Depreciation on amalgamation goodwill, section 14A dissatisfaction, limitation on reassessment, and assessment on a non-existing entity

Goodwill arising from amalgamation was treated as an acquired intangible asset representing a business or commercial right, so depreciation under section 32(1) was allowable. Section 14A disallowance could not be made by applying Rule 8D because the Assessing Officer had not first recorded dissatisfaction with the assessee's suo motu computation, making the adjustment unsustainable. Reassessment was barred by limitation because the fresh section 148 notice was issued beyond the surviving statutory period. The assessment framed in the name of a company that had ceased to exist after conversion into an LLP was void, as an assessment on a non-existing entity is without jurisdiction.

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Issues: (i) Whether depreciation on goodwill arising from amalgamation was allowable; (ii) Whether disallowance under section 14A could be made by invoking Rule 8D without recording dissatisfaction; (iii) Whether the reassessment notice issued under section 148 was time-barred; (iv) Whether the assessment framed in the name of a non-existing entity was valid.

Issue (i): Whether depreciation on goodwill arising from amalgamation was allowable.

Analysis: The goodwill in question was the same goodwill that had arisen on amalgamation and had been carried forward through subsequent restructuring and conversion. The prior co-ordinate Bench decision had already held that such goodwill, being the excess of purchase consideration over net asset value, is an acquired intangible asset falling within the scope of business or commercial rights of similar nature and is eligible for depreciation under section 32(1). No fresh factual or legal distinction was shown for the year under appeal.

Conclusion: Depreciation on goodwill was allowable and the issue was decided in favour of the assessee.

Issue (ii): Whether disallowance under section 14A could be made by invoking Rule 8D without recording dissatisfaction.

Analysis: The assessee had made a suo motu disallowance. The Assessing Officer proceeded to apply Rule 8D without first recording dissatisfaction regarding the correctness of the assessee's claim having regard to the accounts. The controlling requirement under section 14A(2) was not complied with, and the Tribunal followed the jurisdictional precedents holding that Rule 8D cannot be invoked mechanically in the absence of such recorded satisfaction.

Conclusion: The disallowance under section 14A read with Rule 8D was unsustainable and the issue was decided in favour of the assessee.

Issue (iii): Whether the reassessment notice issued under section 148 was time-barred.

Analysis: The original notice issued on 30.06.2021 was treated as a deemed notice under section 148A(b) in terms of the Supreme Court's directions. After supply of material and receipt of reply, the reassessment proceedings had to be completed within the surviving limitation under the old regime as extended by TOLA. The fresh notice under section 148 was issued beyond the surviving period, rendering the reassessment initiation invalid.

Conclusion: The reassessment notice was barred by limitation and the issue was decided in favour of the assessee.

Issue (iv): Whether the assessment framed in the name of a non-existing entity was valid.

Analysis: The company had ceased to exist upon conversion into an LLP, yet the assessment was framed in the company's name. The governing principle is that an assessment on a non-existent entity is a nullity and without jurisdiction. No distinguishing feature was shown to depart from that rule.

Conclusion: The assessment framed in the name of the non-existing entity was invalid and the issue was decided in favour of the assessee.

Final Conclusion: All the revenue appeals failed. The Tribunal upheld the relief granted to the assessee on depreciation on goodwill, rejected the section 14A disallowance, and sustained the quashing of reassessment and the assessment on jurisdictional grounds.

Ratio Decidendi: Goodwill arising on amalgamation is a depreciable intangible asset when it represents an acquired commercial right, section 14A disallowance under Rule 8D requires prior recorded dissatisfaction, reassessment must be initiated within the surviving statutory time limit, and an assessment framed against a non-existing entity is void.

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