Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (12) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (12) TMI 631 - AT - Income TaxDepreciation on goodwill claimed on acquisition of its subsidiary - claim of depreciation u/s 32(1)(ii) thereon @25% was made in return of income filed by the assessee was disallowed by the Ld. AO while framing regular scrutiny assessment u/s 143(3) - in view of AO, since under approved scheme of arrangement the subsidiary company had no intangible assets to be transferred to the assessee company, therefore the question of accounting for cost of goodwill in terms of explanation 7 to section 43(1) no longer arise - HELD THAT:- Basically, goodwill comes into existence in two scenarios i.e., either acquired or purchased and more specifically (1) Acquisition: when a company (acquirer/transferee) acquires any other company (transferor) which has goodwill in its books prior to its acquisition by acquirer, and (2) Purchased: when a company (acquirer/transferee) acquires any other company (transferor) at a payment consideration in excess of net assets value of transferor. Under Income tax laws it is a settled proposition that, acquirer/transferee company subject to provisions of section 43 r.w.s 32 of the Act is entitled to claim depreciation u/s 32(1)(ii) of the Act on goodwill which is either acquired or purchased by an excess payment of consideration over net asset value taken over or by former combined modes. In the instant case, we note that, the assessee company was holding 95% of total equity share capital of its subsidiary RMIPL prior to execution of scheme of arrangement. It remained an undisputed fact that, the subsidiary company RMIPL had no goodwill in its books of accounts as on the date of its acquisition by its holding company, the appellant. Therefore, the question of transfer of any such amount of goodwill while recording assets of subsidiary company into its books in first place uncloudly failed. That is to say there was no acquisition of goodwill by the assessee while acquiring its subsidiary RMIPL. Consequently, on this issue, both the tax authorities came to a rightful conclusion that, when RMIPL had no goodwill in its books of account, then the question of recording the same in its books doesn’t arise and resultant claim of depreciation thereagainst was baseless. This being the factual position, we see no reasons to hold otherwise in the absence of any deprecative material placed and brought to our notice by the appellant company. Whether the assessee company purchased any goodwill by an excess payment consideration over and above the value of net asset of its subsidiary company RMIPL acquired under approved scheme? - total value of purchase consideration under the approved scheme of arrangement payable was to be worked out with reference to 3,125 equity share @ price of ₹142.08/per share. The resultant consideration paid/payable by the appellant under approved scheme, as rightly submitted by the Ld. AR that, was even much less than the value of net assets acquired by it. This being the factual admitted position, there was no scope of purchase of goodwill by excess payment of purchase consideration. The wholesome findings Ld. CIT(A) remained flawless to the effect that, the amount of goodwill supposedly claimed by the assessee can be traced into accounting entries passed by the assessee, which reveals that the appellant company has simply recognised the balancing figure i.e., excess of its cost of investment in RMIPL over Net Assets taken over by it as goodwill purchased. This treatment however, in our considered view is neither in accordance with the approved scheme of arrangement nor in consonance with the mandatory AS-14 issued by the Institute of Chartered Accountant of India. In nutshell, the material placed on records and the argument advanced beyond an iota of doubt establishes that, the appellant did neither acquired any goodwill from its subsidiary RMIPL nor it has made any excess payment towards purchase consideration over and above value of net asset acquired under the scheme. Therefore, it gave rise to no goodwill in the hands of the appellant assessee, resultantly no claim of depreciation thereagainst could arise. In these facts and circumstances, we countenanced the disallowance for foregoing reasons. All the grounds of appeal stand adjudicated accordingly. Decided against assessee.
|