The Income Tax Appellate Tribunal (ITAT), Mumbai Bench presided by Mr. Prashant Maharishi, AM, and Mr. Pavan Kumar Gadale, JM has held that shares are not intangible assets under section 32(1) (ii) and no depreciation on the purchase price of shares.
The assessee, Sanjana Cryogenics Storages Ltd. is a company engaged in the business of running of ammonia storage terminal, generation of power, dealing in ammonia, and trading/investing in shares, mutual funds, and derivatives. During scrutiny assessment, the Assessing Officer disallowed depreciation amounting to Rs 4,44,07,662/– and computed the total income of the assessee at ₹ 132,394,070/–. On appeal, the CIT (A) deleted the disallowance. Aggrieved, Revenue filed an appeal before ITAT.
The counsel for the revenue submitted that the dispute is concerning the payment of ₹ 31.58 crores paid by the assessee company to the shareholders of RRS minerals private limited for the purchase of shares of that company. It was submitted that the ‘shares’ cannot be classified as an intangible asset on which depreciation can be allowed. He submitted that shares are not an intangible asset referred to under the provisions of Section 32(1) (ii) of the act. The assessee has claimed depreciation on the purchase price of shares of another private limited company.
The Tribunal observed that Section 32 (1) (ii) defines intangible assets as ‘know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature. Even otherwise shares are financial assets classified as tangible assets because they derive value from contractual claims. Hence, the same is not depreciable u/s 32 (1) (ii) of The Act.
The Tribunal has held that “we reverse order of learned CIT – A and restore the order of the learned assessing officer disallowing depreciation of Rs 4,44,07,662/- on shares purchased by the assessee holding that it is not a depreciable intangible asset”.
Mr. R. Murlidhar and Mr. Lalchand Choudhary appeared on behalf of the assessee and Mr. Hoshang B. Irani appeared on behalf of the revenue.
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