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2015 (1) TMI 1017 - AT - Income TaxDepreciation on goodwill - bundle of business and commercial rights - slump sale - Held that - We agree with the submissions of the ld. Counsel of the assessee that the Hon ble Delhi High Court s decision in the case of Areva T & D India Ltd. vs. DCIT (2012 (4) TMI 79 - DELHI HIGH COURT) supports the case of the assessee wherein held that the specified intangible assets acquired under slump sale agreement were in the nature of 'business or commercial rights of similar nature' specified in section 32(l)(ii) and were accordingly eligible for depreciation under that section. Thus we are in agreement with the submissions of the ld. Counsel of the assessee that the goodwill that has been recognized in this case represents various assets in the nature of goodwill. - Decided in favour of assessee. Depreciation denied - vehicles which were admittedly used for the purpose of business and were owned by the appellant but however, these were not registered in the name of the appellant - Held that - It is thus clear that the technicality of an asset being registered in the name of the asset can not come in the way of an assessee s eligibility for depreciation as long as such an asset is de facto owned by the assessee and is used for the purposes of the business. In the present case, in the light of the business transfer agreement, there is no doubt that the asset was owned by the assessee. It is not even in dispute that the asset was used for the purposes of the business, nor has that been the case of the Assessing Officer. The conditions for eligibility to claim depreciation are thus satisfied on the facts of the present case. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance of ₹ 64,821. - Decided in favour of assessee. Disallowance of 50% of legal and professional fees - CIT(A) deleted addition - Held that - In the present case, there is no dispute about the facts of service being rendered and there is no benchmark set for as to what would constitute a fair market value of the services in question. Unless there is a clear finding that the market value of the services taken from the sister-concern is less than the price at which the services are obtained, there cannot be an occasion to apply the disabling provisions of s. 40A(2). This exercise, therefore, necessitates a finding about the fair market value of such services. There is no such finding in the present case. In these circumstances as also bearing in mind entirety of the case, we are of the considered view that the disallowance made by the A.O. was devoid of legally sustainable basis. The learned CIT(A) was thus quite justified in deleting the same. - Decided against revenue. Disallowance of the foreign travelling expenses - CIT(A) delted the addition - Held that - no reason to interfere in the matter, since, as rightly noted by the learned CIT(A), the impugned disallowance is indeed devoid of any legally sustainable basis. No disallowances can be made simply on the basis of assumptions, surmises and conjectures. We have noted that no specific requisitions were made by the A.O. for further information in respect of details of foreign travel expenses and yet the A.O. has disallowed the expenses for want of full and complete details. As regards the A.O. s observation of earlier expenditure incurred on exploring new market, we are in complete agreement with the learned CIT(A) that there is no basis whatsoever to come to this conclusion and it is purely an inference drawn on the basis of assumption.- Decided against revenue.
Issues Involved:
1. Depreciation on goodwill. 2. Depreciation on vehicles not registered in the appellant's name. 3. Disallowance of 50% of legal and professional fees. 4. Disallowance of foreign travel expenses. Issue-wise Detailed Analysis: 1. Depreciation on Goodwill: The first issue pertains to the disallowance of depreciation on goodwill amounting to Rs. 5,48,622. The Assessing Officer (AO) denied the depreciation claim on the grounds that goodwill is not an intangible asset eligible for depreciation under section 32(1)(ii) of the Income Tax Act, 1961. The assessee argued that the goodwill represented a "bundle of business and commercial rights." The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. However, the Tribunal noted that a coordinate bench had previously ruled in favor of the assessee for the assessment year 2006-07, citing the Delhi High Court's decision in Areva T&D India Ltd. vs. DCIT, which recognized goodwill as an intangible asset eligible for depreciation. Consequently, the Tribunal upheld the assessee's grievance and directed the AO to delete the disallowance. 2. Depreciation on Vehicles Not Registered in the Appellant's Name: The second issue involved the disallowance of Rs. 64,821 in depreciation on vehicles that were not registered in the assessee's name but were used for business purposes. The AO disallowed the claim, and the CIT(A) upheld this decision, relying on precedents that linked ownership with registration. However, the Tribunal referred to the Supreme Court's ruling in Mysore Minerals Limited vs. CIT, which clarified that depreciation should be allowed to the person who has dominion over the asset and uses it for business purposes, irrespective of registration. The Tribunal found that the vehicles were de facto owned by the assessee and used for business, thus satisfying the conditions for depreciation. The Tribunal directed the AO to delete the disallowance. 3. Disallowance of 50% of Legal and Professional Fees: The third issue concerned the disallowance of 50% of legal and professional fees amounting to Rs. 1,30,09,738 paid to Minda Industries Limited. The AO deemed the expenditure excessive and unreasonable under section 40A(2)(a)/(b) of the Act, as the services rendered were not adequately substantiated. The CIT(A) observed that the payment was made pursuant to an agreement and was a common practice in large corporate houses. The CIT(A) also noted that there was no tax avoidance involved as both companies were taxed at the same rate. The Tribunal agreed with the CIT(A), emphasizing that the AO had not established a fair market value for the services and that the disallowance lacked a legally sustainable basis. The Tribunal upheld the CIT(A)'s decision to delete the disallowance. 4. Disallowance of Foreign Travel Expenses: The fourth issue involved the disallowance of Rs. 1,00,000 in foreign travel expenses. The AO made a lump sum disallowance, questioning the business purpose of the trip. The CIT(A) found that the disallowance was based on assumptions and that the assessee had provided complete details of the expenses. The Tribunal agreed with the CIT(A), stating that disallowances cannot be made based on assumptions and that the AO had not requested further information. The Tribunal upheld the CIT(A)'s decision to delete the disallowance. Conclusion: The Tribunal allowed the appeal filed by the assessee, directing the AO to delete the disallowances related to depreciation on goodwill and vehicles, as well as the disallowances of legal and professional fees and foreign travel expenses. The appeal filed by the AO was dismissed.
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