2023 (11) TMI 119 - AT - Income Tax

Set off of brought forward losses and unabsorbed depreciation of Amalgamating Company - requirement of complying with section 72A - assessee company was amalgamated with its 100% subsidiary company - HELD THAT - CIT(A) by placing reliance on the order passed by his predecessor in assessee s own case upheld the action of the ld. AO in disallowing the claim of depreciation on non-compete fees and also by placing reliance on the decision of Sharp Business System 2012 (11) TMI 324 - DELHI HIGH COURT CIT(A) also upheld the action of the ld. AO in disallowing the set off of brought forward losses during the year. Before us, no cogent evidences has been brought on record by the assessee to buttress the categorical findings recorded by the ld. CIT(A). Hence not to interfere in the order passed by the ld. CIT(A). Accordingly, the grounds raised by the assessee are dismissed.

Summary

Issues Involved:
The issues involved in this case are the disallowance of depreciation claimed on non-compete fees and the disallowance of set off of brought forward losses under the Income Tax Act, 1961 for the assessment year 2016-17.

Depreciation on Non-Compete Fees:
The appeal before the Appellate Tribunal concerned the disallowance of depreciation of Rs. 2,92,67,578 claimed on non-compete fees paid to certain parties by the assessee company. The Tribunal noted that the assessee had executed agreements with individuals and a consulting group, wherein non-compete fees were paid to restrict these parties from engaging in similar business activities. The Assessing Officer (AO) disallowed the depreciation claim based on the decision of the Jurisdictional High Court, stating that non-compete fees do not qualify as intangible assets for depreciation under section 32(1)(ii) of the Income Tax Act. The AO also highlighted that the benefits of the non-compete agreements were enjoyed by the subsidiary company, not the assessee, and thus, depreciation could not be claimed. Consequently, the Tribunal upheld the AO's decision to disallow the depreciation claim on non-compete fees.

Set Off of Brought Forward Losses:
Another issue raised in the appeal was the disallowance of set off of brought forward losses amounting to Rs. 6,18,27,952 by the AO. The assessee company, post a merger with its subsidiary, claimed that there was no change in shareholding and that both companies had carry forward business losses and unabsorbed depreciation available for set off in future years. The AO, however, questioned the applicability of section 72A of the Act to the assessee's business activities, as it did not fall within the definition of an industrial undertaking. Despite the assessee's explanations and references to relevant provisions of the Act, the AO disallowed the set off of brought forward losses. The CIT(A) upheld the AO's decision, relying on the predecessor's order and the Jurisdictional High Court's decision. The Tribunal, after considering the lack of additional evidence from the assessee, dismissed the appeal and upheld the disallowance of the set off of brought forward losses.

Conclusion:
In conclusion, the Appellate Tribunal upheld the disallowance of depreciation claimed on non-compete fees and the disallowance of set off of brought forward losses for the assessment year 2016-17. The Tribunal found no grounds to interfere with the decisions of the lower authorities, as no substantial evidence was presented to challenge the findings. Consequently, the appeal of the assessee was dismissed, and the order was pronounced on 30/10/2023.