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Income Tax Appellate Tribunal, “A’’BENCH: BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The revenue has filed this appeal challenging the order dated 30.1.2020 passed by Ld. CIT(A)-5, Bengaluru and it relates to assessment year 2008-09. The revenue is aggrieved by the decision of Ld. CIT(A) in deleting the disallowance of depreciation on goodwill made by the A.O.
We heard the parties and perused the record. The assessee is engaged in the business of software development. The present assessment has been passed by the A.O. u/s 143(3) r.w.s. 254 of the M/s. NXP India Pvt. Ltd., Bangalore
Page 2 of 5 Income-tax Act,1961 ['the Act' for short], inter-alia, to consider the depreciation claimed by the assessee on goodwill.
The facts relating to the above said issue are stated in brief. The assessee had acquired semi-conductor business from Philips Electronics India Ltd. on slump sale basis through a business transfer agreement dated 22.9.2006. The total consideration paid was Rs.191.65 crores, while the net asset value of business stood at Rs.51.65 crores. The assessee treated the amount paid over and above the net asset value as “goodwill” and accordingly claimed depreciation thereon in assessment year 2007-08 i.e. in the immediately preceding assessment year. The Tribunal allowed the depreciation. Accordingly, during the year under consideration, the assessee claimed depreciation on the written down value of the goodwill. The A.O., however, rejected the depreciation on goodwill claimed during the year under consideration by following the decision rendered by Mumbai Bench of Tribunal in the case of Deputy Commissioner of Income-tax Vs. Toyo Engineering India Ltd (ITA No.3279/Mum/2008).
Aggrieved, the assessee filed the appeal before the Ld. CIT(A), who reversed the decision of the A.O. and directed him to allow depreciation. Aggrieved, the revenue has filed this appeal before us.
We heard the parties and perused the record. We notice that the Ld. CIT(A) has rendered the decision in favour of the assessee with the following observations:- “7.2 The assessee in respect of the issue of depreciation on goodwill has placed reliance on the judgement of the Hon’ble ITAT in assessee’s own case on same issue of allowability of depreciation on goodwill arising on acquisition of semi-conducted business of (Philips Electronics India Limited)
M/s. NXP India Pvt. Ltd., Bangalore
Page 3 of 5 PEIL. The Assessee in this regard has placed on record the copy of relevant judgement of the Hon’ble ITAT dated 3.1.2020 (in assessee’s own case for preceding AY 2007-08) in ITA No.397/Bang/2017.
The AO in this impugned order, observed that depreciation on Goodwill was allowable as a general principle in light of the judgement of SMIFS Securities 348 ITR 302 (SC). However, the AO while distinguishing the present case, relied on the judgement of the Hon’ble ITAT in in the case of Deputy Commissioner of Income-tax Vs. Toyo Engineering India Ltd., wherein it was held that no depreciation on goodwill would arise in respect of a mere book entry. The CIT(A) upheld the AO’s action. The Assessee preferred further appeal before the Hon’ble ITAT, Bangalore. The Hon’ble Tribunal has observed that the AO/CIT(A) had erred in relying on the decision of Deputy Commissioner of Income-tax Vs. Toyo Engineering India Ltd. (cited supra), which stood reversed by the Hon’ble Mumbai High Court. The Hon’ble Tribunal at para 5 observed as under: “5. We heard the rival contentions and perused the material on record. Prima facie, the same matrix of the disputed issue is with respect to granting of depreciation on goodwill. The Ld. A.R. contention that the decision relied by lower authorized in respect of Deputy Commissioner of Income-tax Vs. Toyo Engineering Ltd. (supra), was reversed by the Hon’ble Bombay High Court in Toyo Engineering India Ltd. vs. Deputy Commissioner of Income-tax in IT(AL) No.1330/2012 dated 30.10.2012. We found that the CIT(A) has dealt this issue and aware of the Hon’ble Bombay High Court decision but declined to grant depreciation on good will as per Para 8.2 of the CIT(Appeals) order which is read as under:
“..8.2 The decision of Toyo Engineering relied by learned AO subsequently reversed by Hon’ble Bombay High Court. While
M/s. NXP India Pvt. Ltd., Bangalore
Page 4 of 5 concluding that the goodwill is a mere book entry the assessing officer has solely placed reliance on principle arising from the decision of the Mumbai ITAT inthe case of DCIT vs. Toyo Engineering Ltd., wherein it has been held that difference between the consideration for amalgamation and the net book value of asset ofthe amalgamating company cannot be generally regarded as goodwill. It was held by the ITAT that good will shown in the books of account of the amalgamated company any the time of amalgamation is a mere book entry. From the above, it is clear that goodwill in this case is not the difference between the amount paid for acquiring the business and the value of the tangible assets. In this absence of any specific valuation of all the assets, liabilities and goodwill of the amalgamation company, depreciation cannot be claimed on the amount of goodwill. Therefore, the grounds of appeal are dismissed." We found the co-ordinate Bench of Mumbai Tribunal in DC1T Vs. Toyoto Engineering India Limited in ITA No.3279/Mum/2008 dt. 13.10.2014 has dealt on the issue at pages 2 to 4. Para 3 to 8 of the order which is read as under: We respectfully follow the co-ordinate Bench decision of Mumbai where facts are similar to the present case and set aside the order of CIT(Appeals) and direct the assessing officer to allow the claim of depreciation on goodwill and we order accordingly."
In background of the above facts & circumstances and binding judicial precedent of the Hon’ble Jurisdictional Tribunal in assessee’s own case on the identical issue (for preceding AY 2007-08), the assessee’s grounds of appeal on this issue is to be allowed.”
We notice that the Tribunal has already directed the A.O. to allow depreciation on Goodwill amount in AY 2007.08. The year under consideration is AY 2008-09, being the assessment year succeeding
M/s. NXP India Pvt. Ltd., Bangalore
Page 5 of 5 AY 2007-08. Hence, the decision taken by the Tribunal in directing the A.O. to allow depreciation on Goodwill in AY 2007-08 shall apply to the succeeding assessment years also. Accordingly, the Ld. CIT(A) was justified in directing the A.O. to allow depreciation on Goodwill. Hence, we do not find any reason to interfere with the decision rendered on this issue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 29th Nov, 2021.