Tribunal allows depreciation on goodwill for assessee's appeal under Income Tax Act

The Tribunal allowed the assessee's appeal regarding the disallowance of depreciation on goodwill claimed under section 32(1)(ii) of the Income Tax Act for AY 2014-15 and 2015-16. The Tribunal overturned the CIT(A)'s decision and directed the AO to allow depreciation on goodwill, citing previous Tribunal decisions and judicial precedents supporting the eligibility of goodwill for depreciation under the Act. The Tribunal emphasized the consistent depreciation claims by the assessee in previous years and the absence of adverse material, leading to the allowance of the appeals.

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Issues Involved:
1. Disallowance of depreciation on goodwill under section 32(1)(ii) of the Income Tax Act, 1961 for AY 2014-15 and 2015-16.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Goodwill:

The core issue in these appeals is the disallowance of depreciation on goodwill claimed by the assessee under section 32(1)(ii) of the Income Tax Act, 1961 for the assessment years (AY) 2014-15 and 2015-16. The assessee, a wholly-owned subsidiary of Geodis International S.A., France, engaged in freight forwarding operations, had claimed depreciation on goodwill amounting to Rs. 1,16,51,168/- for AY 2014-15 and Rs. 87,38,376/- for AY 2015-16. This goodwill arose from the acquisition of IBM India's logistics division, which included tangible assets, supplier contracts, workforce, and the right to provide logistics services to IBM India for 15 years.

The Assessing Officer (AO) disallowed the depreciation claim, relying on previous findings for AY 2010-11 to 2013-14, arguing that goodwill does not qualify as 'business or commercial rights' under section 32(1)(ii) of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance for both AYs 2014-15 and 2015-16, following the decision of his predecessor for AY 2013-14.

Tribunal's Findings:

Upon appeal, the Tribunal considered the submissions and reviewed the material on record. It was noted that the Tribunal had previously allowed the claim of depreciation on goodwill in the assessee's own case for AYs 2010-11, 2011-12, 2012-13, and 2013-14. The Tribunal referred to its decision dated 10.01.2022 for AY 2013-14, which followed the Tribunal's order in ITA No. 483/Del/2017 dated 17.03.2021 for AY 2012-13, where it was held that goodwill qualifies for depreciation under section 32(1)(ii).

The Tribunal reiterated that the consideration paid for acquiring the logistics division, including supplier contracts and workforce, was characterized as goodwill and was eligible for depreciation. This position was supported by several judicial precedents, including the Delhi High Court's decisions in Hindustan Coca Cola Beverages Pvt. Ltd. and Areva T and D India Ltd., which recognized that business or commercial rights similar to those specified in section 32(1)(ii) are eligible for depreciation.

The Tribunal emphasized that this was not the initial year of the depreciation claim and that the assessee had consistently claimed depreciation on the written-down value of goodwill in previous years, which had been allowed by the Tribunal.

Conclusion:

Respectfully following the consistent decisions of the Tribunal in the assessee's own case for the preceding assessment years and in the absence of any adverse material, the Tribunal set aside the orders of the CIT(A) and directed the AO to allow depreciation on goodwill for AY 2014-15 and 2015-16. The appeals of the assessee were thus allowed.

Order Pronouncement:

The order was pronounced in the open court on 29th July, 2022.

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