Tribunal allows depreciation on intangible assets, overturns Assessing Officer decision

The Tribunal allowed depreciation on Non compete fees, Distribution network rights, Customer list, and Goodwill, overturning the disallowance made by the Assessing Officer and upheld by the CIT(A). The Tribunal directed to allow depreciation on Goodwill as well, in line with precedent. The appeal was partly allowed, granting depreciation on the intangible assets' opening written down value. The matter of an additional payment on Non compete fees was remitted to the Assessing Officer for further examination.

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Issues:
Confirmation of disallowance of depreciation on Intangible assets.

Analysis:
The appeal was against the order passed by the ld. CIT(Appeal), Pune-1 related to the assessment year 2014-15. The only issue raised was the confirmation of disallowance of depreciation amounting to Rs. 2,01,68,047/- on Intangible assets. The assessee acquired electroplating business of Chemetall Rai India Ltd. during the previous year relevant to the assessment year 2012-13. The Assessing Officer disallowed depreciation on Non compete fees, Distribution net work rights, and Customer list, but allowed depreciation on Goodwill. The ld. CIT(Appeals) upheld the view of the Assessing Officer. The Tribunal, after hearing the contentions, held that the assessee was entitled to depreciation on Non compete fees, Distribution net work rights, Customer list, and Goodwill based on the precedent set in earlier years.

The Assessing Officer inadvertently made a disallowance of depreciation on Goodwill, even though in principle, the assessee was entitled to it. The Tribunal directed to allow depreciation on Goodwill as well, following the precedent set by the Hon’ble Supreme Court. The impugned order was overturned pro tanto, resulting in the grant of depreciation on the opening written down value of the intangible assets. The assessee had made an additional payment of Rs. 1 crore during the year on Non compete fees, claiming depreciation on it. The matter was remitted to the Assessing Officer to examine the true nature of this additional amount. If found to be in accordance with the terms of the agreement, depreciation should be granted; otherwise, the AO was free to decide as per law.

In conclusion, the appeal was partly allowed, and the order was pronounced on 29th April 2021.

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