DCIT CC 8(2),MUMBAI, MUMBAI V. ECHJAY INDUSTRIES PRIVATE LIMITED, MUMBAI

ITA 5437/MUM/2025

AI Insights

The case involves two appeals by the Revenue against Echjay Industries Pvt. Ltd. concerning the assessment years 2018-19 and 2020-21. The core issue was the eligibility of the company to claim depreciation on goodwill that arose from a scheme of amalgamation approved by the Gujarat High Court. The goodwill was recognized in the books of Echjay Industries as the excess of consideration paid over the book value of assets and liabilities. The Assessing Officer had disallowed the depreciation claim, which was later allowed by the Ld. CIT(A). The Tribunal's decision was influenced by judicial precedents that supported the view that such goodwill is an intangible asset under the Income Tax Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786297 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2020-2021
• Appeal Filed On: 29-08-2025
• Other Referred Cases: CIT v. Smifs Securities Ltd., CIT v. Aditya Birla Nuvo Ltd., CIT v. Toyo Engineering India Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RITESH MISRA; AW
• Assessee Lawyers: N. R. RAO
• Keywords: Depreciation; Fair market value; Scheme of amalgamation
• Section: 143(3); 32

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA No. 5436 & 5437/MUM/2025 Assessment Year: 2018-19 & 2020-21 DCIT CC-8(2), Room No. 658, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. Echjay Industries Pvt. Ltd., 83, Bajaj Bhavan, Bajaj Road, Nariman Point, Mumbai-400021. PAN NO. AAACE 1157 B Appellant Respondent Assessee by : Mr. N.R. Rao, Adv. Revenue by : Mr. Ritesh Misra, CIT-DR a/w Mr. Hemanshu Joshi, Sr. DR Date of Hearing : 28/10/2025 Date of pronouncement : 30/10/2025 ORDER PER OM PRAKASH KANT, AM These two appeals by the Revenue are directed against two separate orders, both dated 30.06.2025, passed by the Ld. Commissioner of Income-tax-50, Mumbai [in short ‘the Ld. CIT(A)’] for assessment years 2018-19 and 2020-21 respectively. As common issue in dispute is involved in both these appeals, therefore, same were heard together and disposed off by way of this consolidated order for the sake of convenience. Printed from counselvise.com 2. Firstly, we take up the appeal for assessment year 2018 The grounds reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justif depreciation u/s 32 of the Income Tax Act, 1961, on the goodwill arising out of a Scheme of Amalgamation approved by the Hon, ble Gujarat High Court, where such goodwill was created solely as a result of accounting adjustments and did not r independently acquired intangible asset? 2. Whether, in view of the sixth proviso to Section 32(1) of the Income Tax Act, 1961, the assessee being the amalgamated company, was entitled to claim depreciation on goodwill, when themselves had not claimed or were not eligible to claim any depreciation on goodwill and therefore, the WDV was nil in their books? 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in goodwill created in the hands of the amalgamated company by virtue of excess consideration over book value of assets/liabilities qualifies as an intangible asset eligible for depreciation, despite there being no goodwill in the books of the am 4. Whether on the facts and in the circumstances of the case and in law, the claim of depreciation of Rs. 10,71,71,705/ on goodwill amounting to Rs.42,86,86,820/ particularly when the said goodwill did independent business value or use, and was created merly as an accounting entry without any actual cost incurred or business advantage 3. Briefly stated, facts of the case are that the assessee company is engaged in the manufacturing For the year under consideration, the assessee filed return of income for declaring total income of Rs.113,81, return of income, the assessee claimed depreciation on the goodwill Echjay Industries Pvt. Ltd. ITA No. 5436 & 5437/MUM/2025 we take up the appeal for assessment year 2018 The grounds reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in allowing depreciation u/s 32 of the Income Tax Act, 1961, on the goodwill arising out of a Scheme of Amalgamation approved by the Hon, ble Gujarat High Court, where such goodwill was created solely as a result of accounting adjustments and did not represent any self-generated or independently acquired intangible asset? 2. Whether, in view of the sixth proviso to Section 32(1) of the Income Tax Act, 1961, the assessee being the amalgamated company, was entitled to claim depreciation on goodwill, when the amalgamating companies themselves had not claimed or were not eligible to claim any depreciation on goodwill and therefore, the WDV was nil in their books? 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that goodwill created in the hands of the amalgamated company by virtue of excess consideration over book value of assets/liabilities qualifies as an intangible asset eligible for depreciation, despite there being no goodwill in the books of the amalgamating companies. 4. Whether on the facts and in the circumstances of the case and in law, the claim of depreciation of Rs. 10,71,71,705/ on goodwill amounting to Rs.42,86,86,820/- was allowable to the assessee, particularly when the said goodwill did not have an independent business value or use, and was created merly as an accounting entry without any actual cost incurred or business advantage acquired? Briefly stated, facts of the case are that the assessee company is engaged in the manufacturing of automobile industry products. For the year under consideration, the assessee filed return of income for declaring total income of Rs.113,81,75,360/ return of income, the assessee claimed depreciation on the goodwill Echjay Industries Pvt. Ltd. 2 ITA No. 5436 & 5437/MUM/2025 we take up the appeal for assessment year 2018-19. 1. Whether on the facts and in the circumstances of the ied in allowing depreciation u/s 32 of the Income Tax Act, 1961, on the goodwill arising out of a Scheme of Amalgamation approved by the Hon, ble Gujarat High Court, where such goodwill was created solely as a result of accounting generated or 2. Whether, in view of the sixth proviso to Section 32(1) of the Income Tax Act, 1961, the assessee being the amalgamated company, was entitled to claim depreciation the amalgamating companies themselves had not claimed or were not eligible to claim any depreciation on goodwill and therefore, the WDV was 3. Whether on the facts and in the circumstances of the holding that goodwill created in the hands of the amalgamated company by virtue of excess consideration over book value of assets/liabilities qualifies as an intangible asset eligible for depreciation, despite there being no goodwill in the 4. Whether on the facts and in the circumstances of the case and in law, the claim of depreciation of Rs. 10,71,71,705/ on goodwill amounting to was allowable to the assessee, not have an independent business value or use, and was created merly as an accounting entry without any actual cost Briefly stated, facts of the case are that the assessee company of automobile industry products. For the year under consideration, the assessee filed return of 75,360/-. In the said return of income, the assessee claimed depreciation on the goodwill Printed from counselvise.com however in the assessme Act, 1961 (in short ‘the Act’), t depreciation and assessed the total income at Rs.1,25,22,14,014/ 4. Upon appeal, the Ld. CIT(A), after elaborate consideration of the material facts and the law declared by various judicial fora, held that the assessee was entitled to depreciation on goodwill arising out of amalgamation, and accordingly directed the Assessing Officer to grant such allowance. of raising grounds as reproduced above. 5. We have heard rival submissions of the parties and perused the relevant materials on record. pursuant to a duly sanctioned scheme of amalgamation, five companies merged with the assessee. The excess of the consideration paid over the book value of the assets and liabilities so taken over was recognized as goodwill i assessee. The claim of depreciation on such goodwill was founded upon the authoritative pronouncement of the Hon’ble Supreme Court in CIT v. Smifs Securities Ltd. wherein it was categorically held that goodwill “intangible asset” within the meaning of Section 32(1)(ii) of the Act. The Assessing Officer, however, disregarded the said contention. The Ld. CIT(A), on the other hand, after an exhaustive analysis of the facts, accounting treatment, and including reliance upon the decision of the Hon’ble Bombay High Echjay Industries Pvt. Ltd. ITA No. 5436 & 5437/MUM/2025 however in the assessment completed u/s 143(3) of the Income Act, 1961 (in short ‘the Act’), the Assessing Officer depreciation and assessed the total income at Rs.1,25,22,14,014/ Upon appeal, the Ld. CIT(A), after elaborate consideration of al facts and the law declared by various judicial fora, held that the assessee was entitled to depreciation on goodwill arising out of amalgamation, and accordingly directed the Assessing Officer to grant such allowance. Aggrieved, the Revenue is in appeal of raising grounds as reproduced above. We have heard rival submissions of the parties and perused the relevant materials on record. It emerges from the record that pursuant to a duly sanctioned scheme of amalgamation, five companies merged with the assessee. The excess of the consideration paid over the book value of the assets and liabilities so taken over was recognized as goodwill in the books of the assessee. The claim of depreciation on such goodwill was founded upon the authoritative pronouncement of the Hon’ble Supreme CIT v. Smifs Securities Ltd. [(2012) 348 ITR 302 (SC)], wherein it was categorically held that goodwill “intangible asset” within the meaning of Section 32(1)(ii) of the Act. The Assessing Officer, however, disregarded the said contention. The Ld. CIT(A), on the other hand, after an exhaustive analysis of the facts, accounting treatment, and the governing legal principles, including reliance upon the decision of the Hon’ble Bombay High Echjay Industries Pvt. Ltd. 3 ITA No. 5436 & 5437/MUM/2025 nt completed u/s 143(3) of the Income-tax disallowed said depreciation and assessed the total income at Rs.1,25,22,14,014/-. Upon appeal, the Ld. CIT(A), after elaborate consideration of al facts and the law declared by various judicial fora, held that the assessee was entitled to depreciation on goodwill arising out of amalgamation, and accordingly directed the Assessing Officer Aggrieved, the Revenue is in appeal by way We have heard rival submissions of the parties and perused It emerges from the record that pursuant to a duly sanctioned scheme of amalgamation, five companies merged with the assessee. The excess of the consideration paid over the book value of the assets and liabilities n the books of the assessee. The claim of depreciation on such goodwill was founded upon the authoritative pronouncement of the Hon’ble Supreme [(2012) 348 ITR 302 (SC)], constitutes an “intangible asset” within the meaning of Section 32(1)(ii) of the Act. The Assessing Officer, however, disregarded the said contention. The Ld. CIT(A), on the other hand, after an exhaustive analysis of the governing legal principles, including reliance upon the decision of the Hon’ble Bombay High Printed from counselvise.com Court in CIT v. Aditya Birla Nuvo Ltd. (Bom)], concluded that the assessee was rightly entitled to such depreciation. The relevant obser merit reproduction, read thus: “6.18 I have carefully considered the facts of the case, heard the learned A/R on all aspects involved, gone through the documents placed before me by the A/R and the law analysis on facts of case the Tribunals and Courts have rendered cases compiled shown in a table given in the Bangalore Tribunal's order in AMD India Private Limited under Paragraph 30.9 of the said order. The following facts observed from the records pro (i) the appellant has followed the legal procedures required for amalgamation of the companies; (ii) the Scheme for amalgamation has been duly sanctioned by the hon'ble Gujarat High Court; (iii) the valuation of assets and liabilities of all the comp been valued on \"Purchase\" basis as stipulated by the Accounting Standards laid by the Institute of Chartered Accountants of India; the values of the movable properties have been on the fair market value basis and immovable properties on Governme value basis; that the consideration worked out and the ratio in respect of swap of shares were made and approved by the professionals; that upon accounting in effectuating the amalgamation, the consideration value paid was in excess of the value of assets and liabilities taken over; that the transferor companies did not have the \"goodwill\" in its books of account; that the surplus of consideration over the value of assets taken over at book value by the appellant was treated as 'goodwill' on whi appellant has claimed depreciation, that the appellant has claimed depreciation allowance in the books as well in its Return of income. Almost every decision considered above is in agreement with one aspect that, given the legal procedures for amalg followed, the valuation of assets and liabilities are on purchase basis, the assets and liabilities of Transferor companies are taken over on amalgamation by the Transferee company at book value and the consideration paid (by way of share issue by Transferee company) is surplus over the said book value of the transferor companies which is accounted as goodwill, that such goodwill was not existing with the Transferor companies at the time of amalgamation, the assessee will be entitled to deprecia on such goodwill. Echjay Industries Pvt. Ltd. ITA No. 5436 & 5437/MUM/2025 CIT v. Aditya Birla Nuvo Ltd. [(2017) 246 Taxmann 202 (Bom)], concluded that the assessee was rightly entitled to such depreciation. The relevant observations of the Ld. CIT(A), which merit reproduction, read thus: 6.18 I have carefully considered the facts of the case, heard the learned A/R on all aspects involved, gone through the documents placed before me by the A/R and the law analysis on facts of case the Tribunals and Courts have rendered - especially the cases compiled shown in a table given in the Bangalore Tribunal's order in AMD India Private Limited under Paragraph 30.9 of the said order. The following facts observed from the records pro (i) the appellant has followed the legal procedures required for amalgamation of the companies; (ii) the Scheme for amalgamation has been duly sanctioned by the hon'ble Gujarat High Court; (iii) the valuation of assets and liabilities of all the comp been valued on \"Purchase\" basis as stipulated by the Accounting Standards laid by the Institute of Chartered Accountants of India; the values of the movable properties have been on the fair market value basis and immovable properties on Governme value basis; that the consideration worked out and the ratio in respect of swap of shares were made and approved by the professionals; that upon accounting in effectuating the amalgamation, the consideration value paid was in excess of the e of assets and liabilities taken over; that the transferor companies did not have the \"goodwill\" in its books of account; that the surplus of consideration over the value of assets taken over at book value by the appellant was treated as 'goodwill' on whi appellant has claimed depreciation, that the appellant has claimed depreciation allowance in the books as well in its Return of income. Almost every decision considered above is in agreement with one aspect that, given the legal procedures for amalg followed, the valuation of assets and liabilities are on purchase basis, the assets and liabilities of Transferor companies are taken over on amalgamation by the Transferee company at book value and the consideration paid (by way of share issue by Transferee company) is surplus over the said book value of the transferor companies which is accounted as goodwill, that such goodwill was not existing with the Transferor companies at the time of amalgamation, the assessee will be entitled to deprecia on such goodwill. Echjay Industries Pvt. Ltd. 4 ITA No. 5436 & 5437/MUM/2025 [(2017) 246 Taxmann 202 (Bom)], concluded that the assessee was rightly entitled to such vations of the Ld. CIT(A), which 6.18 I have carefully considered the facts of the case, heard the learned A/R on all aspects involved, gone through the documents placed before me by the A/R and the law analysis on facts of each especially the cases compiled shown in a table given in the Bangalore Tribunal's order in AMD India Private Limited under Paragraph 30.9 of the said order. The following facts observed from the records produced (i) the appellant has followed the legal procedures required for amalgamation of the companies; (ii) the Scheme for amalgamation has been duly sanctioned by the hon'ble Gujarat High Court; (iii) the valuation of assets and liabilities of all the companies have been valued on \"Purchase\" basis as stipulated by the Accounting Standards laid by the Institute of Chartered Accountants of India; the values of the movable properties have been on the fair market value basis and immovable properties on Government guidance value basis; that the consideration worked out and the ratio in respect of swap of shares were made and approved by the professionals; that upon accounting in effectuating the amalgamation, the consideration value paid was in excess of the e of assets and liabilities taken over; that the transferor companies did not have the \"goodwill\" in its books of account; that the surplus of consideration over the value of assets taken over at book value by the appellant was treated as 'goodwill' on which the appellant has claimed depreciation, that the appellant has claimed depreciation allowance in the books as well in its Return of income. Almost every decision considered above is in agreement with one aspect that, given the legal procedures for amalgamation followed, the valuation of assets and liabilities are on purchase basis, the assets and liabilities of Transferor companies are taken over on amalgamation by the Transferee company at book value and the consideration paid (by way of share issue by the Transferee company) is surplus over the said book value of the transferor companies which is accounted as goodwill, that such goodwill was not existing with the Transferor companies at the time of amalgamation, the assessee will be entitled to depreciation Printed from counselvise.com 6.19. Further, the hon'ble jurisdictional Bombay High court in the case of Toyo Engineering India Limited and Aditya Birla Novu Ltd., as referred supra also in favour of the appellant. 6.20. In view of the above discussions and humbl judicial precedence, I direct the AO to allow depreciation on goodwill. As it is decided in principle that the appellant's claim of depreciation on goodwill is allowable, the Ld. AO is directed to work out the WDV as per law and based on th depreciation on goodwill and accordingly recompute the total income. 5.1 In essence, the Ld. CIT(A) found as a matter of record that (i) the amalgamation had been sanctioned by the Hon’ble Gujarat High Court; (ii) valuation of assets and purchase method in conformity with accounting standards; (iii) the surplus consideration over book value was accounted as goodwill not existing in the books of the transferor companies; and (iv) depreciation was duly clai 5.2 On these premises, the Ld. CIT(A) directed that depreciation be allowed and the total income recomputed accordingly. 6. Before us, the Learned Departmental Representative supported the order of the Assessing Officer but coul that the issue in question stands squarely covered by the judgment of the Hon’ble Jurisdictional High Court in (supra), which in turn follows the dictum of the Hon’ble Supreme Court in Smifs Securities Ltd. Echjay Industries Pvt. Ltd. ITA No. 5436 & 5437/MUM/2025 6.19. Further, the hon'ble jurisdictional Bombay High court in the case of Toyo Engineering India Limited and Aditya Birla Novu Ltd., as referred supra also in favour of the appellant. 6.20. In view of the above discussions and humbly following the judicial precedence, I direct the AO to allow depreciation on goodwill. As it is decided in principle that the appellant's claim of depreciation on goodwill is allowable, the Ld. AO is directed to work out the WDV as per law and based on that calculate the depreciation on goodwill and accordingly recompute income.” In essence, the Ld. CIT(A) found as a matter of record that (i) the amalgamation had been sanctioned by the Hon’ble Gujarat High Court; (ii) valuation of assets and liabilities was undertaken on the purchase method in conformity with accounting standards; (iii) the surplus consideration over book value was accounted as goodwill not existing in the books of the transferor companies; and (iv) depreciation was duly claimed in accordance with law. On these premises, the Ld. CIT(A) directed that depreciation be allowed and the total income recomputed accordingly. Before us, the Learned Departmental Representative supported the order of the Assessing Officer but coul that the issue in question stands squarely covered by the judgment of the Hon’ble Jurisdictional High Court in Aditya Birla Nuvo Ltd. (supra), which in turn follows the dictum of the Hon’ble Supreme Smifs Securities Ltd. (supra). Echjay Industries Pvt. Ltd. 5 ITA No. 5436 & 5437/MUM/2025 6.19. Further, the hon'ble jurisdictional Bombay High court in the case of Toyo Engineering India Limited and Aditya Birla Novu Ltd., y following the judicial precedence, I direct the AO to allow depreciation on goodwill. As it is decided in principle that the appellant's claim of depreciation on goodwill is allowable, the Ld. AO is directed to at calculate the depreciation on goodwill and accordingly recompute In essence, the Ld. CIT(A) found as a matter of record that— (i) the amalgamation had been sanctioned by the Hon’ble Gujarat High Court; liabilities was undertaken on the purchase method in conformity with accounting standards; (iii) the surplus consideration over book value was accounted as goodwill not existing in the books of the transferor companies; and med in accordance with law. On these premises, the Ld. CIT(A) directed that depreciation be allowed and the total income recomputed accordingly. Before us, the Learned Departmental Representative supported the order of the Assessing Officer but could not dispute that the issue in question stands squarely covered by the judgment Aditya Birla Nuvo Ltd. (supra), which in turn follows the dictum of the Hon’ble Supreme Printed from counselvise.com 6.1 We have heard rival submissions of the parties and perused the relevant materials on record. legal position is settled. The principle of discipline; where the jurisdictional High Court has s subordinate tribunals must bow to its authority Securities Ltd. (supra) declares, in terms too clear to admit of doubt, that goodwill acquired on amalgamation constitutes an intangible asset eligible for depreciation under Sectio Bombay High Court in this position, holding that excess consideration over net assets acquired on amalgamation, being the reflection of commercial reputation and advantage, assumes the character of goodwill. 6.2 As the issue in dispute involved in this covered in favour of the assessee by the binding precedent of the Hon’ble Bombay High Court in the case of Aditya Birla Novu (supra), accordingly, Ld. CIT(A) on the issue in dispute and we u grounds of appeal of the Revenue are accordingly dismissed. 6.3 In Assessment Year 2020 goodwill arising from the same amalgamation stands on identical footing. Following our decision in the present yea mutandis that the claim is allowable and the appeal of the Revenue for that year also fails. Echjay Industries Pvt. Ltd. ITA No. 5436 & 5437/MUM/2025 We have heard rival submissions of the parties and perused the relevant materials on record. The facts are undisputed, and the legal position is settled. The principle of stare decisis discipline; where the jurisdictional High Court has s subordinate tribunals must bow to its authority. The ratio of (supra) declares, in terms too clear to admit of doubt, that goodwill acquired on amalgamation constitutes an intangible asset eligible for depreciation under Section 32(1)(ii). The Hon’ble Bombay High Court in Aditya Birla Nuvo Ltd. (supra) has reaffirmed this position, holding that excess consideration over net assets acquired on amalgamation, being the reflection of commercial reputation and advantage, assumes the character of goodwill. As the issue in dispute involved in this case is squarely covered in favour of the assessee by the binding precedent of the Hon’ble Bombay High Court in the case of Aditya Birla Novu we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and we uphold the same. The grounds of appeal of the Revenue are accordingly dismissed. In Assessment Year 2020-21, the issue of depreciation on goodwill arising from the same amalgamation stands on identical footing. Following our decision in the present year, we hold that the claim is allowable and the appeal of the Revenue for that year also fails. Echjay Industries Pvt. Ltd. 6 ITA No. 5436 & 5437/MUM/2025 We have heard rival submissions of the parties and perused The facts are undisputed, and the stare decisis obliges judicial discipline; where the jurisdictional High Court has spoken, . The ratio of Smifs (supra) declares, in terms too clear to admit of doubt, that goodwill acquired on amalgamation constitutes an intangible n 32(1)(ii). The Hon’ble (supra) has reaffirmed this position, holding that excess consideration over net assets acquired on amalgamation, being the reflection of commercial reputation and advantage, assumes the character of goodwill. case is squarely covered in favour of the assessee by the binding precedent of the Hon’ble Bombay High Court in the case of Aditya Birla Novu we do not find any infirmity in the order of the phold the same. The grounds of appeal of the Revenue are accordingly dismissed. 21, the issue of depreciation on goodwill arising from the same amalgamation stands on identical r, we hold mutatis that the claim is allowable and the appeal of the Revenue Printed from counselvise.com 7. In the result, both the appeals of the Revenue are dismissed. Order pronounced in the open Court on 30 Sd/- (KAVITHA RAJAGOPAL JUDICIAL MEMBER Mumbai; Dated: 30/10/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Echjay Industries Pvt. Ltd. ITA No. 5436 & 5437/MUM/2025 In the result, both the appeals of the Revenue are dismissed. ounced in the open Court on 30/10/2025. - RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Echjay Industries Pvt. Ltd. 7 ITA No. 5436 & 5437/MUM/2025 In the result, both the appeals of the Revenue are dismissed. /10/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "