AO's disallowance of trademark depreciation overturned as 2006-07 acquisition wasn't international transaction for 2011-12 assessment

Delhi HC held that AO's disallowance of depreciation on FABINDIA trademark was incorrect. The trademark acquisition in FY 2006-07 could not be treated as international transaction for AY 2011-12. ITAT's remand order required AO to examine depreciation admissibility and quantum, not determine ALP through TPO reference. Revenue misconstrued ITAT's direction. Since no international transaction occurred in the relevant year, AO's TPO reference was fundamentally flawed and without jurisdiction. TPO's order dated 28.01.2021 under Section 92(CA) was set aside.

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Issues:
1. Impugning an order passed by the Transfer Pricing Officer relating to assessment year 2011-12.
2. Claim of depreciation for the trademark 'FABINDIA' under Section 32 of the Income Tax Act.
3. Disallowance of depreciation by Assessing Officer based on Transfer Pricing Officer's findings.
4. Appeal before Commissioner of Income Tax (Appeals) and subsequent rejection.
5. Appeal before Income Tax Appellate Tribunal and subsequent remand for fresh examination.
6. Jurisdictional issue regarding the reference to Transfer Pricing Officer.
7. Request for directions to Assessing Officer to compute depreciation on trademark.

Analysis:

The petitioner challenged an order passed by the Transfer Pricing Officer (TPO) regarding the assessment year 2011-12, specifically focusing on the depreciation claim for the trademark 'FABINDIA' acquired during the financial year 2006-07. The TPO rejected the transfer pricing documentation and determined the arm's length price (ALP) of the international transaction as Nil, leading to disallowance of depreciation by the Assessing Officer. The petitioner's appeal before the Commissioner of Income Tax (Appeals) was unsuccessful on this issue, prompting an appeal before the Income Tax Appellate Tribunal (ITAT).

The ITAT found fault with the TPO's determination of ALP and set aside the orders, directing a fresh examination. The ITAT emphasized that the TPO cannot decide on the business expediency of intangible assets purchased by the assessee. The ITAT's order remanded the matter to the Assessing Officer for reconsideration, focusing on the admissibility and quantum of depreciation for the trademark 'FABINDIA'.

A key contention arose regarding the jurisdictional issue of the reference to the TPO for assessment year 2010-11, where no international transaction occurred. The court held that the reference made by the AO to the TPO was flawed, rendering the TPO's order under Section 92(CA) of the Act without jurisdiction. The court set aside the impugned order and clarified that the AO should reevaluate the depreciation claim in line with the ITAT's directions.

In conclusion, the court disposed of the petition, emphasizing the need for the AO to reassess the depreciation claim on the trademark 'FABINDIA' in accordance with the ITAT's order and the present judgment, without issuing specific directions for computing depreciation on the written down value of the trademark as requested by the petitioner.

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