Tribunal denies depreciation on shares, citing Income Tax Act; consistency principle deemed inapplicable.

The Tribunal reversed the CIT(A)'s decision and upheld the AO's disallowance of depreciation on shares purchased by the assessee, ruling that shares do not qualify as depreciable intangible assets under Section 32(1)(ii) of the Income Tax Act. The principle of consistency was deemed inapplicable due to the nature of previous assessments. As a result, the appeals for the relevant assessment years were decided in favor of the Revenue.

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Issues Involved:
1. Disallowance of depreciation on Iron Ore rights.
2. Classification of shares as intangible assets for depreciation purposes.
3. Consistency in applying previous assessment decisions.

Detailed Analysis:

1. Disallowance of Depreciation on Iron Ore Rights:

The primary issue was whether the depreciation claimed by the assessee on Iron Ore rights, amounting to Rs. 4,44,07,662/-, was justified. The assessee had acquired exclusive Iron Ore rights through a series of agreements and mergers. The AO disallowed the depreciation on the grounds that the shareholders of RRS Minerals did not possess any rights that could be transferred to the assessee. The CIT(A) had initially ruled in favor of the assessee, stating that the payment made to acquire RRS Minerals was essentially for acquiring valuable commercial rights and thus should be treated as intangible assets eligible for depreciation.

2. Classification of Shares as Intangible Assets for Depreciation Purposes:

The AO argued that the payment made for acquiring shares of RRS Minerals could not be classified as an intangible asset eligible for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961. The CIT(A) had allowed the depreciation by interpreting the acquisition of shares as a means to acquire the commercial rights held by RRS Minerals. However, the Tribunal noted that shares do not fall under the category of intangible assets as defined by the Act, which includes know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature.

3. Consistency in Applying Previous Assessment Decisions:

The CIT(A) had also relied on the principle of consistency, stating that depreciation had been allowed in previous assessment years (AY 2011-12 and AY 2012-13). However, the Tribunal pointed out that the assessment for AY 2011-12 was not scrutinized under Section 143(3) but accepted under Section 143(1), and the assessment for AY 2012-13 was reopened and disallowed subsequently. Therefore, the principle of consistency was not applicable in this case.

Tribunal's Findings:

1. Depreciation on Iron Ore Rights:
- The Tribunal concluded that the payment made for acquiring shares of RRS Minerals could not be classified as an intangible asset eligible for depreciation. The shares themselves do not qualify as intangible assets under Section 32(1)(ii) of the Income Tax Act.

2. Judicial Precedents:
- The Tribunal reviewed several judicial precedents cited by the CIT(A) and the assessee, including the Supreme Court's decision in Mysore Minerals Ltd. v. CIT and the Karnataka High Court's decision in Surana Pharmaceuticals Pvt. Ltd. v. CIT. However, these cases were found to be distinguishable as they did not address the issue of whether shares could be classified as intangible assets for depreciation purposes.

3. Principle of Consistency:
- The Tribunal held that the principle of consistency could not be applied in this case because the earlier assessments were either not scrutinized or had been reopened and reassessed. Therefore, the previous allowance of depreciation did not set a binding precedent for the current assessment year.

Conclusion:

The Tribunal reversed the order of the CIT(A) and restored the AO's decision to disallow the depreciation of Rs. 4,44,07,662/- on the shares purchased by the assessee, holding that shares are not depreciable intangible assets under Section 32(1)(ii) of the Income Tax Act. Consequently, the appeals for AY 2013-14, AY 2014-15, and AY 2016-17 were allowed in favor of the Revenue.

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