2015 (1) TMI 421 - AT - Income Tax

Depreciation on Goodwill/intangible assets - Disllowance on the ground that valuer while bifurcating the figure of total consideration had separately assigned a value to the intangible assets representing specific intellectual property rights in the form of brands , and also assigned values to the tangible assets, and the balance slump price, which could not be allocated to any other specific tangible or intangible asset, was given a consolidated value as goodwill acquired by the company - held that - facts of the present case are identical to the facts in assessment year 2008-09 wherein the assessee in addition to the earlier acquisition of Animal Health Care and Diagnostics Business of Ranbaxy Laboratories Ltd. had further acquired entire biomed division of Wipro Ltd. and entire Medical Diagnostics business of Godrej Industries. - Following decision of assessee s own previous case 2013 (9) TMI 188 - ITAT CHANDIGARH - Decided in favour of assesse.

Issues Involved:
1. Validity of the reassessment under Section 147/148 of the Income Tax Act.
2. Disallowance of depreciation claimed on intangible assets recorded as goodwill.
3. Non-provision of an opportunity for representation by the CIT(A).
4. Applicability of the Supreme Court decision in the case of Commissioner of Income-tax Vs. SMIFS Securities Limited.
5. Interpretation of Section 32(1)(ii) of the Income Tax Act concerning depreciation on goodwill.

Detailed Analysis:

1. Validity of the Reassessment under Section 147/148:
The assessee contended that the reassessment under Section 147/148 was void-ab-initio as the information for reopening was already furnished in the return of income. The Tribunal upheld the reopening of the assessment, citing the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd., which allows reopening if there is reason to believe that income had escaped assessment. Thus, ground No.2 for assessment year 2006-07 was dismissed.

2. Disallowance of Depreciation on Intangible Assets Recorded as Goodwill:
The primary issue was the disallowance of depreciation on intangible assets recorded as goodwill. The Tribunal noted that the issue was covered by its earlier decision in the assessee's own case, where it was held that the consideration paid for intangible assets, recorded as goodwill, was eligible for depreciation under Section 32(1)(ii). The Tribunal reiterated that the assessee was entitled to depreciation on goodwill, as supported by the Supreme Court's decision in CIT Vs. SMIFS Securities Limited. Consequently, the grounds related to the disallowance of depreciation for both assessment years were allowed.

3. Non-provision of Opportunity for Representation by the CIT(A):
The assessee argued that the CIT(A) erred by not providing an opportunity for representation and passing an ex-parte order. However, this ground was not pressed by the assessee for both assessment years, and thus, it was dismissed as not pressed.

4. Applicability of the Supreme Court Decision in CIT Vs. SMIFS Securities Limited:
The assessee contended that the CIT(A) failed to consider the Supreme Court's decision in CIT Vs. SMIFS Securities Limited, which held that goodwill is an intangible asset eligible for depreciation. The Tribunal agreed with the assessee, reiterating that goodwill falls under the category of intangible assets as per Explanation 3(b) to Section 32(1), making it eligible for depreciation. This ground was allowed in favor of the assessee.

5. Interpretation of Section 32(1)(ii) Concerning Depreciation on Goodwill:
The Tribunal discussed the interpretation of Section 32(1)(ii), emphasizing that the provision covers both tangible and intangible assets, including goodwill. It cited various judicial precedents, including the Delhi High Court's decision in Areva T and D India Ltd. Vs. DCIT, which applied the principle of ejusdem generis to include business or commercial rights of similar nature under intangible assets eligible for depreciation. The Tribunal concluded that the assessee's claim for depreciation on goodwill was justified, and thus, the related grounds were allowed.

Conclusion:
The Tribunal upheld the reassessment under Section 147/148 but allowed the assessee's claim for depreciation on intangible assets recorded as goodwill for both assessment years. The appeals were partly allowed, with specific grounds related to the disallowance of depreciation being decided in favor of the assessee. The Tribunal directed the Assessing Officer to allow the depreciation claims in line with the judicial precedents and the Supreme Court's decision in CIT Vs. SMIFS Securities Limited.

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