TaxTMI 
TaxTMI 
2026 (8) TMI 204
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....udicate upon the Ground no. 1 relating to the violation of the Principles of Natural Justice by the Ld. Assessing Officer. Ground 3: The learned CIT-A erred in law and in facts, in stating wrong Assessment Year in the impugned Order Under section 250. Ground 4: On the facts and in the circumstances of the case erred in upholding disallowance of depreciation on Intangible Assets (Goodwill and Non-Compete Fees) arising from an acquisition on a going concern on a Slump Sale basis. 3. The only issue that arises for our consideration, in the present case, pertains to the disallowance of the claim of depreciation on intangible assets, i.e. goodwill and non-compete fees. 4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a private domestic company engaged in the business of manufacturing transformer radiators and tanks. For the year under consideration, the assessee filed its return of income on 12/10/2018, declaring a total income of Rs. 1,33,10,200. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on t....
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....ing company had continued to hold the capital asset for the purpose of its business. Accordingly, the AO held that, as in the present case, the actual cost of the goodwill in the case of the proprietary concern was Nil, the actual cost in the case of the assessee shall also be Nil. Further, by referring to the provisions of Explanation 2 to section 43(6)(c) of the Act, the AO held that since the written down value of the intangible asset in the books of the proprietary concern was Nil, the actual cost would remain Nil in the hands of the assessee. By referring to the provisions of 6th proviso (5th proviso before the Finance Act, 2015) to section 32(1) of the Act, the AO held that the depreciation needs to be restricted to the value considering that the amalgamation has not taken place and since, in the present case, in the hands of the proprietary concern, the depreciation was Nil, there cannot be depreciation in the hands of the assessee company. In this regard, the AO also placed reliance upon the decision of the Coordinate Bench of the Tribunal in United Breweries Ltd. v/s Addl. CIT, reported in [2016] 76 taxmann.com 103 (Bang.). Accordingly, the AO disallowed the claim of depre....
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....ose of claim of depreciation under section 32 of the Act, is prospective in nature, and thus is not applicable to the year under consideration. 8. On the contrary, the learned Departmental Representative ("learned DR"), vehemently relying upon the order passed by the lower authorities, submitted that the amendment by the Finance Act, 2021, to the provisions of section 32 of the Act has a retrospective applicability, and thus has rightly been invoked by the learned CIT(A) for rejecting the claim of the assessee. 9. We have considered the submissions of both sides and perused the material available on record. During the financial year 2009-10, the sole proprietary concern, M/s Techno Electricals, was converted into a private limited company, i.e. M/s Hi-tech Radiators Private Ltd. Vide Deed of Conveyance dated 01/10/2009, the assessee agreed to acquire the running business of M/s Techno Electricals along with all its assets and liabilities pertaining to its business. As a consideration, the assessee company issued 5,00,000 equity shares of Rs. 100 each at a premium of Rs. NIL per share to the proprietor of M/s Techno Electricals. As the total consideration paid by the assessee,....
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.... Hon. Supreme Court in the case of SMIFS Securities Ltd & ITAT decision in the case of Fibres & Fabrics International Pvt Ltd (ITAT) and furnished documents as stated above. These decision only emphasises that goodwill is a depreciable asset under section 32 of the Act. * Depreciation under the Income Tax Act is a deduction allowed for the decline in the real value of a tangible or intangible asset used by a taxpayer. Depreciation is calculated on the WDV of a Block of assets. As per section 32(1) of the Act 'depreciation', in the case of any block of assets, is to be computed on the written down value. Considering the 6th proviso to section 32(1) of the Income Tax Act, the aggregate deduction, in respect of depreciation in respect of tangible or intangible assets allowable to the predecessor i.e. Techno Electricals Pvt. Ltd was NIL, therefore this cannot exceed in respect of the successor, Hi-Tech Radiators Pvt. Ltd. The block of assets of intangible assets in the hands of the proprietary concern i.e. Techno Electricals Pvt. Ltd was NIL. * According to Expl 2 to section 43(6)- the actual cost of the block of asset (intangible block in this case) in the ha....
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....f similar nature and the same would not override the provisions of 6th proviso to Sec. 32(1) Thus ITAT concluded that depreciation was very well covered by 6th proviso to Sec. 32(1). The submissions of the assessee have been carefully considered but not found acceptable for the reasons discussed and explained above. The assessee has failed to controvert the above facts and has been unable to justify his claim for depreciation on this asset. Considering the facts and the judicial decisions discussed above and relying on the decision of ITAT Bangalore in the case of United Breweries Ltd. (TS-553-ITAT-2016-Bang, the depreciation claimed by the assessee is not allowable and amount of Rs. 1,24,01,866/- claimed as depreciation for the intangible assets are disallowed. Relying on the decision of ITAT Bangalore in the case of United Breweries Ltd. (TS-553-ITAT-2016-Bang), in which the ITAT considered the assessee's (amalgamated /successor company) claim of depreciation on goodwill arising on amalgamation applying 6th proviso to section 32(1) for AY 2008-09, and held that assessee cannot claim depreciation on assets acquired under amalgamation, more than the depreciation allowa....
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....f claim of depreciation on goodwill by the amalgamating company does not arise in the instant case. Accordingly, we are of the considered view that the provisions of the sixth proviso to section 32(1) of the Act are not applicable to the facts of the present case since the goodwill did not exist in the books of the amalgamating company but has arisen in the process of amalgamation. 23. Further, the Revenue has placed reliance upon the provisions of Explanation 7 to section 43(1) of the Act which provides that when a capital asset is transferred by an amalgamating company to the amalgamated company, the actual cost of the transferred capital asset in the hands of the amalgamated company is to be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purpose of its own business. Further, reliance has also been placed upon the provisions of Explanation 2(b) to section 43(6) of the Act, which lays down a similar principle as Explanation 7 to section 43(1) of the Act and provides that actual cost of the block of assets in the case of amalgamated company shall be the Written Down Value of the block of assets in the ....
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....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 entry in the books of accounts of the amalgamating/transferor company reflecting the value of the goodwill. As such, the amount of goodwill as claimed by the assessee represents the difference between the purchase consideration and the NAV acquired by it. The purchase consideration paid by the assessee was based on the valuation report as discussed above after considering the various factors. Thus the assessee has not acquired any goodwill from the amalgamating/transferor company as alleged, accordingly the provisions of the Act i.e. 6 proviso to section 32, explanation 7 to section 43(1), explanation 2 to section 43(6)(c) of the Act cannot be applied to the case on hand." 24. Therefore, respectfully following the aforesaid decision of the co....