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of <h1>Trademark depreciation based on original cost upheld; Revenue's lack of approval invalidates Explanation 3. 5th proviso restricts depreciation.</h1> <h3>M/s PIK Studios P. Ltd. (Formerly known as PIK Pens P. Ltd. Versus Dy. Commissioner of Incometax-8 (2) /Income-tax Officer-8 (2) Mumbai.</h3> M/s PIK Studios P. Ltd. (Formerly known as PIK Pens P. Ltd. Versus Dy. Commissioner of Incometax-8 (2) /Income-tax Officer-8 (2) Mumbai. - [2020] 79 ITR ... Issues Involved:1. Delay in filing the appeal.2. Allowability of depreciation on revalued trademark.3. Approval of JCIT under Explanation 3 to Section 43(1) of the Act.4. Rejection of valuation report without referring to DVO.5. Applicability of the 5th proviso to Section 32(1) of the Act.Detailed Analysis:1. Delay in Filing the Appeal:The assessee filed an appeal with a delay of 1336 days, attributing the delay to the company being a sick company and opting to pursue a rectification petition under Section 154 of the Act. The Tribunal condoned the delay after considering the reasonable cause presented by the assessee.2. Allowability of Depreciation on Revalued Trademark:The core issue was the allowability of depreciation on the revalued cost of the trademark 'PIK,' which was acquired for Rs. 100 and revalued to Rs. 5.52 crores. The Tribunal had previously remanded the matter to the CIT(A) to examine the allowability of depreciation on this revalued amount. The CIT(A) concluded that the depreciation should be calculated as if no succession had taken place, meaning the depreciation should be based on the original cost of Rs. 100, not the revalued amount.3. Approval of JCIT under Explanation 3 to Section 43(1) of the Act:The Tribunal found that the Revenue failed to produce the approval from the JCIT, which is a statutory requirement under Explanation 3 to Section 43(1). Consequently, the invocation of Explanation 3 failed due to lack of jurisdiction.4. Rejection of Valuation Report without Referring to DVO:The CIT(A) noted that there is no legal requirement for the AO to obtain another valuation report to reject the assessee's valuation. The AO had elaborately examined and discussed the reasons for not accepting the valuation done by the appellant company.5. Applicability of the 5th Proviso to Section 32(1) of the Act:The Tribunal held that the 5th proviso to Section 32(1) applies to the case, which states that the aggregate deduction for depreciation should not exceed the amount calculated as if the succession had not taken place. Therefore, the depreciation should be based on the original cost of the trademark in the hands of the predecessor firm, which was Rs. 100. The Tribunal rejected the assessee's argument that the 5th proviso does not apply, affirming that the depreciation cannot be claimed on the revalued amount.Conclusion:The Tribunal dismissed the appeals, affirming that the depreciation should be calculated based on the original cost of the trademark, not the revalued amount. The Tribunal also found that the Revenue's failure to obtain JCIT's approval invalidated the invocation of Explanation 3 to Section 43(1). The Tribunal upheld the CIT(A)'s decision that the 5th proviso to Section 32(1) applies, restricting the depreciation to the original cost of the trademark.
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