TMI Blog2018 (5) TMI 2095X X X X Extracts X X X X X X X X Extracts X X X X ..... present appeal of the assessee as well. It is an undisputed fact that there is no change in the facts and circumstances in the assessment year 2006-07. The ld. DR has not brought before us any judgment wherein contrary view has been taken. Valuation of land at Taloja and Panki - scope of Business Transfer Agreement (BTA) - HELD THAT:- As decided in own case for assessment year 2004-05 [ 2018 (1) TMI 12 - ITAT PUNE ] 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 - assessee fairly admitted that the value of ₹ 17.37 crores be attributed to Panki assets. However, revised allocation value of land at Panki would be ₹ 13 crores, out of total slump price of ₹ 153 crores. Accordingly, we direct the Assessing Officer to re-compute the value of both tangible and intangible assets, accordingly. Valuation of trademark, patent and know-how acquired by the assessee from ICI India Limited - HELD THAT:- Identical ground was raised in appeal by assessee in assessment year 2004-05 [ 2018 (1) TMI 12 - ITAT PUNE ] Find n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar: 2006-07 3. The grounds raised by assessee in assessment year 2006-07 are as under: On the facts and in the circumstances of the case and in law, the learned CIT(A) has: Ground No. 1: Reassessment proceedings initiated under section 147 of the Act. I. erred in reopening the assessment under section 147 of the Act and passing an order under section 143(3) read with section 147 of the Act. II. erred in holding that reassessment is valid despite of the fact that objections filed by the Appellant against the reassessment order are not disposed off by the Assessing Officer. III. The Appellant prays that the reopening of assessment under section 147 of the Act is bad in law and be quashed. Ground 2: without prejudice to Ground 1- Not following Rule of Consistency IV. erred in disallowing depreciation on Know-how, Patents, Trade-marks amounting to ₹ 11,58,25,529/-. V. failed to appreciate the fact that the rule of consistency which states that the legal position accepted in preceding assessment years in case of an Assessee should be followed if there is no change in the facts in the subsequent assessment year; and VI. erred in disallowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings by the Assessing Officer. The Appellant craves leave to add, alter, omit or substitute any or all the above grounds of appeal, at any time before or at the time of appeal hearing. 4. Shri Percy J. Pardiwala appearing on behalf of the assessee submitted that assessee is engaged in manufacturing and sale of various types of Catalysts. In the year 2001, assessee acquired manufacturing unit of ICI India Limited situated at Taloja. In October, 2002, the assessee entered into Business Transfer Agreement (in short BTA ) with ICI India Limited for purchase of business as a going concern for consideration of ₹ 153.80 Crore. ICI India Ltd. carried its business from two locations i.e. Taloja and Panki. Schedule 10 to BTA gives the list of assets which were excluded from the agreement. The said schedule inter alia mentions; Panki site, Panki employees and Panki assets. The assessee claimed depreciation on the assets acquired in financial year 2002-03 i.e. the period relevant to assessment year 2003-04. The assessee subsequently allocated the cost to various assets acquired in the following manner: Goodwill 10.73 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 2007-08. The Commissioner of Income Tax held that the assessee has not acquired any know-how and denied the claim of depreciation on patents, trademarks and goodwill. Thereafter, assessment for assessment year 2006-07 was reopened in an illegal manner vide notice dated 15.07.2011. The reasons recorded for reopening the assessment does not mention reasons for formation of belief for reopening. The assessee filed objections assailing validity of reassessment on 19.11.2011. The Assessing Officer completed the re-assessment without disposing off the objections separately. In re-assessment order, the Assessing Officer disallowed depreciation on goodwill, non-compete fees, trademarks, patents knowhow. 5.3 The Assessing Officer for the assessment year 2009-10 in an assessment order passed u/s.143(3) denied the claim of depreciation to the assessee on entire assets acquired from ICI India Ltd. 5.4 The ld. AR further submitted that it is a well settled law that once an asset forms part of block in the first year of claim of depreciation, then the depreciation cannot be disallowed in subsequent year. To support his submissions, the ld. AR placed reliance on the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration for acquiring intangible assets. The ld. DR further submitted that the Commissioner of Income Tax (Appeals) has erred in allowing depreciation on goodwill non compete fees without appreciating the fact that fair value of leasehold rights acquired by the assessee is ₹ 174.36Crores (for the year 2002). Under such situation, no part of consideration received i.e. ₹ 153.80 Crores is left to be assigned towards goodwill and non-compete fees. Hence, no depreciation would be allowed on intangible assets. 7. We have heard the submissions made by representatives of rival sides and have perused the orders of Authorities below. 8. The grounds No. 2, 3 and 4 are taken up together as they are co-related. The assessee had claimed depreciation on intangible assets i.e. know-how, patents and trademark, goodwill and non-compete fee. The assessee had claimed depreciation for the first time in the assessment year 2003-04. The Assessing Officer allowed depreciation on all assets except goodwill, know-how and non-compete fees. The matter travelled up to the Tribunal. The assessee in ITA No. 7547/PN/2010, assailed the action of Department in not granting depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Another important term which needs to be taken note of is that Panki assets which clearly have not been taken over and it is part of excluded assets i.e. assets which were not been taken over and the terms of BTA talks of leasehold and licensed properties comprising Panki sites together with building thereon. It also talks of plant machinery, equipment, computer and other assets at Panki. In