9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (1) TMI 12 - AT - Income TaxNon-allowance of depreciation on various assets purchased for lump sum consideration - Bifurcation of slump price into the value of tangible assets and intangible assets - power of enhancement exercised by the CIT(A) by disallowing depreciation on assets which were acquired under slump sale agreement - Held that - Though under the Toll Agreement, it was decided that the said Panki site would be transferred at the value of ₹ 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.e. 27.53 acres, which admittedly, was to be transferred to the assessee. The said land was under lease with Kanpur Development Authority, for which necessary permission was required before the land could be transferred. Hence, the conclusion of CIT(A) in this regard that the land at Panki was transferred and its value as per valuation done by KDA works out to ₹ 174.36 crores is without any basis. In the absence of any land at Panki being transferred under the BTA, there is no merit in findings of CIT(A) in this regard. 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. (2012 (8) TMI 713 - SUPREME COURT). In view thereof, we find no merit in the stand of learned Departmental Representative for the Revenue and the same is rejected. 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 ₹ 13 crores on account of value of Panki land. The grounds of appeal raised by the assessee are thus, partly allowed.
Issues Involved:
1. Depreciation on various assets purchased for lump sum consideration. 2. Power of enhancement by CIT(A). 3. Rule of consistency. 4. Disallowance of depreciation once the asset has entered the block of assets. 5. Incorrect appreciation of facts leading to disallowance of depreciation. 6. Value of land at Taloja and Panki. 7. Valuation of trade-marks, patents, and know-how. 8. Depreciation on non-compete payment. 9. Depreciation on goodwill. 10. Expenses pertaining to increase in share capital. 11. Initiation of penalty under section 271(1)(c) of the Act. Detailed Analysis: 1. Depreciation on Various Assets Purchased for Lump Sum Consideration: The assessee claimed depreciation on tangible and intangible assets acquired from ICI India Ltd. as part of a slump sale. The CIT(A) disallowed the depreciation, arguing that the assets were acquired as part of an undertaking and not individually. The Tribunal found that the assessee had acquired both tangible and intangible assets, including know-how, trademarks, and patents, and was entitled to claim depreciation on these assets. The Tribunal also noted that the valuation of these assets was done by an independent valuer and was in accordance with AS-10 of the Accounting Principles. 2. Power of Enhancement by CIT(A): The CIT(A) issued a notice of enhancement to disallow depreciation on know-how, trademarks, and patents, arguing that these were neither owned nor used by the assessee. The Tribunal held that the CIT(A) could not disturb the WDV of assets once they had entered the block of assets and depreciation had been allowed in the preceding year. 3. Rule of Consistency: The Tribunal emphasized the rule of consistency, stating that the legal position accepted in preceding assessment years should be followed if there is no change in the facts in subsequent assessment years. The Tribunal cited the Hon'ble Bombay High Court in Director of Income Tax (IT) Vs. HSBC Asset Management (I) (P.) Ltd. (2014) 47 taxmann.com 286 (Bom) to support this view. 4. Disallowance of Depreciation Once the Asset Has Entered the Block of Assets: The Tribunal held that once assets have entered the block of assets and depreciation has been allowed, the WDV of such assets should not be disturbed in subsequent years. The Tribunal cited the Hon'ble Bombay High Court in Director of Income Tax (IT) Vs. HSBC Asset Management (I) (P.) Ltd. (2014) 47 taxmann.com 286 (Bom) to support this view. 5. Incorrect Appreciation of Facts Leading to Disallowance of Depreciation: The CIT(A) argued that the valuation of intangible assets was incorrect as no value was attributed to the land at Taloja and Panki. The Tribunal found that the land at Taloja was leasehold land and not owned by ICI India Ltd., and the land at Panki was not transferred to the assessee. Therefore, the valuation by the independent valuer was correct. 6. Value of Land at Taloja and Panki: The CIT(A) attributed a value of ?174.36 crores to the land at Panki and ?13 crores to the land at Taloja. The Tribunal found that the land at Taloja was leasehold land and not transferred to the assessee, and the land at Panki was not transferred to the assessee. Therefore, the CIT(A)'s valuation was incorrect. 7. Valuation of Trade-marks, Patents, and Know-how: The CIT(A) disallowed depreciation on trademarks, patents, and know-how, arguing that these were not acquired or used by the assessee. The Tribunal found that the assessee had acquired these assets as part of the slump sale and was entitled to claim depreciation on them. 8. Depreciation on Non-compete Payment: The CIT(A) disallowed depreciation on non-compete payment, arguing that it was not an intangible asset. The Tribunal found that non-compete payment is an intangible asset and the assessee is entitled to claim depreciation on it. 9. Depreciation on Goodwill: The CIT(A) disallowed depreciation on goodwill, arguing that it was not an intangible asset. The Tribunal found that goodwill is an intangible asset and the assessee is entitled to claim depreciation on it. The Tribunal cited the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) to support this view. 10. Expenses Pertaining to Increase in Share Capital: The CIT(A) disallowed expenses pertaining to the increase in share capital, arguing that these were capital expenses. The Tribunal upheld the CIT(A)'s decision, stating that expenses on share capital are capital expenses and not allowable as deductions. 11. Initiation of Penalty Under Section 271(1)(c) of the Act: The CIT(A) initiated penalty proceedings under section 271(1)(c) of the Act, arguing that the assessee had submitted wrong particulars of income. The Tribunal's decision on this issue is not explicitly mentioned in the summary. Conclusion: The Tribunal partly allowed the appeals of the assessee, directing the Assessing Officer to allow depreciation on tangible assets, know-how, trademarks, patents, goodwill, and non-compete fees. The Tribunal also directed the Assessing Officer to re-compute the value of intangible assets by reducing ?13 crores on account of the value of Panki land. The Tribunal dismissed the claim of the assessee regarding expenses pertaining to the increase in share capital.
|
