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TMI Blog2017 (6) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... see claimed depreciation on government authorization constitute an information, and this information came to the Assessing Officer after the original assessment by fresh facts revealed later on. In such circumstances the issue of change of opinion in the reassessment proceedings cannot arise, when no opinion was framed on the issue of depreciation on government authorization in the original assessment proceeding. Whether the Government authorization/approvals falls under the category of intangible assets mentioned in section 32(1)(ii)? - Held that:- Government authorization/approvals are neither license nor the rights of business or commercial nature in the hands of M/s. KOAL, which could be transferred to the assessee and therefore no depreciation on the value assigned to government organizations/approvals by the assessee, could be allowed to the assessee. The ground of appeal is accordingly dismissed. Depreciation disallowed on non-compete fee - Held that:- As relying on Sharp business system versus Commissioner of income tax-III, (2012 (11) TMI 324 - DELHI HIGH COURT) and issue is covered in favour of the Revenue as held Every species of right spelt-out expressly by the Statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) {"Ld. CIT(A)"} erred in concluding that assessment proceedings under Section 147/148 of the Act were initiated correctly by learned Assessing Officer ("Ld. AO") beyond the period of 4 years and from the end of the assessment year. 2) That on the facts and circumstances of the case & in law, the learned CIT(A) has grossly erred in upholding the disallowance of depreciation amounting to ₹ 56,54,840/- on the intangible asset of "Government Authorizations" which was acquired by the appellant under a Business Transfer Agreement with the Kilburn Officer Automation Limited. 3) That the Learned CIT(A) has erred in upholding the disallowances of depreciation on the business or commercial rights acquired in the form of non-compete rights under Section 32 of the Act having treated the said non-compete fee as capital expenditure in nature. 4) That the Learned CIT(A) has grossly erred in not allowing depreciation on Goodwill being an intangible asset on which depreciation is mandatorily allowable. That the above grounds of appeal are without prejudice to each other. That the appellant reserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specified assets and "Government Approvals/Authorization" do not form part of the specified asset, therefore, the claim of the depreciation by the assessee on "Government Approvals" was not as per the provisions of the law. Thus, according to the Assessing Officer, excessive depreciation amounting to ₹ 56,54,840/- was allowed to the assessee and income to that extent was under assessed in the assessment order dated 28/12/2007. Accordingly, the Assessing Officer recorded reasons to believe that income escaped assessment and reopened the assessment proceedings under section 147 of the Act after obtaining approval of the competent authority and issued notice under section 148 of the Act on 25/03/2011. A copy of reasons recorded was also provided to the assessee alongwith notice under section 148 of the Act. In response, the assessee company filed return of income on 03/05/2011 declaring total income of ₹ 2,15,72,860/-. The Assessing Officer issued statutory notices under section 143(2) and 142(1) of the Act which were duly complied. The assessee objected initiation of reassessment proceedings after the expiry of four years from the end of relevant assessment year and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts. (iii) In Tax audit report alongwith depreciation schedule, the depreciation claimed of ₹ 56,45,639/- @ 25% on Government Authorizations Of ₹ 4,41,66,706/- was shown. 4.2 According to the Assessing Officer above disclosure was not sufficient to meet the requirement of law (i.e. proviso to section 147 of the Act) that the assessee should have disclosed 'fully and truly' all material facts necessary for the assessment, due to following reasons: (i) The assessee did not disclose the claim of depreciation on government approvals in the return of income or in the original assessment proceeding except mentioning the claim in the depreciation chart filed alongwith the original return of income. (ii) The assessee neither in the return of income nor in the assessment proceeding disclosed any fact with regard to ineligibility of assets on which depreciation was claimed and had been allowed. (iii) In assessment proceedings, by stating that "no asset valuing above ₹ 10 lakhs" was acquired by the assessee during the year, the assessee misrepresented the facts. 4.3 According to the Assessing Officer, the reassessment was not due to change of opinion but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had not produced any evidence to substantiate its claim of depreciation on Government Authorization and thus the Assessing Officer also did not examine the said claim of depreciation. 