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Facts
The Revenue filed appeals against two separate orders of the CIT(A) allowing depreciation on goodwill arising from an amalgamation. The assessee company, engaged in manufacturing automobile products, claimed depreciation on goodwill created due to excess consideration over the book value of assets and liabilities taken over during an amalgamation of five companies.
Held
The Tribunal held that goodwill acquired on amalgamation constitutes an intangible asset eligible for depreciation. This was based on pronouncements by the Supreme Court in CIT v. Smifs Securities Ltd. and the jurisdictional High Court in CIT v. Aditya Birla Nuvo Ltd.
Key Issues
Whether goodwill acquired on amalgamation, arising from excess consideration over book value, is an eligible intangible asset for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961, especially when the transferor companies did not have goodwill in their books.
Sections Cited
32(1), 32(1)(ii), 143(3)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
ORDER PER OM PRAKASH KANT, AM
These two appeals by the Revenue are directed against two separate orders, both dated 30.06.2025, passed by the Ld. Commissioner of Income-tax-50, Mumbai [in short ‘the Ld. CIT(A)’] for assessment years 2018-19 and 2020-21 respectively. As common issue in dispute is involved in both these appeals, therefore, same were heard together and disposed off by way of this consolidated order for the sake of convenience.
Echjay Industries Pvt. Ltd. Echjay Industries Pvt. Ltd. 2 & 5437/MUM/2025 & 5437/MUM/2025
Firstly, we take up the appeal for assessment year 2018 we take up the appeal for assessment year 2018-19. we take up the appeal for assessment year 2018 The grounds reproduced as under: The grounds reproduced as under:
Whether on the facts and in the circumstances of the 1. Whether on the facts and in the circumstances of the 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justif case and in law, the Ld.CIT(A) was justified in allowing ied in allowing depreciation u/s 32 of the Income Tax Act, 1961, on the depreciation u/s 32 of the Income Tax Act, 1961, on the depreciation u/s 32 of the Income Tax Act, 1961, on the goodwill arising out of a Scheme of Amalgamation goodwill arising out of a Scheme of Amalgamation goodwill arising out of a Scheme of Amalgamation approved by the Hon, ble Gujarat High Court, where such approved by the Hon, ble Gujarat High Court, where such approved by the Hon, ble Gujarat High Court, where such goodwill was created solely as a result of accounting goodwill was created solely as a result of accounting goodwill was created solely as a result of accounting adjustments and did not r adjustments and did not represent any self-generated or generated or independently acquired intangible asset? independently acquired intangible asset? 2. Whether, in view of the sixth proviso to Section 32(1) of 2. Whether, in view of the sixth proviso to Section 32(1) of 2. Whether, in view of the sixth proviso to Section 32(1) of the Income Tax Act, 1961, the assessee being the the Income Tax Act, 1961, the assessee being the the Income Tax Act, 1961, the assessee being the amalgamated company, was entitled to claim depreciation amalgamated company, was entitled to claim depreciation amalgamated company, was entitled to claim depreciation on on goodwill, goodwill, when when the the amalgamating amalgamating companies companies themselves had not claimed or were not eligible to claim themselves had not claimed or were not eligible to claim themselves had not claimed or were not eligible to claim any depreciation on goodwill and therefore, the WDV was any depreciation on goodwill and therefore, the WDV was any depreciation on goodwill and therefore, the WDV was nil in their books? nil in their books? 3. Whether on the facts and in the circumstances of the 3. Whether on the facts and in the circumstances of the 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in case and in law, the Ld.CIT(A) erred in holding that holding that goodwill created in the hands of the amalgamated goodwill created in the hands of the amalgamated goodwill created in the hands of the amalgamated company by virtue of excess consideration over book value company by virtue of excess consideration over book value company by virtue of excess consideration over book value of assets/liabilities qualifies as an intangible asset eligible of assets/liabilities qualifies as an intangible asset eligible of assets/liabilities qualifies as an intangible asset eligible for depreciation, despite there being no goodwill in the for depreciation, despite there being no goodwill in the for depreciation, despite there being no goodwill in the books of the am books of the amalgamating companies. 