Bharatbhai J. Vyas vs Income Tax Officer

@

K.S. Jhaveri, J.—By way of this appeal, the appellant has challenged the judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ''C'' in ITA No. 1260/Ahd/2004 for A.Y. 2000-01.

While admitting this appeal on 13.11.2006, this Court has framed the following substantial questions of law:

"1) Whether in the facts and under the circumstances of the case, the Income-tax Appellate Tribunal was right in law in not granting depreciation under section 32 of the Income Tax Act, 1961 on the Goodwill acquired by the assessee?

2) Whether, in the facts and under the circumstances of the case, Goodwill is an intangible asset within the meaning of Sec. 32(1)(ii) of the Income Tax Act, 1961 so to be eligible for depreciation?"

The facts of the present case are that the assessee has filed his return of income showing income of Rs. 1,12,370/- on 23.10.2002. The return was processed u/s. 143(1)(a) and was selected for scrutiny assessment and notice under sec. 143 dated 24.10.2002. The AO during the assessment proceedings noted that the assessee was a partner in M/s. Nodule Cast along with Shri J.B. Vyas, his father and one Shri O.A. Lokhandwala. The firm was dissolved and a sum of Rs. 15.15 lacs was paid as goodwill to Shri Lokhandwala. The assessee during the assessment proceedings stated that in view of the provisions of section 32 relevant from AY 1999-2000 depreciation can be claimed even on intangible assets being know-how, patents, copy rights, trade mark, license and franchise and any other business of commercial right of similar nature. In view of this provision of law, the assessee made a claim on account of depreciation of goodwill amounting to Rs. 2,89,375/-. AO rejected the assessee''s claim on the ground that in the intangible assets specified in section, the word "goodwill" is not included specifically. According to the AO, goodwill cannot be treated as any other business of commercial right of similar nature. Accordingly, the AO did not agree with the contention of the assessee that depreciation can be claimed on the goodwill amount, therefore, the entire depreciation claim on goodwill amounting to Rs. 1,89,375/- was disallowed. The assessee being aggrieved, preferred the appeal before the CIT(A) which was dismissed. Against which, the assessee preferred an appeal before the ITAT which was also dismissed, against which, the present Tax Appeal is preferred by the assessee.

Heard the learned advocates appearing for the parties and considered the submissions. Learned advocate Mr. Soparkar has submitted that the facts of this case is covered by the decision of the Supreme Court in the case of Commissioner of Income Tax, Kolkata Vs. Smifs Securities Ltd., . The observations made in para-6 & 8 are as under:

"6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) [CIT(A)], for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies, that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an assets and the amount paid constituted goodwill and that the assessee -Company in the process of amalgamation had acquitted a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal [''ITAT'', for short]. We see no reason to interfere with the factual finding.

For the aforesaid reasons, we answer Question No. [b] also in favour of the assessee.

Question No. [c]

The last question raised in this civil appeal is regarding cancellation of disallowance of an amount of Rs. 83,02,976/- as a bad debt.

Answer:

It has been stated on behalf of the Revenue that, since the Tax Audit Report indicated the amount to have been incurred on capital account, the assessee was not entitled to deduction on account of bad debt. Both the CIT(A) as well as ITAT concluded that the assessee has satisfied the provisions of Section 36(1)(vii) of the Act. They have held that bad debt claimed by the assessee was incurred in the normal course of business and, therefore, the assessee was entitled to deduction under Section 36(1)(vii) of the Act. It is well settled now by a catena of decisions that the manner in which the assessee maintains its account is not conclusive for deciding the nature of expenditure."

Therefore, we reverse the finding of ITAT being bad in law and against the mandate of Hon''ble Apex Court. For the reasons mentioned in the said decision, we do not give a fresh elaborate reasons. In that view of the matter, both the questions are answered in favour of the assessee and against the revenue. The appeal is allowed accordingly.