2021 (4) TMI 1201 - AT - Income Tax

Tribunal allows depreciation on intangible assets, overturns Assessing Officer decision

Coventya India Private Limited Versus The Income Tax Officer, Ward-1 (3), Pune

The Tribunal allowed depreciation on Non compete fees, Distribution network rights, Customer list, and Goodwill, overturning the disallowance made by the ... Disallowance of depreciation on Intangible assets - HELD THAT:- As decided in own case [2020 (2) TMI 936 - ITAT PUNE]Tribunal allowed depreciation on Intangible assets of Non compete fees, Distribution net work rights and Customer list (depreciation on Goodwill was suo motu allowed by the AO). The authorities below have relied on their respective orders for the earlier years, which have been adjudicated by the Tribunal. In absence of any distinguishing facts having been brought to our notice by the ld. DR, respectfully following the precedent, we hold the assessee entitled to depreciation u/s.32(1)(ii) of the Act on the opening written down value of Non compete fees, Distribution of net work rights and Customer list. Depreciation o goodwill - The Hon’ble Supreme Court in Smifs Securities Ltd [2012 (8) TMI 713 - SUPREME COURT] has allowed depreciation on goodwill. Respectfully following the same, we direct to allow depreciation on Goodwill also. The impugned order is overturned pro tanto resulting into grant of depreciation on opening written down value of the intangible assets. Addition to the Intangible asset of Non compete fees and claimed depreciation thereon also - AR submitted that the assessee, while entering into original agreement with CRIL, agreed for certain more payment in future years on the basis of a formula. The said amount of ₹ 1.00 crore was stated to be pursuant to such formulae - HELD THAT:- No calculation in accordance with the formula has been placed on record. In these circumstances, we set aside the impugned order on this score and remit the matter to the file of the Assessing Officer for examining true nature of ₹ 1 crore. If the same is found out to be correct in accordance with the terms of the agreement as to the quantum and nature, then deprecation on such additional amount of ₹ 1 crore should also be granted. In the otherwise scenario, the AO is free to decide the issue as per law. Needless to say, the assessee will be granted reasonable opportunity of hearing. 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.