TaxTMI 
TaxTMI 
2024 (1) TMI 744
X X X X Extracts X X X X
X X X X Extracts X X X X
....t as an asset eligible for depreciation. IV. The learned CIT(A) ought to have contemplated that the goodwill is in the nature of any other commercial or business right under the category of an intangible asset that is eligible for depreciation under section 32 of the Act. V. The learned CIT(A) ought to have appreciated the fact that the matter is duly covered by the judgment of the Hon'ble Bengaluru I TAT in the Appellant's own case for the assessment year 2015-2016 in ITA No. 3415/Bang/2018. VI. The learned CIT(A) erred in considering the fact that the judgment of the Hon'ble Bengaluru ITAT has referred to the amendments specified in the Finance Act, 2021 will take effect from April 01, 2021, and will, accordingly, apply in relation to AY 2021-22 and subsequent AYs. VII. The learned CIT(A) has erred in understanding the facts that when the disallowance of depreciation on Goodwill is deleted by the Hon'ble ITAT for the Initial assessment year of acquisition i.e. 2015-16, a similar disallowance cannot be made for the subsequent assessment years. VII. The learned ClT(A) has erred in making the disallowance under Section14A read with Rule 8D. VIII. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame for consideration before this Tribunal in assessee's own case in ITA No. 3415/Bang/2018 for the assessment year 2015-16 dated 15.6.2022 wherein held as under: "13. We have considered the rival submissions and perused the record. The issue before us with regard to the valuation of goodwill and granting depreciation on the same. In the assessment year under consideration, the assessee claimed depreciation on 25% of intangible assets i.e. goodwill at Rs. 17,39,83,689/- in the return of income worked out at Rs. 2,15,02,864/- on the reason that assessee company has paid for goodwill of Rs. 16,46,08,759/- to M/s. Indus Seeds, sole property concern of Managing Director of the assessee company and Rs. 74,14,150/- to M/s. Sasya Gentech Pvt. Ltd., the company in which the Managing director of assessee company is the substantial shareholder and Director. The assessee has taken over the business/assets and liabilities of M/s. Indus Seeds and also M/s. Sasya Gentech Pvt. Ltd. by a slump sale arrangement. The value of intangible asset was the difference between the book value of assets and liabilities taken over and the sale consideration paid to both the concerns. In other words, the diff....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has taken over the business of M/s. Indus Seeds and M/s. Sasya Gentech Pvt. Ltd. as a growing concern. 13.4 It is noteworthy to mention herein that 5th Proviso to section 32(1) of the Act restrict the total depreciation, which can be claimed in case of succession, etc. to the depreciation which would have been allowable and there has been no succession. The 5th Proviso to section 32(1) was inserted by Finance Act, 1996 to restrict the claim of aggregate deduction, which is evident from the memorandum of Finance Bill, 1996, which reads as under:- In cases of succession in business and amalgamation of companies, the predecessor of the business and successor the amalgamating company and amalgamated company as the case may be, are entitled to depreciation allowance on same assets which in aggregate exceeds depreciation allowance for Previous year at the prescribed dates. It is proposed to restrict the aggregate deduction in a year to the deduction computed at the prescribed rates and apportion the allowance in the ratio of number of days for which the assets were used by them. 13.5 Thus, it is evident that 5th proviso to Section 32 of the Act restricts aggregate deduction bot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and this goodwill never appeared in the books of seller. In our humble opinion, the explanation 3 to section 43 will be applicable only in cases where the assets were at any time used by any other person for the purpose of his business or profession, but in the present case, the asset in question, "goodwill which is arising due to the transfer of business, which is explained in earlier para and assets were not used by any other person", therefore, it cannot be said that the said explanation is applicable to the present facts of the case. Goodwill arising on slump sale - eligible for depreciation 13.10. In this case, the AO did not principally contend against the position of the Appellant, that the goodwill recorded by it is an intangible asset eligible for depreciation under Section 32(1) of the Act. In our opinion, the claim of assessee is to be allowed on the following lines:- i. The said goodwill is in the nature of any other commercial or business right under the category of an intangible asset that is eligible for depreciation under section 32 of the Act. The issue whether Goodwill arising on transfer is eligible for depreciation or not, is no longer Res-Integra, an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licable in a case where goodwill is recorded pursuant to a merger, on the basis of purchase consideration paid (which is determined based on a valuation report), and no goodwill from the books of the transferor is recorded by the transferee. Amendment by Finance Act 2021 clarifies the position on Goodwill depreciation 13.13. The Finance Act, 2021, inserted a series of amendments in relation to the allowance of depreciation on Goodwill. Post such amendments, no depreciation is allowable to an Assessee on goodwill. However, it has been specifically provided that the aforementioned amendments will take effect from April 01, 2021 and will, accordingly, apply in relation to AY 2021-22 and subsequent AYs. 13.14. Further, amendments were made in section 55 of the Act, in relation to the meaning of 'cost of acquisition' etc. This amendment recognizes that depreciation on goodwill in relation to the years prior to April 1, 2021 may have been claimed and allowed and provides for a mechanism for the adjustment of such depreciation claimed and allowed, for determining the cost of acquisition. 13.15. Therefore, the intention of the legislature is that depreciation on goodwil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roducts Pvt. Ltd. reported in 283 Taxman 177 (SC), wherein held as under: " Section 32, read with section 47, of the Income-tax Act, 1961 - Depreciation Allowance/Rate of (Succession of business) - Assessment years 2005-06 to 2008-09 - Under a scheme of succession, erstwhile partnership firm was succeeded in its business by assessee-company - Before firm was converted into private limited company, partnership firm had revalued its intangible assets using standard valuation methods and same were transferred to assessee-company - In consideration, assessee allotted shares to partners of erstwhile partnership firm - Assessee claimed depreciation on such intangible assets Same was accepted and an same assessment order was passed - Thereafter, a reopening notice was issued against assessee on ground that original assets which were added in company at time of succession could not be considered for purposes of depreciation Accordingly, claim for depreciation on intangible assets was disallowed - It was noted that assessee and erstwhile partnership firm were different entities and there was transfer of intangible assets by partnership firm to assessee for a valuable consideration that wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
................................... (ii) The amount equal to 1% of the annual monthly average of the opening and closing balances of the value of invested income from which does not or shall not form part of total income." 7.1 In this case, there is no dispute that the assessee has exempted income yielding investments and the assessee must have incurred administrative and common expenses when the assessee derives exempted income and these investments give rise to exempted dividend income or interest. Investment decisions are very complex and strategic and obviously, assessee shall be incurred expenses such as salary, telephone charges, commission, brokerage and stationery. Therefore, the assessee cannot say that no expenditure incurred for making such investments. Hence, the ld. AO is duty bound to invoke section 14A read with Rule 8D(2)(ii) of the Rules. Before us, the assessee relied on various decisions stating that assessee is having surplus funds and no expenditure incurred to earn taxable income. Here, we are concerned with disallowance under Rule 8D(2)(ii) and not relating to the direct expenditure incurred by the assessee. In other words, the ld. AO invoked provisions of s....