ITAT Hyderabad: Depreciation on Network Rights allowed, Expenditure for Business Purposes remitted

The ITAT Hyderabad allowed the assessee's appeal partially, directing the AO to permit depreciation on the "Network Rights" as depreciation is allowable on goodwill. The issue of disallowance of expenditure towards technical and management services was remitted back to the AO for verification, with directions to allow the expenditure if found to be for the business purposes of the assessee.

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Issues:
1. Depreciation on "Network Rights" claimed by the assessee.
2. Disallowance of expenditure towards technical and management services.

Depreciation on "Network Rights" claimed by the assessee:
The case involved the assessee appealing against the order of the CIT (A) regarding the disallowance of depreciation on "Network Rights" for the assessment year 2010-11. The AO observed that the network rights were treated as "goodwill" and disallowed depreciation on the basis that goodwill does not qualify for depreciation under section 32(1)(ii) of the Act. The CIT (A) upheld this decision. However, the assessee contended that the network rights should be considered as "Intangible Assets" under section 32(1)(ii) of the Act. The ITAT Hyderabad, in line with the judgment of the Hon'ble Supreme Court, held that depreciation is allowable on "goodwill" and directed the AO to allow depreciation on the network rights.

Disallowance of expenditure towards technical and management services:
The second issue revolved around the disallowance of a sum paid by the assessee towards technical and management services provided by a holding company. The AO disallowed this expenditure due to lack of evidence supporting the nature of payment and services rendered. The CIT (A) also upheld this disallowance. During the appeal, the assessee reiterated the nature of services provided but failed to provide any evidence. The ITAT Hyderabad decided to remit the issue back to the AO for verification, directing the AO to allow the expenditure if it is found to be for the business purposes of the assessee. Therefore, Ground of Appeal No.2 was treated as allowed for statistical purposes.

In conclusion, the ITAT Hyderabad partially allowed the assessee's appeal, directing the AO to allow depreciation on the "Network Rights" and remitting the issue of disallowance of expenditure towards technical and management services back to the AO for verification.

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