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2023 (4) TMI 739 - AT - Income TaxDepreciation on goodwill u/s 32(1) - goodwill recorded in books of accounts of resulting post demerger - company addition on the ground that goodwill accounted in the books of assessee company is a self-generated which is not qualified for depreciation as an intangible - HELD THAT:- Neither the AO nor the ld. CIT(A) had any dispute regarding manner in which quantum of goodwill was arrived at. In fact, both the authorities have accepted the valuation of net asset acquired by the assessee company and the valuation for arriving at the consideration to be paid to the shareholders of the demerged company. It is also a fact that no goodwill was appeared in the books of Demerged company before appointing date. The fact that the depreciation on goodwill was specifically omitted by amending section 32 by the Finance Act, 2021 w.e.f. 01.04.2021 also demonstrate that depreciation on goodwill was allowable before the amendment. AO and the ld. CIT(A) have stated that goodwill recorded by the assessee company is self-generated, but, fact remains that goodwill recorded in the books of accounts in resulting company is not self-generated goodwill but falls into the category of purchased goodwill. From the above facts, it is clear that goodwill recorded in the books of assessee company is purchased goodwill and cost of the same has been rightly arrived at. Pursuance to the scheme of demerger, goodwill recorded in books of accounts of resulting company was acquired, but not self-generated as per the order of the Hon’ble High Court of Madras in a scheme document. Therefore, we are of the considered opinion that once the assessee proves that goodwill accounted in the books of accounts in a scheme of demerger is only of purchased goodwill by paying consideration then the same fall within the ambit of purchased goodwill and entitled for depreciation under section 32(1) of the Act. Assessee has rightly claimed depreciation on goodwill accounted in the scheme of demerger approved by the Hon’ble High Court of Madras and thus, we direct the Assessing Officer to allow depreciation on goodwill as claimed by the assessee for all the three assessment years. Decided in favour of assessee. Disallowance made under section 14A r.w. Rule 8D - argument of the assessee that the assessee has not earned any exempt income for the assessment year in question - HELD THAT:- It is an admitted fact that the assessee had not earned any dividend income, which was claimed as exempt under section 10(34) of the Act. It is well settled principle of law by the decision of Hon’ble Supreme Court in the case of Chettinad Logistics [2018 (7) TMI 567 - SC ORDER] wherein, it was held that section 14A of the Act can be triggered if the assessee seeks to square off expenditure against income which does not form part of total income. Thus where no exempt income is earned, section 14A could not be invoked. Hon’ble Delhi High Court in the case of Cheminvestments Ltd. v. CIT [2015 (9) TMI 238 - DELHI HIGH COURT] had considered identical issue and held that no disallowance can be made where no dividend income has been received. In this case, there is no dispute with regard to the fact that the assessee has not earned any dividend income. Thus in the absence of exempt income, no disallowance under section 14A r.w. Rule 8D could be made. Decided in favour of assessee.
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