Depreciation eligible on goodwill recorded pursuant to a business transfer

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

111. We find the Hon’ble Delhi High Court in the case of Triune Energy Services (P) Ltd. vs. DCIT,237 Taxman 230 has decided identical issue and following the above decision of Hon’ble apex court has allowed depreciation on goodwill by observing as under:-

“19. In view of the above, we are inclined to accept the contention advanced on behalf of the Assessee that the consideration paid by the Assessee in excess of its value of tangible assets was rightly classified as goodwill.

20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting up of the intangibles into separate components. Indisputably, the transaction in question is a slump sale which does not contemplate separate values to be ascribed to various assets (tangible and intangible) that constitute the business undertaking, which is sold and purchased. The Agreement itself indicates that slump sale included sale of goodwill and the balance sheet drawn up on 22nd September, 2006 specifically recorded goodwill at Rs.40,58,75,529.40/-. As indicated hereinbefore Goodwill includes a host of intangible assets, which a person acquires, on acquiring a business as a going concern and valuing the same at the excess consideration paid over and above the value of net tangible assets is an acceptable accounting practice. Thus, a further exercise to value the goodwill is not warranted.

21. In view of the aforesaid, the question framed is answered in the negative, that is, in favour of the ITA No.1744/Del/2015 Assessee and against the Revenue. The Assessee’s appeal (ITA No. 40/2015) is, accordingly, allowed.”

112. The various other decisions relied on by Ld. counsel also support his case that the excess consideration paid by the assessee over the value of net assets acquired of amalgamating company should be considered as goodwill arising of amalgamation and depreciation is allowable on such goodwill.

113. So far as the decision of Hon’ble Delhi High Court in the case of Sharp Business Systems vs CIT, reported in 254 CTR 233 and relied on by the ld. DR is concerned the same, in our opinion, is not applicable to the facts of the present case. In that case, expenditure had been incurred of Rs.3 crores towards non-compete fee and the same was claimed as revenue expenditure which on the facts of that case was held to be capital expenditure. In that case, the assessee also made an alternate contention that the expenditure be held to be intangible assets, eligible for depreciation under Section 32 of the IT Act. The Hon’ble High Court after considering the judgement of the Hon’ble Supreme Court in the case of Techno Shares and Stocks Ltd. vs.CIT, 327 ITR 323 and the judgement in the case of Hindustan Coca-Cola Beverages Ltd. 331 ITR 192 held that non-compete fee is not eligible Capital Asset under Section 32(1) of the Act. However, since no expenditure has been incurred by the assessee company as non-compete fee, this decision is not applicable to the facts of the present case and distinguishable. In this view of the matter and in view of the detailed reasoning given by the ld. CIT(A) on this issue, we do not find any infirmity in the order of the CIT(A).

Accordingly, the ground raised by the Revenue is dismissed.

Depreciation eligible on goodwill recorded pursuant to a business transfer agreement

ITA No.5275/Del/2017 (A.Y. 2014-15)

114. Ground of appeal No.1 by the Revenue reads as under:-

“1. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition of Rs. 2,26,98,41,758/- made by the AO on account of business income from 6 units.”

115. After hearing both the sides we find the above ground is identical to Ground of appeal No.1 in ITA No.5274/Del/2017. We have already decided this issue and the ground raised by the Revenue has been dismissed. Following similar reasonings this ground raised by the Revenue is dismissed.

116. Ground of appeal No.2 by the Revenue reads as under:-

2. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition of Rs. 82,88,099/- made by the AO on account of other income from 4 SEZ units.

117. After hearing both the sides we find the above ground is identical to Ground of appeal No.2 in ITA No.5274/Del/2017. We have already decided this issue and the ground raised by the Revenue has been dismissed. Following similar reasonings this ground raised by the Revenue is dismissed.

118. Ground of appeal No.3 by the Revenue reads as under:-

3. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition of Rs. 8,40,46,029/- made by the AO on account of Depreciation claimed on goodwill.

119. After hearing both the sides we find the above ground is identical to Ground of appeal No.3 in ITA No.5274/Del/2017. We have already decided this issue and the ground raised by the Revenue has been dismissed. Following similar reasonings this ground raised by the Revenue is dismissed.

120. In the result, both the appeals filed by the Revenue are dismissed.

The decision was pronounced in the open court on 30.09.2020.