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2021 (12) TMI 22 - BOMBAY HIGH COURTDepreciation on intangible assets - denial of depreciation as hotel operation of the appellant was suspended during the year under consideration as per the Auditors Report - HELD THAT:- This issue squarely covered by an order passed by this Court TULIP HOSPITALITY SERVICE LTD. [2018 (12) TMI 1338 - BOMBAY HIGH COURT] as held both the CIT (A) as well as the Tribunal found on facts that the hotel business cannot be carried out without necessary licenses, permits and approvals. Thus, the proposition canvassed by by the Revenue that intangible assets in the nature of permits, licenses & approvals are not required for carrying on the business of hotel not found to be correct by both the CIT(A) and the Tribunal. It is not disputed that the intangible assets viz. permits, licenses and approvals fall within the meaning of intangible assets under Section 32. Addition u/s 40A(2) - disallowance of interest claim of 9% in respect of the fully convertible debentures - AO's opinion is based on the noting made by the auditors in the annual report of respondent that payment of interest at 24% on Fully Convertible Debentures (FCD’s) was prejudicial to the interest of the company - ITAT deleted the addition - HELD THAT:- As provided under Section 40A (2) (a), the Assessing Officer was duty bound to form a personal opinion, after having regard to the fair market value of the goods, services or facilities for which payment is made, that such expenditure is excessive or unreasonable. As stated earlier, there is no material placed to indicate what would have been the fair market value of interest that would have been payable on the debentures and why such payment was excessive or unreasonable. Simply relying on the auditors’ finding is not enough. ITAT has rightly concluded that the provisions like Section 40A are meant to check evasion of tax through excessive or unreasonable payment to relatives and associate concerns and should not be applied in a manner which will cause hardship in bonafide cases relying on Section 40A(2) - it is not a case of tax evasion in as much as it is not the Revenue’s case if the rate would have been less the assessee’s profit would have been more. As could be seen from the assessment order itself respondent had filed return of income for Assessment Year 2010-2011, which is the year in question, declaring loss and the return of income had been processed under Section 143 (1) of the Act. We find support for this view from the judgment Dempo and Co. P. Ltd. [2010 (10) TMI 711 - BOMBAY HIGH COURT] - Decided against revenue.
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