2017 (5) TMI 1042 - AT - Income Tax

Depreciation on non-compete fee and brand equity - whether they are not in the nature of intangible asset listed u/s.32 namely know-how copy rights patents? - Held that - This issue is squarely covered by the order of Tribunal in assessee s own case in earlier assessment years wherein held that the assessee is entitled for depreciation on non-competent fee and brad equity. - Decided in favour of assessee. Addition of notional interest income charged at the rate of 12% on the interest free lease deposit paid by the company - Held that - The interest free deposit has been given to Smt. A.Radhika on account of business expediency and the Learned Assessing Officer cannot decide what the businessman can do for the purpose of business. He cannot decide on behalf of the assessee. Being so we do not find any infirmity in the order of ld. Learned Commissioner of Income Tax(A) in deleting the disallowance of notional interest at Rs. 24 lakhs. Hence this ground raised by the Revenue is rejected. Addition made towards provision for bad and doubtful debts - scope of rectification of mistake orders - Held that - The assessee made a claim before the Learned Assessing Officer though revised computation of income as bad debt. This claim was allowed by the Learned Assessing Officer while framing the assessment u/s.143(3). Later the AO took up the proceedings U/s.154 of the Act and disallowed the same and added it to the income of the assessee. Thus it cannot be said that there is a mistake apparent from record so as to rectify u/s.154 by the Assessing Officer. The claim of assessee as bad debt vide letter dated 04.10.2006 and the Assessing Officer has taken a conscious decision to allow as bad debt. Now the issue which is very debatable cannot be considered by the Learned Assessing Officer u/s.154 so as to disallow the claim of assessee. As in the present case the Assessing Officer has examined as to whether the debt has in fact been written off in the accounts of the assessee. This exercise has been undertaken by the Assessing Officer with regard to treatment of bad debt. Being so we do not find any infirmity in the order of ld. Learned Commissioner of Income Tax(A) in deleting the addition towards bad debts - Decided in favour of assessee.

Summary

Issues:
1. Depreciation on non-compete fee and brand equity
2. Notional interest income on interest-free lease deposit
3. Addition made towards provision for bad and doubtful debts

Depreciation on non-compete fee and brand equity:
The Revenue appealed against the CIT(Appeals) decision allowing depreciation on non-compete fee and brand equity for the assessment years 2004-05 and 2008-09. The Revenue argued that these were not intangible assets listed under section 32 of the Income Tax Act. However, the Tribunal noted that in previous years, the claim of depreciation on non-compete fee and brand equity was fully allowed and upheld. The Tribunal held that the assessee was entitled to depreciation on these assets based on previous rulings. Therefore, the order of the CIT(A) was upheld, and the Revenue's appeal was dismissed.

Notional interest income on interest-free lease deposit:
The Revenue challenged the deletion of notional interest income of Rs. 24 lakhs charged on an interest-free lease deposit paid by the company. The AO disallowed the interest, assuming it was paid out of loans availed by the company. However, the CIT(A) observed that the deposit was made for business purposes and had commercial expediency. The Tribunal agreed, stating that the AO cannot decide business decisions for the assessee. Therefore, the deletion of notional interest income was upheld, and the Revenue's appeal was rejected.

Addition made towards provision for bad and doubtful debts:
The Revenue disputed the deletion of an addition towards provision for bad and doubtful debts amounting to Rs. 48.77 lakhs. The AO initially allowed it as a bad debt but later disallowed it through a rectification order. The CIT(A) upheld it as a bad debt. The Tribunal held that the AO's decision to disallow the claim through rectification was not valid as it was a debatable issue. Citing the Supreme Court judgment, the Tribunal noted that it was enough for the bad debt to be written off in the accounts. As the Assessing Officer had examined this aspect, the deletion of the addition was confirmed, and the Revenue's appeal was dismissed.

In conclusion, the Tribunal dismissed the Revenue's appeals in all three issues, upholding the decisions of the CIT(A) in allowing depreciation on non-compete fee and brand equity, deleting notional interest income on an interest-free lease deposit, and rejecting the addition towards provision for bad and doubtful debts.