2014 (10) TMI 426 - AT - Income Tax

Depreciation - assessee treated the acquisition of goodwill as technical know how - intangible assets - After considering the mode of acquisition of technical knowhow by the assessee company, the assessing officer pointed out that assessee failed to explain how the amount of ₹ 2.50 crores on account of goodwill had become technical know-how in the hands of the assessee company. - Held that - The assessee had acquired the business of M/s Little Kingdom Edutech Ltd., which in turn had acquired the business of partnership firm of Little Kingdom Nursery School. Ms. Neeru Kukreja and Rajesh Kukreja (HUF) managed all these three entities since beginning - The definition of know-how clearly contemplates that some specific technique is to be developed which can assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits relying upon CIT Vs. Elecon Engg. Co. Ltd. 1974 (2) TMI 7 - GUJARAT High Court - there should be something concrete available with the assessee in the form of formulae, drawings, patterns, blue prints, specifications etc. to come within the ambit of know-how - the know-how is mainly with reference to industrial manufacturing process and not with reference to any innovative technique allegedly developed by the managing director of assessee company for better imparting of education to children - The assessee s claim, inter alia, is that academic gadgets developed by it constitute know-how - since imparting of education in school cannot be equated with the information or technique helping in industrial manufacturing, we are of the opinion that technical know-how in the books of assessee acquired from M/s Little Kingdom Edutech Ltd. cannot be held to be entitled for depreciation in view of statutory provisions of section 32 Decided against assessee. Penalty u/s 271(1)(c) Inaccurate particulars furnished or not - Held that - All the facts were accurately disclosed by assessee and the depreciation had been claimed treating the same as technical know-how - It is only because of difference of opinion on the scope of term know-how as per Explanation 4 to section 32 that the assessee s claim was not accepted - assessee s claim was bona fide inasmuch as in the case of M/s Little Kingdom Edutech Ltd. assessment had been completed u/s 143(3) for A.Y. 2001-02 wherein in the balance-sheet stood accepted showing software at ₹ 2.25 crores and good-will at ₹ 2.50 crores - the bona fides of the assessee s claim cannot be doubted Following the decision in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT - mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee - Such claim made in the Return cannot amount to the inaccurate particulars thus, there is no reason to interfere in the order of the CIT(A) Decided against revenue.

Summary

Issues Involved:
1. Disallowance of depreciation on technical know-how for A.Y. 2002-03.
2. Disallowance of depreciation on technical know-how for A.Y. 2005-06.
3. Deletion of penalty levied under Section 271(1)(c) for A.Y. 2002-03.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Technical Know-how for A.Y. 2002-03:
The assessee, engaged in running preparatory schools, acquired the business of Little Kingdom Edutech Ltd. and claimed depreciation on technical know-how amounting to Rs. 4.75 crores. The assessing officer disallowed this claim, concluding that the technical know-how was not a tangible asset but a notional one, as there was no evidence of software or other tangible assets. The CIT(A) upheld this disallowance, reasoning that the assets were not eligible for depreciation under Explanation 4 of Section 32, which defines know-how as industrial information or techniques related to manufacturing or processing. The Tribunal confirmed this view, stating that the claimed technical know-how did not meet the statutory definition and thus was not eligible for depreciation.

2. Disallowance of Depreciation on Technical Know-how for A.Y. 2005-06:
For A.Y. 2005-06, the assessee again claimed depreciation on technical know-how. The CIT(A) rejected this claim, following the precedent set in A.Y. 2002-03. The Tribunal upheld the CIT(A)'s decision, reiterating that the claimed technical know-how did not qualify for depreciation under the statutory provisions.

3. Deletion of Penalty Levied under Section 271(1)(c) for A.Y. 2002-03:
The assessing officer imposed a penalty under Section 271(1)(c) for filing inaccurate particulars of income. The CIT(A) deleted the penalty, stating that the assessee's claim was bona fide and there was no conscious or intentional act to conceal income. The Tribunal agreed, noting that all facts were disclosed accurately by the assessee, and the issue was a matter of interpretation of the term 'know-how'. The Tribunal emphasized that making a claim not sustainable in law does not amount to furnishing inaccurate particulars, referencing the Supreme Court's decision in CIT Vs. Reliance Petro Products 322 ITR 158.

Conclusion:
The Tribunal dismissed the appeals of the assessee regarding the disallowance of depreciation on technical know-how for A.Y. 2002-03 and 2005-06, upholding the CIT(A)'s decisions. However, the Tribunal also dismissed the revenue's appeal against the deletion of the penalty under Section 271(1)(c), affirming that the assessee's claim was bona fide and did not constitute furnishing inaccurate particulars of income.