2021 (9) TMI 957 - AT - Income Tax

Disallowance of depreciation on trademark - Addition for the reason that the Deed of Assignment of Trademark and Copyright entered into by the assessee with M/s. Univercell Telecommunications India Private Limited is an invalid agreement - HELD THAT - As decided in own case 2020 (4) TMI 742 - ITAT CHENNAI law is settled to the extent that it is outside the domain of the ld. AO to question the necessity of incurring an expenditure. Thus the reasons assigned by the Assessing Officer that the transaction for purchase of trademark are not genuine cannot stand test of the law. Furthermore it is an settled principle of law that intangible assets such as trademark goodwill are also qualifies for depreciation at prescribed rates. We do not concur with the views of the lower authorities in disallowing the claim for depreciation on trademark.- Decided in favour of assessee. Disallowance of advertisement expenditure professional charges - payment made towards Brand Ambassadors for promotion of the brand - HELD THAT - As decided in own case 2020 (4) TMI 742 - ITAT CHENNAI it is settled principle of law that the Assessing Officer is not expected to question the necessity of the expenditure. The brand expenditure is nothing but business promotion expenditure which is Revenue in nature and which is clearly allowed as deduction. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of depreciation on trademark.
3. Disallowance of advertisement expenditure and professional charges.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was filed with a delay of 396 days. The assessee argued that the delay was due to the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016, which caused a shortage of personnel. The Tribunal accepted this explanation, noting that the respondent did not raise any serious objection. Hence, the delay was condoned, and the appeal was admitted for adjudication.

2. Disallowance of Depreciation on Trademark:
The Assessing Officer disallowed Rs. 32,11,523/- claimed as depreciation on the trademark "Univercell," citing several reasons:
- The Deed of Assignment was invalid because Mr. D. Satish Babu signed in multiple capacities.
- The agreement was executed on a post-dated stamp paper.
- The agreement was signed twice on the last page.
- The designation of the person representing the company was not mentioned.
- The trademark was not transferred to the company's name but remained in Mr. D. Satish Babu's name.

The CIT(A) confirmed this disallowance. However, the Tribunal referred to its earlier decisions in the assessee’s own case for previous assessment years (2007-08, 2008-09, and 2015-16), where similar disallowances were overturned. The Tribunal noted that:
- The substance of the transaction was genuine, and the post-dated stamp paper was immaterial.
- The transaction was not a device to evade taxes as both parties disclosed the income.
- The necessity of the transaction cannot be questioned by the Assessing Officer.

The Tribunal concluded that intangible assets like trademarks qualify for depreciation and allowed the appeal, setting aside the orders of the lower authorities.

3. Disallowance of Advertisement Expenditure and Professional Charges:
The Assessing Officer disallowed Rs. 2,64,81,387/- towards advertisement expenditure and Rs. 2,04,05,500/- towards professional charges. The CIT(A) upheld this disallowance. The Tribunal, however, referred to its previous orders in the assessee’s own case, where such expenditures were allowed as they were deemed necessary for business promotion in a competitive market. The Tribunal reiterated that the Assessing Officer is not expected to question the necessity of the expenditure and that branding expenditure is a revenue expense allowable as a deduction.

The Tribunal, therefore, set aside the orders of the lower authorities and directed the Assessing Officer to allow the deduction of advertisement expenditure and professional charges.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee, condoning the delay in filing, allowing depreciation on the trademark, and permitting the deduction of advertisement expenditure and professional charges. The decision was pronounced on 16th September 2021 in Chennai.