2023 (9) TMI 604 - AT - Income Tax

Depreciation claimed on goodwill, distribution network, and customer relations - AO concluded what was transferred pursuant to the amalgamation was net assets, which consist of existing tangible assets as well as other existing intangible assets - both the AO as well as the learned CIT(A) rejected the claim of the assessee as these intangible assets were not shown in the books of accounts of the transferor company and mere accounting treatment by the assessee does not entitle the assessee to claim depreciation in its books - HELD THAT - It is pertinent to note that the scheme of amalgamation was approved by the Hon'ble High Court with the appointed date being 01/04/2015, therefore it is necessary to see how this aspect was examined in the first year itself, which is the assessment year 2016-17. During the hearing, it was submitted that the assessee claimed depreciation on the aforesaid intangible assets in the first year after the amalgamation. However, its appeal against the assessment order for the assessment year 2016-17 is currently pending before the learned CIT(A). Therefore, in view of the above, we are of the considered opinion that it becomes relevant to examine whether any intangible asset arises in the hands of the assessee pursuant to the amalgamation and whether on that intangible asset depreciation is allowable under section 32 of the Act. Since the appeal of the assessee against the disallowance of depreciation on aforesaid alleged intangible assets in the first year itself is currently pending before the learned CIT(A), we deem it appropriate to restore this issue to the file of learned CIT(A) for de novo adjudication - Grounds raised in assessee s appeal are allowed for statistical purposes. Refund of excess Dividend Distribution Tax ( DDT ) paid by the assessee - assessee raised this issue by way of additional ground and submitted that the beneficial rate on dividends as provided in Double Taxation Avoidance Agreement ( DTAA ) is to be applied for the purpose of DDT, as the DTAA override the provisions of the Act - HELD THAT - During the hearing, the learned Representative appearing for the parties fairly agreed that this issue is now covered in favour of the Revenue by the decision of DCIT v/s Total Oil India Private Ltd. 2023 (4) TMI 988 - ITAT MUMBAI (SB) Accordingly, respectfully following the aforesaid decision of the Special Bench of the Tribunal, ground no.6 raised in assessee s appeal is dismissed.

Summary

Issues Involved:

1. Disallowance of depreciation on goodwill.
2. Disallowance of depreciation on distribution network.
3. Disallowance of depreciation on customer relations.
4. Adjustments made under section 143(1) of the Income Tax Act.
5. Addition under section 36(1)(va) of the Income Tax Act.
6. Refund of excess Dividend Distribution Tax (DDT) paid.

Summary:

1. Disallowance of depreciation on goodwill:
The assessee challenged the disallowance of INR 12,66,12,592 on goodwill. The CIT(A) upheld the disallowance, agreeing with the AO that goodwill does not fall within "any other business or commercial rights of similar nature" under section 32 of the Act. The AO also noted that the assessee did not incur any cost for acquiring goodwill in the scheme of merger. The ITAT restored this issue to the CIT(A) for re-examination, noting that the first year's appeal on this matter is still pending.

2. Disallowance of depreciation on distribution network:
The assessee contested the disallowance of INR 74,27,651 on the distribution network. The CIT(A) and AO held that no cost was incurred for acquiring the distribution network in the merger. The ITAT directed the CIT(A) to re-examine this issue along with the goodwill depreciation claim.

3. Disallowance of depreciation on customer relations:
The assessee disputed the disallowance of INR 7,42,04,775 on customer relations. The CIT(A) and AO found no evidence of cost incurred for acquiring customer relations in the merger. The ITAT instructed the CIT(A) to re-evaluate this issue together with the other depreciation claims.

4. Adjustments made under section 143(1) of the Income Tax Act:
The assessee argued against the addition of INR 6,960 made under section 36(1)(va) by the CPC in the intimation under section 143(1). This ground was not pressed during the hearing and was dismissed.

5. Addition under section 36(1)(va) of the Income Tax Act:
The assessee contended that the addition of INR 6,960 should not have been made. This ground was also not pressed during the hearing and was dismissed.

6. Refund of excess Dividend Distribution Tax (DDT) paid:
The assessee sought a refund of excess DDT paid, claiming that dividends paid to non-resident shareholders should be taxed at lower rates as per the DTAA between India and Singapore/Denmark. The CIT(A) rejected this claim, referencing a coordinate bench decision. The ITAT upheld this rejection, following the Special Bench decision in DCIT v/s Total Oil India Private Ltd.

Conclusion:
The ITAT partly allowed the appeal for statistical purposes, restoring the issues of depreciation on goodwill, distribution network, and customer relations to the CIT(A) for de novo adjudication. The other grounds were dismissed.