Goodwill Depreciation and Forfeited Deposits: ITAT Ahmedabad Sets Aside Section 263 Revision in Ammann India Private Limited Vs PCIT
Background of the Dispute
The Income Tax Appellate Tribunal, Ahmedabad Bench, adjudicated an appeal in the case of Ammann India Private Limited Vs PCIT concerning Assessment Year (AY) 2020–21. The core issue was the validity of a revisionary order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act 1961.
The assessee, a company, had:
- Filed its return of income on 23.01.2021 declaring total income of ₹44.60 crore (₹44,60,36,340).
- Faced a scrutiny assessment completed under
Section 143(3)read withSection 144Bon 09.09.2022, determining total income at ₹51.41 crore (₹51,41,86,310).
Subsequently, the PCIT examined the assessment records and invoked Section 263 on the ground that the assessment order was:
- Erroneous, and
- Prejudicial to the interest of the revenue,
with reference to the following two points:
- Depreciation allowed on goodwill amounting to ₹7.47 crore.
- Non-taxation of forfeited deposits of ₹5.63 lakh, despite disclosure in audited financial statements.
The PCIT directed the Assessing Officer (AO) to frame a fresh assessment after re‑examining these aspects.
The assessee challenged this revisionary order before the Tribunal.
Delay Condonation in Filing the Appeal
The assessee filed the appeal with a delay of 65 days. An affidavit from the Managing Director, Shri Dhiraj Panda, explained that the delay arose because the finance and legal teams were heavily engaged in year-end closing and statutory compliances. The delay was asserted to be neither deliberate nor mala fide.
The Tribunal accepted this explanation and condoned the delay, allowing the appeal to be heard on merits.
Grounds Raised by the Assessee
The assessee’s challenge to the Section 263 order broadly revolved around three clusters of grounds:
1. Jurisdiction under Section 263
The assessee argued that:
- The
PCITwrongly assumed jurisdiction underSection 263. - The original assessment under
Section 143(3)r.w.s.Section 144Bwas passed after proper enquiry and application of mind. - The mandatory twin conditions for invoking
Section 263—that the order must be both erroneous and prejudicial to the interest of the revenue—were not fulfilled.
2. Disallowance of Depreciation on Goodwill
On the goodwill issue, the assessee contended:
- The goodwill arose from genuine slump sale acquisitions of business divisions:
- Asphalt Plant business from Gujarat Apollo Industries Limited (GAIL).
- Sensor Paver business from Apollo Earth Movers Limited (AEML).
- Depreciation on goodwill had been claimed consistently from AY 2014–15 onwards.
- The quantum of depreciation actually claimed in the year under appeal was ₹5,17,56,152, not ₹7,47,78,417 as stated in the
PCIT’s order. - Once goodwill was recognized and accepted in the initial year and depreciation allowed, subsequent years must follow the written down value (WDV) method, and the
AOcannot re‑compute goodwill afresh each year.
3. Treatment of Forfeited Security Deposits
Regarding the security deposit forfeiture, the assessee submitted:
- Deposits of ₹5,63,000 were initially received from customers as security against non‑submission of statutory “C Forms” under sales tax law.
- Upon customers’ failure to furnish the forms, these deposits were forfeited and deposited with the sales tax authorities.
- Since the assessee did not retain the amount and it was paid to the statutory authority as tax, it could not be treated as income in its hands.
- Even if viewed as income, any corresponding payment of tax to the authorities would qualify for deduction under
Section 43B, making the issue tax‑neutral.