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TMI Blog2024 (1) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... case of M/s. Dorma India Pvt. Ltd., Chennai [ 2019 (11) TMI 1139 - ITAT CHENNAI ] Further, we also place reliance on the judgement of Hon ble Karnataka High Court in the case of Padmini Products (P) Ltd. [ 2020 (10) TMI 424 - KARNATAKA HIGH COURT ] wherein similar circumstances Hon ble High Court has allowed the claim of the assessee. As seen from earlier order of the Tribunal, the said decision is based on the judgement of Hon ble Karnataka High Court in the case of Padmini Product Pvt. Ltd. cited (supra), the operation of which is stayed by Hon ble Supreme Court as of now as mentioned above. In view of this, we are of the opinion that it is appropriate to remit this issue to the file of ld. AO to decide the same on consideration of final outcome of decision in the case of M/s. Padmini Products Pvt. Ltd. cited (supra). This issue is remitted to the file of ld. AO for fresh consideration as observed above. Disallowance u/s 14A of the Act read with Rule 8D(2) - AO invoked provisions of section 8D(2)(ii) of the Rules with regard to indirect expenses incurred by assessee which are common expenses and cannot be identified independently - HELD THAT:- We have carefully gone throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in the Finance Act, 2021 will take effect from April 01, 2021, and will, accordingly, apply in relation to AY 2021-22 and subsequent AYs. VII. The learned CIT(A) has erred in understanding the facts that when the disallowance of depreciation on Goodwill is deleted by the Hon'ble ITAT for the Initial assessment year of acquisition i.e. 2015-16, a similar disallowance cannot be made for the subsequent assessment years. VII. The learned ClT(A) has erred in making the disallowance under Section14A read with Rule 8D. VIII. The learned CIT(A) has made a grave error in not appreciating the fact that the appellant has not incurred any expenses to earn the dividend income. XIX. The learned CIT(A) failed to consider that the calculation of expenses related to exempt income cannot be on a notional basis as it would result in the imposition of an artificial method of computation. X. The learned CIT(A) erred in considering the fact that the assessee has adequate own funds and the investment is undertaken with their own funds and no amount of borrowed funds has been utilized for the purpose of such investments. XI. The learned CIT(A) erred in assumin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Indus Seeds, sole property concern of Managing Director of the assessee company and Rs. 74,14,150/- to M/s. Sasya Gentech Pvt. Ltd., the company in which the Managing director of assessee company is the substantial shareholder and Director. The assessee has taken over the business/assets and liabilities of M/s. Indus Seeds and also M/s. Sasya Gentech Pvt. Ltd. by a slump sale arrangement. The value of intangible asset was the difference between the book value of assets and liabilities taken over and the sale consideration paid to both the concerns. In other words, the difference between net- worth over the sale consideration is considered as goodwill and claimed depreciation on the same. The A.O. invoked the provisions of explanation 3 to section 43(1) of the Act and observed that assessee is not entitled for depreciation on intangible assets as he doubted the net consideration paid by the assessee to those two concerns on the reason that these are related party transactions. According to the A.O., assessee has not provided any material for justification of such a huge amount of goodwill to both M/s. Indus Seeds M/s. Sasya Gentech Pvt. Ltd. According to the A.O., M/s. Sasya Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamation of companies, the predecessor of the business and successor the amalgamating company and amalgamated company as the case may be, are entitled to depreciation allowance on same assets which in aggregate exceeds depreciation allowance for Previous year at the prescribed dates. It is proposed to restrict the aggregate deduction in a year to the deduction computed at the prescribed rates and apportion the allowance in the ratio of number of days for which the assets were used by them. 13.5 Thus, it is evident that 5th proviso to Section 32 of the Act restricts aggregate deduction both by the predecessor and the successor and if in a particular year there is no aggregate deduction, the 5th proviso does not apply. Thus, it is axiomatic that until and unless it is the case of aggregate deduction, the proviso has no role to play. The 5th proviso in any case will apply only in the year of succession and not in subsequent years and also in respect of overall quantum of depreciation in the year of succession. 