The Allahabad bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the assessee is eligible for claiming depreciation on goodwill as goodwill has been taken into account while determining the face value of the shares which is treated as consideration in the scheme of amalgamation.
Assessee Real Eco-Energy Limited after filing the original return which was selected for scrutiny .when the revisedreturn filed by the assessee declaring the business loss and capital gain.
Thereafter assessee company viz. Hillock Agro Foods (India) Limited had applied for a scheme of demerger of its flour/agro division into Deep Vandana Trade link Pvt. Ltd. and reorganization of share capital of assessee company viz. Hillock Agro Foods (India) Ltd. and amalgamation of Real Realty Management Co. Pvt. Ltd. with assessee company viz.
The scheme was approved by High Court of Gujarat vide order dated 01.11.2012 with appointed date as on 01.07.2010.
As per scheme of agreement, the amalgamation and demerger is effective from 07.02.2013. As per the scheme of amalgamation, the name of assessee company viz. Hillock Agro Foods (India) Ltd. was changed to Real Realty Management Company Limited.
Further the Assessing Officer disallowed the scheme of goodwill and depreciation on goodwill to the extent Rupees 2,50,14,091/- as thereby observing that no goodwill has actually arisen as the consideration paid did not exceed the assets received. Against the order of the assessing officer, he filed an appeal before the ITAT.
Tushar Hemani, and P.B. Parmar, counsel for the assessee contended that,
The Assessing Officer was not justified in adopting value of shares at a value different from value emanating from valuation report, fairness valuation report as well as order of High Court of Gujarat.
Moreover, accounting treatment of goodwill arising on amalgamation is in accordance with law. Therefore, the assessee is eligible for claiming depreciation on goodwill as intangible assets as per Income Tax Act, 1961.
Ramesh Kumar counsel for the revenue contented that ,
“Assessing Officer has examined justification for paying the consideration of shares at Rupees 19.67 for 36,00,000 equity shares and rightly observed/held that when the premium of Rupees 9.67 was not at all received from the existing shareholders at the face value of Rupees 10/- only, then the same cannot be taken into account and properly rejected the said valuation.”
After considering the contentions of the both parties the single bench of the Suchitra Kamble, (Judicial Member) allowed the appeal filed by the assessee and observed that,
The goodwill was an integral part of the amalgamation scheme and, therefore, the valuation itself could not be doubted by the Assessing Officer when it has been properly sanctioned and approved by the company as well as by the High Court. Therefore the assessee has eligible for claiming depreciation on goodwill as goodwill has been taken into account while determining the face value of the shares which is treated as consideration in the scheme of amalgamation
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