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TMI Blog2014 (1) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee reimbursed the liability to HML or not - reimbursement of the warranty claims by the assessee to HML has no business expediency – Decided against Assessee. Disallowance of Depreciation on capitalization of professional charges – Held that:- The cost of the assets was determined after allocation of professional charges - the Department cannot take a different stand in different years in respect of allowability of depreciation in respect of professional charges capitalized and allocated to the cost of various assets. In this case, in the first two years, i.e., AY 2006-07 and 2007-08, the Assessing Officer has disallowed the depreciation - in the subsequent years, as per the contention of the assessee, the depreciation on the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for warranty claim amounting to ₹ 65,37,508/-. Accordingly, the balance amount of ₹ 9,96,228/- was claimed as a revenue expenditure. It is stated by the learned counsel that it has purchased the two units from HML as a going concern together with its assets and liabilities. Since the assessee company has purchased the entire business of two divisions, the warranties given while selling the product had become the liability of the assessee company and in order to keep the goodwill of the business, the assessee company was under an obligation to fulfill the commitments given by the seller to its customers by way of warranty. He, therefore, submitted that the expenditure incurred to meet out those warranties of the previous seller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expediency, i.e., if warranties of the customers are not fulfilled, then the goodwill of the assessee and, as a consequence, future business would be badly affected. After considering the arguments of both the sides, we do not find any force in the contention of the learned counsel. Though as per business transfer agreement the assessee has taken over the two units from HML as a going concern, but, with regard to warranty, there is a specific clause in Article 1.1.48 which says Warranty shall mean the warranties of the seller . Admittedly, HML is the seller and not the assessee company. Moreover, even if any liability is taken over by the assessee as a part of business purchase agreement, discharge of such liability cannot be claimed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of business from HML to the assessee company. That the above professional charges were capitalized and allocated to the value of various assets purchased by the assessee as per the above business purchase agreement. That depreciation was claimed on those assets as per the rate of depreciation permissible in respect of each asset. The Assessing Officer allowed depreciation on those assets but disallowed depreciation in respect of professional charges which were added to the value of those assets. Accordingly, the depreciation to the extent of ₹ 8,88,995/- was disallowed. That similarly, in AY 2007- 08, the Assessing Officer disallowed the depreciation in respect of capitalization of professional charges amounting to ₹ 8,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on those assets included the value of professional charges allocated to the respective assets. In the assessment order, the Assessing Officer had discussed only those items on which some disallowance was made. Since no disallowance was made in respect of depreciation on professional charges capitalized, there is no discussion in the assessment order. However, he has no objection for verification of this aspect by the Assessing Officer. 13. We have carefully considered the arguments of both the sides and perused the material placed before us. The undisputed fact is that the assessee has capitalized the professional charges incurred by it in respect of purchase of a running business and allocated the professional charges to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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