2019 (3) TMI 261 - AT - Income Tax

Depreciation on network Rights - depreciation on intangible assets - AO treated the network rights as goodwill - HELD THAT - Findings of the AO that Network Rights is goodwill has not been disturbed by the CIT (A) and as held in the case of CIT vs. Smifs Securities Ltd (2012 (8) TMI 713 - SUPREME COURT) depreciation is allowable on goodwill . Respectfully following the judgment of the Hon ble Apex Court we direct the AO to allow depreciation on network Rights . - Decided in favour of assessee. Allowable business expenditure - technical and management fees paid to M/s. Induslnd Media & Communications Ltd Held that - Services rendered by M/s. Induslnd Media & Communications Ltd are technical and managerial it has not filed any evidence either before the AO or before the CIT (A) to substantiate the claim. Even before us no evidence is filed. Assessee only reiterated the submissions made before the authorities below and prayed that the issue may be remitted to the file of the AO before whom the assessee is willing to file all the relevant evidence. The learned DR also reiterated the findings of the authorities below - remit the issue to the file of the AO with a direction to verify whether the assessee has actually made the payment and if such payment is made then to allow the same as it is for business purposes of the assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Depreciation on "Network Rights" claimed by the assessee.
2. Disallowance of expenditure towards technical and management services.

Depreciation on "Network Rights" claimed by the assessee:
The case involved the assessee appealing against the order of the CIT (A) regarding the disallowance of depreciation on "Network Rights" for the assessment year 2010-11. The AO observed that the network rights were treated as "goodwill" and disallowed depreciation on the basis that goodwill does not qualify for depreciation under section 32(1)(ii) of the Act. The CIT (A) upheld this decision. However, the assessee contended that the network rights should be considered as "Intangible Assets" under section 32(1)(ii) of the Act. The ITAT Hyderabad, in line with the judgment of the Hon'ble Supreme Court, held that depreciation is allowable on "goodwill" and directed the AO to allow depreciation on the network rights.

Disallowance of expenditure towards technical and management services:
The second issue revolved around the disallowance of a sum paid by the assessee towards technical and management services provided by a holding company. The AO disallowed this expenditure due to lack of evidence supporting the nature of payment and services rendered. The CIT (A) also upheld this disallowance. During the appeal, the assessee reiterated the nature of services provided but failed to provide any evidence. The ITAT Hyderabad decided to remit the issue back to the AO for verification, directing the AO to allow the expenditure if it is found to be for the business purposes of the assessee. Therefore, Ground of Appeal No.2 was treated as allowed for statistical purposes.

In conclusion, the ITAT Hyderabad partially allowed the assessee's appeal, directing the AO to allow depreciation on the "Network Rights" and remitting the issue of disallowance of expenditure towards technical and management services back to the AO for verification.