ITAT Allows Depreciation on Non-Compete Fees Acquired Through Business Purchase Agreements

The Delhi Bench “E” of the Income Tax Appellate Tribunal (ITAT) on 18 May 2026 allowed depreciation claimed by Uno Minda Limited on non-compete fees paid under business acquisition agreements, holding that the issue was already covered in favour of the assessee by earlier orders passed in its own case. The Bench comprising Judicial Member Satbeer Singh Godara and Accountant Member Naveen Chandra directed deletion of the disallowance made under Section 32(1)(ii) of the Income-tax Act, 1961.

“Following the decision of Coordinate Bench of ITAT, we hold that the assessee is eligible for depreciation on Non-compete Fees u/s 32(1)(ii) of the Act.”

The assessee, successor to Harita Fehrer Limited and now merged with Uno Minda Limited, was engaged in the business of manufacturing foam for automobile seats. The company had acquired foam businesses from Polyflex India Private Limited in 2008 and from Harita Seating Systems Limited in 2010 through Business Purchase Agreements (BPAs) valued at Rs 47.30 crores and Rs 46.50 crores, respectively.

Under these agreements, the sellers were restrained through non-compete clauses from engaging in similar business activities. Pursuant to the acquisition, the assessee capitalised non-compete fees amounting to Rs 5.5 crores as intangible assets and claimed depreciation at 25% under Section 32(1)(ii) of the Act.

For AYs 2020-21 and 2021-22, the Assessing Officer disallowed depreciation claimed on the non-compete fees on the ground that similar claims had been disallowed in earlier assessment years. The Commissioner of Income Tax (Appeals) upheld the disallowance.

Before the Tribunal, the assessee submitted that the issue already stood concluded in its favour by the Chennai Bench of the ITAT in its own case for AYs 2011-12, 2013-14, 2014-15 and 2016-17, where depreciation on the same non-compete fees had been allowed.

The Tribunal observed that depreciation on the non-compete fees had originally been allowed by the department in AY 2010-11, and the assessee had thereafter consistently claimed depreciation on the written-down value in subsequent years.

The Bench further noted that the Assessing Officer had disallowed the claim merely because a similar addition had been made in an earlier year, without distinguishing the factual position or the binding precedent already available in the assessee’s own case.

“We find that the issue is fully covered by the assessee’s own case.”

Relying upon the earlier coordinate bench decision as well as the order passed by the CIT(A) for AY 2017-18, granting similar relief, the Tribunal held that the assessee was entitled to depreciation on the non-compete fees as an intangible asset under Section 32(1)(ii) of the Act.

Thus, both appeals filed by the assessee for AYs 2020-21 and 2021-22 were allowed.

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