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The Tax Publishers Depreciation on goodwill out of demerger trigger year different to appointed date--Disallowance due to WDV method adopted *Facts:* Assessee was formed as a part of court approved demerger of Adani Energy Ltd. with effect from appointed date 1-1-2007 but the court order was issued only during F.Y. 2009-10. Transfer of assets/liabilities happened hence in F.Y. 2009-10 consequent to court order. The difference between the Purchase consideration and the Value of assets/liabilities taken over was considered as goodwill and depreciation @ 25% was claimed on the same with effect from F.Y. 2009-10. Revenue's contention was the depreciation was to be taken from F.Y. 2007-08 and thus disallowed the excess depreciation claimed for the said asst. year. There were similar issues raised by revenue in earlier asst. years as well. On appeal by the assessee Held in favour of the assessee that the disallowance of depreciation was not warranted as assessee's assets and liabilities were taken over only with effect from F.Y. 2009-10 and not from F.Y. 2007-08. *Ed. Note:* Original ITAT order of earlier year itself was out of a cross objection where claim of depreciation was raised in cross objection in first instance citing that the same could not have been claimed in return due to court order coming later. Section 32 Explanation 5 mandates that depreciation is deemed as granted. Why this stand was not taken by revenue in this case is unknown. But the scenario was depreciation on goodwill arising out of demerger out of court order with no control by assessee either. As a side stepping point - the window to claim depreciation on goodwill is no longer possible due to legislative amendments. Smifs Securities case which held that depreciation is possible on goodwill as well as held by Apex Court is no longer good law. *Case:* Adani Gas Ltd. v. DCIT 2023 TaxPub(DT) 155 (Ahd-Trib)

The Tax Publishers

Depreciation on goodwill out of demerger trigger year different to appointed date--Disallowance due to WDV method adopted

Facts:

Assessee was formed as a part of court approved demerger of Adani Energy Ltd. with effect from appointed date 1-1-2007 but the court order was issued only during F.Y. 2009-10. Transfer of assets/liabilities happened hence in F.Y. 2009-10 consequent to court order. The difference between the Purchase consideration and the Value of assets/liabilities taken over was considered as goodwill and depreciation @ 25% was claimed on the same with effect from F.Y. 2009-10. Revenue's contention was the depreciation was to be taken from F.Y. 2007-08 and thus disallowed the excess depreciation claimed for the said asst. year. There were similar issues raised by revenue in earlier asst. years as well. On appeal by the assessee

Held in favour of the assessee that the disallowance of depreciation was not warranted as assessee's assets and liabilities were taken over only with effect from F.Y. 2009-10 and not from F.Y. 2007-08.

Ed. Note: Original ITAT order of earlier year itself was out of a cross objection where claim of depreciation was raised in cross objection in first instance citing that the same could not have been claimed in return due to court order coming later. Section 32 Explanation 5 mandates that depreciation is deemed as granted. Why this stand was not taken by revenue in this case is unknown. But the scenario was depreciation on goodwill arising out of demerger out of court order with no control by assessee either.

As a side stepping point - the window to claim depreciation on goodwill is no longer possible due to legislative amendments. Smifs Securities case which held that depreciation is possible on goodwill as well as held by Apex Court is no longer good law.

Case: Adani Gas Ltd. v. DCIT 2023 TaxPub(DT) 155 (Ahd-Trib)