Gujarat HC: Future Amendment on Goodwill Depreciation Cannot Justify Reopening FY 2017-18 Assessment

The Gujarat High Court in a ruling held that a future amendment disallowing depreciation on goodwill, which will come into force on April 1, 2021, could not be used as a basis to reopen the assessment for the fiscal year 2017-18.

The taxpayer GTPL Hathway Limited, has furnished its income tax return for the AY 2017-18 notifying an income of Rs 39.69 crores, subsequently revised to Rs. 83.33 crores. The matter was investigated and an assessment order was passed u/s 143(3) of the Income Tax Act, 1961.

The Income Tax Department dated March 27, 2021, issued a notice u/s 148 to reopen the assessment. The department mentioned that the company had incorrectly claimed Rs 17.37 crores as lease payments under revenue expenditure, had ineffectively accounted for unrealized foreign exchange gains and losses, and had asserted depreciation on goodwill, which was subsequently disallowed by a 2021 amendment.

The taxpayer contested the reassessment notice before the ITAT claiming that all the problems raised via the tax department had been analyzed before in the original scrutiny assessment. It was claimed by the company that no new tangible material explained the reopening and that the amendment disallowing the depreciation on goodwill which came into force in 2021, cannot be applied to reassess its 2017-18 returns.

It was opposed by the income tax department that the reassessment was true as the original scrutiny assessment does not analyze the treatment of foreign exchange transactions and goodwill depreciation.

It was noted by the division bench including Justice Bhargav D. Karia and Justice D. N. Ray that the reassessment was grounded on the current records and does not engage any new findings. It was noted by the court that reopening based on a mere revision of view is not permissible under tax law.

It was noted by the court that the lease payment had been permitted consistently in the earlier years and that foreign exchange losses and gains were accounted for.

It was held by the court that the 2021 amendment disallowing goodwill depreciation cannot be applied to reassess the income of the company for the fiscal year 2017-18. Under section 148 of the Income Tax Act, 1961 the reassessment notice has been set aside by the court.