Tribunal upholds depreciation on acquired intangible assets, including goodwill

The Tribunal upheld the CIT (A)'s decision to allow depreciation on acquired intangible assets, including goodwill, in a case where the Revenue contested the disallowance of depreciation claimed by the assessee. The Tribunal found that the additional amount paid for goodwill was justified as it represented valuable commercial and business rights acquired from other concerns, making it eligible for depreciation under section 32 of the Income Tax Act. Citing relevant judicial precedents, the Tribunal dismissed the Revenue's appeal, affirming the allowance of depreciation on goodwill.

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Issues Involved:
1. Disallowance of depreciation on goodwill.

Summary:

Disallowance of Depreciation on Goodwill:

The Revenue's appeal contested the CIT (A)'s decision to delete the addition of Rs. 1,46,50,834/- made on account of disallowance of depreciation on goodwill. The assessee, engaged in hotel, banquet, and restaurant business, claimed depreciation on goodwill of Rs. 1.46 crores. The AO disallowed this claim, arguing that the payment was for acquiring assets at a higher price, not for intangible assets u/s 32(1).

The CIT (A) analyzed the assessee's contentions and judicial pronouncements, concluding that the appellant acquired significant intangible assets, including business rights, brand-name, customer base, and entitlements, from three concerns: M/s. Bhagwati Caterers Private Ltd, M/s. TGB Resorts Karnavati, and M/s. Bhagwati International. The additional amount paid over the book value of tangible assets was accounted for as goodwill, which was considered a commercial right eligible for depreciation u/s 32 of the IT Act.

The Tribunal upheld the CIT (A)'s decision, noting that the assessee acquired valuable commercial and business rights, enabling it to continue and expand the businesses of the acquired concerns. The Tribunal referenced judicial precedents, including the Kerala High Court's decision in B. Raveendran Pillai v. CIT and the Delhi High Court's decision in CIT v. Hindustan Coco Cola Beverages (P) Ltd, which supported the view that goodwill is a depreciable intangible asset u/s 32(1)(ii).

The Tribunal concluded that the CIT (A) was justified in allowing depreciation on the acquired intangible assets, as the valuation report submitted by the assessee was not successfully challenged by the Revenue. The appeal by the Revenue was dismissed.

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