Delhi HC sets aside TPO’s Order on 'FABINDIA' Trademark Depreciation, Directs AO to Reassess Depreciation Claim [Read Order]

The High Court of Delhi in a recent ruling,set aside the Transfer Pricing Officer(TPO)’s 28.01.2021 order disallowing the depreciation claim on the 'FABINDIA' trademark for Assessment Year(AY) 2011-12 and directed the Assessing Officer(AO) to reassess the claim based on the original acquisition value, in line with Income Tax Appellate Tribunal(ITAT)’s earlier findings.

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Fab India Overseas Private Limited,petitioner-assessee,filed a writ petition challenging an order dated 28.01.2021 passed by the TPO for AY 2011-12. The petitioner also sought directions to allow depreciation under Section 32 of the Act on the written-down value of the trademark "FABINDIA" as of 01.04.2010.

The trademark was acquired during FY 2006-07 from one of the petitioner’s group companies, and its value was reflected in the petitioner’s books. The TPO for AY 2007-08 had determined the arm’s length price (ALP) of the transaction as nil, asserting that the transfer lacked economic substance.

Based on this, the Assessing Officer (AO) disallowed the petitioner’s claim for depreciation in subsequent years, including AY 2011-12. The disallowance was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

On appeal, the ITAT held that the TPO lacked jurisdiction to question the business decision of acquiring the trademark. The ITAT directed the AO to reconsider the depreciation claim without relying on the TPO’s earlier determination of the ALP as nil. Despite this, the TPO issued another order for AY 2011-12 reiterating the earlier stance, leading to the petitioner’s challenge.

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The assessee contended that the TPO acted beyond jurisdiction as there was no international transaction related to the trademark in AY 2011-12. The assessee also argued that the depreciation claim should have been allowed based on the trademark's value in the year of acquisition.

The Division Bench comprising Vibhu Bakhru(Justice) and Swarana Kanta Sharma(Justice)agreed with the assessee, holding that the TPO had no authority to benchmark a transaction completed in FY 2006-07 for AY 2011-12. It  ruled that the depreciation claim must be assessed based on the original acquisition value and set aside the TPO’s order dated 28.01.2021.

However, the court declined to issue specific directions for computing depreciation, leaving the matter to the AO to decide in line with the ITAT’s earlier findings.

In short,the petition was disposed.

To Read the full text of the Order CLICK HERE

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