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2020 (9) TMI 463 - AT - Income TaxDepreciation on goodwill - difference in the purchase price and the fair value of assets based on the relevant provision of law - HELD THAT - CIT(A) has agreed on the contention raised by the Assessee regarding depreciation of goodwill representing the difference in the purchase price and the fair value of assets based on the relevant provision of law (Section 32 read with Rule 5 and Appendix-I) and in due deference to the decision of the Hon ble Apex Court in the case of CIT vs. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT has set aside the issues in dispute to the Assessing Officer with the directions to work out the appropriate amount of depreciation on goodwill while giving effect of the impugned order dated 13.12.2016 i.e. year in dispute. No doubt the ITAT has also set aside this issue to the Assessing Officer to decide the same in accordance with law, after giving opportunity to the assessee in its decision dated 28.08.2020 in assessment year 2012-13. But we are of the view that in the impugned order, Ld. First Appellate Authority has also set aside the issue of depreciation on goodwill to the AO to workout the appropriate amount of depreciation on goodwill, therefore, we are of the considered view that no interference is called for in the well reasoned order passed by the Ld. First Appellate Authority, hence, we uphold the findings of the Ld. First Appellate Authority on the issue of depreciation of goodwill. Appeal of the Revenue is dismissed.
Issues Involved:
1. Deletion of disallowance of market to market foreign exchange loss. 2. Allowing depreciation on goodwill. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of Market to Market Foreign Exchange Loss: The Revenue challenged the deletion of a disallowance amounting to ?18,26,173/- related to market to market foreign exchange loss, arguing that the transaction was speculative in nature. The Revenue also contended that the CIT(A) ignored CBDT instruction no. 3/2010 and a previous decision by the DRP on the same issue. Additionally, the Revenue argued that the CIT(A) erroneously relied on the Supreme Court's decision in CIT vs. Woodward Governor India Pvt. Ltd., which was not applicable to speculative foreign exchange loss. Both parties acknowledged that the ITAT had previously decided this issue in favor of the assessee for earlier and subsequent assessment years. The Tribunal reiterated its position from the order dated 28.08.2020 in the assessee’s own case, where it was held that the foreign exchange loss was not speculative but a legitimate business expense. The Tribunal cited the Delhi High Court's decision in CIT vs. Industrial Finance Corporation of India Ltd. and the Bombay High Court's decision in Pr.CIT vs. International Gold Company Ltd., which supported the allowance of mark to market loss on revaluation of forward exchange contracts. Consequently, the Tribunal dismissed the Revenue's grounds related to this issue. 2. Allowing Depreciation on Goodwill: The Revenue also contested the allowance of depreciation on goodwill, arguing that the goodwill did not exist in the balance sheets for AY 2009-10 to 2012-13, and there was no basis to value goodwill at ?6,09,00,000/-. The Revenue further argued that the CIT(A) ignored the Supreme Court's decision in Goetze (India) Ltd. vs. CIT and the findings of the AO in the remand report. The Tribunal noted that the ITAT had previously decided this issue in favor of the assessee for earlier assessment years. The Tribunal referenced its order dated 28.08.2020, where it had remitted the issue to the AO to verify the factual aspects and determine the appropriate amount of depreciation on goodwill. The Tribunal emphasized that the CIT(A) had directed the AO to work out the appropriate amount of depreciation on goodwill while giving effect to the impugned order. The Tribunal highlighted that the CIT(A) had considered the Supreme Court's decision in CIT vs. Smifs Securities Ltd., which allowed depreciation on goodwill as an intangible asset. The Tribunal upheld the CIT(A)'s direction to the AO to verify the claim and determine the appropriate amount of depreciation on goodwill. Consequently, the Tribunal dismissed the Revenue's grounds related to this issue. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both the deletion of disallowance of market to market foreign exchange loss and the allowance of depreciation on goodwill. The Tribunal's decision was based on precedents set in the assessee's own case for earlier assessment years and relevant judicial pronouncements.
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