Income Tax, Issue Update

Depreciation on goodwill

Case: Bantec TPS India Pvt Ltd Vs Asst CIT Cir 15(1)(2), Mumbai ITAT

Outcome: Remand


  • The Assessing Officer while passing draft assessment order dated 31.03.2016, disallowed Assessee’s claim of depreciation on goodwill. Aggrieved against the draft assessment order, the Assessee filed objections before the Dispute Resolution Penal assailing inclusion of Genesys and Excel in the final set of comparables and disallowance of Assessee’s claim of depreciation on goodwill, as well as, depreciation on goodwill arising pursuant to merger of Tracmail AR Services Pvt. Ltd. with the Assessee company. The Assessing Officer passed the final order disallowing the claim of depreciation on goodwill.

Key points

  • Reliance was placed on the decision of the Mumbai Tribunal in Assessee’s own case of assessment year 2011-12, wherein it was concluded that when the Assessee has paid capital gain tax at the time of transfer of goodwill and the Department had accepted it, it could not be said that the Assessee had adopted a colourable device. Moreover, the scheme of amalgamation between the Assessee and Tracmail AR Services Pvt. Ltd., having been approved by the Hon’ble Jurisdictional High Court, no doubt could be be raised with regard to the transparency or genuineness of such transaction.
  • Thus, when the Assessee by virtue of such amalgamation had received back the goodwill in its book, depreciation was to be allowed on goodwill. As regards the doubt raised that the Assessee could not claim depreciation on the entire amount of goodwill, it must be observed that the Assessee had claimed goodwill on the opening written down value only and not on the entire amount.
  • It was now fairly well settled that goodwill being an intangible asset, depreciation was to be allowed. Hence, it was inferred that depreciation on goodwill was to be allowed.

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