Depreciation is allowable on Professional & Legal Charges incurred by the assessee during takeover: ITAT Delhi [Read Order]

Recently, the Income Tax Appellate Tribunal, Delhi bench ruled that the assessee is entitled to get depreciation for the amount incurred by him on account of professional and legal charges while taking over other business. The division bench found that the same forms the part of actual cost of the acquisition of the assessee.

Coming to the facts of the case, the assessee is having a manufacturing unit at Madras SEZ in respect of which the claim of deduction u/s 10AA of the Income Tax Act, 1961 was made through the original return. Subsequently, the assessee filed a revised return in order to revise their claim under section 10AA on the basis of the Budget speech made by the Financial Minister on 2009 in which the entire profits of MSEZ was proposed to be deducted from the total income.The amendment in Section was brought in the Act with retrospective effect.Further, the assessee claimed deduction in respect of payment of professional and legal charges in relation to taking over the business from Hindustan Motors Ltd incurred during Assessment Year 2006-07. As the expenditure was incurred for the purpose of acquiring a capital asset it was not claimed as revenue expenditure by the assessee. The Assessing Officer disallowed both the claims on ground that since the amendment came w.e.f 1/4/2010 the revised return and revised claim of the assessee u/s 10AA of the Income Tax Act, 1961 is not allowable.

On appeal preferred by the assessee, the first appellate authority allowed the same finding that the revise return must be allowed since the said amendment is retrospective in nature. Further, it was observed that the legal and professional charges charges were essential for effecting the takeover of business units of Hindustan Motors. Thus, it actually forms the part of actual cost of the acquisition of the assessee. Therefore, claim of depreciation was allowed. The Revenue approached the appellate tribunal challenging the order of the CIT(A).

While concurring with the order of the first appellate authority, the division bench of the Tribunal held that “ the retrospective amendment is very much applicable to the assessee. By the retrospective amendment to Section 10AA (7) through the Finance Act 2010, the benefit conferred on to the assessee from 1/4/2010 has been made applicable from 1/4/2006 and shall apply to Assessment Year 2007-08 also. As regards Ground No. 2, the Ld. AR relied on the ITAT order in assessee’s own case for Assessment Year 2006-07 for depreciation claim being ITA No. 1606/DEL/2010 order dated 31.05.2013. In light of this, the professional charges have to be allowed because the expenses incurred by the assessee was as per the agreement and it was not Hindustan Motors which was incurring the expenses. It actually forms the part of actual cost of the acquisition.”

Read the full text of the order below.