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TMI Blog2018 (10) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 depreciation on know how is allowable under Section 32 of the Act. Ground 5 On the facts and in the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 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 decided in favour of assessee. 5. The learned Departmental Representative for the Revenue on the other hand, pointed out that the matter is to be argued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 6 - Know-how of Syngas division (Panki) is neither purchased nor is owned by the assessee. The Commissioner in this regard observed as under:- "6.8 It is thus evident that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decided by the civil court on the basis of evidences brought before it. The Civil court thus simply gives the decision on the basis of pleading and evidence which comes before it. The ITO however is not only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 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 agreed upon between the parties, ICI India Ltd. agreed to transfer, sell and / or to assign its Indian business as a going concern. As referred to in paras hereinabove, Indian business was defined and understood between the parties, was catalyst business carried on by ICI India Ltd. under the name and sty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, 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.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 transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assignment is placed at page 399 of the Paper Book, the said Deed of Assignment which was entered after approval from MIDC on 19.01.2009. In view thereof, there is no merit in the stand of CIT(A) that the land at Taloja was transferred by ICI India Ltd. to the assessee under BTA and hence, the value of slump price is first to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anki 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 of assessee that trademarks, know-how and other intellectual property rights had been transferred to the assessee and hence, no value is to be attributed to the same. Again, we make reference to BTA, under which the business goodwill is defined to be goodwill of ICI India Ltd. in relation to business including exclusive rights by the purchaser to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept 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 relied on series of decision to decide the issue whether the assessee was entitled to depreciation on tangible and intangible assets i.e. including the value of know-how, trademarks, patents and goodwill. The Tribunal also noted that allocation was done in assessment year 2003-04, which was accepted in the hands of assessee and depreciation was allowed on the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation 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 assets, know-how, patents and trademarks, goodwill and non-compete fee have either been allowed by the Assessing Officer or by the Tribunal in assessee‟s own case in assessment year 2003-04. The value of the said assets and allocation of price amongst tangible and intangible assets had been accepted in preceding year and depreciation has been claimed and allowed in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 essentially based its conclusion on the consistent stand of the assessee and that of the Assessing Officer. In dealing with the shift in stand for the subject assessment year, the Tribunal found that this claim of depreciation was raised in the assessment year 2003-04. The assessee claimed that it is allowable as per the provisions of Income Tax Act on block of assets under the head "intangible assets". T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 value of Panki land. The grounds of appeal raised by the assessee are thus, partly allowed." 21. The issue of claim of depreciation on know-how, trademarks and patents has thus been decided by the Tribunal in favour of assessee by deliberations in the appeal relating to assessment years 2004-05 and 2005-06 vide consolidated order dated 12.12.2017. The issue thus, on merits stands decided in favour of assessee. Once the issue has be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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