4.4.3 According to the Ld. CIT-(A), the assessee had not furnished any information regarding fixed assets during the original assessment proceeding including intangible assets and thus the claim of the assesses that it had furnished all the requisite information and same were examined by the Assessing Officer, was false and not based on evidences. In view of the Ld. CIT(A), since the Assessing Officer had not examined the claim of depreciation amounting to ₹ 56,54,840/- during the assessment proceeding, there was no question of any "change of opinion" while reopening assessment under section 147 of the Act. 4.4.4 According to the Ld. CIT-(A), the assessee had not disclosed fully and truly all material facts necessary for their assessment and, therefore, the Assessing Officer was correct in reopening the assessment under section 147 of the Act. 4.4.5 According to the Ld. CIT-(A), the excess depreciation of ₹ 56,45,839/- has been claimed and allowed to the assessee on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngible assets having written down value as ₹ 4,51,66,708/- and depreciation thereon at the rate of 25%, computed as ₹ 56,45,839/-. 4.5.1 The Ld. counsel submitted that all the information in respect of the depreciation on Government Authorization was fully disclosed in the return of income filed along with financial statements and Tax Audit Report (TAR) and all the claims of the assessee were accepted by the Assessing Officer during the original assessment proceeding, other than that of non-compete fee. 4.5.2 He further submitted that the question of any failure or omission on the part of the assessee to disclose fully and truly all material facts which were necessary for its assessment, does not and cannot arise as all primary and material facts were already made available to the Assessing Officer and were considered while finalizing the assessment. 4.5.3 The Ld. counsel further submitted that while passing the original assessment order, the Assessing Officer referred to the 'BTA' and disallowed the non-compete fees, so it cannot be said that the assessee has failed to disclose the material evidence as both non-compete fee and Government Authorization were reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings does not amount to change of opinion. In support of the contention, he relied on the decision of the Hon'ble Supreme Court in the case of Kalyanji Mavji and Company Vs. Commissioner of Income Tax, (1976) 102 ITR 287. He further relied on the order of the Assessing Officer and Ld. CIT-(A) and submitted that the assessee has not fully disclosed the facts in respect of depreciation on Government Authorizations and even misled the Assessing Officer by representing wrong facts that no asset more than ₹ 10 lakhs were acquired by the assessee during the relevant year. He submitted that it is specifically mentioned in Explanation-1 under section 147 of the Act that production of books of accounts or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer, will not necessarily amount to disclosure within the meaning of the proviso below section 147 of the Act. 4.7 In the rejoinder, the Ld. counsel submitted that the assessee had made full disclosure in respect of depreciation on Government Authorizations in the return of income and the assessee was not required to explain in the return of income that particular claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 147 of the Act and 2. the period of four years should have been expired from the end of the relevant assessment year and 3. income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee (a)to make a return under section 139 or in response to a notice issued under section 142(1) or section 148 of the Act or (b)to disclose fully and truly all material facts necessary for his assessment for that assessment year. 4.8.3 Thus, whenever assessment is completed under section 143(3) or section 147 of the Act and four years have already elapsed from the end of the relevant assessment year, the assessment can be reopened only in the case there was a failure on the part of the assessee to either file return of income under section 139/142(1)/148 or disclose fully and truly all material facts necessary for the assessment. 