Tax appeal dismissed, assessee granted goodwill depreciation.

The Revenue's appeal was dismissed due to the tax effect being less than Rs. 20 lakhs, as per CBDT Circular No. 3/2018. The assessee's appeal was partly allowed, granting depreciation on goodwill as excess consideration over net assets, in line with the Supreme Court's decision in CIT v. Smifs Securities Limited. The tribunal concluded that the assessee was entitled to depreciation on goodwill under the Income-tax Act, 1961.

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Issues Involved:
1. Maintainability of Revenue’s appeal based on the tax effect.
2. Claim of depreciation on intangible assets and goodwill by the assessee.

Detailed Analysis:

Issue 1: Maintainability of Revenue’s Appeal Based on the Tax Effect
The primary issue addressed was whether the Revenue’s appeal was maintainable given the tax effect involved. The Revenue's appeal and the assessee's cross-objections for the assessment year 2007-08 were dismissed because the tax effect was less than Rs. 20 lakhs, as per CBDT Circular No. 3/2018 dated 11th July 2018. Both parties concurred that the appeal was covered by this circular, which stipulates that appeals should not be filed if the tax effect is below the specified monetary limits. The tribunal did not comment on the merits of the issue but granted liberty to the Revenue to file a miscellaneous application if needed, in accordance with the circular's exceptions.

Issue 2: Claim of Depreciation on Intangible Assets and Goodwill by the Assessee
The assessee's appeal focused on the disallowance of depreciation on intangible assets and goodwill. The facts revealed that the assessee, engaged in EPC of Food, Dairy, Chemical, and Pharma Plants, acquired the Food and Pharma division of L&T in 2005. The sale consideration was Rs. 22.74 crores, while the net assets were a negative Rs. 26.49 crores, leading to a goodwill of Rs. 49.22 crores. The assessee claimed depreciation on this goodwill, which was disallowed by the AO and CIT(A).

The tribunal relied on the Supreme Court's decision in CIT v. Smifs Securities Limited (2012) 348 ITR 302 (SC), which held that goodwill is an asset under Explanation 3(b) to Section 32(1) of the Income-tax Act, 1961, and is eligible for depreciation. The tribunal also cited the Delhi High Court's decision in Triune Energy Services Private Limited v. DCIT (2016) 237 Taxman 230 (Delhi HC), which supported the assessee's claim that the excess consideration paid over net tangible assets constitutes goodwill and is entitled to depreciation.

The tribunal concluded that the assessee was entitled to depreciation on the goodwill, as it falls under the category of "any other business or commercial rights of similar nature" per Explanation 3 to Section 32(1) of the Act. This decision was consistent with the Supreme Court's ruling in Smifs Securities Limited and other cited judgments.

Conclusion:
- Revenue’s Appeal: Dismissed due to the tax effect being less than Rs. 20 lakhs, as per CBDT Circular No. 3/2018.
- Assessee’s Appeal: Partly allowed, granting depreciation on the goodwill being excess consideration over net assets, in line with the Supreme Court's decision in CIT v. Smifs Securities Limited.

Order Pronounced: The appeal of the assessee was partly allowed, while the Revenue’s appeal and the cross-objections were dismissed.

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