4. Whether on the facts and in the circumstances of the 4. Whether on the facts and in the circumstances of the 4. Whether on the facts and in the circumstances of the case and in law, the claim of depreciation of Rs. case and in law, the claim of depreciation of Rs. case and in law, the claim of depreciation of Rs. 10,71,71,705/ 10,71,71,705/ 10,71,71,705/ on on on goodwill goodwill goodwill amounting amounting amounting to to to Rs.42,86,86,820/ Rs.42,86,86,820/- was was allowable allowable to to the the assessee, assessee, particularly when the said goodwill did particularly when the said goodwill did not have an not have an independent business value or use, and was created independent business value or use, and was created independent business value or use, and was created merly as an accounting entry without any actual cost merly as an accounting entry without any actual cost merly as an accounting entry without any actual cost incurred or business advantage incurred or business advantage acquired? 3. Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company of automobile industry products. is engaged in the manufacturing is engaged in the manufacturing of automobile industry products. For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of 75,360/-. In the said income for declaring total income of Rs.113,81, income for declaring total income of Rs.113,81,75,360/ return of income, the assessee claimed depreciation on the goodwill return of income, the assessee claimed depreciation on the goodwill return of income, the assessee claimed depreciation on the goodwill
Echjay Industries Pvt. Ltd. Echjay Industries Pvt. Ltd. 3 & 5437/MUM/2025 & 5437/MUM/2025 however in the assessme however in the assessment completed u/s 143(3) of the Income nt completed u/s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’), t Act, 1961 (in short ‘the Act’), the Assessing Officer disallowed said depreciation and assessed the total income at Rs.1,25,22,14,014/-. depreciation and assessed the total income at Rs.1,25,22,14,014/ depreciation and assessed the total income at Rs.1,25,22,14,014/
Upon appeal, the Ld. CIT(A), after elaborate consideration of Upon appeal, the Ld. CIT(A), after elaborate consideration of Upon appeal, the Ld. CIT(A), after elaborate consideration of the material facts and the law declared by various judicial fora, held al facts and the law declared by various judicial fora, held al facts and the law declared by various judicial fora, held that the assessee was entitled to depreciation on goodwill arising that the assessee was entitled to depreciation on goodwill arising that the assessee was entitled to depreciation on goodwill arising out of amalgamation, and accordingly directed the Assessing Officer out of amalgamation, and accordingly directed the Assessing Officer out of amalgamation, and accordingly directed the Assessing Officer to grant such allowance. to grant such allowance. Aggrieved, the Revenue is in appeal Aggrieved, the Revenue is in appeal by way of raising grounds as reproduced above. of raising grounds as reproduced above.
We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record. the relevant materials on record. It emerges from the record that It emerges from the record that pursuant to a duly sanctioned scheme of amalgamation, five pursuant to a duly sanctioned scheme of amalgamation, five pursuant to a duly sanctioned scheme of amalgamation, five companies companies merged companies merged with the merged with the with the assessee. assessee. The excess of assessee. The excess of the The excess of the the consideration paid over the book value of the assets and liabilities consideration paid over the book value of the assets and liabilities consideration paid over the book value of the assets and liabilities so taken over was recognized as goodwill i so taken over was recognized as goodwill in the books of the n the books of the assessee. The claim of depreciation on such goodwill was founded assessee. The claim of depreciation on such goodwill was founded assessee. The claim of depreciation on such goodwill was founded upon the authoritative pronouncement of the Hon’ble Supreme upon the authoritative pronouncement of the Hon’ble Supreme upon the authoritative pronouncement of the Hon’ble Supreme Court in CIT v. Smifs Securities Ltd. CIT v. Smifs Securities Ltd. [(2012) 348 ITR 302 (SC)], [(2012) 348 ITR 302 (SC)], wherein it was categorically held that goodwill wherein it was categorically held that goodwill constitutes an “intangible asset” within the meaning of Section 32(1)(ii) of the Act. “intangible asset” within the meaning of Section 32(1)(ii) of the Act. “intangible asset” within the meaning of Section 32(1)(ii) of the Act. The Assessing Officer, however, disregarded the said contention. The Assessing Officer, however, disregarded the said contention. The Assessing Officer, however, disregarded the said contention. The Ld. CIT(A), on the other hand, after an exhaustive analysis of The Ld. CIT(A), on the other hand, after an exhaustive analysis of The Ld. CIT(A), on the other hand, after an exhaustive analysis of the facts, accounting treatment, and the facts, accounting treatment, and the governing legal principles, the governing legal principles, including reliance upon the decision of the Hon’ble Bombay High including reliance upon the decision of the Hon’ble Bombay High including reliance upon the decision of the Hon’ble Bombay High
