2012 (4) TMI 782 - AT - Income Tax

Summary

Issues Involved:
1. Assessee's claim for depreciation on technical knowhow and right to use trademark.
2. Addition on account of recovery of debts claimed as bad.
3. Reassessment and additions made u/s 143(3) read with section 147.

Summary:

1. Depreciation on Technical Knowhow and Right to Use Trademark:
The main issue in ITA No. 6719/Mum/2008 for AY 2005-06 was the assessee's claim for depreciation on technical knowhow and right to use trademark. The assessee, a company engaged in manufacturing and selling meters, acquired the business of M/s Asia Brows Breweries Ltd. (ABB) and revalued the assets, including technical knowhow and trademark. The AO disallowed the depreciation claim, stating these assets were not listed in the transfer agreement and had no cost of acquisition. The CIT(A) allowed the claim, noting the excess consideration paid was for intangible assets, which were acquired as per the agreement. The ITAT upheld the CIT(A)'s decision, confirming the intangibles were transferred and the consideration paid was for their acquisition.

2. Recovery of Debts Claimed as Bad:
The AO added Rs. 66,34,889/- recovered against bad debts on a protective basis, doubting the additional provision for bad debts made by the assessee. The CIT(A) deleted this addition, stating the provision was not claimed as a deduction, and the recovery was a capital receipt not chargeable to tax. The ITAT upheld this decision, agreeing the recovery did not constitute taxable income.

3. Reassessment and Additions u/s 143(3) read with section 147:
For AY 2004-05, the AO reopened the assessment and disallowed depreciation on technical knowhow and trademarks, and additional provision for bad debts, also adding these to the book profit u/s 115JB. The CIT(A) deleted these additions, following the order for AY 2005-06. The ITAT upheld the CIT(A)'s decision, confirming the disallowances were not justified. For AY 2006-07 and 2007-08, similar issues were decided in favor of the assessee, following the decision for AY 2005-06.

Cross Objection:
The assessee's cross objection challenging the validity of reassessment for AY 2004-05 was dismissed as infructuous since the CIT(A)'s order deleting the additions was upheld.

Conclusion:
All four appeals of the Revenue and the cross objection of the assessee were dismissed. The ITAT upheld the CIT(A)'s decisions, allowing depreciation on technical knowhow and trademarks, and deleting additions related to bad debts recovery.