TaxTMI 
TaxTMI 
2026 (3) TMI 1117
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....ry to law, facts and circumstances of the case. b. The Ld. CIT has erred in law and on facts in passing the impugned order dated 24 February 2025 without considering the written submission filed by the Appellant on 21 February 2025, in response to the Issue letter, dated 12 February 2025 which had allowed the Appellant to furnish response within 10 days from the date of receipt of issue letter. 2. Non-grant of depreciation on goodwill on amalgamation a. The Ld. CIT has grossly erred in law and on facts in denying the Appellant's claim for depreciation on goodwill arising out of the amalgamation of erstwhile companies with the Appellant, merely on the ground that the claim was not made in the return of income and did not form part of the assessment order. b. The Ld. CIT failed to appreciate that the allowance of depreciation is not a matter of discretion but a statutory imperative as per Explanation 5 to Section 32 of the Act. c. The Ld. CII further erred in disregarding the binding legal position under Explanation 5 to Section 32 of the Act which explicitly provides that depreciation shall be deemed to have been claimed and allowed, ....
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.... of capital expense as per section 35(1)(iv) of the Act." 3. The brief facts of the case are that the assessee is engaged in the business of manufacture and sale of fertilizers and allied products. The assessee filed its return of income for the Assessment Year 2015-16 on 30.11.2015 declaring a total income of Rs. 555,48,82,600/-. The case of the assessee was selected for scrutiny under CASS and accordingly notice under section 143(2) of the Income Tax Act, 1961 ("the Act") was issued by the Learned Assessing Officer ("Ld. AO") on 13.04.2016. During the course of assessment proceedings, the assessee raised a fresh claim before the Ld. AO which had not been made in the return of income, namely a claim for set-off of loss of Dahej unit amounting to Rs. 2,04,89,278/- against the income of other units of the assessee. The Ld. AO, relying upon the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC), rejected the said claim holding that a fresh claim which was not made in the return of income cannot be entertained during the course of assessment proceedings. Finally, the Ld. AO completed the assessment of the assessee under section ....
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....During the appellate proceedings before the Ld. CIT(A), the assessee for the first time raised an additional ground claiming depreciation under section 32(1)(ii) of the Act on the alleged goodwill arising from the aforesaid amalgamations. The Ld. CIT(A) rejected the claim on the ground that the assessee had neither claimed depreciation in the return of income nor recognised goodwill in its books of account and had also not raised the claim before the Ld. AO. 8. Aggrieved with the same, the assessee is in appeal before this Tribunal. The Ld. AR submitted that excess consideration paid over the net assets acquired constitutes goodwill and that goodwill is an intangible asset eligible for depreciation under section 32(1)(ii) of the Act. In this regard, the Ld. AR placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (348 ITR 302) wherein it has been held that goodwill is an asset within the meaning of section 32 of the Act and depreciation on goodwill is allowable. It was further contended by the Ld. AR that accounting treatment is not decisive for tax purposes and that depreciation should be allowed in view of the law laid down by....
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.... may be observed that the legal proposition that goodwill constitutes an intangible asset eligible for depreciation under section 32(1)(ii) of the Act stands settled by the decision of the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd.(supra). However, the present controversy does not concern the eligibility of goodwill as a depreciable asset in principle. The issue which arises for our consideration is whether depreciation can be allowed in the year under appeal when the assessee admittedly never recognised the alleged goodwill as an asset and never brought the same into the block of intangible assets in the year in which the amalgamation took place. In this regards, it is important to visit the provisions of depreciation contained under section 32(1)(ii) of the Act, which is to the following effect : "Sec. 32(i) x x x x (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business 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 shal....
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...., that the amount of such reduction does not exceed the written down value as so increased; and [(C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced- (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value;] (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjuste....
