LNW INDIA SOLUTIONS PVT. LTD.,CHENNAI vs. ACIT, TPO CIRCLE-3(2), CHENNAI

ITTPA 19/CHNY/2025Status: DisposedITAT Chennai01 June 2026AY 2017-1814 pages
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What were the facts?

The assessee, LNW India Solutions Pvt. Ltd., filed appeals for Assessment Years (AY) 2017-18 and 2018-19 challenging orders passed by the Commissioner of Income Tax (Appeals) - 16, Chennai, which confirmed the Assessing Officer's (AO) disallowance of depreciation on goodwill arising from an amalgamation. The assessee acquired shares of WMS Gaming Solutions India Private Ltd. for Rs. 33.97 crores and subsequently WMS India was amalgamated with the assessee. Using the pooling of interest method, the net book value of WMS India was Rs. 3.24 crores. The difference of Rs. 30.73 crores was recorded as goodwill. The AO disallowed depreciation on this goodwill, and the CIT(A) upheld the disallowance. The assessee also contested a Transfer Pricing (TP) adjustment made by the TPO, which imputed interest on outstanding receivables from an Associated Enterprise (AE). The CIT(A) had partly allowed this by suggesting a different interest rate and credit period.

What did the Tribunal hold?

The Tribunal allowed the assessee's claim for depreciation on goodwill arising from amalgamation. It held that the goodwill in question was not self-generated but arose from the amalgamation scheme, making the AO's reliance on Explanation 7 to Section 43(1) and Explanation 2(b) to Section 43(6) irrelevant. The Tribunal respectfully followed its own decision in FL Smidth India Private Limited (supra) and the binding ratio of the Hon'ble Supreme Court, concluding that depreciation on goodwill arising from amalgamation is allowable. The Tribunal also allowed the assessee's ground regarding the Transfer Pricing adjustment on notional interest on overdue receivables. It held that since the assessee is a debt-free company, does not incur significant interest cost, and did not charge interest on receivables from the AE, the TP adjustment for notional interest is unwarranted, following its decision in Newgen Digital Works Pvt Ltd. The grounds related to limitation under Section 153 and consequential grounds for penalty under Section 270A and interest under Sections 234B and 234C were dismissed as not pressed or not adjudicated.

What were the issues?

1. Whether the assessee is entitled to claim depreciation on goodwill arising from the amalgamation of WMS Gaming Solutions India Private Ltd. with the assessee, under Section 32 of the Income Tax Act, 1961, considering the provisions of Section 43(1), Section 43(6), Section 49(1)(iii)(e), and Section 55(2)(a)(iii), and the 6th Proviso to Section 32(1). - Assessee's Contention: Relied on the jurisdictional Tribunal's decision in FL Smidth India Private Limited (ITA No.1682/CHNY/2024), arguing that depreciation on goodwill arising from amalgamation is allowable, even with the pooling of interest method, and that the AO's reliance on provisions like Explanation 7 to Section 43(1) and Explanation 2(b) to Section 43(6) is misplaced as the goodwill is not self-generated. - Revenue's Contention: Relied on the lower authorities' orders and the decision of the Mumbai Tribunal in ACIT Vs Dosti Realty Ltd (ITA No.2043/Mum/2022), arguing that goodwill did not form part of the block of assets, no cost could be claimed as per Section 49(1)(iii)(e), Section 55(2)(a)(iii) prohibits attributing cost to goodwill, and the 6th Proviso to Section 32(1) prevents recognition of goodwill created on amalgamation. 2. Whether the Transfer Pricing adjustment for notional interest on outstanding receivables from an Associated Enterprise is warranted, under Section 92CA of the Income Tax Act, 1961. - Assessee's Contention: No adjustment should be made for a debt-free company, as the assessee did not pay interest on payables to the AE and did not charge interest on receivables from both AE and Non-AE, thus applying the internal CUP method internally. - Revenue's Contention: The argument against imputing interest for a debt-free company is not tenable for international transactions, as there is an imputed interest cost foregone due to outstanding receivables.

Which sections of the Income-tax Act were involved?

Section 32,Section 43(1),Section 43(6),Section 49(1)(iii)(e),Section 55(2)(a)(iii),Section 92CA,Section 153,Section 270A,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D / TPC’ BENCH, CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA

Hearing: 08.04.2026Pronounced: 01.06.2026

PER BENCH : These appeals filed by the Assessee are arising out of order of the learned Commissioner of Income Tax (Appeals) - 16, Chennai (in short “ld.CIT(A)”) against orders u/s.143(3) r.w.s. 92CA(3) r.w.s 144C

The order continues below.

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