DCIT VS AACORP Exim India Pvt. Ltd. (ITAT Mumbai)
Mumbai ITAT Upholds Depreciation on Goodwill Arising from NCLT-Approved Amalgamation; Revenue’s Appeal Dismissed
The Mumbai ITAT dismissed the Revenue’s appeal and upheld the allowability of depreciation of ₹5.90 crore on goodwill arising from the amalgamation of J.J. Polyplast Pvt. Ltd. with AAACORP Exim India Pvt. Ltd. The Assessing Officer had disallowed the claim, contending that the goodwill of ₹23.60 crore-being the excess of the purchase consideration of ₹50.95 crore over the net assets acquired of ₹27.35 crore-was merely an accounting adjustment between related parties, lacking any real cost or tangible basis, and therefore hit by the fifth proviso to Section 32(1)(ii).
The Tribunal noted that the amalgamation had been approved by the NCLT, the purchase consideration was determined through an independent valuation report, and the goodwill represented a genuine commercial right arising from the acquisition. It held that such goodwill was acquired goodwill and not self-generated or fictitious. Relying on the Supreme Court’s decision in CIT v. Smifs Securities Ltd., the Gujarat High Court’s ruling in Zydus Wellness Ltd., and the Chennai ITAT’s decision in Arun Excello Urban Infrastructure (P.) Ltd., the Tribunal affirmed that goodwill arising from a court-approved amalgamation constitutes an intangible asset eligible for depreciation under Section 32(1)(ii).
The Tribunal further observed that the Revenue had failed to produce any evidence showing that the amalgamation was a sham transaction or that the independent valuation was incorrect or contrary to law. It held that mere excess of purchase consideration over the net assets acquired does not render goodwill fictitious or disentitle the assessee from claiming depreciation. Finding the CIT(A)’s order to be well-reasoned and consistent with settled judicial precedents, the Tribunal dismissed the Revenue’s appeal and confirmed the deletion of the depreciation disallowance.
Cases Discussed
- Arun Excello Urban Infrastructure (P.) Ltd. v. ACIT (ITAT Chennai), [2022] 137 taxmann.com 116 (Chennai-Trib)
- Zydus Wellness Ltd. v. ACIT (Gujarat High Court)
- CIT v. Smifs Securities Ltd. (Supreme Court), [2012] 24 taxmann.com 222 (SC)
- United Breweries (ITAT Bangalore)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the revenue filed against the order of the NFAC, Delhi [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2017-18, date of order 11.12.2025. The impugned order emanated from the order of the Ld. Assistant Commissioner of Income Tax Circle 14(1)(1), Mumbai (for brevity ‘Ld. AO’), order passed under Section 143(3) of the Act, date of order 25.12.2019.
2. The brief facts of the case are that the assessee filed the return by declaring total income nil. The assessee’s case was selected for complete scrutiny under CASS. During the assessment, the Ld. AO found that during the previous year, the assessee company has entered into a transaction of associated enterprises within the definition of “Specified International Transaction” amounting to Rs. 46,70,63,152/-. Accordingly, the assessee was filing accountant’s report u/s. 92E in Form No. 3CEB. The assessee claimed depreciation amount to Rs. 5.9Cr on good will arising out from amalgamation of M/s J.J. Polyplast Pvt. Ltd. where the consideration determined through share allotment amounted to Rs. 50.95 Cr where the net asset taken over value at only Rs. 27.35 Cr resulting in difference of Rs. 23.60 Cr treated as good will. The Ld. AO observed that the good will was not backed by any real tangible assets or actual cost but was merely on accounting adjustment created to balance the excess consideration in merger between related parties. The depreciation on intangible assets i.e. good will was duly claimed by the assessee and Ld. AO treated that the assessee was not eligible for claiming of depreciation as per 5th proviso of section 32(1)(ii) of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) considering the order of The Coordinate Bench of ITAT and also the Hon’ble Supreme Court has allowed the appeal of the assessee and deleted the addition. Being aggrieved, the revenue filed an appeal before us.
