2018 (10) TMI 731 - AT - Income Tax

Claim of depreciation u/s 32 - acquisition of trade mark - disallowance on the ground that the cost of acquisition of trademark has been determined at Nil and consequently depreciation claimed by the assessee at the prescribed rate was disallowed - Held that - disallowance of depreciation claim by the assessee u/s 32 of the Act qua trademark acquired in FY 2006-07 is not sustainable as the TPO is not to decide the business expediency of any intangible assets purchased by the assessee by sitting on the armchair of a businessman. Moreover, when the decision rendered by the TPO for AY 2007-08 has been set aside by the coordinate Bench of the Tribunal to the TPO, the present assessment order passed by following the said order is also not sustainable. Matter remanded back to the TPO/AO to decide afresh after providing an opportunity of being heard to the assessee

Summary

Issues:
1. Disallowance of depreciation claimed under Section 32 of the Act for a trademark acquired by the Appellant in the financial year 2006-07.
2. Dismissal of the ground assailed by the Appellant in respect of initiation of penalty proceedings under Section 271(1)(c) of the Act.

Analysis:

Issue 1: Disallowance of Depreciation Claimed for Trademark
The appellant sought to set aside the order sustaining the disallowance of depreciation amounting to ?39,55,078 made by the Deputy Commissioner of Income Tax. The CIT(A) upheld the disallowance based on the Transfer Pricing Officer's determination that the purchase of the trademark was not at arm's length, resulting in the value being held at "Nil." The Tribunal noted that the AO did not refer to the TPO to determine the arm's length price for international transactions, but instead followed the TPO's order from a previous year. The Tribunal referenced a previous decision in the appellant's favor, emphasizing that the TPO cannot decide the business expediency of intangible assets purchased by the assessee. The Tribunal remanded the issue back to the TPO/AO for fresh examination in accordance with the law, based on the principles outlined in the previous decision.

Issue 2: Dismissal of Ground Assailed Regarding Penalty Proceedings
The appellant also challenged the dismissal of the ground regarding the initiation of penalty proceedings under Section 271(1)(c) of the Act. However, the judgment primarily focused on the disallowance of depreciation for the trademark and the procedural aspects related to Transfer Pricing Officer's role in determining arm's length prices for international transactions. The Tribunal allowed the appeal for statistical purposes, remanding the issue to the TPO/AO for a fresh examination in line with the legal principles established in previous decisions.

In conclusion, the judgment addressed the disallowance of depreciation claimed for a trademark and the subsequent remand of the issue to the tax authorities for reconsideration. The legal analysis emphasized the importance of following established legal principles and ensuring a fair and thorough assessment of the matter at hand.