2014 (6) TMI 661 - AT - Income Tax

Allowability of depreciation on the value of goodwill Held that - Following Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT - explanation 3 to section 32 states that the expression asset shall mean intangible asset being know-how, copyrights, trademarks, licenses, franchises or any other business are commercial rights of similar nature - The words any other business or commercial rights of similar nature stated in explanation 3 includes that goodwill would fall under the expression any other business of commercial rights of a similar nature - the principle of ejusdem generis would strictly apply while interpreting the said expression which find place in explanation 3(b) - goodwill is an asset under the explanation 3(b) to section 32(1) and eligible for the depreciation - CIT(A) is not justified in denying the benefit of depreciation claimed by the assessee on the goodwill the AO is directed to allow the claim of depreciation - Decided in favour of Assessee. Admission of additional evidence under Rule 46A of the Rules Held that - The assessee claimed the total depreciation on intangible asset as per the business transfer agreement, the value of which is at 11.13 crores - mere devaluation of the goodwill will not reduce the claim of depreciation, as the assessee is entitled @ 25% on the total value of the intangible assets valued at Rs.11.13 crores - the assessee is entitled for the depreciation on the good will on the same rate @ 25% - Decided against Revenue. Disallowance of employee s contribution to provident fund Held that - The assessee has made the payments after the due date of payment but the said payment has been paid within the grace period - the payment made within the grace period is held to be made within the due date thus, there was no reason to interfere with the decision of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Allowability of depreciation on the value of goodwill.
2. Disallowance under section 14A read with Rule 8D.
3. Admission of fresh valuation report as additional evidence under Rule 46A.
4. Disallowance of employees' contribution to provident fund.

Analysis:

Issue 1: Allowability of depreciation on the value of goodwill
The common issue in the appeals pertains to the allowability of depreciation on the value of goodwill amounting to Rs.82.30 lakhs. The assessee had purchased assets from its associate concern and claimed depreciation on the value of goodwill based on a valuation report. The Assessing Officer rejected the claim, but the CIT(A) accepted the valuation report while denying depreciation on goodwill. The Tribunal referred to the Supreme Court case of CIT Vs. Smifs Securities Ltd., which clarified that goodwill falls under the expression 'any other business or commercial rights of similar nature' in section 32(1). Applying the principle of 'ejusdem generis,' the Tribunal held goodwill as an asset eligible for depreciation, directing the AO to allow the claim.

Issue 2: Disallowance under section 14A read with Rule 8D
Grounds 4 & 5 in the assessee's appeal for certain assessment years related to disallowance under section 14A read with Rule 8D. The assessee did not press these grounds, and they were dismissed as not requiring adjudication.

Issue 3: Admission of fresh valuation report as additional evidence under Rule 46A
The revenue challenged the admission of a fresh valuation report as additional evidence under Rule 46A by the CIT(A). The Tribunal noted that even if the valuation of goodwill was not acceptable, the assessee was entitled to claim depreciation on the total value of intangible assets, including goodwill. Emphasizing the entitlement to depreciation at 25% on the total value of intangible assets, the Tribunal dismissed the revenue's challenge, considering it academic in light of allowing the claim of depreciation on goodwill.

Issue 4: Disallowance of employees' contribution to provident fund
In one of the revenue's appeals, the issue was the deletion of the disallowance of employees' contribution to provident fund. The Tribunal upheld the CIT(A)'s decision, stating that payments made within the grace period were considered within the due date. As the payments were made within the grace period, the Tribunal dismissed the revenue's ground on this matter.

In conclusion, the appeals filed by the Assessee were partly allowed, and those of the Revenue were dismissed, with detailed reasoning provided for each issue addressed in the judgment.