Tribunal allows depreciation on pre-operative expenses & SEBI fee for 2004-05 assessment year

The Tribunal allowed the appeal of the assessee, directing the allowance of depreciation claimed on pre-operative expenses and SEBI registration fee for the assessment year 2004-05. The Tribunal held that since depreciation had been allowed in the previous year, the AO could not change the stance for the current year, emphasizing that depreciation should be allowed on the written down value of the block of assets. Therefore, the assessee's claim for depreciation on these expenses was upheld, without delving into their classification as intangible assets.

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Issues involved:
The issue involves the claim of depreciation on intangible assets by the assessee, specifically related to pre-operative expenses and SEBI registration fee, for the assessment year 2004-05.

Details of the judgment:

1. The assessee, a company acting as an investment manager of mutual funds, claimed depreciation on intangible assets including pre-operative expenses and SEBI registration fee. The AO questioned the eligibility of these expenses as intangible assets u/s. 32(1)(ii) of the Income Tax Act, 1961.

2. The AO disallowed the depreciation claimed by the assessee on preoperative expenses and SEBI registration fee, stating that these expenses did not qualify as intangible assets as per the provisions of section 32(1)(ii) of the Act.

3. The CIT(A) upheld the AO's decision, disregarding the assessee's argument that depreciation had been allowed on these assets in the previous assessment year, and confirmed that there were no intangible assets eligible for depreciation.

4. The Tribunal noted that in the previous assessment year, depreciation had been allowed on the SEBI registration fee and pre-operative expenses, treating them as part of the block of intangible assets. As per Sec. 32(1)(ii) of the Act, depreciation should be allowed on the written down value of the block of assets, and the AO cannot dispute the opening WDV or change the stand taken in the earlier assessment year.

5. The Tribunal ruled that since depreciation had been allowed in the preceding year, the AO could not take a different stance for the current assessment year. Therefore, the depreciation claimed by the assessee was directed to be allowed, without delving into the classification of the expenses as intangible assets.

6. Consequently, the appeal of the assessee was allowed by the Tribunal, and the order was pronounced on June 15, 2011.

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