Depreciation claim on Non Compete Fee Allowable Under Income Tax Act: ITAT Deletes Penalty Imposed [Read Order]

In the recent ruling, the Delhi bench Of Income Tax Appellate Tribunal (ITAT) quashed the penalty for disallowing Rs. 21,89,970 in non-compete fee depreciation due to conflicting High Court rulings and the Supreme Court's pending review.

Metro Tyres Limited, the appellant assessee, an assessment order was issued disallowing depreciation on a non-compete fee of Rs. 21,89,970 and a further disallowance of Rs. 7,37,674 under Section 14A of the Income Tax Act against the assessee.In the appeal, the Commissioner of Income Tax (Appeals) reversed the disallowance under Section 14A but kept the disallowance for non-compete fee depreciation. Later, penalty proceedings were started, and a penalty order under Section 271(1)(c) was issued on 31/03/2019.

The assessee appealed the penalty order dated 31/03/2019 to the CIT(A), who dismissed the appeal on 18/09/2020. The assessee then filed the current appeal challenging the aforementioned decision.

The counsel for the appellant contended that no penalty should be imposed for the disallowance of Rs. 21,89,970 on non-compete fee depreciation, as it is a debatable issue and requested the penalty be deleted.

The Tribunal on considering the facts and materials on record found that the penalty was imposed due to the disallowance of Rs. 21,89,970 for depreciation on non-compete fee. The Tribunal stated that The CIT(A) had relied on the High Court decision in the case Sharp Business System Vs. CIT which is currently under appeal in the Supreme Court.

The two-member bench of  Yogesh Kumar U.S (Judicial Member) and Pradip Kumar Kedia(Accountant Member) contended that Section 271(1)(c) cannot be applied in this case  and quashed the penalty order dated 31/03/2019 for the Assessment Year 2014-15.

To Read the full text of the Order CLICK HERE

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