2015 (1) TMI 1017 - AT - Income Tax

Tribunal directs deletion of disallowances on goodwill, unregistered vehicles, legal fees, and foreign travel expenses.

Minda Acoustic Limited (formerly known as Minda Fiamm Acoustic Limited) Versus Additional Commissioner of Income Tax

Minda Acoustic Limited (formerly known as Minda Fiamm Acoustic Limited) Versus Additional Commissioner of Income Tax - TMI Issues Involved:1. Depreciation on goodwill.2. Depreciation on vehicles not registered in the appellant's name.3. Disallowance of 50% of legal and professional fees.4. Disallowance of foreign travel expenses.Issue-wise Detailed Analysis:1. Depreciation on Goodwill:The first issue pertains to the disallowance of depreciation on goodwill amounting to Rs. 5,48,622. The Assessing Officer (AO) denied the depreciation claim on the grounds that goodwill is not an intangible asset eligible for depreciation under section 32(1)(ii) of the Income Tax Act, 1961. The assessee argued that the goodwill represented a 'bundle of business and commercial rights.' The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. However, the Tribunal noted that a coordinate bench had previously ruled in favor of the assessee for the assessment year 2006-07, citing the Delhi High Court's decision in Areva T&D India Ltd. vs. DCIT, which recognized goodwill as an intangible asset eligible for depreciation. Consequently, the Tribunal upheld the assessee's grievance and directed the AO to delete the disallowance.2. Depreciation on Vehicles Not Registered in the Appellant's Name:The second issue involved the disallowance of Rs. 64,821 in depreciation on vehicles that were not registered in the assessee's name but were used for business purposes. The AO disallowed the claim, and the CIT(A) upheld this decision, relying on precedents that linked ownership with registration. However, the Tribunal referred to the Supreme Court's ruling in Mysore Minerals Limited vs. CIT, which clarified that depreciation should be allowed to the person who has dominion over the asset and uses it for business purposes, irrespective of registration. The Tribunal found that the vehicles were de facto owned by the assessee and used for business, thus satisfying the conditions for depreciation. The Tribunal directed the AO to delete the disallowance.3. Disallowance of 50% of Legal and Professional Fees:The third issue concerned the disallowance of 50% of legal and professional fees amounting to Rs. 1,30,09,738 paid to Minda Industries Limited. The AO deemed the expenditure excessive and unreasonable under section 40A(2)(a)/(b) of the Act, as the services rendered were not adequately substantiated. The CIT(A) observed that the payment was made pursuant to an agreement and was a common practice in large corporate houses. The CIT(A) also noted that there was no tax avoidance involved as both companies were taxed at the same rate. The Tribunal agreed with the CIT(A), emphasizing that the AO had not established a fair market value for the services and that the disallowance lacked a legally sustainable basis. The Tribunal upheld the CIT(A)'s decision to delete the disallowance.4. Disallowance of Foreign Travel Expenses:The fourth issue involved the disallowance of Rs. 1,00,000 in foreign travel expenses. The AO made a lump sum disallowance, questioning the business purpose of the trip. The CIT(A) found that the disallowance was based on assumptions and that the assessee had provided complete details of the expenses. The Tribunal agreed with the CIT(A), stating that disallowances cannot be made based on assumptions and that the AO had not requested further information. The Tribunal upheld the CIT(A)'s decision to delete the disallowance.Conclusion:The Tribunal allowed the appeal filed by the assessee, directing the AO to delete the disallowances related to depreciation on goodwill and vehicles, as well as the disallowances of legal and professional fees and foreign travel expenses. The appeal filed by the AO was dismissed.