Depreciation on Goodwill cannot be Revisited in Later Years Once Allowed in First Year: ITAT [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Ahmedabad, has held that once depreciation on goodwill is properly allowed in the first year, subsequent years must continue on the opening Written Down Value (WDV) and it cannot be disturbed unless the WDV itself is proven wrong.

The Tribunal quashed the revisionary order passed under Section 263 by the Principal Commissioner ofIncome Tax (PCIT), observing that the Assessing Officer’s treatment of goodwill depreciation was valid and not prejudicial to the interests of the Revenue.

The appeal arises from an order passed by the Principal Commissioner of Income Tax (PCIT) for Assessment Year 2020‑21. The PCIT had directed a de novo assessment, alleging that depreciation of ₹7.47 crore on goodwill was wrongly allowed and that forfeited deposits of ₹5.63 lakh were not taxed as income.

Ammann India Private Ltd., the assessee argued that goodwill had been created in 2013-14 upon the acquisition of the business from Gujarat Apollo Industries Ltd., and that depreciation had been consistently allowed since AY 2014‑15. Also contended that the AO had rightly allowed depreciation based on the Written Down Value (WDV) and that earlier upward adjustments made by the DRP in AY 2014‑15 had already been deleted by ITAT in 2022.

Further, reopening proceedings in AY 2018‑19 on the same issue were quashed by the Gujarat High Court in 2025. The assessee explained that the amount was collected from customers against “C Forms” and, upon non‑submission, forfeited and deposited with the Sales Tax Department to meet tax liability.

On the other hand, Revenue defended the PCIT’s order and sought dismissal of the appeal.

After hearing both sides, the Tribunal observed that once depreciation on goodwill is allowed in the first year, subsequent years must follow the WDV method. It noted that the AO had not erred in allowing depreciation, and reliance on the DRP’s earlier adjustment was misplaced since it had already been deleted. On the forfeited deposits, the bench held that the sum deposited with the Sales Tax Department was not income, and in any case, the treatment was tax‑neutral.

The Tribunal concluded that the AO’s order was neither erroneous nor prejudicial to the interests of the Revenue. Accordingly, the Section 263 revision order was quashed.

The bench of TR Senthil Kumar (Judicial Member) and Narendra Prasad Sinha (Accountant Member) allowed the assessee’s appeal in full.

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