The Assessing Officer has disallowed depreciation on goodwill that arose when a company amalgamated into mine. Which years can I still claim it for?
Only assessment years up to AY 2020-21. The Finance Act 2021 removed goodwill of a business or profession from the definition of block of assets in s.2(11) and from s.32, excluded it from Explanation 3(b) to s.32(1), and amended s.43(6)(c)(ii) to require the written down value of goodwill to be reduced from the opening WDV where goodwill already formed part of a block; those amendments apply prospectively from AY 2021-22. For earlier years the Tribunal here allowed the claim on Smifs Securities, and the amendment gives the Assessing Officer no ground to disturb it.
Decided by the ITAT (Dr. B.R.R. Kumar, Vice-President and Ms. Suchitra R. Kamble, Judicial Member) on 2025-06-30, reported as ITA Nos. 2007 and 2008/Ahd/2017, 516/Ahd/2018, 2224/Ahd/2017 and 791/Ahd/2018 (ITAT Ahmedabad 'A' Bench); assessment years 2012-13, 2013-14 and 2014-15. It bears on section 32, section 32(1)(ii), section 2(11), section 43(1), section 43(6), section 50, section 55 of the Income Tax Act 1961, in Deductions & Disallowances and Assessment & Scrutiny matters.
This is now a purely dated question and getting the date wrong costs the client either the deduction or a penalty. For AY 2021-22 and later there is no depreciation on goodwill at all, and the WDV of the block has to be recomputed under the s.43(6)(c)(ii) proviso with Rule 8AC, which can throw up a short-term capital gain. For years up to AY 2020-21 the Supreme Court's decision in Smifs Securities still governs and the amendment cannot be used retrospectively — that is the point the Tribunal decides here. Separately, note what the Revenue argued and what survives the amendment for earlier years: an Assessing Officer may still attack the quantum, through Explanation 3 to s.43(1), through Explanation 7 to s.43(1) and Explanation 2 to s.43(6) in an amalgamation, and through the sixth proviso to s.32 which caps the amalgamated company's depreciation at what the amalgamating company would have got. Allowability and quantum are separate fights.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Saurashtra Chemicals Limited, a sick company before the BIFR, amalgamated with Nirma Limited with effect from 1 April 2011 under a scheme sanctioned by the BIFR on 22 January 2013. Nirma took over all assets and liabilities at book value and the excess over net assets produced goodwill of Rs. 92.14 crores in its books. For AY 2012-13 it claimed depreciation at 25 per cent on that goodwill, Rs. 23,03,33,782, the claim having been made during the assessment proceedings and not in the return. The Assessing Officer disallowed it on several grounds set out at paras 10.1 to 10.5 of his order: that no revised return had been filed (relying on Goetze (India) Ltd.), that a loss-making sick company could have no goodwill, that the surplus was akin to a capital reserve, that no consideration had actually been paid, that the shares were not even allotted in AY 2012-13, and that Explanation 7 to s.43(1) and Explanation 2 to s.43(6) make the amalgamated company step into the amalgamating company's shoes so that a self-generated goodwill carries nil cost. The CIT(A) confirmed the disallowance, holding there was no increase in the market worth of the assessee.
The appeals of the assessee on this ground were allowed. Since the Finance Act 2021 amendments excluding goodwill of a business or profession from s.2(11), from s.32(1)(ii) and from Explanation 3(b) to s.32(1), and amending s.43(6)(c)(ii), s.50 and s.55, apply prospectively from AY 2021-22, they had no effect on AY 2012-13, and depreciation on the goodwill was allowable following the jurisdictional High Court in Aculife Healthcare Pvt Ltd and the Supreme Court in Smifs Securities Ltd (para 6.6).
The Tribunal set out the Supreme Court's reasoning in Smifs Securities that goodwill falls within 'any other business or commercial rights of similar nature' in Explanation 3(b) to s.32(1) on the ejusdem generis principle, and that the finding that market worth had increased was a finding of fact (para 6.3). It noted the Bangalore Bench decision in United Breweries Ltd. v. Addl. CIT that goodwill acquired on amalgamation is subject to Explanation 3 to s.43(1), so that where excess depreciation is claimed by enhancing the cost of goodwill the actual cost can be determined by reference to the actual cost of the other assets acquired, and that the sixth proviso to s.32 caps the amalgamated company's depreciation at what would have been allowable to the amalgamating company (para 6.2). It then listed each Finance Act 2021 amendment (para 6.4) and the reasoning in the Memorandum explaining the Finance Bill 2021 — that depreciation on goodwill has to be computed under other provisions of the Act which may make actual cost or WDV zero, and that goodwill is generally not a depreciable asset because it may appreciate (para 6.5) — before holding that those amendments operate prospectively from AY 2021-22 and therefore do not touch the year before it (para 6.6).
Since the above amendments are applicable prospectively from the AY 2021-22, the appeal of the assessee on this issue for the AY 2012-13 is hereby allowed
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Handle my notice → Ask a CA on WhatsAppOnly assessment years up to AY 2020-21. The Finance Act 2021 removed goodwill of a business or profession from the definition of block of assets in s.2(11) and from s.32, excluded it from Explanation 3(b) to s.32(1), and amended s.43(6)(c)(ii) to require the written down value of goodwill to be reduced from the opening WDV where goodwill already formed part of a block; those amendments apply prospectively from AY 2021-22. For earlier years the Tribunal here allowed the claim on Smifs Securities, and the amendment gives the Assessing Officer no ground to disturb it. This was decided by the ITAT (Dr. B.R.R. Kumar, Vice-President and Ms. Suchitra R. Kamble, Judicial Member) and bears on section 32, section 32(1)(ii), section 2(11), section 43(1), section 43(6), section 50, section 55 of the Income Tax Act 1961. It is reported as ITA Nos. 2007 and 2008/Ahd/2017, 516/Ahd/2018, 2224/Ahd/2017 and 791/Ahd/2018 (ITAT Ahmedabad 'A' Bench); assessment years 2012-13, 2013-14 and 2014-15. This is now a purely dated question and getting the date wrong costs the client either the deduction or a penalty. For AY 2021-22 and later there is no depreciation on goodwill at all, and the WDV of the block has to be recomputed under the s.43(6)(c)(ii) proviso with Rule 8AC, which can throw up a short-term capital gain. For years up to AY 2020-21 the Supreme Court's decision in Smifs Securities still governs and the amendment cannot be used retrospectively — that is the point the Tribunal decides here. Separately, note what the Revenue argued and what survives the amendment for earlier years: an Assessing Officer may still attack the quantum, through Explanation 3 to s.43(1), through Explanation 7 to s.43(1) and Explanation 2 to s.43(6) in an amalgamation, and through the sixth proviso to s.32 which caps the amalgamated company's depreciation at what the amalgamating company would have got. Allowability and quantum are separate fights. If it applies to you, the first step is this: Fix the assessment year before anything else. For AY 2021-22 onwards do not claim depreciation on goodwill; for AY 2020-21 and earlier the claim stands on Smifs Securities.
Saurashtra Chemicals Limited, a sick company before the BIFR, amalgamated with Nirma Limited with effect from 1 April 2011 under a scheme sanctioned by the BIFR on 22 January 2013. Nirma took over all assets and liabilities at book value and the excess over net assets produced goodwill of Rs. 92.14 crores in its books. For AY 2012-13 it claimed depreciation at 25 per cent on that goodwill, Rs. 23,03,33,782, the claim having been made during the assessment proceedings and not in the return. The Assessing Officer disallowed it on several grounds set out at paras 10.1 to 10.5 of his order: that no revised return had been filed (relying on Goetze (India) Ltd.), that a loss-making sick company could have no goodwill, that the surplus was akin to a capital reserve, that no consideration had actually been paid, that the shares were not even allotted in AY 2012-13, and that Explanation 7 to s.43(1) and Explanation 2 to s.43(6) make the amalgamated company step into the amalgamating company's shoes so that a self-generated goodwill carries nil cost. The CIT(A) confirmed the disallowance, holding there was no increase in the market worth of the assessee. The matter was decided on 2025-06-30 by the ITAT (Dr. B.R.R. Kumar, Vice-President and Ms. Suchitra R. Kamble, Judicial Member). On those facts the ITAT held as follows. The appeals of the assessee on this ground were allowed. Since the Finance Act 2021 amendments excluding goodwill of a business or profession from s.2(11), from s.32(1)(ii) and from Explanation 3(b) to s.32(1), and amending s.43(6)(c)(ii), s.50 and s.55, apply prospectively from AY 2021-22, they had no effect on AY 2012-13, and depreciation on the goodwill was allowable following the jurisdictional High Court in Aculife Healthcare Pvt Ltd and the Supreme Court in Smifs Securities Ltd (para 6.6).
The Tribunal set out the Supreme Court's reasoning in Smifs Securities that goodwill falls within 'any other business or commercial rights of similar nature' in Explanation 3(b) to s.32(1) on the ejusdem generis principle, and that the finding that market worth had increased was a finding of fact (para 6.3). It noted the Bangalore Bench decision in United Breweries Ltd. v. Addl. CIT that goodwill acquired on amalgamation is subject to Explanation 3 to s.43(1), so that where excess depreciation is claimed by enhancing the cost of goodwill the actual cost can be determined by reference to the actual cost of the other assets acquired, and that the sixth proviso to s.32 caps the amalgamated company's depreciation at what would have been allowable to the amalgamating company (para 6.2). It then listed each Finance Act 2021 amendment (para 6.4) and the reasoning in the Memorandum explaining the Finance Bill 2021 — that depreciation on goodwill has to be computed under other provisions of the Act which may make actual cost or WDV zero, and that goodwill is generally not a depreciable asset because it may appreciate (para 6.5) — before holding that those amendments operate prospectively from AY 2021-22 and therefore do not touch the year before it (para 6.6). In the words reproduced by the source cited on this page: "Since the above amendments are applicable prospectively from the AY 2021-22, the appeal of the assessee on this issue for the AY 2012-13 is hereby allowed" The decision followed or applied CIT v. Smifs Securities Ltd. [2012] 348 ITR 302 (SC) — followed for assessment years before AY 2021-22; Aculife Healthcare Pvt Ltd — jurisdictional Gujarat High Court, followed (the citation is not printed in the passage read); United Breweries Ltd. v. Addl. CIT 76 taxmann.com 103 (ITAT Bangalore) — noted on Explanation 3 to s.43(1) and the sixth proviso to s.32.
It was decided by the ITAT on 2025-06-30 and is reported as ITA Nos. 2007 and 2008/Ahd/2017, 516/Ahd/2018, 2224/Ahd/2017 and 791/Ahd/2018 (ITAT Ahmedabad 'A' Bench); assessment years 2012-13, 2013-14 and 2014-15. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 32, section 32(1)(ii), section 2(11), section 43(1), section 43(6), section 50, section 55, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals of the assessee on this ground were allowed. Since the Finance Act 2021 amendments excluding goodwill of a business or profession from s.2(11), from s.32(1)(ii) and from Explanation 3(b) to s.32(1), and amending s.43(6)(c)(ii), s.50 and s.55, apply prospectively from AY 2021-22, they had no effect on AY 2012-13, and depreciation on the goodwill was allowable following the jurisdictional High Court in Aculife Healthcare Pvt Ltd and the Supreme Court in Smifs Securities Ltd (para 6.6). It arises in Deductions & Disallowances and Assessment & Scrutiny matters, on section 32, section 32(1)(ii), section 2(11), section 43(1), section 43(6), section 50, section 55 of the Income Tax Act 1961, and was decided by Dr. B.R.R. Kumar, Vice-President and Ms. Suchitra R. Kamble, Judicial Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If goodwill was in a block on 1 April 2020, work the transition: reduce the WDV of goodwill from the opening WDV under the proviso to s.43(6)(c)(ii) and compute under Rule 8AC, and check whether that throws up a short-term capital gain under s.50. For an open earlier year, document how the goodwill arose — the scheme, the consideration, the excess of consideration over net assets taken over — because the live objection is valuation, not allowability. Meet the amalgamation-specific attacks separately: Explanation 7 to s.43(1), Explanation 2 to s.43(6) and the sixth proviso to s.32 are what the Revenue uses to say the amalgamated company steps into the amalgamating company's shoes. If the claim was made during assessment and not in the return, be ready for the Goetze (India) objection and consider whether an appellate authority can entertain it.
Superseded by amendment. The label is applied to the proposition, not to the order. The Finance Act 2021 removed goodwill of a business or profession from s.2(11) and s.32 and inserted the proviso to s.43(6)(c)(ii), so no depreciation on goodwill is allowable for AY 2021-22 or later; the order itself remains a correct statement for AY 2020-21 and earlier and expressly holds the amendment prospective. Later treatment of this particular order was not checked. The commencement date was verified on the verification pass from the Finance Act 2021 itself — s.1(2)(a) read with ss.3 and 8, and the proviso to s.43(6)(c)(ii) which operates in the previous year relevant to the assessment year commencing 1 April 2021. The contrary date of 1 April 2022 stated by the Hyderabad Bench in Zuari Cement (27 June 2022, para 38) is not correct and should not be followed. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order is reported on indiankanoon under several document ids for the same 30 June 2025 pronouncement (25003996, 44862399, 121887328, 46141470, 61196859); the id read is given as the source. Paragraphs 6 to 6.6 were read verbatim, including the assessment order and the CIT(A) order reproduced inside them — the passages at 10.1 to 10.5 belong to the Assessing Officer and the long passage in para 6.1 to the CIT(A), and are not the Tribunal speaking. Para 6.6 was re-read through /docfragment/ and is the Tribunal's own conclusion. A conflicting date appears in the reported Tribunal case law and has been resolved on verification: the Hyderabad Bench in Zuari Cement Ltd v. ACIT (ITA 616/Hyd/2016 and others, 27 June 2022, para 38) records the change in law as taking effect from 1 April 2022, reading a Budget document rather than the Act, in a paragraph that in any event remands the goodwill valuation. That date is wrong. Section 1(2)(a) of the Finance Act 2021 brings sections 2 to 88 into force on 1 April 2021 save as otherwise provided; s.3, which removes goodwill from s.2(11), and s.8, which removes it from s.32(1)(ii) and Explanation 3(b), provide no contrary date, whereas s.3(vi) expressly says "with effect from the 1st day of April, 2022" for the amendment to s.2(48) — so the drafter said so where he meant it. The proviso inserted into s.43(6)(c)(ii) fixes the write-down "in respect of the previous year relevant to the assessment year commencing on the 1st day of April 2021". AY 2021-22 is the date, as this order says. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals of the assessee on this ground were allowed. Since the Finance Act 2021 amendments excluding goodwill of a business or profession from s.2(11), from s.32(1)(ii) and from Explanation 3(b) to s.32(1), and amending s.43(6)(c)(ii), s.50 and s.55, apply prospectively from AY 2021-22, they had no effect on AY 2012-13, and depreciation on the goodwill was allowable following the jurisdictional High Court in Aculife Healthcare Pvt Ltd and the Supreme Court in Smifs Securities Ltd (para 6.6).
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