VISHAL FURNISHING LIMITED ,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 8(3)(1), MUMBAI
Before: SHRI OM PRAKASH KANT, AM & MS. KAVITHA RAJAGOPAL, JM Vishal Furnishing Limited 211, Shiv Shakti Industrial Complex, Lower Parel, Mumbai – 400011. Vs. Assistant Commissioner of Income Tax, Circle 8(3)(1), Mumbai. PAN/GIR No. AAACR2138K (Appellant) : (Respondent)
Per Kavitha Rajagopal, J M:
This appeal has been filed by the assessee, challenging the order of the learned
Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), National
Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961
(‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2018-19. 2. The assessee has raised the following grounds of appeal:
1) The learned CIT(A) failed to appreciate that the Assessment order was passed in violation of the principles of natural justice and contrary to the scheme of assessment and hence the Assessment order was a nullity and deserves to be quashed.
2) The Ld CIT(A) erred in confirming the order of AO disallowing depreciation on Goodwill of Rs 4,12,73,088/- (as claimed in Accounts) without appreciating that goodwill had arisen on amalgamation and was eligible for depreciation u/s 32 and hence the addition of Rs 4,12,73,088/-may be deleted.
Vishal Furnishing Limited
3) Without prejudice to above, addition of depreciation on goodwill may be restricted to Rs 3,85,43,520/- which is claimed u/s 32 and not Rs. 4,12,73,088 as claimed in the Accounts.
4) The Ld CIT(A) erred in confirming addition of Rs 1,02,450 u/s 36(1)(va) being employee contribution to provident fund on the ground of delay without appreciating that the due date was 15/4/2018 which was a Sunday and same was paid on next working day ie. 16/4/2018 and thus there was no delay and hence the addition of Rs 1,02,450 may be deleted.
5) The Ld CIT(A) erred in confirming addition of Rs 31,179/- u/s 36(1)(va) being employee contribution to ESIC on the ground of delay without appreciating that the same was paid before the due date of filing return and could not be paid before the due date on account of hardship and delay was reasonable and hence the addition of Rs 31,179/- may be deleted.
6) The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.”
Brief facts of the case are that the assessee company is a public limited company engaged in the business of wholesale trading in fabrics, paper and garments and is also a commission agent in the field of textiles. The assessee company had filed its return of income dated 30.10.2018, declaring current year’s loss at Rs. (-) 1,14,33,655/-. The assessee’s case was selected for scrutiny for the reason that “high ratio of refund to TDS”, “amalgamation or demerger during the year” and “large business loss set off against other heads of income”. Notices u/s. 143(2) and 142(1) were duly issued and served upon the assessee. The learned Assessing Officer ('ld. A.O.' for short) observed that the assessee company was amalgamated with M/s. Seeom Fabrics Limited and Siyaram Polycote Pvt. Ltd. w.e.f. 01.04.2016, where it was observed that an amount of Rs. 16,50,92,353/- has been shown in the balance sheet in schedule fixed asset as intangible asset out of which Rs. 4,12,73,088/- has been amortized during the year with Vishal Furnishing Limited a balance of Rs.12,38,19,264/- as WDV. The ld. AO disallowed the depreciation claimed by the assessee amounting to Rs. 4,12,73,088/- by relying on the 5th proviso (now 6th proviso) to Section 32(1) of the Act by holding that the depreciation of the goodwill is allowable only to the extent if amalgamation has not taken place and had also relied upon the Tribunal’s decision in the case of United Breweries Ltd. vs. ACIT in ITA No. 722/18 and 1065/Bang/2014 stating that the said decision is not in conflict with the Hon'ble Apex Court decision in the case of CIT vs Smiff Securities Ltd. (2012) 348 ITR 302. The ld. AO then passed the assessment order dated 24.04.2021, thereby determining total income at Rs. 2,99,73,060/- after making addition/disallowance of ‘income from profit and gains’ and ‘income from business or profession’ amounting to Rs. 4,12,73,088/-.
Aggrieved the assessee was in appeal before the first appellate authority, challenging the impugned addition along with various other grounds. The ld. CIT(A) vide order dated 03.07.2024 had partly allowed the assessee’s appeal against which the assessee is in appeal before us, challenging the impugned order. 5. The learned Authorised Representative ('ld. AR' for short) for the assessee gave an undertaking at the Bar that the assessee intends not to press ground no. 1 of the appeal raised by the assessee and commenced his arguments on ground no. 2 pertaining to the addition/disallowance towards goodwill amounting to Rs. 4,12,73,088/-. The ld. AR contended that pursuant to the amalgamation the assets, liabilities and reserves of the amalgamating company was vested with the assessee and the same has been determined under the method of accounting for amalgamation (AS-14), where the assessee has Vishal Furnishing Limited allotted its shares to the shareholders of the erstwhile amalgamating company as per the scheme sanctioned by the Hon'ble NCLT in which the excess of fair value of the shares of the assessee company over the fair value of the net assets acquired from the amalgamating company is the actual consideration paid and the excess of the consideration resulted in goodwill on amalgamation. The ld. AR further stated that the amalgamating company has not booked any goodwill in its accounts and that the same arises as a result of amalgamation and the excess consideration paid for the assets acquired are for acquisition of goodwill. The ld. AR further contended that the lower authorities have erred in determining the actual cost of goodwill to be zero for the reason that the goodwill in the case of amalgamating company was also zero is against the settled principles of law. The ld. AR further reiterated that goodwill was not acquired from the amalgamating company but was as result of amalgamation and hence, there was no actual cost of goodwill incurred in the transfer of capital asset to the assessee company. The ld. AR relied extensively on the decision of the coordinate bench in the case of M/s. Keva Fragrances P Ltd. vs. DCIT in ITA No. 334/Mum/2020, dated 02.08.2021, where on identical facts, the Tribunal had distinguished the coordinate bench’s decision in the case of United Breweries Pvt. Ltd. (supra), in which case the distinguishing factor was that the goodwill was already there in the books of the amalgamating company which is not the facts of the present case. The ld. AR also relied on the decision of the coordinate bench in the case of Aricent Technologies (Holdings) Ltd. vs. DCIT (2019) 109 taxmann.com 47 (Del)(Trib.), and also relied on the decision of the Hon'ble Karnataka High Court in the case of Padmini Vishal Furnishing Limited
Products Pvt. Ltd. vs. DCIT [2020] 121 taxmann.com 237 (Kar)(HC), wherein it was held that the 5th proviso (now 6th proviso) to Section 32 is applicable only when both the amalgamated and the amalgamating company claimed depreciation for the same asset. The ld. AR also relied on the catena of other decisions in support of its contentions.
6. The learned Departmental Representative ('ld. DR' for short) for the revenue on the other hand controverted the said fact and relied on the order of the lower authorities.
7. We have heard the rival submissions and perused the materials available on record. It is observed that as per the “composite scheme of amalgamation and arrangement”
sanctioned by the Hon'ble NCLT, vide its order dated 27.04.2017, the assessee company (amalgamated company) was amalgamated with M/s. Seeom Fabrics Limited
(SFL) amalgamating company no. 1 and Siyaram Polycote Pvt. Ltd. (SPPL) amalgamating company no. 2 and the same was filed before the