In DCIT, Ghaziabad vs. Kuantum Papers Ltd. (ITAT Delhi) decided on 1.09.2017, Revenue contended that CIT(A) has erred in law and on facts in allowing the depreciation on paper brands, which is a non-depreciable asset because its life is not limited.
The brief facts of the case were that a search and seizure action was conducted under section 132 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) on 4.5.2011 on the premises of the assessee. Further, in response to notice under section 153A of the Act, assessee filed his return declaring income of Rs. 17,53,54,906/- for AY 2008-09. Later on, notices under section 143(2) and 142(1) of the Act were also issued and AO completed the assessment vide order dated 31.3.2015 passed under section 143(3) of the Act by making addition of Rs. 4,10,67,290/- for AY 2008-09 on account of depreciation claimed. Aggrieved with the assessment order, assessee appealed before the CIT(A), who vide his order dated 20.12.2016 partly allowed the appeal by respectfully following the CIT(A)-IV, New Delhi order dated 16.2.2012 passed in Appeal No. 98/2010-11. Aggrieved with the order of the CIT(A), the Revenue was in appeal before the Delhi Tribunal.
In relation to the issue, DR relied upon the Order of the AO and reiterated the contentions raised in the grounds of appeal. On the contrary, Counsel of the assessee relied upon the order of the CIT(A) and stated he has passed a well reasoned order which does not need any interference. During the hearing, Counsel of the assessee filed a letter dated 6.7.2017 stating therein that in the case of the assessee, AO has passed an assessment order under section 143(3) of the Act dated 30/12/2010 for A.Y. 2008-09 and made the addition of Rs. 99,01,500/- on account of disallowed depreciation on paper brand on the ground that brands are not covered under intangible assets as per Section 32(1)(ii) of the Act.
The ITAT, Delhi while deciding the appeal, took into consideration the following rulings:
i) Capital Bus Service (P) Ltd. vs. CIT, New Delhi (1980) 123 ITR 404.
ii) CIT-IV vs. Insilco Limited (2010) 320 ITR 322.
iii) CIT vs. Gates (India) Pvt. (2008) 218 CTR 103.
iv) CIT vs. EIH Limited (ITA No. 3 of 2011) on 31.03.2011.
v) CWT vs. Ramararaju Surgical Cotton Mills Limited (1967) 63 ITR 478.
vi) CIT vs. Piccadily Agro Industries Ltd. (2009) 311 ITR 24.
vii) CIT, West Bengal-IV, Calcutta vs. Norplex Oak India (2011) 198 Taxman 470/10 taxman.com 163 (Cal.)
viii) DCIT vs. ABC Paper Ltd ITA No. 2263/Del/2012 (AY 2008-09) on 11.05.2017.
ix) KEC International Ltd. vs. Addl. CIT (ITA no. 4420/Mum/2009).
x) CIT vs. Techno Shares and Stocks Ltd. (ITR 323(69) Mumbai)
The Delhi, ITAT taking into account the rival submissions, legal position, also, observed that the Hon’ble ITAT, Pune vide its order dated 23.08.2011 in the case of Dilbris International Pvt. Ltd. vs. DCIT (ITA no. 1361 PN/2010) relying on the decision of the Hon’ble ITAT, Delhi in Hindustan Coca Cola Beverages (P) Ltd. vs. DCIT has held that brand name is eligible for depreciation. The relevant portion of the order is extracted below:
“The special Bench of the Tribunal in the case of Amway India has held that if the software is useable/used for more than 2 years, it is a capital expenditure and if it is for less than 2 years, it is revenue expenditure. We thus following the ratio laid down therein come to the conclusion that in the present case, since the assessee had purchased the user of brand name, trademark, logo for 3 years and similarly, the intellectual property right such as design, drawings, manufacturing processes and technical knowhow in respect of the products manufactured by unit was acquired, we hold that the expenditure incurred in this regard as valued by the approved valuer is capital expenditure on which the claimed depreciation was allowable. In this regard we also find support from the cited decision of Delhi Bench of the Tribunal in the case of Hindustan Coca Cola Beverages (P) Ltd Vs. DCIT holding that even if an amount is termed as ‘goodwill’ in the books of account but it is a business or commercial right in the nature of know-how, patent, copyrights, trademarks, licenses, franchises, the claim of depreciation is indeed admissible thereupon. We accordingly direct the A.O to allow the claimed depreciation on the above assets.
In view of the facts and circumstances and statutory provisions as discussed above and respectfully following the judicial pronouncements on the issue cited supra and also considering the rule of consistency as the assessee’s claim for depreciation on the said brands has been allowed by the AO in the earlier two assessment years, I find that the impugned addition of Rs.99,01,500/- made by the AO cannot be sustained. The same is, therefore, deleted.”
This finding of the Ld. CIT (A) could not be controverted by the department before us. The department also could not point out any judicial precedents in favour of the revenue on this issue. We, therefore, uphold the finding of the Ld. CIT (A) on this issue and dismiss this ground of appeal of the department.
Following the aforesaid decision the ITAT, Delhi decided the issue against the Revenue.