Goodwill Arising from Amalgamation Qualifies as Depreciable Intangible Asset: ITAT Deletes ₹771.66 Cr Disallowance [Read Order]

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench has upheld the allowability of depreciation on goodwill arising from an amalgamation and deleted a disallowance of ₹771.66 crore made by the Revenue. The Tribunal held that goodwill generated as a result of an amalgamation qualifies as a depreciable intangible asset under Section 32(1)(ii) of the Income Tax Act, 1961 for assessment years preceding the amendments introduced by the Finance Act 2021.

The Revenue had challenged the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] in the case of ACIT v. Claris Limited (formerly Altheon Enterprises Ltd.) relating to Assessment Years 2017-18 and 2018-19. The appeals arose from the Assessing Officer’s decision to disallow depreciation claimed on goodwill amounting to ₹3,086.65 crore resulting in a disallowance of ₹771.66 crore.

The dispute originated from a composite scheme of arrangement and amalgamation approved by the National Company Law Tribunal (NCLT) Ahmedabad Bench whereby several companies including Abellon Energy Limited and Dorizoe Lifesciences Limited, were amalgamated with Altheon Enterprises Ltd. Pursuant to the scheme the assessee issued shares to the shareholders of the transferor companies. The excess of consideration discharged over the net assets acquired was recognized as goodwill.

The Revenue department contended that no actual payment had been made for acquiring goodwill since the transaction was effected through a share swap. It further argued that the valuation report did not establish the existence of goodwill and alleged that the arrangement resulted in an artificial inflation of goodwill for claiming depreciation.

Rejecting these arguments, the CIT(A) held that the goodwill represented the difference between the consideration paid and the net assets acquired and was therefore acquired for consideration in the course of amalgamation.

The Tribunal noted that the Finance Act, 2021 amendments excluding goodwill from the ambit of depreciable assets operate prospectively from Assessment Year 2021-22 and therefore had no application to the years under consideration.

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