Tenancy rights not intangible assets under Explanation 3 to s.32(1); no depreciation; s.14A disallowances included under Explanation (1)(f) to s.115JB(2).

ITAT held that tenancy rights are not intangible assets within Explanation 3 to s.32(1) and therefore no depreciation is allowable on such rights; appeal dismissed on that point. On book profits under s.115JB, the Tribunal held that amounts disallowable under s.14A form part of expenses debited to the profit and loss account and fall within Explanation (1)(f) to s.115JB(2), accordingly disallowance upheld and appeal dismissed.

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Issues:
1. Denial of depreciation on tenancy rights.
2. Addition to book profit under section 115JB by disallowance under section 14A.

Issue 1: Denial of Depreciation on Tenancy Rights

The appeal was against the denial of depreciation on tenancy rights for the assessment year 2009-2010. The Assessing Officer rejected the claim based on previous years' decisions. The Tribunal referred to a previous judgment and the definition of "intangible assets" under section 32(1)(ii). The Tribunal emphasized that the term "intangible assets" includes know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature. The Tribunal applied the rule of noscitur a sociis, which means that general words draw meaning from specific words they accompany. It concluded that tenancy rights do not fall under intangible assets eligible for depreciation, as they are not similar to know-how, patents, copyrights, trademarks, licenses, franchises. The judgment of the Hon'ble Supreme Court in a similar case was distinguished, stating that tenancy rights are not akin to intangible assets. Therefore, the appeal on this ground was dismissed.

Issue 2: Addition to Book Profit under Section 115JB by Disallowance under Section 14A

The second ground of appeal concerned the addition to book profit under section 115JB by disallowance under section 14A. The Assessing Officer computed disallowance under section 14A using rule 8D, which was added to the book profit under section 115JB. The Tribunal analyzed the provisions of section 115JB and section 14A. It noted that section 115JB requires adding back expenditures related to exempt income under clause (f) of Explanation 1. The Tribunal compared the language of section 14A and clause (f) of Explanation 1, emphasizing that any expenditure related to exempt income should be added back. The Tribunal rejected the argument that expenses disallowed under section 14A cannot be traced to the profit and loss account, stating that the provision explicitly covers expenditures related to exempt income. Referring to previous tribunal decisions, the Tribunal upheld the disallowance under section 14A and its addition to book profit under section 115JB. Consequently, the appeal on this ground was dismissed.

In conclusion, the Tribunal upheld the decisions of the authorities below on both issues, denying depreciation on tenancy rights and confirming the addition to book profit under section 115JB by disallowance under section 14A. The appeal was dismissed accordingly.

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