Bakeri Projects Pvt. Ltd. Vs DCIT (ITAT Ahmedabad)
Amalgamation Goodwill is Depreciable: ITAT Allows Deduction for AY 2016-17, Quashes Non-Speaking CIT(A) Order
Goodwill is Still Good! – ITAT Allows Depreciation, Slams Baseless ‘Colourable Device’ Allegation; Amendments excluding goodwill from depreciation apply only from AY 2021-22 onwards
Bakeri Projects Pvt. Ltd. (“BPPL”) had amalgamated Bakeri Engineering & Infrastructure Pvt. Ltd. (“BEIPL”) through a court-approved scheme effective 01.04.2015. In accordance with AS-14 (Purchase Method) & as mandated by the High Court approved scheme, BPPL issued shares to the shareholders of BEIPL as consideration. Since the consideration paid was more than the net assets acquired, the excess amount was recorded as goodwill (₹96.12 crore) in the books of BPPL. Based on Section 32(1)(ii) & Explanation 3(b) (which includes “any other business or commercial rights”), BPPL claimed depreciation of ₹24.03 crore on this goodwill in AY 2016-17.
During scrutiny, AO disallowed the depreciation, alleging that the amalgamation was a colourable device between group entities to artificially create goodwill & reduce tax liability. AO invoked 5th/6th proviso to Section 32(1) & Explanation 7 to Section 43(1), contending that the taxpayer should not get depreciation on such goodwill. CIT(A) upheld the disallowance in a cryptic order without reasons, simply agreeing with AO.