Echjay Industries Pvt. Ltd. Echjay Industries Pvt. Ltd. 4 & 5437/MUM/2025 & 5437/MUM/2025 Court in CIT v. Aditya Birla Nuvo Ltd. CIT v. Aditya Birla Nuvo Ltd. [(2017) 246 Taxmann 202 [(2017) 246 Taxmann 202 (Bom)], concluded that the assessee was rightly entitled to such (Bom)], concluded that the assessee was rightly entitled to such (Bom)], concluded that the assessee was rightly entitled to such depreciation. The relevant obser depreciation. The relevant observations of the Ld. CIT(A), which vations of the Ld. CIT(A), which merit reproduction, read thus: merit reproduction, read thus:
“6.18 I have carefully considered the facts of the case, heard the 6.18 I have carefully considered the facts of the case, heard the 6.18 I have carefully considered the facts of the case, heard the learned A/R on all aspects involved, gone through the documents learned A/R on all aspects involved, gone through the documents learned A/R on all aspects involved, gone through the documents placed before me by the A/R and the law analysis on facts of placed before me by the A/R and the law analysis on facts of placed before me by the A/R and the law analysis on facts of each case the Tribunals and Courts have rendered case the Tribunals and Courts have rendered - especially the especially the cases compiled shown in a table given in the Bangalore Tribunal's cases compiled shown in a table given in the Bangalore Tribunal's cases compiled shown in a table given in the Bangalore Tribunal's order in AMD India Private Limited under Paragraph 30.9 of the order in AMD India Private Limited under Paragraph 30.9 of the order in AMD India Private Limited under Paragraph 30.9 of the said order. The following facts observed from the records pro said order. The following facts observed from the records pro said order. The following facts observed from the records produced (i) the appellant has followed the legal procedures required for (i) the appellant has followed the legal procedures required for (i) the appellant has followed the legal procedures required for amalgamation of the companies; (ii) the Scheme for amalgamation amalgamation of the companies; (ii) the Scheme for amalgamation amalgamation of the companies; (ii) the Scheme for amalgamation has been duly sanctioned by the hon'ble Gujarat High Court; (iii) has been duly sanctioned by the hon'ble Gujarat High Court; (iii) has been duly sanctioned by the hon'ble Gujarat High Court; (iii) the valuation of assets and liabilities of all the comp the valuation of assets and liabilities of all the comp the valuation of assets and liabilities of all the companies have been valued on "Purchase" basis as stipulated by the Accounting been valued on "Purchase" basis as stipulated by the Accounting been valued on "Purchase" basis as stipulated by the Accounting Standards laid by the Institute of Chartered Accountants of India; Standards laid by the Institute of Chartered Accountants of India; Standards laid by the Institute of Chartered Accountants of India; the values of the movable properties have been on the fair market the values of the movable properties have been on the fair market the values of the movable properties have been on the fair market value basis and immovable properties on Governme value basis and immovable properties on Governme value basis and immovable properties on Government guidance value basis; that the consideration worked out and the ratio in value basis; that the consideration worked out and the ratio in value basis; that the consideration worked out and the ratio in respect of swap of shares were made and approved by the respect of swap of shares were made and approved by the respect of swap of shares were made and approved by the professionals; professionals; professionals; that that that upon upon upon accounting accounting accounting in in in effectuating effectuating effectuating the the the amalgamation, the consideration value paid was in excess of the amalgamation, the consideration value paid was in excess of the amalgamation, the consideration value paid was in excess of the value of assets and liabilities taken over; that the transferor e of assets and liabilities taken over; that the transferor e of assets and liabilities taken over; that the transferor companies did not have the "goodwill" in its books of account; that companies did not have the "goodwill" in its books of account; that companies did not have the "goodwill" in its books of account; that the surplus of consideration over the value of assets taken over at the surplus of consideration over the value of assets taken over at the surplus of consideration over the value of assets taken over at book value by the appellant was treated as 'goodwill' on whi book value by the appellant was treated as 'goodwill' on whi book value by the appellant was treated as 'goodwill' on which the appellant has claimed depreciation, that the appellant has claimed appellant has claimed depreciation, that the appellant has claimed appellant has claimed depreciation, that the appellant has claimed depreciation allowance in the books as well in its Return of depreciation allowance in the books as well in its Return of depreciation allowance in the books as well in its Return of income. Almost every decision considered above is in agreement income. Almost every decision considered above is in agreement income. Almost every decision considered above is in agreement with one aspect that, given the legal procedures for amalg with one aspect that, given the legal procedures for amalg with one aspect that, given the legal procedures for amalgamation followed, the valuation of assets and liabilities are on purchase followed, the valuation of assets and liabilities are on purchase followed, the valuation of assets and liabilities are on purchase basis, the assets and liabilities of Transferor companies are taken basis, the assets and liabilities of Transferor companies are taken basis, the assets and liabilities of Transferor companies are taken over on amalgamation by the Transferee company at book value over on amalgamation by the Transferee company at book value over on amalgamation by the Transferee company at book value and the consideration paid (by way of share issue by and the consideration paid (by way of share issue by and the consideration paid (by way of share issue by the Transferee company) is surplus over the said book value of the Transferee company) is surplus over the said book value of the Transferee company) is surplus over the said book value of the transferor companies which is accounted as goodwill, that such transferor companies which is accounted as goodwill, that such transferor companies which is accounted as goodwill, that such goodwill was not existing with the Transferor companies at the goodwill was not existing with the Transferor companies at the goodwill was not existing with the Transferor companies at the time of amalgamation, the assessee will be entitled to deprecia time of amalgamation, the assessee will be entitled to deprecia time of amalgamation, the assessee will be entitled to depreciation on such goodwill. on such goodwill.
Echjay Industries Pvt. Ltd. Echjay Industries Pvt. Ltd. 5 & 5437/MUM/2025 & 5437/MUM/2025
6.19. Further, the hon'ble jurisdictional Bombay High court in the 6.19. Further, the hon'ble jurisdictional Bombay High court in the 6.19. Further, the hon'ble jurisdictional Bombay High court in the case of Toyo Engineering India Limited and Aditya Birla Novu Ltd., case of Toyo Engineering India Limited and Aditya Birla Novu Ltd., case of Toyo Engineering India Limited and Aditya Birla Novu Ltd., as referred supra also in favour of the appellant. as referred supra also in favour of the appellant. 6.20. In view of the above discussions and humbl 6.20. In view of the above discussions and humbly following the y following the judicial precedence, I direct the AO to allow depreciation on judicial precedence, I direct the AO to allow depreciation on judicial precedence, I direct the AO to allow depreciation on goodwill. As it is decided in principle that the appellant's claim of goodwill. As it is decided in principle that the appellant's claim of goodwill. As it is decided in principle that the appellant's claim of depreciation on goodwill is allowable, the Ld. AO is directed to depreciation on goodwill is allowable, the Ld. AO is directed to depreciation on goodwill is allowable, the Ld. AO is directed to work out the WDV as per law and based on th work out the WDV as per law and based on that calculate the at calculate the depreciation depreciation depreciation on on on goodwill goodwill goodwill and and and accordingly accordingly accordingly recompute recompute recompute the total income. income.” 5.1 In essence, the Ld. CIT(A) found as a matter of record that In essence, the Ld. CIT(A) found as a matter of record that In essence, the Ld. CIT(A) found as a matter of record that— (i) the amalgamation had been sanctioned by the Hon’ble Gujarat (i) the amalgamation had been sanctioned by the Hon’ble Gujarat (i) the amalgamation had been sanctioned by the Hon’ble Gujarat High High High Court; Court; Court; (ii) valuation of assets and (ii) valuation of assets and liabilities was undertaken on the liabilities was undertaken on the purchase method in conformity with accounting standards; purchase method in conformity with accounting standards; purchase method in conformity with accounting standards; (iii) the surplus consideration over book value was accounted as (iii) the surplus consideration over book value was accounted as (iii) the surplus consideration over book value was accounted as goodwill not existing in the books of the transferor companies; and goodwill not existing in the books of the transferor companies; and goodwill not existing in the books of the transferor companies; and (iv) depreciation was duly clai (iv) depreciation was duly claimed in accordance with law. med in accordance with law.
5.2 On these premises, the Ld. CIT(A) directed that depreciation be On these premises, the Ld. CIT(A) directed that depreciation be On these premises, the Ld. CIT(A) directed that depreciation be allowed and the total income recomputed accordingly. allowed and the total income recomputed accordingly. allowed and the total income recomputed accordingly.