4.8.4 In the instant case, the original assessment was completed under section 143(3) of the Act and four years have already elapsed on the date of reopening of the assessment i.e. 25/03/2011, the prerequisite for reopening of the assessment was failure on the part of the assessee to fully and truly di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 'BTA' was available with Assessing Officer and he made queries in respect of non-compete fee and, thus, he could have raised queries in respect of depreciation on Government Authorization from the 'BTA' and making above statement to the Assessing Officer that company had not acquired any fixed asset above rubies 10, 00, 000/-was immaterial. We are not convinced with this argument of the Ld. counsel of the assessee. In the books of accounts or financial statement, a company might treat particular expenditure as capital expenditure or revenue expenditure according to its suitability to disclose profitability before the shareholders, however in the return of income filed before the tax authorities, the treatment of any expenditure is to be decided as per the provisions of the income tax Act and therefore it has to be reported accordingly. Therefore, mentioning of Government Authorization as intangible assets in audited financials, significant accounting policies or notes to account is not relevant for the purpose of Income-tax Act. What is material and relevant is, how it was claimed in the return of income filed by the assessee. Thus, it cannot be said that mentioning of Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not stated truly by the assessee to the Assessing Officer and thus issue of application of law did not arise. In the instant case the Assessing Officer was prevented to examine the issue because of hiding the information by the assessee, we cannot say that Assessing Officer applied his mind and formed opinion to allow the depreciation on the Government Authorization. Discovery of the facts that the assessee claimed depreciation on government authorization constitute an information, and this information came to the Assessing Officer after the original assessment by fresh facts revealed later on. In such circumstances the issue of change of opinion in the reassessment proceedings cannot arise, when no opinion was framed on the issue of depreciation on government authorization in the original assessment proceeding. In similar facts, Hon'ble Supreme Court in the case of Kalyanji Mavji & Co. Versus CIT (supra) held as under: "12. We might mention that it was submitted by Mr. Banerjee that in fact the amount sought to be deducted was paid towards the income-tax liability of the partners and this was done to protect the business itself and to improve the credit of the partners. Even thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.92 crores was paid by the assessee to M/s KOAL. In the 'BTA' executed of 15/10/2004, no value was assigned to the Government Approvals, which were listed as one of the thirteen assets acquired by the assessee company. The various other assets acquired by the assessee included all properties (including product registration), non-compete agreements, customer and vendor lists, transferred employees, contracts, and all other rights in respect of mailing business of M/s KOAL. After a period of almost one year, the assessee assigned values to the non-compete fee and Government Authorization, on the basis of valuation conducted by a consultant at the request of the assessee. The assessee assigned value of ₹ 4,51,66,708/-to Government Authorization/Approvals and claimed depreciation at the rate of 25% amounting to ₹ 56,54,840/- treating the same as a depreciable intangible asset. 5.1 Before the Assessing Officer, the assessee contended that Government Approvals are an asset in the nature of license/commercial rights which it had acquired from M/s KOAL and, thus, eligible for depreciation being intangible assets. The assessee was asked by the Assessing Officer to provide a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of the company on 14/12/2004 without charging any amount. According to the Assessing Officer when M/s KOAL had no authority to transfer the approval letters either by sale or by nominations, the payment cannot be regarded for acquiring license or any other business or commercial rights. 5.1.5 The Assessing Officer, accordingly denied the claim of depreciation on Government Authorization/Approvals. 5.1.6 The Ld. Commissioner of Income-tax (Appeals) also upheld the view of the Assessing Officer relying on his finding in assessment year 2007-08 as under: "5.2 The above submissions are vague and without any factual basis. The appellant is not even clear as to about the asset it obtained from M/s Kilburn Offices Automation Ltd., but states that no value was assigned to any of the individual assets. Neither had the appellant clarified as to how the asset can be termed 'intangible' nor the computation of its value in its submissions. The appellant's appears to be of the view that Me AO is bound to accept the independent professional firm's valuation and the financial statement submitted as tax audit report. The AO is empowered by the income tax Act to examine th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission of the Ld. counsel of the assessee before us are summarized as under: (i) The Government Authorizations' provided the assessee within immediate right to sell electronic franking machine as per the approvals required from M/s. KOAL (ii) The government authorization is were specifically mentioned as transferable assets under clause 2.2(e) of the 'BTA' and the specific authorization