TMI Blog2017 (6) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 - i.e. of the intellectual property right and other advantages such as know-how, franchise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 32 of the Act was available on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talks about Government Authorization and its treatment in books 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary evidence of acquisition of assets about ₹ 10 lakh with evidence of putting to use, however, the assessee company replied that it had not acquired any fixed assets above ₹ 10 crores, during the relevant financial year . It was evident 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 thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax Audit Report and submitted that this chart contained Government Authorization as intangible 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment by fresh facts revealed later on in subsequent assessments, then reassessment proceedings 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 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 disclose material facts necessary for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -05. 4.8.8 According to the Ld. senior DR, it is this information which stopped, the Assessing Officer from making any further enquiry in respect of depreciation on Government Authorization. 4.8.9 According to Ld. counsel, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o apply legal provisions/sections of the Act, the fault cannot be attributed to the appellant, cannot be applied over the facts of the instant case. The fact whether the assessee claimed depreciation on the Government Authorization, was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s KOAL to the assessee company through a Business Transfer Agreement (BTA) executed on 15/10/2004 on a slump sale transaction, where in no specific value was assigned to individual asset at the time of slump sale. The actual lump sum consideration of ₹ 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring a business from the M/s KOAL, the assessee simply requested the Department of Post on 04/11/2004 for transferring the approvals given by the Central government in its name and the Department of Post on the basis of said application, transferred the approvals in 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 computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Kilburn Offices Automation Ltd. to claim depreciation on government authorizations. Thus, I have no option but to sustain the AO's disallowance of depreciation on government authorizations ₹ 74,10,163/- and ground No. 3 regarding the disallowance of depreciation is hereby rejected. 5.2 The submission 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completely erred in alleging that the values of Government Authorizations were hypothetically assessed by getting the valuation done at the subsequent date to the acquisition of the business which appears be an afterthought. In this regard, it is submitted that the fact that at the time of transfer i.e. on 17 December, 2004, the valuation report was not 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and no other person or entity was authorized to market and deal with the approved electronic machines. Therefore, it was essential for the Appellant to acquire such Government Authorizations from KOAL, otherwise the whole motive of acquiring business by the Appellant from KOAL would be rendered meaningless. (xi) Reliance is placed on the decision of Hon'ble 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after first day of April 1998, Owned, wholly or partly by the assessee and used for the purpose of business or profession, the following deductions shall be allowed- ____________ . .. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atural habitat embedded in a particular territory are the property of the State Government, jurisdiction over such hydrocarbons does not lie with any private person other than State Government and a person cannot carry out hydrocarbons 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CA, the assessee company has been granted licenses by Russian Government to explore and produce hydrocarbons in the agreement area. There is no dispute to the fact that assessee has incurred expenditure of ₹ 1,559.09 crores for obtaining the right 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wes, US A Electronic Franking Machines(EFMs) are distributed/marketed by M/s, Kilbum Office Automation Limited. As stated in your letter quoted above M/s. Pitney Bowes of USA has formed its subsidiary Company in India under the Companies Act, 1956 and it intends to take over 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Franking machines were utilised for sales of the stamp papers, and thus the Department of post approved models with the technical specifications, having rigid quality control during the process of manufacturing and also ensured that machines are tamperproof and free from all defects. The assessee has not produced before us copies of these approvals to verify as to whom those approvals were addressed. The assessee has also not produced copy of letter sent by the Department of post addressed to M/s KOAL. The letter reproduced above has been issued by the Department of Post on the request 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving such right of production in their independent capacity. Similarly in the case of Techno shares in stocks Limited (supra), Holding of membership of the stock exchange by a member has been held as intangible assets eligible for depreciation. In both the cases the rights of business or commercial nature were possessed by the assessees, whereas in the instant case, the approval has been granted to machines of Pitney Bowes Ins, USA only and not to M/s KOAL, which even it could not transfer to any person of its choice. Thus, facts of the instant case are distinguishable from the cited cases. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT decision of ITO vs Medicorp Technologies India Ltd. [122 TTJ 394].In the facts of the said case, the appellant company made payment to another company for purchase of its export business. The consideration paid also involved payment for the non-compete obligation for a period of 10 years. The Chennai ITAT held that the payment for the non-compete fee falls under the definition of 'business or commercial right'. In examining whether the said expenditure would be treated as similar nature' or not, the examination was done by applying the principles of ejusdem generis which applies when the 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), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that it could claim depreciation on the Bombay Stock Exchange Membership Card held by it on the plea that it was a license or business or commercial right of similar nature was upheld. The appellant also relied upon the decision of this Court in Hindustan Coco Cola Beverages P. Ltd. (supra) and the judgement of the Kerala High Court in B. Ravindran Pillai v. CIT 332 ITR 531 (Ker). As would be evident from Section 32(1)(ii), depreciation can be allowed in respect of intangible