The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has held that once goodwill is accounted for in the books of account, goodwill arising upon amalgamation is eligible for depreciation under section 32 of the Income Tax Act,1961.
Sri Saumen Adak, Shri Ashish Jhawar & Prashant Jaiswal appeared on behalf of the assessee and Smt. Sucheta Chattopadhyay appeared on behalf of the Revenue.
The assessee, Carolina Food and Industries Pvt. Limited filed its return of income on 30.09.2015 declaring total income at ‘NIL’ after setting off brought forward losses. The assessee filed a revised return declaring total income at Rs.18,27,79,170/- and this return was selected for scrutiny through CASS and statutory notices were issued and duly served upon the assessee.
The assessee company entered into a scheme of amalgamation with M/s. Ramuk Scan Investment (P) Limited, in consonance with 391(2) and 394 of the Companies Act, 1956, approved by the Calcutta High Court vide order dated 09.12.2015.
The excess consideration paid over net assets taken over by the assessee amounting to Rs.37,91,42,049/- has been recognized as Goodwill in the books of the assessee in accordance with the AS-14 and accordingly the assessee claimed depreciation amounting to Rs.6,22,022,993/- on Goodwill under section 32 of the Income Tax Act, 1961.
The Assessing Officer rejected the claim on the ground that the assessee has not followed the prescribed procedure as per AS-14 and has not relied on the relevant balance sheet as of 01.01.2013 thereby leading to a wrong computation of the ratio of share swap at 1:24 and the valuation of assets not being done at fair value or market value but book value of assets was taken. CIT(Appeals) affirmed the order of the Assessing Officer.
It was contended by the assessee that the valuation date for determining the swap ratio is the date agreed by both the parties and the consideration of amalgamation was discharged on the basis of a valuation report based on accounts as of 31.12,2014 of both the companies.
on the other hand, the revenue opposed the arguments of the assessee and stated that the scheme of amalgamation was designed in such a way so that the goodwill is created in the hands of the assessee by paying a higher price than the book value and therefore the intent of amalgamation was nothing but to circumvent the tax liability of the assessee.
It was noted by the Tribunal that the revenue failed to object when an opportunity was given and held that the claim of the depreciation on goodwill which has resulted from the scheme which was duly approved by the Calcutta High Court cannot be rejected.
A Coram of Shri Rajpal Yadav, Vice-President & Shri Rajesh Kumar, Accountant Member observed that once the scheme of amalgamation is approved by the High Court after giving notice to the stakeholders including the income tax department to state its objections, if any, to the proposed amalgamation scheme. The order of the CIT(A) upholding the order of AO cannot be sustained and was set aside by the Tribunal. The AO was directed to allow the depreciation of goodwill.
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