TaxTMI 
TaxTMI 
2018 (10) TMI 1089
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....in the circumstances of the case and in law, the learned CIT has wrongly assumed jurisdiction under section 263 of the Act and erred in holding that the claim of depreciation has been accepted by the AO without making any enquiry with regard to the correctness of the claim of depreciation on know-how and patents and thus, resulting in excessive allowance of depreciation, particularly when the said claim has been accepted since A.Y. 2003-04. Ground 3 On the facts and in the circumstances of the case and in law, the learned CIT has erred in holding that for determining the written down value of an asset under Section 43(6) of the Act, the AO has to determine the actual cost of the asset every year even when the asset forms part of the block of assets. Without prejudice to the above, the CIT has erred in holding that the actual cost of assets forming part of the block of asset can be changed in subsequent years based on reanalysis and reappraisal of the facts in the later years. Ground 4 On the facts and in the circumstances of the case and in law, the learned CIT has erred in directing the AO to undertake a fresh assessment to decide whether deprec....
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....aborately discussed the issue and allowed the claim of assessee. The learned Authorized Representative for the assessee took us through various paras of show cause notice and also the order of Commissioner. He then drew our attention to various paras of the order of Tribunal in ITA No.1507/PUN/2012, relating to assessment year 2004-05 and ITA No.2036/PUN/2012, relating to assessment year 2005-06, order dated 12.12.2017 where the issue of allowing depreciation on know-how, trademarks and patents has been considered. He also pointed out that the Commissioner in the order passed under section 263 of the Act says that no enquiry was made by the Assessing Officer and hence, the order passed is both erroneous and prejudicial to the interest of Revenue. He pointed out that for the first time, the said depreciation was claimed and allowed to the assessee in assessment year 2003-04 and hence, the Assessing Officer could not tinker with the depreciation on assets in assessment year 2007-08, where the said assets had entered the block of assets and hence, there was no error in the order of Assessing Officer. He further pointed out that both on 263 and on merits of the case, the issue is to be....
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....sessee dated 29.11.2010, wherein vide para 1 the facts of the case were noted and the Commissioner further observed as under:- "10. In short, since the „Actual Cost‟ of the asset i.e. Know-how, Patent and Trademark which is the basis for computing the allowable depreciation, is not available in the present case, depreciation u/s 32 in respect of Trademark, Patent and Know-how cannot be allowed. The AO has, however, allowed the depreciation on Know-how, Trademark and Patent without making proper enquiries with regard to the actual cost of these assets and has allowed the depreciation on an estimated amount and not on the basis of actual cost of the asset to the assessee. The order of the AO, therefore is erroneous as well as prejudicial to the interest of revenue in as much as excessive depreciation on Know-how, Trademark and Patent has been allowed resulting in loss of revenue. You are, therefore, requested to submit your say as to why the order passed by the AO u/s 143(3) for A.Y. 2007-08 be not set aside." 7. After considering the reply of assessee, the Commissioner passed the order on different aspects of case. The first aspect was deliberated under para ....
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....gibles including knowhow cannot be accepted as the correct value of individual items of the intangibles assets such as knowhow and value so assigned can be acknowledged as actual cost for the purpose of allowing depreciation." 10. The Commissioner also took note of the fact that depreciation had been allowed on the basis of details submitted in the year 2003 and where the actual cost had been accepted in earlier year that the depreciation had to be allowed in current year on the basis of WDV and he observed as under:- "15. It is also submitted that depreciation has been allowed on the basis of the details submitted in the year 2003. In this regard it may be mentioned that each assessment as separate asst year and that the principal of ras-judicata is not applicable in its strict sense in the matter of income tax proceedings. In other words whenever a claim of deduction or allowance is made in the return of income, the AO is duty bound to make enquiries with regard to the correctness and allowability of such claim of allowance in each asst year. The position and function of the ITO is different from that of Civil Court. The court is neutral to the dispute and dispute is ....
