2017 (5) TMI 1539 - AT - Income Tax

Depreciation on paper brands - Held that - Special Bench of the Tribunal in the case of Amway India 2008 (2) TMI 454 - ITAT DELHI-C 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 - Decided in favour of assessee Disallowance of depreciation on chemical recovery plant - Held that - Appellant during the appellate proceeding submitted copy of the relevant records of the Central Excise registers and statutory returns filed with the Central Excise Department for the purpose of Cenvat credit as well as the Inward Gate Passes (IGP) showing receipt of incoming materials / items in the factory premises. Copies of the IGPs in respect of items contained in the invoices mentioned by the AO in the assessment order were also submitted. AO vide his remand report has mentioned that he has duly verified the statutory Excise returns filed with the Central Excise Department alongwith Cenvat credit records wherein the said Cenvat credit pertaining the Chemical Recovery Plant (CRP) was entered and also its corresponding entries in the Excise records - RG 23 C Part II (Entry book of duty credit of capital goods) and tallied the same with the Central Excise records, original invoices and original IGPs. The original IGPs which are made at the time receipt of the material were also produced before the AO during the remand proceeding and were duly verified by him and tallied with the relevant invoices. The AO has not made any adverse comment whatsoever on merit. Thus addition made by the AO cannot be sustained on facts or in law.- Decided in favour of assessee

Summary

Issues Involved:
1. Depreciation on paper brands.
2. Depreciation on the chemical recovery plant.

Detailed Analysis:

1. Depreciation on Paper Brands:
The primary issue was whether the assessee's paper brands, acquired from M/s Amrit Banaspati Company Ltd. (ABCL) and treated as capital assets, were eligible for depreciation under Section 32(1)(ii) of the Income Tax Act. The assessee claimed depreciation of ?99,01,500/- for the assessment year 2008-09, which was disallowed by the Assessing Officer (AO) on the grounds that "brands" are not covered under "intangible assets" as per the Act.

The Ld. CIT(A) deleted this addition, interpreting that the definition of "intangible assets" under Section 32(1)(ii) includes not only trademarks but also any other business or commercial rights of similar nature. The CIT(A) relied on the Trade Marks Act, 1999, which includes "brand" under the definition of "mark". Additionally, the CIT(A) referenced various case laws, including KEC International Ltd. Vs. Addl. CIT and CIT Vs. Techno Shares and Stocks Ltd., which supported the view that brands are eligible for depreciation. The ITAT upheld the CIT(A)’s decision, noting that the department failed to provide any judicial precedents to the contrary.

2. Depreciation on Chemical Recovery Plant:
The second issue was the disallowance of depreciation amounting to ?7,44,36,109/- on the chemical recovery plant. The AO disallowed the claim on the basis that the plant was not put to use during the relevant assessment year as certain assets were still under construction/testing stage. The CIT(A) admitted additional evidence under Rule 46A of the I.T. Rules, 1962, which corroborated the assessee's claim that the plant was commissioned and put to use during the year under consideration.

The CIT(A) noted that the AO had allowed depreciation on the factory building, which was part of the same chemical recovery plant, but disallowed it on the plant and machinery, which was contradictory. The CIT(A) found that the plant was fully commissioned on 21.03.2008 and started operations, generating significant output. The AO's remand report verified the statutory Excise returns and other documents, which supported the assessee's claim. The ITAT upheld the CIT(A)’s decision, dismissing the department's appeal on this issue as well.

Conclusion:
The ITAT dismissed the department's appeal, upholding the CIT(A)’s findings on both issues. The paper brands were deemed eligible for depreciation under Section 32(1)(ii) of the Income Tax Act, and the chemical recovery plant was confirmed to have been put to use during the assessment year, making it eligible for depreciation. The ITAT's decision was based on a thorough evaluation of statutory provisions, judicial precedents, and factual evidence presented by the assessee.