PCIT-1 Vs Aculife Healthcare Pvt. Ltd. (Gujarat High Court)
The Gujarat High Court dismissed the tax appeals filed by the Revenue and upheld the order of the Income Tax Appellate Tribunal (ITAT) setting aside the revisionary proceedings initiated under Section 263 of the Income-tax Act, 1961. The dispute related to the allowability of depreciation on goodwill arising pursuant to a court-approved demerger and whether the original assessment order could be treated as erroneous and prejudicial to the interests of the Revenue.
Read SC Judgment: Section 263 Revision Fails Due to Proper Inquiry by Assessing Officer: SC
The assessee company had filed its return of income for Assessment Year 2015–16 declaring a substantial loss. The assessment was completed under Section 143(3) after complete scrutiny, accepting the returned income. Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked Section 263, observing that pursuant to a composite scheme of arrangement sanctioned by the Gujarat High Court, the healthcare division of another company was demerged and vested in the assessee with effect from 15.06.2015, with an appointed date of 01.10.2014. Under the scheme, all assets and liabilities of the healthcare division were transferred to the assessee.
In the process, goodwill amounting to ₹275 crore was recorded by the assessee as the difference between the net assets taken over and the shares issued, on which depreciation of about ₹68.84 crore was claimed. The PCIT noted that no goodwill existed in the books of the demerged company prior to the demerger and treated the goodwill as self-generated with a “nil” actual cost. Relying on Section 43(6) read with Section 32, the PCIT concluded that the written down value (WDV) of goodwill in the hands of the resulting company must also be nil, and therefore depreciation was not allowable. On this basis, the PCIT held that the Assessing Officer had failed to properly examine the issue and that the assessment order was erroneous and prejudicial to the Revenue.