Before Before Before us, us, us, the the the Learned Learned Learned Departmental Departmental Departmental Representative Representative Representative supported the order of the Assessing Officer but could not dispute supported the order of the Assessing Officer but coul supported the order of the Assessing Officer but coul that the issue in question stands squarely covered by the judgment that the issue in question stands squarely covered by the judgment that the issue in question stands squarely covered by the judgment of the Hon’ble Jurisdictional High Court in of the Hon’ble Jurisdictional High Court in Aditya Birla Nuvo Ltd. Aditya Birla Nuvo Ltd. (supra), which in turn follows the dictum of the Hon’ble Supreme (supra), which in turn follows the dictum of the Hon’ble Supreme (supra), which in turn follows the dictum of the Hon’ble Supreme Court in Smifs Securities Ltd. Smifs Securities Ltd. (supra).
Echjay Industries Pvt. Ltd. Echjay Industries Pvt. Ltd. 6 & 5437/MUM/2025 & 5437/MUM/2025 6.1 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record. the relevant materials on record. The facts are undisputed, and the The facts are undisputed, and the legal position is settled. The principle of legal position is settled. The principle of stare decisis stare decisis obliges judicial discipline; where the jurisdictional High Court has spoken, discipline; where the jurisdictional High Court has s discipline; where the jurisdictional High Court has s subordinate tribunals must bow to its authority subordinate tribunals must bow to its authority. The ratio of . The ratio of Smifs Securities Ltd. (supra) declares, in terms too clear to admit of doubt, (supra) declares, in terms too clear to admit of doubt, (supra) declares, in terms too clear to admit of doubt, that goodwill acquired on amalgamation constitutes an intangible that goodwill acquired on amalgamation constitutes an intangible that goodwill acquired on amalgamation constitutes an intangible asset eligible for depreciation under Sectio asset eligible for depreciation under Section 32(1)(ii). The Hon’ble n 32(1)(ii). The Hon’ble Bombay High Court in Bombay High Court in Aditya Birla Nuvo Ltd. (supra) has reaffirmed (supra) has reaffirmed this position, holding that excess consideration over net assets this position, holding that excess consideration over net assets this position, holding that excess consideration over net assets acquired on amalgamation, being the reflection of commercial acquired on amalgamation, being the reflection of commercial acquired on amalgamation, being the reflection of commercial reputation and advantage, assumes the character of goodwill. reputation and advantage, assumes the character of goodwill. reputation and advantage, assumes the character of goodwill.
6.2 As the issue in dispute involved in this As the issue in dispute involved in this case is squarely case is squarely covered in favour of the assessee by the binding precedent of the covered in favour of the assessee by the binding precedent of the covered in favour of the assessee by the binding precedent of the Hon’ble Bombay High Court in the case of Aditya Birla Novu Hon’ble Bombay High Court in the case of Aditya Birla Novu Hon’ble Bombay High Court in the case of Aditya Birla Novu (supra), accordingly, we do not find any infirmity in the order of the we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and we u Ld. CIT(A) on the issue in dispute and we uphold the same. The phold the same. The grounds of appeal of the Revenue are accordingly dismissed. grounds of appeal of the Revenue are accordingly dismissed. grounds of appeal of the Revenue are accordingly dismissed.
6.3 In Assessment Year 2020 In Assessment Year 2020-21, the issue of depreciation on 21, the issue of depreciation on goodwill arising from the same amalgamation stands on identical goodwill arising from the same amalgamation stands on identical goodwill arising from the same amalgamation stands on identical footing. Following our decision in the present yea footing. Following our decision in the present year, we hold r, we hold mutatis mutandis that the claim is allowable and the appeal of the Revenue that the claim is allowable and the appeal of the Revenue that the claim is allowable and the appeal of the Revenue for that year also fails. for that year also fails.
Echjay Industries Pvt. Ltd. Echjay Industries Pvt. Ltd. 7 & 5437/MUM/2025 & 5437/MUM/2025
In the result, both the appeals of the Revenue are dismissed. In the result, both the appeals of the Revenue are dismissed. In the result, both the appeals of the Revenue are dismissed.
Order pronounced in the open Court on 30 ounced in the open Court on 30/10/2025. /10/2025.