TaxTMI 
TaxTMI 
2023 (4) TMI 1378
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....algamated company, in the facts of the case, ineligibles for depreciation us 32 of the Act?" 3. on the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) was correct in holding that the expense of Rs 1, 58, 34,292/-attributable directly to real estate project can be allowed as deduction and need not be capitalized?" 4. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) was correct in deleting the disallowance of provision made for meeting expenses in future of Rs. 86, 68,91,003/- without appreciating the fact that the assessee's project has substantially been completed and the Provision for expenses is contingent and is an unascertained liability." 5. On the facts and in the circumstances of the case and in law, whether the disallowance of Rs. 68, 71,080 made by the AO u/s. 14A is incorrect considering that the assessee has not considered the investment in partnership firm while computing the disallowance u/s. 14A, even though share of profit from such firms at Rs. 23, 59, 70,926/- is claimed as exempt?" Grounds of Cross Objections: "1. Without prejudice and without admitting, on facts and circumstances o....
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....referred this appeal before us. We have gone through the order of AO, order of Ld.CIT (A) and submissions of the assessee along with paper-book. Our ground wise adjudication of the matter is as under: 4. Ground no. 1 and 2 pertains to allowability of amortization/depreciation of the goodwill emerged out of amalgamation of two entities with assessee i.e. Dosti Land Developers Pvt. Ltd. (DLDPL) and Friends Development Corporation (Imperia) Pvt. Ltd. (FDCIPL) with Dosti Realty Limited (DRL). 5. We have gone through page no. 113 to 123 of the paper-book no. 1 (Bombay High Court order dated 26-02-2016 on scheme of amalgamation). This order is effective from 01-04 2015 i.e. relevant A.Y. We have gone through the audited financial results of the assessee vide page no. 5 to 32. We found that assessee has implemented the scheme of amalgamation in its financials as per the order of Honorable Bombay High court except considered reserve and surplus of Amalgamating companies amounting to Rs 37, 10, 79,258/- as reserve and surplus as they are part of owners fund i.e. share capital, same can't be considered for the purposes of calculation of goodwill on amalgamation. 6. As observed by us that ....
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.... decision taken by the assessee was consistent to the Standard Accounting Practices followed in respect of fictitious assets. From the accounting treatment, it was clear that the assessee made accounting entries to the goodwill account after the scheme of amalgamation became effective and not on account of the order of the High Court to make any payment for goodwill (intangible assets) specifically. As per standard accounting practices, in the cases of amalgamations, if the assets side is greater than the liability side then the difference is credited to the capital reserve account and in a case where the liability side is greater than the asset side then the difference is accounted as 'Goodwill' account in the hands of the amalgamated company. This practice is followed to balance the asset and liability sides by making accounting entries and by making such book entries, no real asset as goodwill in fact comes into existence. That was how the accounting treatment to be given was clearly stated in the scheme and no payment on account of any such asset was made by the assessee in that scheme which stood approved by the order of the High Court. The said order thus, clearly sta....
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.... goodwill arising out of amalgamation, section, viz., 5th proviso to section 32 (1), section 49(1)(iii)(e), Explanation 7 to section 43(1) and/or Explanation 2(b) to section 43(6)(c) and section 55(2)(a)(ii) were not referred. 8. Generally, when someone acquires a business and purchase consideration paid for the business is more than the net assets acquired, the difference is recognized as goodwill in accounting. Here in this case as amalgamation process has been carried out as per the direction of Hon'ble Bombay High Court and assessee clearly followed "pooling of interest" method, there can't be any separate purchase consideration, which assessee is supposed to pay. In the whole scenario the principle of "substance over form" has to be considered. In substance there is no goodwill involved at all and it is simply an accounting entry to balance the accounts of the transferee company by virtue of scheme implementation as per the directions of Hon'ble High Court. 9. Goodwill falls in the category of "Intangible Assets", but its advantages must be tangible and assessee has to establish on record that by virtue of "Goodwill" what are the financial and non-financial gains are accruin....
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....ed on the other hand same are capitalised as work-in-progress will enhance the value of inventory and profits will be increased. Hence Ground No. 3 raised by the Revenue is dismissed. 12. Ground No. 4 raised by the revenue pertains to disallowance of provision made for meeting expenses in future of Rs. 86,68,91,003/- allowed by the Ld. CIT (A).We have gone through the order of AO, Ld. CIT (A) and submissions of the assessee along with factual and legal paper book. Assessee is in the business of development and construction of housing projects. Revenue from sale of project under construction is recognised on the basis of percentage completion method determined on the basis of actual cost in proportion to the total estimated cost. 13. Assessee's contention that since 49% of the total area is sold and a total consideration of Rs. 338, 85, 69,700/- is offered to tax and a corresponding cost of construction of the total estimated cost has to be claimed following the "Matching Concept". Regarding the balance 51% total estimated cost is carried to work-in-progress and will be claimed against the corresponding sales value. Vide page no. 148; para-3.32 assessee demonstrated the amounts sp....
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..... held as under: "In the assessment order there is no discussion by the Assessing Officer with regard to the computation of inadmissible expenditure made by the assessee forming part of the return of income. Further the Assessing Officer has not recorded any satisfaction that the working of inadmissible expenditure under section 14A is incorrect with regard to the books of account of the assessee. The provision under section 14A(2) does not empower the Assessing Officer to apply rule 8D straightaway without considering the correctness of the assessee's claim in respect of expenditure incurred in relation to the exempt income. In the instant case the Assessing Officer has neither examined the claim in respect of expenditure incurred in relation to exempt income of the assessee nor has recorded any satisfaction with regard to the correctness of assessee's claim with reference to the books of account. Consequently the disallowance made by applying rule 8D is not only against the statutory mandate but contrary to the legal principles laid down. Consequently the interest expenditure cannot be disallowed under section 14A read with rule 8D (2)(ii) Under any circumstances. [Para....