ITAT Mumbai Ruling: Revenue Cannot Re-evaluate Opening WDV of Intangible Assets to Deny Depreciation in Subsequent Years

In a significant judicial pronouncement, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) delivered a comprehensive ruling in the case of DCIT Vs Transworld Furtichem Private Limited. The tribunal adjudicated on multiple appeals filed by the Revenue and cross-objections raised by the assessee spanning Assessment Years (AY) 2017-18 to 2020-21.

The primary legal controversy revolved around the disallowance of depreciation claimed under Section 32 of the Income Tax Act 1961 on an intangible asset—specifically, a trademark—acquired through a statutory amalgamation. The ITAT's decision strongly reinforces the judicial doctrine of consistency, establishing that once an assessing authority has scrutinized and accepted the capitalization and depreciation of an asset in the initial year, it is precluded from questioning the very existence or valuation of that asset in subsequent assessment cycles, provided the underlying facts remain unaltered.

Factual Matrix of the Dispute

The Amalgamation and Creation of the Intangible Asset

The assessee company, engaged in the manufacturing, packaging, and distribution of agricultural fertilizers, underwent a corporate restructuring process. A scheme of arrangement was sanctioned by the National Company Law Tribunal (NCLT) under Section 230 to Section 232 of the Companies Act 2013, facilitating the merger of Trans Agro India Private Limited (the transferor company) into the assessee company. The appointed date for this amalgamation was designated as April 1, 2015.

Following the NCLT's approval, all assets, liabilities, and business operations of the transferor company were absorbed by the assessee. During this transition, the assessee recorded an intangible asset categorized as a "Trademark" in its financial ledgers. The valuation of this asset was pegged at approximately Rs. 15.92 crore, determined through an independent valuation report.

The valuation mechanics involved a share swap arrangement. The independent valuer assessed the assessee's shares at Rs. 231 each, while the transferor company's shares were valued at Rs. 23 each. The differential cost incurred by the assessee in issuing equity shares to the transferor's shareholders was allocated to the trademark acquired during the merger.

Initial Acceptance in Assessment Year 2016-17

Since the amalgamation took effect from April 1, 2015, the assessee claimed depreciation on this newly recorded trademark for the first time in AY 2016-17. During the scrutiny assessment for that initial year, the assessing authority issued a statutory notice under Section 142(1) of the Income Tax Act 1961, explicitly questioning the creation of the intangible asset and the corresponding depreciation claim.