Tribunal allows deduction for scrap sale & intangible assets depreciation, citing precedent & direct link with industrial undertaking.

The Tribunal upheld the deduction under Section 80IB for the sale of scrap, citing precedent and the direct link with the industrial undertaking. Additionally, depreciation on intangible assets was allowed based on prior depreciation granted on the block of assets. The assessee's appeal was allowed, directing the Assessing Officer to permit the claimed depreciation. The Revenue's appeals were dismissed.

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Issues Involved:
1. Deduction under Section 80IB of the Income Tax Act, 1961, for Goa Unit in respect of sale of scrap.
2. Denial of depreciation claimed by the assessee for the Assessment Year (A.Y.) 2007-08 on commercial rights acquired under Intangible Assets.

Detailed Analysis:

Issue 1: Deduction under Section 80IB for Sale of Scrap

Background:
The Revenue challenged the orders of the Commissioner of Income Tax (Appeals) for the assessment years 2005-06 and 2007-08, which allowed deduction under Section 80IB of the Income Tax Act, 1961, for the Goa Unit in respect of the sale of scrap. The Assessing Officer had initially disallowed this deduction, arguing that income from the sale of scrap is not income from the sale of manufactured products or by-products, and thus not eligible for deduction under Section 80IB.

Tribunal's Findings:
The Tribunal noted that this issue had been previously decided in favor of the assessee in ITA No. 105/PN/2007 for the assessment year 2002-03 and ITA No. 1975/PN/2013 for the assessment year 2004-05. The Tribunal had relied on the decision of the Honorable Madras High Court in the case of M/s. Fenner India Ltd., which held that profit on the sale of scrap material, having a direct link or nexus with the industrial undertaking, is eligible for deduction under Section 80IB.

Conclusion:
Since the Revenue could not present any new arguments to counter the Tribunal's previous findings and there were no changes in facts and circumstances, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the appeals of the Revenue.

Issue 2: Denial of Depreciation on Intangible Assets

Background:
The assessee contested the denial of depreciation on commercial rights acquired under Intangible Assets for the A.Y. 2007-08. The assessee had set up a plant for manufacturing optic fiber cables and entered into a Long Term Purchase Agreement with Shin Etsu Chemical Company Limited, Japan, for the supply of preforms, a crucial raw material. Due to a crash in preform prices, the assessee renegotiated the prices and made a lump sum payment of 285 million Japanese Yen to secure future supplies at a reduced rate. This payment was capitalized as an intangible asset, and depreciation was claimed in the assessment years 2004-05, 2005-06, and 2006-07, which the Revenue had accepted.

Tribunal's Findings:
The Tribunal observed that once an asset is part of the block of assets and depreciation has been allowed in earlier years, it cannot be disallowed in subsequent years. The Tribunal referred to the case of Kodak Polychrome Graphics (I) (P) Ltd. Vs. ACIT, which held that once depreciation is allowed on a block of assets, it cannot be disallowed in subsequent years on the written down value.

Conclusion:
The Tribunal concluded that the assessee is eligible to claim depreciation on the written down value of intangible assets for the impugned assessment year. The appeal of the assessee was allowed, and the Tribunal directed the Assessing Officer to allow the depreciation as claimed.

Final Judgment:
- The appeal of the assessee (ITA No. 360/PN/2014) is allowed.
- Both appeals of the Revenue (ITA Nos. 564 & 565/PN/2014) are dismissed.

Order pronounced on Monday, the 31st day of August, 2015.

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