The court ruled that the Assessing Officer's reliance on audit objections without considering prior accepted claims of depreciation constituted non-application of mind, rendering the reassessment notice invalid.

JUDGMENT :

Bhargav D. Karia, J.

1. Heard learned advocate Mr. Dharan Gandhi appearing for learned advocate Mr.Darshan B.Gandhi for the petitioner and learned Senior Standing Counsel Mr.Nikunt K.Raval for the respondents.

2. Having regard to the controversy involved, which is in narrow compass, with the consent of learned advocates for the respective parties, both the matters are taken up for final hearing.

3. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Nikunt K.Raval, waives service of notice of rule on behalf of the respondents.

4. Both these petitions are filed under Article 226 of the Constitution of India with a prayer to quash and set aside the notice issued under Section 148A(b) of the Act dated 10th February, 2024 for the Assessment Years 2017-18 and 2018-2019 and the order dated 30th March, 2024 passed under Section 148A(d) of the Act and the consequent notice issued under Section 148 of the Act of the even date.

5. The brief facts of the case are that the respondent-Assessing Officer issued notice under Section 148A(b) of the Act on the basis of the audit objections which reads as under :-

In your case, assessment 143(3) r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred as "Act") for the AY 2018-19 was finalized on 15.06.2021 by accepting return income as total assessed income of Rs. Nil-. Subsequently, in your case the following audit objection which forms information as per Explanation 1(ii) to section 148 of the Act and which suggests that income of Rs.6,17,70,240/- chargeable to tax has escaped assessment; was raised:-

"On perusal of the financial statements and tax audit report of the assessee, it was seen that assessee had shown opening WDV of intangible asset worth Rs.24,70,80,959/- on which 25% depreciation i.e. Rs.6,17,70,240/- had been claimed while computing the total income On perusing the case records further, it was observed that the said Intangible asset had been created by the assessee company as goodwill during FY 2014-15 on amalgamation of its sister concern M/ s Songwon International India Pvt. Ltd with it. While giving effect to the amalgamation in its books of account for FY 2014-15, the assessee, company had created goodwill of Rs.67,50,06,719/- in its books under the head intangible asset on which 25% depreciation had been claimed in AY- 2015-16, 2016/17 and AY 2017-18.

The relevant paras in this respect, of the scheme of amalgamation as approved by Hon’ble High Court are as under:- Para 15. For accounting treatment

(d) The difference (if any) arising as a result of giving effect to sub-clauses 15(a) to (c) above, shall be credited or debited to Capital reserve account and/or Goodwill, as the case may be;

(f) The accounting treatment as stated in the Scheme is in compliance with the accounting treatment as prescribed under Accounting Standard-14 i.e. accounting for amalgamations governed by the Companies (Accounting Standards) Rule, 2006;

From the above facts and discussion, it is clear that the creation of goodwill of Rs.67.50 Cr by the assessee in its books was a mere book entry whereby the excess over the book value of the net worth/fixed assets of the amalgamating company has been recognized as goodwill by the amalgamated company. Further, in the considered opinion of the undersigned, the terms of a scheme of amalgamation cannot override the explicit provisions of the Income-Tax Act, 1961. In this context, of specific mention are the explanations to section 43 which govern the amount of recognition of capital assets including goodwill in the books of amalgamating company. The relevant explanations are reproduced here as under-

Explanation 7.[to section 43(1))-Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company and the amalgamated company is an Indian company, the actual cost of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamatin