Depreciation on Goodwill cannot be Denied on ground of Adopting DFC Method when AO Accepted Capital Gain Claim for Slump Sale: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the depreciation claim on goodwill cannot be denied merely on ground of adopting discounted cash flow (DFC) method when the Assessing Officer has already accepted the capital gain in respect of slump sale under section 47(iv) of the Income Tax Act, 1961.

The Revenue approached the Tribunal against an order of the first appellate authority granting relief to the assessee, M/s Global Fairs & Media Pvt Ltdwherein the depreciation wasgranted.

Earlier, the Assessing Officer noticed that the assessee company has valued goodwill on Discounted Cash Flow Method but there is no mistake in adopting the DCF method but the figures adopted for free cash flow are imaginary when compared to the actual figures of cash flow upto F.Y. 2014-15.

A coram of Shri N.K. Billaiya, Accountant Member, and Shri Anubhav Sharma, Judicial Member observed that“the main objection of the Assessing Officer is that the assessee has overvalued the valuation of goodwill. In our considered view, the Assessing Officer has completely ignored the commercial prudence of an assessee relating to valuation of an asset. Determination of fair market value has to be as per prescribed methodology and even the Assessing Officer has accepted the discounted cash flow method as appropriate method for valuation of goodwill.”

“One must not forget that valuation is not an exact science and, therefore, cannot be done with arithmetic precision and such technical and complex problem should be left to the consideration and wisdom of experts in the field of accountancy,” the Tribunal added.

Concluding the order, the Tribunal observed that “Interestingly, in its ground of appeal, the Revenue has challenged that transaction of sale of slump sale to subsidiary company is not regarded as transfer within the meaning of Section 47(iv) of the Act. But, we find that in the hands of TIEL, while framing the assessment order dated 26.03.2015 u/s 143(3) of the Act for A.Y 2012-13, the Assessing Officer has accepted income from long term capital gain for slump sale of business, thereby accepting the transfer u/s 47(iv) of the Act.”

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