order to understand the intention of the parties, it is necessary to refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 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 obligations pursuant to Schedule 5. In part III, while enlisting the business properties in respect of said property at Taloja, the tenure is mentioned to be license ICI India Ltd. In other words, the business at Taloja site was run by ICI India Ltd. on land which was leased from HLL, ICI India Ltd. was not the owner of said piece of land and hence, was not in position to pass on the ownership of the land. In Schedule 12, the list of agreements and deeds are enlisted. Under Part I, which in addition to the Deed of Restricted Covenants and Toll Conversion Agreement also talks of Novation of Leave and Lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re parting, we may also point out that as per the Toll Conversion Agreement, the value of Panki assets was taken at ₹ 1 lakh. However, the CIT(A) had worked out the cost of 279.30 acres i.e. total landholding of ICI India Ltd. at ₹ 174 crores; in case the same rate is applied to 27.52 acres, which was the portion of land on which catalyst business was carried on, then the same would work to ₹ 17.37 crores. The learned Authorized Representative for the assessee fairly admitted that the value of ₹ 17.37 crores be attributed to Panki assets. However, revised allocation value of land at Panki would be ₹ 13 crores, out of total slump price of ₹ 153 crores. Accordingly, we direct the Assessing Officer to re-compute the value of both tangible and intangible assets, accordingly. Following the same proposition, we hold that the assessee is entitled to claim the depreciation on the value of tangible assets and further on know-how, trademarks and patents and also on the goodwill. The assessee has also claimed depreciation on non-compete fees. The Assessing Officer is also directed to allow depreciation on non-compete fees of ₹ 3.51 crores. Thus, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No. 7 of the appeal is dismissed as premature. 12. Since appeal of the assessee has been allowed on merits, the legal issue raised by assessee in Ground No. 1, challenging reassessment proceedings u/s. 147 of the Act has become academic. The ld. AR for the assessee has also not made any submissions in respect of ground No. 1. Thus, the ground No. 1 is dismissed as academic. 13. In the result, appeal of the assessee for assessment year 2006-07 is partly allowed. ITA No.1313/PUN/2016 ( By Revenue) A.Y 2006-07 14. The Revenue in cross appeal for assessment year 2006-07 has raised following grounds: 1. On the facts in the circumstances of the case the Ld. CIT(A) has erred in deciding the issue regarding claim of depreciation on goodwill non-compete fees in isolated manner i.e. without considering the real intention of the assessee to deliberately undervalue the value of the plot at Panki and shift that value of intangible assets including non-compete fees and goodwill and thereby claimed depreciation on those assets for which actually no consideration was paid. 2. On the facts in the circumstances of the case the Ld. CIT(A) has erred in all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder slump sale arrangement since the Appellant has acquired an undertaking and not individual assets perse. Sr. No. Nature of Assets Depreciation (Rs.) 1. Depreciation on other assets 7,12,04,732 2. Trade-marks, Patents and knowhow 7,34,81,217 3. Goodwill 83,30,821 4. Non-compete fees 27,24,418 Total 15,57,41,188 2. Erred in disallowing depreciation on all the assets on which depreciation, totaling to ₹ 15,57,41,188 has been claimed in the AY 2008-09, despite of the fact that the depreciation claim on other assets, amounting to ₹ 7,12,04,732, also included assets acquired in years subsequent to the AY 2003-04 including the current AY i.e. 2008-09. Not following Rule of consistency 3. Erred in disallowing depreciation on intangible and other assets: a. Without following the rule of consistency which states that the legal posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of similar nature as stated in the definition of intangible assets under Section 32(1)(ii) of the Act. Depreciation on Goodwill 11. Without prejudice to Ground 1 above, erred in upholding the disallowance of depreciation on goodwill amounting to ₹ 83,30,821 on the contention that goodwill is not in the nature of any other business or commercial rights of similar nature as stated in the definition of intangible assets under Section 32(1)(ii) of the Act. Initiation of penalty under section 271(1)(c) of the Act 12. The learned CIT(A) has erred in holding that the Appellant has submitted wrong particulars of income and hence penalty proceedings are required to be initiated. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal hearing. 18. Similar issues have been raised by the assessee in appeal for assessment year 2006-07. The findings given by us on the respective grounds in assessment year 2006-07 would mutatis mutandis apply to the grounds raised in the present appeal as well. Accordingly, grounds raised by assessee in appeal for assessment year 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emark, patents and know- how on the ground that Appellant has not purchased any knowhow from ICI India Limited and has not used any knowhow for the purpose of its business. VIII. without prejudice to above, erred in concluding that the allocation of ₹ 94.35 crores to trade- marks, patents and know-how out of the purchase consideration of ₹ 153.18 crores has not been done in a fair and reasonable manner. Ground 5: Value of land at Taloja and Panki IX. without prejudice to the above, erred in holding that the value of land at Panki division is ₹ 174.36 crores and the value of land at Taloja is ₹ 13 crores. Ground 6: Value of trade-marks, patents and know-how X. erred in ignoring the fact that the valuation of trade-marks, patents and know-how that the value of trade-marks, patents and know-how would not be affected by the value of land. Ground 7: Initiation of penalty under section 271(1)(c) of the Act XI. erred in not quashing the initiation of penalty proceedings by the Assessing officer. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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