TMI Blog2018 (10) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... ets and the value attributed to know-how, trademarks and patents while completing assessment for assessment year 2003-04, which cannot be disturbed. AO denied the depreciation on goodwill, which was allowed by the Tribunal vide separate order. The assets thus, entered into the block of assets and depreciation was claimed on the WDV from assessment year 2004-05 onwards. Commissioner in the year under appeal vide order passed under section 263 had held the order passed by the AO in allowing the aforesaid depreciation on know-how, trademarks and patents, as erroneous and prejudicial to the interest of Revenue. AO had allowed the depreciation on WDV of intangible assets of know-how, trademarks and patents, since the same was allowed to the assessee since the year of first claim and it had entered into the block of assets. Tribunal vide order dated 12.12.2017 in assessment years 2004-05 and 2005-06 has held that once the assets entered into block of assets, then depreciation on WDV on such assets cannot be disturbed in the subsequent orders. AO could not have tinkered with the claim of depreciation on know-how, trademarks and patents in the subsequent years and hence, the order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 circumstances of the case and in law, the learned CIT has erred in holding the Appellant has not purchased any knowhow from ICI. Ground 6 On the facts and in the circumstances of the case and in law, the learned CIT has erred in holding that the knowhow of Syngas and PCEO divisions have not been used for the purpose of the Appellant's business. Ground 7 On the facts and in the circumstances of the case and in law, the learned CIT has erred in concluding that the allocation of value to various individual items of intangible assets based on an independent valuer's report, has not been done in a fair and reasonable manner and hence, the values allocated to intangibles including knowhow cannot be accepted as correct value of individual items of the intangible assets. Ground 8 Without prejudice to the above, on the facts and in the circumstances of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the Special Counsel, who had moved application for adjournment. However, we find that this matter has been fixed for hearing on various dates and even along with earlier appeals decided by the Tribunal. Hence adjournment was refused, since issue is covered by the order of Tribunal in earlier years and we proceed to decide the present appeal accordingly. 6. On perusal of record, the order of Commissioner and the order passed by the Tribunal in assessment years 2004-05 and 2005-06 (supra), we proceed to decide the present issue of exercise of jurisdiction under section 263 of the Act. It may be pointed out that consequent to the order passed in assessment years 2004-05 and 2005-06, the Tribunal has also decided the issue on merits in assessment years 2006-07. The Commissioner was of the view that the Assessing Officer had without any enquiry allowed depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assets of syngas division including its knowhow were not purchased by the ICI and the assessee is not the owner of assets of syngas division including its knowhow. Similarly, it is noticed that no patent or technology acquired from the ICI for its PCEO division is registered in the name of the assessee. There is no other material also to show that assessee had purchased or that the ICI has transferred any knowhow to the assessee for its PCEO division. The assessee thus cannot be said to have purchased any knowhow/patent from ICI and therefore, cannot be considered as the owner of any patent or knowhow of the PCEO division as well. 8. The second aspect was deliberated under para 7 - No evidence to show that Knowhow of syngas division has been used for the purpose of business and conclusion of the Commissioner was vide para 7.4, which reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 adjudicator but also an investigator. He therefore cannot remain passive in the face of return which may be in order but call for enquiries. It is the duty of the AO to ascertain the truth and the facts stated in the return. If these facts are not verified by the AO, the order passed by him would become erroneous. 16. It is also stated that since the actual cost had been accepted in earlier year, depreciation has to be allowed in the current year on the basis of wdv computed on the basis of the actual cost and that actual cost cannot be modified in the current year. This contention of the assessee is also not tenable. If wrong values have been accepted as actual cost of the asset in earlier year and the mistake is detected in the later years in order to determine the correct taxable income of an assessee the AO is duty bound t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 style Synetix. The same included business plant machinery, business properties, employees, debtors, all the rights and liabilities of ICI India Ltd. in or to the business IP, the business goodwill and primary and secondary books and records. However, the term Indian business‟ did not talk about Panki activities and also excluding the Excluded assets‟. We have already referred to the list of Excluded assets‟, which clearly excludes among others Panki sites, employees and Panki assets along with excluded IP. All these excluded assets are enlisted in Part I of Schedule 10 to the BTA. The Panki activities were the manufacture of items of products which were covered as per Toll Conversion Agreement i.e. in respect of manufacturing activities carried on at Panki site. Anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.30 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 transferred and its value as per valuation done by KDA works out to ₹ 174.36 crores is without any basis. In the absence of any land at Panki being transferred under the BTA, there is no merit in findings of CIT(A) in this regard. 