ITAT allows Depreciation on Goodwill resulting from Acquisition of Business Unit [Read Order]

The Income Tax Appellate Tribunal (ITAT) allowed depreciation on goodwill resulting from the acquisition of Business Unit of Lee & Muirhead Pvt. Ltd.

The assessee during the relevant previous year had purchased the business of Lee and Muirhead P. Ltd. for a total consideration of 181,50,05,880. The purchase consideration has been apportioned between the movable assets and net current assets. The difference between the purchase consideration and the value apportioned to fixed assets and the net current assets has been recognized as goodwill in the nature of the intangible asset and the assessee had claimed depreciation both on tangible and intangible assets.

As it appears, in the original return of income the assessee claimed depreciation on all other fixed assets except the intangible asset viz. goodwill. In the course of assessment proceedings, the assessee filed a revised computation of income claiming depreciation @ 25% amounting to 39,75,25,000 on intangible assets of  159.01 crores.

The bench comprising of Judicial Member, Pawan Singh and Accountant Member Shamim Yahya pronounced the order on an appeal filed by DHL Logistics Private Limited.

The Tribunal examined the facts relating to assessee’s claim of depreciation on an intangible asset, it is apparent that all facts relating to the payment made towards goodwill are available in the annual report of the assessee submitted along with the original return of income.

The Tribunal observed that due to inadvertent mistake, the assessee could not claim depreciation on goodwill. Therefore, in the course of assessment proceedings, the assessee filed a revised computation claiming depreciation on goodwill from Acquisition of Business Unit.

Relying on the decision of Andhra Pradesh High Court in Bakelite Hylam Ltd. and the Gujarat High Court in Gujarat Gas Co. the contention of the Department that by virtue of CBDT circular no.549 dated 31st October 1989, the assessed income cannot be less than the returned of income is also not acceptable.

While allowing the appeal the tribunal also observed that the issue is squarely covered in favor of the assessee by its own case in the earlier years. CIT vs. Smifs Securities Ltd held that the assessee was entitled to depreciation on goodwill by following the decision of Apex Court.