Goodwill depreciation and internal CUP pricing upheld where amalgamation goodwill and captive electricity transfers were supported by consistent precedent.

Depreciation was held allowable on goodwill arising from an amalgamation, treating it as an intangible asset under section 32(1)(ii) because it represented consideration for acquisition of a running business with commercial rights and business advantages; the disallowance was deleted in the assessee's favour. Transfer pricing adjustment on inter-unit sale of electricity for computing deduction under section 80IA was rejected because the assessee's internal CUP, based on the distribution company's consumer tariff, was accepted as a reliable benchmark for a homogeneous commodity; the substitute rate adopted by the TPO was not accepted and the deduction was upheld.

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Issues: (i) Whether depreciation was allowable on goodwill arising on amalgamation as an intangible asset under section 32(1)(ii); (ii) Whether the transfer pricing adjustment in respect of inter-unit sale of electricity for computing deduction under section 80IA was justified.

Issue (i): Whether depreciation was allowable on goodwill arising on amalgamation as an intangible asset under section 32(1)(ii).

Analysis: The goodwill arose pursuant to a scheme of amalgamation approved by the High Court and represented consideration for acquisition of a running business together with commercial rights and business advantages. The issue had already been decided in the assessee's favour in earlier assessment years, and the consistent view had been affirmed in the assessee's own case. No distinguishing feature in facts or law was shown for the year under consideration.

Conclusion: Depreciation on goodwill was allowable, and the disallowance was rightly deleted in favour of the assessee.

Issue (ii): Whether the transfer pricing adjustment in respect of inter-unit sale of electricity for computing deduction under section 80IA was justified.

Analysis: The assessee's internal CUP, based on the rate charged by the distribution company for electricity supplied to consumers, was accepted as a reliable benchmark because electricity is a homogeneous commodity. The substitute tariff rate adopted by the Transfer Pricing Officer was not accepted. The issue was also covered by earlier decisions in the assessee's own case, including consistent appellate relief in prior years, and no contrary material was shown for the year in question.

Conclusion: The transfer pricing adjustment was not justified, and the deduction under section 80IA was rightly allowed in favour of the assessee.

Final Conclusion: The Revenue's challenge failed on both grounds, and the appellate relief granted to the assessee was sustained.

Ratio Decidendi: Goodwill arising from amalgamation of a running business is depreciable as an intangible asset when the issue is settled by consistent precedent, and for captive electricity transfers, a reliable internal CUP may be adopted for arm's length pricing where the commodity is homogeneous and no contrary distinguishing facts are shown.

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