Netscout Systems Industrial Private Limited Vs DCIT (ITAT Mumbai Bench)
Section 32(1)(Ii): Goodwill Bought For ₹1—When Excess Liabilities Are The Real Price, The Balancing Figure Is Not An Imaginary Asset
Going concern acquired for a token ₹1
The assessee, engaged in software design, development & technical support, acquired the business of Tektronix India Pvt. Ltd., an unrelated party, as a going concern under a Business Transfer Agreement dated 10.07.2015.
The transaction was structured as a slump sale for a lump-sum consideration of ₹1, without assigning separate values to the individual assets & liabilities.
Upon consolidating the assets & liabilities taken over, the liabilities exceeded the assets by ₹2,19,37,364. The assessee recognised this difference as goodwill in its books & claimed depreciation at 25% amounting to ₹54,84,341 u/s 32(1)(ii).
AO calls goodwill a mechanical balancing entry
The AO disallowed depreciation because the BTA did not assign any specific value to goodwill or other individual assets.
According to him, goodwill represented merely a mechanically derived balancing figure arising from excess liabilities. No separate valuation exercise had identified customer contracts, licences, know-how or other commercial rights.
The AO relied principally upon the first-round decision in DCIT v. Toyo Engineering India Ltd., together with R.G. Keswani v. ACIT & United Breweries Ltd.
