2024 (5) TMI 295 - AT - Income Tax

Depreciation on goodwill from amalgamation allowed when amalgamating company made no prior claim under section 32

ACIT-4 (2) (1), Mumbai Versus Keva Fragrances Pvt. Ltd.

ITAT Mumbai upheld CIT(A)'s decision allowing depreciation on goodwill arising from amalgamation. The tribunal ruled that the 6th proviso to section 32 ... Disallowance of depreciation claimed on the “Goodwill” - Scheme of amalgamation sanctioned - method of accounting for the amalgamation - HELD THAT:- As decided in M/S. KEVA FRAGRANCES P. LTD. [2021 (8) TMI 286 - ITAT MUMBAI] 5th proviso to section 32 of the Act, which is now the 6th proviso to section 32 of the Act, is not applicable to the present case as the amalgamating company did not claim any depreciation on “Goodwill” Thus the assessee is entitled to claim the depreciation in the year under consideration on “Goodwill”, which is arising on account of the aforesaid amalgamation. In any case, since the year under consideration is the second year of the claim of depreciation on “Goodwill” by the assessee, which has already been allowed to the assessee in the first year of its claim, therefore the entire exercise of determining the eligibility of claim in the year under consideration is merely academic, as in this year the depreciation on “Goodwill” is to be calculated on its opening WDV. Accordingly, we find no infirmity in the impugned order passed by the learned CIT(A), and the same is upheld. As a result, the grounds raised by the Revenue are dismissed. Issues involved:The judgment involves challenges by the Revenue against separate orders passed u/s 250 of the Income Tax Act, 1961 for the assessment years 2017-18 and 2018-19, related to the deletion of depreciation claimed on 'Goodwill' by the assessee.Assessment Year 2017-18:The Revenue contested the deletion of depreciation claimed on 'Goodwill' by the assessee, raising concerns about the method of valuation used and the legitimacy of the claim. The Revenue argued that the entire amalgamation was a means to evade taxes, questioning the existence of 'Goodwill' and the justification for claiming depreciation. The AO disallowed the depreciation, emphasizing that the creation of 'Goodwill' and the subsequent claim of depreciation were not genuine but aimed at tax reduction. However, the CIT(A) allowed the appeal, citing a previous Tribunal decision in favor of the assessee for the assessment year 2016-17.The Tribunal upheld the CIT(A)'s decision, stating that the assessee was entitled to claim depreciation on 'Goodwill' arising from the amalgamation, as determined in the earlier year. The Tribunal found no fault in the CIT(A)'s order and dismissed the Revenue's appeal for the assessment year 2017-18.Assessment Year 2018-19:In the appeal for the assessment year 2018-19, the Revenue raised a similar issue regarding the deletion of depreciation claimed on 'Goodwill.' Since the matter had already been decided for the preceding year, the Tribunal applied the same conclusions. The Tribunal found no error in the CIT(A)'s decision and dismissed the Revenue's appeal for the assessment year 2018-19.In conclusion, both appeals by the Revenue challenging the deletion of depreciation on 'Goodwill' were dismissed by the Tribunal in separate orders for the assessment years 2017-18 and 2018-19.