3. The Ld. DR argued and contended that the assessee had claimed the depreciation on good will which is entirely wrong claim. The Ld. AO is justified for disallowing the depreciation on good will for contravening the provision of section 32 of the Act. The Ld. DR stands in favour of the order of Ld. AO.
4. The Ld. AR argued that the identical issue was duly considered by the Coordinate Bench of ITAT-Chennai in case of Arun Excello Urban Infrastructure (P.) Ltd vs ACIT reported in [2022] 137 com116 (Chennai-Trib) where the assessee company got amalgamated with a company, excess consideration paid over and above fair market value of assets and liabilities of amalgamating company was towards intangible assets acquired by assessee in form of goodwill which was in nature of any business or commercial rights of the similar nature as defined/sec 32(1)(ii) and, thus, assessee was to be allowed depreciation on such goodwill acquired on amalgamation. The Ld. AR respectfully relied on the order of the Hon’ble Supreme Court in case of CIT vs Smifs Securities Ltd reported in [2012] 24 taxmnn.com 222 (SC) where it is decided that goodwill is an asset under explanation 3(b) of section 32(1) and, thus, it is eligible for depreciation. The Ld. AR respectfully relied on the impugned appellate order and has invited our attention in paragraph no. 6.2 to 7.0 which is reproduced as below:
“6.2 Ground No.1 to 3 are raised against the AO’s action in disallowing the depreciation of Goodwill of Rs.5.9 crores
6.2.1 During AY 2017–18, the assessee claimed depreciation of Rs.5.9 crore on goodwill arising from the amalgamation of J.J. Polyplast Pvt. Ltd., where the consideration determined through share allotment amounted to Rs.50.95 crore while the net assets taken over were valued at only Rs.27.35 crore, resulting in a difference of Rs.23.60 crore treated as goodwill. The AO observed that this goodwill was not backed by any real intangible asset or actual cost but was merely an accounting adjustment created to balance the excess consideration in a merger between related parties. Since no such goodwill existed in the books of the transferor company, nor was any depreciation ever claimed by it, the AO held that the assessee was not eligible for depreciation u/s 32(1)(ii) read with the 5th proviso. Citing the ITAT Bangalore ruling in United Breweries, the AO concluded that depreciation cannot be allowed on a fictitious or self-generated goodwill created during amalgamation. Accordingly, the AO disallowed the depreciation claim of Rs.5.9 crore.
6.2.2 During the appellate proceedings, the appellant submitted that M/s.J.J. Polyplast Pvt. Ltd, a related entity—was amalgamated with it from 01.04.2016 pursuant to an NCLT order dated 09.11.2017. For this merger, an independent valuer determined the share valuations and swap ratio after applying recognized valuation methodologies, and based on this, purchase consideration was fixed at Rs.50,95,40,208. Upon recording the assets and liabilities taken over from the amalgamating company, goodwill of Rs.23,60,16,520 arose, duly supported by the valuation report and the audited financials of J.J. Polyplast. The appellant submitted that this goodwill falls within the scope of “any other business or commercial rights” u/s.32(1)(ii), and therefore depreciation of Rs.5,90,04,130 is allowable, as upheld by the Supreme Court in CIT v. Smifs Securities Ltd. and by ITAT Chennai in Arun Excello Urban Infrastructure Pvt. Ltd., where excess consideration paid in amalgamation was accepted as goodwill eligible for depreciation. The appellant contended that the AO erred in treating the goodwill as a mere book entry or colourable device, despite the fact that it arose from an independently valued purchase consideration and a legally sanctioned amalgamation. Accordingly, the appellant submitted that the disallowance of depreciation on goodwill be deleted.
6.2.3 I have carefully considered the material placed on record, including the scheme of amalgamation approved by the Hon’ble NCLT, the audited financial statements, and the independent valuation report determining the share-swap ratio. The amalgamation of J.J. Polyplast Pvt. Ltd. with the appellant, effective from 01.04.2016, resulted in the recognition of goodwill amounting to Rs.23.60 crore, representing the excess of the independently determined purchase consideration of Rs.50.95 crore over the net assets of Rs.27.35 crore taken over. The valuation exercise undertaken by an independent professional using recognized methodologies clearly establishes that the goodwill emerged as a direct and natural consequence of the amalgamation process and is not a mere book entry. The issue for adjudication is whether such goodwill qualifies as a depreciable intangible asset u/s 32. The Hon’ble Gujarat High Court in Zydus Wellness Ltd. v. ACIT has categorically held that goodwill arising on amalgamation pursuant to a court-sanctioned scheme and supported by a recognized valuation framework constitutes “acquired goodwill,” and therefore depreciation thereon is allowable. The Hon’ble Court further explained that where the purchase consideration is determined on the basis of an accepted valuation method and the resultant goodwill is incorporated into the books as part of an approved amalgamation scheme, such goodwill cannot be regarded as a mere notional or artificial entry. Instead, it represents a genuine commercial right that vests in the amalgamated company. Applying the ratio of Zydus Wellness to the present case, the goodwill of Rs.23.60 crore—having arisen from a duly approved amalgamation and supported by independent valuation—assumes the character of an identifiable, acquired intangible asset within the meaning of section 32(1)(ii). The depreciation claimed on such goodwill is therefore in accordance with the law declared by the Hon’ble Gujarat High Court. In view of the above binding judicial precedent and the factual alignment of the present case with the principles laid down therein, the claim of depreciation of Rs.5.90 crore on goodwill stands justified and is accordingly allowed. Ground Nos.1 to 3 raised by the appellant on this issue are ALLOWED.
7.0 In the result, the appeal filed against the order u/s. 143(3) of the Act for the AY 2017-18 is ALLOWED.”
5. We have heard the rival submissions and perused the material available on record. The undisputed facts reveal that the assessee claimed depreciation of Rs5.90 crore on goodwill arising pursuant to the amalgamation of M/s J.J. Polyplast Pvt. Ltd., wherein the excess of the purchase consideration over the net value of the assets acquired was recognized as goodwill. The Ld. AO disallowed the claim by holding that the goodwill was merely an accounting adjustment without any actual cost and, therefore, hit by the fifth proviso to section 32(1)(ii) of the Act. On appeal, the Ld. CIT(A), after examining the scheme of amalgamation approved by the Hon’ble NCLT, the independent valuation report, and the audited financial statements, held that the goodwill represented an acquired intangible asset arising from a genuine commercial transaction and was eligible for depreciation under section 32(1)(ii) of the Act. We find that the findings recorded by the Ld. CIT(A) are based on cogent evidence and are in consonance with the settled legal position. The goodwill in the present case arose pursuant to a court-approved amalgamation and the purchase consideration was determined on the basis of an independent valuation. Thus, the goodwill cannot be regarded as self-generated or fictitious. The Hon’ble Supreme Court in Smifs Securities Ltd. (supra) has held that goodwill is an asset falling within the ambit of Explanation 3(b) to section 32(1) and is eligible for depreciation. Similar view has been taken by the Coordinate Bench of the Tribunal in Arun Excello Urban Infrastructure (P.) Ltd. (supra), wherein goodwill arising on amalgamation was held to be a depreciable intangible asset. We also find that the Ld. CIT(A) has rightly applied the ratio of the decision of the Hon’ble Gujarat High Court in Zydus Wellness Ltd. (supra), holding that goodwill arising from a court-approved amalgamation supported by an independent valuation constitutes acquired goodwill eligible for depreciation. The revenue has not brought on record any material to demonstrate that the amalgamation was a sham transaction or that the valuation adopted was incorrect or contrary to law. Mere excess of purchase consideration over the net assets acquired cannot, by itself, render the goodwill fictitious or disentitle the assessee from claiming depreciation. In these circumstances, we find no infirmity in the well-reasoned order of the Ld. CIT(A) deleting the disallowance of depreciation on goodwill. Accordingly, the grounds raised by the revenue are dismissed.
6. In the result, the appeal of the revenue bearing ITA No.2287/Mum/2026 is dismissed.
Order pronounced in the open court on 30th day of July 2026.
