9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
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.
Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act beyond the period of limitation. 2. Legality of the order under section 263 issued for an assessment order passed in the name of a non-existent entity. 3. Jurisdiction under section 263 based on the assumption that the assessment order is erroneous and prejudicial to the interest of revenue. 4. Eligibility of depreciation on goodwill arising from amalgamation. 5. Application of the pooling of interest method versus the purchase method in the context of amalgamation. 6. Validity of the assessment framed in the name of a non-existent company. Detailed Analysis: 1. Validity of the order passed under section 263 beyond the period of limitation: The assessee contended that the order under section 263 was passed beyond the prescribed period of limitation. The Principal CIT found that the assessment framed under section 143(3) dated 29th October 2018 was erroneous and prejudicial to the interest of revenue. However, the Tribunal noted that the Principal CIT cannot revise the intimation issued under section 143(1) in the case of the successor company, as it is barred by time under section 263(2). The intimation was issued on 30th December 2016, and the time limit expired on 31st March 2019, making the notice issued on 22nd March 2021 invalid. 2. Legality of the order under section 263 issued for an assessment order passed in the name of a non-existent entity: The Tribunal highlighted that M/s SGSL was amalgamated with M/s SSL effective from 31st March 2016, and thus ceased to exist. The assessment framed in the name of the non-existent company M/s SGSL on 29th October 2018 was invalid. The Tribunal relied on the Supreme Court judgment in PCIT Vs. Maruti Suzuki India Limited, which held that an assessment order passed in the name of a non-existent entity is void ab initio. 3. Jurisdiction under section 263 based on the assumption that the assessment order is erroneous and prejudicial to the interest of revenue: The Principal CIT assumed jurisdiction under section 263 on the grounds that the assessment order was erroneous and prejudicial to the interest of revenue. The Tribunal found that the Principal CIT proceeded on a wrong assumption of facts, as the depreciation on goodwill was claimed by the successor company M/s SSL, not M/s SGSL. Therefore, the order under section 263 was not justified. 4. Eligibility of depreciation on goodwill arising from amalgamation: The Tribunal noted that the goodwill arising from the amalgamation was recognized as an intangible asset and was eligible for depreciation under section 32 of the Act. The Tribunal referred to the Supreme Court judgment in CIT vs. Smifs Securities Ltd, which held that goodwill falls within the definition of intangible assets and is eligible for depreciation. 5. Application of the pooling of interest method versus the purchase method in the context of amalgamation: The Principal CIT alleged that the assessee followed the pooling of interest method, which does not recognize goodwill. However, the Tribunal found that the amalgamation was in the nature of purchase, as the assets were transferred at fair market value, and the difference between the purchase consideration and net assets was treated as goodwill. The Tribunal concluded that the Principal CIT's finding was based on a wrong assumption of facts. 6. Validity of the assessment framed in the name of a non-existent company: The Tribunal held that the assessment framed in the name of the non-existent company M/s SGSL was invalid. Consequently, such an assessment cannot be revised under section 263. The Tribunal quashed the order passed by the Principal CIT under section 263. Conclusion: The Tribunal allowed the appeals of the assessee, quashing the orders passed under section 263 for both assessment years 2016-17 and 2017-18. The Tribunal held that the Principal CIT's orders were based on incorrect assumptions and were not sustainable under the law. The Tribunal emphasized the importance of consistency and adherence to legal principles in tax litigation.
|
