TaxTMI 
TaxTMI 
2013 (11) TMI 1487
X X X X Extracts X X X X
X X X X Extracts X X X X
....ises and conjectures have upheld the said reopening of the assessment and initiation of the proceedings u/s. 147/148 of the I.T. Act, 1961., (3) That without prejudice to the ground of appeal no. 2, the lower tax authorities has contrary to the law and facts of the case, wrongly, arbitrarily without any basis and justification and proper opportunity, merely on surmises and conjectures and despite submissions on merits failed to appreciate that 'goodwill' is on intangible asset eligible for depreciation in accordance with the Income Tax Act, 1961 and consequently disallowed the deprecation thereon amounting to Rs. 16,69,020/- and increased the total income. (4) That the learned AO has contrary to the law and facts of the case, wrongly, arbitrarily without any basis and justification and satisfaction, merely on surmises and conjecture initiated the proceedings under section 271(1)(c) of the I.T. Act, 1961. 3. At the threshold, we find that the Ld. Counsel of the assessee has not pressed the Ground No. 2, therefore, the same is dismissed being not pressed. 4. Apropos ground No.3 which pertains to disallowance of depreciation on goodwill amounting to Rs. 16,69,020/-. 4.1 Briefly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eciation......... ......In the light of the above it is evident that goodwill is not an intangible asset entitled for depreciation. The addition made by the AO is, therefore, upheld. 6. This decision of the Ld. CIT(A) is in challenge before this Tribunal. 7. The Ld. Counsel of the assessee brought to our attention the judgement dated 22.8.2012 of the Hon'ble Supreme Court in the case of C.I.T., Kolkata vs. Smifs Securities Ltd. Ld. Counsel contended that in the said judgment the Hon'ble Supreme Court has held that goodwill is an asset under Explanation 3(b) to Section 32 of the Act and that the assessee is entitled to depreciation on the same. Alternatively he also relied upon the judgement dated 30.3.2012 of the Hon'ble High Court of Delhi in the case of Areva T&D India Ltd. vs. C.I.T. & C.I.T. vs. Parabolic Spring Ltd. and submitted that what was paid as goodwill by the assessee was in fact a payment for other business or commercial rights and hence such asset when purchased entitles the assessee for deprecation. Ld. Counsel of the assessee stated that the assessee had purchased the business as a slump sale in 1999 and the Ld. DR does not object to the said fact and he analyse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....figure in the intangible assets prescribed u/s. 32(1)(ii), therefore, the claim of the assessee for depreciation was not admissible u/s. 32(1)(ii). 7.5 We have heard both the counsel and perused the records. The relevant facts in this case are that one M/s Cyber Media (India) Ltd. (Transferor) which was carrying on the business among other business of on-line and other electronic media through internet and other networks including databases, on-line magazines, newsletters, etc. under the name and style of Cyber India Online had signed an agreement dated 23.8.1999 whereby the assessee company (transferee) acquired the said running concerns along with its properties, rights, plants and machinery, furniture and fixtures, equipments and all other assets which was specified in Schedule I & II to the said agreement. 7.6 In this regard, it would also be necessary to consider the terms of the slump sale agreement entered into between the transferor and the transferee (assessee) as under:- "1. The Vendor does hereby sell and the Vendee does hereby purchase of and in respect of the said business with effect from September 1, 1999: (a) All the interest, corporeal and incorporated rights....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion and approval to go-ahead with the reopening was given by the Commissioner. The reasons to disallow depreciation allowance for goodwill as stated by the Ld. AO is as follows:- "The goodwill is neither a capital asset nor covered intangible assets as mentioned in section 32 for the purpose of depreciation. Therefore, deprecation claimed on goodwill is hereby disallowed and added back to the return income of the assessee" 7.9 The Ld. CIT(A) upheld the AO's order by citing ITAT's order in the case of R.G. Keshwani vs. ACIT 308 ITR (AT) 0271, wherein it has been held by the Tribunal that the acquisition cost of goodwill is not entitled for depreciation. 7.10 We find that decision and reasoning of the Hon'ble Delhi High Court in an identical matter which has been brought to our notice by the Ld. Counsel of the assessee needs to be looked into. A perusal of the order reveals that the facts decided in I.T.A. No. 315/2010 is similar to the case in hand and the question of law also is pertinent to the issue before us. Facts of the case was that the assessee company acquired a going concern, the transmission and distribution business of transferor company. It was a slump sale for Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees and know-how, were all assets, which were invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets were, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor; in the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. [Para 13} In view of the above discussion, it was held that the specified intangible assets acquired under slump sale agreement were in the nature of 'business....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and other networks including databases, online magazines, news letters, etc. by the assessee, which was hitherto carried out by the transferor without any interruption. It may be noted that in the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. 7.14 As a matter of fact there is no dispute about the consideration shown as goodwill in the Schedule No. 3 i.e. Fixed Assets in the balance sheet (Page 182 of Paper Book) of the assessee for the year ended on 31.3.2000 onwards. We find that the valuation of the goodwill has not been objected by the Ld. AO till the impugned assessment year. We also find that based on an Audit objection dated 3.9.2007 the ld. AO has issued the reopening notice u/s. 148, after taking the approval of the Ld. CIT. From the aforesaid facts, it can be seen that the assessee had acquired the business, lock, stock & barrel. The issue of depreciation on goodwill was raised first by the Audit Team and based on that only the Ld. AO has reopened the ....