Consideration paid excess than Market Value of Net Tangible Assets is treated as Goodwill: ITAT

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that consideration paid in excess than market value of net tangible assets is treated as goodwill.

The assessee Gea Process Engineering Pvt. Ltd. was a joint venture between L&T Ltd., India and Niro A/s, Denmark which was later discontinued and the entire stake of L&T in the assessee company was bought over by Niro. Later the assessee company changed its name to Jewel Process Engineering India Pvt. Ltd. And became a wholly-owned subsidiary of Niro A/s, Denmark. While executing Erection, Procurement and Commissioning (EPC) contracts the assessee company designs the installation, procures the necessary materials, erects the plants as per the agreed design and ensures commissioning of same, which is engaged primarily in the execution of EPC turnkey projects in the food, dairy and chemical and pharma sectors. The assessee company entered into international transactions with its Associate Enterprise (AE),

The assessee company claimed a net loss of Rs.23,32,26,686/-. The Transfer Pricing Officer (TPO) called up the assessee to show cause as to why the segmental profit and loss should not be rejected and Transactional Net Margin Method (TNMM) be applied at the entity level.

CIT(A) upheld the disallowance made by the AO on the ground that the claim of the assessee for depreciation on its so-called unidentifiable intangible assets including goodwill based on a valuation report prepared much after the acquisition of the concerned business unit is not factual.

Shri Baskaran B R, accountant member and Shri Kuldip Singh, judicial member viewed that the assessee has acquired the food and pharma division of L&T by virtue of the agreement dated by paying excess consideration of net asset value, the excess was reflected as goodwill in the books of accounts of the assessee under the head “intangibles.

In light of the decision in the case of CIT vs. Sumit Securities Ltd. (supra) the Tribunal held that the assessee was entitled for claiming depreciation on the intangible assets/goodwill and allowed the appeal of the assessee. The Assessee was represented by Shri Sunil M. Lala and the Revenue was represented by Shri Rajesh Mishra.