2017 (7) TMI 255 - AT - Income Tax

Disallowance being donation made u/s.35AC - Held that - In view of the binding order of the co-ordinate Bench of this Tribunal in case of M/s. Mangal Tech Park Pvt. Ltd 2016 (7) TMI 839 - ITAT CHENNAI we are inclined to remit the issue in dispute to the file of the Assessing Officer to reexamine the issue on a similar direction and also the claim of assessee has to be considered as valid, if it has transferred the funds to the Bank account opened in the name of an institution which was duly registered u/s 35AC of the Act on the said dates of transfer of funds. Further, if there is a malpractice or discrepancies in the management of the Trust Account for which the assessee cannot be responsible so as to deny the benefit u/s.35AC of the Act. This ground of the appeal is partly allowed for statistical purposes. Disallowance of depreciation on intangible assets - Held that - The asset is a license obtained towards carrying on business which gives right to access marketing rights in European countries. As seen from the facts of the case, in our opinion, this is a business or commercial right which gives a right to access carrying of business in European countries and it is the license or akin to license in terms of Sec.32(1)(ii) of the Act. Therefore, depreciation is allowable on the cost of the intangible assets. See Techno Shares And Stocks Ltd. 2010 (9) TMI 6 - SUPREME COURT OF INDIA . Decide the issue in favour of the assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer.
2. Disallowance of deduction under Section 35AC for donations to approved trusts.
3. Disallowance of depreciation on intangible assets.
4. Disallowance of travel and conveyance expenses.
5. Levy of interest under Sections 234B and 234C of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The appellant contended that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer (AO) was without jurisdiction. However, this ground was not pressed during the hearing and thus does not require adjudication.

2. Disallowance of Deduction Under Section 35AC:
The appellant challenged the disallowance of ?2.5 crores donated to Mahila Utkarsh Sansthan Trust, an approved institution under Section 35AC. The AO denied the deduction on the grounds that the trust did not receive the donation, as confirmed by the trust's president, who lodged a police complaint alleging misappropriation by anonymous persons. The appellant argued that the donation was made in compliance with Section 35AC, supported by bank statements and Form 58A certificates. Despite the AO's remand report confirming the transfer of funds through proper banking channels, the CIT(A) upheld the disallowance, citing fraudulent diversion of funds. The Tribunal, referencing a similar case (M/s. Mangal Tech Park Pvt. Ltd.), remitted the issue back to the AO for reexamination, emphasizing that the appellant should not be penalized for discrepancies in the trust's operations if the donation was made in good faith.

3. Disallowance of Depreciation on Intangible Assets:
The appellant claimed depreciation of ?1,45,35,605 on intangible assets, including licenses for marketing rights in European countries. The AO disallowed the claim, viewing the expenses as capital investments rather than depreciable intangible assets. The CIT(A) concurred, but the Tribunal found that the licenses constituted business or commercial rights akin to those listed under Section 32(1)(ii) of the Act. Citing the Supreme Court's judgment in Techno Shares And Stocks Ltd., the Tribunal ruled in favor of allowing depreciation on these intangible assets.

4. Disallowance of Travel and Conveyance Expenses:
The appellant did not press this ground during the hearing, leading to its dismissal.

5. Levy of Interest Under Sections 234B and 234C:
The appellant objected to the levy of interest under Sections 234B and 234C. However, since this issue was not elaborated upon in the judgment, it remains unresolved in this summary.

Conclusion:
The Tribunal's decision resulted in a partial allowance of the appeal for statistical purposes, remanding the issue of the donation's genuineness back to the AO for further examination and allowing the depreciation claim on intangible assets. The other grounds were either dismissed or not adjudicated.