ITAT Ahmedabad Allows Depreciation on Goodwill Arising from Amalgamation
In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Ahmedabad, has allowed an assessee to claim depreciation on goodwill arising from the amalgamation.
The appellant, Bakeri Projects Pvt. Ltd. (BPPL), depreciation, had entered into a scheme of arrangement with Bakeri Engineering and Infrastructure Pvt. Ltd. (BEIPL) from the appointed date of April 1, 2025, which was approved by the Gujarat High Court through the order dated 29 October 2015. Bakeri Projects filed its Income Tax Return (ITR) for the Assessment Year 2016-17 on October 7, 2016, reporting a loss of Rs 20,91,35,518. When the appellant’s return was selected for scrutiny under CASS, a notice for e-proceeding was issued to the appellant. The appellant had also submitted their reply before the assessing officer.
As per the assessee, based on the accounting treatment specified in the scheme of amalgamation approved by the High Court, the extra consideration discharged by BPPL, above the amount of net assets of BEIPL, was treated as goodwill in the books of BPPL. Therefore, the assessee claimed a depreciation of Rs 24,03,04,786 under section 32(1)(ii) of the Income-tax Act, 1961, during the year under consideration on the goodwill of Rs 96,12,19,145, recognised during the amalgamation. However, the AO had disallowed this claim. The assessee also approached the CIT(A), which also upheld the AO’s decision of rejecting the claim on goodwill arising due to the amalgamation scheme. Therefore, the appellant filed an appeal before the ITAT Ahmedabad.
As per the assessee, both the AO and CIT(A) failed to observe that the goodwill is an asset under explanation 3(b) to section 32(1) of the Act. As per AO and CIT(A), “amalgamation is a colourable device through which goodwill has been created by entities observing entities of the same group, leading to consequent tax evasion.” The assessee also claimed that the CIT(A) had wrongly concluded that the Assessing Officer had correctly invoked the 5th proviso (now 6th proviso) of Section 32(1) of the Act. The Appellant relied on several decisions of the tribunal, including Nirma Limited vs. DCIT, ITA Nos. 2007 & 2008/Ahd/2018 & others, order dated 30-06-2025.
However, the Tribunal observed that the goodwill was created as part of a valid amalgamation scheme, approved by the Gujarat High Court. It cited the case of Nirma Limited vs. DCIT, which concluded, among others, that goodwill arising from amalgamation is a depreciable intangible asset. The Tribunal concluded that the amendments made by the Finance Act, 2021 (which excluded goodwill from depreciable assets), do not apply for the year 2016-17. They were applicable from the AY 2021-22.
Therefore, based on this, the ITAT allowed the appeal. Therefore, the appeal of the assessee was held, and the AO was wrong in disallowing the depreciation of Goodwill.
Case Citation: Bakeri Projects Pvt. Ltd. Vs The DCIT (ITAT Ahmedabad); ITA No. 785/Ahd/2023; 10/10/2025; 2016-17
