2025 (3) TMI 1079 - AT - Income Tax

ITAT Delhi allows depreciation on goodwill acquired through amalgamation despite nil book value

M/s. SS Group (P) Ltd. C/O RRA TAXINDIA Versus Assistant Commissioner of Income Tax, Circle- 4 (1) Income Tax Office, Gurgaon

M/s. SS Group (P) Ltd. C/O RRA TAXINDIA Versus Assistant Commissioner of Income Tax, Circle- 4 (1) Income Tax Office, Gurgaon - TMI ISSUES PRESENTED and CONSIDEREDThe primary issue considered in these appeals was the disallowance of depreciation on goodwill acquired or created as a result of amalgamation for the Assessment Years 2015-16 and 2016-17. The secondary issues concerning disallowance under section 40A(3) and interest chargeability under sections 234A, 234B, 234C, and 234D were not pressed by the assessee and thus were dismissed.ISSUE-WISE DETAILED ANALYSISDisallowance of Depreciation on GoodwillRelevant Legal Framework and Precedents: The legal framework involved the interpretation of sections 32(1) and 43(6)(c) of the Income Tax Act, 1961, particularly concerning the depreciation on intangible assets like goodwill. The CIT(A) relied on the ITAT Bangalore decision in United Breweries Ltd., while the assessee argued based on the Delhi High Court's decision in Eltek SGS Pvt. Ltd.Court's Interpretation and Reasoning: The Tribunal found merit in the assessee's argument that the valuation of goodwill was not in dispute, and the amalgamation was duly sanctioned by the High Court. The Tribunal emphasized that the goodwill's valuation was not questioned by the AO or CIT(A), and thus, the reasoning of the CIT(A) that the cost of acquisition was NIL was not tenable. The Tribunal aligned with the Delhi High Court's reasoning in Eltek SGS Pvt. Ltd., which supported the assessee's claim for depreciation on goodwill.Key Evidence and Findings: The Tribunal noted that the amalgamation was sanctioned by the Punjab and Haryana High Court, and the goodwill was recorded in the books of the appellant assessee without dispute over its valuation. The Tribunal found the CIT(A)'s reliance on the United Breweries Ltd. case misplaced, as the facts were distinguishable.Application of Law to Facts: The Tribunal applied the principles from the Eltek SGS Pvt. Ltd. case, where the Delhi High Court allowed depreciation on goodwill arising from amalgamation. The Tribunal concluded that the goodwill recorded in the appellant's books was valid for depreciation claims.Treatment of Competing Arguments: The Tribunal considered the CIT(A)'s argument that the cost of goodwill was NIL due to its absence in the amalgamating company's books. However, the Tribunal found this reasoning flawed, as it did not account for the sanctioned amalgamation and the recorded goodwill in the appellant's books. The Tribunal favored the assessee's argument, supported by the Eltek SGS Pvt. Ltd. decision, over the CIT(A)'s reliance on United Breweries Ltd.Conclusions: The Tribunal concluded that the assessee's claim for depreciation on goodwill was justified and directed the AO to allow the depreciation claims for both assessment years.SIGNIFICANT HOLDINGSThe Tribunal held that the claim of depreciation on goodwill acquired or created due to a scheme of amalgamation is justified, aligning with the Delhi High Court's decision in Eltek SGS Pvt. Ltd. The Tribunal set aside the CIT(A)'s orders and directed the AO to allow the depreciation claims for the amounts of Rs. 30,12,79,256 and Rs. 35,18,94,170 for the respective assessment years.Core Principles Established: The Tribunal established that when goodwill is recorded in the books of the amalgamated company, and the amalgamation is sanctioned by the court, the depreciation claim on such goodwill is valid, even if the amalgamating company's books did not reflect goodwill.Final Determinations on Each Issue: The Tribunal allowed the appeals concerning the depreciation on goodwill for both assessment years, directing the AO to approve the claims as justified under the legal framework and precedents discussed.