transferred to the assessee were also listed in the schedule 2.2 (e) of the BTA ( refer page 13 and 50 volume 1 of paper book). Such government authorizations are transferable and same were actually transferred in the name of the assessee after KOAL granted a no objection certificate in the name of the assessee company. The transfer was also acknowledged by the Department of post (refer page 429 to 430 of the paper book). Thus, the contention of the AO the KOAL had no authority to transfer the government authorization is completely incorrect. (iii) The contention of the Assessing Officer M/s KOAL had not paid any sum to the regulatory authorities for acquisition of these government authorization or whether government authorization have been recognized as assets in the books of KOAL, is compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot available could not prevent the Appellant to fix the price or cost of the assets as on 17 December, 2004. It is submitted that in the present case, even though the valuation report is dated 22 December 2005, the valuation of intangibles has been done as at 17 December 2004. It is a well settled principle that valuation report cannot be ignored or rejected on the ground that it provides the valuation of assets on a prior date and this principle has been upheld by the Ahmedabad ITAT in the case of Chitra Publicity Co. (P) Ltd vs. ACIT (2009) (127 TTJ 1). It was held in the aforementioned case that once the appellant has duly obtained a valuation report for valuing the assets acquired by it, it is incumbent upon the authority to dislodge the same by bringing adequate material on record, because in the absence of the same a technical expert's opinion (valuer's report) cannot be dislodged by the authority by merely ignoring the same. Reliance is also placed on the ruling given by the Gujrat High Court in the case of Ashwin Vanaspati Industries vs. CIT (2002) (174 CTR 90). (vii) Further, the Appellant wishes to highlight that the Ld. AO and Ld. CIT(A) completely failed to appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Delhi ITAT in the case of M/s ONGC Videsh Ltd. (Taxpayer) [2009-TIOL-758- ITAT-DEL], wherein it was held that participatory right to carry out the hydrocarbon operations, acquired by the Taxpayer, pursuant to a Production Sharing Arrangement (PSA), held that the participatory right acquired by the Taxpayer was in the nature of asset, in the form of 'license' i.e. license to have an access and to carry out exploration, development and production of hydrocarbon operations and is eligible for depreciation under the provisions of the Act. (xii) It is also submitted that the Hon'ble Supreme Court in the case of Techno Shares and Stocks Ltd. (2010) 327 ITR 323 has overruled the judgment of Hon' Bombay High Court in the case of Techno Shares and Stocks Ltd. (2010) 323 ITR 69 wherein it was held that the intangible assets as mentioned in section 32(l)(ii) could only be in the nature of intellectual property rights. The Hon'ble Supreme Court has clearly held that the intangible asset can be in the nature of business or commercial right which is not in the nature of intellectual property. Thus, the belief of the Ld. AO is completely misplaced and unjustified. (xiii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip;………………………____________. …………………………….. Explanation 3.-For the purposes of this sub-section, the expression "assets" shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. Explanation 4.-For the purposes of this sub-section, the expression "knowhow" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto)." 5.5 Thus, as per the provisions of the Act depreciation is allowable on intangible assets of the nature mentioned in the provision, which are acquired on or after 01/04/1998 and then owned and used for the purpose of business, then depreciation shall be allowed at the rate prescribed under Rule 5 and Appendix- I of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ydrocarbons operations unless the person had entered into a production sharing agreement with the Government. In the instant case, by entering into an agreement called PCA, the Government owning the hydrocarbons, granted rights to the assessee company along with license for carrying on hydrocarbons operations. The business rights in the license are owned by the assessee entering into PCA and such right and license can be assigned and transferred to other parties subject to the terms and conditions of the PCA and approval of the Government. The assessee by virtue of acquisition of 20 per cent participating interest became the member of the consortium and acquired proportionate share in rights and licenses granted by the Russian State for Sakhalin Block. By acquiring these business rights and production licenses, the assessee became entitled to carry on hydrocarbon operations in the Sakhalin project. The statutory expression of the provision granting depreciation on intangible asset is that : "know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1st April, 1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght and license for exploration of oil. It is not possible to say that such expenditure was neither capital nor revenue in nature. If it is held to be capital, then it is obvious that what the assessee has acquired was a participating right which is in the nature of commercial right of carrying on of business of exploration and production of mineral oil. It also cannot be said that the right so acquired was not an asset. If it is an asset being the right then it is obvious that same is commercial right, therefore in the nature of asset in the form of license. This right had been granted to the assessee by way of license and the assessee became owner of such right i.e., license to have an access and to carry on of business of exploration and development of mineral oil. Accordingly, as per our considered view such an asset falls within the category of asset falling under s. 32(1)(ii) of the Act. Accordingly, we are inclined to agree with the learned senior counsel that the assessee had acquired business and commercial right and license by making payment of ₹ 1,559.10 crores, which is in the nature of intangible assets entitled to claim of depreciation under s. 32(1)(ii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the marketing of Pitney Bowes Electronic Franking Machines in India. Since M/s. Kilburn has given no objection to transfer the marketing of said Electronic Franking Machines, approval of the Director General, Department of Posts is hereby accorded for marketing of Pitney Bowes, USA EFMs to M/s. Pitney Bowes India Pvt. limited, E- 514, Greater Kailash, New Delhi-48 in India terminating the existing distribution contract with M s. Kilburn Office Automation limited with effect from the date of issue of this letter. The following Pitney Bowes Electronic Franking Machines(EFMs) were earlier approved by the Department of Posts for distribution through M/s. Kilbum Office Automation Limited. SI. No. Model Approval No. & Date 1. A-900 No.53-2/93-PMB(CPT) dated 3.10.96. 2. B-900 No.2-3/96 CPT II dated 28.7.98 3. GKM(E700) No.2-3/96 CPT II dated 29.7.98 4. B-700 No.2-6/98-CPT.n dated 23.9.99 3. The conditions governing the approval of EFMs models cited above are hereby reiterated again as under for your information: (i) M/s. Pitney Bowes India Pvt. Limited (PBIL) will have to adhere to the specifications of model approved and no modifications to any part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and first para makes that clear. The middle part of letter contains list of machines approved and bottom part contains certain obligations on the assessee. If we presume that similar letter would have been issued to M/s KOAL, then, similar obligations or duties must have been cast on M/s KOAL through that letter. In our opinion, issuing the letter of approval of machines of "Pitney Bowes Inc, USA" to M/s KOAL if any, cannot create any rights in favour of M/s KOAL. The letter, if any issued communicating approvals of machines of Piteny Bowes to M/s KOAL, was not because of any kind of eligibility criteria of said company. The letter issued to M/s KOAL would be in its agent status and compliance of which was dependent on supply of machines by the Pitney Bowes Inc, USA to M/s KOAL. The moment, the Pitney Bowes Inc USA, terminates the agreement of distribution of its machines, the letter issued by the Department of post in the name of M/s KOAL also loses its sanction. The KOAL has not got any rights to sale in favour due to letter issued by the Department of Post. M/s KOAL got letter for sale of machines of M/ s Pitney Bowes Inc, USA because it was distributor of said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 5.12 Since we have decided that government authorizations/approvals are not any kind of intangible asset in the hand of the KOAL, the other arguments of the parties that M/s KOAL has not paid any value for purchase of these Government Approvals and the value assigned by the valuer appointed by the assessee company, was a hypothetical value only etc are not required to be considered. 5.13 In view of above discussion, we hold that government authorization/approvals are neither license nor the rights of business or commercial nature in the hands of M/s. KOAL, which could be transferred to the assessee and therefore no depreciation on the value assigned to government organizations/approvals by the assessee, could be allowed to the assessee. The ground of appeal is accordingly dismissed. 6. In ground No. 3 the assessee has challenged depreciation disallowed on non-compete fee. 6.1 The Tribunal in its order dated 12/11/2010 in ITA No. 1428/Del/2009 and CO No. 178/Del/2009 in appeal against the order of the Ld. CIT-A arising from the original assessment under section 143(3) of the Act dated 28/12/2007, upheld the non-compete fee expenditure of capital nature, however the alternati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mention of specific items of the same genus is followed by an expression of a general or a residuary nature pertaining to the same genus. The scope of this rule is that words of a general nature following specific and particular words should be construed as limited to things which are of the same nature as those specified. 