2015 (9) TMI 949 - AT - Income Tax

Disallowance of depreciation of goodwill - Held that - As find that in the case of B. Raveendran Pillai v. CIT 2010 (9) TMI 434 - Kerala High Court the hon ble High Court has held that when the goodwill paid was for ensuring retention and continued business, it was for acquiring a business and commercial rights and was comparable with trade mark, franchise, copyright, etc., rendered in the first part of clause 2 of section 32(1) and so much so, goodwill was covered by the above provision of the Act entitling the assessee for depreciation. We also find that the hon ble apex court in the case of CIT v. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT has held that goodwill is an asset under Explanation 3(b) to section 32(1). Before us, the Revenue has not pointed out any contrary binding decision in its support. In view of these facts and relying on the aforesaid decisions we are of the view that the assessee is eligible for depreciation. - Decided in favour of assessee. Addition on account of lump sum disallowance out of milgine and factory expenses as per para 5 of the appellate order - Held that - While confirming the disallowance, the learned Commissioner of Income-tax (Appeals) has noted that no submissions were made by the assessee in respect of the aforesaid ground. Before us also apart from the general statement, no details have been filed by the assessee in support of its submissions. In view of the aforesaid facts, we find no reason to interfere with the order of the learned Commissioner of Income-tax (Appeals) and thus this ground of the assessee is dismissed. - Decided against assessee.

Summary

Issues:
1. Disallowance of depreciation of goodwill.
2. Disallowance of milgin and factory expenses.

Detailed Analysis:
Issue 1: Disallowance of Depreciation of Goodwill
The appeals filed by the assessee were against the order of the Commissioner of Income-tax (Appeals) for multiple assessment years. The Assessing Officer disallowed depreciation claimed on "goodwill" by the assessee, leading to an addition of a significant amount. The Commissioner of Income-tax (Appeals) upheld the disallowance based on a previous order in a similar case. However, the assessee argued that the payment made to retiring partners was for acquiring commercial rights, which should be eligible for depreciation. The Tribunal noted that the payment for acquiring commercial rights was eligible for depreciation and relied on legal precedents to support its decision. Consequently, the Tribunal allowed the ground of the assessee for all the relevant assessment years.

Issue 2: Disallowance of Milgin and Factory Expenses
The Assessing Officer disallowed a portion of milgin and factory expenses claimed by the assessee due to lack of proper vouchers and supporting evidence. The disallowed amount was based on the Assessing Officer's estimation of unverifiable expenses. The Commissioner of Income-tax (Appeals) upheld the disallowance for the assessment years in question, noting the absence of submissions from the assessee to counter the disallowance. The assessee argued that most milgin expenses were paid via cheques and that factory expenses were reasonable compared to turnover. However, the Tribunal found no detailed submissions or evidence supporting the assessee's claims. Consequently, the Tribunal upheld the disallowance of milgin and factory expenses for the relevant assessment years.

In conclusion, the Tribunal allowed the appeals of the assessee for some assessment years and partly allowed for others, based on the specific issues of disallowance of depreciation of goodwill and milgin and factory expenses. The judgment provided a detailed analysis of each issue, considering legal precedents and the specific circumstances of the case.