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.
Rejecting the various explanation given by the assessee, the Assessing Officer rejected the claim of depreciation of Rs.5,37,66,588/- on the goodwill of Rs.43,01,32,709/-. CIT(A) deleted the disallowance made by AO. Being aggrieved, revenue has preferred the present appeal.
Conclusion- We find merit in the argument of the learned Counsel for the assessee that the net balance of purchase consideration paid, and the value of net assets acquired is Goodwill and the transfer of IP to BluJay UK cannot affect the value of goodwill as the Goodwill is rightly attributed to all the assets acquired from Four Soft and benefits accrued to BluJay India. Once the existence of Goodwill is established, Depreciation on such goodwill cannot be questioned further.
Held that we are of the considered opinion that the assessee is entitled to claim depreciation on goodwill. Accordingly, the order of the learned CIT (A) is upheld and the grounds raised by the Revenue are dismissed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the assessee is directed against the order dated 9.3.2018 of the learned CIT (A)-2, Guntur relating to A.Y.2014-15.
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of provision of software development services and distribution of parent company software products. It filed its return of income for the A.Y 2014-15 on 30.11.2014 admitting loss of Rs. 1,76,35,021/-. The return was processed u/s 143(1) on 22.4.2015 and refund of Rs.10,97,340/-was issued. Subsequently, the case was selected for scrutiny through CASS and statutory notices u/s 143(2) & 142(1) were issued and served on the assessee to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details.
3. During the course of assessment proceedings, the Assessing Officer noted that Kewill India Pvt. Ltd (herein after referred to as Kewill India) formerly known as Transport IT Solutions Pvt. Ltd. (IPL) was incorporated on 31.07.2013 as a wholly owned subsidiary of Kewill Limited headquartered in UK and ultimately owned by fransico partners, a US based private equity. Kewill India is primarily engaged in provision of software development services and distribution of software products of parent company.
4. He noted that during the year under consideration 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.
5. He noted that the assessee has considered excess of purchase consideration over the fair value of net assets as goodwill and has furnished the computation as below:
