Sujag Fine Chemicals Pvt.Ltd.,, Baroda vs Assessee

The assessee is in appeal before us against the order of Ld. Commissioner of Income Tax(A) dated 23rd August, 2011 passed for Assessment Year 2006-07.

I.T.A No. 2497/Ahd/2011 A.Y. 2006-07 Page No 2 M/s. Suhag Fine Chemicals Pvt. Ltd vs. ITO

2. The solitary grievance of the assessee is that Ld. Commissioner of Income Tax(A) has erred in confirming the disallowance of depreciation on goodwill.

3. The brief facts of the case are that assessee has filed its return of income on 23-12-2006 declaring total income of Rs. 5,39,660/-. An assessment order was passed u/s. 143(3) on 22-12-2008 determining total income at Rs. 90,90,889/-. On verification of depreciation claimed, it revealed to the Ld. Assessing Officer that, assessee has claimed depreciation of Rs. 1,09,810/- @ 25% written down value of goodwill. According to the Assessing Officer, the depreciation on goodwill is not admissible, therefore, he reopened the assessment and issued notice u/s. 148 of the income tax act. He disallowed the claim of assessee.

4. On appeal, ld. Commissioner of Income Tax (Appeals) has confirmed the disallowance.

5. Before us, learned counsel for the asssessee at the very outset submitted that issue in dispute is squarely covered by the order of ITAT passed in assessee's own case for Assessment Year 2003-04 whereby depreciation on goodwill was allowed to the assessee. He placed on record the copy of the Tribunal's order passed in ITA No. 2087/Ahd/s2012. Ld. Departmental Representative was unable to controvert the contention of the learned counsel for the assessee.

6. On due consideration of the facts and circumstances, we find that issue in dispute is squarely covered by the order of ITAT passed in I.T.A No. 2497/Ahd/2011 A.Y. 2006-07 Page No 3 M/s. Suhag Fine Chemicals Pvt. Ltd vs. ITO

Assessment Year 2003-04. The discussion made by the Tribunal in Assessment Year 2003-04 on this issue reads as under:-

"6. We have heard both the sides. From the side of the Revenue, learned DR, Mr. D.K. Singh has argued that Section 32 prescribes that an asset is required to be acquired on or after 1st day of April 1998 in the nature of copy right, licences, know how etc. He has raised two arguments. The first argument was that "goodwill" is not in the nature of the assets as defined u/s. 32(1)(ii) of the IT Act. His second objection was that the asset in question, i.e., goodwill was not in existences when the assessee company had taken over the erstwhile firm. He has also placed reliance on Vyomit Shares, Stocks & Investments P. Ltd. Vs. DCIT, 106, ITD 408 (Mum).

7. On the other hand, from the side of the respondent assessee, learned AR, Mr. Sunil Toloti appeared and placed reliance on SMIFS Securities, 348 ITR 302 (SC), B. Raveendran Pillai Vs. CIT, 332 ITR 531 (2011) (Ker) and CIT Vs. Hindustan Coca Cola Beverages (P) Ltd. (Delhi), 331 ITR 192 (2011).

8. Facts of the case have revealed that the assessee had taken over the business of a partnership firm, namely, Sujag Fine Chemicals. The assessee company was formed on 19.2.1999. In support a certificate of incorporation is placed on record. The goodwill was acquired by the assessee in the Assessment Year 1999-2000 when the firm, as a going concern, was taken over by the company/ appellant along with all the assets. At the time of acquisition, the goodwill as an asset was purchased from the firm for a consideration of Rs.24,67,926/-. Thereafter for A.Y. 1999-00, 2000-01 and 2001-02, the assessee company had claimed depreciation @ 25% as informed by learned AR, Mr. Sunil Talati. The WDV for the year under consideration is Rs.10,47,157/- over which the depreciation @ 25% amounting to Rs.2,60,289/- was claimed. On account of these facts, we hereby hold that the goodwill was acquired after 1st day of April, 1998 as required u/s. 32(1)(ii) of the Act.

Now the only question left for our consideration is that whether goodwill can be considered for grant of depreciation. In this regard, a latest decision of Hon'ble High Court pronounced in the case of CIT Vs. SMIFS Securities, 348 ITR 302 is relevant wherein it was held as under:

I.T.A No. 2497/Ahd/2011 A.Y. 2006-07 Page No 4 M/s. Suhag Fine Chemicals Pvt. Ltd vs. ITO

"The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax, Act, 1961 ("the Act", for short).

We quote hereinbelow Explanation 3 to section 32(1) of the Act:

"Explanation 3- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean -

(a) tangible assets, being buildings, machinery, plant or furniture;

(b)intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature:"

Explanation 3 states that the expression"asset" shall mean an intangible asset, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. A reading the words "any other business or commercial rights of similar nature" in clause (b) of Explanation 3 indicates that goodwill would fall under the expression "any other business or commercial right of a similar nature:. The principle of ejusdem generic would strictly apply while interpreting the said expression which finds place in Explanation 3(b).

In the circumstances, we are of the view that "goodwill" is an asset under Explanation 3(b) to section 32 (1) of the Act."

9. Earlier in the case of B. Raveendran Pillai, 332 ITR 531 (Kerala), the Hon'ble High Court has also held that the goodwill is certainly comparable with trade mark, franchisee, copy right, etc., hence, entitled for the depreciation. Respectfully following these decisions wherein the doctrin of ejusdem generic is applied and held that the Goodwill is of like nature of intangible asset as prescribed, therefore, we hereby hold that under the totality of the facts and circumstances of the case the assessee is entitled for the claim of depreciation on the DWV of the goodwill for the year under consideration. Ground raised in this regard is hereby allowed."

7. There is no disparity on facts, therefore, we allow the appeal of the assessee on this issue and delete the disallowance. No other ground was pressed, hence all other grounds are rejected. I.T.A No. 2497/Ahd/2011 A.Y. 2006-07 Page No 5 M/s. Suhag Fine Chemicals Pvt. Ltd vs. ITO

8. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 12-06-2015

Sd/- Sd/-

(N.S. SAINI) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 12/06/2015 ak

आदेश क त ल प अ े षत / Copy of Order Forwarded to:-

1. Assessee

2. Revenue

3. Concerned CIT

4. CIT (A)

5. DR, ITAT, Ahmedabad

6. Guard file.

By order/आदेश से,

उप/सहायक पंजीकार (आयकर अपील य अ धकरण, अहमदाबाद