ITAT Sets Aside S.263 Order Disallowing Goodwill Depreciation for AY 2016-17, Ruling IND AS 103 Not Applicable [Read Order]
The tribunal observed that the PCIT initially invoked revisionary jurisdiction due to the AO’s inability to disallow depreciation on goodwill, but failed to consider the assessee’s detailed reply
ITAT ruling – Goodwill depreciation – Section 263 – taxscan
ITAT ruling – Goodwill depreciation – Section 263 – taxscan
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) set aside the Section 263 of Income Tax Act,1961 order disallowing depreciation on goodwill for assessment year 2016-17, ruling that IND AS 103 was not applicable for that year.
Oriental Buildtech Private Limited,appellant-assessee, filed its return of income for AY 2016–17 on 16.10.2016, declaring a loss of ₹4.18 crore. The assessment was completed under Section 143(3) on 22.12.2018, accepting the returned loss.
Later, the Principal Commissioner of Income Tax(PCIT) invoked Section 263 on 31.03.2021, directing the Assessing Officer (AO) to verify the depreciation claimed on goodwill and pass a fresh order.
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The assessee challenged this before the ITAT in ITA No.911/Del/2021. The tribunal, by order dated 23.02.2023, issued directions to the PCIT, who then passed a fresh order on 31.10.2023.
Aggrieved by this order, the assessee filed the present appeal.
The assessee counsel said that the PCIT issued a show cause notice on 08.03.2021, stating that the AO could not disallow depreciation on goodwill due to technical issues. The assessee replied in detail on 19.03.2021, but this reply was ignored when the PCIT passed the order on 31.03.2021.
The ITAT set aside that order and asked the PCIT to pass a fresh one. In the new order dated 31.10.2023, the PCIT said the assessee did not follow IND AS 103, which applied from 01.04.2016. The assessee counsel argued that IND AS 103 did not apply because the relevant year was 2015–16.
The counsel also noted that the Finance Act, 2021 clarified goodwill would not be a depreciable asset from AY 2021–22 onwards. Before that, depreciation on goodwill was allowed and would be adjusted when calculating capital gains.
The assessee counsel also relied on the Supreme Court ruling in CIT vs. Smifs Securities Ltd. [2012] where it was held that goodwill qualifies as an intangible asset under Explanation 3(b) to Section 32(1) and is eligible for depreciation.
The department relied on the PCIT’s order.
The two member bench comprising Vimal Kumar (Judicial Member) and Shamim Yahya( Accountant Member) found that the PCIT issued a show cause notice on 08.03.2021 because the AO could not disallow depreciation on goodwill due to technical issues. The assessee replied on 19.03.2021, but the PCIT ignored the reply and passed an order on 31.03.2021.
The ITAT set aside this order on 23.02.2023 and asked the PCIT to pass a fresh order after considering the assessee’s reply.
In the new order dated 31.10.2023, the PCIT said the assessee did not follow IND AS 103, effective from 01.04.2016. The tribunal noted that the Finance Act, 2021 clarified this rule did not apply to the assessment year 2016–17.
The appellate tribunal ruled that the PCIT’s order based on IND AS 103 for AY 2016–17 was not valid and set aside the order dated 31.10.2023.The appeal was allowed.
To Read the full text of the Order CLICK HERE
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