DCIT Vs Echjay Industries Pvt. Ltd (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, considered two appeals filed by the Revenue against the orders of the Commissioner of Income-tax (Appeals) [CIT(A)] for assessment years 2018-19 and 2020-21 concerning Echjay Industries Pvt. Ltd. Both appeals raised identical issues regarding the allowance of depreciation on goodwill arising from a scheme of amalgamation approved by the Gujarat High Court. For convenience, the Tribunal heard both appeals together and issued a consolidated order.
In the 2018-19 assessment, the Revenue challenged the CIT(A)’s decision to allow depreciation under Section 32 of the Income Tax Act, 1961, on goodwill created during the amalgamation process. The Revenue contended that the goodwill was solely an accounting entry resulting from the excess of consideration over the book value of assets and liabilities acquired and did not constitute an independently acquired or self-generated intangible asset. Further, the Revenue argued that since the transferor companies had not claimed or were ineligible to claim depreciation on goodwill, the amalgamated company could not claim depreciation on a zero written-down value (WDV). The Revenue also questioned the allowance of depreciation on goodwill of Rs. 42,86,86,020, amounting to a claim of Rs. 10,71,71,705, as it did not represent an actual cost or provide any independent business advantage.
