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TMI Blog2019 (9) TMI 1700X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on goodwill - goodwill as acquired during merger - As per AO goodwill is not reflected in the post-merger audited financial statement and the tax audit report of the assessee - HELD THAT:- As assessee has submitted that post approval of merger by the Hon ble High Court of Delhi and Hon ble Calcutta High court, the audited financial statement for FY 2006-07 clearly reflected the amount of goodwill that arose pursuant to the merger. The same was also filed with the A.O. vide letter dated 21st March, 2014. Though in the tax audit report the tax auditor has not considered the depreciation on goodwill, but the same cannot be the basis of disallowance. We find that such disallowance made by the AO is erroneous. On appeal by assessee, CIT(A) has appreciated the facts of the assessee company and deleted the addition. We decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the revenue are dismissed. Addition on account of bad debts - CIT-A deleted the addition - HELD THAT:- As amount mentioned as opening balance in the details submitted before the AO is the unrealized amount which is nothing but unreal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation in spite of assessee's failure to disclose goodwill in the accounts of FY 2006-07. iii. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the disallowance of the claim of depreciation in spite of assessee's failure to justify enumeration of goodwill. iv. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the disallowance the claim of depreciation on goodwill through major part of the claim pertained to earlier assessment years. v. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the additions made on account of bad debts in absence of corroborating evidences. vi. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the additions made on account of bad debts on the basis of evidences, which were not send to the Assessing Officer for examination as per the provisions of Rule 46A of IT Rules. vii. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the additions made on account of un-reconciled closing balance with M/s Madhumita Construction P Ltd. on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the parties and perused the material available on record. We note that the during the assessment proceedings the assessee submitted the project wise details of these expenses on 21st March, 2014. However, in the impugned assessment order, the ld. Assessing Officer without giving proper opportunity of being heard to the assessee, disallowed Rs. 90,32,940/- incurred on account of the below noted project sites: Sl. No. Particulars Expenses incurred Amount disallowed on ad hoc basis 1 Bhopal Site 5,619,157 4,015,100 2 Bareilly Site 9,659,861 4,912,500 3 Haldia Site 1,085, 640 105,340 Total 9,032,940 It is a well-established principle that ad hoc disallowance made by an Assessing Officer without proper verification of the facts is bad in law and in gross violation of the principles of natural justice. In our opinion, the Scheme of the Act does not authorize the Assessing Officer to make a disallowance according to his wishes, rather it provide that he should first point out the defects in the accounts of the assessee. If the Assessing Officer is not satisfied with a particular expense, he may make necessary verification and also to point out defect in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. In the case of assets acquired in the previous year, the actual cost to the assessee; b. In the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922(11 of 1922) or any Act repealed by that Act, or under any executive orders issued when the Indian Income Tax Act 1886(2 of 1886), was in force." Hence, we had claimed depreciation on actual cost of goodwill (intangible asset) i.e. INR 10 crores during AY 2011-12 at the rate of 25% by filing a revised return. The claim for deprecation in this year is INR 2.5 crores." However, the assessing officer rejected the claim of the assessee and noted that the tax audit report and profit & loss account and balance sheet of the assessee company Shristi Infrastructure Development Corporation Ltd. filed for the FY 2006-07 filed along with the return of income for the AY 2007-08, it is revealed that there was no goodwill reflected as an asset. Therefore, the claim of the assessee company is baseless that goodwill to the tune of Rs. 10 crores was recorded as an asset in the FY 2006-07. Therefore, the depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has disallowed the depreciation on goodwill merely on the ground that the goodwill is not reflected in the post-merger audited financial statement and the tax audit report of the assessee. In this regard, the assessee has submitted that post approval of merger by the Hon'ble High Court of Delhi and Hon'ble Calcutta High court, the audited financial statement for FY 2006-07 clearly reflected the amount of goodwill for a sum of Rs. 100,000,000/- that arose pursuant to the merger. The same was also filed with the A.O. vide letter dated 21st March, 2014. Though in the tax audit report the tax auditor has not considered the depreciation on goodwill, but the same cannot be the basis of disallowance. We find that such disallowance made by the Assessing Officer is erroneous. On appeal by assessee, ld CIT(A) has appreciated the facts of the assessee company and deleted the addition. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the revenue are dismissed. 13. Ground nos. 5 and 6 raised by the revenue relate to deletion of addition on account of bad debts. 18. Brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable on record. We note that in response to the query of the AO, the assessee submitted details of bad debts written off before him vide submission dated 1 January 2014. The claim of bad debt of Rs. 44,04,255/- consisted of debts due from IRCON and PWD amounting to Rs. 38,90, 132/- and remaining debt written off represented write off of Fixed asset. We note that AO disallowed bad debts written off in the P&L a/c aggregating to Rs.38,90,132/-, representing unrealized balances of debtors viz. IRCON and PWD for sales made up to 31st March 2006 and 31 March 2001 respectively. On further enquiry by the AO, the Assessee filed submission dated 14.03 2014 before the AO, mentioning the details of debtors whose balances were written off as bad during the financial year 2010-11. The bad debt written off in the profit and loss account during the financial year under consideration included write off of fixed assets/other balances amounting to Rs. 5,14,123/-, this clearly being a capital write off is not eligible to be claimed as revenue loss. This is a capital loss. Hence the action of AO in disallowing write off of Rs. 5,14,123/- on account of fixed asset was upheld by CIT(A). Regarding the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us . 25. The ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. 26. We have heard both the parties and perused the material available on record. We note that the difference in liability is primarily on account of the accounting of service tax. The ld Counsel submits that it is not the case where excess expenditure has been recorded for which liability has arisen. The amount of service tax for which liability is reflected is not claimed by the assessee as an expense. Further, the liability so created has subsequently been paid by the assessee. The difference in accounting treatment followed by the both the parties cannot lead to any addition as unexplained liability. Therefore, we note that the question of overstating the expenditure of accounting for unexplained purchases does not arise. Therefore, the addition of Rs. 2,03,655/- made by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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