An Amalgamated Company can claim Depreciation on Goodwill, No restriction u/s 32(1)(5): ITAT [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has held that an Amalgamated company can claim depreciation on goodwill and there is no restriction under section  32(1)(5) of the Income Tax Act,1961.

M/s.Trivitron Healthcare Pvt. Ltd., the assessee filed appeal against the order of the Principal Commissioner of Income Tax-3, Chennai, dated 22.03.2019 passed u/s.263 of the Income Tax Act, 1961, and pertains to the assessment year 2014-15.

The assessee is engaged in the business of manufacturing diagnostic equipment, and filed its return of income for the AY 2014-15 on 28.11.2015 declaring a total income of Rs.10,52,92,870/-.  The assessment has been completed u/s.143(3) of the Income Tax Act , on 22.12.2016 and determined a total income of Rs.10,53,20,918/- by disallowing belated remittances of PF & ESI amounting to Rs.28,048/- u/s.36(1)(va) of the Income Tax Act .  

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. It was observed that the AO had allowed depreciation on goodwill, even though the 5th proviso to section 32(1) of the Income Tax Act , very clearly restricts the claim of depreciation to the successor company on amalgamation, as if such succession has not taken place.

The PCIT has set aside an assessment order passed by the AO in the exercise of powers u/s.263 of the Income Tax Act , on three issues – i) depreciation claimed on goodwill arising out of amalgamation, ii) provision for warranty expenses & iii) disallowance u/s.14A r.w.r.8D of Income Tax Rules, 1962. 

In the assessee’s case, the Tribunal after considering relevant facts and also the applicability of the 5th proviso to sec.32(1) of the Act, held that depreciation claimed on goodwill arose out of amalgamation, is not hit by the 5th proviso to sec.32(1) of the Income Tax Act .

The ITAT bench of Shri Mahavir Singh, vice president and Shri G Manjunatha, accountant member viewed that the assessee has rightly claimed depreciation on goodwill arising out of amalgamation, because, the 5th proviso to sec.32(1) of the Income Tax Act , has no application to the facts of the case. 

While allowing the appeal, the ITAT quashed the order of PCIT. The Appellant was represented by Mr S.Sridhar and the respondent was represented by Mr M.Rajan.

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