2016 (7) TMI 1013 - AT - Income Tax

Tribunal Grants Depreciation on Goodwill and Allows Carry Forward of Business Losses

The Tribunal allowed both appeals, directing the AO to grant depreciation on goodwill and to allow the carry forward of determined business losses for ... Entitled for depreciation on goodwill - carry forward losses - belated submission of ITR-V - Held that:- As decided in SMIFS Securities Ltd [2012 (8) TMI 713 - SUPREME COURT ] Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature' - Decided in favour of assessee. Denial of carry forward losses on the ground of belated receipt of Form ITR-V - Held that:- In the present case, the AO has not intimated any defect in the return of income filed to the appellant and therefore the action of the AO in treating the original return of income as invalid does not stand the test of the law. Even otherwise, it is not the case of the AO that the appellant had not posted Form ITR-V within the prescribed time limit. The Hon’ble Bombay High Court in the case of Crawford Bayley & Co. v. UOI, [2011 (12) TMI 64 - BOMBAY HIGH COURT ] , held that the action of the AO declaring return of income invalid for non-receipt of ITR-V was invalid. Respectfully following this decision, we hold that the AO is not justified in treating the original return of income as invalid for belated receipt of Form ITR-V. We therefore direct the AO to grant the benefit of the determined business losses for future years.- Decided in favour of assessee. Issues Involved:1. Depreciation on Goodwill2. Carry Forward of LossesDetailed Analysis:1. Depreciation on Goodwill:The appellant contended that the CIT(A) wrongly disallowed the claim for depreciation on goodwill, arguing that goodwill qualifies as an intangible asset eligible for depreciation under Section 32(1)(ii) of the Income Tax Act. The CIT(A) upheld the AO's decision, stating that the goodwill in question was a self-generated asset and not acquired by the company, thus not eligible for depreciation.The Tribunal noted that the AO denied depreciation on goodwill on the grounds that goodwill is not specified as an intangible asset under Section 32(1) and that its value does not depreciate over time. However, the Tribunal found that the AO did not dispute the existence of goodwill but only its eligibility for depreciation. The CIT(A) also held that no commercial rights were acquired, thus denying depreciation.The Tribunal referred to the Supreme Court's decision in CIT v. Smifs Securities Ltd., which held that goodwill is an asset under Explanation 3(b) to Section 32(1) and eligible for depreciation. The Tribunal also cited other High Court decisions supporting the depreciation of goodwill. Consequently, the Tribunal concluded that the appellant is entitled to depreciation on goodwill and directed the AO to allow the same.2. Carry Forward of Losses:The appellant argued that the CIT(A) wrongly disallowed the carry forward of losses due to the belated receipt of Form ITR-V. The appellant claimed that the delay was procedural and occurred due to transmission issues. The AO had acted upon the original return of income but later denied the carry forward of losses based on the late submission of Form ITR-V.The Tribunal acknowledged that the Form ITR-V was submitted with a delay of only five days and that the AO had acted upon the return of income. The Tribunal noted that the AO did not communicate any defect in the return to the appellant, which implied that the AO had condoned the delay. The Tribunal referred to the Bombay High Court's decision in Crawford Bayley & Co. v. UOI, which held that declaring a return invalid for non-receipt of ITR-V was unjustified.The Tribunal concluded that the AO was not justified in treating the original return as invalid due to the belated receipt of Form ITR-V and directed the AO to grant the benefit of the determined business losses for future years.Conclusion:The Tribunal allowed both appeals, directing the AO to grant depreciation on goodwill and to allow the carry forward of determined business losses for future years. The judgment emphasized the eligibility of goodwill for depreciation and the procedural flexibility in the submission of Form ITR-V.