2026 (4) TMI 182 - AT - Income Tax

Goodwill depreciation, reassessment limitation, section 14A satisfaction, and non-existent entity assessment were all decided against Revenue.

Depreciation on goodwill arising from amalgamation was held allowable because the goodwill remained part of the same block of intangible assets and fell ... Depreciation on goodwill arising on amalgamation - validity of reassessment proceedings - Limitation for reassessment under the post-Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] regime - Assessment in the name of a non-existing entity - Recording of dissatisfaction u/s 14A(2) before invoking Rule 8D Depreciation on goodwill - Goodwill as intangible asset - Amalgamation - Depreciation on the goodwill that had arisen on amalgamation and had continued in the hands of the successor entity after subsequent amalgamation and conversion into LLP - HELD THAT: - The Tribunal found that the claim in the year under appeal related to the very same goodwill which had arisen in the original amalgamation and on which depreciation had already been held admissible by the co-ordinate Bench in the foundational year. There was no fresh goodwill or new transaction in the relevant year; the claim represented continuation of depreciation on the same block of intangible asset. In the absence of any distinguishing fact or law shown by the Revenue, the Tribunal followed the earlier decision and upheld the allowance of depreciation. [Paras 5, 11, 20] The deletion of the disallowance of depreciation on goodwill was upheld and the Revenue's challenge on this issue failed. Reassessment limitation - Surviving period under TOLA - Deemed notice under section 148A(b) - The notice issued under section 148 after the section 148A proceedings as time-barred - HELD THAT: - Applying the law explained by the Supreme Court RAJEEV BANSAL [2024 (10) TMI 264 - SUPREME COURT (LB)], the Tribunal held that the original notice issued on 30.06.2021 had to be treated as a deemed notice under section 148A(b), and only the balance time surviving under the Income-tax Act read with TOLA remained available for completion of the further steps. Since the original notice was issued on the last available day, only one day survived, which stood extended to seven days. Even reckoning the later date up to which the Assessing Officer sought further explanation, the fresh notice under section 148 was issued beyond the permissible period. The reassessment initiation was therefore invalid on limitation itself, and the consequential assessment could not survive. [Paras 8] The notice under section 148 was held invalid as time-barred, and the consequential reassessment proceedings and assessment order were quashed. Assessment on Non-existing entity - Jurisdictional invalidity of assessment - assessment framed in the name of the company after it had ceased to exist on conversion into LLP - HELD THAT: - The Tribunal upheld the finding that the assessment had been made in the name of a company which had already ceased to exist because of conversion into a limited liability partnership. Following the Supreme Court decision of Maruti Suzuki India Ltd. [2019 (7) TMI 1449 - SUPREME COURT] it held that an assessment made in the name of a non-existing entity is without jurisdiction and a nullity. As no distinguishing fact or legal position was shown by the Revenue, the appellate view was affirmed. [Paras 12] The legal ground against the assessment in the name of the non-existing company was sustained. Disallowance u/s 14A - Rule 8D disallowance - Mandation of recording his satisfaction (dissatisfaction) about the correctness of the claim made by the assessee - HELD THAT: - The Tribunal agreed with the appellate authority that the assessee had already made a suo motu disallowance and that the Assessing Officer proceeded directly to apply Rule 8D without recording the statutory dissatisfaction required by section 14A(2). Relying on the co-ordinate Bench decision in the group concern Urmin Products Pvt Ltd. [2024 (6) TMI 736 - ITAT AHMEDABAD] and CIMS Hospital Pvt. Ltd. [2020 (3) TMI 1024 - GUJARAT HIGH COURT] and in the case of PCIT vs. Gujarat Flurochemicals Ltd. [2023 (12) TMI 713 - GUJARAT HIGH COURT] noticed therein, it held that invocation of Rule 8D without such prior satisfaction was not permissible in law. The deletion of the additional disallowance was therefore justified. [Paras 17, 18, 21] The deletion of the disallowance made under section 14A read with Rule 8D was upheld. Final Conclusion: All six Revenue appeals were dismissed. The Tribunal upheld the allowance of depreciation on amalgamation goodwill, sustained the deletion of section 14A disallowance for want of recorded dissatisfaction, held one reassessment notice to be time-barred, and also affirmed that an assessment framed in the name of a non-existing entity was void. Issues: (i) Whether depreciation was allowable on goodwill arising from amalgamation and carried forward into the assessee's books; (ii) whether the reassessment notice issued under section 148 was barred by limitation and the assessment consequently invalid; (iii) whether disallowance under section 14A read with Rule 8D could be made without recording dissatisfaction with the assessee's own disallowance; (iv) whether the assessment framed in the name of a non-existing entity was without jurisdiction.Issue (i): Whether depreciation was allowable on goodwill arising from amalgamation and carried forward into the assessee's books.Analysis: The same goodwill had arisen in the earlier amalgamation as the excess of purchase consideration over the net book value of the acquired business and had already been accepted as a depreciable intangible asset in the foundational year. The goodwill continued as part of the same block of intangible assets in the successor entities and in the assessee LLP, with no fresh goodwill or new transaction in the year under appeal. The earlier Tribunal view allowing depreciation on goodwill, applying the principle that such goodwill falls within the expression 'any other business or commercial rights of similar nature', governed the matter.Conclusion: Depreciation on goodwill was held allowable, and the disallowance was rightly deleted.Issue (ii): Whether the reassessment notice issued under section 148 was barred by limitation and the assessment consequently invalid.Analysis: The original notice under section 148 issued during the transition period was treated as a deemed notice under section 148A(b). After supply of material, only the surviving time available under the new regime read with TOLA remained available for completion of the reassessment sequence. The subsequent notice under section 148 was issued beyond the surviving period computed on the facts found by the Tribunal, rendering the reassessment notice time-barred.Conclusion: The notice under section 148 was held invalid and the reassessment proceedings were quashed as time-barred.Issue (iii): Whether disallowance under section 14A read with Rule 8D could be made without recording dissatisfaction with the assessee's own disallowance.Analysis: The assessee had made a suo motu disallowance. The Assessing Officer invoked Rule 8D without first recording dissatisfaction having regard to the accounts, as required by section 14A(2). In the absence of such satisfaction, the mechanical application of Rule 8D was not permissible.Conclusion: The disallowance under section 14A read with Rule 8D was unsustainable and was deleted.Issue (iv): Whether the assessment framed in the name of a non-existing entity was without jurisdiction.Analysis: The assessed company had already ceased to exist on conversion into an LLP, yet the assessment was framed in its name. An assessment made in the name of a non-existent person or entity is a jurisdictional defect and is void ab initio.Conclusion: The assessment was held void for want of jurisdiction.Final Conclusion: The common legal effect of the decision is that the Revenue's appeals failed on the merits as well as on the jurisdictional objections, and the assessee's reliefs were sustained in full.Ratio Decidendi: Goodwill arising on amalgamation and continuing as part of the same block of intangible assets is depreciable where it represents an acquired commercial right, reassessment notice under the new regime must be issued within the surviving limitation period, section 14A disallowance requires prior recording of dissatisfaction, and an assessment against a non-existent entity is void.