TRIVITRON HEALTHCARE P LTD., CHENNAI V. PCIT, CHENNAI

ITA 97/CHNY/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3896 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 11-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Depreciation; Scheme of amalgamation; Capital expenditure; Set aside
• Section: 32; 263

Judgement Text

आयकर अपील य अ धकरण,’सी’ याय पीठ,चे नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘C’ BENCH, CHENNAI ी वी. द ु गा राव, या यक सद य एवं ी जी . मंज ु नाथ, लेखा सद य के सम$ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No. 97/ Chny/ 2021 ( नधा रणवष / Assessment Year: 2015-16) M/s. Trivitron Healthcare P.Ltd. 15, Old No.25, Trivitron Sapthagiri Bhawan, IV Street, Abhiramapuram Chennai-600 018. Vs The Principal Commissioner of Income Tax, Chennai-3 Chennai. PAN: AAACT 9378H (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/ Appellant by : Mr. S.Sridhar, Advocate यथ क ओरसे/Respondent by : Mr. M.Rajan, CIT स ु नवाईक तार ख/D at e of he ar in g : 17.05.2022 घोषणाक तार ख /Date of Pronouncement : 24.06.2022 आ देश / O R D E R PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against order of the learned Principal Commissioner of Income Tax Chennai-3, dated 28.03.2021 and pertains to assessment year 2015-16. 2. The assessee has raised following grounds of appeal:- “1. The order of the Principal Commissioner of Income Tax, Chennai -3, Chennai dated 28.03.2021 in ITBA/REV/F/REV5/ 2020-21/ 1031852370(1) for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The PCIT erred in assuming jurisdiction u/s 263 of the Act for interfering with the original assessment order dated 29.12.2017 and consequently erred in setting aside the said assessment order for examining the applicability of the 5th proviso to section 2 ITA No. 97/Chny/2021 32(1) of the Act as per the findings from para 6 without assigning proper reasons and justification. 3. The PCIT failed to appreciate that the presumption of error in the assessment order which caused prejudice to the interest of the Revenue was wholly unjustified and the order of revision under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 4. The PCIT failed to appreciate that the twin conditions prescribed in section 263 of the Act were not satisfied concurrently on the facts and in the circumstances of the case, thereby vitiating the order of revision. 5. The PCIT failed to appreciate that in any event, the assessment order was passed after proper enquiry and application of mind on the part of the Assessing Officer including the issue sought to be revised in the impugned order, the review of the decision taken in the assessment order in assuming jurisdiction u/s 263 of the Act should be reckoned as bad in law. 6. The PCIT failed to appreciate that the distinction between the purchase of goodwill under amalgamation as against the goodwill created was completely overlooked and ought to have appreciated that the depreciation on goodwill allowed in the original assessment was wrongly interfered with on the wrong understanding of the 5th proviso to section 32(1) of the Act. 7. The PCIT failed to appreciate that the claim and acceptance of the depreciation on goodwill was in accordance with the prescription of law, thereby vitiating the decision rendered from para 6 of the impugned order. 8. The PCIT failed to appreciate that the decisions cited both on technical issue on the assumption of jurisdiction u/s 263 of the Act and on merits were not applicable to the facts of the case, thereby vitiating the impugned order. 9. The PCIT failed to appreciate that the assumption of facts as reflected in para 6.9 of the impugned order was wrong, erroneous, unjustified, incorrect, invalid and not sustainable both on facts and in law. 10. The PCIT failed to appreciate that there was no proper opportunity given before passing the impugned order and any order passed in violation of the principles of natural justice is nullity in law.” 3 ITA No. 97/Chny/2021 3. Brief facts of the case are that the assessee company is engaged in the business of manufacturing of diagnostic equipment, filed its return of income for assessment year 2015-16 on 28.11.2015 declaring loss of Rs.18,19,68,890/-. The assessee company was holding 100% equity shares in M/s. Kiran Medical Systems Pvt.Ltd. M/s. Kiran Medical Systems Pvt.Ltd is a 100% subsidiary of assessee company had amalgamated with the assessee company w.e.f 01.04.2013 in a scheme of amalgamation approved by the Hon’ble High Court of Madras vide order dated 28.04.2015. The assessee had invested Rs.114,30,11,323/- in share capital of M/s. Kiran Medical Systems Pvt.Ltd. As per scheme of amalgamation approved by the Hon’ble High Court of Madras between the assessee and M/s. Kiran Medical Systems Pvt. Ltd., entire assets of amalgamating company M/s. Kiran