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TMI Blog2023 (3) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings, factually as well as legally, while allowing the assessee s claim of depreciation on goodwill. Whether the assessee took a view which is legally plausible/sustainable in law? - High Court of Gujarat in the case of Pr. CIT vs. Zydus Wellness Ltd. [ 2017 (10) TMI 373 - GUJARAT HIGH COURT] has held that assessee company is entitled to claim depreciation on goodwill expended at the time of amalgamation of companies. In the said order, the Hon ble Gujarat High Court placed reliance on the decision in the case of CIT vs. Smifs Securities [ 2012 (8) TMI 713 - SUPREME COURT] , while deciding the issue in favour of the assessee. We are of the considered view that the AO has placed reliance on the case of Smifs Securities supra while allowing the claim of depreciation on goodwill for the impugned assessment year and hence the view taken by ld. Assessing Officer can be held to be legally plausible view. Regarding the scope of enquiry u/s 263 of the Act, it may be useful to refer to jurisdictional Gujarat High Court decision in the case of Principal Commissioner of Income Tax-3 v. Minal Nayan Shah [ 2020 (9) TMI 825 - GUJARAT HIGH COURT] - we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act, though in the assessment order dt. 23-12-2017 the income assessed was as per returned loss of Rs.104,49,70,098/-. 6. In law and in facts and circumstances of the appellant's case, the Learned Pr. Commissioner of Income-tax- 1 Ahmedabad has grossly erred in holding that depreciation amounting to Rs.68,84,94,588/- on goodwill is not allowable for deduction. 7) In law and in facts and circumstances of the appellant's case, the Learned Pr. Commissioner of Income-tax-1 Ahmedabad has grossly erred in directing the Ld. Assessing Officer to pass fresh Assessment Order on the claim of depreciation on the goodwill. 8) Your appellant reserves the right to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time. ITA No. 305/Ahd/2018 A.Y. 2016-17 1) In law and in facts and circumstances of the Appellant's case, the Learned Pr. Commissioner of Income-tax-1 Ahmedabad has grossly erred in points of law and facts. 2) In law and in facts and circumstances of the appellant's case, the Learned Pr. Commissioner of Income-tax-1 Ahmedabad has grossly erred in passing revision order u/s.263 of Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the return of income filed by the assessee. Subsequently, the Pr. CIT noticed that pursuant to the order of Hon ble High Court of Gujarat dated 20-04-2015 sanctioning the composite scheme of arrangement in the nature of amalgamation or demerger, the Healthcare Division of M/s. Nirma Limited got demerged and was transferred to and vested in the assessee company M/s. Aculife Healthcare Pvt. Ltd. effective from 15-06- 2015. The appointed date for the said demerger was 01-10-2014. According to the said scheme all assets and liabilities of the healthcare division of M/s. Nirma Ltd. as on the appointed dated was transferred to and vested in the assessee company M/s. Aculife Healthcare Pvt. Ltd. The Pr. CIT observed that in the process of demerger, goodwill amounting to Rs. 275 crores being difference between net assets and shares to be issued was credited by the assessee company on which depreciation amounting to Rs. 68,84,94,588/- was claimed for the year under consideration i.e. assessment year 2015-16. The Pr. CIT observed that on the perusal of details, no goodwill is reflected in the balance sheet of the demerged entity prior to the demerger. This indicates that the aforesaid go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned discussions and bearing in mind the entirety of the case, I am of the opinion that the assessment order passed by the A.O. 143(3) of the I.T. Act, 1961 on 23.12.2017 is erroneous insofar as prejudicial to the interest of the revenue, as discussed in preceding paras, since the order has been passed without making adequate examination of the assessee's eligibility for claim of the depreciation on goodwill. By virtue of the powers vested in me u/s. 263 of the I T Act, I hereby set-aside the order passed u/s 143(3) of the l.T. Act, 1961 on 23.12.2017 and direct the Assessing Officer to pass a fresh assessment order after allowing adequate opportunities of being heard to the assessee, in accordance with the law following prescribed procedure and duly examining the aforementioned issue in the light of the above discussion. 5. The assessee in appeal before us against the order passed by the Pr. CIT u/s. 263 of the Act setting aside the assessment order passed by ld. Assessing Officer of the impugned assessment order. Before going into the merits of the case, we observe that there is delay of 31 days in filing of appeal before us (for both assessment years 2015-16 and 2016-17) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 06-10- 2017 issued by the Assessing Officer and pointed out that at para 10 of the said notice the ld. Assessing Officer had specifically called for details regarding additions to fixed assets during the year and claim of any additional depreciation thereon. Further, the counsel for the assessee drew our attention to page 34 of the paper book which is the submission of the assessee filed before ld. Assessing Officer dated December 19, 2017 and pointed out that the issue regarding claim of depreciation on goodwill was explained in detail by the assessee before the ld. Assessing Officer. In the said submissions, the assessee placed reliance on the case of CIT vs. Smifs Securities Pvt. Ltd. 348 ITR 302 (SC) wherein the Hon ble Supreme Court has held that goodwill is an asset as per explanation 3 to section 32(1) and depreciation on the same shall be allowed in case of amalgamation/demerger. During the course of assessment, the assessee had submitted that in view of Smifs Securities decision supra , the extra consideration paid towards reputation which the amalgamating company was enjoying in order to retain its existing clientele should be considered as goodwill arising on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of depreciation during the course of assessment proceedings, factually as well as legally, while allowing the assessee s claim of depreciation on goodwill . 9. Now, the second issue that arises for our consideration is whether the assessee took a view which is legally plausible/sustainable in law. In this case, we would like the relevant extract of the Supreme Court decision in the case of Smifs Securities 348 ITR 302, wherein the Supreme Court held as under:- 4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red view that the Ld. Assessing Officer has placed reliance on the case of Smifs Securities supra while allowing the claim of depreciation on goodwill for the impugned assessment year and hence the view taken by ld. Assessing Officer can be held to be legally plausible view. Regarding the scope of enquiry u/s 263 of the Act, it may be useful to refer to jurisdictional Gujarat High Court decision in the case of Principal Commissioner of Income Tax-3 v. Minal Nayan Shah [2020] 121 taxmann.com 30 (Gujarat), which has made the following observations in this regard: 9.1 As pointed out on behalf of the assessee, two pre-requisites must coexist before the designated authority could exercise the revisional jurisdiction conferred on him namely; the order should be (I) erroneous (ii) the error must be such that it is prejudicial to the interests of the Revenue. However, an erroneous order does not necessarily mean an order with which the Pr. CIT is unable to agree . The AO while passing an order of assessment, performs judicial functions. An order of assessment passed by the AO cannot be interfered only because an another view is also possible on the issue as held in CIT v. Greenw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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