ITAT allowed Assessee’s claim for depreciation on goodwill of period prior to applicability of the amendment vide Finance Act 2021
In the recent case involving Suzlon Energy Ltd., the Income Tax Appellate Tribunal addressed two primary issues: disallowance under Section 14A and the claim for depreciation on goodwill arising from an amalgamation.
Ahmedabad ITAT in the case of Suzlon Energy Ltd. (ITA Nos 198 &199/Ahd/2023) AYs 2016-17 & 2017-18 allowed Assessee’s claim for depreciation on goodwill. The Tribunal dismissed the Revenue’s appeal regarding the disallowance under Section 14A.
Let us have a short overview of the case:
Suzlon Energy Ltd. underwent a scheme of amalgamation with its three wholly-owned subsidiaries, which was approved by the National Company Law Tribunal (NCLT). The appointed date for the amalgamation was January 1, 2016.
The company reported significant losses and claimed depreciation on goodwill amounting to ₹132.48 crores.
Disallowance Under Section 14A
AO’s Position: The Assessing Officer (AO) disallowed certain expenses under Section 14A, asserting that the company had substantial investments in tax-exempt securities.
Assessee’s Submission: The company argued that no exempt income was earned during the year, and thus, disallowance under Section 14A was not warranted. They cited various judicial precedents supporting their position.
Tribunal’s Ruling:
The Tribunal upheld the assessee’s argument, stating that disallowance under Section 14A cannot be made. They emphasized that the AO failed to record any dissatisfaction with the company’s claim, which is a prerequisite for invoking Rule 8D as per the law that stands for the subject AY.
Depreciation on Goodwill
AO’s Denial: The AO denied the claim for depreciation on goodwill, arguing that goodwill had no cost basis in the hands of the amalgamated company.
The Tribunal pointed out that goodwill, as defined under section 32, includes any intangible asset arising from the excess payment made during an acquisition. The Supreme Court’s ruling in CIT vs. Smifs Securities Ltd. was cited, confirming that goodwill is indeed an asset eligible for depreciation. The fact that the Revenue had not appealed against the NCLT order and the fallacy of the AO were pointed out.
ITAT final Decision: The Tribunal concluded that the goodwill in question was a result of the amalgamation and should be treated as a newly created asset. Therefore, the claim for depreciation on goodwill was allowed, which is prior to applicability of the amendment vide Finance Act 2021.
The copy of the order is as under:
