Income Tax Appellate Tribunal - Mumbai
Bhavani Gems Private Limited ,Mumbai vs Acit Circle 5(1)(1), Mumbai on 1 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH, MUMBAI
BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER&
SHRI ARUN KHODPIA, ACCOUNTANT MEMBER
ITA No. 5592/MUM/2025 (AY: 2015-16)
(Physical hearing)
Bhavani Gems Private Limited ACIT, Circle - 5(1)(1), Mumbai,
AE-3032, 3rd Floor, Bharat Diamond Vs Aayakar Bhawan,
Bourse, Bandra Kurla Complex, Mumbai - 400020.
Bandra (East), Mumbai-400051.
[PAN : AAECB9471D]
Appellant / Assessee Respondent / Revenue
Assessee by Shri Reepal G. Traishawala, CA
Revenue by Shri Leyaqat Ali Aafaqui, Sr. DR
Date of Institution 09.09.2025
Date of hearing 05.01.2026
Date of pronouncement 01.04.2026
Order under section 254(1) of Income Tax Act
PER PAWAN SINGH, JUDICIAL MEMBER;
1. This appeal by assessee is directed against the order of ld. CIT(A)/NFAC dated 15.07.2025 for Assessment Year (AY) 2015-16. The assessee has raised following grounds of appeal:
"1. In law and as per the facts and circumstances of the appellant's case, the Hon'ble CIT(A) erred in passing the order on his own whims and wishes without dealing with the grounds raised by the appellant and the submission filed in respect thereof during appellate proceedings. Thus, the order passed in gross abuse of power and without considering the submission of the appellant is bad in law and thus should be quashed.
2. In law and as per the facts and circumstances of the appellant's case, the Hon'ble CIT(A) erred in confirming the action of the Id. A.O. of concluding that the goodwill as appearing in the Balance Sheet at Rs. 26 Cr is self-generated and for which no payment is made, when in fact the appellant company had paid consideration through the issue of shares on account of conversion of the erstwhile M/s Bhavani Gems into the appellant company. Thus, the order passed based on such mis-
ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
appreciation of the facts of the case, is bad in law and thus the addition made shall be deleted.
3. In law and as per the facts and circumstances of the appellant's case, the Hon'ble CIT(A) erred in confirming the action of the Id. A.O. of not following the ratio of the decision of the Hon'ble Supreme Court in the case CIT v. Smiffs Securities Ltd. [2012] 348 ITR 302 wherein goodwill asset was held to a depreciable asset. Thus, the order passed without following judicial precedents is bad in law and thus the addition of depreciation claimed of Rs. 6,50,00,000/-on acquired Goodwill shall be directed to be deleted.
4. In law and as per the facts and circumstances of the appellant's case, the Hon'ble CIT(A) erred in passing the order without dealing with the various decisions, [which squarely covers the appellant's case) and relied upon by the appellant in support of its claim. Thus, the order passed without considering the judicial pronouncements, is bad in law and thus the order shall be quashed
5. In law and as per the facts and circumstances of the appellant's case, the Hon'ble CIT(A) erred in not considering the fact that the Hon'ble Bombay High Court in the appellant's own case for AY 2014-15, had held that the share premium arrived at for the issue of further shares was deemed appropriate. The said value was derived after taking into consideration the value of Goodwill recorded in the books of the accounts. Thus, the order passed in ignorance of the facts and judicial pronouncements, is bad in law and thus shall be quashed.
6. In law and as per the facts and circumstances of the appellant's case, the Hon'ble CIT(A) erred in confirming the action of the Ld. A.O. in charging interest u/s 234B of the Income Tax Act, 1961.
7. In law and as per the facts and circumstances of the appellant's case, the Hon'ble CIT(A) erred in confirming the action of the Ld. A.O. of initiating penalty u/s 271(1)(c) of the Income Tax Act, 1961.
8. The appellant craves leave to add, amend, alter or modify the ground of grounds of appeal on or before the hearing."
2. Further, vide application dated 26.12.2025, the assessee has raised following additional ground of appeal:
"Ground No. 5: In law and as per the facts and circumstances of the appellants case, entire assessment proceedings in consequence to the 2 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
notice u/s 148 deserves to be annulled as the same was without proper approval of the authority and the proof thereof was never supplied to the appellant. Thus, the order of the CIT(A) passed without dealing with the same is bad in law and therefore the order of the CIT(A) deserves to be annulled."
Further, the appellant would also like to state that the omission of the above grounds was neither willful nor unreasonable. Also, as the appeal in the first instance was filed within time, we respectfully request your honors to consider the above additional ground of appeal u/s 250(5) which has remained to be raised in the appeal filed earlier"
3. At the time of hearing, the learned Authorised Representative (ld. AR) of the assessee submits that he is not pressing additional ground of appeal, hence, the additional ground of appeal filed by the assessee is dismissed.
4. Brief facts of the case are that assessee is a private limited company, engaged in the business of manufacturing, exporting and trading of cut and polished diamonds. The assessee filed its return of income for A.Y. 2015-16 declaring income of Rs. 16,20,16,360/-. The assessment was completed under section 143(3) on 13.12.2017 assessing total income at Rs. 16,20,76,360/-. The case of assessee was reopened on 30.03.2021. The notice under section 148 was issued on 30.03.2021. The assessing officer (AO) extracted the reasons recorded on page no. 2 of assessment order. In the reasons recorded, the ld. AO noted that assessee claimed depreciation on goodwill of Rs. 6.50 crores and written down value (WDV) as on 01.04.2014 was shown as Rs. 26.00 crores. From record of A.Y. 2014-15, it was seen that assessee has not claimed any goodwill or any depreciation on such goodwill. The record reveals that assessee was converted into a company in March, 2012 by conversion of erstwhile partnership from Bhavani Gems. Annual accounts for A.Y. 2012-13 shows 3 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
that goodwill not acquired on purchase from any other entity, but it was a self-generated goodwill of Rs. 26.00 crores. The goodwill was introduced for the first time in A.Y. 2015-16 and claimed depreciation in the year under consideration. The AO further noted that goodwill was internally generated by erstwhile firm and not acquired or purchased by paying any consideration. The cost of same should have been taken at Nil. The assessee after three years has shown it in the books as assets and claimed depreciation @ 25% for the first time which is not allowable. Thus, the assessee has not disclosed true and correct particulars in the return of income for assessment year under consideration which escaped from assessment to the extent of Rs. 6.5 crores. The AO on the basis of aforesaid belief recorded in reasons, issued notice under section 148. The AO further recorded that reasons recorded were supplied to assessee vide letter dated 24.06.2021. After recording the fact that assessee has filed return in response to notice under section 148. The AO further recorded that in reply, the assessee contended that assessee has filed Writ Petition before Mumbai High Court vide Writ Petition No. 786 of 2022 and requested to keep the assessment proceeding in abeyance. The High Court passed order on 28.02.2022 and granted ad-interim stay on assessment proceeding. Subsequently, Writ Petition was withdrawn by the assessee as per order dated 29.03.2022. After dismissal / withdrawal of Writ Petition, the assessment was required to be completed by 28.05.2022.
5. The AO further noted that a detail show cause notice was issued as to why such goodwill be not disallowed. The assessee filed its reply vide reply 4 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
dated 19.05.2022, contents of which are recorded in para 2 of page no. 4 to 12 of assessment order. The assessee its reply submitted that similar goodwill was claimed in A.Y. 2016-17. The assessment was completed under section 143(3) on 21.12.2018 by accepting returned income. Thereby, allowing claim of goodwill. The order of A.Y. 2016-17 was revised by PCIT-5, Mumbai under section 263 vide order dated 19.03.2021. After order of PCIT in A.Y. 2016-17, the ld. AO immediately issued notice under section 148 for A.Y. 2014-15 & 2015-16. Such fact clearly shows that all the details were available before the assessing officer. Against the order passed under section 263 for A.Y. 2016-17, the assessee filed appeal before Tribunal and the same was quashed vide order dated 29.04.2022 in ITA No. 766/Mum/2021 by holding that nothing illegal is allowing depreciation of goodwill as the assessee was acquired all assets and liabilities including goodwill of Rs.26.00 crores from Bhavani Gems. It was also observed that depreciation was allowed in A.Y. 2015-16. Against the notice under section 148 for A.Y. 2014-15, the assessee filed a writ petition before Bombay High Court. The notice under section 148 for A.Y. 2014-15 was quashed by Bombay High Court. The assessee further submitted that scrutiny assessment after incorporation of assessee on 26.03.2012 that is A.Y. 2012-13, 2013-14, 2014-15, 2016-17 and 2015-16 is completed under section 143(3). The assessment was completed after considering all the relevant details without any variation and allowing depreciation on such goodwill. The assessee also submitted that firm was converted into a private limited company on 26.03.2012 by complying provisions of 5 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
Companies Act as well as requirement under section 47(xii) of Income Tax Act. All the assets and liabilities of the said firm on the date of conversion were taken over by Assessee Company. The net consideration of Rs. 230.00 crores was discharged by Assessee Company by issuing equity and preference share of Rs. 120.00 crores and Rs.110.00 crores respectively to the partner of erstwhile firm. This means that all assets including goodwill and liabilities of the erstwhile firm was taken over by assessee- company in its book value as on 26.03.2012 as against the net consideration of Rs. 230 crores paid to the partners of the firm by way of equity and preference share to them. The assessee also relied on various case laws to support their contention including decision of Hon'ble Supreme Court in CIT vs Smiffs Securities Ltd. (2012) 348 ITR 302, wherein it was held that depreciation is an intangible asset within the meaning of section 32 and is liable to claim of depreciation.
6. The reply of assessee was not accepted by AO. The AO in various sub-para 3 discussed the contention of assessee. The AO held that in A.Y. 2014-15, the issue was different. The goodwill was started claim from A.Y. 2015-16 that is @ 25% of total goodwill of Rs. 26.00 crores. The assessee filed writ petition before High Court, which was withdrawn and thus, dismissed vide letter dated 29.03.2022. In A.Y. 2016-17, order was revised on the issue by PCIT under section 263 dated 26.03.2021 by holding that order was erroneous and prejudicial to the interest of Revenue including on the issue of goodwill. Against the order under section 263, the Tribunal in ITA No. 766/Mum/2021 dated 29.04.2022 held that order of PCIT is not 6 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
sustainable and quashed. In A.Y. 2014-15, the High Court allowed similar issue in favour of the assessee but the technicalities and merits of goodwill is not discussed by Hon'ble High Court. The High Court set aside the reassessment on the ground that assessment proceedings are based on change of opinion. The decision of High Court is not accepted and department was going to file Special Leave Petition (SLP). The AO also held that order of Tribunal for A.Y. 2016-17 is also not acceptable by Revenue and they are in process of filing appeal before High Court. The AO by referring provision of section 32(1)(ii) held that goodwill is also to be understand as a part of intangible asset. The goodwill claimed by assessee is self-generated at no cost in the books of erstwhile firm Bhavani Gems. The introduction of goodwill in the books of assessee is only with a view to make in correct claim on depreciation and accordingly disallow claimed of depreciation of goodwill.
7. Aggrieved by the additions in the reassessment order dated 27.05.2022, the assessee filed appeal before commissioner (appeal). The commissioner (appeal) confirmed the action of assessing officer by holding that goodwill is a self-generated and at no cost in the books of erstwhile firm. The ld. CIT(A) has not given any separate and independent finding. Further, aggrieved, the assessee has filed present appeal before Tribunal.
8. We have heard the submission of learned Authorized Representative (ld. AR) of the assessee and learned Senior Departmental Representative (ld. AR) for the Revenue. The ld. AR of the assessee submits that though he has good case against validity of reopening as well as on merit. The 7 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
assessee has not challenged the validity of reopening. The ld. AR of the assessee submits that assessee was converted from partnership firm to company. The case of assessee was reopened on two reasons that erstwhile firm had not acquired or purchased in goodwill by paying considering and that assessee has not claimed depreciation of goodwill in 2012-13 to 2014-15. The AO failed to appreciate that both the entity that erstwhile firm and present assessee are two separate entities. The assessee acquired goodwill by paying consideration towards goodwill of Rs. 26.00 crores. It is not self-generated. It is an undisputed fact that assessee paid consideration for goodwill of Rs. 26.00 crores. It was pure management call that no claim for depreciation on goodwill was made on return for A.Y. 2012-13 to 2013-14. Initially, the claim for goodwill was allowed / accepted in assessment year passed under section 143(3) on 13.12.2017. The similar claim was made in return of income for A.Y. 2016-
17. The claim of assessee was accepted by assessing officer in A.Y. 2016-
17. In assessment under section 143(3) dated 21.11.2018. However, assessment order for A.Y. 2016-17 was revised by ld. PCIT vide order dated 26.03.2021. The order of ld. PCIT was challenged before Tribunal vide ITA No. 766/Mum/2021. The order under section 263 for A.Y. 2016- 17 was quashed / set aside by Tribunal in order dated 29.04.2022. The copy of assessment order for A.Y. 2016-17 dated 21.11.2018 and order passed by ld. PCIT dated 26.03.2021 and order of Tribunal in ITA No. 766/Mum/2021 dated 29.04.2022 is placed on record. Further in A.Y. 2017-18, the similar claim has been allowed by assessing officer in the 8 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
assessment order under section 143(3). In A.Y. 2018-19 & 2019-20, the claim is allowed while accepting return of income under section 143(1) and no further revision for reopening for those assessment years has been made by Revenue. The ld. AR of the assessee submits that once the similar claim has been accepted by Revenue in all subsequent years and no further appeal is filed by Revenue against the order of Tribunal in A.Y. 2016-17. Hence, the Revenue cannot be allowed to take by different view in the year under consideration. The ld. AR while referring profit and loss account and balance sheet including of Schedule-VIII, details of fixed asset of Bhavani Gems (partner firm) as on 26.03.2012, carried us through page no. 129 of paper book wherein the erstwhile firm has shown goodwill of Rs. 26.00 crores in their books of account. Further, the assessee company has also shown goodwill in their fixed asset as per details of page no. 142 of paper book. The ld. AR of the assessee submits that assessee has acquired all fixed asset of erstwhile firm along with all liabilities. The assessee has acquired going concern unit and paid consideration inter alia including consideration towards goodwill of Rs. 26.00 crores. The ld. AR further submits that reopening on the similar issue for A.Y. 2014-15 has been quashed by Hon'ble Bombay High Court. The ld. AR submits that there are series of decision wherein on similar issue when going concern was transferred to another entity, the successor is eligible for depreciation on goodwill. The ld. AR also relied on the decision of Ahmadabad Tribunal in Nirma Ltd. Vs DCIT in ITA No. 2007 & 2008/Ahd/2017 and 9 ITA 5592/Mum/2025 (AY 2015-16) Bhavani Gems Pvt. Ltd.
516/Ahd/2018 dated 30.06.2025 wherein almost similar goodwill arise on account of amalgamation was allowed.
9. On the other hand, the ld. DR for the Revenue supported the order of lower authorities. The ld. Sr. DR for the Revenue submits that goodwill is self-generated in the books of assessee which was just introduced before the conversion. The goodwill was not recognized in the assets and erstwhile firm upto 2012-13 and 2013-14. No cost is paid for acquisition of such goodwill.
10. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities. We find that the facts of the case has been correctly explained ld AR of the assessee. We find that assessee was converted from partnership firm to private limited company in A.Y. 2013-14. The assessee claimed depreciation on goodwill from A.Y. 2014-15. It was allowed / accepted by assessing officer. The assessee further claimed depreciation in the year under consideration. It was initially allowed in the assessment order under section 143(3) dated 13.12.2017. The assessee again claimed similar depreciation in A.Y. 2016-17. The depreciation was allowed in assessment order dated 21.11.2018 under section 143(3). The assessment order of A.Y. 2016-17 was revised by ld. PCIT by exercising his jurisdiction under section 263 vide order dated 26.03.2021. The order of ld. PCIT for A.Y. 2016-17 was quashed / set aside by Tribunal vide order dated 29.04.2022 in ITA No. 677/Mum/2021. We find that only after revision order passed in A.Y. 2016-17, case of assessee for A.Y. 2014-15 and 2015-16 was reopened. 10
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Against the reopening for A.Y. 2014-15 & 2015-16, the assessee filed appeal before Jurisdictional High Court. In A.Y. 2014-15, the notice under section 148 was quashed by Hon'ble High Court by holding that there was no failure on the part of assessee in disclosing truly and fully all material facts necessary for assessment. Thus, we find that there is two decisions in favour of assessee on the similar issue that is in A.Y. 2014-15 from Hon'ble Jurisdictional High Court and in A.Y. 2016-17 by Co-ordinate Bench of Tribunal. Thus, considering the consistent decision of Hon'ble High Court and Co-ordinate Bench, we find that that issue is now covered in favour of assessee. In the result, grounds of appeal raised by assessee are allowed.
11. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 01/04/2026
Sd/- Sd/-
(ARUN KHODPIA) (PAWAN SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 01/04/2026
Biswajit
Copy of the order forwarded to:
(1) The Assessee;
(2) The Revenue;
(3) The PCIT / CIT (Judicial);
(4) The DR, ITAT, Mumbai; and
(5) Guard file.
By Order
Assistant Registrar
ITAT, Mumbai
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