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2021 (6) TMI 1103 - AT - Income TaxAddition on account of depreciation - depreciation on intangible assets purchased by the assessee company - HELD THAT - Issue decided in favour of assessee 2019 (10) TMI 1519 - ITAT SURAT and by the judgement of the Hon'ble Gujarat High Court in assessee s own case 2019 (5) TMI 1208 - GUJARAT HIGH COURT - we delete the addition made by AO/TPO on account of depreciation - Decided in favour of assessee.
Issues Involved:
1. Disallowance of depreciation claimed by the appellant company on intangible assets. Detailed Analysis: Issue 1: Disallowance of Depreciation on Intangible Assets The appellant company challenged the disallowance of depreciation amounting to Rs. 1,06,00,847/- on intangible assets purchased by the company. The appellant argued that the order of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] was contrary to law and based on an erroneous understanding of the facts. Previous Tribunal Decision: The appellant's counsel referred to a previous decision by the Division Bench of the Tribunal in the appellant's own case for the Assessment Year 2010-11 (ITA No.2912/Ahd/2015), where the issue of depreciation on intangible assets was adjudicated in favor of the appellant. The Tribunal had allowed the appeal by recognizing the depreciation on intangible assets, which included manufacturing and process know-how, registration and commercial rights, and other intangible assets. This decision was upheld by the Hon’ble Gujarat High Court in Tax Appeal No.166 of 2019 dated 22.04.2019. Tribunal's Observations: The Tribunal reviewed the material available on record and noted that the appellant company had acquired the Imidachlorpid business from Mitsu Industries Ltd. on a slump sale basis for Rs. 27.50 crores. The acquisition included both tangible and intangible assets, such as manufacturing rights, marketing rights, and other commercial rights. The valuation of these assets was done by an independent valuer, M/s. Bansi S. Mehta & Co., in accordance with Accounting Standard-10 (AS-10) issued by the Institute of Chartered Accountants of India (ICAI). Legal Precedents: The Tribunal referenced several legal precedents to support its decision: - CIT v. Smifs Securities Ltd. [2012] 24 taxmann.com 222 (SC): Goodwill is considered an asset under Explanation 3(b) to section 32(1) and is eligible for depreciation. - CIT v. Techno Shares & Stock Ltd. [2010] 193 Taxman 248 (SC): Right of membership to BSE was considered a business or commercial right eligible for depreciation under section 32(1)(ii). - Areva T & D India Ltd. v. DCIT [2012] 20 taxmann.com 29 (Delhi): Specified intangible assets acquired under a slump sale agreement are eligible for depreciation. - Pr. CIT v. Swastik Industries [2016] 68 taxmann.com 329 (Gujarat): Payment of compensation to a retiring partner treated as goodwill is eligible for depreciation. Conclusion: The Tribunal concluded that the AO and CIT(A) were not justified in disallowing the depreciation claimed by the appellant company. The Tribunal directed the AO to allow depreciation on the intangible assets and marketing rights as claimed by the appellant. The appeal was allowed in favor of the appellant, and the addition made by the AO/TPO on account of depreciation was deleted. Final Order: The appeal of the assessee was allowed, and the order was pronounced at the time of hearing on 28/06/2021 in the Virtual Court of hearing.
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