Tribunal allows depreciation on intangible assets, remands Section 14A, overturns prior period expenditure disallowance.

The Tribunal allowed the assessee's appeal partly, directing the AO to allow depreciation on intangible assets and Bloomberg terminal charges. The disallowance under Section 14A was remanded for fresh consideration, and the disallowance of prior period expenditure was overturned in favor of the assessee.

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Issues Involved:
1. Disallowance of depreciation on intangible assets.
2. Disallowance of Bloomberg terminal charges under Section 40(a)(ia).
3. Disallowance under Section 14A applying Rule 8D.
4. Disallowance of prior period expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Intangible Assets:
The assessee challenged the disallowance of depreciation on an intangible asset amounting to Rs. 35,15,625/-. The Tribunal found that the issue was covered by its earlier orders in the assessee's own case for the Assessment Years 2006-07, 2007-08, and 2009-10. It was established that the payment to M/s. Ashmavir Financial Consultants P. Ltd. for acquiring retail clientele constituted an intangible asset eligible for depreciation under Section 32(1)(ii) of the Income Tax Act. The Tribunal emphasized that the acquired clientele was a business or commercial right of similar nature to the specified intangible assets, thus qualifying for depreciation. The Tribunal directed the AO to allow the depreciation claim, thereby allowing Ground No. 1 in favor of the assessee.

2. Disallowance of Bloomberg Terminal Charges under Section 40(a)(ia):
The AO disallowed Bloomberg terminal charges of Rs. 8,67,196/- under Section 40(a)(ia) due to non-deduction of TDS. The FAA upheld this disallowance, considering the charges as fees for technical services under Section 194-J. However, the Tribunal noted that in earlier years, it had ruled in favor of the assessee, recognizing the payment as a subscription for an e-magazine/journal, not liable for TDS. Respectfully following its previous decisions, the Tribunal allowed Ground No. 2 in favor of the assessee.

3. Disallowance under Section 14A Applying Rule 8D:
The AO disallowed Rs. 14.99 lakhs under Section 14A read with Rule 8D for expenses related to earning exempt income. The FAA upheld the disallowance, noting the lack of separate accounts for exempt income and taxable investments. The Tribunal observed that the assessee had sufficient own funds for making investments, but the cash flow statement was necessary to prove the availability of tax-free funds at the time of investment. The Tribunal restored the matter to the AO for fresh adjudication, allowing Ground No. 3 partly in favor of the assessee.

4. Disallowance of Prior Period Expenditure:
The AO disallowed Rs. 11,820/- claimed as prior period expenditure, stating that it did not crystallize in the current year. The FAA upheld this view. However, the Tribunal noted that prior period expenses could be allowed if they crystallized in a subsequent year and were necessary for business operations. Referring to judgments by the Hon'ble High Courts, the Tribunal allowed the prior period expenditure, reversing the FAA's order and deciding Ground No. 4 in favor of the assessee.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal directed the AO to allow depreciation on intangible assets and Bloomberg terminal charges while remanding the disallowance under Section 14A for fresh consideration and allowing the prior period expenditure. The order was pronounced in the open court on 28th May, 2014.

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