Depreciation on goodwill allowable once existence of goodwill is established

DCIT Vs Blujay Solutions (India) Private Limited (ITAT Hyderabad)

ITAT Hyderabad held that the net balance of purchase consideration paid, and the value of net assets acquired is Goodwill and once the existence of Goodwill is established, Depreciation on such goodwill cannot be questioned further.

Facts- During the course of assessment proceedings, AO noted that Kewill India Pvt. Ltd (hereinafter referred to as Kewill India) formerly known as Transport IT Solutions Pvt. Ltd. (IPL) was incorporated as a wholly owned subsidiary of Kewill Limited headquartered in the UK and ultimately owned by francisco partners, a US based private equity. Kewill India was primarily engaged in the provision of software development services and distribution of software products of the parent company.

The assessee company Kewill India entered into a business acquisition agreement to acquire the business of Four Soft Limited (herein after referred to as Four Soft) as a going concern on a slump sale basis for a consideration of Rs.113,53,42,477/- and the acquisition was completed on 4th October 2013. The transaction was accounted as a business acquisition and purchase consideration was allocated to tangible, intangible assets and liabilities at fair value as determined by an independent valuer. The excess of purchase consideration over the fair value of net assets acquired has been recognized as Goodwill. The acquisition of tangible assets and liabilities was done on book value basis. As regards the intangible property, sale consideration was mutually agreed between parties based on valuation report obtained from independent valuer.

He noted that the assessee has considered excess of purchase consideration over the fair value of net assets as goodwill. Further, he noted that the assessee had claimed depreciation @ half of 25% on goodwill. He, therefore, asked the assessee to furnish the details as to how goodwill had been determined.

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