TaxTMI 
TaxTMI 
2018 (8) TMI 1544
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....es are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. Facts being identical, we begin with the assessment year (AY) 2006-07. 2. The ground of appeal reads as under: On the facts and circumstances of the case in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation on intangible assets and other assets amounting to Rs. 36,75,000/- acquired by the assessee from proprietary concern pursuant to conversion u/s 47 (xiv) of the Act even when the proprietary concern was not possession of any intangible assets which could fit into basic definition of intangible assets as per the Income Tax Act, 1961. 3. In a nutshell, the facts are that the assessee had claimed depr....
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....ion of the assessee for the reason that the assessee himself is the owner in the instant case and there is no transfer involving sister concerns as the management and owners remain the same. The AO noted that the assessee-company is claiming depreciation on intangible assets acquired on conversion from proprietary concern to corporate entity on 31.03.2005. The proprietary-firm, just before conversion, carried out valuation of its fixed assets on account of which intangible assets of Rs. 3,67,50,000/- were added to the fixed assets, on the basis of registered valuer's valuation report. The AO further observed from details filed in respect of creation of intangible assets and its valuation that the proprietary-firm was infact not in possessio....
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....ands of the proprietary-firm and its actual costs to the proprietary concern was Nil. Thus the AO held that the assessee-company as well as the proprietary-firm were not entitled to claim any depreciation on the intangible asset, the same being internally generated assets and having no actual cost. Finally, the AO also held that the assessee is not entitled to depreciation claim on intangible asset in view of provisions of Explanation-3 to section 43(1), which has been created as a safeguard to protect the interest of revenue against corporatization schemes, which are devoid of economic or commercial justification and can be regarded as pure tax planning scheme. The AO thus held that in assessee's case, the proprietary concern has bee....
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....d fit into the basic definition of intangible assets as per the Act, therefore, the Ld. CIT(A) erred in deleting the disallowance of depreciation on intangible assets and other assets amounting to Rs. 36,75,000/- acquired by the assessee from the proprietary concern pursuant to conversion u/s 47(xiv) of the Act. Thus the Ld. DR supports the order passed by the AO. 6. Per contra, the Ld. counsel of the assessee reiterates statement of facts filed before the Ld. CIT(A) stating that erstwhile, the business of the assessee was carried out by a proprietary concern by the trade name of Krystal Colloids, headed by Mr. Nayan Mepani. With a view to organize its business as a corporate entity for the purpose of better image, for getting economies ....
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....that the depreciation on intangible assets was allowed to the assessee in AY 2005-06 i.e. the year of acquisition during scrutiny assessment. 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. In the instant case, the AO has allowed the depreciation on intangible assets in AY 2005-06. There is no dispute that the year of acquisition of the intangible assets was financial year 2004-05, relevant to the assessment year 2005-06. Now we turn to the concepts of 'block of assets'. The same has been defined by section 2(11) to mean a group of assets falling within a class of assets, comprising- a. tangible assets, being buildings, machinery, plant or f....
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....the Act. Subsequently, similar issue was upheld in CIT v. Arts & Crafts Exports (2012) 246 CTR 463 (Bom). The Hon'ble Delhi High Court in the case of CIT v. Tata Communication Internet Services Ltd. (2012) 204 Taxman 606 (Del) has held that bar as provided u/s 80IA(3) is to be considered only for the first year of a claim for deduction u/s 80IA and not in the subsequent years. In that case, the AO had raised the issue of splitting up or reconstruction of already existing business in the subsequent year, when in the first year of claim this issue was not disturbed. Again, the Hon'ble Bombay High Court in CIT v. Paul Brothers (1995) 216 ITR 548 (Bom), Direct Information (P) Ltd. v. ITO (2011) 203 Taxman 70 (Bom) has held that once a ben....