Once revenue allowed the deduction for the depreciation claimed by the assessee, then it is debarred to reject the claim of the assessee in the subsequent year on the WDV carried forward from the earlier assessment year.

Depreciation—Goodwill on intangible assets —Principle of consistency—Assessee filed return of income—During assessment proceeding, AO noted that amalgamated co. had acquired a company in a scheme of amalgamation approved by High Court—As per amalgamation scheme, all assets and liabilities of amalgamating company were transferred w.e.f. 01.04.2004 to assessee but effect in books of assessee was given in FY 2005-06 corresponding to AY 2006-07—Thus, year under consideration was 2nd year after recording transaction of all assets and liabilities acquired in scheme of amalgamation—Assessee acquired all assets and liabilities/general reserve/investment allowance reserve/balance of P&L account at book value as shown by amalgamating company in its books of accounts however, assessee paid more consideration against net assets acquired by it from amalgamating company by way of issuing shares—Excess consideration paid by assessee which was treated by it in its books of accounts as goodwill and accordingly, claimed depreciation on such goodwill @25% at its written down value—AO observed that there was no intangible asset shown by amalgamating/transferor company in its balance sheet before date of amalgamation—Moreover, intangible assets acquired by assessee from transferor company were representing self-generated assets therefore, value of intangible asset was zero as per explanation 7 to s. 43(1)—There was no block of assets for impugned intangibles, therefore, written down value of such blocks should be treated at nil as per explanation to s. 43(6)—AO determined value of intangible assets in assessee’s hands at nil value and disallowed claim of assessee—CIT(A) dismissed assessee’s appeal—Held, assessee claimed depreciation 1st time on intangible assets acquired in scheme of amalgamation in AY 2006-07—Assessee carried forward WDV to year under consideration under intangible block of assets and accordingly, claimed depreciation thereon as per provisions of law—As such, assessee’s claim for depreciation was accepted by Revenue in immediate preceding AY 2006-07—No action was taken by Revenue under Ss 263 and 147 disputing deduction allowed to assessee for depreciation on intangible assets acquired by it in scheme of amalgamation—In scheme of amalgamation, one company was acquired by another company with all assets and liabilities including reserve, provisions etc—Upon acquisition, if purchase consideration to be paid to shareholders of amalgamating company exceeds NAV, excess amount was recorded as goodwill—If not, it was recorded as capital reserves in books of amalgamated company—In present case, assessee acquired another company with all assets, liabilities/reserves against purchase consideration to shareholders of transferor/amalgamating company exceeding NAV, excess amount was recorded as goodwill—WDV of assets acquired in scheme of amalgamation in hands of amalgamated company would continue to be same as it would have been in hands of amalgamating company in event, had there not been any amalgamation—As per s. 32(1) ‘depreciation’ was to be computed on ‘actual cost’/’written down value of block of assets’ ascertained in accordance with s. 43—There was no entry in books of transferor company for intangible assets/goodwill being self-generated assets—Thus, impugned transaction for claiming deduction on account of depreciation was an arrangement for claiming higher depreciation which was unwanted under provisions of law—Assessee’s appeal allowed.

BODAL CHEMICALS LTD. AND ANR. vs. ASSISTANT COMMISSIONER OF INCOME TAX AND ANR.

(2019) 57 CCH 0150 AhdTrib