Shares issued in acquisition cost qualify for depreciation under Section 32. Revenue appeals dismissed.

The Tribunal upheld the CIT(A)'s decision, confirming that the issuance of shares as part of the acquisition cost qualifies for depreciation. Even if considered as goodwill, it is eligible for depreciation under Section 32. The appeals of the Revenue were dismissed, affirming the CIT(A)'s orders for both years.

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Issues Involved:
1. Whether the CIT(A) erred in directing the Assessing Officer to allow depreciation on the amount of Rs. 7,42,69,500.
2. Whether the issuance of shares to the shareholders of JKSL as part of the acquisition cost qualifies for depreciation.
3. Whether goodwill qualifies as a depreciable asset under Section 32 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the CIT(A) erred in directing the Assessing Officer to allow depreciation on the amount of Rs. 7,42,69,500:

The Revenue contended that the CIT(A) erred in law and on facts by directing the Assessing Officer to allow depreciation on Rs. 7,42,69,500. The amount represented the issuance of 74,26,950 equity shares of Rs. 10 each to the shareholders of JKSL, debited to the goodwill account. The Tribunal had previously reversed the CIT(A)'s order, but the High Court of Allahabad set aside the Tribunal's order and remanded the case for fresh consideration.

2. Whether the issuance of shares to the shareholders of JKSL as part of the acquisition cost qualifies for depreciation:

The assessee argued that the issuance of shares was part of the purchase consideration for acquiring the cement undertaking from JKSL, and thus, depreciation should be allowed on this amount. The CIT(A) agreed, stating that the issuance of shares was part of the cost of acquisition of the cement undertaking and hence eligible for depreciation. Alternatively, even if considered as the cost of goodwill, depreciation should still be allowable under Section 32 of the Income-tax Act, 1961.

3. Whether goodwill qualifies as a depreciable asset under Section 32 of the Income-tax Act, 1961:

The Tribunal examined various judgments, including the Supreme Court's decision in CIT vs. Smifs Securities Ltd., which held that goodwill is an intangible asset eligible for depreciation under Section 32. The Delhi High Court in Areva T and D India Ltd. vs. DCIT and the Karnataka High Court in CIT vs. Manipal Universal Learning Pvt. Ltd. also supported this view. The Tribunal concluded that goodwill falls under the expression "any other business or commercial rights of similar nature" in Explanation 3(b) to Section 32(1) of the Act.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, confirming that the issuance of shares as part of the acquisition cost qualifies for depreciation. Even if considered as goodwill, it is eligible for depreciation under Section 32. The appeals of the Revenue were dismissed, affirming the CIT(A)'s orders for both years. The judgment was pronounced in the open court.

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