TaxTMI 
TaxTMI 
2026 (8) TMI 1176
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....ca Solutions (India) Private Limited ('the Transferee Company'). The Scheme was approved by the National Company Law Tribunal, Chennai, vide order dated 25.09.2017, pursuant to which the Transferee Company was renamed as Magick Woods Exports Private Limited. The assessee followed the Purchase Method under Accounting Standard -14' and recorded the assets and liabilities transferred to it at their respective fair values, with the excess of consideration (discharged by issue of Compulsorily Convertible Preference Shares) over the net value of assets acquired being recorded as 'Goodwill' amounting to Rs. 454.05 Crores in FY 2016-17 (AY 2017-18), forming part of the block of intangible assets on which depreciation was claimed at the prescribed rate of 25%. 3. In AY 2017-18, being the year of amalgamation, the AO disallowed the depreciation claimed on such goodwill on the ground that its actual cost was nil, in view of the sixth proviso to section 32(1) and Explanation 7 to section 43(1) of the Act. On appeal, the Ld.CIT(A), vide order dated 20.10.2023, allowed the assessee's claim and deleted the disallowance, after considering the AO's objections on self-generated goodwill, the judi....
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....ed significantly over the preceding year. The assessee explained that the expenses represented deductions made by Menards from export sale proceeds, furnished the break-up of the cost components forming part of the vendor compliance ledger, and placed on record the Menards arrangement/program documents, the ledger, cheque copies and deduction/remittance statements. The assessee also explained that the increase was attributable to the launch/expansion of the Plumbing and Housewares/bath vanity program in the US market during the year, pursuant to a Vendor Compliance Program Letter dated 15.11.2017 with Menards, resulting in higher slotting, store support, display and promotional charges. 7. The AO, however, proceeded to disallow the entire expenditure of Rs. 9.32 crores u/s. 37 of the Act, inter alia, on the grounds that the assessee had failed to furnish bills/confirmations from Menards and adequate documentary evidence in support of the expenditure, that the commercial expediency thereof had not been established, and further made a brief observation regarding non-deduction of tax at source. In the appellate proceedings, it remained undisputed, including by the ld.DR, that no ad....
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....n depreciation on goodwill which was generated during the scheme of amalgamation by way of consideration paid over and above the net assets and liabilities of the company without appreciating the mandate of Explanation 7 to Section 43(1) read with the sixth proviso to Section 32(1), which restricts the actual cost and depreciation in the hands of the amalgamated company to the amount that was allowable to the amalgamating company. 2.4 The learned Commissioner of Income Tax (Appeals) erred in allowing the appeal of the assessee on depreciation on goodwill which was generated during the scheme of amalgamation by way of consideration paid over and above the net assets and liabilities of the company without appreciating that the intent of the legislature to allow amalgamation is so as to be tax neutral for the Amalgamating and Amalgamated companies as well as the shareholders and not to provide any tax planning mechanism, as held by the Hon'ble Ahmedabad Tribunal in the case of M/s Bodal chemicals Ltd (112 taxmann.com 217) 3.1 The learned Commissioner of Income Tax (Appeals) erred in allowing the appeal of the assessee by deleting the addition of Rs. 8,39,52,482/-....
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....ation thereon. It was submitted that the Revenue's challenge is not directed at any event occurring in AY 2018-19; it is an attempt to re-agitate a controversy relating to AY 2017-18, the year in which the goodwill was first recorded, entered the block of intangible assets, and depreciation thereon was claimed, allowed, and attained finality since the Revenue did not challenge the Ld.CIT(A)'s order for that year. AY 2018-19 involves no fresh amalgamation, valuation exercise or addition to the block, but only a consequential depreciation claim on the opening WDV brought forward from AY 2017-18, which is a mandatory allowance u/s. 32 of the Act once the conditions of the provision are satisfied, as clarified by Explanation 5 to section 32(1) and CBDT Circular No.14/2001 dated 09.11.2001. 11. In support, the Ld.AR relied on the decision of the Ahmedabad Tribunal, in Suzlon Global Services Ltd. v. PCIT, ITA Nos.67-68/AHD/2021 (order dated 16.09.2021), where it was held that depreciation on goodwill originating in an earlier year cannot be disturbed in a subsequent year without disturbing the year in which it originated, a decision which itself follows Bodal Chemicals Ltd. v. ACIT, 1....
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....itted at the appellate stage under Rule 46A, but one where the AO failed to consider material already furnished. It was further submitted that the commercial expediency of the expenditure was evident from the nature of the arrangement with Menards, a significant US retail customer, and that the expenditure was directly connected with the assessee's export business. 13. On the aspect of withholding tax, the Ld.AR submitted that the Revenue's grounds before this Tribunal do not specifically challenge the Ld.CIT(A)'s finding on non-applicability of TDS, and that in any event the vendor compliance deductions relate to export sales and activities undertaken outside India, and therefore do not accrue or arise in India u/s. 9(1)(i) of the Act read with Explanation 1(a) thereto; nor are the payments in the nature of fees for technical services u/s. 9(1)(vii), and even otherwise the exclusion u/s. 9(1)(vii)(b) of the Act would apply since the expenditure was incurred for earning income from a source outside India. Reliance in this regard was placed on the decision of the Hon'ble Madras High Court in CIT v. Aktiengesellschaft Kuhnle Kopp & Kausch, [2003] 262 ITR 513 (Mad.), where royalty ....
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.... raised, and rejected, in that earlier year. 18. The above principle finds direct support in the decision of the Ahmedabad Tribunal in Suzlon Global Services Ltd. v. PCIT, ITA Nos.67-68/AHD/2021, where, on materially similar facts, it was held that depreciation on goodwill originating in an earlier year cannot be disturbed in a subsequent year without disturbing the year in which it originated a proposition drawn in turn from Bodal Chemicals Ltd. v. ACIT, 180 ITD 313 (Ahmedabad-Trib.), where it was held that once depreciation is allowed in the first year without the Revenue resorting to section 263 or section 147 of the Act, the claim attains finality on the principle of consistency and cannot be disturbed in a later year absent any change in facts or law. The same approach has been taken in Johnson Matthey Chemicals India Pvt. Ltd., ITA No.1507/PUN/2012 (Pune-Trib.) holding that the WDV of a block of assets cannot be tinkered with once assets have entered the block and depreciation has been allowed and in Hindustan Coca-Cola Beverages Pvt. Ltd. v. DCIT, (2023) 103 ITR 67 (SN) (Delhi-Trib.), holding that depreciation allowed in the initial year cannot be disturbed in subsequent ....
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....urnished a detailed cost-wise break-up of such deductions, along with the relevant Menards arrangement/program documents, corresponding ledger entries and deduction/remittance statements evidencing the nature and quantum of the expenditure. It is significant that the AO's own assessment order, while extracting the assessee's submission, omits precisely the portion of that submission containing the cost-wise break-up and supporting explanation; the disallowance proceeds on a broad allegation that the expenditure remained unverified, without engaging with the material already on record. It is also undisputed, and was not disputed by the Ld.DR before us, that no additional evidence was placed before the Ld.CIT(A) beyond what was already furnished at the assessment stage; this is accordingly not a case of additional evidence being admitted in violation of Rule 46A, but one where the first appellate authority examined the same material that the AO ought to have, but did not, consider. 23. On that material, we find no infirmity in the Ld.CIT(A)'s finding that the nature, incurrence and business purpose of the expenditure stood established. The deductions made by Menards, a significant....