9911796707
TMI Blog2023 (12) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of transferor. Under Income tax laws it is a settled proposition that, acquirer/transferee company subject to provisions of section 43 r.w.s 32 of the Act is entitled to claim depreciation u/s 32(1)(ii) of the Act on goodwill which is either acquired or purchased by an excess payment of consideration over net asset value taken over or by former combined modes. In the instant case, we note that, the assessee company was holding 95% of total equity share capital of its subsidiary RMIPL prior to execution of scheme of arrangement. It remained an undisputed fact that, the subsidiary company RMIPL had no goodwill in its books of accounts as on the date of its acquisition by its holding company, the appellant. Therefore, the question of transfer of any such amount of goodwill while recording assets of subsidiary company into its books in first place uncloudly failed. That is to say there was no acquisition of goodwill by the assessee while acquiring its subsidiary RMIPL. Consequently, on this issue, both the tax authorities came to a rightful conclusion that, when RMIPL had no goodwill in its books of account, then the question of recording the same in its books doesn t arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This appeal of the assessee for assessment year [for short AY ] 2018-19 is assailed against DIN Order ITBA/APL/S/250/2022-23/10447166031(1) dt. 17/08/2022 of Commissioner of Income Tax (Appeals)-11, Pune [for short CIT(A) ] passed u/s 250(6) of the Income-tax Act, 1961 [for short the Act ], which in turn ascended out of assessment order dt. 29/10/2020 passed u/s 143(3) by Asstt. Commissioner of Income Tax, Central Circle 1(3), Pune [for short AO ]. 2. Brief facts of the case are that; 2.1 The assessee is an Indian company. During the year under consideration the assessee acquired its subsidiary company Reyami Millennium Interior Pvt Ltd [for short RMIPL ] as going concern. Pursuant to approved scheme of arrangement when all assets and all liabilities were pulled in the books of account, the assessee recorded the resultant debit figure of ₹2,99,42,138/- as goodwill. A claim of depreciation u/s 32(1)(ii) of the Act thereon @25% was made in return of income filed by the assessee was disallowed by the Ld. AO while framing regular scrutiny assessment u/s 143(3) of the Act. 2.2 The assessee unsuccessfully agitated the aforestated disallowance in an appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igure of ₹2,99,42,138/-. The said balancing figure was recognised as goodwill and depreciation @25% thereon was claimed in its return. Both the tax authorities below denied to allow the appellant the aforestated claim. 6.2 In view of the Ld. AO, since under approved scheme of arrangement the subsidiary company had no intangible assets to be transferred to the assessee company, therefore the question of accounting for cost of goodwill in terms of explanation 7 to section 43(1) no longer arises. Thus the Ld. AO at the very outset dislodged the claim of creation of goodwill and consequently disallowed the claim for depreciation by placing reliance on the decisions of co-ordinate bench in DCIT Vs Toya Engineering India Ltd. (ITA No 3279/Mum/2008) and Sanyo BPL Pvt Ltd. Vs DCIT (ITA No. 1395/Bang/2014), and United Breweries Ltd. Vs ACIT (ITA 722/Bang/2014 . 6.3 On the other hand, when the assessee agitated aforestated disallowance vis- -vis creation/purchase of goodwill in an appeal before first appellate, the Ld. CIT(A) countenanced the views of the Ld. AO and dismissed the claim for depreciation dislodging the acquisition and purchase of any such goodwill finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share. The total number of shares of RMIPL was 62,50,000 and thus the total value of the company on the basis of FMV per share comes to Rs. 16,25,000/- (62,50,000 0.26). This value is almost matching with the net asset amounting to Rs. 20,07,8621-taken over by the appellant company. These facts also suggests that there was no self-generated goodwill earned by RMIPL which could carry a value of Rs. 2,99,42,138/- as shown by the appellant company in its books of accounts. Had this been the actual value of goodwill, in that case M/s KPS Holdings Pvt. Limited would not have transferred its shareholding in RMIPL at a rate of Rs. 0.26/- per share. This discussion also suggests that there was no self-generated goodwill by M/s RMIPL. 15. The accounting entries done by the appellant suggests that it made a total investment of Rs. 3,19,51,000/- in M/s RMIPL. The Fair Market Value of said investment as on 01/01/2017 was much lower than its cost of investment. The appellant has simply recognised the balancing figure (excess of cost of investment in RMIPL over Net Assets taken over) as 'goodwill acquired'. As discussed above, the amalgamating company did not have any self-generate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, same are not applicable to the present case. 17. Considering the totality of facts of the present case, I am of the opinion that the amalgamating company did not have any self-generated goodwill as claimed by the appellant company. Since no goodwill is acquired by the appellant company on amalgamation, same cannot be created just to claim deduction for capital loss incurred by it for the investment made in its subsidiary company, in the form of depreciation on goodwill over a period of time. Accordingly, the addition of Rs. 74,85,535/- made by the Assessing Officer on account of disallowance of depreciation on goodwill is upheld. The ground no. 4 5 raised by the appellant are DISMISSED. 7. Basically, goodwill comes into existence in two scenarios i.e., either acquired or purchased and more specifically (1) Acquisition: when a company (acquirer/transferee) acquires any other company (transferor) which has goodwill in its books prior to its acquisition by acquirer, and (2) Purchased: when a company (acquirer/transferee) acquires any other company (transferor) at a payment consideration in excess of net assets value of transferor. Under Income tax laws it is a settled pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t without any consideration thereagainst. Whereas the fair market value of equity shares of the assessee company as per registered valuer s report (placed on page 33 of paper book) was worked @ ₹142.08/per equity share. In summation, total value of purchase consideration under the approved scheme of arrangement payable was to be worked out with reference to 3,125 equity share @ price of ₹142.08/per share. The resultant consideration paid/payable by the appellant under approved scheme, as rightly submitted by the Ld. AR that, was even much less than the value of net assets acquired by it. This being the factual admitted position, there was no scope of purchase of goodwill by excess payment of purchase consideration. The wholesome findings Ld. CIT(A) remained flawless to the effect that, the amount of goodwill supposedly claimed by the assessee can be traced into accounting entries passed by the assessee, which reveals that the appellant company has simply recognised the balancing figure i.e., excess of its cost of investment in RMIPL over Net Assets taken over by it as goodwill purchased. This treatment however, in our considered view is neither in accordance with the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
