2024 (1) TMI 22 - AT - Income Tax

Claim of depreciation on goodwill - depreciation was not claimed in the original return (ITR) - Power of authorities to consider the claim for additional depreciation by way of filing revised computation of income - whether the assessee could make a claim for deduction other than by filing a revised return - HELD THAT - Such an issue is no longer res integra and is covered by the decision of Goetze (India) Ltd 2006 (3) TMI 75 - SUPREME COURT wherein Hon ble Apex Court affirmed the principle that the appellate authorities can consider additional claim even if the same is not raised by the taxpayer in the original or revised return and the Tribunal under section 254 of the Act has the power to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. We are, therefore, of the considered opinion that there is no bar to consider the claim of the assessee for additional depreciation, made otherwise than by a revised return of income by the appellate authorities. Goodwill acquired pursuant to the amalgamation - The issue of depreciation on goodwill arising on amalgamation has already been dealt with by Hon'ble Supreme Court in the case of Smifs Securities 2012 (8) TMI 713 - SUPREME COURT which is later followed in various cases by the Hon ble High Courts and Co-ordinate Benches of the Tribunal. We find force in the submissions of the learned AR that Explanation 2 to Section 43(6) of the Act, does not affect the right of amalgamated company to claim depreciation as the explanation is applicable only where an existing block of asset is transferred to the amalgamated company, and that since here goodwill comes into existence only for the first time because of excess consideration paid, explanation does not apply. Explanation 5 to Section 32(1) of the Act clearly lays down that the provisions of such sub-section shall apply whether or not the assessee has claimed the deduction in respect of the depreciation in computing the total income. It, therefore, goes without saying that irrespective of the fact of assessee claiming or not, the depreciation shall be allowed while computing the total income of the assessee. Then it becomes the obligation on the part of the Revenue to allow depreciation on goodwill even if it is not claimed by the assessee . At the same time, the CBDT Circular No.14 (XL 35) of 1955, date 11/04/1955, reinforces this obligation in unequivocal terms, stating that the department must not take advantage of ignorance of any assessee as to his rights and it is one of the duties of the department to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs, by taking initiative in guiding the taxpayer where the proceedings are before them indicate that some relief is due to the taxpayer. When we read Explanation 5 to Section 32(1) of the Act and the above circular issued by the CBDT in the context of Article 365 of the Constitution of India, we find it difficult to uphold the action of the authorities below in depriving the assessee of the claim for deduction of depreciation on goodwill. Thus we are of the considered opinion that disallowance of the claim for deduction of depreciation on goodwill by the authorities below cannot be sustained and the same is liable to be deleted. Appeal of assessee allowed.

Summary

Issues Involved:
1. Whether the assessee can claim additional depreciation on goodwill not claimed in the original return.
2. Whether depreciation on goodwill arising from amalgamation is allowable under the Income Tax Act.

Summary:

Issue 1: Claim of Additional Depreciation on Goodwill Not Claimed in Original Return

The assessee, engaged in providing IT-enabled services, acquired the entire shareholding of SNL Financials (India) Private Limited, recording excess purchase consideration as 'goodwill'. While filing the return for AY 2018-19, the assessee inadvertently did not claim additional depreciation on this goodwill. The Assessing Officer, in the draft assessment order, did not consider this additional claim made through a revised computation of income. The Dispute Resolution Panel (DRP) upheld this decision, stating that errors or omissions in the return can only be rectified by filing a revised return within the prescribed time under section 139(5) of the Income Tax Act. The DRP emphasized that the Assessing Officer is not empowered to entertain such claims outside the revised return mechanism.

Issue 2: Allowability of Depreciation on Goodwill Arising from Amalgamation

The assessee argued that goodwill is a depreciable asset as per the Supreme Court's decision in Smifs Securities and that depreciation should be allowed irrespective of whether it was claimed in the original return, per Explanation 5 to Section 32(1) of the Act. The DRP, however, distinguished the Smifs Securities case, stating it did not consider specific provisions relevant to the issue, such as Explanation 7 to Section 43(1) and Explanation 2(b) to Section 43(6)(c) of the Act, and thus denied the claim.

The Tribunal, referencing the Supreme Court's decision in Goetze (India) Ltd., held that appellate authorities can consider additional claims not raised in the original or revised return. The Tribunal found that the goodwill acquired due to amalgamation is eligible for depreciation, as established in Smifs Securities. It rejected the DRP's reasoning that certain provisions were not considered in Smifs Securities, noting that legislative amendments excluding goodwill from intangible assets for depreciation purposes only came into effect from 01/04/2021. The Tribunal emphasized that until this amendment, goodwill was part of the block of intangible assets eligible for depreciation.

Conclusion:

The Tribunal concluded that the disallowance of the claim for depreciation on goodwill by the authorities below is unsustainable. It ordered that the claim for deduction of depreciation on goodwill be allowed, thus allowing the appeal of the assessee. The decision was pronounced in the open court on December 26, 2023.