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TMI Blog2020 (2) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... olidated order but however, we proceed with narrating the facts for assessment year 2012-13. 3. The relevant facts as culled out from the material on record are as under :- The assessee is a company stated to be engaged in the business of manufacturing, trading, import export of chemicals, chemicals products, machinery, etc. The assessee filed its original return of income for A.Y. 2012-13 on 28.11.2012 declaring total loss at Rs. 91,06,538/-. The case was taken up for scrutiny and thereafter, assessment was framed u/s 143(3) r.w.s. 92CA(4) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide order dated 02.03.2016 and the total income was determined at Rs. 50,25,660/-. Aggrieved by the order of Assessing Officer, assessee carried the matter before Ld.CIT(A), who vide order dated 28.02.2017 (in appeal No.CIT(A), Pune-1/10115/2016-17) granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), the assessee is now in appeal before us and has raised the following grounds : 1. The learned CIT(A)-1, Pune erred in law and on facts in confirming the learned AO's decision in making disallowance u/s 36(1)(v) of ITA 1961 amounting to Rs. 85,000/- b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation application before the AO once the approval is received who will rectify the issue as per law. As far as ground No.3 is concerned, the same cannot be accepted as section 37 is residual section in which only those expenditure can be considered which are not covered u/s 30 to 36 of the I.T. Act, 1961. Since there is specific provision 36(1)(v) of the I.T. Act, 1961 in respect of amount in question, provisions of section 37 will not apply. Accordingly, ground No.2 and 3 are dismissed." 5. Aggrieved by the order of CIT(A), the assessee is now in appeal before us. 6. Before us, ld. AR reiterated the submissions made before the Assessing Officer and CIT(A) and further submitted that the assessee has got the approval from the office of Commissioner vide order dated 21.09.2016 and it is w.e.f. 27.03.2012. He pointed to the copy of order which is placed at page 78 of Paper Book. He submitted that since the approval has been granted from 27.03.2012 the Assessing Officer be directed to grant deduction. In the alternate, he submitted that the assessee be allowed the claim of deduction u/s 37 of the Act, for which he placed reliance on the decisions cited by him before the CIT(A). He th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and commerce fall under intangible assets, it should be similar nature as to know-how, patents, copyrights, trademarks, etc. He further noted that in the agreement dated 15.12.2011 entered into by the assessee with Chemetall India Pvt. Ltd., Non compete fee, distribution network rights and customer lists were grouped under the heading "Non-Compete Fees" and not under the head intangible assets. He was therefore, of the view that the aforesaid Non compete fee, distribution network rights, customer lists does not fall with the category of intangibles and therefore, not eligible for depreciation. He accordingly, rejected the claim of depreciation of Rs. 1,38,62,500/- and added it to the total income of the assessee. 11. Aggrieved by the order of Assessing Officer, assessee carried the matter before the CIT(A), who upheld the order of Assessing Officer by observing as under:- "10. I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is seen that the appellant has acquired electroplating business of Chemetall India Pvt. Ltd. vide agreement dated 15/12/2011 for total consideration of Rs. 11.80 Crores out of which Rs. 29 Lacs pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me can be said to be covered by the nature of commercial right described in Section 32(1)(ii) of the I.T. Act, 1961, In this case, it is seen that the appellant has claimed to have acquired Distribution Network rights and customers list as business, assets. Distribution Network rights are nothing but agreement between the seller and distributor within a certain territory on certain terms and conditions which cannot be considered to be an asset defined in section 32(1)(ii) of the I.T. Act, 1961. Similarly customers list is to just facilitate smooth functioning of business and can in no way be termed as asset in the nature of assets defined in section 32(1)(ii) of the I.T. Act, 1961 for entitlement of depreciation. It is also seen that ratio of intangible to tangible asset is quite high which. only shows that the appellant has tried to allocate the balance amount other than tangible assets in the category of intangibles in order to claim depreciation. This can be seen from the fact that there is no bifurcation of amount of Rs. 11,51,00,000/- in the agreement dated 15/12/2011 under various heads claimed by the appellant. Therefore, considering the totality of facts, I do not find an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se cases the value of intangible assets was reflected in the agreement, whereas it was not in the case of assessee. He therefore, submitted that the ratios of the decisions relied upon by the ld. AR are not applicable. 15. We have heard the rival submissions and perused the material on record. The issue in the present grounds is with respect to allowability of claim of depreciation on intangibles. It is an undisputed fact that the assessee had acquired electroplating business of Chemetall India Pvt. Ltd. vide agreement dated 15.12.2011 for total consideration of Rs. 11.80 crores which included Rs. 11.51 crores on account of various intangibles, which were valued as per independent valuation. It is Revenue's case that intangibles cannot be considered to be intangible assets so as to eligible for depreciation. As far as the issue of allowing Non compete fee is considered, we find that the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Piramal Glass Limited (supra), on an identical issue of Non compete fee before the Hon'ble High Court and the question of law and its decision are as under: "(a) Whether on the facts and in the circumstances of the case and in law, the ITAT is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license which was one of the items which would fall under Section 32(1)(ii). The right to participate in the market had an economic and money value. The expenses incurred by the assessee which satisfied the test of being a license or any other business or commercial right of similar nature In case of Areva T & D India Limited (supra) Division Bench of Delhi High Court had an occasion to interpret the meaning of intangible assets in context of section 32(1)(ii) of the Act. It was observed that on perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature" it is seen that intangible assets are not of the same kind and are clearly distinct from one another. The legislature thus did not intend to provide for depreciation only in respect of the specified intangible assets but also to other categories of intangible assets which may not be possible to exhaustively enumerate. It was concluded that the assessee who had acquired commercial rights to sell products under the trade name and through the network created by the seller for sale in India were entitled to deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd know-how acquired by assessee under slump sale agreement are in nature of 'business or commercial rights of similar nature' specified in section 32(1)(ii) of the Act and are accordingly eligible for depreciation under that section. We further find that in the case of CIT Vs. MIS Bharti Teletech Ltd. (supra), where the assessee had paid to the transferor the amount who owned commercial rights towards network and facilities, the Hon'ble High Court held that it to be 'business or commercial rights' which were similar to those enumerated as intangible assets which would not have been otherwise available but for the agreement. It therefore, held it to be eligible for depreciation. 17. Before us, no material has been placed on record by the Revenue to demonstrate that the ratios of aforesaid case laws cannot be applied to the present case. In view of the aforesaid facts, we are of the view that the assessee is eligible for the claim of depreciation and therefore, be allowed and thus, the ground No.3 raised by the assessee is allowed. 18. In the result, the appeal of assessee is allowed. 19. Since the facts and issues raised in other appeal i.e. ITA No.975/PUN/2017 are identical to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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