assets. Parliament has spelt-out the nature of such assets by express 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, each of the species of rights spelt-out in Section 32(1)(ii), i.e. know-how, patent, copyright, trademark, license or franchise as or any other right of a similar kind which confers a business or commercial or any other business or commercial right of similar nature has to be intangible asset . The nature of these rights mentioned clearly spell-out an element of exclusivity which enures to the assessee as a sequel to the ownership. In other words, but for the ownership of the intellectual property or know-how or license or franchise, it would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) in the said case, the assessee had claimed depreciation on the goodwill in the return of income filed whereas in the instant case no such claim was made in the return of income and claim was made for the first time in first appellate proceeding. He further observed that the assessee had not furnished any depreciation statement or valuation report supporting evidence to substantiate its claim for depreciation on the goodwill and accordingly he rejected the additional ground raised by the assessee seeking depreciation on goodwill. 7.2 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. The Assessing Officer held that goodwill 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court after considering the arguments of the rival parties upheld the eligibility of goodwill for depreciation which is allowable under section 32(1)(ii) of the Act in view of the decision of Hon ble Supreme Court in the case of Smifs Securities Ltd. (supra). The Hon ble High Court further observed that in the business identification schedule appended to business transfer agreement apart from the tangible assets also included contracts, business records and know-how, employees and goodwill of the transferor company and the goodwill included the goodwill in relation to 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 considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets, Government Authorizations valued by the valuer and non-compete fee valued by the valuer, out of the slump sale consideration and then depreciation should be allowed at the rate prescribed for the intangible assets under section32(1)(ii) of the Act. 7.4.6 The Ld. Senior DR contended before us that in this case the original assessment proceedings were completed and thereafter matter was taken by the assessee to the Hon ble Supreme Court, however, in all those appellate proceedings, the assessee did not file any claim for depreciation on the goodwill. Thereafter, reassessment proceedings 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 entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Hon ble High Court of Jammu and Kashmir, in our opinion, the claim of the depreciation on goodwill cannot be allowed in the year under consideration. 7.7 The alternative plea for allocating the value of government authorization towards goodwill is not accepted as the valuation has been carried out by the assessee from a valuer and the assessee is claiming the same as independent valuer, the assessee is bound to accept the value assigned to government authorizations. This alternative plea of the assessee, is accordingly rejected. The ground of the assessee is dismissed. 8. In the result, appeal 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 147 of the Act read with section 143(3) of the Act on 09/12/2011 after disallowing depreciation on government approvals and rejecting the claim of depreciation on non-compete fee. In the appeal filed before the ld. CIT- (A), the assesee challenged validity of reassessment proceeding and contested disallowance made by the Assessing Officer. The assessee also raised additional ground seeking depreciation on goodwill. The Ld. CIT-(A) upheld the validity of the reassessment proceedings in view of the facts that return was only processed under section 143(1) of the Act and reopening was done within four years from the end of the relevant assessment year and thus 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. He further submitted discovery in later assessment year that assessee was not eligible for depreciation on government approvals constituted information and which came to the Assessing Officer by fresh facts revealed later on. In support of the contention he relied on the decision of the Hon ble Supreme Court in the case of Kalyanji Mavji Co. Vs. CIT reported in 102 ITR 287. He further submitted the return was processed under section 143(1) of the Act and no assessment was completed under section 143(3) of the Act, so there was no occasion with the Assessing Officer to frame a opinion on the issue of depreciation on government authorization and thus in reopening the assessment, 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 expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was no fresh material for reopening of the assessment is not true. Further, the ld. counsel contended that that there was no failure or omission on the part of the assessee in disclosing facts fully and truly. We find that the assessment has been reopened within the four years from the end of the relevant assessment year and therefore the proviso to section 147 of the Act, according to which no assessment could be reopened without failure on the part of the assessee to disclose fact truly and fully, is not attracted in the facts of the instant case. 11.8 In the case of Orient Craft Ltd. (supra), the Hon ble High Court of Delhi held that where a return of income has been processed under section 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 143 (1) of the Act. 35.3 As explained in Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) an intimation issued under Section 143 (1) can be subjected to proceedings for reopening , so long as the ingredients of Section 147 are fulfilled . 35.4 Explanation 2 (b) below Section 147 states that for the purposes of Section 147, where a return of income has been furnished by the Assessee but no assessment has been made and it is noticed by the AO that the Assessee has understated the income and claimed excessive loss, deduction, allowance and relief in the return then that shall also be deemed to be a case where the income chargeable to tax has escaped assessment . 35.5 As explained 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal also. 12. In the result, appeal of the assessee is dismissed. ITA Nos. 291 to 293/Del/2013 for AY: 2007-08 to 2009-10 13. Now we take up ITA No. 291 to 293/Del/2013 for assessment year 2007-08 to 2009-10 respectively. The grounds raised in all the three appeals are identical except the amounts involved in grounds. For sake of convenience, we are reproducing grounds of appeal for AY: 2007-08. 1. 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 ₹ 74,10,163 on the intangible asset of Government Authorizations which was acquired by the appellant under a Business Transfer Agreement with the Kilburn Office Automation Limited. 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 allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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