2024 (2) TMI 634 - ITAT AHMEDABAD

Depreciation on goodwill - Business acquired in amalgamation - HELD THAT:- In the instant case, the business of KSPL was acquired by KIPL by way of a court approved scheme of amalgamation and it is for this acquisition of business, KIPL had discharged the consideration in form of issue of equity shares to the shareholders of KSPL. In order to determine the consideration, the enterprise value of the business undertaking of KSPL was arrived at Rs. 289.30 crores on the basis of the valuation report obtained from SSPA & Co. Chartered Accountants, which represents the fair value to be paid for acquiring the business undertaking as a whole Including all tangible assets and intangible assets. KSPL was engaged in stock broking business as well as other business relating to depository participant. The company had a strong customer base, and had a wide network and efficient technological process & systems.

These benefits represent ‘any other business or commercial rights of similar nature being intangible assets’ as referred to in section 32(1) of the Act which is eligible for depreciation under the Act. The amount of consideration (in form of issue of shares) paid in excess of net assets of KSPL is attributable to such intangible benefits which is nothing but represents payment towards goodwill. The excess consideration discharged by KIPL over net assets of KSPL represents the amount paid by KIPL towards acquisition of bundle of business and commercial rights which represents goodwill.

In the absence of such intangible asset, KIPL would have to commence the business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the appellant got an up and running business. Such excess payment thus denotes goodwill which in no way can be regarded as outcome of revaluation of any amount. Considering the ratio laid down by the Hon'ble Supreme Court in case of Smits Securities [2012 (8) TMI 713 - SUPREME COURT] thus, KIPL is eligible for depreciation on goodwill recognized in course of the Scheme u/s 32 of the Act and as a consequence, the Appellant is also eligible to claim depreciation u/s 32 of the Act as the case made out by the appellant appears to have merit and deserves to be allowed.

This particular aspect of the matter has not been considered by the Ld. CIT(A) in its proper perspective rather he was not correct in forming an opinion that the main object of amalgamation was to create to claim depreciation and the scheme of arrangement was only a device of tax evasion and such claim of depreciation was not a genuine one, giving a complete go by to the sanction given by the Hon’ble Jurisdictional High Court upon considering various aspects of the Scheme, the documents and also the representations received from different regulatory authorities including the report of the Official Liquidator and Income Tax department and furthermore, the affidavit filed by the RD, holding that the arrangement is in the interest of the shareholders and the creditors of all the companies as well as in public interest.

Depreciation on goodwill claimed by the predecessor for the period from 01.04.2015 to 14.03.2016 has been allowed by the ITAT. Accordingly, the claim of depreciation by the appellant on the very same goodwill for remaining period (from 15.03.2016 to 31.03.2016) deserves to be allowed by following order of ITAT passed in the case of the predecessor - we allow the appeal preferred by the appellant with a direction upon the Ld. AO to allow the claim of depreciation on goodwill made by the appellant. The appeal preferred by the appellant is, thus, allowed.