2013 (7) TMI 698 - HC - Income Tax

Disallowance of depreciation - Intangible asset - Tribunal deleted disallowance - Held that - assessee had developed a software which had a special application. In fact, such software was also registered as trademark. Assessing Officer s objection that, on mere development of a new software depreciation as an intangible asset cannot be granted therefore would not survive - in the reopened proceeding, full facts were before the Assessing Officer - Decided against Revenue.

Summary

Issues:
1. Disallowance of depreciation on intangible assets developed by the assessee called 'AVTAR TM'.

Analysis:
The High Court heard multiple appeals involving the same issue of disallowance of depreciation on intangible assets developed by the assessee. The primary question raised by the revenue was whether the ITAT erred in confirming the CIT(A)'s order in deleting the disallowance of depreciation on the software 'AVTAR TM' developed by the assessee.

The case revolved around the assessee's claim of depreciation on the development of the software 'AVTAR TM.' The Assessing Officer disallowed the claim for depreciation, stating that the valuation and nature of the intangible asset were not provided by the assessee. The AO contended that the provision for granting depreciation to intangible assets was applicable only to specific classes of assets like know-how, patents, copyright, and trademarks.

The CIT(A) allowed the appeal, emphasizing that the software 'AVTAR TM' was developed by the appellant and registered as a trademark under the Trade Marks Act, 1999. The CIT(A) noted that the expenditure incurred on the software was capital in nature and depreciation had been allowed to the appellant in previous assessments. Therefore, the disallowance of depreciation was deemed unwarranted and deleted.

Before the CIT(A), the assessee outlined the details of the software development process and the nature of expenditure incurred. The company's intangible assets included the Integration Platform 'AVTAAR TM,' which was developed through extensive research and development activities. The total expenditure during the development phase from June 2000 to March 2002 amounted to Rs. 1,87,81,830, and depreciation at the rate of 25% had been claimed from A.Y. 2003-04 onwards.

The Tribunal rejected the revenue's appeal, upholding the CIT(A)'s decision. The High Court observed that the assessee had developed a software with a special application, registered as a trademark, and the objection that depreciation could not be granted on a new software was unfounded. The Assessing Officer's rejection of the claim was solely based on the lack of detailed expenditure provided by the assessee.

The High Court concluded that the revenue's appeals were to be dismissed, as the Assessing Officer's rejection of the claim solely on the grounds of insufficient details of expenditure was not justified. The Court emphasized that the accounts of the assessee were available for verification, and the revenue had not questioned the details supplied by the assessee.

In summary, the High Court upheld the decision of the CIT(A) and the Tribunal, dismissing all tax appeals related to the disallowance of depreciation on the intangible assets developed by the assessee.