INCOME TAX ACT, 1961

Section 32(1)(ii)

Depreciation - Allowability - Goodwill and customer contracts duly recorded in audited financials -

Assessee-company acquired certain business interest from a company 'K' for a certain consideration, out of which some amount had been shown as goodwill and customer contract. It also claimed substantial depreciation on the said assets. AO was of the view that the claim of the assessee in transferring part investment as intangible assets, i.e., customer contract and goodwill was not justified and thereby disallowed depreciation on such intangible assets. CIT (A) deleted such disallowance. Held: It was not disputed that the assessee purchased the running business of 'K' for acquiring its banking and financial services business (BFSI) for a certain consideration as per valuation report. Further, the valuation report contained value of tangible and intangible assets separately as in the business of banking and financial software business, contracts and the people along with a marginal amount of assets was considered as the major component of the transfer. Furthermore, in the business transfer agreement, complete detail of specified BSFI business, target assets, target customers and name of the target customers were available. Therefore, despite the fact that the assessee had given the complete details of agreement vide which tangible and intangible assets of running business of 'K' were purchased, the AO disallowed the depreciation on goodwill and customer contracts merely on the basis of surmises by ignoring the settled principle of law that goodwill and customer contracts duly recorded in audited financials are eligible for depreciation being intangible assets under section 32(1)(ii). Hence, the CIT(A) rightly deleted the disallowance made by the AO.

REFERRED : CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) : 2012 TaxPub(DT) 2430 (SC) Areva T&D India Ltd. v. DCIT (2012) 345 ITR 421 (Delhi) : 2012 TaxPub(DT) 2033 (Del-HC)

FAVOUR : In assessee's favour

A.Y. : 2012-13

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