9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (11) TMI 816 - AT - Income TaxDisallowance u/s 14A r.w.r.8D - suo-moto disallowance made by assessee - AO held that nowhere in the section 14A provides that disallowance is to be made only, if assessee has earned exempt income during the year - as argued AO without recording his dissatisfaction issue a Show Cause Notice to the assessee to explain as to why provisions of Rule 8D r/w section 14A should not be invoked - HELD THAT - We hold that the reliance placed by the Ld AO of the CBDT Circular No.5 of 2014 to make disallowance u/s. 14A is legally not tenable and liable to be deleted. Scope of Amendment to Section 14A by the Finance Act, 2022 - Since very recently Hon ble Guwahati High Court reversed the decision of the ITAT Guwahati Bench in Williamson Financial Services Ltd 2024 (9) TMI 1571 - GAUHATI HIGH COURT and others and held that the Amendment to Section 14A by the Finance Act, 2022 is to be applicable Prospective only. Own funds of the Assessee were much more than the investments made by the Assessee, hence no disallowance be made u/s. 14A of the Act on account of interest expenditure - Hon'ble Supreme Court in the case of CIT -Vs- UTI Bank Ltd 2022 (10) TMI 613 - SC ORDER held that where interest free own funds available with assessee exceeded their investments in tax free securities, investments would be presumed to be made out of assessee s own funds and proportionate disallowance was not warranted u/s. 14A. Thus we hold that the disallowance made by the Ld AO u/s. 14A is legally not tenable and liable to be deleted. Mandatory for the AO to record dis-satisfaction as required u/s. 14(2) - Disallowance made invoking Rule 8 without recording dis-satisfaction by the Assessing Officer is against the provisions of section 14 2 and the addition is liable to be deleted. MAT computation on section 14A addition - Provisions of section 14A cannot be applied for computing the book profit u/s. 115JB of the Act and thereby delete the addition made by the AO. Depreciation on goodwill arising from amalgamation u/s. 32 - HELD THAT - The basic fallacy in the approach of the Ld AO in this case is that he has proceeded further on the premise that the goodwill in question was transferred from amalgamating company to amalgamated company and hence depreciation on the same is not allowable in the eye of law. However, in the present case, as a matter of fact, goodwill in question is a result of amalgamation and has come into existence only pursuant to Scheme of Amalgamation duly approved by competent authority namely Hon ble NCLT. Thus all the provisions relied upon by the Ld AO (enlisted hereinabove) would apply only in a case where an asset is transferred in the course of amalgamation by transferor company to the transferee company and would not apply when a particular asset is a result of amalgamation. The reasoning given in the Memorandum explaining the Finance Bill, 2021 for excluding goodwill from the ambit of intangible assets is that the actual calculation of depreciation of goodwill is required to be carried out in accordance with various other provision of the IT Act. Once those provisions are applied, in some situations (like that of business re-organization) there could be no depreciation on account of actual cost being zero and the WDV of that asset in the hands of the predecessor/amalgamating company being zero. Goodwill, in general, is not a depreciable asset and it depends upon how the business runs, goodwill may see appreciation and in the alternative no depreciation to its value. Hence, for the said reasons assessee s have been barred from claiming depreciation on goodwill. These amendments are to take effect from 01st April 2021 and will accordingly apply to the assessment years 2021-22 and subsequent assessment years. Therefore the amendments in question will have no impact on the claim of the assessee company in this appeal which pertains to the Asst. Years 2016-17 and 2017-18. In view of the above findings depreciation on goodwill created as a result of amalgamation is allowable and directed the JAO to allow the same by passing appropriate orders. Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Claim of depreciation on goodwill arising from amalgamation. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The primary issue was whether disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D, could be made when no exempt income was earned during the relevant assessment year. The assessee argued that no disallowance is warranted in the absence of exempt income, citing various judicial precedents including the Hon'ble Gujarat High Court's judgment in CIT Vs. Corrtech Energy Pvt. Ltd. The assessee also contended that investments were made from its own funds, which exceeded the investments, and therefore, no disallowance should be made. Additionally, it was argued that the investments were strategic in nature for holding controlling interest in subsidiaries, which should not attract disallowance under Section 14A. The assessee further contended that Section 14A disallowance should not apply while computing book profit under Section 115JB. The Assessing Officer (AO) held that disallowance under Section 14A is applicable even if no exempt income is earned, relying on CBDT Circular No.5/2014 and the Supreme Court's judgment in Maxopp Investment Ltd. The AO made a total disallowance of Rs. 35,11,35,800/- under Section 14A and included it in the book profit under Section 115JB. The Tribunal, however, held that the provisions of Section 14A cannot be applied for computing book profit under Section 115JB, relying on the Special Bench decision in ACIT vs. Vireet Investments Pvt. Ltd. and various High Court judgments. It was concluded that the CBDT Circular No.5/2014 cannot override the expressed provisions of Section 14A read with Rule 8D, and the amendment to Section 14A by the Finance Act, 2022, is prospective and not applicable to the assessment years under consideration. The Tribunal also noted that the assessee had sufficient own funds to cover the investments, and the AO had not recorded dissatisfaction as required under Section 14A(2). Thus, the disallowance made by the AO was deleted. 2. Claim of Depreciation on Goodwill: The second issue was whether the assessee was entitled to claim depreciation on goodwill arising from the amalgamation of its subsidiaries. The assessee argued that the scheme of amalgamation was approved by the National Company Law Tribunal (NCLT), and the excess consideration paid over the net assets acquired should be treated as goodwill, eligible for depreciation under Section 32. The assessee relied on the Supreme Court's judgment in CIT vs. Smifs Securities Ltd., which held that goodwill is an asset eligible for depreciation. The AO denied the claim, arguing that the goodwill did not exist in the books of the transferor companies prior to amalgamation and relied on various statutory provisions to deny depreciation. The CIT(A) confirmed the AO's view. The Tribunal, however, held that goodwill arising from amalgamation is eligible for depreciation, following the Supreme Court's judgment in Smifs Securities Ltd. and other precedents. The Tribunal noted that the NCLT's order approving the amalgamation was not challenged by the Revenue, and thus, the Revenue could not dispute the claim of depreciation on goodwill. It was also observed that the amendments to the provisions regarding goodwill by the Finance Act, 2021, are prospective and do not affect the assessment years in question. Therefore, the Tribunal allowed the claim of depreciation on goodwill. Conclusion: The appeals filed by the Revenue were dismissed, and the appeals filed by the Assessee were allowed, with the Tribunal ruling in favor of the assessee on both issues.
|
