9911796707
TMI Blog2024 (11) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law in deleting the addition of Rs. 245,62,09,850/- (revised figure Rs. 60,71,37,893/- after rectification order u/s 154 dt. 06.02.2020) being taxable income of M/s Vega Industries (Middle East), FZC, UAE ("Vega ME") as proprietary concern of the assessee?" 2. Whether the CIT(A) has erred both on facts and in law in deleting the disallowance of excess claim of depreciation of Rs. 29,19,355/- (revised figure Rs. 12,65,054/- after rectification order u/s 154 dt. 06.02.2020) on electrical fittings u/s 32 of the Act?" 3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored". 3. At the outset itself, it was common ground between both the parties that the issues raised by the Department in its appeal were decided in favour of the assessee by the ld. CIT(A) noting identical issues to have been decided in favour of the assessee by the ITAT in several preceding years consistently. 4. It was pointed out that the issue raised in Ground No.1 of the Revenue's appeal pertained to addition made to the income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the appellant for the earlier assessment. The CIT(A)-6 and CIT(A)-1 vide orders dated 27 February 2012 and 8 June 2012 for the AYs. 2007-08 and 2008-09, order dated 12 May 2015 for AYs.2009-10 & 2010-11, order dated 27/02/2017 for AY 2011-12 and order dated 30/05/2017 in case of the appellant for the immediately preceding Assessment Year i.e. 2012-13 have followed the decision of the jurisdictional Tribunal in the Appellant's own case for AY 2006-07 and has held that Vega ME is a separate company and accordingly its profit cannot be added to the income of the Appellant. In the instant case, the fact is similar to the previous years' and no other additional facts on this issue have been put up by the AO. The Hon'ble ITAT (supra) has held in concluding para that- "It goes to show that Vega UAE is duly incorporated as a body corporate under the law of a country outside India which is a requirement of Section 2(17) of the Income tax Act, 1961, and , therefore, Vega UAE has to be accepted as a company within the definition of Section 2(17) of the Income-tax Act, 1961. Once it is accepted, the addition made by the AO by holding that Vega UAE is a sole proprietorship concern o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble ITAT on 04.01.2021. Therefore, respectfully following the decision of Hon'ble Tribunal, this ground of appeal is allowed." 8. The ld. DR was unable to distinguish the present case with that relating to the preceding assessment years decided in favour of the assessee by the ITAT, therefore we have no hesitation in confirming the order of the ld. CIT(A) directing deletion of both the additions/disallowances made in the hands of the assessee by the Assessing Officer. Ground of appeal Nos. 1 & 2 of the Revenue's appeal are accordingly dismissed. Appeal filed by the Revenue is accordingly dismissed. ITA No. 397/Ahd/2024 - Assessee's appeal 9. Now we take up the appeal filed by the assessee. The grounds of appeal taken by the assessee read as follows: "1. The Ld. CIT(A) has erred in law and on facts of the case in confirming disallowance of depreciation of Rs. 1,07,97,284/- claimed u/s. 32 of the Act on goodwill generated on amalgamation. 2. The Ld. CIT(A) has erred in law and on facts of the case in not appreciating that depreciation on goodwill has been allowed in the preceding years. It is well settled that no disallowance can be made for depreciation claimed on opening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat Sanchar Nigam Ltd - 283 ITR 273 (SC) (iii) That, depreciation on goodwill arising consequent to the scheme of amalgamation approved by the Hon'ble High Court of Gujarat was allowable in view of the settled legal position. Reliance was placed on the following decisions:- a. CIT Vs. Smifs Securities Ltd., (2012) 348 ITR 302 (SC) b. PCIT Vs. Zydus Wellness Ltd., (2017) 87 taxmann.com 82 (Guj.) c. PCIT Vs. Zydus Wellness Ltd., SLP 29859 of 2018 (SC) d. Urmin Marketing P. Ltd., (2020) 122 taxmann.com 40 (Ahd.) (iv) That, there was a basic fallacy in the approach of the Revenue Authorities for disallowing depreciation on goodwill on the premise that goodwill was transferred from the amalgamating company to the amalgamated company when the fact of the matter was that goodwill was the result of amalgamation and had come into existence only pursuant to the scheme of amalgamation duly approved by the Hon'ble High Court of Gujarat. That the provisions of law referred to by the Revenue Authorities, i.e. (i) 6th proviso to Section 32(1), (ii) Explanation 7 to Section 43(1), (iii) Explanation 2(b) to Section 43(6)(c), (iv) Section 55(2)(a)(ii) and (v) Section 49(1)(iii)(e) relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September 2012. 3.1.2 DCPL was the only company in south, which was manufacturing Grinding Media (similar to our Products). It was a competitor of the Assessee Company. 3.1.3 Subsequently, to gain synergy in its business and to eliminate the competition and increase our production capacity, the Board of the Assessee Company and DCPL had decided for amalgamation of DCPL with the Assessee Company effective from 1 April 2013 under a scheme of amalgamation. 3.1.4 The Hon'ble Gujarat High Court, vide order dated 4 April 2014, has approved the scheme of amalgamation of DCPL with the Assessee Company with the appointed date of 1 April 2013. Copy of the scheme of amalgamation and order passed by the Hon'ble High Court is attached herewith as per Annexure 11- and Annexure 12-respectively. 3.1.5 The business of DCPL, was merged with the business of the Assessee Company on a 'going concern basis' along-with all the employees as well as assets, liabilities including the concerned contracts, licenses, permits, consents, approvals with effect from 1 April 2013. 