TaxTMI 
TaxTMI 
2024 (11) TMI 762
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.... "1." Whether the CIT(A) has erred both on facts and in law in deleting the addition of Rs. 245,62,09,850/- (revised figure Rs. 60,71,37,893/- after rectification order u/s 154 dt. 06.02.2020) being taxable income of M/s Vega Industries (Middle East), FZC, UAE ("Vega ME") as proprietary concern of the assessee?" 2. Whether the CIT(A) has erred both on facts and in law in deleting the disallowance of excess claim of depreciation of Rs. 29,19,355/- (revised figure Rs. 12,65,054/- after rectification order u/s 154 dt. 06.02.2020) on electrical fittings u/s 32 of the Act?" 3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored". 3. At the outset itself, it was common ground between both the parties that the issues raised by the Department in its appeal were decided in favour of the assessee by the ld. CIT(A) noting identical issues to have been decided in favour of the assessee by the ITAT in several preceding years consistently. 4. It was pointed out that the issue raised in Ground No.1 ....
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....at Vega ME is a duly incorporated company. I have also gone through the orders of my predecessors in the case of the appellant for the earlier assessment. The CIT(A)-6 and CIT(A)-1 vide orders dated 27 February 2012 and 8 June 2012 for the AYs. 2007-08 and 2008-09, order dated 12 May 2015 for AYs.2009-10 & 2010-11, order dated 27/02/2017 for AY 2011-12 and order dated 30/05/2017 in case of the appellant for the immediately preceding Assessment Year i.e. 2012-13 have followed the decision of the jurisdictional Tribunal in the Appellant's own case for AY 2006-07 and has held that Vega ME is a separate company and accordingly its profit cannot be added to the income of the Appellant. In the instant case, the fact is similar to the previous years' and no other additional facts on this issue have been put up by the AO. The Hon'ble ITAT (supra) has held in concluding para that- "It goes to show that Vega UAE is duly incorporated as a body corporate under the law of a country outside India which is a requirement of Section 2(17) of the Income tax Act, 1961, and , therefore, Vega UAE has to be accepted as a company within the definition of Section 2(17) of the Income-tax Act, 1961....
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....56 for AY 2012-13 and Para 61 for AY 2013-14. In the same order, the appeal of assessee was dismissed, which has been rectified by Hon'ble ITAT on 04.01.2021. Therefore, respectfully following the decision of Hon'ble Tribunal, this ground of appeal is allowed." 8. The ld. DR was unable to distinguish the present case with that relating to the preceding assessment years decided in favour of the assessee by the ITAT, therefore we have no hesitation in confirming the order of the ld. CIT(A) directing deletion of both the additions/disallowances made in the hands of the assessee by the Assessing Officer. Ground of appeal Nos. 1 & 2 of the Revenue's appeal are accordingly dismissed. Appeal filed by the Revenue is accordingly dismissed. ITA No. 397/Ahd/2024 - Assessee's appeal 9. Now we take up the appeal filed by the assessee. The grounds of appeal taken by the assessee read as follows: "1. The Ld. CIT(A) has erred in law and on facts of the case in confirming disallowance of depreciation of Rs. 1,07,97,284/- claimed u/s. 32 of the Act on goodwill generated on amalgamation. 2. The Ld. CIT(A) has erred in law and on facts of the case in not appreciating t....
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....tion could not have been disallowed in the impugned year. Reference was made to the following decisions:- a. CIT Vs. Excel Industries, 358 ITR 295 (SC); b. Radhaswoami Satsang Vs. CIT, 193 ITR 0321 (SC); c. Bharat Sanchar Nigam Ltd - 283 ITR 273 (SC) (iii) That, depreciation on goodwill arising consequent to the scheme of amalgamation approved by the Hon'ble High Court of Gujarat was allowable in view of the settled legal position. Reliance was placed on the following decisions:- a. CIT Vs. Smifs Securities Ltd., (2012) 348 ITR 302 (SC) b. PCIT Vs. Zydus Wellness Ltd., (2017) 87 taxmann.com 82 (Guj.) c. PCIT Vs. Zydus Wellness Ltd., SLP 29859 of 2018 (SC) d. Urmin Marketing P. Ltd., (2020) 122 taxmann.com 40 (Ahd.) (iv) That, there was a basic fallacy in the approach of the Revenue Authorities for disallowing depreciation on goodwill on the premise that goodwill was transferred from the amalgamating company to the amalgamated company when the fact of the matter was that goodwill was the result of amalgamation and had come into existence only pursuant to the scheme of amalgamation duly approved by the H....
