2012 (12) TMI 1203 - AT - Income Tax

Summary

Issues involved:
The judgment involves the issue of disallowance of depreciation on goodwill by the learned CIT (A)-XI, Ahmedabad for the assessment year 2007-08 u/s 250 read with section 143(3) of the IT Act in the case of M/s. Netvisioin Web Technologies Ltd. Ahmedabad.

Ground No.1 - Disallowance of Depreciation on Goodwill:
The Revenue appealed against the deletion of the addition of Rs. 90,21,444/- made by disallowing depreciation on goodwill by the learned CIT (A)-XI, Ahmedabad. The assessee claimed depreciation on goodwill as part of its total income, which was disallowed by the AO. The AO observed that the intangible assets specified in section 32 for depreciation did not include goodwill specifically, hence it cannot be treated as any other business or commercial rights of a similar nature. The AO disallowed the depreciation on goodwill and added it to the total income of the assessee. The AO relied on various case laws and legislative provisions to support this decision.

Ground No.1 - Disallowance of Depreciation on Goodwill (Contd.):
The assessee contended the disallowance of depreciation on goodwill before the learned CIT (A). The CIT (A) analyzed the factual position of the case, highlighting the amalgamation of two companies and the acquisition of intangible assets like trademark, copyright, franchise, and licenses. The CIT (A) found the AO's observation incorrect as the rights acquired were precisely the intangible assets mentioned in Sec. 32(1)(ii). The CIT (A) referred to judicial decisions supporting the allowance of depreciation on similar intangible assets and concluded that the appellant was entitled to the depreciation claimed. The CIT (A) allowed the disallowance of depreciation of Rs. 90,21,444/-.

Ground No.1 - Disallowance of Depreciation on Goodwill (Contd.):
The Revenue appealed against the CIT (A)'s decision. During the hearing, the DR emphasized the provisions of section 32(1) and argued that the assessee had not acquired any know-how, patents, copyrights, or trademarks to match the requirements for claiming depreciation on goodwill. The AR reiterated the arguments made before the CIT (A) and cited relevant judicial decisions in support of the claim. The ITAT Ahmedabad "B" Bench had recently decided a similar issue in favor of the assessee, which was referenced during the proceedings.

Conclusion:
After considering the submissions and case laws presented by both parties, the ITAT upheld the decision of the CIT (A) to allow the assessee's claim of depreciation on goodwill amounting to Rs. 90,21,444/-. The ITAT found no justification to interfere with the CIT (A)'s order and dismissed the Revenue's appeal. The judgment was pronounced on 14-12-2012.