2015 (10) TMI 1430 - AT - Income Tax

Disallowance of Depreciation on Goodwill - Held that - In view of the decision of the Hon ble Supreme Court in the case of SMIFS Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT the AO is directed to allow the claim of depreciation on the said intangible asset as claimed by the Assessee. - Decided in favour of assessee. Disallowance of depreciation in respect of Tudou plant - Held that - Admittedly, after the concept of block of assets for the purpose of depreciation, if any part of the plant and machinery falling within the block is put to use during the relevant assessment year, then, the depreciation becomes eligible for the said block of assets. Admittedly, the dry plant of Tudou division has been put to use during the relevant assessment year. It is only the wet process which had been temporarily shut down in view of the order of the Forest Department. The dry plant having been used during the relevant assessment year and as the plant and machinery falls within the block of assets, the Assessee would be entitled to depreciation in respect of the said block of assets. In these circumstances, the AO is directed to grant the Assessee depreciation in respect of the Tudou plant as claimed. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of depreciation claimed on payments made towards intangible assets (Goodwill)
- Disallowance of depreciation in respect of Tudou plant

Issue 1: Disallowance of depreciation claimed on payments made towards intangible assets (Goodwill)

The appeal was against the order confirming the disallowance of depreciation claimed on payments made towards intangible assets, specifically Goodwill, for the assessment year 2006-07. The Assessee argued that the issue was covered by a Supreme Court decision where it was held that Goodwill is an asset under Explanation-3(b) to Sec. 32(1) of the Income Tax Act and entitled to depreciation. The Departmental Representative supported the order disallowing depreciation. The Tribunal considered the submissions and directed the Assessing Officer to allow the claim of depreciation on Goodwill as per the Supreme Court decision. Consequently, the appeal on this issue was allowed.

Issue 2: Disallowance of depreciation in respect of Tudou plant

The appeal also contested the disallowance of depreciation in relation to the Tudou plant. The Assessee, engaged in iron ore mining, explained that the plant had two processes, wet and dry, with the wet process being halted due to forest department orders. The Assessee contended that the dry plant was operational and produced evidence of its usage. Both the AO and CIT(A) acknowledged the usage of the dry plant. The Departmental Representative supported the disallowance. The Tribunal noted that if any part of the plant and machinery falling within a block of assets is used during the assessment year, depreciation is eligible for that block. As the dry plant was operational during the relevant period and fell within the block of assets, the Assessee was entitled to depreciation. Therefore, the Tribunal directed the AO to grant depreciation for the Tudou plant, leading to the allowance of the appeal on this issue.

In conclusion, the Tribunal allowed the Assessee's appeal concerning the disallowance of depreciation claimed on Goodwill and in relation to the Tudou plant. The judgments were based on legal interpretations and precedents, ensuring the correct application of tax laws in the given circumstances.