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....rious facts and aspects of the case. First of all, the issues which need adjudication are as under:- a) Claim of depreciation on tangible assets and intangible assets i.e. non-compete fee and goodwill; b) Bifurcation of slump price into the value of tangible assets and intangible assets; c) Determination of value of land at Taloja and Panki for its value to be attributed from slump price; d) Allocation of value to trademarks, patents and know-how and goodwill, out of purchase consideration of Rs. 153.18 crores; e) Claim of depreciation on such trademarks, patents and know-how and goodwill; f) Basis for exercise of power of enhancement by the CIT(A); g) Disallowance of depreciation once the assets had entered into block of assets, in view of section 43(6) of the Act; h) Corporate issue of expenses pertaining to increase in share capital." 14. The Tribunal further decided the issue of allocation of value of consideration to the two lands i.e. Panki and Taloja. In respect of land at Panki, the conclusion is in para 48 of the order of Tribunal, which reads as under:- "48. Reading the terms of BTA as agr....
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....on under the name of Synetix including the business IP to the assessee but since Panki activities and Panki assets were excluded from the said takeover of business by the assessee from ICI India Ltd., the said assets i.e. land and building including the plant & machinery remained to be transferred. However, under the Toll Agreement, the said assets and site were to be used by ICI India Ltd. in order to manufacture the products for and on behalf of the assessee i.e. till the date Panki site and the assets were transferred, the manufacturing activities had to be carried on by ICI India Ltd. for and on behalf of assessee. Though under the Toll Agreement, it was decided that the said Panki site would be transferred at the value of Rs. 1 lakh, which we shall consider in the paras hereinafter; but the parties did agree to understanding to carry on the business in a particular manner. On analysis of the terms of BTA and Toll agreements, it transpires that the value of land at Panki was not part of slump price since the same was not transferred on the date of signing of BTA and TCA. ICI India Ltd. owned 279.30 acres of land, out of which catalyst business was being carried on part of it i.....
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....d was not the owner of said land and has no authority to transfer to the assessee under BTA agreement. 50. Before parting, we may also refer to Leave and License Agreement between HLL and ICI India Ltd., which is placed at pages 382 to 392 of the Paper Book Vol-2. This is with regard to land at Taloja, under which ICI India Ltd. was given the right to use the said land. On 02.12.2002 Leave and License Novation Agreement was signed between HLL, ICI India Ltd. and the assessee for use of land at Taloja, copy of which is placed at pages 393 to 397 of the Paper Book, Vol-II. 51. Another point to be noted in respect of Taloja land is that HLL sold its business to ICI India Ltd. in 2001 and Leave and License was given to ICI India Ltd. for the said land. However, ICI India Ltd. sold its business to the assessee in 2002 and hence, the Novation between HLL, ICI India Ltd. and the assessee. Another document which needs reference is the Memorandum of Understanding dated 02.04.2008, copy of which is placed at pages 332 onwards of the Paper Book between HLL and the assessee, wherein the said land was agreed to be sold by HLL to the assessee for Rs. 6.93 crores. The Deed of As....
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....ctuals as is clear from the terms of said Toll Agreement entered into between ICI India Ltd. and assessee. Till the receipt of permission from requisite authority for transfer of land, though the catalyst business has been transferred by ICI India Ltd. but it undertook to carry on said business for and on behalf of assessee. The Panki assets and Panki activities were to be carried on by ICI India Ltd. using trademarks and intellectual property rights, which it had originally assigned to the assessee, who in turn, as per the terms of Toll Agreement allowed ICI India Ltd. to use the same. In case we read the terms of BTA and the Toll Agreement, then it becomes very clear that as per BTA, the assessee had acquired the aforesaid rights including intellectual rights in the catalyst business carried on by ICI India Ltd. However, for the limited purpose of carrying on the manufacturing activity at Panki site, the said trademarks and intellectual property rights were being used by ICI India Ltd., since the assessee permitted them to so use it. The CIT(A) however, had concluded that since the business at Panki site was being carried on by ICI India Ltd., then there is no merit in the claim ....
