2019 (6) TMI 542 - AT - Income Tax

Depreciation claimed on non compete fee - claim of depreciation on non compete fee @ 25% by treating it as an intangible asset is acceptable or not? - HELD THAT - As decided in assessee's own case 2019 (5) TMI 411 - ITAT MUMBAI allowed assessee s claim of depreciation by treating the non compete fee as an intangible asset. The same view was reiterated by the Tribunal while deciding assessee s appeal for subsequent year also. Therefore we uphold the decision of the learned Commissioner (Appeals) on the issue in allowing claim - we direct the A.O. to allow deprecation on non compete fee @ 25% by treating it as an intangible asset. - Decided against revenue Disallowance of depreciation on various fixed assets on the basis of wrong actual cost - HELD THAT - while deciding identical issue in the preceding assessment years in assessee s own case, the Tribunal has restored the issue to the Assessing Officer for fresh adjudication. In this context, we may refer to the latest order passed by the Tribunal for the assessment year 2006 07 2016 (10) TMI 1037 - ITAT MUMBAI . Facts being identical, respectfully following the consistent view expressed by the Tribunal in the preceding assessment years, we restore the issue to the Assessing Officer for de novo adjudication. Disallowance of interest expenditure u/s 36(1)(iii) - investment of funds in sister concerns - HELD THAT - While deciding identical issue in the latest order passed by the Tribunal in assessee s own case for the assessment year 2005 06 2019 (5) TMI 411 - ITAT MUMBAI decided the issue in favour of the assessee by holding that the investment of funds in sister concerns are for the purpose of business - we delete the disallowance made by the Assessing Officer. Disallowance of interest on account of interest free loans to the subsidiary - HELD THAT - This is a recurring issue between the assessee and the Department from the preceding years. In the latest order passed by the Tribunal in assessee s own case for the assessment year 2006 07 2016 (10) TMI 1037 - ITAT MUMBAI Unutilized credit of Central Value Added Tax (CENVAT) u/s 145A - HELD THAT - As decided in assessee s own case in the assessment year 2006 07 2016 (10) TMI 1037 - ITAT MUMBAI direct the Assessing Officer to value the closing stock strictly in terms of section 145A, keeping in view the principle laid down in judicial precedents referred to above and only after providing due opportunity of being heard to the assessee. TPA - adjustment to the arm's length price of interest fee loan advanced to Piramal Glass, U.K. and corporate guarantee provided to the Associated Enterprise (AE) - HELD THAT - As regards the rate at which interest on interest free loan is to be computed, we find that learned DRP has directed the Assessing Officer to compute interest at LIBOR plus 3%. We find that while deciding identical issue in assessee s own case in assessment year 2007 08 2019 (5) TMI 411 - ITAT MUMBAI the Tribunal has directed to compute interest on interest free loan advanced to the AE at LIBOR plus 200 basis points. Insofar as adjustment on account of corporate guarantee commission is concerned, the Tribunal has directed the Assessing Officer to compute the corporate guarantee fee @ 0.5%. Similar view was expressed by the Tribunal while deciding assessee s appeal in assessment year 2011 12. Respectfully following above, we direct the AO to compute interest on interest free loan to AE at LIBOR plus 200 basis points and corporate guarantee commission @ 0.5%. Addition on account of foreign exchange gain arising out of loan given to the subsidiary companies - DRP directed the Assessing Officer to delete the addition - HELD THAT - As per section 144C(13) of the Act, the Assessing Officer is duty bound to implement the directions of learned DRP. In view of the aforesaid, we direct the Assessing Officer to comply with the statutory mandate by implementing the directions of learned DRP on the issue and delete the addition. Short grant of TDS - HELD THAT - We direct the AO to verify the facts relating to assessee s claim and grant credit for TDS as per law.

Issues Involved:
1. Deduction/Depreciation on Non-Compete Fee
2. Depreciation on Various Fixed Assets
3. Disallowance of Interest Expenditure under Section 36(1)(iii)
4. Disallowance of Interest on Account of Interest-Free Loans to Subsidiary
5. Addition on Account of Unutilized CENVAT Credit under Section 145A
6. Adjustment to Arm's Length Price of Interest-Free Loan and Corporate Guarantee
7. Addition on Account of Foreign Exchange Gain
8. Short Grant of TDS
9. Levy of Interest under Section 234C

Issue-wise Detailed Analysis:

1. Deduction/Depreciation on Non-Compete Fee:
The assessee claimed depreciation on non-compete fee paid during the acquisition of a business division. The Assessing Officer disallowed this claim, and the Dispute Resolution Panel (DRP) upheld the disallowance, referencing earlier Tribunal decisions. However, subsequent Tribunal decisions allowed depreciation at 25% by treating the non-compete fee as an intangible asset. The Tribunal followed its consistent view and directed the Assessing Officer to allow depreciation on non-compete fee at 25%.

2. Depreciation on Various Fixed Assets:
The assessee allocated the acquisition cost based on fair value and claimed depreciation. The Assessing Officer, treating the acquisition as amalgamation, allowed depreciation based on the written-down value in the transferor's books. The DRP upheld this view. The Tribunal, following its earlier decisions, restored the issue to the Assessing Officer for fresh adjudication.

3. Disallowance of Interest Expenditure under Section 36(1)(iii):
The Assessing Officer disallowed interest expenditure on borrowed funds used for investments in subsidiary companies, not considering them for business purposes. The Tribunal, referencing earlier decisions, found the investments were for business purposes and deleted the disallowance.

4. Disallowance of Interest on Account of Interest-Free Loans to Subsidiary:
The Assessing Officer disallowed interest on borrowed funds used for interest-free loans to a subsidiary. The Tribunal, following its earlier decisions, found the advances were for commercial expediency and deleted the disallowance.

5. Addition on Account of Unutilized CENVAT Credit under Section 145A:
The Assessing Officer added unutilized CENVAT credit to the income, which the DRP upheld. The Tribunal, following its earlier decisions, restored the issue to the Assessing Officer to value the stock in line with Section 145A and judicial precedents.

6. Adjustment to Arm's Length Price of Interest-Free Loan and Corporate Guarantee:
The Transfer Pricing Officer made adjustments for interest-free loans and corporate guarantees. The DRP directed interest computation at LIBOR plus 3% and upheld the corporate guarantee commission adjustment. The Tribunal directed the Assessing Officer to compute interest at LIBOR plus 200 basis points and corporate guarantee commission at 0.5%, following earlier decisions.

7. Addition on Account of Foreign Exchange Gain:
The Assessing Officer treated foreign exchange gain on loans to subsidiaries as revenue receipt. The DRP directed deletion of this addition. The Tribunal directed the Assessing Officer to implement the DRP's direction and delete the addition.

8. Short Grant of TDS:
The Tribunal directed the Assessing Officer to verify the facts and grant TDS credit as per law.

9. Levy of Interest under Section 234C:
The Tribunal noted that the levy of interest is consequential and does not require adjudication at this stage.

Conclusion:
The appeal was partly allowed, with specific directions provided for each issue based on consistent Tribunal views and judicial precedents. The Tribunal emphasized adherence to statutory mandates and proper valuation principles.

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