Hi-Tech Radiators Private Limited Vs DCIT (ITAT Mumbai)
Summary: The assessee, Hi-Tech Radiators Private Limited, challenged the order of the learned CIT(A), NFAC, for AY 2018-19 concerning disallowance of depreciation claimed on goodwill and non-compete fees. The assessee had acquired the running business of M/s Techno Electricals through a slump sale transaction during FY 2009-10. Under the Deed of Conveyance dated 01.10.2009, the assessee acquired the business along with its assets and liabilities and issued 5,00,000 equity shares of Rs. 100 each to the proprietor. The excess of the consideration over the net value of assets and liabilities was recorded as Rs. 4,46,07,462 goodwill and Rs. 50 lakh non-compete fees.
The assessee did not claim depreciation on either amount in the earlier assessment years and claimed depreciation for the first time in AY 2018-19, namely Rs. 1,11,51,866 on goodwill and Rs. 12,50,000 on non-compete fees. The Assessing Officer disallowed the entire depreciation claim of Rs. 1,24,01,866. Relying upon the sixth proviso to section 32(1), Explanation 2 to section 43(6)(c) and Explanation 7 to section 43(1), the AO held that the actual cost and written down value of the relevant intangible block in the predecessor’s hands were nil. The AO also relied upon United Breweries Ltd. and held that depreciation in the successor’s hands could not exceed the depreciation allowable to the predecessor. The CIT(A) upheld the disallowance and also relied upon the amendment made by the Finance Act, 2021, treating it as prospective.
