2013 (2) TMI 919 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest on loans given to sister concerns.
2. Revisionary powers u/s 263 regarding depreciation on trademarks and licenses.

Summary:

Issue 1: Disallowance of Interest on Loans Given to Sister Concerns

The assessee, engaged in manufacturing and selling liquor, filed its return for the assessment year declaring an income of Rs. 7,61,40,680/-, set off against brought forward losses. During assessment, the Assessing Officer (A.O.) noted that the assessee had given interest-free loans to its holding company, M/s MilleniumAlcobev Pvt. Ltd. (MAL), and its subsidiary, M/s United Millenium Breweries Ltd. (UMB), while borrowing funds from banks. The A.O. disallowed a pro rata interest of Rs. 1,21,88,701/- for MAL and Rs. 26,72,452/- for UMB, totaling Rs. 1,48,61,153/-.

The CIT(A) upheld the disallowance, stating that the assessee failed to prove commercial expediency. The Tribunal, however, found that the assessee had a quid pro quo arrangement with MAL, as no interest was charged by either party on mutual loans over several years. Thus, the disallowance of Rs. 1,21,88,701/- for MAL was deleted. However, the disallowance of Rs. 26,72,452/- for UMB was sustained as no commercial expediency was established.

Issue 2: Revisionary Powers u/s 263 Regarding Depreciation on Trademarks and Licenses

The CIT invoked revisionary powers u/s 263, questioning the depreciation claim of Rs. 1,75,13,601/- on trademarks and licenses, arguing that the valuation was incorrect and the A.O. had not examined the details properly. The assessee contended that the trademarks and licenses were acquired through an asset purchase agreement and had been allowed depreciation in previous assessments.

The Tribunal found that the CIT misunderstood the agreements, as the assessee had acquired the trademarks and licenses and later granted a limited right to use one trademark to the seller. The A.O. had verified these agreements in earlier assessments, and the depreciation claim was consistent with past allowances. Therefore, the Tribunal quashed the CIT's order, stating that the A.O.'s assessment did not suffer from any error prejudicial to the Revenue.

Conclusion:

The appeal regarding the disallowance of interest on loans was partly allowed, deleting the addition for MAL but sustaining it for UMB. The appeal against the revisionary order u/s 263 was fully allowed, quashing the CIT's order and upholding the depreciation claim on trademarks and licenses.