TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 914
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.... learned Commissioner of Income Tax (Appeals) has grievously erred in confirming the disallowance of depreciation on goodwill of Rs. 1,90,09,241/-. (2) That on facts and in law, the learned CIT(A) has grievously erred in holding that the assessee has not acquired any intangible assets and thereby confirming the disallowance by applying inapplicable provisions of the I.T. Act, 1961. (3) That the learned CIT(A) has grievously erred in not deciding the ground regarding alternate valuation of goodwill done by A.O. (4) The appellant craves leave to add, alter, amend any ground of appeal." 3. The 1st issue raised by the assessee in ground No. 1 and 2 is that the learned CIT(A) erred in confirming the disallowance of depreciation of Rs. 1,90,09,241/- on the intangible assets/goodwill acquired in the scheme of amalgamation. 4. The facts in brief are that the assessee company namely Dintex Dye Chem Ltd. (amalgamated co.) has acquired a company namely Bodal Chemical Pvt. Ltd. (amalgamating co.) in a scheme of amalgamation approved by the Hon'ble Gujarat High Court vide order dated 27 April 2006. Subsequently, the name of the assessee company was changed to Bodal Chemical Ltd. As per....
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.... the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A). 6. The assessee before the learned CIT (A) submitted that it is the 2nd year for claiming the depreciation on the goodwill. As such the depreciation under section 32 of the Act was allowed in the assessment framed for the immediately preceding assessment year 2006-07. The assessee has actually incurred the cost by issuing shares to the transferor company. Therefore, the same should be allowed as deduction either by way of depreciation or as revenue expenses. There were certain intangible assets with the transfer company such as technical know-how for products, effluent treatment disposal entitlement right, environmental clearances from government for a chemical plant, other commercial rights, registrations, employees with their experiences, customer base, export market, raw material resources, a large banking base and management expertise though not recorded in the books of accounts of the transferor company but their value cannot be ignored for the purpose of goodwill in the hands of the transferee company. As such, the above said intangible assets were not recorded in the book....
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....cts of the case have been duly elaborated in the preceding paragraphs which are not in dispute. Therefore, we are not inclined to repeat the same for the sake of brevity and convenience. Admittedly, the assessee claimed the depreciation 1st time on the intangible assets acquired in the scheme of amalgamation at Rs. 2,53,45,655.00 in the assessment 2006-07. The assessee carried forward the written down value to the year under consideration under the intangible block of assets and accordingly claimed depreciation thereon as per the provisions of law. As such, the claim of the assessee for the depreciation was accepted by the Revenue in the immediate preceding assessment year 2006-07. No action was taken by the Revenue under section 263 and 147 of the Act disputing the deduction allowed to the assessee for the depreciation on the intangible assets acquired by it in the scheme of amalgamation. However, there was no information brought before us whether there was any assessment under section 143(3) of the Act pertaining to the assessment year 2006-07 though the assessee before the learned CIT (A) has submitted as under: "The depreciation on goodwill is allowed and was correctly grant....
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....iple of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." In view of the above and after considering the facts in totality, we are of the view that the assessee is eligible for deduction for the depreciation under section 32 of the Act. However, for the completeness of the case, now we turn to the merit of the case. In the scheme of amalgamation, one company is acquired by another company with all the assets and liabilities including reserve, provisions etc. Upon acquisition, if the purchase consideration to be paid to the shareholders of the amalgamating company exceeds the net asset value (NAV), the excess amount is recorded as goodwill. If not, it is recorded as capital reserves in the books of the amalgamated company. In th....
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....es, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.] XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXX Explanation 2.-For the purposes of this 40[sub-section] "written down value of the block of assets" shall have the same meaning as in clause *(c) of sub-section †(6) of section 43.] 41[Explanation 3.-For the pu....
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....by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company, then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferorcompany or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year.] As per section 32(1) of the IT Act 'depreciation' is to be computed on 'actual cost'/'written down value of the block of assets' ascertained in accordance with section 43 of the Act. Further, a reading of the above provision shows that in respect of 'capital assets' transferred by the amalgamating company to the amalgamated company, the cost/written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been had the amalgamating company continued to hold the capital asset for the purposes of its own busines....
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.... section 263 or 147 of the Act by the revenue. Therefore we can safely presume that the claim of the depreciation of the assessee in the 1st year has attained finality. Admittedly the 1st year is the base assessment year from where the issue of depreciation is emanating. 13. The question arises once the depreciation has been allowed in the 1st year then the same can be disturbed in the subsequent year without having any change in the facts and circumstances. In our considered view, in such a case the principles of consistency shall be applied as held by the Hon'ble Bombay High Court in the case of PCIT Vs. Quest Investment Advisors Ltd. reported in 96 taxmann.com 157 wherein it was held as under: "Once this principle was accepted and consistently applied and followed, the revenue was bound by it. Unless of course it wanted to change the practice without any change in law or change in facts therein, the basis for the change in practice should have been mentioned either in the assessment order or atleast pointed out to the Tribunal when it passed the impugned order. None of this has happened. In fact, all have proceeded on the basis that there is no change in the principle which ....
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....e assessee has not acquired any intangible assets and thereby confirming the disallowance by applying inapplicable provisions of the I.T. Act, 1961. (3) That the learned CIT(A) has grievously erred in not deciding the ground regarding alternate valuation of goodwill done by A.O. (4) The appellant craves leave to add, alter, amend any ground of appeal." 20. At the outset, we note that the identical issue raised in ground No. 1 and 2 in the own case of the assessee in ITA No. 1439/AHD/2011 has been decided by us in its favor vide paragraph number 9 to 13 of this order. For the detailed discussion, please refer the relevant paragraph. Respectfully, following the same we allow the ground of appeal of the assessee. 21. Similarly, the issue raised in ground No. 3 has also been dismissed by us in the own case of the assessee in ITA No. 1439/AHD/2011 vide paragraph number 14 of this order. For the detailed discussion, please refer the relevant paragraph. Respectfully following the same we dismiss the ground of appeal of the assessee. 22. In the result, assessee's appeal is partly allowed. Coming to the assessee's and Revenue's appeals in ITA No. 2249/AHD/2018 and IT(SS)A No. 397/AHD....
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....rred in law and on facts in deleting the disallowance of Rs. 1,13,10,975/- made by the AO on account of depreciation of goodwill. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 2,07,518/- made by the AO u/s 14A of the I T Act. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 7. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent." 25. At the outset, we note that the appeal filed by the assessee and the Revenue are emanating from the order of the AO framed under section 143(3) r.w.s. 153A of the Act but the learned CIT(A) has passed the order recording the fact that the appeal was filed by the assessee before him against the assessment order framed under section 143(3) of the Act. The relevant observation of the learned CIT (A) in his order dated 4th of September 2018 stands as under: "Instituted on 30-01-2012 from the assessment order u/s 143(3) of the ACIT Central Circle-1(1) Ahmedabad [ Shri R.K. Dhanesta]" We also find from the ....