Revenue appeal dismissed; additions for foreign travel and trademark rejected; s.40(a)(ia) disallowance rejected; depreciation on non-compete and goodwill allowed

ITAT AHMEDABAD (AT) dismissed the Revenue appeal. Grounds challenging additions for foreign travel, trade mark and s.40(a)(ia) disallowance were rejected following a co-ordinate bench decision for an earlier year. Claim for depreciation on non-compete fees was upheld based on consistent earlier allowances. A prior-period custodial fee of Rs.11,236 was held to be a legitimate FY 2009-10 liability and not a prior period expense. Depreciation on goodwill arising on amalgamation was allowed via revised computation without a revised return, following precedents of the SC and HC; all Revenue grounds dismissed.

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Issues Involved:
1. Deletion of addition on account of foreign expenses.
2. Deletion of addition on account of prior period expenses.
3. Deletion of addition on account of treating trademark expenses as capital expenses.
4. Deletion of addition on account of sales promotion expenses under section 40(a)(ia) of the IT Act.
5. Deletion of disallowance of depreciation on non-compete fees.
6. Allowance of depreciation on goodwill arising on amalgamation.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Foreign Expenses:
The Revenue challenged the deletion of Rs. 87,959/- on account of foreign travel expenses. The Tribunal observed that the Assessing Officer disallowed these expenses due to the assessee's failure to produce details of the persons/parties involved. However, the Tribunal noted that in the previous assessment year (2009-10), a similar issue was decided in favor of the assessee, where the CIT(A) found that the assessee had provided complete details of employees who traveled abroad, the duration of visits, countries visited, nature and amount of expenses, and the purpose of travel. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue did not bring any new material to controvert the CIT(A)'s findings.

2. Deletion of Addition on Account of Prior Period Expenses:
The Revenue contested the deletion of Rs. 11,236/- related to prior period expenses. The Tribunal noted that the assessee debited this amount as custodial fees paid to Central Depository Services India Ltd. for FY 2008-09, claiming that the liability crystallized during FY 2009-10. The CIT(A) deleted the disallowance, referencing the Bombay High Court's decision in CIT vs. Nagri Mills, which allows such expenses if they are genuine and there is no postponement of liability. The Tribunal upheld the CIT(A)'s decision, agreeing that the liability crystallized in FY 2009-10 and should not be treated as a prior period expense.

3. Deletion of Addition on Account of Treating Trademark Expenses as Capital Expenses:
The Revenue appealed against the deletion of Rs. 1,09,600/- treated as capital expenses for trademark expenditure. The Tribunal observed that in the previous assessment year (2009-10), the CIT(A) found that the trademark expenses did not create any asset or result in an enduring advantage and were incurred to avoid future litigation, thus being revenue in nature. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue did not provide new evidence to challenge the CIT(A)'s findings.

4. Deletion of Addition on Account of Sales Promotion Expenses under Section 40(a)(ia) of the IT Act:
The Revenue challenged the deletion of Rs. 2,23,307/- disallowed under section 40(a)(ia) for non-deduction of TDS on sales promotion expenses. The Tribunal noted that in the previous assessment year (2009-10), the CIT(A) found that the items purchased for sales promotion were ready goods with the company's logo printed, not requiring TDS deduction. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue did not provide new evidence to challenge the CIT(A)'s findings.

5. Deletion of Disallowance of Depreciation on Non-Compete Fees:
The Revenue contested the deletion of Rs. 1,05,468/- disallowed as depreciation on non-compete fees. The Tribunal noted that the CIT(A) allowed the depreciation following the Pune Tribunal's decision in Serum Institute of India Ltd., which held that non-compete fees are intangible assets eligible for depreciation under section 32(1)(ii). The Tribunal upheld the CIT(A)'s decision, referencing the principle of consistency as the depreciation was allowed in previous years (2007-08, 2008-09, and 2009-10).

6. Allowance of Depreciation on Goodwill Arising on Amalgamation:
The Revenue appealed against the allowance of Rs. 7,19,01,743/- as depreciation on goodwill, which was not claimed in the original return but was made during assessment proceedings following the Supreme Court's judgment in CIT vs. Smifs Securities Ltd. The Tribunal noted that the CIT(A) allowed the claim based on the Supreme Court's ruling that goodwill is an asset eligible for depreciation under section 32. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's judgment in CIT vs. Pruthvi Brokers and Shareholders, which allows claims for deductions made during assessment proceedings without filing a revised return.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions and allowances on all contested grounds, finding no reason to interfere with the CIT(A)'s well-reasoned decisions.

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