TaxTMI 
TaxTMI 
2026 (9) TMI 776
X X X X Extracts X X X X
X X X X Extracts X X X X
....enging the addition of Rs. 54,84,341/- and computation of total income at Rs. 9,25,66,541/- as against the returned income of Rs. 8,70,82,200/-. (ii) That the CIT(A)-NFAC erred in confirming disallowance of depreciation of Rs. 54,84,341/- (being 25% of Rs. 2,19,37,364/-, representing excess of liabilities over assets) by not treating the said excess, arising on acquisition of the business of Tektronix India Private Limited (an unrelated party) on a going-concern basis under a Business Transfer Agreement ["BTA"] dated 10.07.2015, as an intangible asset eligible for depreciation under section 32(1)(ii) of the Act. (iii) Alternatively and without prejudice to ground (ii), that the CIT(A)- NFAC erred in not allowing a revenue deduction of Rs. 96,84,272/- (being the difference between the adjusted goodwill of Rs. 2,19,37,363/- and the original goodwill of Rs. 1,22,53,090/-) representing non-recoverable current assets/excess liabilities relatable to the business of Tektronix India Private Limited. (iv) That the CIT(A)-NFAC erred in confirming the enhancement of book profit under section 115JB of the Act by Rs. 54,84,341/- being the depreciation so disallowed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ference between liabilities taken over and book value of assets is only a balancing figure and not a "business or commercial right" acquired at cost, that Toyo Engineering India Ltd. (as relied upon by the AO) and R.G. Keswani (supra) squarely applied, and that Smifs Securities Ltd. (supra) was factually distinguishable as it did not deal with a self-generated balancing entry of this nature. The CIT(A)-NFAC also rejected the alternative claim for revenue deduction of Rs. 96,84,272/- (ground iii above) holding that the write-off of pre-BTA receivables and adjustment of liabilities were capital in character, going to the cost of the goodwill/business acquired, and that the conditions of section 36(1)(vii) read with section 36(2) were not satisfied since the relevant debts had never been credited to the assessee's own income. Consequentially, at paragraph 9, the enhancement of book profit under section 115JB by the disallowed depreciation was also upheld, following Apollo Tyres, on the footing that once depreciation is held inadmissible under the normal provisions, Explanation 1 to section 115JB mandates its add-back to book profit. 6. Before us, the learned Authorised Represen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO and the CIT(A)-NFAC in the present case namely, that absence of stated consideration under the BTA renders the goodwill a mere book entry holding that discharge of the excess liability taken over is itself in the nature of consideration for the business and commercial rights, including goodwill, acquired under the BTA. 6.2 In addition, and in support of the same conclusion, the learned AR relied on the following decisions: (a) I & B Seeds (P.) Ltd. v. DCIT, [2022] 142 taxmann.com 274 (Bangalore-Trib.) - negative net worth arising on slump sale, and holding that the amendment to section 32 by the Finance Act, 2021 excluding goodwill from depreciable assets operates only prospectively from A.Y. 2021-22; (b) Thermo Fisher Scientific India (P.) Ltd. v. DCIT, [2023] 155 taxmann.com 346 (Mumbai-Trib.) - depreciation on goodwill generated on slump sale; (c) ACIT v. Dorma India (P.) Ltd., ITA Nos. 1664 to 1666/Chny/2019, order dated 20.11.2019 (ITAT-Chennai) - holding that excess payment made over the net tangible assets acquired under a slump-sale agreement is attributable to intangible assets acquired and is to be treated as goodwill eligible for deprecia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gruous to sustain a disallowance built upon a precedent that has since been set aside by the jurisdictional High Court and reversed by this very Tribunal on remand. 7.3 We attach particular importance, however, to the decision of the Coordinate Bench of this Tribunal at Mumbai in Gati Kintetsu Express (P.) Ltd. v. DCIT (ITA Nos. 2829 to 2833/Mum/2023, order dated 13.05.2024), since it meets the precise objection raised by the AO and the CIT(A)-NFAC in the present case more directly than any of the other decisions cited before us. In that case, as recorded at paragraph 9 of the order, the Business Transfer Agreement dated 13.02.2012, under which the assessee acquired the express distribution and supply chain business of Gati Ltd. on a going-concern basis, "did not provide for payment of consideration" by the assessee to the transferor; the liabilities taken over by the assessee were in excess of the assets of the undertaking, and the assessee treated this excess of liability over assets, amounting to Rs. 125.06 crores, as goodwill/intangible assets and claimed depreciation thereon. Both the AO and the CIT(A) in that case disallowed the claim on the ground, materially identical to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....We are also of the view that the mere fact that the BTA, being structured as a slump sale, does not assign values to individual assets and liabilities cannot, without more, be a ground to treat the resultant goodwill as ineligible for depreciation. That, indeed, is the very nature of a slump sale, and the decisions in I & B Seeds (P.) Ltd. (supra), Thermo Fisher Scientific India (P.) Ltd. (supra) and Dorma India (P.) Ltd. (supra) - each concerned with goodwill computed as the excess of liabilities over assets, or of consideration over net tangible assets, taken over under a slump-sale/business transfer agreement lend further, corroborative support to the same conclusion, holding that such goodwill represents the value of the bundle of business and commercial rights (business claims, business information, records, contracts, trained workforce and the like) acquired along with the tangible assets, and is eligible for depreciation under section 32(1)(ii) as "any other business or commercial right of a similar nature", applying the ratio of Smifs Securities Ltd. (supra). We further note that the Co-ordinate Bench in I & B Seeds (P.) Ltd. (supra) has held that the amendment to section 3....