TMI Blog2012 (9) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess claim of depreciation claimed by the assessee in the original returns filed by him. Thus, there was an omission and failure on the part of the assessee to disclose fully and truly material facts for the above assessment years with regard to excess depreciation claimed. A.O. was justified in initiating/completing the proceeding u/s 147/148. Depreciation in respect of intangible assets such as brands, formulations, patents and marketing distribution network – dis-allowance – Held that:- Since the same has been allowed by Tribunal in earlier year, hence A.O. is directed to allow the same after reducing the depreciation already allowed in A.Y. 2001-02 from the WDV shown by the assessee for the year under consideration – Decided partly in favor of assessee. - ITA Nos 8019 & 8020/MUM/2010 - - - Dated:- 13-6-2012 - SHRI DINESH KUMAR AGARWAL AND SHRI RAJENDRA JJ. Assessee by : Shri Keshav Bhujle Assessee by : Shri Sandeep Goyal O R D E R PER DINESH KUMAR AGARWAL, J.M. These two appeals preferred by the assessee are directed against the separate orders dtd. 15-1-2010 passed by the CIT(A)-22, Mumbai for the assessment years 2002-02 2004-05. Since the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rs. 1,20,00,000/- includes the cost of market goodwill. Therefore, the depreciation on such market goodwill amounting to Rs. 30,00,000/- being 25% of Rs.1,20,00,000/- is not allowable. In this regard, the assessee was asked to justify the claim of depreciation on such rights. In response, the assessee made written submission on 2-7-2009 wherein it was submitted as under:- In the audited Balance Sheet for all the years under consideration in the Schedule of Fixed Assets, the assessee had given a note, which read as under: ** Goodwill** ** Goodwill includes the following: 1) Rs. 7,581,650 being excess of consideration paid over fair market value of assets and liabilities taken over from Noble Paints and Varnishes Private Limited. 2) Rs. 30,000,000 being amount paid for acquisition of marketing and distribution network, market goodwill, etc. of Noble Synthetics Ltd. (ii) The agreement dtd. 19.05.1999 was furnished during the assessment proceeding for all the years under consideration and it was after application of mind that the AO allowed the claim for depreciation. Letter dtd.22.06.2005 An objection has been raised on the issue that depreciation claimed of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution network including various types of product licenses, brand names, market goodwill, trademarks etc. were purchased from Noble Synthetics Ltd. for a sum of Rs. 3 crores by the assessee. The word goodwill in the agreement is a normal terminology used in drafting the legal agreements. 2. Though in the final audited statements the auditors have classified intangible assets including goodwill in the fixed assets schedule there is no component of goodwill per se and it is clarified that the depreciation claimed in the tax computation is as per the Income Tax Rules in respect of intangible assets where there is no goodwill element in trade and marketing network rights as disclosed in the depreciation schedule. 3. It may not be out place to mention that as per the terms of the agreement with Noble Synthetics it is the marketing and distribution network including various types of product licenses, brand names, market goodwill, trademarks; etc. were acquired by the assessee. It may be noted that the main thrust of the agreement was to acquire the above assets but the term goodwill was only used normal terminology in drafting legal agreements. Though the auditors have classified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation on all the asset including trade and marketing network rights aggregating to Rs. 1,34,09,512/- as per details appearing at page 45 of assessee s paper book. He further submits that in the revised return for the said assessment year i.e. A.Y. 2001-02, the assessee has withdrawn its claim of depreciation vide reasons given at page 47 to 52 of assessee s paper book. However, the A.O. did not accept the assessee s claim of withdrawal of depreciation and in the assessment order dtd. 24- 2-2004 for A.Y. 2001-02, the A.O. has allowed the depreciation Rs. 1,34,09,512/- as