2012 (8) TMI 304 - AT - Income Tax

Disallowance of depreciation on goodwill - Held that - As decided in B. Raveendran Pillai Versus CIT 2010 (9) TMI 434 - KERALA HIGH COURT goodwill is not specifically mentioned in section 32(1)(ii) of the Income Tax Act. Depreciation is allowable not only on tangible assets covered by clause (i) of section 32(1) but on the intangible assets specifically enumerated in clause (ii) and such of the other business or commercial rights similar to the items specifically covered therein - as the function of goodwill acquired by the assessee also is to maximizes the profits of the company & as the assessee s goodwill being a valuable commercial asset similar to other intangibles specified in the definition of block assets, is eligible to depreciation - in favour of assessee. Disallowance of provision for leave encashment - Held that - As in Exide Industries Limited And Another Versus UOI And Others 2007 (6) TMI 175 - CALCUTTA HIGH COURT wherein the Hon ble Court has struck down sec.43B(f) which stated that leave encashment could be allowed only on actual payment, in these circumstances the assessing authority is directed to give deduction for the provision of Rs. 93,815/- made by the assessee towards leave encashment Apportionment of expenses - Held that - As decided in favour of the assessee by the co-ordinate Bench of the Tribunal in assessee s own case that the CIT(A)on observing that the proportionate allocation made by the assessee-company is not sound and correct & adopted one of the methods of apportionments usual recognized in the matters of allocation of expenditure, that is, on the basis of unit-wise turnover and directed to apportion concerned common expenditures. In the absence of any evidence brought on record by AO, the method adopted by the CIT(A) is sustainable in law - thus the ground raised by the Revenue on this point of allocation of expenditure is not meritorious - The appeals filed by the Revenue are liable to be dismissed.

Summary

Issues Involved:
Depreciation on goodwill, Provision for leave encashment, Apportionment of expenses.

Depreciation on Goodwill:
The assessee appealed against the order passed by the CIT(A) disallowing depreciation on goodwill. The counsel for the assessee argued that the assessee is entitled to depreciation on goodwill as it is a valuable commercial asset. The Tribunal referred to judgments of the Kerala High Court and Delhi High Court, which held that goodwill is an intangible asset eligible for depreciation under the Income Tax Act. The Tribunal, following the precedents, allowed the appeal, stating that the assessee is entitled to depreciation on goodwill.

Provision for Leave Encashment:
The issue of provision for leave encashment was raised by the assessee, contending that the authorities erred in disallowing the provision. The Tribunal referred to a previous decision in favor of the assessee and a judgment of the Calcutta High Court, which supported the allowance of the provision for leave encashment. Citing these precedents, the Tribunal allowed the ground of appeal related to provision for leave encashment for the current assessment year.

Apportionment of Expenses:
The third issue pertained to the apportionment of expenses, with the counsel for the assessee arguing that the method adopted by the Assessing Officer was arbitrary and not supported by evidence. The Tribunal mentioned a previous decision in favor of the assessee and a judgment of the Madras High Court, which upheld the method of apportionment adopted by the assessee. The Tribunal, finding no contrary evidence presented by the Departmental Representative, allowed the ground of appeal related to the apportionment of expenses. Consequently, the Tribunal set aside the order of the CIT(A) and allowed the appeal of the assessee based on the above analysis.