2016 (4) TMI 73 - AT - Income Tax

Addition on account of disallowance of depreciation claim on intangible assets - Held that - Assessee has not purchased any good will but has purchased license, interest, privilege, franchise etc. from M/s. DKD which are undisputedly covered by section 32(1)(ii) and, therefore, the depreciation is allowable and the ld. CIT (A) has allowed the depreciation on these intangible assets, and we have no hesitation in confirming the order of ld. CIT (A) on this aspect. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of the addition made by the Assessing Officer on account of disallowance of depreciation claim on intangible assets.

Detailed Analysis:

Issue 1: Deletion of the Addition Made by the Assessing Officer on Account of Disallowance of Depreciation Claim on Intangible Assets

Background and Arguments:
The appeal was filed by the revenue against the order of the learned C.I.T.(A)-II, Jaipur, which deleted an addition of Rs. 93,43,872 made by the Assessing Officer (AO) due to disallowance of depreciation on intangible assets. The assessee's representative argued that this issue was already covered by a previous order of the Hon'ble ITAT, Jaipur Bench, in the assessee's own case for earlier assessment years, where similar additions were deleted. The revenue's representative, however, supported the AO's order and requested its reversal.

Tribunal's Findings:
The Tribunal reviewed the rival contentions and the material on record. It noted that the identical issue had been decided in favor of the assessee in its own case for previous assessment years (ITA Nos. 405, 503, 504, 505, 506 & 507/JP/2010, dated 30/09/2011). The Tribunal reproduced the operative portion of the earlier order, which detailed the following:

- The CIT(A) had considered the agreement between the assessee and Pepsi Food Ltd., and concluded that the license and franchise rights purchased by the assessee were intangible assets eligible for depreciation under the law.
- The CIT(A) also referenced the decision in Hindustan Coca Cola Beverages Pvt. Ltd., where it was held that even goodwill, if it fits the description under Section 32(1)(ii), is eligible for depreciation.
- The CIT(A) further reasoned that the payment made by the assessee could not be construed as payment for goodwill, as the transferor undertaking (DKD) was in financial distress, and thus, the payment was for acquiring license and franchise rights.

Legal Precedents and Analysis:
The Tribunal affirmed the CIT(A)'s findings, noting that the assessee had acquired business rights, interest, privileges, assets, and liabilities, which are considered intangible assets under Section 32(1)(ii). The Tribunal also acknowledged the conflicting views on whether goodwill qualifies for depreciation but emphasized the decision of the Hon'ble Kerala High Court in B. Raveendran Pillai, which allowed depreciation on goodwill.

Conclusion:
The Tribunal concluded that the AO's presumption of the payment being for goodwill was incorrect. It upheld the CIT(A)'s decision that the assessee had acquired intangible assets eligible for depreciation and confirmed the order allowing the depreciation claim. Consequently, the revenue's appeal was dismissed.

Final Order:
The revenue's appeal was dismissed, and the order of the CIT(A) was upheld. The decision was pronounced in the open court on 12/02/2016.