Assessee wins 25% depreciation claim on goodwill from amalgamation despite lower authorities' rejection

ITAT Kolkata allowed assessee's claim for 25% depreciation on written-down value of goodwill. The goodwill arose from amalgamation where consideration paid exceeded net assets acquired. Despite lower authorities disallowing the claim, ITAT noted consistent depreciation claims since F.Y. 2006-07 and relied on its own precedents in assessee's case for A.Y. 2011-12 and 2012-13 where Revenue's appeals were dismissed. The tribunal maintained consistent view following similar decision in Primetals Technologies case, deciding in favor of assessee.

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Issues Involved:

1. Whether the learned CIT (A) erred in dismissing the appeal ex-parte without allowing the assessee a reasonable opportunity of being heard.
2. Whether the learned CIT (A) erred in confirming the action of the Assessing Officer in disallowing depreciation on goodwill, which had been allowed in earlier years and was duly allowable under the law.

Detailed Analysis:

Issue 1: Dismissal of Appeal Ex-parte

The first issue raised by the assessee was regarding the dismissal of the appeal ex-parte by the learned CIT (A) without providing a reasonable opportunity for the assessee to be heard. The Tribunal noted that the assessee had raised this ground of appeal, but the detailed analysis and resolution of this specific procedural issue were not explicitly addressed in the judgment. The primary focus of the Tribunal's deliberation was on the substantive issue of depreciation on goodwill. Therefore, the judgment primarily resolves around the second issue concerning the substantive tax treatment, leaving the procedural aspect of the ex-parte dismissal unaddressed in detail.

Issue 2: Disallowance of Depreciation on Goodwill

The second issue concerns the disallowance of depreciation on goodwill by the Assessing Officer, which was upheld by the learned CIT (A). The assessee argued that the depreciation on goodwill had been consistently allowed in previous years and should continue to be allowed under the law. The Tribunal reviewed the facts, noting that the goodwill was created during the financial year 2006-07 as a result of the amalgamation of Shristi Infrastructure Development Corporation Ltd. with Peerless Abasan Finance Ltd., approved by the Hon'ble High Court of Calcutta. The goodwill was recorded as the difference between the cost of net assets and the amount paid by the transferee company.

The Tribunal observed that the assessee had been consistently claiming depreciation on this goodwill since the financial year 2006-07, at the rate of 25% on the written-down value. The Tribunal noted that similar issues had been raised in the assessee's own cases for assessment years 2011-12 and 2012-13, where the Tribunal had dismissed the Revenue's appeal and allowed the depreciation on goodwill.

The Tribunal referred to the provisions of Section 32(1) of the Income-tax Act, 1961, which allows depreciation on tangible and intangible assets, including "any other business or commercial rights of similar nature." The Tribunal cited the Supreme Court decision in the case of Commissioner of Income Tax vs. Smifs Securities Ltd., where it was held that depreciation is allowable on goodwill arising pursuant to a merger. The Tribunal also referenced other judicial precedents supporting the allowance of depreciation on goodwill.

The Tribunal concluded that the disallowance of depreciation on goodwill by the lower authorities was not justified. The Tribunal emphasized judicial consistency and noted that the Revenue had not presented any binding precedent to support its position. Consequently, the Tribunal reversed the findings of the learned CIT (A) and directed the Assessing Officer to allow the claim of depreciation on goodwill amounting to Rs. 59,32,617/-.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal directing the allowance of depreciation on goodwill, thereby resolving the substantive issue in favor of the assessee. The procedural issue of ex-parte dismissal was not explicitly resolved in the judgment.

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