Medical Systems Pvt. Ltd., has been taken over by the assessee company. The net asset value of M/s. Kiran Medical Systems Pvt.Ltd., as on date of amalgamation was at Rs.42,66,49,594/-, whereas value of investments held by M/s. Trivitron Healthcar Pvt.Ltd. in shares of M/s. Kiran Medical 4 ITA No. 97/Chny/2021 Systems Pvt.Ltd. was at Rs.114,30,11,323/-. The assessee has treated difference between net value of assets of amalgamating company and value of investments in shares of M/s. Kiran Medical Systems Pvt.Ltd. (amalgamated company) amounting to Rs.71,63,61,739/- as goodwill arising on amalgamation and claimed depreciation as applicable to intangible assets. The assessee has disclosed scheme of amalgamation in Note No.30 of financial statement and explained reason for treatment of difference consideration as goodwill. The assessment for the impugned assessment year has been completed u/s.143(3) of the Income Tax Act, 1961 on 29.12.2017 and the Assessing Officer has accepted depreciation claimed on goodwill arising out of amalgamation. 4. The case has been, subsequently taken up for revision proceedings by the Principal CIT, Chennai-3, and issued show cause notice u/s.263 of the Income Tax Act, 1961 dated 07.02.2019 and called upon the assessee to explain as to why assessment order passed by the Assessing Officer shall not be revised. The Principal CIT, in the said show cause notice observed that assessment order passed by the Assessing 5 ITA No. 97/Chny/2021 Officer is erroneous, insofar as it is prejudicial to the interests of Revenue, because the Assessing Officer has allowed depreciation on goodwill, even though 5 th proviso to section 32(1) of the Act, very clearly restricts claim of depreciation to successor company on amalgamation, as if such succession has not taken place. However, the Assessing Officer has allowed claim of depreciation on goodwill without considering necessary provisions in right perspective of law which rendered assessment order passed by the Assessing Officer as erroneous, insofar as it is prejudicial to the interests of Revenue and thus, called upon the assessee to file its objections, if any, to the proposed revision. 5. In response to the show cause notice, the assessee has filed detailed written submissions on the issue which has been reproduced at para 5 to 5.11 on page 2 to 5 of the learned PCIT order. The sum & substance of arguments of the assessee before the PCIT are that the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of Revenue, because the Assessing Officer has considered issue of depreciation claimed on 6 ITA No. 97/Chny/2021 goodwill arising out of amalgamation and after considering necessary facts with reference to provisions of section 32(1) of the Act, has allowed depreciation. Therefore, view taken by the Assessing Officer is one of the possible view and thus, PCIT cannot hold that order passed by the Assessing Officer is erroneous, insofar as, it is prejudicial to the interests of Revenue, unless view taken by the Assessing Officer is unsustainable in law. The assessee had also argued the issue in light of certain judicial precedents and submitted that 5 th proviso to section 32(1) of the Act, has no application to the facts of the present case, because as per said provisions aggregate depreciation claimed by the amalgamating and amalgamated company in the case of amalgamation should not exceed in any previous year deduction calculated at the prescribed rate as if succession or amalgamation or demerger, as the case may be, had not taken place and such deduction shall be apportioned between predecessor and successor in ratio of number of days for which the assets were used by them. In other words, if an assessee acquires certain assets on amalgamation and claimed higher depreciation, then as per 5 th proviso, such depreciation should be restricted 7 ITA No. 97/Chny/2021 in proportionate to number of days both predecessor and successor utilized the asset, as if, said amalgamation or succession has not been taken place. In this case, the assessee has not acquired any goodwill from amalgamating company. Further, goodwill in the present case arose out of amalgamation, because the assessee has paid consideration for acquisition of asset over and above net asset of amalgamating company, therefore, submitted that proposed revision on the issue of depreciation on goodwill is incorrect. 