2019 (8) TMI 1410 - AT - Income Tax

Deprecation on goodwill - assessee has fully written off goodwill in the books of accounts on the asset ceased to exist - the written down value of such goodwill is continued to be remain in the books of accounts - HELD THAT - As claimed by the assessee itself, it has fully written off goodwill in the books of accounts on the asset ceased to exist in the books of accounts and the last date of the previous year. Once, a particular asset is ceased to exist in the books of account and also, the assessee is not getting any enduring benefit from such assets, then the question of depreciation on such non existing asset does not arise. We find that the Tribunal in assessee s own case has allowed deprecation on goodwill by following the decision of Hon ble Supreme Court in the case of Smifs Securities Limited vs CIT 2012 (8) TMI 713 - Supreme Court on the ground that goodwill is an asset under the expression used in explanation 3(b) to section 32(1) and therefore, deprecation is allowable on such asset as intangible assets being any other business or commercial rights of similar nature. There is no dispute with regard to allowability of deprecation on goodwill, but when you compare the facts of the current year, the question of allowability of deprecation has to be examined, in the light of provision of section 32(1), where it mandates the block of assets should exists to claim depreciation. Since, goodwill is not treated as an asset in its books of accounts and also, the assessee is not getting any enduring benefit out of such goodwill, the question of allowing depreciation on such non existing asset does not arise. AO as well the CIT(A), after considering relevant facts has rightly disallowed depreciation claimed on non-existing asset being goodwill. - Decided against assessee.

Summary

Issues:
Disallowance of depreciation on Goodwill

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of depreciation on Goodwill for the Assessment Year 2012-13. The assessee contended that depreciation on Goodwill should be allowed under Section 32(1) as intangible assets were acquired and paid for in past years. The Assessing Officer disallowed the depreciation on the grounds that the asset ceased to exist in the books of accounts, and the assessee was not deriving any enduring benefit from the Goodwill. The Commissioner upheld the disallowance, stating that depreciation cannot be claimed on a non-existing asset from which the assessee is not benefiting. The Tribunal referred to a previous case for AY 2009-10 where depreciation on Goodwill was allowed, citing the decision of the Hon'ble Supreme Court. However, in the current case, since the Goodwill was impaired and not treated as an asset in the books of accounts, and the assessee was not benefiting from it, the Tribunal upheld the disallowance of depreciation on Goodwill. The Tribunal concluded that once an asset ceases to exist in the books of accounts and the assessee does not derive any benefit from it, depreciation cannot be claimed.

The Tribunal noted that the provision of Section 32(1) allows depreciation on Goodwill as an intangible asset, but the asset must exist in the books of accounts, be used for business purposes, and the assessee must be the owner of the asset. In this case, the Goodwill was fully written off in the books of accounts, and its value was shown as 'Nil' as of 31/03/2012. Since the Goodwill ceased to exist in the books of accounts, the assessee did not claim any depreciation on it. The Tribunal emphasized that depreciation is calculated on the written down value of the block of assets, and if the asset ceases to exist in the books of accounts, no depreciation is allowable. The Tribunal agreed with the Assessing Officer and Commissioner that once an asset ceases to exist and the assessee does not benefit from it, depreciation cannot be claimed. The Tribunal upheld the order of the Commissioner and dismissed the appeal filed by the assessee.

In conclusion, the Tribunal confirmed the disallowance of depreciation on Goodwill for the Assessment Year 2012-13, as the Goodwill had ceased to exist in the books of accounts, and the assessee was not deriving any benefit from it. The Tribunal emphasized that depreciation can only be claimed on assets that exist in the books of accounts and are used for business purposes, which was not the case with the Goodwill in question.