The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench held that the transaction can not be regarded as a colorable device merely on the basis that assessee claimed depreciation on goodwill in amalgamation scheme.
The assessee, Urmin Marketing Pvt. Ltd. known as Unicorn Packaging LLP “Urmin House” is a Private Limited Company. The assessee company took over the other company namely M/s Unicorn Packers limited in a scheme of amalgamation approved by the Gujarat High Court.
Subsequently, the assessee company got amalgamated with another company namely M/s Urmin Flavoroma Private Limited in a scheme of amalgamation approved by the Gujarat High Court.
Thereafter the name of the amalgamated company i.e. M/s UrminFlavoroma Private Limited was changed to M/s Unicorn Packaging Private Limited. Finally, M/s Unicorn Packaging Private Limited converted into limited liability partnership.
The assessee, however, in the year under consideration was subject to scrutiny assessment. The AO framed the assessment order under section 143(3) read with section 144C of the Act in the name of the erstwhile company namely M/s Urmin Marketing Pvt. Ltd which was a non-existent entity at that point of time.
The AO alleged that both the companies i.e. amalgamated and the amalgamating companies were controlled and managed by the same group of persons pre and post amalgamation.
Thus the issue arose whether it was a colourable device adopted by the assessee to create the goodwill in the books of accounts and claim such a huge amount of depreciation.
The coram headed by the Vice President Rajpal Yadav observed that the 2 companies were filing separate income tax returns. Both the companies being body corporate have a separate legal identity. All these details were duly disclosed in the scheme of amalgamation which was duly approved by the Gujarat High Court.
The Tribunal highlighted that there is no prohibition under the Act for disallowing the depreciation on the goodwill generated in the scheme of amalgamation.
The tribunal noted that There are certain kinds of transactions, prejudicial to the interest of Revenue, which may fall under the purview of the provisions of General Anti-Avoidance rule (GAAR), POEM, and BEPS provided under section 95 to 102, section 6(3) of the Act respectively under which the impugned transaction i.e. depreciation on the goodwill in a scheme of amalgamation can be denied. But such provisions are not applicable for the year under consideration.
It is noteworthy that scheme of the amalgamation can be approved under the provisions of section 2(1B) of the Act where shareholders holding not less than 75% in the value of shares of the amalgamating company become the shareholders of the amalgamated company. It is possible only when the shares are issued to the shareholders of the amalgamating company.
Accordingly, the ITAT was not impressed with the finding of the AO that there was no cash payment for the acquisition of the goodwill by the assessee rather it was recognized in the books of accounts by way of accounting entries.
Therefore, the Tribunal held that the impugned transaction cannot be regarded as a colorable device merely on the reasoning that the assessee claimed the depreciation on the goodwill in the scheme of amalgamation.
The ITAT directed the AO to allow the claim of the assessee for the depreciation on the impugned goodwill.
Subscribe Taxscan Premium to view the Judgment
