Excess Depreciation on Intangible Assets Allowed: ITAT Upholds Consistency in Nirma’s Case [Read Order]

The Income Tax Appellate Tribunal (ITAT), ITAT Ahmedabad Bench, has ruled in favor of the assessee on the issue of depreciation claimed on intangible assets, rejecting the Revenue’s attempt to restrict the allowance. The Bench reaffirmed that depreciation is allowable on the written down value determined at ₹500 crore, as consistently upheld in Nirma Limited’s earlier assessment years.

The Appellant, Nirma Limited, a public limited company engaged in the manufacture of detergents, soaps, soda ash, and other products, claimed depreciation of ₹4.11 crore in Assessment Year 2015–16 and ₹3.08 crore in Assessment Year 2016–17 on intangible assets arising from the demerger of Nirma Industries Ltd.

The Assessing Officer (AO), however, restricted the claims to ₹27.54 lakh and ₹20.65 lakh, respectively, disallowing a total of ₹7.20 crore over both years. The disallowance was based on the AO’s view that the earlier ITAT decision, which recognised the written down value at ₹500 crores, had not attained finality, since Revenue’s appeal was still pending before the Gujarat High Court.

On appeal, the CIT(A) noted that the Coordinate Bench in Nirma Industries Pvt. Ltd. v. DCIT (ITA No. 386/Ahd/2010) had already recognised the ₹500 crore base for depreciation on intangible assets arising out of the demerger.

The CIT(A) further observed that such claims had been consistently upheld by appellate authorities and the ITAT itself in subsequent years, including AYs 2006–07 to 2014–15, and that Explanation (3) to Section 43(1) could not be invoked since the AO failed to demonstrate that the assets were acquired solely for tax reduction.

The Appellant represented by Bandish Soparkar and Hemanshu Shah, submitted that the Tribunal in earlier years had accepted the valuation of intangible assets at ₹500 crore, forming the base for the written down value, and depreciation must follow this settled position. They argued that the AO could not reopen this determination without any change in facts or law.

The Revenue Authorities represented by Alpesh Parmar argued that the depreciation claim was excessive and should be curtailed, citing pending appeals before the Gujarat High Court in earlier years. He contended that Explanation 3 to Section 43(1) of the Income Tax Act, 1961, warranted a restrictive interpretation of the cost of acquisition of intangible assets.

The Bench comprising Judicial Member, Sanjay Garg and Accountant Member, Makarand V. Mahadeokar held that the issue was fully covered by earlier decisions of the Tribunal in Nirma’s own case. It observed that judicial discipline requires consistency in subsequent years unless there is a material change in facts or law.

The Bench relied on earlier coordinate bench rulings, including orders for Assessment Years 2001–02 through 2014–15, where the depreciation claim on intangible assets was consistently upheld.

Accordingly, the disallowances made by the AO were deleted.

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