15. In respect of land at Taloja, the issue was considered in paras 49 to 51 of the order of Tribunal and it was held as under:- 49. Now, coming to the second piece of land on which catalyst business of ICI India Ltd. was being carried on i.e. at Taloja. As per understanding between the parties with special reference to Schedule 4, which defined the business property in Part II, clause 12, it is provided that at completion, ICI India Ltd. and the purchaser i.e. assessee shall enter into Leave and License Novation Agreement in accordance with their respective obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be sold by HLL to the assessee for ₹ 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 be attributed to the cost of said land. 16. The Tribunal then, took up the issue of spreading over of the value of slump price over the fixed assets acquired and balance over the goodwill and also know-how, patents and trademarks and held that the assessee had acquired know-how, trademarks and patents from ICI Ltd. The relevant findings of Tribunal are as under:- 53. Now, coming to the terms and conditions of BTA, which the parties have agreed upon, under which the catalyst business of ICI India Ltd. has been taken over by the assessee, then the next step to be deliberated upon is spreading over of the value of slump price over the fixed assets acquired and balance over the goodwill and also know-how, patents and trademarks. The assessee had obtained valuation report/s from an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried 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 trade under this name of business. Business IP‟ means all intellectual properties which at the ROW transfer time was owned by ICI India Ltd. and which has been used exclusively in, or exclusively relates to, the business excluding the Excluded IP‟ and all intellectual property licensed to the purchaser under the IP Agreement. Then, even business technical information‟ has been defined; in addition the disclosed information and environmental terms were also handed over to the assessee. However, all these were with benchmark that the Excluded IP‟ as defined would not be transferred. Similarly, Excluded assets‟ would not be transferred on the transfer of Indian business. The Excluded assets‟ also talked about Excluded IP, Excluded Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal 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 of know-how, trademarks and patents, which was not disturbed in the said order. The findings of Tribunal are in para 63, which reads as under:- 63. The CIT(A) while denying the claim of assessee had placed reliance on the ratio laid down by the Hon'ble Supreme Court in Saharanpur Electric Co. Ltd. Vs. CIT (supra), wherein the proposition was laid down in case of seller of business and it was held that there was no merit in allocating slump price over the value of assets. First of all, the said ratio is in respect of assessment year prior to amendment and in the case of seller of business. Further, AS-10 of Accounting Principles also provide for the working of value of tangible and intangible assets and once the same is so allocated, the assessee is entitled to the claim of depreciation on such asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 hands of assessee. Once the assets had entered into block of assets and have already been allowed, the depreciation and the WDV of the said assets had been determined in the preceding year, which is brought forward at the start of financial year, then the assessee is entitled to claim the depreciation on the said WDV or not, was the next issue which was elaborately argued before us. 71. Both the learned Authorized Representatives referred to different parts of section 43(6) of the Act. The learned Authorized Representative for the assessee referred to clause (c) of section 43(6) of the Act, which talks of block of assets‟. However, the learned Departmental Representative for the Revenue placed reliance on clause (b) of section 43(6) of the Act. The learned Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsistent 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 . The Assessing Officer allowed the claim for that assessment year by an order under section 143(3) dated 28.03.2006. The Tribunal then, proceeds to hold that when the Assessing Officer had to allow depreciation on the written down value of the block of assets, then, it cannot in the present assessment year dispute the opening written down value of the block of assets nor can he examine the correctness or otherwise of the opening written down value brought forward from the earlier year. The order under section 143(3) for assessment year 2003-04 continues to operate and no proceedings under the Act were initiated to disturb the same. 10. In these circumstances and without any material being placed on record to substantiate the shift in stand for the subject assessment year that the Tribunal emphasizing rule of consistency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been decided in favour of assessee then, on merits the order of Commissioner under section 263 of the Act cannot be upheld. 22. Now, coming to the second aspect of the order of Commissioner in invoking the jurisdiction under section 263 of the Act. The Tribunal has taken a view that where bifurcation of assets had taken place in assessment year 2003-04 and depreciation had been allowed on the assets i.e. tangible assets and know-how, trademarks, patents and balance value attributed to goodwill; the Assessing Officer had allowed the depreciation on tangible assets and the value attributed to know-how, trademarks and patents while completing assessment for assessment year 2003-04, which cannot be disturbed. However, the Assessing Officer denied the depreciation on goodwill, which was allowed by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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