2024 (11) TMI 762 - AT - Income Tax

Addition made on account of an offshore unit in Dubai - Unit treated as a proprietary concern of the assessee and all its profits were held to be taxable in the hands of the assessee by the AO - HELD THAT - As pointed out from the order of the CIT(A) that this issue had been consistently arising in the case of the assessee right from the AY 2006-07 and had been consistently ruled and decided in favour of the assessee by the ITAT. That the CIT(A) taking note of these facts had accordingly decided the issue in favour of the assessee and directed deletion of the addition made. Disallowance of excess depreciation claimed on furniture and fittings - DR was unable to distinguish the present case with that relating to the preceding assessment years decided in favour of the assessee by the ITAT therefore we have no hesitation in confirming the order of the CIT(A) directing deletion of both the additions/disallowances made in the hands of the assessee by the AO. Disallowance of depreciation on goodwill generated on amalgamation - HELD THAT - CIT(A) has dismissed all the contentions raised by the assessee before him in a cryptic manner by simply stating that the AO has rebutted all the submissions of the appellant diligently. CIT(A) has not passed a speaking order pointing out how all the contentions of the assessee are rebutted by the AO. The fact we note is to the contrary. The assessee in his detailed submissions filed to the CIT(A) has countered every basis with the AO for holding the claim of depreciation not allowable as per law. CIT(A) without noting any fallacy in the contention of the assessee has upheld the order of the AO. Assessee has also pointed out that the issue stands covered in favour of the assessee by the decision of Urmin Marketing Pvt. Ltd. 2020 (11) TMI 47 - ITAT AHMEDABAD wherein ITAT notes that once the scheme of amalgamation is approved by the Hon ble High Court after receiving no objection from the Income Tax Department the consideration for the value of goodwill cannot be taken as Nil in terms of 6th proviso to Section 32(1) Explanation 7 to Section 43(1) Explanation 2(b) to Section 43(6)(c) Section 55(2)(a)(ii) and Section 49(1)(iii)(e) since they applied only to assets actually transferred from the amalgamating company to amalgamated company and goodwill resulting due to amalgamation was not an asset which was transferred from an amalgamating company to the amalgamated company. That such goodwill represents only the difference between the purchase consideration and the net asset value of the assets acquired by the amalgamated company and was not on account of any asset acquired by the amalgamating company or transferor-company. Therefore the ITAT held that the provisions of 6th proviso to Section 32(1) Explanation 7 to Section 43(1) Explanation 2(b) to Section 43(6)(c) Section 55(2)(a)(ii) and Section 49(1)(iii)(e) cannot be applied in such facts situation. The ITAT therefore held that depreciation on such goodwill therefore was allowable in view of the proposition laid down by the Hon ble Supreme Court in the case of Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT DR was unable to distinguish the said case before us. Thus he goodwill generated 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 - Decided in favour of assessee.

Summary

Issues Involved:

1. Deletion of addition to the taxable income of the assessee related to an offshore unit in Dubai.
2. Deletion of disallowance of excess depreciation claimed on electrical fittings.
3. Disallowance of depreciation claimed on goodwill generated on amalgamation.
4. Levying of interest under sections 234A/B/C/D of the Income-tax Act.
5. Levying of penalty under section 271(1)(c) of the Income-tax Act.

Detailed Analysis:

1. Deletion of Addition to Taxable Income:
The issue pertains to the addition of Rs. 60,71,37,893 to the income of the assessee related to an offshore unit, Vega Industries (Middle East), FZC, UAE. The CIT(A) deleted this addition, noting that the ITAT had consistently ruled in favor of the assessee in previous years, recognizing Vega ME as a separate corporate entity. The CIT(A) followed the ITAT's decision, which held that Vega UAE is a duly incorporated company under foreign law, thus its profits cannot be added to the assessee's income.

2. Deletion of Disallowance of Excess Depreciation:
The Revenue's appeal also challenged the deletion of disallowance of excess depreciation claimed on electrical fittings. The CIT(A) noted that this issue had been consistently decided in favor of the assessee by the ITAT in previous years, and therefore, directed the deletion of the disallowance. The ITAT upheld this decision, confirming that the CIT(A) correctly followed precedent.

3. Disallowance of Depreciation on Goodwill:
The assessee's appeal contested the disallowance of depreciation on goodwill amounting to Rs. 1,07,97,284. The goodwill arose from the amalgamation of a wholly-owned subsidiary, approved by the High Court. The assessee argued that depreciation on goodwill was allowed in previous years and should not be disallowed now. The ITAT agreed with the assessee, citing the Supreme Court decision in CIT Vs. Smifs Securities Ltd., which allows depreciation on goodwill as an intangible asset. The ITAT directed the Assessing Officer to allow the depreciation claimed by the assessee.

4. Levying of Interest:
The assessee also challenged the confirmation of interest levied under sections 234A/B/C/D of the Act. However, the judgment does not provide a detailed analysis or ruling on this issue, as the primary focus was on the substantive tax and depreciation issues.

5. Levying of Penalty:
Similarly, the appeal against the penalty levied under section 271(1)(c) was raised by the assessee. The judgment does not elaborate on this issue, indicating that the primary resolution was concerning the substantive issues of tax additions and depreciation.

Conclusion:

The ITAT dismissed the Revenue's appeal, confirming the CIT(A)'s deletion of additions and disallowances related to the offshore unit and excess depreciation. The assessee's appeal was allowed, with the ITAT directing the allowance of depreciation on goodwill, following legal precedents. The judgment emphasizes consistency in applying previous rulings and legal principles regarding corporate restructuring and depreciation claims.