3.1.6 Pursuant to the scheme of amalgamation, the Assessee Company has recorded the goodwill in the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer, the value of goodwill in the hands of the amalgamating company was nil and, therefore, in terms of the provisions of law as per various sections as noted above i.e. (i) 6th proviso to Section 32(1), (ii) Explanation 7 to Section 43(1), (iii) Explanation 2(b) to Section 43(6)(c), (iv) Section 55(2)(a)(ii) and (v) Section 49(1)(iii)(e), as noted above, the assessee was not entitled to any depreciation on the same. The contention of the ld. Counsel for the assessee is that goodwill was not acquired on transfer of the same from the amalgamating company to the amalgamated company, but it was a result of the amalgamation taking place. That the Sections referred to by the Assessing Officer, therefore, were not applicable for denying the claim of depreciation. It was also pointed out that this issue had been dealt with by the ITAT in the case of Urmin Marketing Pvt. Ltd. (supra). Ld. Counsel for the assessee pointed out that this fact was brought to the notice of the ld. CIT(A) also during the appellate proceedings and every sections relied upon by the Assessing Officer for denying the claim of depreciation was countered in the written submissions filed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired by the amalgamated company and was not on account of any asset acquired by the amalgamating company or transferor-company. Therefore, the ITAT held that the provisions of 6th proviso to Section 32(1), Explanation 7 to Section 43(1), Explanation 2(b) to Section 43(6)(c), Section 55(2)(a)(ii) and Section 49(1)(iii)(e) cannot be applied in such facts situation. The ITAT, therefore, held that depreciation on such goodwill, therefore, was allowable in view of the proposition laid down by the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra). The relevant paragraphs dealing with the above are at paragraph Nos. 30.15 to 32.7 of the order as under:- "30.15 Now, the question arises whether the scheme once approved by the Hon'ble Gujarat High Court after receiving no objection from the Income-tax Department, the AO/revenue has authority to challenge the same. What is the inference that flows from a cumulative consideration of all the aforesaid contending facts is that the revenue cannot object the impugned scheme of amalgamation. It is because, it is implied that the revenue has given its consent in the impugned scheme of amalgamation by raising no objection i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.] ** ** ** Explanation 2.-For the purposes of this [sub-section] "written down value of the block of assets" shall have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of amalgamation, and the amalgamated company is an Indian company, then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year.] 32.2 As per section 32(1) of the IT Act 'depreciation' is to be computed on 'actual cost'/'written down value of the block of assets' ascertained in accordance with section 43 of the Act. Further, a reading of the above provision shows that in respect of 'capital assets' transferred by the amalgamating company to the amalgamated company, the cost/written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been had the amalgamating company continued to hold the capital asset for the purposes of its own business. 32.3 A combined reading of the above provisions reveal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant provisions of the Act as discussed above deal with respect to the assets available/recorded in the books of the transferor/amalgamating company. In other words, the assets which have been acquired by the assessee in the scheme of amalgamation would continue at the book value in the books of the amalgamated company. The question arises whether the goodwill shown by the assessee as discussed above was acquired in the scheme of amalgamation from the amalgamating company. The answer stands in negative. It is because there was no entry in the books of accounts of the amalgamating/transferor company reflecting the value of the goodwill. As such, the amount of goodwill as claimed by the assessee represents the difference between the purchase consideration and the NAV acquired by it. The purchase consideration paid by the assessee was based on the valuation report as discussed above after considering the various factors. Thus the assessee has not acquired any goodwill from the amalgamating/transferor company as alleged, accordingly the provisions of the Act i.e. 6 proviso to section 32, explanation 7 to section 43(1), explanation 2 to section 43(6)(c) of the Act cannot be appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assets. Hence, the assessee is eligible for depreciation on the goodwill. 32.7 Moving further, we note that for claiming the depreciation, among other conditions as provided under section 32 of the Act, one of the condition is that the assessee can claim depreciation on the goodwill being intangible asset if acquired on or after 1st day of April 1998. In other words, the assessee can claim depreciation on the goodwill acquired by it. Thus the controversy arises whether the goodwill generated in the scheme of amalgamation is acquired by the transferee company. Such controversy has been answered by the Hon'ble Supreme Court in the case of Smifs securities Ltd. (supra) by holding as under: One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner (Appeals) has come to the conclusion that the assessee had filed copies of the orders of the High Court ordering amalgamation of the above two companies; that the assets and liabilities of 'Y' Ltd. were transferred to the assessee for a consideration; that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
