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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-1, Chennai dated 29.04.2016 in New for the assessment year 201-12 passed U/s.250(6) r.w.s. 143(3) of the Act.
The Revenue has raised several grounds in its appeal, however the crux of the issue is that the Ld.CIT(A) has disallowed Rs.2,29,79,278/- towards depreciation claimed on goodwill.
The brief facts of the case are that the assessee is a private limited company, filed its return of income for the relevant assessment year on 30.09.2011 admitting total income as Nil and subsequently filed revised return on 27.09.2012 admitting loss of Rs.3,14,94,242/-. Thereafter the return was processed U/s.143(1) of the Act. Subsequently the case was selected for scrutiny under CASS and the assessment was completed U/s.143(3) of the Act on 28.03.2014 wherein the Ld.AO disallowed Rs.2,29,79,278/- towards depreciation claimed on goodwill.
During the relevant assessment year the assessee had purchased retail business from M/s. Visal Retail Limited for sale consideration of Rs.10 crores. Thereafter on revaluing the fixed assets it was observed by the assessee that the value of the fixed assets has to be reduced from Rs.31,53,77,571/- to Rs.13,15,43,344/- in order to arrive at the correct state of affairs of the company. Thus there was a deficit of Rs.18,38,34,227/- The assessee treated the same as goodwill and being an intangible asset claimed depreciation at one-half of 25% on Rs.18,38,34,227/- since the business was acquired on the second half of the relevant financial year which worked out to Rs.2,29,79,278/-. The Ld.AO disallowed the claim of the assessee by observing as under “The revaluation of fixed assets and thereby effecting change in the cost and claiming depreciation on the revised value cannot be allowed as expenses. Hence, the depreciation claimed on goodwill amounting to the same is disallowed and added back to the total income.”
On appeal, the Ld.CIT(A) relying on the decision of the Hon’ble Apex Court in the case CIT v. Smifs Securities Ltd., reported in 24 taxmann.com 222 held the issue in favour of the assessee by observing as under: “19. In the present case under consideration, this is precisely what the appellant has done when it valued the fixed assets from Rs.315377571/- to Rs.131543344/- by referring to the valuation of assets by M/s.Axis Risk consulting being the valuer to claim depreciation for which assets the appellant has paid a consideration of Rs.31.53 cr.
The question that immediately follows for consideration is that when the consideration paid for acquisition of fixed assets is higher than tile value of the assets on the date of acquisition as to how tile excess consideration paid ought to be treated for computation / Income tax purposes.
The Supreme Court while considering the above question in the case of ‘CIT vs. Smifs Securities Ltd' (2012 24 taxmann.com 222) held that the excess consideration paid by the transferee over the value of the net assets acquired from the transferor should he considered as 'Goodwill' and the extra consideration paid In this regard towards the reputation which the transferer was enjoying in order to retain its existing clientele. The Supreme Court in he said decision further held that "Goodwill" is an asset under explanation 3(b) to section 32(1) of IT Act which is eligible for depreciation under the rates stipulated under the IT Rules. The plea of the appellant that the decision of the Apex court in the case of an amalgamation of companies equally applies with equal force for 'slump sales' as in its case also.
Further, following the above decision, tile claim that the extra consideration of Rs.18,38,34,227/- paid by the appellant constitutes goodwill and becomes eligible for depreciation under the IT Act which the appellant has claimed for the Asst year: 2011- 12 has to be upheld. Substantively this would be the appropriate view with regard to valuation of goodwill following the 'Purchase cost method' as distinct from the 'pooling of interest method'.
Taking the sum totality of the fads into account and the discussion in the foregoing, I am of the considered view that the plea advanced by the appellant with regard the claim of depreciation in respect of goodwill which was denied by the AO at Rs.2,29,79,278/- has to be upheld. The AO is direct to modify the order accordingly. This ground of appeal is allowed”
6. Before us the Ld. DR argued relying on the orders of the Ld.AO while as the Ld. AR pleaded in support of the orders of the Ld.CIT(A).
We have heard the rival submissions and carefully perused the materials on record. On perusing the decision of the Hon’ble Apex Court relied by the Ld.CIT(A) supra, we find the facts to be somewhat identical to the case of the assessee because the excess consideration paid over and above the net worth of the business taken over by the assessee can be only treated as goodwill or as any other asset in the nature of intangible asset which is eligible for depreciation as per Section 32(1)(ii) of the Act. Therefore we do not find it necessary to interfere with the order of the Ld.CIT(A) on this issue.
In the result the appeal of the Revenue is dismissed.
Order pronounced in the court on 01st May, 2017.