INCOME TAX ACT, 1961

Section 32(1)

Depreciation - Allowability - Acquisition of intangible asset being goodwill and non-compete fee -

Assessee was engaged in manufacturing and wholesale trading of automatic door operators, door controls and accessories. The AO noted during the course of assessment proceedings that assessee had claimed depreciation on goodwill purported to be generated on acquisition of two businesses, namely, GTS Exports Private Limited and Arc Trend Systems Private Limited which in the opinion of AO could not be allowed. The AO observed that assessee could not prove that it had purchased goodwill and hence consequentially no depreciation could be allowed on goodwill. The AO observed that if there was any consideration paid over and above the net worth of the business assets taken over by assessee, the same should be considered towards non-compete fee and not towards goodwill. AO also observed that assessee had not made claim for depreciation on goodwill in the return of income filed with revenue, nor the said claim was made in revised return of income filed by assessee with revenue and AO was of the view that such a claim cannot be made otherwise than by filing of revised return of income under section 139(5). Assessee filed first appeal before CIT(A), which appeal stood allowed by CIT(A). Held: The excess paid by assessee over and above book value of tangible movable assets(net of liabilities) acquired was definitely towards intangibles assets acquired by assessee in the form of business contracts, customer orders, customers, business information, right to continue business as going concerns, non-compete by GTS/Arc/key employees, etc. Thus, consolidated payments made by assessee over and above net assets acquired by it under a composite contract in the present case was towards goodwill and non-compete agreement by GTS/Arc and its key employees and depreciation was allowable both on the aforesaid excess amount paid towards goodwill and non compete fee. The CIT(A) had rightly allowed claim of depreciation to the assessee by following Explanation 5 to section 32(1), which clearly stipulates that depreciation is to be allowed even if assessee had not claimed depreciation while computing income. Thus, even if assessee had not filed claim of depreciation in return of income filed with Revenue as well in revised return of income filed with revenue, but had made claim during the course of assessment proceedings, the assessee would be entitled for depreciation under section 32.

Relied:Pentasoft Technologies Ltd., v. Dy. CIT (2014) 41 Taxmann.com 120 (Mad.) : 2014 TaxPub(DT) 1813 (Mad-HC), CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) : 2012 TaxPub(DT) 2430 (SC), Penta Soft Technologies Ltd. v. Dy. CIT (41 Taxmann.com 120, Balaji Sago & Starch Products (ITO No. 2081 (Mds/2010).

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