ORDER
T.R. Senthil Kumar, Judicial Member. – These two appeals are filed by the Revenue as against separate appellate orders dated 20.05.2022 and 08-06-2022 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment orders passed under section143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2017-18 and 2018-19 respectively. Since common issue of disallowance of depreciation on Goodwill is involved in both the assessment years, for the sake of convenience the same are disposed of by this common order
2. Brief facts of the case is that the assessee company is engaged in the business of (i) manufacturing of solid Bio-Fuel and Wood Pallet (ii) Trading in solar Rooftop and Renewal Energy Devices (iii) trading in tissue culture plants and (iv) Product Development Services. For the Asst. Year 2017-18, the assessee filed its original return of income declaring Nil total income on 06.11.2017. Thereafter, pursuant to the Composite Scheme of Arrangement (Scheme) approved by Ahmedabad Bench of National Company Law Tribunal (NCLT) vide order dated 29.10.2018 the Assessee revised its return of income for A.Y. 2017-18 on 30.11.2018 declaring loss of Rs.752,51,42,451/-. The return was revised to give effect of the Scheme of Amalgamation approved by Ahmedabad Bench of NCLT vide order dated 29.10.2018.
2.1. Assessee’s case was selected for Limited Scrutiny assessment and regular assessment was completed u/s. 143(3) of the Act on 29.12.2019 by disallowing the claim of depreciation on Goodwill of Rs. 771,66,20,460/- under section 32(1) r.w.s. 43(1) r.ws. 43(6)(c) r.w.s. 49(1)(iii)(e) r.w.s. 55(2)(a)(ii) of the Act and total income was determined at Rs.19,14,86,009/-.
3. Aggrieved against the order, the assessee filed an appeal before Ld. CIT(A) who held that the assessee company had acquired goodwill by way of purchase in the process of Amalgamation and hence the claim of depreciation on goodwill acquired at the time of Amalgamation is in accordance with the provisions of law and deleted the addition made by the A.O. by passing a speaking order as follows:
“After considering the appellants submissions and AO findings in the assessment order, following facts emerge:
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It is apparent from the findings of the AO in the assessment order that the depreciation on goodwill was disallowed by the AO on the premise that there was no goodwill value in the books of the amalgamating companies. The AO has completely ignored the situation of purchase of goodwill by amalgamated company in the process of amalgamation as was the case in the facts of Smifs Securities Ltd. as well as in the case of Zydus Wellness Ltd decision. It has been clearly brought out by the appellant that the goodwill value was on the basis of differential between the consideration paid v. value of net assets of amalgamating companies taken over Thus, in the current facts of the case where goodwill is acquired through purchase in the process of amalgamation, the provision of section 55(2)(a)(i) will apply rather than the AO’s view point of applying section 55(2)(a)(ii) of the Act for considering the value of goodwill. In the first case, the value of goodwill is taken at purchase consideration paid for acquisition of goodwill where as in the second case, the value of goodwill generated in the process of business for the goodwill generating company is taken as Nil. For this factual reason that the appellant had acquired goodwill by way of purchase for consideration paid in the process of amalgamation, the provisions of the proviso to section 32(1), section 49(1)(ii)(e), Explanation 7 to section 43(1) and/or Explanation 2(b) to section 43(6)(c) and section 55(2)(a)(ii) are not applicable to the current facts of the case as argued and contended by the appellant in the submissions reproduced herein above. This view point also gets support from the decision of Hon’ble ITAT Ahmedabad Bench in the case of Urmin marketing Pvt. Ltd. v. DCIT as under: |
32.4 From the above, it would appear that the intent of the Legislature is to make amalgamation a tax neutral scheme for companies is wolf as for the shareholders and not to provide a tax planning mechanism to either of them. However, a conjoint reading of the above provisions reveal that the assets which were transferred by the amalgamating company to the amalgamated company in the process of amalgamation were not made subject to the capital gain tax. Furthermore, the 6th proviso to section 32 of the Act has limited the amount of depreciation available to the amalgamated company post amalgamation to the extent of the amount of depreciation which would have been available to the amalgamating company, had there not been any amalgamation, Indeed there was no entry in the books of the transferor/amalgamating company for the intangible assets/goodwill being self-generated assets. However, we note that all the relevant provisions of the Act as discussed above deal with respect to the assets available/recorded in the books of the transferor/ amalgamating company.
In other words, the assets which have boon acquired by the assessee in tum scheme of amalgamation would continue at the book value in the books of the amalgamated company. The question arises whether the goodwill shown by the assessee as discussed above was acquired in the scheme of amalgamation from the amalgamating company. The answer stands in negative. It is because there was no entry in the books of accounts of the amalgamating/transferor company reflecting the value of the goodwill. As such, the amount of goodwill as claimed by the assessee represents the difference between the purchase consideration and the NAV acquired by it. The purchase consideration paid by the assessee was based on the valuation report as discussed above after considering the various factors. Thus the assessee has not acquired any goodwill from the amalgamating/transferor company as alleged, accordingly the provisions of the Act le. 6 proviso to section 32, explanation 7 to section 43(1), explanation 2 to section 43(6)(c) of the Act cannot be applied to the case on hand”
This decision clearly held that the said provisions of 6th proviso to section 32(1) was applicable only for a case of pro-existing assets including goodwill in the books of amalgamating company prior to amalgamation. In the case of appellant, there was no pre-existing goodwill in the books of amalgamating companies. Goodwill was acquired by way of excess of consideration paid over the net assets of amalgamating companies taken over. Hence, this decision is applicable to the facts of the appellant’s case.
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It is relevant to once again to reproduce the decision of Hon’ble ITAT Ahmedabad Bench in the case of Urmin marketing Pvt. Ltd. v. DCIT as under |
In the aforesaid case, the assessee claimed depreciation on goodwill arising in the course of amalgamation relying on the Supreme Court judgment in the case of Smifs Securities (supra) and Gujarat High Court judgment in the case of Zydus Wellness Ltd. (supra) and Vimlachal Print and Pack Limited (supra). The Ahmedabad Bench of Income-tax Appellate Tribunal upheld the claim of assessee and held as under
On perusal of the above provisions, we note that the word goodwill has nowhere been mentioned. However we note that, the Hon’ble Supreme Court in the case of CIT v. Smits Securities Ltd reported in 340 ITR 302 has held that the goodwill falls within the definition of the assets under the category of any other business or commercial rights of similar nature. The relevant extract reads as under
Explanation 3 to section 32(1) states that the expression ‘asset’ shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading of the words “ally other business or commercial rights of similar nature in clause (b) of Explanation 3 indicates that goodwill would fall under the expression any other business or commercial rights of a similar nature. The principle of ejusdern generis would strictly apply while interpreting the said expression which finds place in Explanation 3 (b). (Para 4)
In view of the above, it is opined that ‘Goodwill’ is an asset under Explanation 3(b) to section 32(1). (Para 5)
In view of the above judgment, there remains no ambiguity that the goodwill is part and parcel of intangible assets. Hence, the assessee is eligible for depreciation on the goodwill.
Moving further, we note that for claiming the depreciation, among other conditions as provided under, section 32 of the Act, one of the condition is that the assessee con claim depreciation on the goodwill being intangible asset if acquired on or after 1st day of April 1993, in other words, the assessee can claim depreciation on the goodwill acquired by it. Thus the controversy arises whether the goodwill generated in the scheme of amalgamation is acquired by the transferee company. Such controversy has been answered by the Hon’ble Supreme Court in the case of Smifs securities Lid (supra) by holding as under:
One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner (Appeals) has come to the conclusion that the assessee had filed copies of the orders of the High Court ordering amalgamation of the above two companies, that the assets and liabilities of ‘Y’ Lid were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-company stood increased. This finding has also been upheld by Tribunal. There is no reason to interfere with the factual finding, (Para 6)
From the above, there remains no ambiguity that the goodwill generated in the scheme of amalgamation is acquired by the assessee. Thus, in our considered view the assessee has complied all the conditions provided under section 32 of the Act. Accordingly, we are not convinced with the finding of the authorities below.
The above decision relied by the appellant squarely applies to the facts of the current case as in the said case also the difference between the cost of assets transferred and the consideration paid amounted to value of goodwill in the hands of the transferee company. Even the consideration for payment of goodwill was allotment of shares as in the case of appellant company also.
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As regards the AO’s reliance on the decision in the case of United Breweries Ltd. (supra), it is noted that in the said case, the amalgamating company had recorded the goodwill value in the books of account prior to the amalgamation and the amalgamated company had jacked up the value of goodwill at higher level and claimed depreciation. It was in this context that the Hon’ble Bangalore ITAT restricted the depreciation claim by applying 5th proviso (now 6th proviso) to section 32(1) of the Act and other relevant provisions of section Explanation 7 to section 43(1) and/or Explanation 2(b) to section 43(6)(c). After going through the decision of United Breweries case, I find that in the said case the amalgamating company had shown goodwill value of Rs.7.45 crores in its books whereas the amalgamated company had valued the goodwill at Rs.62.30 crores and the Hon’ble Bangalore ITAT ruled in favour in the revenue by applying 5th proviso to section 32(1) of the Act. Thus, the AO’s reliance on this decision is not permissible due to entirely different sets of facts. |
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In the assessment order, the AO had commented about the valuation of the amalgamating companies (related to each other) in order to emphasize that the said valuation was with the purpose of creating higher value of goodwill for claim of depreciation by the amalgamated company(the appellant). In the submissions made by the appellant, it has been contended that the valuation were made by and independent valuer (reputed international firm) by following DCF method which has been held as appropriate method of valuation as per decision in the case of Ascendas (India) Pvt. Ltd. v. DCIT(ITA No. 1736/ Mds/2011) by ITAT Chennai bench. The appellant has also stated that the Technical Guide on Valuation issued by ICAI also recognized DCF method of valuation for fair value of a business. It was emphasized that even rule 11UA(2)(b) also permits valuation unquoted equity shares either by DCF method or by NAV method at the discretion of the assessee. It was thus claimed that the DCF method of valuation for amalgamating companies were as per provisions of the Act. The appellant has referred to several court decisions wherein the DCF method of valuation of an unlisted company equity share was upheld as correct method of valuation. The courts have also recognised AO’s power to verify the valuations done by DCF method by bringing out relevant facts and figures which are reasonable. But the courts have also held that the AO on its own cannot discard the valuation report of a technical expert in the field. This implies that the AO must bring reasonable material defects in the valuation of a technical expert submitted by the appellant and/or seek further opinion of another technical export before rejecting the valuation and substituting the same with another value. In the current facts of the case, there is no material defects brought out by the AO in the assessment order to discard the valuation of amalgamating companies by DCF method as per technical expert and mere suspicion is raised to state that the valuation of amalgamating companies were on higher side. The AO made remarks like the 100 years legacy of Smifs as per website and in the case of Zydus Wellness, both amalgamating companies had their own repute and brand value. These remarks are subjective in nature and mere suspicion and cannot be the basis for rejecting the internationally accepted method of valuation of unlisted equity share. Therefore, the appellant’s contention of accepting the valuation of a technical expert and as per DCF method of forecating future revenue generation pertaining to amalgamating companies cannot be rejected merely on suspicion raised by the AO. |
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With regard to the AQ’s observation of no cash payment for acquisition of goodwill, the appellant has again referred to the decision in the case of Urmin Marketing P. Ltd. (supra) wherein the payment through share allotment was upheld as valid mode of payment for acquisition of goodwill. Hon’ble ITAT Ahmedabad Bench had relied on the decision of Hon’ble Delhi High Court in CIT v. Mira Exim Ltd while deciding the case of Urmin Marketing Pvt. Ltd. |
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On the issue of AO’s reliance on decision of Hon’ble SC in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) to state that the entries in the books of account are not conclusive to determine the true nature of transaction for taxation purpose, appellant referred to the decision of Hon’ble Apex Court in the case of Challapalli Sugars Ltd 98 ITR 167, wherein it was held that the term ‘actual cost’ is to be construed in accordance with the normal rules of accountancy. It was contended that the appellant having followed AS-14 with respect to goodwill value accounted in the books as excess of consideration and net assets of transferor company should have been accepted by the AO. This contention of the appellant as also decision of Apex Court in Smifs Securities Ltd. and Gujarat High Court in Zydus Wellness Ltd., I. don’t find any force in the AO’s findings on this issue. |
In view of the above factual findings and legal positions, it is apparent that the appellant had acquired goodwill by way of purchase in the process of amalgamation and hence the claim of depreciation on goodwill acquired at the time of amalgamation is in accordance with the provisions of the Act and disallowance made by the AO amounting to Rs.771.65 crore is hereby deleted.”
4. Aggrieved against the appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal in ITA No.280/Ahd/2022 relating to A.Y. 2017-18 [there is no change in the Grounds for the A.Y. 2018-19 except the figures of disallowance]:
REVISED GROUNDS OF APPEAL
1. The Ld CIT(A) has erred in law and on facts in considering the claim of the assessee that excess consideration was paid by him over and above the net assets value even though no payment has been made by the assessee except exchange of shares as per the composite scheme of amalgamation order passed by NCLT
2. The Ld CITIA) han erred in law and on facts in considering the claim of the assessee on value of the good will calculated on the consideration paid over and above the net assets value inspite of no payment made over and above the FMV of net assets as on date of amalgamation which exchanges between transferor companies and transferee companies.
3. The Ld CIT(A) has erred in law and on facts in considering the claim of the assessee on the value of the good will in spite of valuation report does not mention about the nature and value of good will and when assessee failed to substantiate nature of good will of the transferor companies acquired by it through brand value and commercial rights of enduring nature.
4. The Ld CIT(A) has erred in law and on facts in considering the back dated depreciation claim of the assessee from F.Y 2016-17 on value of the good will calculated based on the valuation report of the valuer as on 31 march, 2018 which is applicable from midyear of FY 2017-18.
5. The Ld CIT(A) has erred in law and on facts in considering the good will value calculated based on the differential FMV of the shares exchanged between transferor companies and transferee companies by the assessee from A.Y 2016-17 onwards inspite of actual increase in share capital and exchange of shares in ROC and books of accounts happened legally from the effective date, i.e. of composite scheme of amalgamation passed by the NCLT and name of the transferee company M/s Altheon enterprises Ltd on whose name shares were exchanged as per NCLT order came in to existence in the F.Y 2018-19.
6. The Ld CIT(A) has erred in law and on facts in considering the claim of depreciation of the assessee against the capital gains of M/s Claris life sciences in the FY 2017-18 even though demerger of demerged entity M/s Treasury & investment undertaking and trading undertaking was approved by the share holders in the F.Y 2018-19 and compliance affidavit filed by the assessee before NCLT in the F.Y 2018-19.
7. The Ld CIT(A) has erred in law and on facts in allowing the claim of depreciation of the assessee on the value of good will calculated on fictitious basis and set off against the long term capital gain income obtained by M/s Claris life sciences in the F.Y 2017-18 shown to be transferred to the assessee in view of amalgamation of demerged undertaking of M/s Claris life sciences Ltd. Even though approval for demerger by the shareholders of M/s Claris life sciences Ltd in FY 2018-19 which is essential for demerger as noted by NCLT in its order, assessee erroneously back dated the demerger w.e.f 1.4.2017, there by using the scheme of composite arrangement as colorable device for shifting income in one company to another company and setting off against artificially inflated fictitious good will and there by denying government of due taxes.
ADDITIONAL GROUNDS OF APPEAL:
1. The Ld. CIT(A) has erred in law and on facts in considering the claim of the assessee that excess consideration was paid by him over and above the net assets value even though no payment has been made by the assessee except exchange of shares as per the composite scheme of amalgamation order passed by NCLT.
2. The Ld. CIT(A) has erred in law and on facts in considering the claim of the assessee on value of the good will calculated on the consideration paid over and above the net assets value inspite of no payment made over and above the FMV of net assets as on date of amalgamation which exchanges between transferor companies and transferee companies.
3. The Ld CIT(A) has erred in law and on facts in considering the claim of the assessee on the value of the good will in spite of valuation report does not mention about the nature and value of good will and when assessee failed to substantiate nature of good will of the transferor companies acquired by it through brand value and commercial rights of enduring nature.
4. The Ld CIT(A) has erred in law and on facts in considering the back dated depreciation claim of the assessee from F.Y 2016-17 on value of the good will calculated based on the valuation report of the valuer as on 31 march, 2018 which is applicable from midyear of FY 2017-18.
5. The Ld CIT(A) has erred in law and on facts in considering the good will value calculated based on the differential FMV of the shares exchanged between transferor companies and transferee companies by the assessee from A.Y 2016-17 onwards inspite of actual increase in share capital and exchange of shares in ROC and books of accounts happened legally from the effective date, i.e. of composite scheme of amalgamation passed by the NCLT and name of the transferee company M/s Altheon enterprises Ltd on whose name shares were exchanged as per NCLT order came in to existence in the F.Y 2018-19.
6. The Ld CIT(A) has erred in law and on facts in considering the claim of depreciation of the assessee against the capital gains of M/s Claris life sciences in the FY 2017-18 even though demerger of demerged entity M/s Treasury & investment undertaking and trading undertaking was approved by the share holders in the F.Y 2018-19 and compliance affidavit filed by the assessee before NCLT in the F.Y 2018-19.
7. The Ld CIT(A) has erred in law and on facts in allowing the claim of depreciation of the assessee on the value of good will calculated on fictitious basis and set off against the long term capital gain income obtained by M/s Claris life sciences in the F.Y 2017-18 shown to be transferred to the assessee in view of amalgamation of demerged undertaking of M/s Claris life sciences Ltd. Even though approval for demerger by the shareholders of M/s Claris life sciences Ltd in FY 2018-19 which is essential for demerger as noted by NCLT in its order, assessee erroneously back dated the demerger w.e.f 1.4.2017, there by using the scheme of composite arrangement as colorable device for shifting income in one company to another company and setting off against artificially inflated fictitious good will and there by denying government of due taxes.
5. We have heard both the parties and perused all the relevant material available on record. The Scheme of Amalgamation is that Altheon Enterprises Limited (now known as Claris Lid) is an unlisted public limited company incorporated under the provisions of Companies Act, 1956. Altheon entered into a composite scheme of arrangement (Scheme) with Abellon Cleanenergy Limited (ACEL), Abellon Energy Limited (AEL), Athanas Enterprise Private Limited (Athanas), Claris Capital Limited (CCL), Claris Infra structure Limited (Claris Infra), Claris Lifesciences Limited (‘CLL), Dorizoe Lifesciences Limited (Dorizoe’), Lcubix Infotech Limited (lcubix), Ogen Nutrition Limited (Ogen’), Pinetops Enterprise Private Limited (Pinetops) and Zivene Design and Development Private Limited (Ziveno’) which inter-alia included amalgamation of AEL, Pinetops and Dorizoe with Altheon with effect from the appointed date as stated in the Scheme. The Scheme was filed with the Ahmedabad Bench of National Company Law Tribunal and approved by NCLT vide order dated 29 October 2018.
6. Pursuant to the Scheme, Altheon issued shares to the shareholders of AEL, Pinetops and Dorizoe in consideration of net assets of AEL, Pinetops and Dorizoe based on the valuation report obtained from an independent valuer. Altheon accounted for the Scheme of amalgamation in accordance with Purchase Method of accounting as per Accounting Standard 14 – ‘Accounting for Amalgamations” (‘AS 14). As per the accounting treatment prescribed in the Scheme sanctioned by the Ahmedabad Bench of NCLT, the excess of consideration discharged by Altheon (being shares issued to the shareholders of transferor companies, to AEL and Dorizoe) over net assets of AEL Dorizoe is recognized as goodwill in the books of Altheon in compliance with AS 14. Further, the auditor of Altheon has also duly certified that the accounting treatment provided in the Scheme is in compliance with the accounting standards notified under Section 133 of the Companies Act, 2013. Pursuant to the sanction of Scheme by Ahmedabad Bench of NCLT vide order dated 29-10-2018, the Assessee revised its return of income for AY 2017-18 on 30-11-2018 declaring loss of Rs.752,51,42,451/-, The return was revised to give effect of the Scheme approved by Ahmedabad bench of NCLT vide order dated 29-10-2018.
7. Then the case was selected for scrutiny asking for various details. The assessee filed detailed submissions before Ld. A.O. providing all relevant explanation/ information sought by the Ld. A.O. with documentary evidences. After considering the same, the Ld. A.O. passed the final assessment order u/s.143(3) on 29-12-2019 disallowing the depreciation of Rs.771.66 crores claimed u/s.32(1)(ii) of the Act on the good will of Rs.3086.65 crores recognized pursuant to the amalgamation of AEL and Dorizoe with Altheon. Further the valuation provided in the valuation report as well as the consideration discharged by the assessee as per the share exchange ratio provided in the Scheme/valuation report have not been disputed by the Ld. AO. Further, Dorizoe had paid advance tax of Rs.13,05,150 and self-assessment tax of Rs18,29,000 during previous year 2016-17. Also, Dorizoe and AEL had TDS credit of Rs.2,06,151/ and Rs.10,94,122/ respectively for previous year 2016-17. However, necessary credit of the said advance tax, self-assessment tax and TDS have not been granted by the Ld. A.O. despite the fact that income earned by AEL and Dorizoe from appointed date was offered to tax by Altheon.
8. It is pertinent to note that the issue of depreciation is sell settled by the Hon’ble Apex Court in case of CIT v. Smifs Securities Ltd348 ITR 302 (SC) . The subsequent decisions by various High Courts and Tribunal including of Ahmedabad Tribunal in case of Nirma Ltd. v. DCIT [IT Appeal Nos. 2007 and 2008 (Ahd) of 2017, dated 30-6-2025] has categorically mentioned as follows:-
“. 6.2 We find that the Bangalore Tribunal in the case of United Breweries Ltd. v. Addl. CIT while appreciating the findings of the Supreme Court in the case Smifs Securities Ltd. (supra), held that goodwill acquired at the time of amalgamation is subject to explanation 3 to section 43(1) of the Act and if the Assessing Officer finds that the assessee has claimed excess depreciation by enhancing the cost of goodwill then actual cost of goodwill can be determined only by considering the actual cost of the other assets so acquired under amalgamation. It further held that the assessee company being amalgamated company cannot claim more depreciation on the assets acquired in the scheme of amalgamation than the depreciation which would have been allowable to the amalgamating company in view of the sixth proviso to section 32 of the Act.
6.3 We also find that in the case of Aditya Birla Nuvo Ltd., the Hon’ble High Court of Mumbai has followed Hon’ble Supreme Court in the case of Smifs Securities Ltd. In the present case under consideration it is an accepted proposition that goodwill is an intangible asset on which the assessee can claim depreciation. In the case of Zydus Wellness Centre Ltd. v. DCIT, the ITAT allowed the claim of depreciation on goodwill arising on amalgamation claimed by the assessee during the course of assessment proceedings by filing revised computation of income and without filing revised return of income. In both the cases the authorities have relied upon the judgment of Hon’ble Supreme Court in the case of Smifs Securities Ltd. In the case of Smifs Securities Ltd. (supra), paras 4 to 7 read as under.
