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TMI Blog2012 (8) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA No. 3279/Mum./2008. We have considered the issue. This issue of depreciation of goodwill generated consequent to the amalgamation of the wholly owned subsidiary company has been discussed elaborately by the ITAT order (supra) as under: "16. The facts of the issue are brought at Para-2.2 of the order passed by the Commissioner (Appeals), which is extracted below for ready reference:- "2.2 The facts pertaining to this issue are as under:- (i) Casablancas Gannon Engineering Ltd. (CGEL) was wholly owned subsidiary of the assessee company which got amalgamated with the appellant during the year. (ii) The investment of the assessee company in CGEL as at 31.3.2002 amounted to Rs.7,81,72,000. (iii) As per the terms of the scheme of Amalgamation, the shares of CGEL amounting to Rs.7,81,72,000/- held by the assessee company were cancelled and the difference between the value of assets and liabilities equal to Rs. 7,56,22,000/- taken over from CGEL has been transferred as goodwill of the assessee company and depreciation of Rs.1,89,18,000/- has been claimed. (iv) In the tax audit report, the nature of business of CGEL has been given as "Providing technical consultancy services and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transferor company as on the Appointed Date shall become and be shown as assets and liabilities of the Transferee Company at the same value as they appeared in the books of the Transferor Company and that the difference, if any, between the values of the assets and liabilities taken over from the transferor company shall be transferred to the goodwill of the transferee company." [emphasis own] 19. The assessee states that the scheme of arrangement was accounted for under the "Purchase" method in terms of AS/14. AS/14 reads as follows:- Methods of Accounting for Amalgamations 7. There are two main methods of accounting for amalgamation: (a) the pooling of interests method; and (b) the purchase method. The Purchase Method 12. Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude: (a) the foreseeable life of the business or industry; (b) the effects of product obsolescence, changes in demand and other economic factors; (c) the service life expectancies of key individuals or groups of employees; (d) expected actions by competitors or potential competitors; and (e) legal, regulatory or contractual provisions affecting the useful life. 20. A perusal of the same does not support the contentions of the assessee that as the assets and liabilities are to be taken over from CGEL at book value the difference between the investment in shares by the assessee is CGEL and the book value of asset in CGEL should be treated as goodwill. CGEL had certain land and buildings which the assessee has taken over at book value. The market value of this asset was not considered. In our opinion, unless the valuation has been done of each and every asset of the company and, thereafter, goodwill, if any, is also valued and investment is earmarked as having been incurred towards the purchase of goodwill, the question of apportioning of certain amount towards purchase of goodwill does not arise. 21. Under the "Purchase" method, two alternatives are suggested in AS/14. The fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act. Briefly stated the assessee was occupying a premises at Delhi as office and the rent was payable to UCO Bank. Since there were disputes with reference to the premises, the assessee has provided the amounts in the books of account in the respective years up to FY 2000-2001 as under. Sl. No. Particulars Amount (Rs.) 1 Provision for the year FY 1992-93 UCO Bank - Rent 57720.00 2 Provision for the year FY 1993-94 UCO Bank - Rent 115440.00 3 Provision for the year FY 1994-95 UCO Bank - Rent 432900.00 4 Provision for the year FY 1995-96 UCO Bank - Rent 432900.00 5 Provision for the year FY 1996-97 UCO Bank - Rent 432900.00 6 Provision for the year FY 1997-98 UCO Bank - Rent 432900.00 7 Provision for the year FY 1998-99 UCO Bank - Rent 432900.00 8 Provision for the year FY 1999-00 UCO Bank - Rent 432900.00 9 Provision for the year FY 2000-01 UCO Bank - Rent 432900.00 TOTAL 3203460.00 7. Subsequently, the assessee has not provided any amount. This amount provided was not allowed in the respective assessment years as the same was only a provision. While filing the return of income, the assessee claimed this amount of Rs. 32,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court of Delhi issued orders vide the order dated 21.5.2007. Even though the order was passed in FY 2007-08, the assessee claimed the amount in this year as return was due. As rightly held by the Ld CIT (A) in the appeal for the AY 2004-05, the amount has to be considered in AY 2008-09 as the relevant date on which the liability was crystallized falls in FY 2007-08 i.e. AY 2008-09. Even though the assessee claimed the deduction in this year, we are of the opinion that the liability does not pertain to the year under consideration. As can be seen from the table above, the rent provision pertains from FY 1992-1993 to FY 2000-2001 which can only be allowed in the respective years on the basis of accrual or in AY 2008-2009 as ultimately liability was confirmed by the orders of Hon'ble High Court. Since crystallization of liability happened in AY 2008-2009, the claim for rent of earlier years can only be allowed in that year. Therefore, assessee's claim of earlier years' rent cannot be allowed in AY 2007-2008. Even though this was claimed as 'cessation of liability' u/s 41(1), the claim made u/s 37(1) in the computation of income in this assessment year cannot be allowed as the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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