Akorn India Pvt. Ltd. Vs DCIT (ITAT Delhi)
ITAT Delhi: Section 50C Inapplicable to Buyer in Slump Sale – Goodwill Depreciation Allowed, Non-Compete Fee Disallowed
Delhi ITAT dealt with depreciation on goodwill & non-compete fees arising from a slump purchase & AO’s use of section 50C to revalue land & building.
Akorn India, incorporated in 2011, purchased the manufacturing undertaking of Kilitch Drugs (India) Ltd. on 29-02-2012 for ₹281.28 crore. The book value of assets was ₹137.19 crore; the excess ₹144.09 crore was treated as goodwill, & ₹20 crore was paid under a Non-Compete Agreement. AO held that goodwill was not eligible for depreciation since auditors hadn’t recognised it, & further held that land & building were undervalued based on circle rates u/s 50C, thereby reducing goodwill value. Depreciation on non-compete fees was disallowed following Sharp Business Systems (Delhi HC).
CIT(A) accepted the slump-sale consideration as genuine but found under-valuation of immovable assets. He restricted goodwill to ₹65.80 crore & directed depreciation on that amount, while confirming the disallowance on non-compete fees.
Tribunal held that section 50C applies only to the seller, not to a purchaser under a slump sale governed by section 50B. If any undervaluation were to be examined, only section 56(2)(vii)(b) could apply, & valuation must be referred to the DVO. Since circle rates in Himachal Pradesh were notified only from April 2012, their use for FY 2011-12 was invalid. The issue was remanded to the AO to obtain DVO valuation of land & building & recompute the portion of goodwill accordingly.
