Case Law Details
Straumann Dental India LLP Vs ACIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, dismissed the appeal filed by the assessee for Assessment Year 2017-18 and upheld the disallowance of depreciation claimed on goodwill. The dispute arose from the assessee’s claim of depreciation amounting to Rs. 16,16,02,326 on goodwill allegedly generated through a Business Transfer Agreement (BTA).
The assessee, a Limited Liability Partnership (LLP), was converted from a private limited company on 26.10.2016 and was engaged in providing tooth replacement solutions, including dental implants, prosthetics, and regenerative products. The assessee claimed that, before its conversion, it entered into a Business Transfer Agreement dated 23.08.2016 with Equinox Sales India (ESI), a sole proprietorship concern. According to the assessee, the business was acquired for Rs. 134.51 crore, of which Rs. 5.23 crore represented tangible assets and Rs. 129.28 crore represented various business and commercial rights collectively treated as goodwill. Based on this goodwill, the assessee claimed depreciation.
The Assessing Officer disallowed the depreciation claim. It was observed that the goodwill represented the excess of purchase consideration over the book value of net assets and that the goodwill in the hands of the predecessor concern had a nil value. The Assessing Officer concluded that the opening written down value of the goodwill was nil and therefore disallowed depreciation by invoking the relevant provisions of Sections 32, 43(1), and 43(6) of the Income-tax Act. The Commissioner (Appeals) upheld the disallowance.
Before the Tribunal, the assessee relied on the Business Transfer Agreement and various judicial precedents to support the depreciation claim. However, the Tribunal examined the documents and found several deficiencies. It noted that the assessee had stated in its written submissions that there was no relationship between the seller and the buyer. The Tribunal found this statement contrary to the record because the seller was a sole proprietorship of an individual who was also a designated partner of the assessee LLP. The Tribunal observed that such a stand was inconsistent with the facts on record.
The Tribunal further found that the Business Transfer Agreement dated 23.08.2016 was unregistered. It also observed that the agreement was unsigned to the extent of execution on behalf of the buyer. Despite opportunities, no other agreement was produced to establish that the transaction was supported by a registered and duly executed document. The Tribunal held that the agreement lacked legal sanctity and could not be accorded evidentiary value.
Relying on judicial precedents referred to in the order, the Tribunal observed that an unsigned document is merely an anonymous piece of paper without legal credibility. It also referred to the principle that an unregistered agreement, after the relevant statutory amendments, has no enforceable legal effect. The Tribunal noted that the Business Transfer Agreement had been entered into before the formation of the LLP and involved related parties, further supporting its conclusion regarding the lack of reliability of the document.
Based on these findings, the Tribunal held that the goodwill claimed by the assessee emerged from an unregistered and unsigned Business Transfer Agreement that had no legal value. Since the underlying agreement itself lacked legal sanctity, the consequential goodwill could not be recognized for depreciation purposes. Accordingly, the depreciation claimed on such goodwill was held to be inadmissible.
The Tribunal therefore upheld the disallowance of depreciation on goodwill amounting to Rs. 16,16,02,326 and dismissed the appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
The instant appeal, preferred by the assessee, is directed against the order dated 07.11.2025 (DIN & Order No. ITBA/NFAC/S/250/2025-26/1082371543(1)), passed by the Ld. CIT(A)/National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 25.12.2019 (Order No. ITBA/AST/S/143(3)/2019-20/1023050625(1)), passed by the Ld. ACIT, Circle 4(1), Gurgaon, under Section 143(3)of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2017-18.
2. Brief facts leading to the case are that the appellant a Limited liability Partnership firm (hereinafter referred to as ‘LLP’), was converted from Private Limited Company on October 26, 2016. The appellant is engaged in the business of providing tooth replacement solutions including dental implants, prosthetics and regenerative products. The Designated partner of appellant LLP, as per audited financial statement placed before us at pages 1-46 of Paper Book, on record are Mr. Andreas Leo Meler Gadient and Dr. Shavir Noorezdan. The appellant has furnished Return of Income on 29.10.2017 declaring a total loss of Rs. 14,41,78,354/. The appellant has claimed to have entered into a Business Transfer Agreement on 23.08.2016 i.e. date before conversion from Private Limited Company into LLP with M/s Equinox Sales India (hereinafter referred to as ESI), a sole proprietorship of Dr. Shavir S Nooryezdan. A copy of said agreement is annexed at pages 61-102 of Paper Book filed by appellant.