“4. Explanation 3 states that the expression ‘asset’ shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words “any other business or commercial rights of similar nature’ in clause (b) of Explanation 3 indicates that goodwill would fall under the expression ‘any other business or commercial right of a similar nature’. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).
6.4 We find that Section 32(1)(ii) ‘Goodwill of a Business or Profession’ has been specifically excluded from the definition of assets on which depreciation shall be calculated. Explanation 3(b) of Section 32(1): ‘Goodwill of a Business or Profession has been specifically excluded from the definition of intangible assets.
The Finance Act, 2021 has amended following provisions of the IT Act:
Section 2(11): Definition of ‘Block of Assets’ has been amended to specifically provide that ‘Goodwill of a Business or Profession’ shall not form part of block of assets comprising of ‘Intangible Assets’.
Section 32(1)(ii): ‘Goodwill of a Business or Profession’ has been specifically excluded from the definition of assets on which depreciation shall be calculated.
Explanation 3(b) of Section 32(1): ‘Goodwill of a Business or Profession’ has been specifically excluded from the definition of intangible assets.
Section 43(6) (c) (ii): Definition of WDV of the block of assets has been amended to provide that written down value of Goodwill is required to be reduced from the Opening WDV in such cases, where the Goodwill is already forming part of Block of Assets.
Section 50: Computation of capital gains in case of depreciable assets has been amended to provide that where goodwill forms part of block of asset for assessment year 2020-21 and depreciation has been claimed, the written down value of the block and shortterm capital gains would be determined in the prescribed manner. Rule 8AC has been prescribed for this purpose.
Section 55: Meaning of ‘Cost of Acquisition’ in case of Goodwill of Business or Profession has been amended to provide that
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in case it is acquired from a previous owner, the cost would be the amount of purchase price pald. |
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in case it is acquired as a result of gift, amalgamation etc. and goodwill was acquired by previous owner, cost will be the cost to the previous owner. |
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all other cases-cost will be NIL |
6.5 The reasoning given in the Memorandum explaining the Finance Bill, 2021 for excluding goodwill from the ambit of intangible assets is that the actual calculation of depreciation of goodwill is required to be carried out in accordance with various other provision of the Act. Once those provisions are applied, in some situations there could be no depreciation on account of actual cost being zero and the WDV of that asset in the hands of the amalgamating company being zero. It is further stated that goodwill, in general, is not a depreciable asset and it depends upon how the business runs, goodwill may see appreciation and in the alternative no depreciation to its value. Hence, for the said reasons assessees have been barred from claiming depreciation on goodwill.
6.6 . Since the above amendments are applicable prospectively from the AY 2021-22, the appeal of the assessee on this issue for the AY 2012-13 is hereby allowed based on the judgment of the jurisdictional High Court in the case of Aculife Healthcare Pvt Ltd. (supra) and judgment of Hon’ble Supreme Court in the case of Smifs Securities Ltd. (supra).
In the result, the appeals of the assessee on this ground are allowed.”
8.1. Thus, the issue in the present appeal is identical to that of decision in case of Nirma Ltd. (supra) and thus the Assessing Officer was not right in disallowing the depreciation on goodwill for the asst years 2017-18 and 2018-19 which are prior to the Amendment made by the Finance Act 2021. Whereas Ld. CIT(A) considered the issue at length and deleted the addition made by the Assessing Officer, thus the findings arrived by Ld. CIT(A) does not require any interference. Therefore, the grounds of appeal and additional grounds raised by the Revenue in both the asst years 2017-18 and 2018-19 are devoid of merits and the same are liable to be rejected.
9. In the result, both the appeals filed by the Revenue are hereby dismissed.
