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2024 (2) TMI 519 - AT - Income TaxClaim made for the first time in the course of original assessment - Depreciation on goodwill - whether the claim made by the appellant regarding depreciation on goodwill for the first time in the course of original assessment can be legally entertained in light of the decision of Hon ble Supreme Court in the case Goezte (India) Ltd 2006 (3) TMI 75 - SUPREME COURT ? - HELD THAT - The ratio laid down by the Hon ble Supreme Court in the case of Jute Corporation of India Ltd. 1990 (9) TMI 6 - SUPREME COURT that the first appellate authority has the power to entertain new claim if the grounds raised are bonafide, was not disturbed by the Hon ble Supreme Court in their decision in Goetze (India) Ltd 2006 (3) TMI 75 - SUPREME COURT . Also see case of CIT Vs Pruthvi Brokers Shareholders Private Limited 2012 (7) TMI 158 - BOMBAY HIGH COURT In the decided case, the High Court explained that the decision of Supreme Court in the case of Goetze India Limited (supra) was confined to where the claim was made only before the AO and not before the appellate authorities. The Hon ble High Court held that jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Hon ble Supreme Court. We accordingly hold that, the powers of the Ld. CIT(A) being the first appellate authority as well as this Tribunal are wide enough to entertain the appellant s plea for depreciation on goodwill, which had not been claimed in the return of income, but relevant facts on the issue was placed before the AO. Depreciation claimed by the appellant - goodwill acquired under slump sale - We hold that the decision of Hon ble Supreme Court in the case of Smifs Securities Ltd 2012 (8) TMI 713 - SUPREME COURT shall be applicable and therefore depreciation is allowable on goodwill acquired under slump sale u/s 32(1) of the Act in the relevant year. Hence, the plea raised by the Revenue that the depreciation on goodwill claimed by appellant is unsustainable in light of the amendment to Section 2(11) 32 of the Act is rejected. Valuation of goodwill on which the depreciation has been claimed by the appellant - The valuer had to make forecast on the basis of some material, like growth of the business, economic/market conditions, expected demand and supply, cost of capital and host of other factors, but to estimate the exact figures was beyond their control. Accordingly, the actual results of CCB business cited by the Revenue to doubt the genuineness of acquisition of goodwill and correctness of the projections made in the valuation exercise cannot be countenanced. Moreover, before us as well as the lower authorities, the appellant had also placed the valuation report obtained from independent valuer, M/s Dalal Shah which supported the price paid for acquisition of goodwill. It is noted that, initially the Revenue had disputed the valuation report citing non-filing of under-lying records/basis for preparation of valuation report -Although these underlying archives were provided to the Revenue and the appellant had also extended the opportunity to the Revenue to inspect their server/digital records to ascertain its veracity, the Revenue is noted to have not opted for it for extraneous considerations. Instead, the Revenue has made bald assertions doubting its correctness. Such action of the Revenue is against the spirit of fair play and therefore cannot be countenanced. The goodwill in question is thus noted to be in the nature of acquired goodwill and the price paid by the appellant, irrepsective of the fact that it was paid to related party, constituted the cost of acquisition in the hands of the appellant, in terms of Section 43(1) of the Act. The aforesaid material information, according to us, is sufficient to entertain the claim for depreciation on the goodwill acquired by the appellant. Hence, the purported errors/infirmities cited by the Revenue in the valuation of goodwill at Rs. 160 crores is held to be immaterial. Consequently, the objections / submissions put forth by the appellant in their rejoinder to the errors/infirmities pointed out by the Revenue, stands rendered academic in light of the facts of this case. Accordingly, on overall facts of the case, as discussed above, and in light of the decision of Hon ble Supreme Court in the case of Smifs Securities Ltd (supra), we hold that the appellant was legally entitled to claim depreciation on the goodwill acquired pursuant to slump sale acquisition of CCB Business from VEGL. The AO is accordingly directed to compute and allow the same in accordance with law. Appeal of the assessee is allowed.
Issues Involved:
1. Non-allowance of depreciation claimed on goodwill. 2. Legal admissibility of the claim for depreciation on goodwill. 3. Valuation of goodwill for the purpose of depreciation. Summary: Issue 1: Non-allowance of Depreciation Claimed on Goodwill The appellant, an ITES company, filed its return of income for AY 2009-10, declaring an income of Rs. 21,51,35,898/-. During the scrutiny, the AO made a transfer pricing adjustment but did not entertain the appellant's additional claim for depreciation on goodwill acquired under a slump sale of the Call Centre Business (CCB) from Vodafone Essar Gujarat Ltd. (VEGL). The Ld. CIT(A) rejected the claim, stating that the appellant failed to establish the actual creation of goodwill and that the valuation report lacked a clear basis for the goodwill valuation. Issue 2: Legal Admissibility of the Claim for Depreciation on Goodwill The Tribunal noted that the appellant raised the claim for depreciation on goodwill for the first time during the assessment proceedings, citing the Supreme Court's decision in CIT v. Smifs Securities Ltd. The Tribunal held that while the AO is restricted from admitting new claims not made in the return of income, the appellate authorities, including the Tribunal, have the jurisdiction to entertain such claims. The Tribunal referred to the decision of the Hon'ble Bombay High Court in CIT Vs Pruthvi Brokers & Shareholders Private Limited, affirming that the appellate authorities can entertain new claims if the grounds are bona fide. Issue 3: Valuation of Goodwill for the Purpose of Depreciation The Tribunal examined the prevailing legal position and the facts of the case. It noted that the Supreme Court in CIT v. Smifs Securities Ltd. held that goodwill acquired on amalgamation is a depreciable asset. The Tribunal also considered the amendments made by the Finance Bill, 2021, which excluded goodwill from the ambit of 'intangible asset' for depreciation purposes, but noted that these amendments are applicable prospectively from AY 2021-22. Therefore, for AY 2009-10, the depreciation on goodwill is allowable. The Tribunal found that the valuation of goodwill at Rs. 160 crores by the appellant was supported by an independent valuer's report and that the excess consideration paid was offered to tax as capital gains by VEGL. The Tribunal rejected the Revenue's objections regarding the valuation, stating that the appellant's acquisition of goodwill was genuine and the valuation was reasonable based on the facts and circumstances prevailing at the time of the transaction. Conclusion The Tribunal allowed the appeal, directing the AO to compute and allow the depreciation on goodwill in accordance with the law. The appeal of the assessee was thus allowed.
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