2013 (2) TMI 865 - AT - Income Tax

Summary

Issues involved:
The issues involved in the judgment are the deletion of addition made u/s 43B of the IT Act for Local Area Development Tax (LADT) and local sales tax, disallowance of depreciation on Goodwill u/s 32 of the Income Tax Act, and cancellation of penalty u/s 271(1)(c) of the Income-tax Act.

Deletion of Addition u/s 43B - Local Area Development Tax and Local Sales Tax:
The Revenue appealed against the deletion of additions made u/s 43B of the IT Act for Local Area Development Tax (LADT) and local sales tax. The Revenue contended that the payments were not liabilities crystallized during the relevant year and were disputed by the assessee. However, the assessee argued that Section 43B allows deductions for payments made irrespective of the year to which the liability pertains. The ITAT held that Section 43B overrides other provisions and allows deductions for payments made in the relevant year, regardless of the year to which the liability relates. The ITAT upheld the CIT(A)'s order, stating that the liability was allowed based on actual payment during the relevant accounting year.

Disallowance of Depreciation on Goodwill u/s 32:
The assessee raised a cross-objection against the disallowance of depreciation on Goodwill amounting to a specific sum. The ITAT noted that a similar issue was decided in favor of the assessee in previous years by the ITAT. Referring to a decision of the Hon'ble Supreme Court, the ITAT held that Goodwill qualifies as an asset under Explanation 3 to Section 32(1) of the Income Tax Act. Therefore, the ITAT allowed the assessee's cross-objection and directed the Assessing Officer to allow depreciation on Goodwill.

Cancellation of Penalty u/s 271(1)(c):
The Revenue appealed against the cancellation of a penalty levied under Section 271(1)(c) of the Income-tax Act due to the disallowance of depreciation on Goodwill. Since the ITAT had already allowed depreciation on Goodwill in the cross-objection, the basis for the penalty no longer existed. The ITAT upheld the CIT(A)'s decision to cancel the penalty, as the disallowance on which the penalty was based had been deleted.

In conclusion, the ITAT upheld the CIT(A)'s decision to allow deductions u/s 43B for Local Area Development Tax and local sales tax payments, directed the allowance of depreciation on Goodwill u/s 32, and upheld the cancellation of the penalty u/s 271(1)(c) in favor of the assessee.