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....ng part of the block of assets. In the present case the alleged goodwill was never brought into the block of assets and therefore the basic condition for the operation of Explanation 5 itself is absent. 14. We also find that the reliance placed by the assessee on the decision of the Hon'ble Supreme Court in Smifs Securities Ltd. does not advance its case in the factual context of the present matter. The said decision recognises that goodwill constitutes an intangible asset eligible for depreciation. However, the allowability of depreciation remains subject to the statutory computation mechanism contained in sections 32 and 43(6) of the Act. In the present case the assessee itself did not recognise the alleged goodwill as an asset and did not bring the same into the depreciation block in the year of amalgamation. Therefore, the ratio of the said decision cannot be applied in the absence of compliance with the statutory computation mechanism governing depreciation. We further observe that in so far as the claim of depreciation relatable to the amalgamation effective from 01.04.2013 pertaining to Financial Year 2013-14 (Assessment Year 2014-15) is concerned the same suffers from an....
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.... of the Tribunal in the case of S&P Capital IQ India Pvt. Ltd. Vs. ACIT (supra) and ACIT Vs. FLSmidth Pvt. Ltd. (supra) wherein depreciation on goodwill in case of amalgamation was allowed by the Tribunal placing reliance upon the decision of the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (supra). However on a careful examination of the said decisions we find that the facts in those cases were different from the case of the present case. In those cases there was no consistent accounting principle was adopted in the earlier year. In these circumstances, we are of the considered view that the assessee cannot at the appellate stage seek to introduce such asset into the depreciation framework for the first time. Therefore, we find no infirmity in the order of the Ld. CIT(A) in rejecting the claim of depreciation on goodwill. Accordingly, the Ground No.2 raised by the assessee is dismissed. 16. Without prejudice to above, before parting with the issue we also consider it appropriate to record certain additional observations arising from the factual matrix of the present case. The facts on record reveal that the assessee has not paid any consideration directly to the amalg....
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....n favour of the assessee." 16.1 On perusal of above, we find that in para no. 5 the Hon'ble Supreme Court observed that goodwill is an asset under Explanation 3(b) to section 32(1) of the Act. However, in para nos. 6 and 7 the Hon'ble Supreme Court declined to examine the factual aspects of the case since the Revenue had not raised any such factual issue before the Hon'ble High Court. Accordingly, the said judgment settles the legal proposition that goodwill is capable of being treated as a depreciable asset under section 32 of the Act but does not lay down that goodwill must necessarily arise in every amalgamation irrespective of the factual circumstances. In the present case the alleged goodwill has been recognised by the assessee on account of the excess amount paid for acquisition of the shares of the amalgamating companies over the net worth of such companies. The said excess payment represents consideration paid to the shareholders of the amalgamating companies for acquisition of their shareholding and does not represent any payment made to the amalgamating companies for acquisition of goodwill. In this regard, we have gone through the provisions of section 47(vii) of the ....
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....n the case of succession referred to in [clause (xiii), clause (xiiib) 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." 16.4. On perusal of above, we find that the said proviso provides that in the case of amalgamation, the total depreciation allowable to the amalgamating company and the amalgamated company for the previous year in which such amalgamation takes place shall not exceed the amount of depreciation that would have been allowable had such amalgamation or demerger not taken place. In other words, the proviso imposes a ceilin....
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....before reaching to any conclusion in case of allowability of depreciation on goodwill in the case of amalgamation, the facts of each case are required to be examined considering the interplay of sections 32, 43(6) and 47(vii) of the Act. 17. However, in the present case we have dismissed the ground no. 2 of the assesee on a different set of facts as per our observation recorded at para nos. 6 to 15 of this order. Our observation given under para nos. 16 to 16.5 are without prejudice to our findings given for dismissal of ground no.2 of the assessee at para nos.6 to 15 of this order. 18. Ground No.3 of the assessee relates to denial of set-off of loss of the Dahej SEZ Unit against profits of other business units. The Ld. AR submitted that Sabero Organics Gujarat Limited was amalgamated with the assessee with effect from 01.04.2014 and pursuant thereto the SEZ unit at Dahej became part of the assessee-company. It was submitted that while filing the return of income the assessee computed the income of the Dahej unit at a net profit of Rs. 1,07,51,221/-. However depreciation amounting to Rs. 3,97,27,182/- relating to the said unit was inadvertently not claimed in the return of in....