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....per Book. We have already considered the claim of assessee in this regard and in view of additional evidence which is in continuation with terms of BTA entered into, we find merit in the plea of assessee and hold that the assessee has acquired the said know-how, trademarks and patents from ICI India Ltd." 17. The Tribunal further held that Even if we accept the said stand of learned Departmental Representative for the Revenue, ultimately after the slump price has been attributed first to the value of tangible assets, then the balance is to be attributed to intangible assets and once the same is done and whether it is under the umbrella of know-how, trademarks, patents or goodwill, it makes no difference since all these are covered under the umbrella of intangible assets, which are eligible for claim of depreciation under section 32(1)(ii) of the Act. The goodwill is also an intangible asset eligible for said depreciation as held by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (supra). In view thereof, we find no merit in the stand of learned Departmental Representative for the Revenue and the same is rejected (part of para 56). 18. The Tribunal then relie....
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....llowing the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (supra)." 19. Further, the issue which was deliberated upon by the Tribunal was where the assessee had already bifurcated the slump price over the cost of tangible assets, value of know-how, trademarks, patents and balance to the goodwill in assessment year 2003-04 and depreciation having been allowed to the assessee and the assets having been entered the block of assets, can the value of WDV disturbed? The finding is in paras 70 and 71 which reads as under:- "70. The next aspect of the issue is that where the assessee had already bifurcated slump price over the cost of tangible assets, value of know-how, trademarks, patents and balance to the goodwill in the preceding year i.e. assessment year 2003-04 and depreciation having been allowed to the assessee in the preceding year, consequent to which the said assets were part of block of assets and during the year under consideration, depreciation is claimed on the WDV of the said assets as on the start of financial year, then can the authorities disturb the same?. The claim of assessee vis-à-vis depreciation on tangible ass....
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....concept of „block of assets‟ what has to be seen is the aggregate WDV of assets which are falling within the same block at the beginning of previous year, that is the first step. Thereafter, in case any new asset is acquired, then the value of such asset is to be included; and in case any such asset from the „block of assets‟ is sold, then the value of same is to be excluded. However, none of the authorities can tinker with the WDV of the assets for any reason whatsoever. Once the asset has entered into „block of assets‟ and thereafter, depreciation has been allowed and in the succeeding year, the WDV of such asset is to be accepted as sacrosanct and depreciation has to be allowed on the same. Such is the proposition laid down by the Hon‟ble Bombay High Court in Director of Income Tax (IT) Vs. HSBC Asset Management (I) (P.) Ltd. (supra), wherein the Hon‟ble High Court held as under:- "9. Having perused this Appeal Memo including the impugned orders, we are of the opinion that the Delhi High Court judgment has been delivered on 5rh November 2012 and the impugned order was passed on 15th June, 2011. The Tribunal has es....
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.... placed upon by the learned Departmental Representative for the Revenue. The stand of learned Departmental Representative for the Revenue that there could be instances where WDV can be changed and since in the present case there was allocation which was different from the actual cost, then harmonious construction was to be given to the provisions of said section does not stand. We find no merit in the stand of learned Departmental Representative for the Revenue that actual cost for entire block could be examined in the succeeding year if there were circumstances necessitating such change. We find no merit on the same and the same is rejected. Since we have decided the issue both on merits and also on preliminary issue of whether the WDV of assets could be disturbed in the succeeding year, we hold that the issue of enhancement whether can be made by the CIT(A) or not becomes academic in nature and the same is not adjudicated. Accordingly, we direct Assessing Officer to allow claim of depreciation on tangible assets; know-how, trademark and patents; goodwill and non-compete fee. However, the value of intangible assets would be reduced by Rs. 13 crores on account of ....