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TMI Blog2023 (5) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... iation - By examining entire records of the assessee and after considering the explanations, the ld. PCIT came to the conclusion that the AO has not at all examined the artificially created goodwill by amalgamating company and thus, we are of the opinion that the assessment order passed by the AO is erroneous and prejudicial to the interest of Revenue. Decided against assessee. - I.T.A. No.922/Chny/2022 - - - Dated:- 27-4-2023 - Shri V. Durga Rao, Judicial Member And Dr. Manish Borad, Accountant Member For the Appellant : Shri N.V. Balaji, Advocate For the Respondent : Shri M. Rajan, CIT ORDER PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax, Chennai -4, Chennai, dated 25.03.2022 relevant to the assessment year 2017-18 passed under section 263 of the Income Tax Act, 1961 [ Act in short]. 2. The appeal of the assessee has been filed with a delay of 161 days in filing the appeal before the Tribunal. The assessee has filed condonation petition in the form of an affidavit, wherein, the reasons for the delay in filing the appeal has been stated as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹.49,16,47,488/- towards disallowance under section 80IA of the Act and demand of ₹.6,51,09,932/- was raised. 5. Subsequently, by exercising the powers conferred under section 263 of the Act, after examining the assessment records, the ld. PCIT has noticed that the assessee has claimed depreciation of ₹.17,41,16,411/- @ 25% on opening WDV of ₹.69,64,65,644/- towards intangible asset which represents goodwill created on amalgamation. The depreciation on goodwill claimed by the amalgamated company i.e., the assessee amounting to ₹.17.41 crores (approx.) is inadmissible as it is evidenced in the Notes on accounts, where, it can be seen that the amalgamating company had not claimed any depreciation on goodwill and the depreciation claimed on goodwill to the tune of ₹.17.41 crores by the amalgamated company is only on the goodwill created due to amalgamation. The ld. PCIT has noted that the goodwill has been artificially created one as it represents difference between the fair value of net assets taken over and the value of new optionally convertible/ redeemable preference shares to be issued to the shareholders are fully paid up. Thus, the ld. PC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, written submissions of the assessee company and the argument of the AR of the assessee company were carefully considered. At the onset it is to be clarified here that the Hon ble Supreme Court in the case of M/s. Smifs Securities Limited decided on the question of whether goodwill is an asset under explanation 3(b) of section 32(1) and whether it, is eligible for depreciation. However, an entirely different question was involved in the assessment under question i.e., value of goodwill to be recorded in the books of an amalgamated company and what is the value of depreciation one can claim on such goodwill in the hands of amalgamated company. 8. Under this scheme of amalgamation, all the assets and liabilities of the amalgamating companies were transferred to the assessed for a consideration payable to the shareholders of the amalgamating companies. Assessee claims that all the assets and liabilities of the amalgamating companies were recorded by it in its books at their respective fair values. The excess consideration paid, over and above the value of net assets recorded in the books of the amalgamating companies, was recorded as goodwill in the books df the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th proviso to section 32(1), the claim of depreciation in the hands of assessee company cannot exceed zero. 14. In other words, the allowance of depreciation to the successor/amalgamated company in the year of amalgamation would be on the written down value of the assets in the books df the amalgamating company and not on the cost as recorded in the books of amalgamated company. The case of amalgamation is not regarded as transfer for the purpose of capital gain as provided under section 47(vi) and therefore such cases are exempted from capital gain which is otherwise chargeable to tax on transfer pf assets. In the case on hand the business of other two companies were transferred to the assessee by way of amalgamation and therefore it would not be regarded as transfer of asset for the purpose of capital gain. Hence the claim of depreciation on the assets acquired under the scheme of amalgamation is restricted only to the extent if such amalgamation has not taken place. 15. Accordingly, as per the 6th proviso to section 32(1)(ii), the aggregate deduction in respect of depreciation on any tangible or intangible assets allowable to amalgamating company and the amalgamated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. CIT vs. Max India Ltd. [2007] 295 ITR 282(SC) 3. CIT vs. Smifs Securities Ltd. [2012] 348 ITR 302 (SC) 4. Keva Fragraces Ltd. vs. DCIT ITA No. 334/M/2020 (Mumbai) 5. Bodal Chemical Ltd. vs. ACIT (Ahmedabad) 6. Hinduja Foundries vs. ACIT [2017] 83 taxmann.com 52 (Chennai-Trib.) 8. On the other hand, the ld. DR has submitted that as per section 142(1) of the Act, it is obligation on part of the Assessing Officer to examine the issue, particularly, in this case, artificial goodwill has been created by the assessee and the Assessing Officer has failed to make enquiry as to whether the goodwill created is in accordance with law or not. So far as merits of the case is concerned, by relying upon the decision of the Bangalore Benches of the ITAT in the case of United Breweries Ltd. Vs. Addl. CIT (76 taxmann.com 103), the ld. DR has submitted that without examining the issue and without application of mind, the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. It was further submission that the ld. PCIT has rightly exercised the powers conferred under section 263 of the Act. 9. We have heard both the sides, per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court or any other Courts, the Assessing Officer will not come to know that. Therefore, it is a bounden duty of the Assessing Officer to call for complete details and examine the facts and issue involved in this case and he has to conclude the assessment order accordingly. In this case, neither the Assessing Officer called for any explanation from the assessee nor examined the issue. It is totally failure on the part of the Assessing Officer. Therefore, the ld. PCIT has rightly set aside the assessment order passed under section 143(3) of the Act. 11. So far as case law relied on by the ld. Counsel for the assessee are concerned, in those cases, the Assessing Officer has called for the details and examined the issue at length, whereas, in the present case, neither the Assessing Officer has called for the details nor examined the issue involved. Thus, the case law have no relevance to the facts of the present case and the same are distinguishable. 12. With regard to the next argument of the ld. Counsel that for assessment years 2015-16 and 2016-17, the Assessing Officer issued notice for reopening, it is the bounden duty of the Assessing Officer to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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