Goodwill acquired in case of takeover of running business is eligible for depreciation

The issue in this appeal of the assessee is regard to the denial of depreciation for Rs.11,28,444/- on goodwill which has arisen pursuant to business acquisition made by the assessee from M/s. Dadha Pharma Private Limited.

In this matter, the assessee being resident corporate assessee has been assessed u/s 143(3) wherein it transpired that the assessee claimed depreciation on goodwill for Rs.11.28 Lacs. The assessee submitted that it acquired distribution business of M/s Dadha Pharma Private Ltd. (DPPL) under a business transfer agreement for lump sum consideration of Rs.735 Lacs. Under the agreement, entire business was taken over as going concern w.e.f. 30.09.2015 and all assets and liabilities have been taken aver at subsisting value as on the date of transfer of business (30.09.2015).

The excess consideration so paid by the assessee has been considered as goodwill and accordingly, capitalized in the books.

The same being, intangible asset, would be entitled for depreciation. However, rejecting the same Ld. AO denied the depreciation.

The Ld. CIT(A) confirmed the stand of Ld. AO on the ground that no values were allocated for individual items of assets and liabilities including goodwill. Accordingly, the assessee did not purchase any goodwill. Aggrieved, the assessee is in further appeal before the tribunal.

ITAT observed that the assessee has acquired distribution business of DPPL w.e.f. 30.09.2015 on slump sale basis which postulate passing of consideration without assigning any values to individual assets and liabilities. The assessee has paid a consideration of Rs.735 Lacs. On perusal of financial statements as on 30.09.2015, ITAT further observed that assets and liabilities have been taken over at values as appearing in the financial statements as on 30.09.2015. The excess payment made by the assessee over the book-value of assets and liabilities has been treated as goodwill which is correct accounting treatment and is in accordance with applicable accounting standards. The assessee has paid lump sum consideration of Rs.735 Lacs. Therefore, the observation of Ld. CIT(A) that the assessee has not purchased the goodwill, is not a correct observation. The case law of Hon’ble Delhi High Court in Triune Energy Services (P.) Ltd. V/s DCIT (65 Taxmann.com 288) squarely apply to the facts of assessee’s case. In this case, it was held by Hon’ble Court that where the assessee purchased business as going concern, consideration paid in excess of value of tangible assets was classifiable as goodwill eligible for depreciation. The further exercise to value goodwill was not warranted. Accordingly, it direct Ld. AO to allow deduction of depreciation as claimed by the assessee.

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