INCOME TAX ACT, 1961

Section 32

Depreciation - Goodwill - Assessee inflated value to claim higher depreciation -

AO noticed that assessee had claimed depreciation @25% applicable to intangible assets on goodwill and hence, called upon the assessee to file necessary evidences, including acquisition/purchases of goodwill and claim of depreciation @25% as applicable to intangible assets. Assessee submitted that it had acquired the business Mr. R by way of slump sale and the acquisition was accounted for under the purchase method, as prescribed by the Accounting Standard AS-14 and accordingly, difference between assets and liabilities of proprietorship firm and consideration paid for acquisition of business was treated as goodwill in books of accounts of assessee. AO opined that proprietor of erstwhile firm and director of present assessee were one and of the same and present director had holding 21% shareholding in assessee company. Thus, there was an arrangement between proprietor, who also happened to be the promoter of private company to show different net-worth for purpose of calculation of goodwill in the books of accounts of assessee . Therefore, AO disallowed excess depreciation claimed on goodwill. Held: Assessee although, followed AS-14 for accounting of acquisition of business, while arriving at goodwill, it had revalued its assets, which was different from value of assets, as per books of accounts of erstwhile proprietorship firm. However, when it comes to payment of capital gain on slump sale, the proprietor of erstwhile firm had taken net worth as per books of accounts of firm as on the date of acquisition. Since, seller of assets i.e. proprietor of erstwhile firm and director of the present assessee were one and the same and also, fact that director had holding more than 21% in present company, it was undoubtedly clear that assessee had followed a different method for accounting goodwill in books of accounts, so as to claim higher depreciation. Therefore, assessee had arrived at inflated value of goodwill to claim higher depreciation on intangibles.

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2013-14

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