DCIT Vs Magick Woods Exports Pvt. Ltd. (ITAT Chennai)
Summary: The Chennai Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal for Assessment Year 2018-19 and upheld the relief granted by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, on two issues: depreciation of Rs.85.13 Crores on goodwill forming part of the opening block of intangible assets, and deduction of Rs.9.32 Crores towards vendor compliance expenses.
The appeal arose from the order of the Ld.CIT(A), NFAC, dated 01.09.2025 passed under section 250 of the Income-tax Act, 1961, against the assessment order passed under section 143(3) dated 24.02.2022.
Depreciation on goodwill
Under a Scheme of Amalgamation effective from 01.04.2016, erstwhile Magick Woods Exports Private Limited and Modularkitchen.com Private Limited merged with Indyca Solutions (India) Private Limited. The Scheme was approved by the National Company Law Tribunal, Chennai, on 25.09.2017, following which the transferee company was renamed Magick Woods Exports Private Limited.
The assessee followed the Purchase Method under Accounting Standard-14 and recorded the assets and liabilities transferred at their respective fair values. The excess of consideration discharged through issue of Compulsorily Convertible Preference Shares over the net value of assets acquired was recorded as goodwill amounting to Rs.454.05 Crores in FY 2016-17, forming part of the block of intangible assets. Depreciation was claimed at 25%.