3. M/s ESI was engaged in the business of marketing, promotion, distribution and sales of dental implants. All the assets and liabilities recorded in the Books of ESI has been transferred and vested in the appellant w.e.f. 23.08.2016. The Learned AR has filed written submission, wherein it has been stated that “The business was acquired for an aggregate amount of Rs. 134,51,65,738/- out of which consideration of tangible assets was Rs. 5,23,47,134/- and balance Rs. 129,28,18,604/- was on account of several business and commercial rights collectively termed as ‘goodwill’.” A copy of audited financial statement of ESI for Financial Year 2015-16 relevant to Assessment Year 2016-17 is placed at pages 105-106 of the Paper Book and Copy of Report titled as “Value Analysis of Specified Assets acquired from Equinox Sales India and Equinox Precision Technologies Private Limited – Indian GAAP purposes” is annexed at pages 107-165 of the Paper Book filed by the appellant.
4. Learned Assessing Officer has noted that the appellant has claimed a deduction amounting to Rs. 16,16,02,326/- as depreciation on intangible asset i.e. goodwill. He further stated that the Goodwill is the amount of purchase consideration exceeding the book value of net assets of ESI and as the agreement is dated 23.08.2016; the appellant claimed 50% depreciation on goodwill. As the intangible assets in the form of goodwill were owned/held by the ESI prior to acquisition as NIL value only, therefore, the Ld. AO, after acquisition has taken the value of goodwill, as NIL cost, in the hands of appellant also. The Ld. AO in the context of judgment passed by the Hon’ble Apex Court in case of CIT vs. Smifs Securities Ltd., reported in 348 ITR 0302 has stated that the question that has been answered by the Court is whether goodwill is included in the definition of intangible assets being any other business or commercial right of a similar nature. The question of allowbility of depreciation on Goodwill arising out of valuation done for the purpose of acquisition was not posed before the Hon’ble Court in Smifs Securities (Supra). Assessing Officer has also referred to 5th Proviso to Section 32(1)(ii) of the Act, which according to him provides that, the aggregate deduction in respect of depreciation on any tangible or intangible assets allowable to predecessor or successor shall not exceed the deduction calculated at the prescribed rates as if the acquision had not taken place. Thus, finally the Ld. AO concluded that the opening written down value of the intangible asset which has been recorded in the books to give effect to the acquisition is to be treated as NIL and consequently, the claim of the appellant regarding allowability of depreciation on goodwill of Rs. 16,16,02,326/-has been disallowed by invocation of Section 32(1) and Explanation 3 thereof; read with section 43(1) and Explanation (7) thereof; read with Section 43(6) and Explanation -2 thereof.
5. The appellant challenged the aforesaid order of assessment before the Learned First Appellate Authority, however, remained unsuccessful, and therefore, has challenged the orders of lower authorities before us.
6. We have heard the rival submissions made by the respective parties and have also perused the material placed on record, including the orders of the lower authorities, written submission, paper books and additional grounds of appeal filed by appellant.
7. The appellant has filed application for admission of additional grounds of appeal, which reads as under:
7.1 However at the time of hearing, the Learned Counsel appearing for the appellant has submitted that he will not press the additional ground and, therefore, the same is dismissed as not pressed.
8. Now the original grounds of appeal as raised by appellant are reproduced hereunder:
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs. 16,16,02,326/- on account of depreciation on intangible asset i.e. goodwill and that too by recording incorrect facts and findings and violation of principles of natural justice and without appreciating/considering the submissions and evidences filed by the assessee in company.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs. 16,16,02,326/-on account of depreciation on intangible asset, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B and 234D of the Income Tax Act, 1961.
4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
9. From prefatory facts on perusal of documents placed on record, the appellant is a LLP and the date of formation is 26.10.2016, whose designated partners are Mr. Andreas Leo Meler Gadient and Dr. Shavir Noorezdan as is evident from pages 6 and 21 of Paper Book filed before us. The relevant pages whereof are reproduced hereinbelow:-
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