The Mumbai ITAT in Anshul Speciality Molecules Private Limited Vs DCIT held that goodwill arising on acquisition of a manufacturing unit through a slump sale is a depreciable intangible asset under Section 32(1)(ii) of the Income-tax Act for AY 2020–21. The assessee purchased a running business for ₹21 crore, of which ₹11.20 crore represented tangible assets and ₹9.79 crore was recorded as goodwill, being excess consideration. Depreciation claimed at 12.5% was disallowed by the Assessing Officer and upheld by CIT(A) on the ground that the goodwill was newly created and not separately valued. The Tribunal ruled that the excess payment reflected valuable commercial and regulatory rights, licenses, and business advantages embedded in the going concern. Such goodwill was acquired for consideration and qualified as “business or commercial rights” similar to intangible assets. Relying on Smifs Securities (SC) and Grindwell Norton (Bom HC), the ITAT allowed depreciation and held that restrictive provisos to Section 32(1) do not apply to slump sales.
Depreciation on Goodwill arising on Slump Sale of Going Concern
Core Issue: Whether goodwill arising on acquisition of a manufacturing unit as a going concern by way of slump sale is an intangible asset eligible for depreciation under section 32(1)(ii) of the Income-tax Act, 1961, where goodwill represents excess consideration over net assets acquired.
Brief Facts:The assessee acquired a manufacturing unit as a going concern from an unrelated party by way of slump sale.
Total consideration paid was ₹21 crore under a Business Transfer Agreement.
Value of identifiable tangible assets taken over was ₹11.20 crore.
The balance amount of ₹9.79 crore was accounted for as goodwill, being excess consideration.
The assessee claimed depreciation @ 12.5% on goodwill under section 32(1)(ii).
The AO disallowed depreciation on the ground that:
goodwill was newly created, no separate valuation was specified in the agreement, and proviso to section 32(1) barred depreciation.
The disallowance was confirmed by CIT(A), NFAC.
Brief Statutory Provision
Section 32(1)(ii) allows depreciation on intangible assets, including any other business or commercial rights of similar nature.
Explanation 3(b) to section 32(1) includes goodwill within the scope of intangible assets.
5th / 6th proviso to section 32(1) restrict depreciation only in cases of amalgamation, demerger or succession, and not in slump sale transactions.
Assessee’s Key Submissions
The acquisition was a slump sale of a going concern, not a case of amalgamation or succession.
Goodwill arose as a commercial reality, not as a mere book entry.
Several licenses, approvals, regulatory permissions and business rights were transferred, including factory licence, pollution control approvals, GMP certification, narcotic licence, etc.
These commercial rights and advantages, though not separately valued, were embedded in the excess consideration and constituted goodwill.
Reliance placed on CIT vs Smifs Securities Ltd. and CIT vs Grindwell Norton Ltd. (Bom HC).
Finding of ITAT:- The goodwill represented excess consideration paid for acquisition of a running business with valuable commercial and regulatory rights.
Such goodwill is not self-generated, but acquired for consideration.
Goodwill is an intangible asset falling within the scope of “any other business or commercial rights of similar nature”.
The issue is no longer res integra, having been settled by the Supreme Court in Smifs Securities Ltd.
The reliance on United Breweries Ltd. was misplaced, as that case dealt with amalgamation, where statutory restriction under proviso to section 32(1) applied.
Slump sale is outside the scope of the restrictive provisos, hence depreciation is allowable.
Key Case Laws Relied Upon
CIT vs Smifs Securities Ltd. (Supreme Court)-Goodwill is an intangible asset eligible for depreciation under section 32(1)(ii).
CIT vs Grindwell Norton Ltd. [2025] 483 ITR 651 (Bombay HC)-Jurisdictional High Court reaffirming allowability of depreciation on goodwill.
United Breweries Ltd. vs CIT (ITAT Bangalore)-Distinguished as applicable only to amalgamation cases due to statutory restriction.
Conclusion:-Goodwill arising on acquisition of a going concern by slump sale is a depreciable intangible asset.
Proviso to section 32(1) does not apply to slump sale transactions.
Depreciation on goodwill cannot be denied merely because goodwill was not separately valued in the agreement.
Disallowance deleted and appeal allowed in favour of the assessee
Note – not a part of decision
Statutory Amendments – Finance Act, 2021
The Finance Act, 2021 amended the Income-tax Act to prospectively disallow depreciation on goodwill, with effect from A.Y. 2021-22.
1. Amendment to Section 32(1)(ii)
The words “goodwill of a business or profession” were specifically excluded from the block of depreciable intangible assets.
As a result, goodwill is no longer eligible for depreciation from A.Y. 2021-22 onwards.
Amendments by the Finance Act, 2021-The Finance Act, 2021 has amended following provisions of the IT Act: Section 2(11): Definition of ‘Block of Assets’ has been amended to specifically provide that ‘Goodwill of a Business or Profession’ shall not form part of block of assets comprising of ‘Intangible Assets’.
Section 32(1)(ii): ‘Goodwill of a Business or Profession’ has been specifically excluded from the definition of assets on which depreciation shall be calculated.
Explanation 3(b) of Section 32(1): ‘Goodwill of a Business or Profession’ has been specifically excluded from the definition of intangible assets.
Section 43(6)(c)(ii): Definition of WDV of the block of assets has been amended to provide that written down value of Goodwill is required to be reduced from the Opening WDV in such cases, where the Goodwill is already forming part of Block of Assets.
Section 50: Computation of capital gains in case of depreciable assets has been amended to provide that where goodwill forms part of block of asset for assessment year 2020-21 and depreciation has been claimed, the written down value of the block and short-term capital gains would be determined in the prescribed manner. Rule 8AC has been prescribed for this purpose.
Section 55: Meaning of ‘Cost of Acquisition’ in case of Goodwill of Business or Profession has been amended to provide that in case it is acquired from a previous owner, the cost would be the amount of purchase price paid.
in case it is acquired as a result of gift, amalgamation etc. and goodwill was acquired by previous owner, cost will be the cost to the previous owner.
all other cases- cost will be NIL.
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