Goodwill Arising on Amalgamation Qualifies as Intangible Asset Eligible for Depreciation u/s 32(1)(ii) of Income Tax Act: ITAT [Read Order]
The Bench Relied upon Previously Laid Down Precedents from SC and HC to Reach a Conclusion
The Income Tax Appellate Tribunal (ITAT) Bench at Mumbai upheld the allowability of depreciation on goodwill arising from a scheme of amalgamation, holding that such goodwill constitutes an “intangible asset” eligible for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961.
The appeals were filed by the Revenue against two separate orders dated June 30, 2025, passed by the c (Appeals)-50, Mumbai [CIT(A)] for Assessment Years (AYs) 2018-19 and 2020-21. The core dispute revolved around whether depreciation on goodwill created as a result of accounting adjustments during amalgamation could be allowed as a deduction.
The assessee company, Echjay Industries Pvt. Ltd., engaged in the manufacturing of automobile components, had claimed depreciation of ₹10.71 crore on goodwill amounting to ₹42.86 crore. The goodwill arose pursuant to the amalgamation of five group companies under a scheme sanctioned by the Gujarat High Court.
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The Assessing Officer (AO), during assessment under Section 143(3), disallowed the depreciation, treating the goodwill as a mere book entry without any independent business value.
On appeal, the CIT(A) noted that the assessee had followed all statutory procedures for amalgamation, including valuation of assets and liabilities on a “purchase method” in line with accounting standards. The excess consideration over the book value of the net assets taken over was recognized as goodwill in the assessee’s books. The appellate authority relied heavily on judicial precedents such as CIT v. Smifs Securities Ltd. and CIT v. Aditya Birla Nuvo Ltd. to conclude that goodwill generated through amalgamation qualifies as an intangible asset eligible for depreciation.
The Revenue, aggrieved by this decision, filed an appeal before the ITAT contending that such goodwill was self-generated and lacked commercial substance.
After hearing both sides, the Bench comprising Om Prakash Kant (Accountant Member) and Kavitha Rajagopal (Judicial Member) dismissed the Revenue’s contentions. The Tribunal observed that the legal position is well settled by the Supreme Court and Bombay High Court decisions that goodwill arising on amalgamation represents commercial reputation and advantage, which squarely falls within the definition of “intangible assets” underSection 32(1)(ii).
The ITAT confirmed that the jurisdictional High Court’s ruling in Aditya Birla Nuvo Ltd. is binding and that the principle of stare decisis requires judicial discipline. It thus held that depreciation on goodwill created out of amalgamation must be allowed, and upheld the CIT(A)’s order granting the deduction.
For AY 2020–21, since the issue arose from the same amalgamation, the Tribunal applied the same reasoning mutatis mutandis and dismissed the Revenue’s appeal for that year as well.
The ITAT accordingly dismissed both appeals filed by the Revenue.
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