2016 (7) TMI 180 - AT - Income Tax

Tribunal upholds depreciation allowance for technical know-how, corrects accounting errors, emphasizes consistency

ACIT, Central Circle 3 (1) New Delhi Versus Billtech Building Elements Ltd.

The Tribunal upheld the allowance of depreciation on technical know-how for the appellant, rejecting the Revenue's challenge to the valuation and nature ... Depreciation on technical know-how - Held that:- The assessee company entered into Memorandum of Understanding (MOU) for transfer of business as going concern with M/s Premium Energy Transmission Ltd. (PET Ltd.). The assessee claimed to have acquired technical know-how. It was disclosed in the accounts and financial statements as an asset and depreciation was claimed on the same for the A.Y. 2005-06. The return was processed u/s 143(1). Thus the depreciation claimed on the block of assets, being technical know-how was not disturbed by the Revenue in the first year of claim. PET Ltd. filed its return of income and offered ₹ 2.75 crores as its profit, on sale of know-how to the assessee company. For the A.Y. 2006-07 the assessee company filed its return of income declaring the written down value of know-how and claiming depreciation thereon. The assessment order was passed by the A.O. u/s 143(3) of the Act and the claim of depreciation on technical know-how fees was not disturbed. During this year the A.O. for the reasons given in his order, seeks to disturb the opening written down value. In our considered view this is not permitted in law. Thus the order of the First Appellate Authority, to the extent of his decision to allow depreciation on technical know-how fees is to be upheld. - Decided in favour of assessee Rate of depreciation on computer peripherals - Held that:- The issue is covered by the decision of Hon’ble Delhi High Court in the case of CIT vs. BSES Yamuna Power Ltd. (2010 (8) TMI 58 - DELHI HIGH COURT ) and ACIT vs. Caparo Maruti Ltd. Delhi [2012 (4) TMI 665 - ITAT DELHI] saying as computer peripherals are the part of the computer system, they are entitled to depreciation at the higher rate of 60%.- Decided in favour of assessee Addition made on account of difference in trading a/c u/s 145A - Held that:- The A.O. has enhanced the figures of sales, closing stock, opening stock and purchases, by the amount of excise duty while adopting inclusive method. While doing so, he should have reduced the excise duty actually paid by the assessee of ₹ 1,71,31,908/- as it has been already included. In view of the above discussion we uphold the order of the First Appellate Authority in deleting the addition - Decided in favour of assessee Issues Involved:1. Disallowance of depreciation on technical know-how.2. Rate of depreciation on computer peripherals.3. Addition on account of difference in trading account under Section 145A of the Income Tax Act.Detailed Analysis:1. Disallowance of Depreciation on Technical Know-How:The core issue in these appeals was the disallowance of depreciation on technical know-how. The appellant company, engaged in manufacturing cement bricks, blocks, and slabs, acquired the business of Autoclave Aerated Concrete Products (AAC) for Rs. 13.75 crores. The purchase included various assets, one of which was technical know-how valued at Rs. 2.75 crores. The appellant claimed depreciation on this technical know-how, which was initially allowed by the Department for A.Y. 2005-06 and 2006-07. However, for A.Y. 2007-08, the Assessing Officer (AO) disallowed the depreciation, citing discrepancies in the valuation of technical know-how and questioning its nature as an intangible asset. The First Appellate Authority partly allowed the appeal, permitting depreciation but based on the valuation by the District Valuation Officer (DVO) rather than the actual consideration paid.Upon appeal, the Tribunal held that the AO could not disturb the opening written down value (WDV) of the asset, as depreciation had been allowed in previous years. The Tribunal cited the ITAT Mumbai Bench's decision in HSBC Asset Management (India) Pvt. Ltd. and M/s Godrej Agrovet Ltd., emphasizing that the AO cannot dispute the opening WDV of the block of assets. The Tribunal upheld the First Appellate Authority's decision to allow depreciation on technical know-how and rejected the Revenue's appeals for A.Y. 2007-08 and 2008-09. The Tribunal also allowed the assessee's Cross Objections, directing the AO to grant depreciation on the opening WDV of the technical know-how.2. Rate of Depreciation on Computer Peripherals:For A.Y. 2009-10, the Revenue contested the rate of depreciation on computer peripherals. The Tribunal dismissed this ground, referencing the Delhi High Court's decision in CIT vs. BSES Yamuna Power Ltd. and ACIT vs. Caparo Maruti Ltd., which supported a higher depreciation rate for computer peripherals.3. Addition on Account of Difference in Trading Account Under Section 145A:The Revenue also appealed against the deletion of an addition of Rs. 1,71,31,908/- made on account of differences in the trading account under Section 145A. The AO had included excise duty in the opening stock, sales, purchases, and closing stock but failed to account for the excise duty paid on sales. The First Appellate Authority corrected this by allowing the deduction of the excise duty paid, which the AO had overlooked. The Tribunal found no infirmity in the First Appellate Authority's findings and upheld the deletion of the addition.Conclusion:The Tribunal dismissed the Revenue's appeals for A.Y. 2007-08, 2008-09, and 2009-10 and allowed the Cross Objections filed by the assessee for A.Y. 2007-08 and 2008-09. The Tribunal's decision was based on the principles of consistency in depreciation claims and the proper accounting of excise duty under Section 145A. The order was pronounced in the Open Court on 28th June 2016.