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2024 (3) TMI 89 - AT - Income TaxDisallowance of depreciation on goodwill created in the scheme of amalgamation - entire assets and liabilities of the amalgamating company were transferred to the assessee company at their book value - HELD THAT - As decided in KIFS International LLP vs. DCIT 2023 (9) TMI 1439 - ITAT AHMEDABAD no depreciation is allowable on goodwill from the AY 2021-22 onwards. However, goodwill is not excluded from capital assets. The purpose of exclusion of goodwill from the depreciable assets is that it is seen that Goodwill, in general, is not a depreciable asset and in fact depending upon how the business runs; goodwill may see appreciation or in the alternative no depreciation to its value. Therefore, there may not be a justification of depreciation on goodwill. Accordingly, there is no need to provide for depreciation on goodwill of business/profession like other intangible assets or plant machinery. But such an amendment is not applicable for the year under consideration - thus reverse the order of the authorities below and direct the AO to allow the claim of the assessee for the depreciation on the impugned goodwill - Decided in favour of assessee. Assessment framed by the AO is in the name of non-existent assessee - assessee itself has filed the return of income, appeals in the name of non-existent company - HELD THAT - Mistake committed by the assessee does not empower the Revenue to also commit the same mistake especially in a situation where the fact about the scheme of amalgamation and conversion of the assessee into LLP was known by the AO which is evident from the assessment order discussed above. The department was aware of the complete fact that the company was no longer in existence, yet the AO has framed the assessment in the name of non-existing company. Therefore, contention of the DR fails on this count that the assessee has also made a mistake in filing the returns of income and appeal papers in the name of non-existing company. We also note that this Tribunal in case of Urmin marketing (P) Ltd. 2020 (11) TMI 47 - ITAT AHMEDABAD has already decided the identical issue in favor of assessee on the similar facts and circumstances. Assessment framed u/s 143(3) of the Act is not sustainable. Hence the ground of appeal of the assessee is allowed.
Issues Involved:
1. Disallowance of depreciation on goodwill created in a scheme of amalgamation. 2. Validity of assessment order passed in the name of a non-existent entity. Summary of Judgment: Issue 1: Disallowance of Depreciation on Goodwill The first issue raised by the assessee was that the learned CIT(A) erred in confirming the disallowance of depreciation on goodwill created in the scheme of amalgamation. The assessee argued that the goodwill arose from the amalgamation approved by the Hon'ble High Court of Gujarat and should be eligible for depreciation. The AO disagreed, stating that the scheme of amalgamation did not inherently grant the right to claim depreciation. The AO also highlighted that the amalgamation was between companies with the same shareholders and directors, suggesting it was a colorable device designed to create goodwill artificially and avoid taxes. The Tribunal noted that the facts of the present case were identical to a previous case (KIFS International LLP vs. DCIT), where the Tribunal had allowed depreciation on goodwill arising from a similar scheme of amalgamation. The Tribunal emphasized that the scheme of amalgamation was approved by the Hon'ble High Court, and the purchase consideration paid exceeded the net assets acquired, resulting in goodwill. The Tribunal referred to the Hon'ble Supreme Court's decision in CIT vs. Smifs Securities Ltd, which recognized goodwill as an intangible asset eligible for depreciation under section 32(1) of the Act. The Tribunal concluded that the assessee had complied with all conditions for claiming depreciation on goodwill and directed the AO to allow the claim. Issue 2: Validity of Assessment Order Passed in the Name of a Non-Existent Entity The second issue was the validity of the assessment order framed by the AO in the name of a non-existent entity. The assessee argued that the assessment order was invalid as it was passed in the name of Sara Suppliers Private Limited (SSPL), which had ceased to exist after being converted into a limited liability partnership (LLP). The Tribunal noted that the AO was aware of the conversion, as reflected in the assessment order itself. The Tribunal referred to the Hon'ble Supreme Court's decision in PCIT Vs. Maruti Suzuki India Limited, which held that an assessment order against a non-existent entity is invalid. The Tribunal also noted that the mistake by the assessee in filing the return in the name of the erstwhile company did not empower the Revenue to commit the same mistake. The Tribunal held that the assessment order was not sustainable and allowed the appeal on this ground. Conclusion: The Tribunal allowed the appeal of the assessee on both grounds: 1. Directed the AO to allow the claim of depreciation on goodwill. 2. Held that the assessment order framed in the name of a non-existent entity was invalid.
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