claimed by the assessee. He further submits that the A.O. while making the assessment for the A.Y. 2006-07, however, disallowed the claim of depreciation on certain intangible assets of trade and marketing network of Rs. 3 crores. On appeal, the ld. CIT(A) upheld the disallowance made by the A.O. However, on second appeal, the Tribunal in ITA No. 684/Mum/2010 for A.Y. 2006-07 dtd. 11-4-2012 following the decision of Hon ble jurisdictional High Court in CIT vs. Paul Brothers [(1995) 216 ITR 548 (Bom) has directed the A.O. to allow the depreciation as claimed by the assessee. He also placed on record a copy of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,34,09,512/- as claimed by the assessee, vide order dtd. 24-2-2004 passed u/s 143(3) of the Act. We further find that for the A.Y. 2002-03, i.e. the year under consideration, the assessee has claimed total depreciation of Rs. 3,15,49,290/- including the depreciation on trade and marketing network rights Rs. 7,50,000/- being 25% of the same value of assets Rs. 3 crores. The A.O. while completing the assessment u/s 143(3) of the Act for A.Y. 2002-03 has allowed the depreciation as claimed by the assessee without reducing the depreciation already allowed in trade and marketing network rights in the A.Y. 2001-02. We further find that in the A.Y. 2004-05, the assessee has claimed total depreciation of Rs. 2,47,41,522/- including the depreciation on trade and marketing network rights Rs. 42,18,750/- @ 25% on the WDV of Rs. 1,68,75,000/- without deducting the amount of depreciation already allowed in A.Y. 2001-02. The A.O. while completing the assessment has also allowed the depreciation as claimed by the assessee vide order dtd. 30-11-2006 passed u/s 143(3) of the Act. Thus, in both the above assessment years the assessee has claimed excess depreciation on trade and marketing network ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be withdrawn in the later year. 12. In CIT v. Beta Cosmetics in Income Tax Appeal No. 5759 of 2010 dtd. 30-11-2011, the Hon ble jurisdictional High Court has upheld the order of the Tribunal in holding that the assessee is engaged in the manufacturing activity and hence entitled to avail deduction u/s 80IB of the I.T. Act. 13. In Beta Cosmetics v. Dy. CIT in Writ Petition No. 2712 of 2007 dtd. 26-3-2012 Their Lordships on the Writ Petition filed by the assessee challenging the validity of notice issued u/s 148 for A.Y. 2000-01 while following the decision of the Hon ble High Court in CIT v. Beta Cosmetics dtd. 30-11-2011 (supra) have held that since the proceedings for the A.Y. 2004-05 have attained finality, the reopening of assessment cannot now survive and accordingly quashed the notice u/s 148. Similar view has been taken by Their Lordships in Beta Cosmetics v. DCIT in Writ Petition No. 2643,2645 2644 of 2007 dtd. 26-3-2012 for assessment years 2001-02, 2002-03 2003-04 respectively. 14. In Direct Information P. Ltd. v. ITO (2011) 203 Taxmann 70 (Bom.) it has been held that since reasons furnished reopening assessment did not contain any new or tangible mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed by the AO while completing the assessment of AY 2001 02, though it is also a fact that the assessments of AY 2002 -03 2004 -05 were reopened to disallow the deprecation on the above mentioned assets. Be as it may. The undisputed fact is that the depreciation of the initial year has not been disturbed which view is also supported by the ratio laid down by the Hon ble Delhi High Court [ supra ] There fore we direct the assessing officer to allow the depreciation as claimed by the appellant thereby reversing the order of the ld CIT[A] on this issue. Ground No.1[iii] is allowed. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the said order of the Tribunal (supra) hold that the assessee is entitled to depreciation on such intangible assets. The A.O. is directed to allow the same after reducing the depreciation already allowed in A.Y. 2001-02 from the WDV shown by the assessee for the year under consideration. The ground taken by the assessee is, therefore, partly allowed. ITA No. 8020/Mum/2010 (A.Y. 2004-05) 20. At the time of hearing both the parties have agreed that the grounds of appeal No. (i) (ii) ta ..... 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