2026 Supreme(Online)(ITAT) 10133

INCOME TAX APPELLATE TRIBUNAL (AHMEDABAD BENCH)
T.R. Senthil Kumar, Judicial Member
Deputy Commissioner of Income Tax – Appellant
Versus
Altheon Enterprises Limited – Respondent
ITA No.280/Ahd/2022 | ITA No.281/Ahd/2022

Goodwill arising on amalgamation as excess consideration over net assets is an acquired depreciable intangible asset. The prospective ban on goodwill depreciation from AY 2021-22 does not affect prior years.

Headnote:(A) Income Tax Act, 1961 - Sections 32(1)(ii), 43(1), 43(6)(c), 49(1)(iii)(e), 55(2)(a)(i), 55(2)(a)(ii) - Companies Act, 2013 - Section 133 - Depreciation on goodwill - Goodwill acquired in the process of amalgamation - Purchase method of accounting as per Accounting Standard 14 - The assessee, as the amalgamated company, is entitled to claim depreciation on goodwill arising from the amalgamation, as the goodwill was 'acquired' by way of purchase, i.e., the excess of consideration paid over the net assets of the amalgamating companies. The value of goodwill is to be taken at the purchase consideration paid, and provisions applicable to self-generated goodwill (section 55(2)(a)(ii), Explanation 7 to section 43(1), Explanation 2(b) to section 43(6)(c)) are not applicable. (Paras 3, 7, 8)

(B) Amendment by Finance Act, 2021 - The Finance Act, 2021, prospectively amended provisions to exclude 'Goodwill of a Business or Profession' from the definition of intangible assets and block of assets, and barred depreciation on it from AY 2021-22. For assessment years prior to this amendment, the right to claim depreciation on goodwill remains valid based on settled law, including the Supreme Court's decision in CIT vs. Smifs Securities Ltd. (348 ITR 302). (Para 8)

(C) Valuation - The valuation of amalgamating companies by the Discounted Cash Flow (DCF) method, conducted by an independent valuer, cannot be rejected on mere suspicion by the Assessing Officer. The Assessing Officer must bring out material defects in the valuation or seek a second technical opinion before substituting it with a different value. (Para 3)

Facts of the case:
The assessee company (Altheon Enterprises Limited, now known as Claris Limited) entered into a Composite Scheme of Arrangement, which included the amalgamation of three companies with it, approved by the National Company Law Tribunal (NCLT) on 29.10.2018. Pursuant to the scheme, the assessee issued shares to shareholders of the amalgamating companies. The excess of consideration paid (value of shares) over the net assets of the amalgamating companies was recognized as goodwill in accordance with Accounting Standard 14. For the Assessment Years 2017-18 and 2018-19, the assessee claimed depreciation on this goodwill, which was disallowed by the Assessing Officer (A.O.) on the grounds that the goodwill was self-generated and its value was nil in the hands of the amalgamating companies, and that the valuation was inflated. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the depreciation claim, leading to the Revenue's appeal.

Findings of Court:
The Tribunal upheld the CIT(A)'s order, finding that the Revenue's appeal was devoid of merits. The issue of depreciation on goodwill arising on amalgamation is settled by the Supreme Court in Smifs Securities Ltd. (supra). The goodwill was 'acquired' through the process of amalgamation, as the consideration paid was in excess of the net assets acquired. Therefore, the provisos and explanations cited by the A.O. (which deal with assets already existing in the books of the amalgamating company) were not applicable. Furthermore, the Tribunal noted that the Finance Act, 2021, which excluded goodwill from depreciable assets, is applicable prospectively from A.Y. 2021-22. Consequently, for the A.Ys. 2017-18 and 2018-19 in question, the assessee is entitled to the depreciation.

Issues: The main issue was whether the assessee is entitled to claim depreciation on goodwill that arises in the hands of the amalgamated company due to amalgamation, where the goodwill represents the difference between the purchase consideration paid and the net assets taken over, and where the amalgamating companies had no recorded goodwill in their books.

Ratio Decidendi: The court ruled that goodwill arising from a scheme of amalgamation, recorded as the excess of purchase consideration over net assets, is an asset 'acquired' by the amalgamated company. It is, therefore, a depreciable intangible asset under section 32(1)(ii) read with section 32(1), Explanation 3(b). The sixth proviso to section 32(1) and related provisions concerning pre-existing assets of the amalgamating company do not apply to such newly created goodwill. The right to claim depreciation is subject to the prospective amendment introduced by the Finance Act, 2021. Result : Appeals dismissed.