The Income Tax Appellate Tribunal restored the issue of depreciation on alleged intangible assets to the file of CIT(A) for re-examination.


The assessee is a private company incorporated in India and is engaged in the business of manufacturing and trading in diversified chemicals offering a broad range of products and services in various segments such as water, food, and pharmaceuticals to paints, packaging, and personal care products. During the assessment proceedings, on perusal of profit and loss account of the assessee, it was observed that the assessee has claimed depreciation of Rs. 20,82,45,018 (Rs. 12,66,12,592 @ 25% on goodwill value of Rs. 50,64,50,368, Rs. 74,27,651 @25% on distribution network of Rs. 2,97,10,603, Rs. 7,42,04,775 @25% on customer relations of Rs. 29,68,19,100). Accordingly, the assessee was asked to furnish a note on eligibility for claiming depreciation on the value of such intangible assets along with supporting documents.


The division bench of Prashant Maharishi, Accountant Member and Sandeep Singh Karhail, Judicial Member noted that the distribution network was recognised by the assessee as a business and commercial right under section 32(1)(ii) of the Act, and depreciation of 25% was claimed.

It further noted that the assessee recognised the customer relationships as business/commercial right and claimed depreciation under section 32 of the Act on the goodwill represented by reputation built on account of clientele relationships.

The Tribunal observed that since no credible evidence or material was produced by the assessee to show that it had incurred any cost for acquiring the goodwill in the scheme of amalgamation, the depreciation as claimed by the assessee was disallowed. 

The bench said that it becomes relevant to examine whether any intangible asset arises in the hands of the assessee pursuant to the amalgamation and whether on that intangible asset depreciation is allowable under section 32 of the Act

“Since the appeal of the assessee against the disallowance of depreciation on aforesaid alleged intangible assets in the first year itself is currently pending before the learned CIT(A), we deem it appropriate to restore this issue to the file of learned CIT(A) for de novo adjudication after examination of the aspects” the Tribunal said. 

Case title: Dow Chemical International Pvt. Ltd. v/s Dy. Commissioner of Income Tax

Citation: ITA no.1201/Mum./2023

Amit Sharma

Author of Tax Concept

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