Shares issued for consideration other than cash

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This query is : Resolved

SIDDA NAVEEN (Querist)

19 January 2013 Dear sir,

please clarify the following,

when the shares have been issued for consideration other than cash(i.e to promotors at free of cost)

Entry : G.W a/c dr 140 crores

To Equity share capital 100000
To sec.premium a/c 1399900000

can the above G.W be written off as per sec.32 of income tax act,

if yes,please provide the relavent case laws or any circulars or notifications.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

20 January 2013 Goodwill may be written off in accordance with the Accounting Standards, however, since no amount is being paid by the company for the purchase or acquiring of the Goodwill , Depreciation is not allowed U/s 32 (1) (ii).

SIDDA NAVEEN

SIDDA NAVEEN (Querist)

20 January 2013 sir thanks for reply,

but here is the consideration i.e shares.

i think consideration need not be in cash(consideration may be any asset also which includes) here is one obligation has been created on the company i.e by issue of equity shares.

is my view correct or not sir,

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

20 January 2013 For allowing depreciation -the nomenclature given to entries in the books of accounts is not relevant.
.
The transaction must be a real one for claiming the depreciation and assessee must be in a position to substantiate the position.
.
In your case, the book entries reflect that goodwill has been acquired by issuing shares at a premium- but how its valuation could be justified. Unless the premium and goodwill can be justified or quantified properly, the value of Intangible Asset can not be said to be ascertained.
.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)

26 July 2013 How you have valued the goodwill depends on the number of years the company is in existence. The shares can be allowed to be issued for consideration other than cash only if the directors have incurred some expenses or the directors are giving some assets to the company. You cannot give shares without any consideration and at the same time you cannot value the goodwill at your own and transfer it to reserve just to claim depreciation.

Since you have not mentioned how you have created goodwill it is not possible to reply properly

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