2017 (2) TMI 1016 - AT - Income Tax

Disallowance of depreciation on brands u/s 32(1)(ii) - Held that - We find that in the case of assessee for the A.Y. 2005-06 2016 (4) TMI 1193 - ITAT MUMBAI held that brand name is an intellectual property right similar to knowhow, patents, trademarks and therefore the same is eligible for depreciation under section 32(1)(ii). - Decided in favour of assessee Disallowance u/s 14A r.w.r. 8D - Held that - We find that the assessee has not filed the relevant documents to prove his points that the amount invested in mutual funds are not from the overdraft / cash credit account which have been used towards working capital requirements. The learned counsel has also not filed the relevant documents to prove his points that no expenses has been incurred to earn the exempt income. Even a copy of the balance sheet has not been filed by him before the Tribunal to establish his argument. We also find that the learned CIT(A) has noted that the assessee had not given any details to work out the direct nexus of the interest expenditure related to the exempt income which was not included in the taxable income. Further it is found that during the A.Y. 2007-08, the AO had made addition on similar ground which was deleted by the learned CIT(A) and the ITAT in favour of the assessee. However, Rule 8D was notified by the IT (Fifth Amdt.) Rules, 2008 w.e.f. 24-03-2008. The Hon ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. Dy. CIT (2010 (8) TMI 77 - BOMBAY HIGH COURT) has held that Rule 8D is applicable w.e.f. 2008-2009. We are concerned here with the A.Y. 2009-10 and 2010-11. Thus we set aside the order of the learned CIT(A) on disallowance made u/s 14A r.w.r. 8D and restore the same to the file of the AO to make a fresh assessment as per the provisions of the Act

Summary

Issues:
1. Disallowance of depreciation on brands under section 32(1)(ii)
2. Disallowance under section 14A r.w.r. 8D

Analysis:

Issue 1: Disallowance of depreciation on brands under section 32(1)(ii)

The assessee appealed against the disallowance of depreciation on brands for assessment years 2009-10 and 2010-11. The AO disallowed the claim based on the acquisition cost of the brand in 1999-2000. However, the assessee argued citing precedents such as the decision of the Hon'ble Bombay High Court in the case of "CIT vs. Glen Mark Pharmaceuticals Ltd." and the ITAT decision in the case of "KEC International Ltd. vs. ACIT" that brand names are intellectual property rights eligible for depreciation under section 32(1)(ii). The Tribunal, considering the consistent allowance of depreciation in earlier years, directed the AO to allow the claim of depreciation for the current years.

Issue 2: Disallowance under section 14A r.w.r. 8D

The second ground of appeal involved the disallowance under section 14A r.w.r. 8D for the assessment years in question. The AO disallowed expenses related to exempt income like dividends and profits on the sale of mutual funds. The assessee challenged this disallowance, arguing that there was no direct nexus between the expenses and the exempt income, and that no actual expenditure was incurred to earn the tax-free income. The Tribunal noted that the assessee failed to provide relevant documents to support these claims. However, considering the lack of details and the applicability of Rule 8D from 2008-2009 onwards, the Tribunal set aside the order of the CIT(A) and directed a fresh assessment by the AO after giving the assessee an opportunity to present relevant details.

In conclusion, the appeal was partly allowed, with the Tribunal providing detailed reasoning and legal analysis for each issue raised by the assessee.