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2021 (11) TMI 763 - AT - Income TaxRevision u/s 263 by CIT - valid scheme of amalgamation - merger or amalgamation - CIT alleged that depreciation on goodwill generated in the scheme of amalgamation is not allowable under the provision of the Act - HELD THAT:- In the case on hand, the M/s SSL taken over the business of M/s SGSL with all the assets, liabilities and reserve. However all the assets of transferee company i.e. M/s SGSL were taken at fair market value which was valued by independent valuer namely ‘Duff and Phelps’. The M/s SSL discharged purchase consideration by cancelling investment in the books of account instead of issuing equity share capital. Thus condition specified under sub clause (iii) and (iv) of para 3(e) of AS-14 did not comply with. Hence the scheme of amalgamation in the case on hand is in the nature of purchase method which recognizes goodwill where the purchase consideration surpasses the net assets value taken over. Admittedly the assessee paid purchase consideration by cancelling the investment of ₹ 2699.72 against net assets value acquired of ₹ 1271.90 crores. Accordingly excess amount recorded as goodwill. Admittedly all these information was part of scheme of amalgamation which was approved the jurisdictional High Court as discussed above. Thus the finding of the learned principal CIT to this extent that the scheme of amalgamation is in the nature of merger is based on wrong assumption of facts. Depreciation on goodwill generated in the scheme of amalgamation is not allowable under the provision of the Act - Section 32 of the Act requires allowing the depreciation to the amalgamated company in the same manner which would have been allowed to the amalgamating company in the event had there not been any amalgamation.Similarly, the actual cost of the assets acquired in the scheme of amalgamation in the hands of the amalgamated company will continue to be the same as it would have been in the hands of the amalgamating company in the event, had there not been any amalgamation. WDV of the assets acquired in the scheme of amalgamation in the hands of the amalgamated company will remain to be the same as it would have been in the hands of the amalgamating company in the event, had there not been any amalgamation. The relevant extract of the explanation 2 to section 43(6)(c). 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. As such, these provision are not related to the goodwill arising in the hands of amalgamated company in the scheme of amalgamation which rises due to the difference between the purchase consideration and the NAV acquired by it. Thus 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 goodwill emerged in the scheme of amalgamation approved by the Jurisdictional High Court. Whether such goodwill acquired by the assessee is eligible for depreciation under the provisions of section 32 ? - As goodwill created in the scheme of amalgamation is acquired by the assessee. Thus, in our considered view the assessee has complied all the conditions provided under section 32 of the Act. Accordingly, we hold that the order passed by the ld. CIT under section 263 of the Act is not sustainable and therefore we quash the same. Hence, the ground of the assessee is allowed. Revision u/s 263 - disallowing depreciation on goodwill arising on amalgamation - additional issue arises for our consideration is that whether the depreciation can be disallowed/disturbed claimed on the opening written down value of the intangible assets being goodwill - AY2017-18 - HELD THAT:- We note that the assessee has claimed depreciation on the goodwill which was brought forward from the immediate preceding assessment years. Thus the depreciation on the goodwill originated in the earlier year cannot be disturbed in the year under consideration without disturbing the year in which it was instigated. In fact, the claim of the assessee for the amount of depreciation on the goodwill should be allowed based on consistency in the given facts and circumstances. Thus we hold that the order passed by the ld. CIT under section 263 of the Act is not sustainable and therefore we quash the same. Hence, the ground of the assessee is allowed.
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