ACIT- 6(1)(2), MUMBAI, MUMBAI vs. SIYARAM SILK MILLS LIMITED, MUMBAI

O R D E R Per: Shri Anikesh Banerjee, JM: The instant appeal of the revenue filed against the order of the Ld. Commissioner of Income Tax (Appeal)-51, Mumbai [hereinafter called, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for Assessment Year 2017-18, date of order 25/07/2025. The impugned order emanated from the order of the Ld. Deputy Commissioner of Income-tax, Circle 6(1)(2), Mumbai, order passed U/s 143(3) of the Act, date of order 29/12/2019.

Siyaram Silk Mills Limited 2. The brief facts of the case are that the assessee is engaged in business of manufacturing and marketing of fabrics and value added yarn and ready garments, etc. The return was filed declaring total income at Rs.133,72,06,880/- under normal provisions of the Act. The file was taken for scrutiny. The Ld.AO found that the assessee claimed deduction under section 32 of the Act amount to Rs. 4,12,83,186/- on goodwill, which was disallowed and added to the total income of the assessee. The aggrieved assessee challenged the order before the Ld.CIT(A). The Ld.CIT(A) respectfully relied on the order of the Hon’ble Supreme Court in the case of CIT vs Smifs Securities Ltd reported in (2012) 348 ITR 302 (SC) and allowed the claim of the assessee. The said ground of appeal was allowed. Being aggrieved, revenue filed an appeal before us.

3. The Ld.AR stated that the depreciation on goodwill upon amalgamation was duly accounted for in books of accounts in earlier years, i.e. for the assessment year 2016-17. The assessee has claimed the depreciation on goodwill on earlier year and impugned assessment year. The instant year is the second year of such claim. He stated that as per the scheme of amalgamation approved by Hon’ble Bombay High Court, M/s Balakrishna Synthetics Limited has acquired by assessee with effect from 01/04/2015 for a total consideration of Rs.44.70 crores which was over and above the book value of the asset acquired by the assessee by Rs.16,07,99,337/-. This excess consideration paid by the assessee over the net worth of the assets which was recognized as goodwill in the books of the assessee on which the depreciation has been claimed @25%. The Ld.AR further stated that the issue is squarely covered by the order of the ITAT, Mumbai Bench “C” in assessee’s own case in Siyaram Silk Mills Limited for A.Y. 2016-17, date of pronouncement 26/11/2025. The relevant paras 12 & 13 of the said order is extracted below:- “12. After having gone through the facts of the entire case, we found that Revenue treated the amount of Rs.6,01,54,400/- paid by the assessee on account of contribution made to Tarapur Environment Protection Society (TEPS) as capital in nature as the said payment is in the nature of investment and even the assessee had recongnised the same as investment in its books and had in fact not written off in the financials and only claiming it as expense under the I.T. Act. But assessee submitted that though the payment was earlier classified as investment, the fact is that this contribution towards TEPS was mandatory on account of the directions of the Supreme Court and was a mandatory payment if its manufacturing unit was to continue functioning at Tarapur. As regards the finding of the AO that the appellant has not written it off in its financials, the appellant has submitted andfurther submitted that the same could not be written same could not be written off in this year as the books hadalready been finalised which could not be amended as the appellant is a listed company. The appellant has further stated that the amount has been written off in the next year in the audited financials and has not been claimed under the Income Tax Act as it has been claimed in this year therefore, ld. CIT(A) after analyzing in detail had passed a detailed order by holding investment is in the form of a mandatory requirement to meet statutory liability and was not expected to generate any return at all and hence was not really an investment. The assessee was required to make this payment for the reason that it had its manufacturing unit at Boisar, Tarapur and as per the directive of Supreme Court the assessee was either required to contribute towards the CETP or close down its manufacturing unit. The assessee cannot capitalise this payment as asset in the block of assets and claimdepreciation @ 100% as the assessee is not the owner of the CETP. The fact of this payment is undisputed and the fact that the assessee could not have carried out its manufacturing activity at the Tarapur Unit without this payment is also undisputed. This payment, in our considered view, was therefore in the nature of an essential business expenditure that is allowable u/s 37 of the Income Tax Act.