LNW India Solutions Pvt. Ltd. Vs ACIT/TPO (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, partly allowed the assessee’s appeals for Assessment Years (AYs) 2017-18 and 2018-19, holding that depreciation on goodwill arising from amalgamation was allowable and deleting the transfer pricing adjustment made on account of notional interest on outstanding receivables from associated enterprises (AEs).
The assessee, a wholly owned subsidiary of a foreign group company engaged in captive software development services, had acquired shares of WMS Gaming Solutions India Private Ltd. for Rs. 33.97 crore. Following the acquisition, WMS India amalgamated with the assessee under a scheme sanctioned by the Madras High Court. The assessee accounted for the amalgamation using the pooling of interest method, recording the difference between the acquisition cost and the net book value of assets as goodwill. Although the goodwill was adjusted against surplus in the financial statements, the assessee claimed depreciation on it for tax purposes. The Assessing Officer (AO) disallowed the claim, and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance on various grounds, including the applicability of Sections 43, 49, 55 and the sixth proviso to Section 32(1), the absence of goodwill in the amalgamating company’s books, and the accounting treatment adopted by the assessee.
