Goodwill Depreciation Denied as Business Transfer Agreement Was Unsigned & Unregistered

Straumann Dental India LLP Vs ACIT (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT), Delhi, dismissed the appeal filed by the assessee for Assessment Year 2017-18 and upheld the disallowance of depreciation claimed on goodwill. The dispute arose from the assessee’s claim of depreciation amounting to Rs. 16,16,02,326 on goodwill allegedly generated through a Business Transfer Agreement (BTA).

The assessee, a Limited Liability Partnership (LLP), was converted from a private limited company on 26.10.2016 and was engaged in providing tooth replacement solutions, including dental implants, prosthetics, and regenerative products. The assessee claimed that, before its conversion, it entered into a Business Transfer Agreement dated 23.08.2016 with Equinox Sales India (ESI), a sole proprietorship concern. According to the assessee, the business was acquired for Rs. 134.51 crore, of which Rs. 5.23 crore represented tangible assets and Rs. 129.28 crore represented various business and commercial rights collectively treated as goodwill. Based on this goodwill, the assessee claimed depreciation.

The Assessing Officer disallowed the depreciation claim. It was observed that the goodwill represented the excess of purchase consideration over the book value of net assets and that the goodwill in the hands of the predecessor concern had a nil value. The Assessing Officer concluded that the opening written down value of the goodwill was nil and therefore disallowed depreciation by invoking the relevant provisions of Sections 32, 43(1), and 43(6) of the Income-tax Act. The Commissioner (Appeals) upheld the disallowance.