6. The learned PCIT, after considering relevant submissions of the assessee and also taken note of various decisions including decision of the ITAT., Bangalore bench in the case of DCIT Vs United Breweries Ltd. (TS-553-ITAT- 2016-Bang) opined that the assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of Revenue, because the assessment order passed by the Assessing Officer is silent on the issue. The PCIT further observed that order of the Assessing Officer becomes erroneous, if it has been passed without making inquiries or verification which the Assessing Officer should 8 ITA No. 97/Chny/2021 have been made. The order is also erroneous, if it is prejudicial to the interest of the Revenue, and if the assessment is on wrong assumption of facts or incorrect application of law. Although, the assessee claimed depreciation on goodwill arising out amalgamation, the Assessing Officer has allowed such depreciation contrary to 5 th proviso to section 32(1) of the Income Tax Act, 1961. The PCIT further noted that the Tribunal in the case of DCIT Vs.United Breweries Ltd (supra) had considered an identical issue and held that claiming depreciation on enhanced cost of goodwill, in case of succession or amalgamation, contrary to 5 th proviso to section 32(1) of the Act, which restricts claim in the cases specified thereunder is not permissible. Therefore, the PCIT rejected arguments of the assessee and also case laws cited in support of its arguments and set aside order passed by the Assessing Officer u/s.143(3) of the Act, and direct the Assessing Officer to examine applicability of 5 th proviso to section 32(1) of the Act. The relevant findings of PCIT are as under:- The arguments of the Assessee Company have been considered. The assessee was asked to show cause why 9 ITA No. 97/Chny/2021 depreciation claim on good will on amalgamation of M/s. Kiran Medical Systems should not be disallowed in view of the proviso uls.32(1) of the Income Tax Act 1961 which states as under; “Provided also that the aggregate 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), clause (xiiib) and clause (xiv) of section 41 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 it, the case of demerger as the case may be, shall not exceed in any previous year deduction calculated calculated at the prescribed rates as if succession or the amalgamation or the demerger, as the case may be. had not taken place, end 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 or the number of days for which the assets were used by them. 6.2 The assessee has stated that merely because the AO has been silent on the issue, it does not mean that the issue has not been examined. It has been contended that voluminous material was placed before AO who considered air of this before allowing the claim of depreciation on goodwill. But the issue is whether the AO examined the issue and applied law correctly or not. 10 ITA No. 97/Chny/2021 6.3 An order of the AO is erroneous if it has been passed without making inquiries or verification which should have been made. An order is also erroneous in so far as it is prejudicial to he interests of the revenue if the assessment is made on (i) wrong assumption of facts, (ii) Incorrect application of law or (iii) without due application of mind (CIT Vs Jawahar Bhattacharya (341 lTR 434). It was also held by Rajasthan High Court in the case of CIT Vs Energy Shoe Manufacturing Co (213 ITR 843) held that failure to apply the correct provisions of law may be applicable to the facts of the case would result in an erroneous order. 6.4 in this case, the provisions of the Income Tax Act have not been correctly applied by the AO. The proviso under section 32(l) clearly prescribes that in the case of an amalgamation, the aggregate deduction in respect of depreciation of tangible and intangible assets shall not exceed in any previous year the deduction calculated at the prescribed rates, as if the amalgamation had not taken place. 6.5 The Supreme Court in the case of MIs. Smifs Securities has only held that goodwill is an intangible asset, but has not gone in to the question of whether depreciation on goodwill is available to the amalgamated company. The Hon’ble Supreme Court has also recorded its decision in the context of the proviso to Section 32(1) of the Act. 6.6 in the case of United Breweries, the Bangalore Bench of the ITAT has considered the issue of depreciation on goodwill. In that case the assessee has submitted that ‘When the assets are introduced in the books of the assessee being the balancing figure of excess consideration over the value of the tangible assets then fifth proviso to Section 32(l) is not applicable. He 11 ITA No. 97/Chny/2021 has further submitted that in all the cases before the Honble Supreme Court as well as Honble High Courts, the revenue has not raised this objection of restricting the claim of depreciation by applying 5th proviso to Section 32(1) of the Act. Therefore the revenue cannot raise this objection when it was not raised in the other cases before the Hon’ble Supreme Court and Hon’ble High Courts” 6.7 The ITAT after considering the issue held that ‘there is another aspect involved in this issue of claiming depreciation on the enhanced cost of goodwill in cases of succession ITA Nos. 722, 801, 1065 & l066/Bang/2Ol4 amalgamation as it is restricted in the hand of successor. Dr amalgamated company only to the extent as apportioned between the amalgamating and amalgamated company in the ratio of number of days for which the assets used by them. Further the deduction shall be calculated at the prescribed rate as if the amalgamation has not taken place’. 