AI Drafter 
TaxTMI 
TaxTMI 
2025 (11) TMI 1948
X X X X Extracts X X X X
X X X X Extracts X X X X
....al restructuring and not from any external commercial transaction and hence the decision from 1 relied upon ie. Smifs Securities Limited is distinguishable the facts of the instant case?. 1.2 On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in not appreciating the fact that Ind AS 38 discourages recognition of self-generated goodwill as an asset and Section 32(1) of the Income Tax Act, read with Explanation 3, contemplates depreciation on intangible assets that are acquired and recognized as such whereas intangible assets arising out of mere Ground 2. Investment Written Off (Rs. 6,01,54,400/-) Contribution to Tarapur Environment Protection Society (TEPS)- 2.1 On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in not appreciating the 2 in the acquisition of a benefit of enduring nature is capital in character? 2.2 On the facts and in the circumstances of the case and in law, whether the LD.CIT(A) erred in not appreciating the fact that payment was initially shown as an investment whereas an internal reclassification or belated attempt to treat it as a revenue expense....
X X X X Extracts X X X X
X X X X Extracts X X X X
....below:- 7.3.1 The issue involved in this ground is whether depreciation on goodwill upon amalgamation is allowable or not. The facts of the case are that as per scheme of amalgamation approved by Bombay High Court, M/s Balakrishna Synthetics Limited was acquired by the appellant w.e.f. 01.04.2015 for a total consideration of Rs. 44,70,00,000/- which was over and above the book value of assets of the acquired company by Rs. 16,07,99,337/-. This excess of consideration paid by the appellant over the net worth of the assets was recognized as goodwill in the books of the appellant on which depreciation has been claimed @ 25% in the instant year. 7.3.2 Coming to the legal issue of allowability of goodwill upon amalgamation, Section 32 of the Act which provides for allowance of depreciation deals with both tangible and intangible assets. In respect of intangible assets, the section provides an inclusive definition of intangibles that are covered for the purpose of depreciation. The section covers Intangible assets, being know-how, patents copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. On perusal it would be not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld strictly apply while interpreting the said expression which finds place in Explanation 3(b). In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act.") 7.3.3 Further the Act has been amended w.e.f. AY 2021-22 to explicitly prohibit claim of depreciation on goodwill, however for the instant AY the amendment will not be applicable. In view of the above and respectfully following the Apex Court decision in the case of Smif Securities, the addition of Rs. 4,01,99,836/- done by the AO is deleted. This ground of appeal of the appellant is allowed. 6. After having heard the counsels for both the parties at length, we find that although the goodwill is no explicitly covered in the definition of intangibles but Hon'ble Supreme Court in the case of CIT vs. Smifs Securities Ltd., (2012) 348 ITR 302 (SC) had held that goodwill arising at the time of merger is an intangible asset and is entitled to be depreciated u/s 32 of the Act. The facts of the case were that YSN Shares and Securities Pvt Ltd (YSN) amalgamated with the assessee company in accordance with a scheme of amalgamation sanctioned by both the Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aim of 7. So, keeping in view the facts of the case and also relying upon the decision of the Hon'ble Supreme Court, we are also of the view that goodwill arising at the time of merger is an intangible asset and is thus entailed to be depreciated u/s. 3 2 of the Act. Although the Act has been amended w.e.f. A.Y. 2020-21 to prohibit the claim of depreciation on goodwill, but the amendment will not be applicable for the year under consideration. 8. No new facts or circumstances have been placed on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, we see no reasons to interfere into or to deviate from the lawful findings so recorded by Ld. CIT(A). Hence, the ground raised and by the revenue stands dismissed. Ground No.2 9 This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the addition of Rs. 6,01,54,400/- made by AO on account of investments in TEPS. 10. We have heard the counsels for the both the parties, perused the material placed on record, judgements cited before us and also the orders passed by the revenue authorities. From the records we noticed that during the course of asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Protection Society (TEPS) as revenue or capital, The AO has held that the said payment is in the nature of investment and even the appellant has recognised the same as investment in its books and has infact not written it off in the financials and only claiming it as an expense under the Income Tax Act and hence the said expense is capital in nature. The appellant on the other hand has submitted that though the payment was earlier classified as investment, the fact is that this contribution towards TEPS was mandatory on account of the directions of the Supreme Court and was a mandatory payment if its manufacturing unit was to continue functioning at Tarapur. As regards the finding of the AO that the appellant has not written it off in its financials, the appellant has submitted that the same could not be written off in this year as the books had already been finalised which could not be amended as the appellant is a listed company. The appellant has further stated that the amount has been written off in the next year in the audited financials and has not been claimed under the Income Tax Act as it has been claimed in this year. 8.3.2 The The appellant owns a plot with manu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eated. The CETP ensures that treated effluents meet the discharge standards prescribed by the Maharashtra Pollution Control Board (MPCB) and the Central Pollution Control Board (CPCB). This helps industries comply with legal and regulatory requirements. By treating effluents collectively, the CETP minimizes the environmental footprint of industrial activities in Tarapur. It prevents the contamination of local water bodies, soil, and groundwater resources, protecting ecosystems and public health. For small and medium-sized industries that may not have the resources to set up individual effluent treatment plants, the CETP provides a cost-effective alternative. Industries share the costs of construction, operation, and maintenance, making effluent treatment more affordable. It is also worthwhile to note that had the appellant directly constructed a CETP instead of making the contribution towards TEPS, the expense would have been allowed as depreciation @ 100%. 8.3.4 As regards the initial nomenclature of investment adopted by the appellant it is my considered view that the said investment is in the form of a mandatory requirement to meet statutory liability and is not expecte....