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....f the paid-up share capital) for a consideration of Rs. 70,00,000 on 13 December 2010 and subsequently, the Assessee Company had acquired the balance equity shares of DCPL for a consideration of on 5 September 2012. Thereby, DCPL became a wholly owned subsidiary of the Assessee Company w.e.f. 5 September 2012. 3.1.2 DCPL was the only company in south, which was manufacturing Grinding Media (similar to our Products). It was a competitor of the Assessee Company. 3.1.3 Subsequently, to gain synergy in its business and to eliminate the competition and increase our production capacity, the Board of the Assessee Company and DCPL had decided for amalgamation of DCPL with the Assessee Company effective from 1 April 2013 under a scheme of amalgamation. 3.1.4 The Hon'ble Gujarat High Court, vide order dated 4 April 2014, has approved the scheme of amalgamation of DCPL with the Assessee Company with the appointed date of 1 April 2013. Copy of the scheme of amalgamation and order passed by the Hon'ble High Court is attached herewith as per Annexure 11- and Annexure 12-respectively. 3.1.5 The business of DCPL, was merged with the business of the Asses....
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....out by the ld. Counsel for the assessee that depreciation on this goodwill was claimed and allowed to the assessee in the preceding two assessment years i.e. AYs 2014-15 and 2015-16 is also an uncontroverted fact. The claim of the depreciation on goodwill in the impugned year has been denied by the Assessing Officer for the reason that it was not tenable in law since, as per the Assessing Officer, the value of goodwill in the hands of the amalgamating company was nil and, therefore, in terms of the provisions of law as per various sections as noted above i.e. (i) 6th proviso to Section 32(1), (ii) Explanation 7 to Section 43(1), (iii) Explanation 2(b) to Section 43(6)(c), (iv) Section 55(2)(a)(ii) and (v) Section 49(1)(iii)(e), as noted above, the assessee was not entitled to any depreciation on the same. The contention of the ld. Counsel for the assessee is that goodwill was not acquired on transfer of the same from the amalgamating company to the amalgamated company, but it was a result of the amalgamation taking place. That the Sections referred to by the Assessing Officer, therefore, were not applicable for denying the claim of depreciation. It was also pointed out that this is....
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....(1)(iii)(e), since they applied only to assets actually transferred from the amalgamating company to amalgamated company and goodwill resulting due to amalgamation was not an asset which was transferred from an amalgamating company to the amalgamated company. That such goodwill represents only the difference between the purchase consideration and the net asset value of the assets acquired by the amalgamated company and was not on account of any asset acquired by the amalgamating company or transferor-company. Therefore, the ITAT held that the provisions of 6th proviso to Section 32(1), Explanation 7 to Section 43(1), Explanation 2(b) to Section 43(6)(c), Section 55(2)(a)(ii) and Section 49(1)(iii)(e) cannot be applied in such facts situation. The ITAT, therefore, held that depreciation on such goodwill, therefore, was allowable in view of the proposition laid down by the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra). The relevant paragraphs dealing with the above are at paragraph Nos. 30.15 to 32.7 of the order as under:- "30.15 Now, the question arises whether the scheme once approved by the Hon'ble Gujarat High Court after receiving no objection ....
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....ess or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-] (i)** ** ** (ii) [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed] ** ** ** [Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, 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,....
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.... the WDV of the assets acquired in the scheme of amalgamation in the hands of the amalgamated company will continue to be the same as it would have been in the hands of the amalgamating company in the event, had there not been any amalgamation. The relevant extract of the explanation 2 to section 43(6)(c) of the Act reads as under: (6) "written down value" means- ** ** ** [Explanation 2.-Where in any previous year, any block of assets is transferred,- (a)** ** ** (b) 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 transferor-company 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.] 32.2 As per section 32(1) of the IT Act 'depreciation' is to be co....
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....ove provisions reveal that the assets which were transferred by the amalgamating company to the amalgamated company in the process of amalgamation were not made subject to the capital gain tax. Furthermore, the 6th proviso to section 32 of the Act has limited the amount of depreciation available to the amalgamated company post amalgamation to the extent of the amount of depreciation which would have been available to the amalgamating company, had there not been any amalgamation. Indeed there was no entry in the books of the transferor/amalgamating company for the intangible assets/goodwill being self-generated assets. However, we note that all the relevant provisions of the Act as discussed above deal with respect to the assets available/recorded in the books of the transferor/amalgamating company. In other words, the assets which have been acquired by the assessee in the scheme of amalgamation would continue at the book value in the books of the amalgamated company. The question arises whether the goodwill shown by the assessee as discussed above was acquired in the scheme of amalgamation from the amalgamating company. The answer stands in negative. It is because there was no entr....
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....her business or commercial rights of similar nature. A reading of the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial rights of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). (Para 4) In view of the above, it is opined that 'Goodwill' is an asset under Explanation 3(b) to section 32(1). (Para 5) In view of the above judgment, there remains no ambiguity that the goodwill is part and parcel of intangible assets. Hence, the assessee is eligible for depreciation on the goodwill. 32.7 Moving further, we note that for claiming the depreciation, among other conditions as provided under section 32 of the Act, one of the condition is that the assessee can claim depreciation on the goodwill being intangible asset if acquired on or after 1st day of April 1998. In other words, the assessee can claim depreciation on the goodwill acquired by it. Thus the controversy arises whether the goodwill generated in the scheme of amal....