Depreciation on slump sale acquisitions requires valuation support; excess consideration over tangible asset value qualifies as goodwill and is depreciable.

Whether depreciation on assets acquired under a slump sale is limited to the transferor's written down value was examined under the proviso governing transferred assets; the proviso applies but adoption of transferor WDV requires supporting valuation material, not AO assumptions, and departmental valuation reports on record must be used, with tangible assets valued at those fair market values. Where slump sale consideration exceeds aggregate identifiable tangible assets per valuation, the excess is business/commercial rights (goodwill), an intangible asset eligible for depreciation; accordingly the WDV restriction and attribution of surplus to land were set aside and the AO is directed to recompute depreciation and verify landscaping/internal road claims after hearing.

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Issues: Whether depreciation claimed by the assessee on assets acquired under a slump sale may be restricted to the written down value in the hands of the transferor under the proviso to section 32(1) and, alternatively, whether the excess of slump sale consideration over the value of identifiable tangible assets constitutes goodwill and is eligible for depreciation under section 32(1)(ii).

Analysis: The statutory framework governing depreciation under section 32(1) including the proviso regime applicable to transferred assets was applied. The proviso regime as interpreted by coordinate Bench authority governs computation of depreciation on tangible assets taken over on transfer; however, adoption of transferor's written down values must be supported by proper valuation material rather than assumptions by the Assessing Officer. Departmental valuation reports obtained pursuant to appellate direction are part of the record and must be used for computing fair market value of tangible assets. Where the slump sale consideration exceeds the aggregate value of identifiable tangible assets as established on the valuation material on record, that excess represents business and commercial rights-goodwill-which is an intangible asset eligible for depreciation under section 32(1)(ii) as recognised by higher authority. The additional grounds raising the alternative plea on goodwill were admissible as pure legal issues arising from facts on record and were adjudicated on merits.

Conclusion: Depreciation restricted to transferor's written down value and attribution of the entire surplus to land are set aside. The fair market values as determined by the Departmental Valuation Officer shall be adopted for tangible assets; the balance of the slump sale consideration shall be treated as goodwill/commercial rights and depreciation thereon shall be allowed under section 32(1)(ii). The Assessing Officer is directed to recompute depreciation accordingly and to verify claims relating to landscaping and internal roads after affording opportunity of being heard.

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