2010 (12) TMI 520 - AT - Income Tax

Reassessment - Depreciation - Business and commercial brand equity - The assessee is a company engaged in the business of retail assets financing, investment and trade finance - valuation report was only in respect of the intangibles and it does not refer to any tangible assets at all. In fact, the breakup of total consideration paid as disclosed in the audited accounts for the year ended March, 31 st, 2001, includes the tangible at book values and the intangibles having regard to the valuation report - Since the issue involved in these three appeals of the Revenue arising under identical facts and circumstances which prevailed in AY 04-05 and since the Tribunal has already held in AY 04-05 that the Assessee is entitled to depreciation on intangibles - Decided in favour of the assessee

Summary

Issues Involved:
1. Entitlement to depreciation on intangible assets (business and commercial brand equity).
2. Validity of reassessment proceedings initiated under section 147 of the Income Tax Act.

Detailed Analysis:

1. Entitlement to Depreciation on Intangible Assets (Business and Commercial Brand Equity):

The primary issue revolves around whether the assessee is entitled to claim depreciation on intangible assets, specifically business and commercial brand equity, under section 32(1)(ii) of the Income Tax Act.

Background and Arguments:
- The assessee, engaged in retail assets financing, investment, and trade finance, acquired the retail finance division of Birla Global Finance Ltd. (BGFL) through a slump sale agreement dated 29/3/2001. This acquisition included intangible assets classified as "business and commercial brand equity."
- For assessment years (AY) 2001-02, 2002-03, and 2003-04, the assessee claimed depreciation on these intangible assets, which was initially accepted under section 143(1) of the Act.
- In AY 2004-05, the Assessing Officer (AO) disallowed the depreciation, contending that business and commercial brand equity did not qualify as intangible assets under section 32(1)(ii).

Tribunal's Findings:
- The Tribunal considered a similar case for AY 2004-05, where it was held that the assessee was entitled to depreciation on intangible assets.
- The Tribunal noted that the AO had acknowledged the valuation report from Haribhakti Financial Services Pvt Ltd, which valued the intangible assets at Rs. 46.20 crores. However, the AO dismissed this report, arguing that no specific valuation was attributable to the intangible assets.
- The CIT(A) had previously allowed the assessee's claim, stating that the agreement defined all assets (tangible and intangible), and the valuation report was solely for intangible assets.
- The Tribunal found that the AO had not provided any factual basis to discredit the valuation report and that the intangibles, including logos and trademarks, were indeed acquired and used by the assessee, generating substantial revenue.

Conclusion:
- The Tribunal upheld the CIT(A)'s decision, affirming that the assessee was entitled to depreciation on the intangible assets. The appeals filed by the revenue were dismissed, as the Tribunal found no merit in the revenue's arguments.

2. Validity of Reassessment Proceedings Initiated Under Section 147:

The secondary issue pertains to the validity of the reassessment proceedings initiated under section 147 for AYs 2001-02, 2002-03, and 2003-04.

Background and Arguments:
- Based on the disallowance in AY 2004-05, the AO issued notices under section 148 for the earlier assessment years to withdraw the previously allowed depreciation on intangible assets.
- The assessee challenged the initiation of reassessment proceedings, arguing that there was no reason to believe that income chargeable to tax had escaped assessment.

Tribunal's Findings:
- The CIT(A) had upheld the reassessment proceedings, but the Tribunal found that this issue was rendered academic due to the dismissal of the revenue's appeals.
- Since the Tribunal confirmed that the assessee was entitled to depreciation on intangible assets, the reassessment proceedings became irrelevant.

Conclusion:
- The Tribunal dismissed the cross-objections filed by the assessee regarding the reassessment proceedings as infructuous.

Final Judgment:
The appeals by the revenue were dismissed, and the cross-objections by the assessee were also dismissed. The Tribunal confirmed that the assessee was entitled to depreciation on intangible assets, and the reassessment proceedings were deemed academic and thus dismissed as infructuous.

Order Pronounced:
The order was pronounced in the open court on 22.12.2010.