TaxTMI 
TaxTMI 
2010 (11) TMI 636
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....02-03 i.e., ITA No. 3740/Del/2008:- "1. The CIT(A) has erred in law and facts in upholding the orders of the AO in disallowing the depreciation claim of Rs. 78,34,967 for asst. yr. 2002-03 and consequently allowing a lower carry forward of loss. 2. The CIT(A) erred in placing excessive reliance on the nomenclature used in the books of account and in failing to consider the true nature of intangible asset. Consequently the CIT(A) erred in not allowing depreciation legitimately due to the appellant. 3. The CIT(A) erred in upholding the order of AO denying depreciation benefit to the appellant and in not following consistency contrary to decision of the Courts. 4. The CIT(A) erred in not allowing depreciation to the appellant by wrongly equating intangible rights with land." 3. Brief facts are that the assessee company is a 100 per cent subsidiary of Osram GmbH, Germany and had entered into a sale and purchase agreement on 20th May, 1998 with ECE Industries Ltd. whereby it purchased from ECE its lamp manufacturing division at Sonepat as a going concern for a consideration of Rs. 4,250 lakhs. The consideration was for the purchase of al....
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.... for all three years. 4. It is the submission of the assessee before us that intangible assets were characterized as goodwill because of the accounting requirement as per AS-10 but it does not include any consideration on account of past profits as there was no profit earned by the unit nor did it earn profit after its acquisition till the last of the assessment year under consideration. It is the submission of the assessee that this consideration paid on account of goodwill is solely for the acquisition of business and commercial assets in the form of:- "(i) Complete information concerning all past, present and prospective customers e.g. marketing and distribution territorial know-how and customer database. (ii) All licenses and commercial rights like for water, gas, energy, rental agreements, customer contracts, labour contracts etc. Such licenses/business contracts were essential for continuance of appellant company's business as a going concern. (iii) Intangible asset like the non-exclusive use of the trade mark 'ECE'." 5. It is the submission of the assessee before us that the depreciation should be allowed in these three years....
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....erred to the judgment of Hon'ble apex Court rendered in the case of M.M. Ipoh and Ors. vs. CIT (1968) 67 ITR 106 (SC) wherein it was held by the apex Court that the doctrine of res judicata does not apply in income-tax proceedings and on this basis, he rejected this claim of the assessee also and decided the issue against the assessee. 9. When we examine the copy of sale and purchase agreement dt. 20th May, 1998 entered into by the assessee with the seller ECE Industries Ltd. for Rs. 4,250 lakhs, we find that as per p. 3 of this agreement as available on p. 14 of the paper book, there is transfer of intangible assets/goodwill and purchase consideration of Rs. 4,250 lakhs is in respect of all tangible and intangible assets sold and transferred by that company to the assessee. The details of intangible assets included in goodwill are available on p. 2 of the paper book which is reproduced below:- "List of intangible assets acquired under the agreement included in the category 'goodwill' as per Chapter 3 of sales and purchase agreement dt. 20th May, 1998 with ECE Industries Ltd.:- 1. All past, present and prospective customer relationship (address, contra....
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....e total amount of goodwill debited by the assessee in its books of account at Rs. 636.72 lakhs, proper value should be assigned to these intangible assets which are acquired by the assessee and on the value of those intangible assets, depreciation should be allowed to the assessee but on the remaining value of goodwill, depreciation is not allowable to the assessee because the term goodwill is not included in the provisions of s. 32(1)(ii). 11. Regarding various judgments cited by the learned Authorised Representative of the assessee, we would like to mention that in the case of ITO vs. Medicorp Technologies India Ltd. (supra), it was held by the Tribunal that non-compete right acquired by the assessee company was eligible for depreciation under cl. (ii) of s. 32(1) of the IT Act. In the present case also, as per Chapter IX of the purchase agreement as per pp. 19 and 20 of the paper book, the assessee has also acquired non-compete right for a period of 60 months and hence, out of the total value of goodwill of Rs. 636.72 lakhs, some portion is to be assigned to non-compete right acquired by the assessee and on that also, the assessee is eligible for depreciation. We also ....
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....ter, after deducting the amount of proportionate depreciation on goodwill allowed by the AO in asst. yrs. 1999-2000, 2000-01 and 2001-02, he should work out the WDV as on 1st April, 2001 for both portions. On such WDV for intangible assets, the depreciation should be allowed in asst. yr. 2002-03 and subsequent years whereas no depreciation should be allowed in these years on WDV of remaining part i.e., goodwill. We would also like to mention that the burden is on the assessee to bring material on record for valuation of these intangible assets by the assessee in the form of any comparable case or valuation by an expert etc. Otherwise, the AO will do this exercise on the basis of his best judgment. 12. Regarding the second claim of the assessee i.e., allowing of depreciation in view of rule of consistency on the whole amount of goodwill without any bifurcation of the same, we would like to mention that rule of consistency can be followed only in such circumstances where the view taken by the AO in earlier year is in accordance with law but if some mistake has been committed by the AO which is not in accordance with law, then the same mistake cannot be allowed to perpetuate....
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...." 15. Learned Departmental Representative supported the assessment order whereas it was submitted by the learned Authorised Representative of the assessee that as per para 7 of the order of learned CIT(A), it is held by him that the operating profit of the manufacturing segment should be Rs. 655.49 lakhs after adding back the expenses considered twice by the AO of Rs. 106.85 lakhs. It is also held by him that the same is equal to the amount submitted in the TP report and is within the acceptable plus minus 5 per cent of the ALP. It is submitted that on this aspect of expenses considered twice by the AO of Rs. 106.85 lakhs, the TPO himself has passed rectification order under s. 154 on 25th Aug., 2008. He submitted a copy of this order passed by the TPO in which he has also worked out the operating profit at Rs. 655.49 lakhs. It is submitted that since this aspect has been decided by the TPO also in favour of the assessee to the extent of this rectification in the operating profit, the ground raised by the Revenue is liable to be rejected. 16. Regarding the second aspect as to whether the operating profit of the manufacturing segment of the assessee is within the....
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....against the disallowances made by AO is pending for disposal before CIT(A). It is prayed that directions be issued to AO and CIT(A) to keep the rectification matter in abeyance till disposal of appeal for asst. yr. 2002-03 before your Honour." 20. It is submitted by the learned Authorised Representative of the assessee that ground No. 1 is identical to the issue raised by the assessee in its appeals for asst. yrs. 2002-03, 2003-04 and 2004-05 in connection with the issue arising out of the assessment order passed by the AO under s. 143(3). 21. The brief facts are that in the order passed by the AO under s. 154 on 13th Nov., 2007, it has been noted by the AO that in the assessment order passed by the AO for the same assessment year under s. 143(3) on 15th Dec., 2006, total loss as per return of income of Rs. 113.03 lakhs was considered and after making two adjustments therein, carry forward of loss of Rs. 111.13 lakhs was allowed but in asst. yr. 2002-03, loss was worked out as per the assessment order in that year by making an addition of Rs. 78,34,967 but this fact was not taken into account while allowing the brought forward loss. On the basis of thi....