2.4.8 Further, reliance is also placed on the decision of Hon'ble Karnataka High Court in the decision of CIT vs. Ingersoll Rand International Ind. Ltd. [2014] 48 taxmann.com 349 (Kar-HC) (refer from page 219 to 227 of the Paper book for case laws), wherein the Hon'ble high court held: "The term 'or any other business or commercial rights of similar nature' has to be interpreted in such a way that it would have some similarities as other assets mentioned in Cl.(b) ofExpln.3. Here the doctrine of ejusdem generis would come into operation and therefore the non-compete fee vests a right in the assessee to carry on business without competition which in turn confers a commercial right to carry on business smoothly. When once the expenditure incurred for acquiring the said right is held to be capital in nature, consequently the depreciation pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress reference to „know-how‟, „patents‟, „copyrights‟, „trademarks‟, „licenses‟ and „franchises‟. So far as patents, copyrights, trademarks, licenses and franchises are concerned, though they are intangible assets, the law recognizes through various enactments that specific intellectual property rights flow from them. Licenses are derivative and often are the means of conferring such intellectual property rights. The enjoyment of such intellectual property right implies exclusion of others, who do not own or have license to such rights from using them in any manner whatsoever. Similarly, in the matter of franchises and know-how, the primary brand or intellectual process owner owns the exclusive right to produce, retail and distribute the products and the advantages flowing from such brand or intellectual process owner, but for the grant of such know-how rights or franchises. In other words, out of these species of intellectual property like rights or advantages lead to the definitive assertion of a right in rem. The decisions of this Court in Hindustan Coco Cola Beverages P. Ltd. ITA-492-12 Page 11 (supra) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be Hon'ble to either access the advantage or assert the right and the nature of the right mentioned or spelt-out in the provision as against the world at large or in legal parlance "in rem". However, in the case of a non-competition agreement or covenant, the advantage is a restricted one, in point of time. It does not necessarily - and not in the facts of this case, confer any exclusive right to carry-on the primary business activity. The right can be asserted in the present instance only against L&T and in a sense, the right "in personam". Indeed, the 7 years period speltout by the non-competing covenant brings the advantage within the public policy embedded in Section 27 of the Contract Act, which enjoins a contract in restraint of trade would otherwise be void. Another way of looking at the issue is whether such rights can be treated or transferred - a proposition fully supported by the controlling object clause, i.e. intangible asset. Every species of right spelt-out expressly by the Statute - i.e. of the intellectual property right and other advantages such as know-how, franchise, license etc. and even those considered by the Courts, such as goodwill c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before us, the Ld. counsel submitted that the value of Government Authorization, non-compete fee and other assets acquired from M/s KOAL was reduced from the total consideration and the residual value of ₹ 5,70,03,830/- was assigned to the asset of goodwill. He further submitted that goodwill is an intangible asset akin to the know-how, patents, copyrights, trademarks, license, franchisee etc as held in the case of Arera T & D India Ltd (supra) and the assets acquired by the assessee from M/s KOAL also included business information, business contract, transfer of employees etc. In support of the contention that goodwill is an intangible assets eligible for depreciation, the Ld. counsel relied on following decisions: (i) Area T & D India Ltd versus DCIT(2012) 341 ITR 421(Del). (ii) CIT versus Smifs securities Ltd (2012) 348 ITR 302(SC) (iii) Triune energy services private limited versus DCIT (2016) 65 taxmann.com 288 (Delhi) 7.2.1 Further, the Ld. counsel relied on the following decisions where it is held that excess consideration over the value of net assets was considered as goodwill: (i) decision of the Tribunal, Mumbai bench in the case of DCIT Vs. Toyo Engineering I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote herein below Explanation 3 to Section 32(1) of the Act: "Explanation 3.-- For the purposes of this sub-section, the expressions "assets' and "block of assets' shall mean-- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Explanation 3 states that the expression "asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words "any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression "any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). In the circumstances, we are of the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name associated to the business. Regarding the "goodwill", the Hon'ble High Court held as under: "13. Goodwill is intangible asset providing a competitive advantage to an entity. This includes a strong brand, reputation, a cohesive human resources, dealer network, customer base etc. The expression "goodwill" subsume within it a variety intangible benefits that are required when a person acquires a business of another is a going concern." 7.4.3 In the light of above facts and circumstances, the Hon'ble High Court accepted the contention advanced on behalf of the assessee that the consideration paid by the assessee in excess of its value of tangible assets was rightly classified as goodwill. 7.4.4 In the light of above decisions, when we look at the facts of the instant case we find that in this case, in the business transfer agreement (BTA) there is no mention of goodwill. Further, the unit of M/s KOAL, which was acting as a agent for sale of electronic franking machines etc of M/s Pitney Bowes Inc, USA, in India and Nepal has been transferred to the assessee. It was the machines of M/s Pitney Bowes Inc., USA which are approved by the Department of post due to their technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been taken up by the Assessing Officer wherein the claim of depreciation on government authorization and non-compete fee was disallowed. In appellate proceeding before the Ld. CIT-(A), consequent to the reassessment order, the assessee first time filed the claim of depreciation on goodwill. According to the Ld. Senior DR, this claim was made in view of the fact that depreciation on government authorization and non-compete fee was disallowed. He further submitted that reassessment proceedings were initiated for the purpose of assessment of escaped income and the assessee is not entitled for any claim of deduction enabling it to reduce its income in reassessment proceedings. In support of the contention, he relied on the decision of the Hon'ble High Court of Jammu and Kashmir in the case of CIT Vs. State Agro Development Corporation reported in (2001) 248 ITR 487. 7.5 We find force in the contention of the Ld. Sr. Departmental Representative. In appellate proceedings consequent to original assessment before the Ld. CIT-(A), the Tribunal, the Hon'ble High Court and the Hon'ble Supreme Court, the assessee did not file its claim for depreciation on goodwill and for the first time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal of the assessee is dismissed. ITA No. 290/Del/2013 for AY 2006-07 9. Now we take up the appeal of the assessee in ITA No. 290/Del/2013 for assessment year 2006-07. The grounds of appeal reads as under: "1. That on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) ("Ld. CIT(A)") erred in concluding that assessment proceeding under section 147/148 of the Act was initiated correctly by Learned Assessing Officer ("Ld. AO"). 2. That on the facts and circumstances of the case & in law, the Ld. CIT(A) has grossly erred in upholding the disallowance of depreciation amounting to ₹ 98,80,220 on the intangible asset of " Government Authorizations" which was acquired by the appellant under a Business Transfer Agreement with the Kilburn Office Automation Limited. 3. That the Ld. CIT(A) has erred in upholding the disallowances of depreciation on the business or commercial rights acquired in the form of non-compete rights under section 32 of the Act having treated the said non-compete fee as capital expenditure in nature. 4. That the Ld. CIT(A) has grossly erred in not allowing depreciation on Goodwill being an intangi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us conditions of section 147 of the Act were duly satisfied. The learned CIT-(A) relied on the decision of the Hon'ble Supreme Court in the case of Sh. Rajesh Jhaveri reported in 291 ITR 500(SC). The Ld. CIT-(A) also rejected the contention of the assessee that in view of M/s GKN Driveshaft (India) Ltd Vs. ITO reported in 259 ITR 19 (SC) without disposing the objection filed by the assessee against the initiation of reassessment proceeding. The learned CIT-A upheld the disallowance of depreciation of ₹ 98,80,220/- on government authorization following his earlier orders in assessment year 2007-08. Similarly, the disallowance of 1/5th of non-compete fee as deferred revenue expenditure was sustained. The Alternative plea of allowing depreciation on non-compete fees was also rejected following his order for assessment year 2007-08. The additional ground of the assessee seeking depreciation on goodwill was also rejected following his finding in assessment year 2007-08. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 11. In ground No. 1, the assessee has challenged validity of assessment proceeding under section 147 of the Act. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was no change of opinion. He further relied on the decision of the Hon'ble Delhi High Court dated 16th may, 2018 in the case of Indu Lata Rangwala in 11.6 We have heard the rival submission and perused the relevant material on record. The reasons recorded by the Assessing Officer for reopening of the assessment are available on page 29 of the volume 2 of the assessee's paper book, which reads as under: "18.02.2011 During the assessment proceeding for the A.Y.2007-08 it was found the expenditure of non compete fee by treating it as deferred revenue expenditure. After examination it was found that the expenditure was capital expenditure in nature and was wrongly claimed as deferred revenue expenditure. The similar deduction was claimed during the A.Y.2006-07 also. Thus, the assessee has claim and was allowed wrong deduction/excess deduction in respect of amount of non compete fee. Further the assessee has taken over business of franking machines from KOAL under business transfer agreement executed on 15/10/2004. The acquisition of above business was done on slump sale basis by paying a lump sum consideration. Out of total sale consideration paid, the assessee assigned val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 143(1) of the Act without scrutiny and subsequently, recording the reasons that on "going through the return of income" income escaped assessment, amounted to preview of earlier proceedings and an abuse of power of the Assessing Officer. The Hon'ble Court in the said case observed that there was no tangible material for reopening the assessment. 11.9 Further, Hon'ble Delhi High Court in the case of CIT Vs. Atul Kumar Swami (supra) held that "mere conclusion of proceeding under section 143(1) does not ipso facto brings power of invocation of reopening assessments. The relevant para of the decision is reproduced as under: "5. As to what constitutes valid "reasons to believe" is no longer a matter of debate. So long as the law declared in Kelvinator (supra) stands, a valid reopening of assessment has to be based only on tangible material to justify the conclusion that there is escapement of income. In the present case, the note forming part of the return clearly mentioned and described the nature of the receipt under a non-compete agreement. The reasons for the notice under section 147 nowhere mentioned that the Revenue came up with any other fresh material warranting re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and reiterated by it in Zuari Estate Development and Investment Co. Ltd. (supra) an intimation under Section 143 (1) (a) cannot be treated to be an order of assessment. There being no assessment under Section 143 (1) (a), the question of change of opinion does not arise. 35.6 Whereas in a case where the initial assessment order is under Section 143 (3), and it is sought to be reopened within four years from the expiry of the relevant assessment year, the AO has to base his 'reasons to believe' that income has escaped assessment on some fresh tangible material that provides the nexus or link to the formation of such belief. In a case where the initial return is processed under Section 143 (1) of the Act and an intimation is sent to the Assessee, the reopening of such assessment no doubt requires the AO to form reasons to believe that income has escaped assessment, but such reasons do not require any fresh tangible material. 35.7 In other words, where reopening is sought of an assessment in a situation where the initial return is processed under Section 143 (1) of the Act, the AO can form reasons to beli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 2. That the Ld. CIT(A) has erred in upholding the disallowances of depreciation on the business or commercial rights acquired in the form of non-compete rights under section 32 of the Act having treated the said non-compete fee as capital expenditure in nature. 3. That the Ld. CIT(A) has grossly erred in not allowing depreciation on Goodwill being an intangible asset on which depreciation is mandatorily allowable. That the above grounds of appeal are without prejudice to each other. That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal." 14. The facts in respect of the issues in dispute raised in the grounds in the above appeals, are almost identical to the facts in appeals of assessment year 2005-06 and 2006-07 decided earlier by us, except that in assessment year 2005-06 and 2006-07, the assessments have been completed under section 147 of the Act and accordingly the assessee challenged the validity of the reassessment proceeding along with the additions on merit. 15. Since grounds No. 1 and ground No. 2 raised in above appeals have already been decided against the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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