6.8 Placing reliance on the proviso u/s.32(1) the ITAT held This proviso provides that depreciation allowable in the case of succession, amalgamation or merger. demerger should not exceed the depreciation, allowable had the succession not taken place. In other words the allowance of depreciation to the successor or amalgamated company in the year of amalgamation would be on the written down value of the assets in the books, of 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) of the Act and therefore such cases are exempted from capital gain which is otherwise chargeable to tax on transfer of assets. In the case on hand the business of the subsidiary was transferred 12 ITA No. 97/Chny/2021 to the assessee by way of amalgamation 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 6 such amalgamation has not taken place. The Assessing Officer made a reference to filth proviso to Section 32 in para asunder: As highlighted above the company paid Rs.180.52 Crores in the preceding year as consideration for acquiring shares of KBDL from original owners and thereby KBDL became a subsidiary last year. Thus, the consideration paid is for shares but not for individual assets. It is not the case of the assessee that the subsidiary has claimed any depreciation of goodwill. Therefore by value of 5th proviso to Section 32(l), the depreciation in the hands of the assessee is allowable only to the extent if such succession has not taken place. Therefore the assessee being amalgamated company cannot claim or be allowed depreciation on the assets acquired in the scheme of amalgamation more than the depreciation is allowable to the amalgamating company. As regards the decision of Honble Supreme Coin in the case of CIT Vs. Smiff Securities Ltd. (2072) 348 ITR 302 the said ruling of the Hon'ble Supreme Court is only on the point whether the goodwill falls in the category of intangible assets or any oilier business or commercial rights of similar nature as per the provisions of section 32(l) of the Act. Therefore, there is no quarrel on the issue that goodwill is eligible for depreciation. However, the said ITA Nos. 722, 801, 1065 &10661/bang.2014 judgment would not override the provisions of 5th proviso to Section 32(1) of the Act which restricts the claim in the cases specified there under. The consideration paid by the assesses 13 ITA No. 97/Chny/2021 for acquiring the shareholding of the subsidiary in the earlier years is not relevant for the issue of depreciation on the assets taken under amalgamation and for the purpose of 5th proviso to Section 32(l) of the Act. Accordingly, in view of the above facts and circumstances of the case as well as the above discussions. its’ held that the claim of depreciation in the hands of the assessee is subjected to the fifth proviso to Section 31(l) of the Act. Accordingly, this issue is decided against the assessee. 6.9 The assessee further relied on the decision in the case of M/s Mylan Laboratories Ltd vs DyCIT, Circle 16(2), Hyderabad to claim that it is entitled to depreciation on goodwiIl. The facts are quite distinguishable. In Mylan, it is a case of acquisition which was made for a consideration of Rs59,786 Million INR including intangible assets. Therefore the purchase method adopted by the assessee was found to be correct by the ITAT. On the other ‘and, as per clause 11 of scheme of Amalgamation” entered into by the assessee did not show any payment of consideration except allotment of shares to the shareholders of the erstwhile company. In the circumstances the purchase method stated to have been adopted as per clause 12 of the scheme, has no relevance for the purpose of computation , under the Income tax Act. l961. Any purchase of shares by the assessee company prior to amalgamation at higher rate so as to acquire the company is on capital account which cannot be considered for the purpose of cost of acquisition on amalgamation. Thus, the case law quoted by the assessee is distinguishable both on facts and Law. 6.10 The assessee also stated that the said asset of goodwill exist for the first lime in AY 2014-15 and therefore, in the 14 ITA No. 97/Chny/2021 absence of commodity of assets. the 5 th proviso to section 32(l) cannot be invoked either in AY 2014-I5 or in AY 2015-16. As mentioned earlier, when here is no consideration paid by the assessee for acquiring the assets as per the scheme of amalgamation, question any excess paid over the value of assets would arise. Further, my predecessor has already considered the issue for AY 20l4-15. As mentioned earlier, the assessees case comes within the facts and circumstances of the decision in United Breweries.” 7. The learned A.R for the assessee submitted that the learned PCIT has erred in assuming jurisdiction u/s.263 of the Act for interfering with the original assessment order passed u/s.143(3) of the Act dated 29.12.2017 and consequently, erred in setting aside the assessment order for examining applicability of 5 th proviso to section 32(1) of the Act. The learned AR for the assessee further submitted that the PCIT failed to appreciate fact that in any event assessment order was passed after proper inquiry and application of mind on the part of the Assessing Officer, including issue sought to be revised in the impugned order and thus, review of the decision taken in the assessment order in assuming jurisdiction u/s.263 should be reckoned as bad in law. The learned AR further submitted that the PCIT failed to appreciate fact that there is 15 ITA No. 97/Chny/2021 distinction between purchase of goodwill under amalgamation and creation of goodwill on amalgamation, because in the present case, the assessee has purchased goodwill by paying consideration for acquiring asset over and above net asset value of the amalgamating company and therefore, it is incorrect to apply 5 th proviso to section 32(1) of the Act, which is specifically meant for restricting depreciation on assets acquired or created on amalgamation. The learned AR further submitted that purpose of introduction of 5 th proviso to section 32(1) of the Act is to restrict depreciation claimed on the asset by the amalgamated company, because there may be situation where predecessor company and successor company claims depreciation on same asset, which may be over and above normal depreciation allowable on said asset. Therefore, under those facts, a specific proviso has been introduced to curtail practice of claiming higher depreciation and explaining manner and method in which depreciation should be claimed when there is amalgamation. However, said provision does not in any way restrict right of the assessee to claim depreciation on goodwill, in case such goodwill is purchased in a scheme of amalgamation. 16 ITA No. 97/Chny/2021 8. The learned AR for the assessee further referring to various case laws, including decision of the Hon’ble Karnataka High Court in the case of Padmini Products Pvt.Ltd Vs. DCIT in ITA No. 154 of 2014 submitted that sole basis for the PCIT to revise assessment order on the basis of 5 th proviso to section 32(1) of the Act and also in light of decision of the ITAT, Bangalore Bench in the case of DCIT Vs. United Breweries Ltd (supra). However, the Hon’ble Karnataka High Court in a subsequent judgement after considering relevant facts has held that 5 th proviso to section 32(1) of the Act is not applicable, in case where goodwill is purchased in scheme of amalgamation. The learned AR further referring to the decision of ITAT., Mumbai benches in the case of M/s. Keva Fragrances Pvt.Ltd. Vs. DCIT in ITA No.334/Mum/2020 submitted that an identical situation had been considered by the Tribunal and held that in a scheme of amalgamation, if goodwill is purchased, then assessee is entitled for depreciation u/s.32(1) of the Income Tax Act, 1961. In this case, the assessee has paid consideration for goodwill and has claimed depreciation therefore, application of 5 th proviso u/s.32(1) of the Act is misplaced on the facts of the case and 17 ITA No. 97/Chny/2021 thus, the PCIT has erred in assuming jurisdiction u/s.263 of the Act and revised assessment order. 9. The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that the assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of Revenue, because assessment order passed by the Assessing Officer, is silent on the issue of depreciation claim on goodwill arising out of amalgamation and thus, it cannot be argued that the Assessing Officer has considered issue and has taken one possible view. The learned DR further submitted that by insertion of Explanation 2 to section 263 of the Income Tax Act, 1961, revisionary powers of the PCIT has been enlarged and an order passed by the Assessing Officer shall be deemed to be erroneous, insofar as it is prejudicial to the interests of Revenue, if in the opinion of the PCIT, the order is passed without making inquiries or verification which should have been made and further, the order is passed allowing any relief without inquiring into claim. In this case, the Assessing Officer has allowed claim of depreciation on goodwill without making any inquiry or verification contrary to 5 th proviso to section 32(1) of the Act, 18 ITA No. 97/Chny/2021 and thus, the PCIT has rightly invoked jurisdiction u/s.263 of the Act and set aside the assessment order. 10. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The learned PCIT has set aside assessment order u/s.263 of the Income Tax Act, 1961, on the issue of depreciation claimed on goodwill arose out of amalgamation. The sole basis for the PCIT to assume jurisdiction u/s.263 of the Act is applicability of 5 th proviso to section 32(1) of the Act and restriction of depreciation in a scheme of amalgamation. According to the PCIT, in a scheme of amalgamation, claim of depreciation should be in accordance with 5 th proviso to section 32(1) of the Act. Therefore, it is necessary to refer to 5 th proviso to section 32(1) of the Act and relevant proviso reads as under:- “Provided also that the aggregate 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), clause (xiiib) 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 19 ITA No. 97/Chny/2021 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 1. -Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2. -For the purposes of this sub-section "written down value of the block of assets" shall have the same meaning as in clause * (c) of sub-section (6) of section 43. Explanation 3.- For the purposes of this sub-section, the expression "assets" shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature.” 11. The 5 th proviso to section 32(1) of the Act, has been inserted by the Finance Act, 1996, to restrict claim of aggregate deduction which is evident from memorandum of Finance Bill of 1996, as per which, in case of succession in business and amalgamation of companies, predecessor of 20 ITA No. 97/Chny/2021 business and successor of amalgamating company and amalgamated company, as the case may be, are entitled to depreciation allowance on same assets which in aggregate cannot exceed depreciation allowance in any previous year at prescribed rates. Therefore, it is proposed to restrict aggregate deduction in a year depreciation at the prescribed rate and apportion the same allowance in ratio of number of days for which said assets were used by them. From the memorandum explaining Finance Bill, and purpose of introduction of 5 th proviso to section 32(1) of the Act, it is very clear, as per which predecessor and successor in a scheme of amalgamation should not claim depreciation over and above normal depreciation allowable on a particular asset. In other words, in a scheme of amalgamation where existing assets of amalgamating company are acquired by amalgamated company, then while claiming depreciation after amalgamation, amalgamated company can claim depreciation only on the basis of number of days a particular asset were used by them. Therefore, in our considered view, said proviso only determines amount of depreciation to be claimed in the hands of predecessor / amalgamating company and in hands of the 21 ITA No. 97/Chny/2021 successor or amalgamated company only in the year of amalgamation based on the date of such amalgamation. However, it does not in any way restrict claim of depreciation on assets acquired after amalgamation or during the course of amalgamation. Therefore, it is very clear from 5 th proviso to section 32(1) of the Act, that once any asset, including intangible asset, more particularly, goodwill is added to the respective block of asset of the amalgamated company, in the context of claim of depreciation in the hands of amalgamated company and such addition to the block of assets would not fall within the purview of the 5 th proviso to section 32(1) of the Act. Effectively, scope of the said proviso is narrow as could be culled out for the purpose for which said proviso was inserted in the statute as reflected in the Memorandum to the Finance Bill. To further clarify, 5 th proviso to section 32(1) of the Act, with regard to depreciation on goodwill is restricted to assets which belongs to amalgamating company and its application cannot be extended to the assets which arise in the course of amalgamation to the amalgamated company. The intention of law was to extend benefit available to the amalgamated company on succession and not to restrict depreciation on 22 ITA No. 97/Chny/2021 assets which generated in the course of succession. It is very clear from the proviso that it refers to depreciation allowable to the predecessor and successor in the case of succession and this should be understood as reference to the assets that belong both to the predecessor and successor and which can only once belonged to the predecessor company and it does not apply to the assets which were generated in the hands of amalgamated company for the first time, as a result of amalgamation as approved by the High Court. In our considered view, 5th proviso applies only to those assets which commonly exist between predecessor and successor, however, it does not apply to asset which has been created or acquired after amalgamation. The creation of new asset by virtue of amalgamation like goodwill completely go out of reckoning of said proviso and thus, in our considered view, basis of the PCIT to invoke his jurisdiction u/s.263 of the Act is incorrect. 12. Having said so, let us come back to the issue on hand. In the present case, there is no dispute with regard to the fact that goodwill is not existing in the books of account of the 23 ITA No. 97/Chny/2021 amalgamating company. Further, depreciation on goodwill claimed by the assessee was first time recognized in the books of account of amalgamated company in a scheme of amalgamation approved by the Hon’ble High Court of Madras. As per said scheme of amalgamation, accounting treatment in the books of transferee company has been specified as per which transferee company shall account for merger in its books of account as per ‘purchase method’ of accounting prescribed under Accounting Standard-14 issued by Institute of Chartered Accountants of India. As per AS-14 issued by the ICAI, all assets and liabilities recorded in the books of account of transferor company shall stand transferred and vested in the transferee company pursuant to scheme and shall be recorded by the transferee company at their book value. The excess of or deficit in net asset value of the transferee company, after reducing aggregate face value of shares issued by the transferee company to the members of the transferor company, pursuant to the scheme and cost of investment in the books of the transferee company for the shares of transferor company held by it on the effective date be either credited to the capital reserve or debited to the goodwill 24 ITA No. 97/Chny/2021 account, as the case may be in the books of transferee company. Such resultant goodwill, if any shall be amortized in the books of transferee company as per principles laid down in Accounting Standard-14. Therefore, from scheme of amalgamation and Accounting Standard-14 issued by the ICAI, it is very clear that once amalgamation is in the nature of ‘purchase method’, then excess consideration paid over and above net asset value of transferor company shall be treated as goodwill and can be amortized in the books of account of the transferee company. In this case, net asset value of the transferor company (amalgamating company) was at Rs.42,66,49,594/-. Further, value of investments of transferee company i.e., in the present case, the assessee in the shares of transferor company (in the present case amalgamating company) was at Rs.114,30,11,323/-. The value of investments held by the assessee company in the shares of amalgamating company extinguishes after amalgamation and consequently difference between net asset value of amalgamating company and value of investment held by amalgamated company would become goodwill in the books of account of transferee company. In the present case, difference 25 ITA No. 97/Chny/2021 between net value of assets of amalgamating company and value of investments held by amalgamated company is at Rs.71,63,61,739/- and same would become goodwill in the books of account of amalgamated company. Therefore, in our considered view, accounting of goodwill and consequent depreciation claim on such goodwill in the books of account of the assessee company is nothing but purchase of goodwill and thus, the assessee has rightly claimed depreciation on said goodwill in terms of section 32(1) of the Income Tax Act, 1961. This legal principle is supported by the decision of Hon'ble Supreme Court in the case of M/s. Smifs Securities Ltd. (2012) 348 ITR 302. This principle is also supported by the decision of the ITAT., Mumbai in the case of M/s. Kewa Fragrances P.Ltd in ITA No.334/Mum/2020 and also decision of the ITAT., Hyderabad Benches in the case of M/s. Mylan Laboratories in ITA No. 2335/Hyd/2018 . The sum and substance of ratios laid down by the Hon’ble Supreme Court and the Tribunals are that goodwill arising on amalgamation is entitled for depreciation u/s.32(1) of the Income Tax Act, 1961. Insofar as case law relied on by the PCIT in the case of DCIT Vs United Breweries Ltd. (supra) of ITAT., Bangalore Bench, we are of 26 ITA No. 97/Chny/2021 the considered view that facts of the case of DCIT Vs United Breweries Ltd.(supra) are distinguishable from facts of the present case, because in the case of DCIT Vs United Breweries Ltd.(supra), before amalgamation there was a goodwill in the books of account of amalgamating company. Further, in a scheme of amalgamation, goodwill has been revalued and shown higher value. The amalgamated company on succession has claimed higher depreciation on goodwill arose out of amalgamation. Under those facts, the Tribunal came to the conclusion that in terms of 5 th proviso to section 32(1) of the Act, predecessor and successor company can claim depreciation on proportionate basis for number of days assets used by them, however, they cannot claim depreciation over and above normal depreciation allowable on a particular asset. 13. In this case, there was no goodwill in the books of account of the amalgamating company and further, goodwill has been acquired by amalgamated company by paying consideration over and above net value of assets at amalgamating company. Therefore, in our considered view, 27 ITA No. 97/Chny/2021 case of the assessee squarely comes under ratio laid down by the Hon'ble Supreme Court in the case of M/s.Smifs Securities Ltd.(supra). In any way, in a subsequent decision, ITAT ., Bangalore Bench in the case of M/s. Altimetrik India Pvt.Ltd, Vs. DCIT (2022) 137 taxmann.com 9 had considered an identical issue and after considering decision of the United Breweries Ltd. (supra) held that consideration paid by the amalgamated company over and above net assets of amalgamating company should be considered as goodwill arising on amalgamation and such goodwill is a capital asset eligible for depreciation. Therefore, from the above facts, it is very clear that in the given facts & circumstances of the case, the 5 th proviso to section 32(1) has no application and further, in absence of any other possible view, view taken by the Assessing Officer while allowing depreciation on goodwill in the assessment proceedings, cannot be held to be erroneous or unsustainable under the law. Since, foundation for assuming jurisdiction u/s.263 of the Act, is completely erroneous on account of wrong assumption of applicability of 5 th proviso to section 32(1) of the Income Tax Act, 1961, to the facts of the present case, assessment order passed by the Assessing 28 ITA No. 97/Chny/2021 Officer needs no revision, as there is no error committed by the Assessing Officer in claim of depreciation on purchase of goodwill. It is well settled principle of law by decisions of various Courts, including decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co.Vs. CIT 243 ITR 83 (SC), where it has been clearly held that the PCIT cannot assume jurisdiction to revise assessment order, unless the PCIT satisfies that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of the Revenue. In this case, on the issue of depreciation on goodwill, the Assessing Officer has taken one possible view with which the PCIT does not agree, however, it cannot be treated as erroneous & prejudicial to the interests of the Revenue, unless view taken by the Assessing Officer is erroneous and unsustainable in law. This legal principle is also laid down by the Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. 295 ITR 282. In our considered view, view taken by the Assessing Officer on the issue of depreciation on goodwill is a possible view, because when 5 th proviso to section 32(1) of the Act, has no application to the given facts and circumstances of the case, the Assessing Officer cannot 29 ITA No. 97/Chny/2021 take any view, which is contrary to provisions of section 32(1) of the Act. Since, the Assessing Officer has taken one of the possible view for which the PCIT may not agree, however, this may not be a reason for the PCIT to assume jurisdiction to revise assessment order passed by the Assessing Officer. 14. In this view of the matter, and considering facts & circumstances of the case, we are of the considered view that the assessment order passed by the Assessing Officer u/s.143(3) of the Act dated 29.12.2017, is neither erroneous nor prejudicial to the interest of the Revenue. The PCIT has assumed jurisdiction u/s.263 of the Act on the sole basis of application of 5 th proviso to section 32(1) of the Act, towards depreciation on goodwill. In view of the factual matrix as stated in preceding paragraphs and non-applicability of 5 th proviso to section 32(1) of the Income Tax Act, 1961, to the facts of the present case, there cannot be error in relation to the view taken by the Assessing Officer while framing the original assessment. Therefore, in absence of any such error in the assessment order, assumption of jurisdiction u/s.263 of the Act by the learned PCIT should be reckoned as invalid. 30 ITA No. 97/Chny/2021 Hence, we quash impugned order passed by the learned PCIT u/s.263 of the Income Tax Act, 1961. 15. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 24 th June, 2022 Sd/- Sd/- (वी. द ु गा राव) (जी. मंज ु नाथ) (V.Durga Rao) (G.Manjunatha) या यक सद य /Judicial Member लेखा सद य / Accountant Member चे"नई/Chennai, #दनांक/Dated 24 th June, 2022 DS आदेशक %त&ल'पअ(े'षत/Copy to: Appellant 2. Respondent 3. आयकर आय ु )त (अपील)/CIT(A) 4. आयकरआय ु )त/CIT 5. 'वभागीय %त%न-ध/DR 6. गाड0फाईल/GF.