Pune bench of the Income Tax Appellate Tribunal (ITAT) recently held that slump price paid to acquire a business has to be bifurcated between both tangible and intangible assets for the purpose of allowing depreciation under section 32 of the Income Tax Act, 1961.
The assessee in the instant case was engaged in the business of manufacture sale of catalysts and filed its return of income for the relevant assessment year declared a total loss of Rs. 16,93,18,730.
During the course of assessment proceedings, the Assessing Officer (AO) noted that the assessee had acquired goodwill of Rs.10,73,30,000 and had entered into a non-compete agreement with I.C.I. India Ltd. for the transfer of land. And he further noted that Sum of Rs.3,51,00,000 was paid by the assessee under the non-compete agreement. The assessee had claimed depreciation for the year on both the aforesaid items on the ground that these were the capital assets. But the AO denied the claim of the assessee on depreciation.
Aggrieved by the assessee was on appeal before the CIT (A). They observed that when entire business was taken over by the assessee as going concern with all the assets and liabilities, there would remain no competition from the seller, thus, the payment of non-compete fees at Rs.3.51 crores was nothing but part of the composite price paid for acquisition of the entire business of I.C.I. India Ltd. and the same needed to be clubbed with total slump price of Rs.153.18 crores. The CIT (A) further observed that in such a situation while analyzing all the material facts it is clear that the assessee tries to evade tax and accordingly they also denied the claim on depreciation of the assessee.
After considering the rival submissions of both the parties the bench comprising of Judicial Member and Accountant Member observed that the sole issue in the present case is whether slump price can be bifurcated between the value of tangible and intangible assets. In case slump payments have been received for all the rights transferred including the assets transferred, then consideration has to be allocated amongst the said assets. The bench further held that the revised allocation value of land would be Rs.13 crores out of total slump price of Rs.153 crores. And accordingly, the division bench has directed the AO to re-compute the value of both tangible and intangible assets, accordingly.
Following the above proposition, the bench held that the assessee is entitled to claim the depreciation on the value of tangible assets.
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