Purchaser Is Eligible To Claim Depreciation On Excess Amount Paid Over & Above Net Asset Value Of Seller's Business: Bangalore ITAT

The Bangalore ITAT held that once the Department has accepted the capital gain offered by the seller upon transfer of its business, then said transaction cannot be doubted in the hands of purchaser. The ITAT held so after finding that the AO not established that the main purpose of transfer of such asset was reduction of liability to income tax by claiming extra depreciation on enhanced cost. Hence, the ITAT allowed the depreciation on goodwill claimed by assessee company upon acquisition of business of another entity. Referring to the decision of Supreme Court in the case of CIT Vs. SIMS securities [348 ITR 302], the Bench of Chandra Poojari (Accountant Member) and Prakash Chandra Yadav (Judicial Member) reiterated that “excess amount paid over and above to the net asset value would be treated as goodwill”. (Para 15) Facts of the case: The assessee company, engaged in the business of trading in parts and spares used in machine tools and other business support service activities, filed its return declaring an income of Rs.18,58,390/-. During assessment, the AO made addition of Rs.1,20,46,911/- i.e disallowance of depreciation on goodwill on the ground that there was no valuation report on the date of transfer of the business. The AO also referred to the business transfer agreement and held that there was no mention of any goodwill in that agreement. Observations of the Tribunal: The Bench found that the assessee has taken over the business of DICEIPL vide transfer agreement, since DICEIPL was rendering such services which are akin to the assessee's business hence in the interest of business the assessee. The Bench also found that the purchase consideration was determined on the basis of valuation report based on discounted cash flow method (DCF), and excess amount over and above the net asset value of the business was paid for the goodwill. Therefore, the Bench observed that the AO has basically gone by the presumption that the share holding pattern of the assessee company and of the seller company DICEIPL is same, which is factually incorrect. The Bench disregarded the opinion of the AO that there was no intangible asset transferred to the assessee by the seller company, since the excess amount offered by the recipient company as short-term capital gain was accepted by the Revenue itself. Hence, observing that goodwill is in the nature of any other commercial or business right under the category of intangible assets, the ITAT allowed assessee's appeal and concluded that I-T authorities are not correct in disallowing the claim of assessee on depreciation. Counsel for Appellant/ Assessee: Ashik Shah & Vinay Jain Counsel for Respondent/ Revenue: Neha Sahay Case Title: DN Solutions (India) Private Limited vs. ITO Case Number: ITA No.439/Bang/2024 Click here to read/ download the Order

Purchaser Is Eligible To Claim Depreciation On Excess Amount Paid Over & Above Net Asset Value Of Seller's Business: Bangalore ITAT

Pankaj Bajpai

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