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2025 (5) TMI 336 - AT - Income TaxDepreciation disallowed in respect of the goodwill as generated due to amalgamation - HELD THAT - AR did not object for the issue to be remanded to the CIT(A). In any event the issues needs to be analysed in the light of the decision of CIT vs. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT . We therefore remand this issue back to the Ld. CIT(A) with the direction to passed the detailed order on merits after considering the submissions advance and evidences filed by the assessee in support of its claim.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Ex-Parte Dismissal by NFAC/CIT(A) Relevant legal framework and precedents: The procedural requirement under the Income-tax Act mandates that the CIT(A) must adjudicate appeals on merits. However, non-appearance of the appellant can lead to ex-parte dismissal. The limitation period and procedural notices are governed by the Limitation Act and relevant Income-tax procedural rules. The Supreme Court's pronouncements on condonation of delay and principles of substantial justice were also considered. Court's interpretation and reasoning: The Tribunal noted that the assessee had received multiple notices issued by NFAC, including two during the COVID period when limitation was suspended by Supreme Court order. The non-appearance during COVID notices was not faulted. However, for notices issued post-COVID (30/01/2023 and 30/07/2023), the assessee failed to respond due to inadvertent non-forwarding of notices to the authorized representative. The ex-parte order passed was also missed by the assessee until later compliance activities. Key evidence and findings: The affidavit filed by the managing director explained the inadvertent failure. The revenue did not file any counter affidavit opposing the condonation application. The Tribunal relied on judicial precedents emphasizing liberal construction of "sufficient cause" and the primacy of substantial justice over procedural technicalities. Application of law to facts: The Tribunal applied the principles from the Supreme Court decision in Collector Land Acquisition vs. MST Katiji, which recognizes the elastic nature of "sufficient cause" to enable courts to do substantial justice. It was held that the inadvertent failure and absence of mala fide intention justified condonation of delay and set aside the ex-parte dismissal. Treatment of competing arguments: The revenue's argument that notices were sent to the registered e-mail and non-appearance justified dismissal was rejected in light of the circumstances and the suspension of limitation during COVID. The Tribunal gave precedence to the principle that ordinarily a litigant does not benefit from delay and that refusal to condone delay may result in injustice. Conclusions: The Tribunal condoned the delay in filing the appeal before it and implicitly found the ex-parte dismissal by NFAC/CIT(A) to be not sustainable in the circumstances. Issue 2: Allowability of Depreciation on Goodwill Arising from Amalgamation Relevant legal framework and precedents: Section 32(1) of the Income-tax Act allows depreciation on tangible and intangible assets. Goodwill as an intangible asset arising from amalgamation has been subject to judicial scrutiny. The Supreme Court decision in CIT vs. Smifs Securities Ltd. (2012) is a key precedent affirming the allowability of depreciation on goodwill acquired through amalgamation. Court's interpretation and reasoning: The Tribunal observed that the assessee had consistently claimed depreciation on goodwill from assessment year 2013-14 onwards, including prior years where the AO had allowed the claim. The disallowance for the year under consideration was the first instance of rejection, and a similar appeal for assessment year 2015-16 was pending before the CIT(A). Key evidence and findings: The goodwill arose from amalgamation with a wholly owned subsidiary and was accounted as an intangible capital asset. The AO disallowed depreciation on the ground that no goodwill asset had arisen. The assessee provided submissions and evidence supporting the claim, which were not fully adjudicated due to non-appearance before the CIT(A). Application of law to facts: The Tribunal found that the issue required detailed consideration in light of the Supreme Court ruling in Smifs Securities Ltd., which supports the claim of depreciation on goodwill arising from amalgamation. Given the non-adjudication by CIT(A) due to ex-parte dismissal, the Tribunal remanded the matter back to CIT(A) for detailed examination on merits. Treatment of competing arguments: The revenue requested remand for proper verification, which was agreed to by the assessee's representative, indicating no objection to remand. The Tribunal accepted the necessity of remand to ensure proper adjudication. Conclusions: The issue of depreciation on goodwill was remanded to the CIT(A) for fresh consideration on merits with directions to consider all submissions and evidence. Issue 3: Penalty Proceedings under Section 271(1)(c) Relevant legal framework and precedents: Section 271(1)(c) imposes penalty for concealment of income or furnishing inaccurate particulars. The validity of penalty depends on the correctness of assessment and the existence of willful concealment or misrepresentation. Court's interpretation and reasoning: The Tribunal did not provide detailed analysis on penalty proceedings in the present order, as the primary focus was on appeal dismissal and depreciation issues. The penalty matter was raised as a ground but was not separately adjudicated given the remand and partial allowance of appeal. Key evidence and findings: No additional evidence or findings were discussed regarding penalty. Application of law to facts: Since the appeal was partly allowed and remanded, the penalty issue would likely be reconsidered in light of the merits of the depreciation claim. Treatment of competing arguments: Not addressed in detail. Conclusions: No final determination on penalty was made; it remains subject to further adjudication. 3. SIGNIFICANT HOLDINGS "The Legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits. The expression 'sufficient cause' employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court." "Ordinarily, a litigant does not stand to benefit by lodging an appeal late. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties." The Tribunal established the core principle that procedural technicalities, such as non-appearance and delay in filing appeals, should not override the administration of substantial justice, especially when the delay is due to inadvertence and no mala fide intention is found. It was held that depreciation on goodwill arising from amalgamation is a substantive issue requiring detailed adjudication in light of binding Supreme Court precedent and that ex-parte dismissal without such adjudication is improper. The final determinations were:
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