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2023 (2) TMI 304 - AT - Income TaxDepreciation on non-compete fee capitalized which represents intangible assets being technical know-how, processes etc. - HELD THAT - Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. Therefore, the nature of business or commercial rights could not be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. We would uphold the claim of the assessee. AO is directed to grant depreciation to the assessee as claimed in computation of income for all the years. The corresponding grounds raised in all the four years stand allowed. Disallowance of depreciation on software - AO held that as per depreciation schedule Rule 5, such depreciation @ 60% is allowed on 'computers including software' - HELD THAT - We do not concur with the observations of Ld. AO that the software which is in-built into the computer system would alone be eligible for higher rate of depreciation since the expression used is computers including software . The literal interpretation of the same would be that computers or any other software purchased by the assessee would have same rate of depreciation on the logic that software would primarily be used along with computer system. However, there is no requirement that the same should be in-built into the computer system. The same may be independently purchased by the assessee and could be used along with computer system. Nevertheless, the same would remain computer software only which would have same rate of depreciation as applicable to a computer system. The decision of Amway India Enterprises 2008 (2) TMI 454 - ITAT DELHI-C supports our view. It could also be seen that similar rate of 60% has already been allowed by revenue to the assessee in all the other years and this dispute has been raised in this year only. Therefore, we direct Ld. AO to allow depreciation at higher rate of 60%. The corresponding grounds raised by the assessee stand allowed. Disallowance of additional depreciation on newly installed In-house blending plant - HELD THAT - The said expenditure was directly incurred towards installation of the Machinery and the assessee has capitalized the same by including it in the actual cost of the plant as per Sec. 43(1) of the Act. Accordingly, normal depreciation as well as additional depreciation has been claimed on aggregate amount so capitalized by the assessee. AO has allowed normal depreciation but denied additional depreciation on the ground that the fees so paid by the assessee would not form part of actual cost. The said claim has been termed as a colorable device without any basis. When the actual cost has been accepted for granting normal depreciation then there is no logic to discard the same while granting additional depreciation to the assessee. Pertinently, similar claim denied in AY 2013-14 was deleted by first appellate authority which has not been challenged by revenue any further. In AY 2014-15, no dispute has been raised by the revenue on additional depreciation claimed by the assessee on newly installed Plant machinery. Therefore, considering the fact of the case, denial of additional depreciation on Professional fees as well as additional material issued by the assessee at year-end could not be held to be justified. The Ld. AO is directed to allow the same. The corresponding grounds raised by the assessee stand allowed. Disallowance of Bad debts claimed - CIT(A) held that the burden was on assessee to show that the there was no reasonable expectation of recovering the debts. Since the burden was not discharged, the action of Ld. AO was confirmed - HELD THAT - Upon perusal of assessee computation of income for AY 2010-11, we find that the assessee has made provision for bad and doubtful debts for Rs.121.11 Lacs which has been added back in the computation of income. In other words, the same has not been claimed in that year rather the same has been claimed in the computation of income for AY 2011-12 as Bad Debts W/off disallowed in earlier years and claimed now which has been denied by Ld. AO. It appears that the assessee has made provisions in AY 2010-11 which has now been claimed. The necessary facts showing the circumstances and the fact whether debtors have actually been written-off in this year is not available on record. The assessee has kept the details of bad-debts written off. Therefore, on the facts and circumstances of the case, we remit this issue back to the file of Ld. AO for de novo adjudication to ascertain the facts whether the debts have actually been written-off in this year which would be evident form perusal of provision for bad and doubtful account. The assessee is directed to furnish requisite details.
Issues Involved:
1. Depreciation on non-compete fees. 2. Applicable rate of depreciation on computer software. 3. Claim of additional depreciation on newly installed in-house blending plant. 4. Disallowance of bad debts written off. Issue-Wise Detailed Analysis: 1. Depreciation on Non-Compete Fees: The assessee purchased a foam division from another entity under a Business Purchase Agreement (BPA) with a non-compete clause, capitalizing Rs.5.50 Crores as non-compete fees and claiming depreciation at 25%. The AO disallowed the depreciation, arguing that non-compete fees do not constitute an asset usable like a license or franchise and only confer a right to sue in case of breach. The CIT(A) upheld this view. However, the tribunal found that the non-compete fees constituted a commercial right eligible for depreciation under Sec.32(1)(ii). The tribunal emphasized the rule of consistency, noting that similar claims were accepted in other years. Citing decisions from higher courts, including the Supreme Court and High Courts, the tribunal concluded that non-compete fees fall under "business or commercial rights of similar nature" and directed the AO to allow the depreciation claim. 2. Applicable Rate of Depreciation on Computer Software: The assessee claimed 60% depreciation on software, which the AO reduced to 15%, arguing that only software embedded in computer systems qualifies for 60%. The tribunal disagreed, stating that the term "computers including software" implies that standalone software also qualifies for 60% depreciation. The tribunal referenced the Special Bench decision in Amway India Enterprises vs. DCIT and noted that similar depreciation rates were accepted in other years. Thus, the tribunal directed the AO to allow the 60% depreciation rate on software. 3. Claim of Additional Depreciation on Newly Installed In-House Blending Plant: The AO disallowed additional depreciation on professional fees and additional material costs related to the in-house blending plant, arguing that these costs do not form part of the "actual cost" and termed the claim as a colorable device. The tribunal found that the professional fees were directly related to the installation of the plant and should be included in the actual cost. The tribunal noted that normal depreciation was allowed on these costs, and there was no basis to deny additional depreciation. The tribunal also highlighted that similar claims were accepted in other years. Therefore, the tribunal directed the AO to allow the additional depreciation. 4. Disallowance of Bad Debts Written Off: The AO disallowed the bad debts claim of Rs.121.11 Lacs, stating that the assessee did not make sufficient efforts to recover the debts. The CIT(A) upheld this disallowance. The tribunal referred to the Supreme Court's decision in TRF Limited v. CIT, which clarified that post-1989, it is sufficient for debts to be written off in the accounts to claim them as bad debts. The tribunal found that the necessary facts to ascertain whether the debts were actually written off were not on record and remitted the issue back to the AO for de novo adjudication. Conclusion: The appeal for AY 2011-12 was partly allowed, and all other appeals were allowed as per the tribunal's directives. The tribunal's order was pronounced on 31st January 2023.
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