2017 (3) TMI 1303 - AT - Income Tax

Disallowance of depreciation on goodwill - slump sale - Held that - The balance consideration out of slump sale consideration after adjusting the value of asset and liabilities is the value of goodwill in the hands of the assessee which is intangible assets on which the assessee is eligible to claim the depreciation. Accordingly we hold so. See Triune Energy Services Private Limited & Ors. Vs. DCIT 2015 (11) TMI 1218 - DELHI HIGH COURT - Decided in favour of assessee

Summary

Issues Involved:
Disallowance of depreciation on goodwill amounting to ?15,21,394.

Analysis:
1. The appellant contested the disallowance of depreciation on goodwill in the assessment year 2007-08. The Assessing Officer noted that the excess consideration over fair value of assets on the date of acquisition was treated as goodwill. The appellant claimed depreciation on goodwill as an intangible asset, but the Assessing Officer disallowed it based on the Hon'ble Bombay High Court's decision that no depreciation was allowable on goodwill.

2. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the excess payment was not goodwill. The appellant, however, argued citing the Hon'ble Supreme Court's decisions that goodwill qualifies as an intangible asset eligible for depreciation. The appellant referred to a similar case decided by the Hon'ble Delhi High Court where the surplus from a slump sale was considered goodwill eligible for depreciation.

3. The Tribunal analyzed the agreement between the parties where the appellant took over a business as a going concern for a lump sum consideration. The Tribunal found that the excess payment over assets and liabilities constituted goodwill, making it an intangible asset eligible for depreciation. The Tribunal relied on the Supreme Court's rulings to allow the depreciation on goodwill.

4. The Tribunal dismissed the Revenue's reliance on a different case, stating that the facts were similar to the Delhi High Court's decision, which prevailed in this case. Consequently, the Tribunal directed the Assessing Officer to allow depreciation on goodwill, and the grounds of appeal raised by the appellant were allowed.

This comprehensive analysis of the judgment highlights the key arguments, legal principles, and the final decision regarding the disallowance of depreciation on goodwill in the mentioned case.