M/S. RITU HOUSING LTD,KOLKATA V. ACIT, CIR-13(2), KOLKATA

ITA 185/KOL/2023

AI Insights

M/s Ritu Housing Ltd. appealed against the order of the Learned Commissioner of Income Tax (Appeals), which upheld the disallowance of depreciation on goodwill amounting to \\u20b9 47,93,198/-. This goodwill was generated from the amalgamation of two companies, M/s Pallavi Goods Pvt. Ltd. and M/s Sunglow Vanijya Pvt. Ltd., into M/s Ritu Housing Ltd., as approved by the Calcutta High Court. The Assessing Officer initially disallowed the depreciation claim citing non-compliance with Section 32(1) of the Act. The Tribunal, referencing the Supreme Court's decision in CIT vs. Smifs Securities Ltd., found the goodwill to be a depreciable intangible asset and directed the Assessing Officer to allow the depreciation.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471012 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-08-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 06-03-2023
• Other Referred Cases: CIT v. Smifs Securities Ltd., Kedarnath Jute Mfg. Co. Ltd. v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Depreciation
• Section: 143(3); 142(1); 143(2); 250; 143(1); 32

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH KOLKATA Shri Rajesh Kumar, Accountant Member Shri Sonjoy Sarma, Judicial Member I.T.A. No. 185/Kol/2023 Assessment Year: 2016-17 M/s Ritu Housing Ltd., I P-1, Hyde Land, 7th Floor, Suit 7B, Bowbazar, Kolkata - 700073 [PAN: AAECR8262N] .......................…...…………… Appellant vs. ACIT, Circle-13(2), Kolkata, 110, Santipally, E.M. Bypass, Kolkata – 700107 ...…..........................…..…....... Respondent Appearances by: Assessee represented by : S. Jhajharia, A.R. Department represented by : Bonnine Debbarma, Addl. CIT-DR Date of concluding the hearing : August 13, 2024 Date of pronouncing the order : October 30, 2024 ORDER Per Sonjoy Sarma, Judicial Member: This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2016-17 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short ‘the Ld. CIT(A)’], dated 12.01.2023 arising out of Assessment Order dated 24.12.2018, passed under Section 143(3) of the Act. 2. The Assessee has raised the following grounds of appeal: I.T.A. No.185/Kol/2023 M/s Ritu Housing Ltd. 2 “1. That the authorities below have erred in law and on facts, in disallowing/upholding the disallowance of appellant's claim for depreciation of Rs. 47,93,198/- that had been claimed by way of \"depreciation on goodwill\" that got generated, following amalgamation of (i) Pallabi Goods Pvt. Ltd. and (ii) Sunglow Vanijya Pvt. Ltd. in terms of approval granted by Hon'ble Calcutta High Court of Kolkata vide order dt. 13.5.2015 (passed in a petition for amalgamation) and it may be held accordingly. 2 That the amount of goodwill (generated as a result of amalgamation) in terms of High Court order dt. 13.5.2015, got quantified and generated, in the books of account of the transferee-appellant i.e. Ritu Housing Ltd., and since actual sum was paid towards such goodwill and hence depreciation on impugned sum is allowable and it may be held accordingly. 3. That on a due consideration of the facts of the case, particularly that claim of appellant was fully covered by the decision of Hon'ble Supreme Court in the case of CIT v. Smifs Securities Ltd. reported in (2012) 348 ITR 302 and the cases referred to and relied upon by the Ld. CIT(A), are distinguishable on facts and it may be held accordingly. 4. That by paying the difference of Rs. 1,91,72,789/- (Rs.10,36,07,500/- less Rs.8,44,34,711/-) represented 'acquisition right', to carry on commercial business, which were fully covered by the definition of 'asset' and value of such asset, even though intangible, was entitled for depreciation u/s 32 of the Act and it may be held accordingly. 5. That Ld. CIT(A), NFAC erred in relying on Explanation-7 and/or Explanation -2 to sec. 43(6) which are not at all relevant for determination of \"cost\" in the case of the appellant and hence conclusion so derived by Ld. CIT(A), NFAC is faulty and is liable to be set aside/quashed/cancelled accordingly. 6 That the case laws referred to by NFAC/ Ld. CIT(A), Delhi are distinguishable on facts and the appellant's claim for depreciation, could not be said to have been defeated by such case laws and it may be held accordingly. 7. That even case law of Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT reported in (1971) 82 ITR 363, cover fully the case of the appellant as accounting entries for 'goodwill\", generated on amalgamation, had duly been recorded in the books of account of the appellant, and it cannot be said or held that the quantum of \"goodwill\" (in monetary terms), had not been accounted for/ recorded in the books of account of the appellant/transferee and hence it may be held accordingly. For that your petitioner craves the right to put additional I.T.A. No.185/Kol/2023 M/s Ritu Housing Ltd. 3 grounds and/or to alter/ amend/ modify the present grounds at the time of hearing.” 3. Brief facts of the case are that the assessee M/s Ritu Housing Ltd., filed its return of income for the A.Y. 2016-17 on 20.09.2016 declaring total loss of ₹ 49,64,058/-. The return was processed u/s 143(1) of the Act. Subsequently, the case was selected for limited scrutiny under the Computer Assisted Scrutiny Selection (CASS) mechanism, followed by notice issued u/s 143(2) and u/s 142(1) of the Act seeking specific information regarding certain transaction and claims made by the assessee in the return of income. In compliance with the notices, assessee submitted the detailed replies and supporting documents, including audited balance sheet, profit and loss account and other relevant financial statements for the A.Y. in question. One of the key issues raised by the Assessing Officer during the assessment proceedings was claim of depreciation on goodwill amount at ₹ 47,93,198/- which arise to the amalgamation of two companies namely M/s Pallavi Goods Pvt. Ltd. and M/s Sunglow Vanijya Pvt. Ltd. with the assessee company. The amalgamation was carried out in accordance with the scheme of amalgamation approved by the Hon'ble Calcutta High Court vide order dated 13.05.2015, the effective date of amalgamation was from 01.04.2015 and in pursuant to the amalgamation goodwill amounting to ₹ 1,91,72,789/- was recorded in the books of accounts of the assessee. The assessee claimed the depreciation on this goodwill u/s 32 of the Act. The Learned A.O. after examining the details submitted by the assessee disallowance the depreciation of goodwill citing that the claim did not satisfy the provision of section 32(1) of the Act read with Explanation 3 and section 43(1), Explanation 7 of the Act. Accordingly, the Ld. AO added I.T.A. No.185/Kol/2023 M/s Ritu Housing Ltd. 4 the disallowance amounting to ₹ 47,93,198/- to the income of the assessee. 4. Aggrieved by the order, the assessee filed an appeal before the Ld. CIT(A) which was dismissed. The Ld. CIT(A) in his order relying on the decision of the Hon'ble Supreme Court as in the case of CIT Vs. Smifs Securities Ltd. (Civil Appeal No. 5961 of 2012) (SC) stating that it is a distinguishable facts and relief cannot be allowed to the assessee. 5. Dissatisfied with the above, order the assessee is now in appeal before this Tribunal raising multiple grounds of appeal primarily sustaining the disallowance of depreciation on goodwill. The Learned Counsel for the assessee submitted that the Learned CIT(A) had erred in sustaining the disallowance made depreciation on goodwill. He argued that the goodwill generated as a result of amalgamation of M/s Pallavi Goods Pvt. Ltd. and M/s Sunglow Vanijya Pvt. Ltd. was legitimate intangible assets entitled depreciation u/s 32 of the Act. It is further contended that the goodwill was recorded in the books of accounts of the assessee as per the accounting standard principles governing amalgamation. The assessee had paid consideration in excess of the net asset value of amalgamating companies and excess amount represent the goodwill, which was intangible asset arising from the right to carry on the business customers relationship and other commercial benefits that were transferred to the assessee as a result of the amalgamation. The Learned Counsel relying on the decision of the Hon'ble Supreme Court as in the case of CIT Vs. Smifs Securities Ltd. (supra) where it was held that goodwill arisen on amalgamation is a depreciable assets u/s 32 of the Act. The Learned. Counsel emphasised that the fact of the present case is similar to the facts in the Smifs Securities Ltd. and disallowance of the depreciation by the I.T.A. No.185/Kol/2023 M/s Ritu Housing Ltd. 5 Assessing Officer was unjustified. The Learned Counsel also referred to the decision of the Hon'ble supreme Court as in the case of Kedarnath Jute Mfg Co. Ltd. Vs. CIT reported in 1971 82 ITR 363 (SC) which held that the accounting entries made in the books of account should not be determine the allowability of expenses under the Act. The claim for depreciation on goodwill, which was duly recorded in the books of account should be allowed irrespective of any technical objections raised by the AO regarding the accounting treatment. 6. On the other hand, the Ld. DR opposed the arguments of the assessee and supported the order of the lower authorities. The Ld. AR contended that the Learned CIT(A) had correctly sustained the disallowance of depreciation on goodwill as the assessee had failed to justify the claim that the proper documentation and evidence. He further argued that the decision in the case of Smifs Securities Ltd. (supra) was distinguishable on the facts and could not applied in the present case. The goodwill in the present case was not substantiate by any commercial benefits or right transferred to the assessee as a result of amalgamation. It is contended that excess consideration paid by the assessee over the net asset value of amalgamating companies did not automatically result in the creation of goodwill eligible for depreciation. The Ld. DR submitted that the assessee had failed to demonstrate the commercial justification for treating the excess consideration as goodwill. 7. We after hearing the rival submission of the parties and perusing the material available on record. The primary issue before us is whether the depreciation claimed by the assessee on goodwill amounting to ₹ 47,93,189/- is eligible u/s 32 of the Act. The facts of the case indicates that the assessee M/s Rituraj Housing Ltd. acquired the business M/s I.T.A. No.185/Kol/2023 M/s Ritu Housing Ltd. 6 Pallavi Goods Pvt. Ltd. and M/s Sunglow Vanijya Pvt. Ltd. through scheme of amalgamation approved by the Hon'ble High Court, of Calcutta. The amalgamation resulted in the creation of goodwill in the books of account of the assessee. The assessee claimed depreciation on the same in accordance with the provision of section 32 of the Act. The Hon'ble Supreme Court in the case of CIT Vs. Smifs Securities Ltd. (supra) has categorically held that the goodwill arising on amalgamation is a intangible assets eligible for depreciation u/s 32 of the Act. 9. In the present case, the goodwill arose as a result of amalgamation and assessee paid consideration in excess of the net asset value of the amalgamating companies. The difference was recorded as goodwill under in the books of account of the assessee. The following principles laid down in the case of Smifs Security Ltd. (supra). We are of the considered view that the goodwill generated in this case qualify intangible assets entitled to depreciation u/s 32 of the Act. The Ld. DR’s argument that the decision of Smifs Securities Ltd. (supra) is distinguishable on the facts does not hold merits. The facts in the present case are similar to the facts in Smifs Securities Ltd. (supra) where goodwill arose on amalgamation and the Hon'ble Supreme Court allowed the depreciation of such goodwill. In the case of Kedarnath Jute Manufacturing Co. Ltd. Vs. CIT is also support the claim of the assessee which it was held that allowing of expenses or explanation or deduction under the act should not be determined solely by manner in which the accounting entries are made. The fact that the goodwill was recorded in the books of account of the assessee as a result of amalgamation is essential to justify claim for depreciation. Moreover, the Mumbai Bench of the Tribunal in the case of CIT Vs. Skyline Caterers Pvt. Ltd. held the claim for depreciation on the goodwill made by the assessee was allowed and held that the goodwill qualifies as intangible assets u/s 32 I.T.A. No.185/Kol/2023 M/s Ritu Housing Ltd. 7 of the Act. In the light of the above, we find that the Learned CIT(A) and AO have erred in disallowing the depreciation on goodwill. Accordingly, the disallowance is not sustainable in law and we direct the AO to allow the depreciation claimed by the assessee amounting to ₹ 47,93,198/-. 10. In terms of the above, appeal of the assessee is allowed. 11. In the result, the appeal of the assessee isallowed. Kolkata, the 30th October, 2024. Sd/- Sd/- [Rajesh Kumar] [Sonjoy Sarma] Accountant Member Judicial Member Dated: 30.10.2024. AK, PS I.T.A. No.185/Kol/2023 M/s Ritu Housing Ltd. 8 Copy of the order forwarded to: 1. M/s Ritu Housing Ltd 2. ACIT, Circle-13(2), Kolkata 3. CIT(A)- 4. CIT- 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches "