{"id":400907,"date":"2026-11-10T12:00:58","date_gmt":"2026-11-10T06:30:58","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=400907"},"modified":"2026-11-10T12:06:12","modified_gmt":"2026-11-10T06:36:12","slug":"itat-kolkata-goodwill-depreciation-on-demerger-tata-consumer-products","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2026\/11\/10\/itat-kolkata-goodwill-depreciation-on-demerger-tata-consumer-products\/","title":{"rendered":"ITAT Kolkata allows depreciation on goodwill of ₹3,562.41 crore and other intangibles arising on demerger; Deletes ₹8.82 crore S. 14A disallowance"},"content":{"rendered":"
\n

The Income Tax Appellate Tribunal, Kolkata:<\/span> Bench “C”, comprising Rajesh Kumar, AM<\/span> and Pradip Kumar Choubey, JM<\/span>, in an appeal filed by Tata Consumer Products Ltd. against the assessment order for Assessment Year 2020—2021, held that depreciation was allowable under Section 32<\/a>, Income-tax Act, 1961<\/a> on goodwill, brands and distribution network arising upon demerger of the consumer products business of Tata Chemicals Ltd.<\/p>\n

The Tribunal further held that the restrictions contained in the Sixth Proviso to Section 32(1), Explanation 7-A to Section 43(1) and Explanation 2-B to Section 43(6) were inapplicable to intangible assets which were not recorded in the books of the demerged company and did not form part of its block of assets. It was held that where intangible assets are identified and valued for the first time upon demerger and do not form part of the demerged company’s block of assets, the resulting company is entitled to claim depreciation under S. 32 on the consideration attributable to such assets.<\/p>\n

Background<\/p>\n

The assessee, Tata Consumer Products Ltd., preferred an appeal before the Income Tax Appellate Tribunal (ITAT) against the assessment order dated 27 June 2024 passed under Sections 143(3) read with Section 144-C(13)<\/a>, Income-tax Act<\/a>, pursuant to the Dispute Resolution Panel’s (DRP’s) directions. The appeal concerned disallowance under Section 14-A, depreciation on goodwill and other intangible assets arising from demerger, and deduction under Section 80-G.<\/p>\n

During Financial Year 2019—2020, the assessee earned exempt dividend income of ₹19.36 crores and suo motu disallowed ₹62.16 lakhs under Section 14-A. The assessing officer, applying Rule 8-D(2)(ii<\/span>), computed the disallowance at ₹9.44 crores and made an additional disallowance of ₹8.82 crores, which was upheld by the DRP.<\/p>\n

The assessee also claimed depreciation of ₹890.60 crores on goodwill valued at ₹3,562.41 crores and ₹614.76 crores on brands and distribution network valued at ₹2,459.01 crores, aggregating to ₹1,505.36 crores. These intangible assets were identified and valued for the first time pursuant to the demerger of the consumer products business of Tata Chemicals Ltd., effective from 1 April 2019, and were not recorded in the books of the demerged company. The assessing officer disallowed the depreciation claim on the ground that such assets were recognised for the first time in the books of the resulting company.<\/p>\n

Further, the assessee claimed eligibility for a 50 per cent deduction under Section 80-G amounting to ₹7,12,68,956 against donations of ₹14,25,37,911. Although the donations were disclosed in the Tax Audit Report, Schedule 80-G and computation of income, the deduction was not claimed in Part B-TI of the return owing to the losses incurred by the assessee.<\/p>\n

Aggrieved by the assessment order, the assessee approached the ITAT challenging the aforesaid disallowances and non-consideration of its deduction claim under Section 80-G.<\/p>\n

Issues<\/p>\n

1. Whether the assessing officer was justified in invoking Rule 8-D and making an additional disallowance of ₹8.82 crores under Section 14-A without recording cogent reasons for rejecting the assessee’s suo motu computation?<\/p>\n

2. Whether the assessee was entitled to depreciation under Section 32 on goodwill, brands and distribution network identified and valued for the first time upon demerger, where such assets were not recorded in the books of the demerged company and did not form part of its block of assets?<\/p>\n

3. Whether the Sixth Proviso to Section 32(1), Explanation 7-A to Section 43(1) and Explanation 2-B to Section 43(6) restricted the assessee’s depreciation claim, and whether depreciation could be denied on the ground that the demerged company had not paid capital gains tax on the consideration attributable to such assets?<\/p>\n

4. Whether the assessee’s claim for deduction under Section 80-G, disclosed in the relevant supporting documents but not claimed in Part B-TI of the return owing to losses, required consideration by the assessing officer when the assessment resulted in positive gross total income?<\/p>\n

Analysis, Law and Decision<\/p>\n

The Tribunal found that the assessing officer had rejected the assessee’s disallowance primarily on the ground that it was not in accordance with Rule 8-D and the provisions of Section 14-A. The Tribunal held that the mere fact that the assessee’s computation was not based on Rule 8-D could not constitute a valid reason for rejecting the claim. The assessing officer was required to demonstrate, having regard to the assessee’s accounts, why the expenditure attributed by the assessee to earning exempt income was incorrect.<\/p>\n

The Tribunal held that in the absence of proper satisfaction recorded by the assessing officer, Rule 8-D could not be invoked and the disallowance under Section 14-A had to be restricted to the amount of ₹62.16 lakhs suo motu offered by the assessee. The additional disallowance of ₹8.82 crores was therefore directed to be deleted.<\/p>\n

The Tribunal observed that the fair value of a business undertaking necessarily takes into account all assets and liabilities, whether or not recognised or recorded in the books of the demerged company. Consequently, the consideration paid by the resulting company may include the value of intangible assets which had not previously been recognised in the books of the transferor company.<\/p>\n

The Tribunal thereafter examined the Revenue’s reliance on the 6th Proviso to Section 32(1), Explanation 7-A to Section 43(1) and Explanation 2-B to Section 43(6). It held that these provisions dealt with depreciation, actual cost and written down value in respect of assets forming part of the demerged company’s block of assets. The 6th Proviso to Section 32(1) provided for apportionment of depreciation between the demerged company and resulting company for the year of demerger, while Explanation 7-A to Section 43(1) and Explanation 2-B to Section 43(6) restricted the actual cost and written down value of transferred assets with reference to their corresponding values in the hands of the demerged company.<\/p>\n

However, the Tribunal found that the goodwill, brands and distribution network in the present case had not been recorded or recognised in the books of Tata Chemicals Ltd. and did not form part of its block of assets. These assets were identified and valued for the first time upon demerger by the resulting company through an independent valuation exercise. Accordingly, the aforesaid statutory restrictions were held inapplicable to such assets, and the assessee was entitled to claim depreciation under Section 32 on the consideration attributable to them.<\/p>\n

The Tribunal also rejected the Revenue’s objection that depreciation could not be allowed in the hands of the resulting company merely because the demerged company had not offered the consideration attributable to the intangible assets to capital gains tax. The eligibility of the resulting company for depreciation was required to be examined with reference to the provisions of Section 32 and the nature and acquisition of the intangible assets, and could not be denied merely on that ground.The Tribunal placed reliance on the Supreme Court’s decision in CIT<\/span> v. Smifs Securities Ltd.<\/span>, (2012) 13 SCC 488<\/a> : (2012) 348 ITR 302, wherein goodwill arising upon amalgamation was held to be an intangible asset eligible for depreciation. It held that the ratio of the said decision was equally applicable to goodwill arising and recognised upon demerger. The Revenue could not refuse to follow the binding Supreme Court precedent on the ground that certain provisions governing depreciation had allegedly not been considered therein.<\/p>\n

The Tribunal further considered the amendments introduced by the Finance Act, 2021<\/a>, which discontinued depreciation on goodwill with effect from Assessment Year 2021—2022. It held that the amendment was prospective and did not affect the assessee’s claim for Assessment Year 2020—2021. The Tribunal also observed that the amendment relating to goodwill did not extend to other intangible assets such as brands and distribution networks. In this regard, it referred to Asian Paints Ltd.<\/span> v. ACIT<\/span>, 2026 (6) TMI 1339 (Bom), concerning the prospective operation of the amendment.<\/p>\n

The Tribunal held that the assessee was entitled to depreciation under Section 32 on goodwill of ₹3,562.41 crores and brands and distribution network valued at ₹2,459.01 crores for Assessment Year 2020—2021. The depreciation claim of ₹890.60 crores on goodwill and ₹614.76 crores on other intangible assets was accordingly allowed.<\/p>\n

On the issue of deduction under Section 80-G, the Tribunal noted that the assessee had made donations aggregating to ₹14,25,37,911 and was eligible for a 50 per cent deduction amounting to ₹7,12,68,956. The donation details were disclosed in Schedule 80-G, the Tax Audit Report and the computation of total income. However, no deduction had been claimed in Part B-TI of the return under Chapter VI-A because of the losses incurred by the assessee.<\/p>\n

The Revenue contended for the first time during the appeal that the claim was a case of tax evasion or leakage. The Tribunal noted that the Assessing Officer had not said so at the assessment stage and that the rationale of the demerger in the Sanctioned Scheme was never questioned before the NCLT or during assessment. The Assessing Officer had also not invoked Explanation 3 to Section 43(1), which allows the actual cost to be determined with the Joint Commissioner’s approval. The Tribunal held that the Revenue could not allege tax evasion where the law permits the resulting company to claim depreciation on the fair value paid for such intangible assets.<\/p>\n

Consequently, the Tribunal deleted the additional disallowance of ₹8.82 crores under Section 14-A, allowed the depreciation claim on goodwill, brands and distribution network arising upon demerger, and remanded Section 80-G deduction claim to the assessing officer. The appeal was accordingly partly allowed for statistical purposes.<\/p>\n

[Tata Consumer Products Ltd.<\/span> v. ACIT, Kolkata<\/span>, ITA No. 1604\/KOL\/2024, decided on 7-10-2026<\/span>]<\/p>\n

*Judgment authored by: Rajesh Kumar, AM<\/span><\/strong><\/p>\n\n

Advocates who appeared in this case :<\/p>\n

For the Assessee:<\/span> J.P. Khaitan and P. Jhunjhunwala, ARs<\/p>\n

For the Revenue:<\/span> Md. Gayasuddin Ansari and Vineet Kumar, DRs<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

ITAT noted that brands, distribution network and goodwill valued for the first time on demerger qualify for Section 32 depreciation.<\/p>\n","protected":false},"author":67527,"featured_media":400908,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,11],"tags":[119272,119255,66039,119254,119251,119260,119268,119259,49355,119253,119271,119266,119263,119250,119249,17191,119261,119252,119256,119257,60864,119269,119258,119264,119270,119248,119267,119262,119265],"class_list":["post-400907","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-ay-2020-21","tag-brands-and-distribution-network","tag-depreciation-on-goodwill","tag-depreciation-on-intangible-assets","tag-disallowance-of-exempt-income-expenditure","tag-explanation-2b-to-section-436","tag-explanation-3-to-section-431","tag-explanation-7a-to-section-431","tag-finance-act-2021","tag-goodwill-arising-on-demerger","tag-kolkata-itat","tag-nclt-sanctioned-scheme","tag-prospective-amendment","tag-recording-of-satisfaction","tag-rule-8d","tag-section-14a","tag-section-219aa","tag-section-32-depreciation","tag-section-431","tag-section-436","tag-section-47","tag-section-80g-deduction","tag-sixth-proviso-to-section-321","tag-smifs-securities","tag-tata-chemicals-limited","tag-tata-consumer-products-limited","tag-tax-evasion-allegation","tag-tax-neutral-demerger","tag-united-breweries"],"yoast_head":"\nITAT Kolkata allows goodwill depreciation on demerger | SCC Times<\/title>\n<meta name=\"description\" content=\"ITAT Kolkata allows Tata Consumer Products depreciation on demerger goodwill and brands for AY 2020-21 and deletes \u20b98.82 crore Section 14A disallowance.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2026\/11\/10\/itat-kolkata-goodwill-depreciation-on-demerger-tata-consumer-products\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"ITAT Kolkata allows depreciation on goodwill of \u20b93,562.41 crore and other intangibles arising on demerger; 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