Tribunal allows depreciation on intangible assets in reassessment

The Tribunal upheld the reopening of assessments under section 147/148 due to the assessee's failure to fully disclose material facts. However, depreciation on intangible assets, including trade and marketing network rights, was allowed, following a previous decision. The Assessing Officer was directed to permit depreciation after adjusting for depreciation already granted in the prior assessment year. The appeals of the assessee were partially allowed.

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Issues Involved:
1. Reopening of assessment under section 147/148 of the Income Tax Act.
2. Disallowance of depreciation on intangible assets, specifically goodwill.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147/148:
The primary issue was whether the reopening of the assessment under section 147/148 of the Income Tax Act was justified. The assessee argued that the reopening was based on a change of opinion, which is not permissible. The assessee had disclosed all material facts in the original returns, and the Assessing Officer (A.O.) had allowed the depreciation claims in the original assessments. The A.O. later reopened the assessments on the grounds that the depreciation claimed on trade and marketing network rights included goodwill, which is not eligible for depreciation under section 32(ii) of the Act.

The Tribunal noted that the assessee had indeed claimed excess depreciation on trade and marketing network rights in the original returns for the assessment years 2002-03 and 2004-05. The A.O. had allowed these claims without reducing the depreciation already allowed in the assessment year 2001-02. The Tribunal found that there was an omission and failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessments. This justified the A.O.'s initiation of proceedings under section 147/148. The Tribunal rejected the assessee's contention that the reopening was merely a change of opinion, citing the Delhi High Court's decision in Honda Siel Power Products Limited v. Dy. CIT, which upheld the validity of reassessment proceedings in similar circumstances.

2. Disallowance of Depreciation on Intangible Assets:
The second issue was the disallowance of depreciation on intangible assets, specifically goodwill. The A.O. disallowed the depreciation claimed on the grounds that goodwill is not an intangible asset eligible for depreciation under section 32(ii) of the Act. The assessee contended that the amount paid for the acquisition of marketing and distribution network, market goodwill, etc., fell within the definition of intangible assets as governed by section 32(1)(ii) and was eligible for depreciation.

The Tribunal noted that in the assessee's own case for the assessment year 2006-07, the Tribunal had allowed the depreciation on such intangible assets of trade and marketing network rights. The Tribunal directed the A.O. to allow the depreciation as claimed by the assessee, after reducing the depreciation already allowed in the assessment year 2001-02 from the written down value (WDV) shown by the assessee for the year under consideration.

Conclusion:
The Tribunal upheld the reopening of the assessments under section 147/148, finding that the assessee had failed to disclose fully and truly all material facts necessary for the assessments. However, the Tribunal allowed the depreciation on intangible assets, including trade and marketing network rights, in line with its earlier decision for the assessment year 2006-07. The A.O. was directed to allow the depreciation after adjusting for the depreciation already allowed in the assessment year 2001-02. The assessee's appeals were partly allowed.

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