13.6 It is also pertinent to note that u/s 47(xiv) of the Act, any transfer of capital asset or intangible asset by a proprietorship concern to a company as a result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on slump sale eligible for depreciation 13.10. In this case, the AO did not principally contend against the position of the Appellant, that the goodwill recorded by it is an intangible asset eligible for depreciation under Section 32(1) of the Act. In our opinion, the claim of assessee is to be allowed on the following lines:- i. The said goodwill is in the nature of any other commercial or business right under the category of an intangible asset that is eligible for depreciation under section 32 of the Act. The issue whether Goodwill arising on transfer is eligible for depreciation or not, is no longer Res-Integra, and has been settled by the Hon'ble SC in the case of Smifs Securities Ltd. (348 ITR 302), wherein held that in the present case, it is the valuation that is challenged and not the eligibility of depreciation on goodwill. The position of law held by the Hon'ble SC constitutes the law of the land and is binding on all the lower authorities, in terms of Article 141 of the Constitution of India. ii. In this regard, we place further reliance on the decision of the Hon'ble Karnataka High in the case of Manipal Universal Learning P. Ltd., 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowance of depreciation on Goodwill. Post such amendments, no depreciation is allowable to an Assessee on goodwill. However, it has been specifically provided that the aforementioned amendments will take effect from April 01, 2021 and will, accordingly, apply in relation to AY 2021-22 and subsequent AYs. 13.14. Further, amendments were made in section 55 of the Act, in relation to the meaning of 'cost of acquisition' etc. This amendment recognizes that depreciation on goodwill in relation to the years prior to April 1, 2021 may have been claimed and allowed and provides for a mechanism for the adjustment of such depreciation claimed and allowed, for determining the cost of acquisition. 13.15. Therefore, the intention of the legislature is that depreciation on goodwill is allowable prior to the said Amendments, is manifest from the adjustment mechanism. If the legislative intention was to deny depreciation for the past years as well, then there was no need for any adjustment to the cost of acquisition of the goodwill. Such an interpretation would lead to a provision of the law being redundant or otiose and such interpretation should be rejected. 13.16 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed company, partnership firm had revalued its intangible assets using standard valuation methods and same were transferred to assessee-company - In consideration, assessee allotted shares to partners of erstwhile partnership firm - Assessee claimed depreciation on such intangible assets Same was accepted and an same assessment order was passed - Thereafter, a reopening notice was issued against assessee on ground that original assets which were added in company at time of succession could not be considered for purposes of depreciation Accordingly, claim for depreciation on intangible assets was disallowed - It was noted that assessee and erstwhile partnership firm were different entities and there was transfer of intangible assets by partnership firm to assessee for a valuable consideration that was by way of allotment of shares - High Court by impugned order held that, aforesaid transaction between firm and assessee-company was covered under section 47(xiii) and, therefore, assessee was entitled to depreciation on actual cost incurred by it with reference to intangible assets - Whether notice was to be issued in SLP filed by revenue against impugned order of High Court - Held, yes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, there is no dispute that the assessee has exempted income yielding investments and the assessee must have incurred administrative and common expenses when the assessee derives exempted income and these investments give rise to exempted dividend income or interest. Investment decisions are very complex and strategic and obviously, assessee shall be incurred expenses such as salary, telephone charges, commission, brokerage and stationery. Therefore, the assessee cannot say that no expenditure incurred for making such investments. Hence, the ld. AO is duty bound to invoke section 14A read with Rule 8D(2)(ii) of the Rules. Before us, the assessee relied on various decisions stating that assessee is having surplus funds and no expenditure incurred to earn taxable income. Here, we are concerned with disallowance under Rule 8D(2)(ii) and not relating to the direct expenditure incurred by the assessee. In other words, the ld. AO invoked provisions of section 8D(2)(ii) of the Rules with regard to indirect expenses incurred by assessee which are common expenses and cannot be identified independently. Hence, certain percentage of investments to be considered for disallowance under these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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