years. 4. Whether the Assessing Officer erred in refusing credit for Tax Deducted at Source (TDS) claimed and reflected in Form 26AS where corresponding income has been offered to tax. 5. Whether initiation of penalty proceedings under section 271(1)(c) was premature where assessment adjustments were under challenge. ISSUE-WISE DETAILED ANALYSIS - Depreciation on acquired contracts and alternative treatment as goodwill Legal framework: Depreciation is allowable under section 32(1) read with definition in section 2(11) for intangible assets; Accounting Standard (AS)-26 provides recognition criteria for intangible assets (control of future economic benefits, reliable measurement of cost). Provisions and explanations relating to amalgamation/demerger and transfers (Explanation 7 to section 43(1), Explanation 2 to section 43(6), provisos to section 32(1)(ii)) concern different fact-situations. Precedent Treatment: A coordinate bench decision in the assessee's earlier appeal held that where consideration paid in slump-sale acquisitions exceeds fair value of recognized assets and liabilities, the excess is attributable to goodwill and is eligible for depreciation. That decision was relied upon and followed by the Tribunal in the present appeal. The revenue produced no distinguishing material. Interpretation and reasoning: The Tribunal examined whether manufacturing, supply and maintenance contracts acquired in slump sales qualify as separate intangible assets per AS-26 (control of future economic benefits, reliable measurement). Even if some contracts did not independently satisfy AS-26 (short durations, measurement concerns), the Tribunal held the exercise academic because the aggregate consideration paid included amounts over and above the fair value of recognized assets and liabilities. That excess, in slump-sale context, was to be characterised as goodwill. Provisions dealing with amalgamation/transfer of blocks of assets are not applicable to slump-sale acquisitions; explanations and provisos relied upon by the Assessing Officer relate to different transactions (amalgamation, holding/subsidiary transfers) and therefore do not negate depreciation on goodwill arising from slump sale consideration. The Tribunal further noted that reallocation between goodwill and other depreciable assets would be revenue neutral if valuations were adjusted. Ratio vs. Obiter: Ratio - Depreciation is allowable on goodwill arising from excess consideration paid in slump-sale acquisitions; accounting recognition of specific contracts is not determinative where goodwill exists. Obiter - Detailed factual observations about the duration of specific contracts and long-standing commercial relationships informed the assessment of economic benefits but were not necessary to the core holding. Conclusion: Followed the coordinate-bench precedent; directed Assessing Officer to allow current-year depreciation of INR 3,07,88,534 (and held that depreciation on goodwill totalling INR 15,96,20,019 claimed in the year should be allowed). Grounds 2 and 3 allowed. ISSUE-WISE DETAILED ANALYSIS - Brought forward unabsorbed depreciation (Assessment Years 2008-2009 to 2014-2015) Legal framework: Carry-forward and set-off of unabsorbed depreciation depends on correctness of depreciation allowances in the earlier years; adjustments consequential to appellate determinations affect brought forward balances. Precedent Treatment: The Tribunal treated the allowance of brought forward unabsorbed depreciation as consequential to appellate results in the earlier assessment years and directed reassessment/calculation in accordance with those appellate orders. Interpretation and reasoning: Because the disallowance of depreciation in earlier years was under dispute and the present allowance depends on the outcome of those appeals, the proper course is to direct the Assessing Officer to give effect to the Tribunal's orders in the earlier years and recompute the brought forward unabsorbed depreciation accordingly. Relief is consequential in nature and requires factual re-computation by the AO in light of appellate outcomes. Ratio vs. Obiter: Ratio - Where appellate orders alter depreciation in earlier years, brought forward unabsorbed depreciation must be reconsidered and allowed to the extent emerging from those orders; such relief is consequential and requires AO action. Obiter - Procedural remarks about the propriety of specific earlier disallowances are ancillary. Conclusion: Grounds 4-10 treated as allowed for statistical purposes; AO directed to consider unabsorbed depreciation as per Tribunal orders for each preceding assessment year. ISSUE-WISE DETAILED ANALYSIS - TDS credit short grant Legal framework: Credit for TDS is claimable where corresponding tax has been deducted and the income on which tax was deducted has been offered to tax by the claimant; Form 26AS is material for verification. Precedent Treatment: The Tribunal directed verification by the AO and grant of credit where the corresponding income has been offered to tax and TDS appears in Form 26AS; this approach reconciles statutory entitlement with documentary records. Interpretation and reasoning: The Tribunal noted the assessee claimed TDS credit reflected in Form 26AS and contended corresponding income had been offered to tax. To adjudicate the claim appropriately requires AO verification of records to ensure correspondence between TDS entries and taxed income; if verified, credit must be allowed. Ratio vs. Obiter: Ratio - Where TDS is reflected in Form 26AS and the income corresponding to the TDS has been offered to tax, the Assessing Officer must verify and, if corroborated, grant the TDS credit. Obiter - Specific numeric reconciliation steps are administrative. Conclusion: Ground 11 allowed for statistical purposes; AO directed to verify and grant INR 10,75,900 TDS credit if records substantiate the claim. ISSUE-WISE DETAILED ANALYSIS - General ground and penalty initiation Legal framework: General or omnibus grounds lacking specific legal or factual complaint are normally dismissed; initiation of penalty proceedings under section 271(1)(c) requires a concluded finding of concealment or misreporting and may be premature if assessment issues remain under adjudication. Precedent Treatment: The Tribunal dismissed a general ground as non-specific and treated challenge to penalty initiation as premature where substantive assessment adjustments were under appeal and had not crystallised into a penalty order. Interpretation and reasoning: Ground No.1 was general and was dismissed. Ground No.12, challenging initiation of penalty proceedings, was dismissed as premature because substantive liability and any culpability had not been finally determined in the penalty proceedings; the matter was not ripe for adjudication in the present appellate proceeding. Ratio vs. Obiter: Ratio - General grounds without specificity may be dismissed; challenges to penalty initiation can be premature if no penalty order has been framed or concluded. Obiter - None significant beyond procedural propriety. Conclusion: Ground 1 dismissed; Ground 12 dismissed as premature. FINAL DISPOSITION The appeal was allowed in accordance with the Tribunal's directions on depreciation (following coordinate-bench precedent), consequential allowance of brought forward unabsorbed depreciation subject to earlier appellate outcomes, verification and grant of short-claimed TDS credit if substantiated, with general and premature penalty grounds dismissed.