Appeal Dismissed on Non-compete Territory Rights Depreciation Disallowance for AY 2004-05

The ITAT dismissed the appeal filed by the Revenue regarding the disallowance of depreciation on non-compete territory rights for Assessment Year 2004-05. The decision was based on the Co-ordinate Bench's ruling, which upheld the CIT(A)'s reasoned order and emphasized the lack of independent reasons for disallowance by the A.O. The ITAT noted the revenue authorities' inaction on the issue and declined to interfere, citing jurisdictional constraints and the absence of adverse comments on the claim's merits. The appeal was dismissed in favor of the assessee, affirming the deletion of the disallowance of depreciation.

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Issues:
1. Disallowance of depreciation on non-compete territory rights.

Detailed Analysis:
Issue 1: Disallowance of depreciation on non-compete territory rights
The appeal was filed by the Revenue against the order of the Ld. CIT(A)-9, Ahmedabad, challenging the deletion of the addition of Rs. 86,13,2817 on account of disallowance of depreciation on non-compete territory rights for the Assessment Year 2004-05. The assessee had initially requested the allowance of depreciation on non-compete territory rights based on the CIT(A)'s order dated 10/10/2006. The AO, in response to the rectification application, highlighted that the issue of depreciation was pending until the decision of the Hon'ble Gujarat High Court in the assessee's own case for A.Y. 2002-03. The Gujarat High Court, in its order, invalidated the reopening of the case but did not address the merits of the disallowance of depreciation on non-compete territory rights. Consequently, the department was bound by the decision only in terms of avoiding reopening the case under section 147. The claim for allowance of depreciation was denied as it was not expressly allowed by the Gujarat High Court's decision.

The ITAT, in its detailed analysis, reviewed the chronological developments in the orders passed by the revenue authorities, CIT(A), and Tribunal regarding the issue of granting depreciation on non-compete territory rights. It was noted that the revenue authorities had not taken action on this issue, and the ITAT upheld the order of the CIT(A) for Assessment Year 2006-07. The Department did not file any appeal against the CIT(A)'s order for Assessment Years 2003-04 and 2004-05, as the matter was subjudice with the Gujarat High Court. The Co-ordinate Bench of ITAT for Assessment Year 2005-06 relied on the decision of not filing appeals for the previous years and dismissed the appeal of the revenue. The ITAT concurred with the CIT(A)'s decision, emphasizing that the A.O. had not provided independent reasons for the disallowance, and the matter had not been examined on merits.

In support of its contention, the assessee cited a Co-ordinate Bench order in the assessee's own case for Assessment Year 2005-06 & 2006-07, where the CIT(A)'s decision to delete the disallowance of depreciation on non-compete territory rights was confirmed. The Co-ordinate Bench highlighted that no adverse comments on the merits of the claim were made, and no reassessment or recomputation could be done at that stage. The decision was accepted based on jurisdiction alone, and the relaxation under section 153(3) was not applicable. The Co-ordinate Bench declined to interfere in the matter, considering the peculiar facts of the case where revenue authorities' inaction prejudiced their interests. Consequently, the appeal by the Revenue was dismissed based on the Co-ordinate Bench's decision in favor of the assessee and against the revenue, upholding the detailed and reasoned order of the CIT(A).

In conclusion, the ITAT dismissed the appeal filed by the Revenue, following the decision of the Co-ordinate Bench and emphasizing the detailed and reasoned order passed by the CIT(A).

Order pronounced in Open Court on 11-05-2018.

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