DCIT - 14(2)(1), MUMBAI vs. LAFARGE AGGREGATES & CONCRETE INDIA PVT. LTD., MUMBAI

This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-22, Mumbai [in short CIT(A)], in appeal No. CIT(A)-22/IT/80/2014-15 dated 14-07-2016. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle 10(1), Mumbai (in short ‘DCIT’) for the A.Y. 2010-11 vide order dated 24.03.2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the depreciation claim of the assessee amounting to Rs.1,91,68,21,376/- ignoring the decision of the Hon'ble Supreme Court in the case of Goetze India Ltd. 284 ITR 283 (SC), while holding that the A.O. should have considered the assessee claim.”

Aggrieved, now Revenue is in second appeal before us.

“2.3. Before us, the Departmental Representative (DR) stated that assessee had not made the claim in the original return of income. The Authorised Representative (AR) supported the order of the FAA. We find that in the case of Prithvi Brokers and Shareholders Private Ltd.(supra)the Hon'ble Jurisdictional High Court has held that a fresh claim cannot be accepted by the AO otherwise than a revised return and the appellate authorities can accept the new claim made by the assessee.

So, in our opinion, he FAA had rightly allowed the depreciation on goodwill, following the judgment of the Hon'ble Supreme Court in the case of Smifs Securities Private Limited (supra). Accordingly, we decide first ground of appeal against the AO.”

5. As the issue is covered and there is no factual different, respectfully following the Tribunal’s decision, we affirm the order of CIT(A) and allowing the claim of the assessee. This issue of Revenue’s appeal is dismissed.

7. The AO disallowed the claim of depreciation. The CIT(A) following the earlier year’s order allowed the claim of the assessee by observing in Para 5.5 as under: - “5.5 I have considered the facts and circumstances of the case and the appellant's submissions. I find that the issue of depreciation on Plant Network, non- compete agreement, customer contract and customer relationship, assembled workforce and leasehold benefits was considered by my Id. predecessor in the appeal for A.Y. 200910 wherein it was observed and held as under:

4.3 I have carefully considered appellant's submissions. In the present case appellant had claimed depreciation on various intangible assets which it valued by established Valuer in the form of goodwill, plan network, non-compete fees, customer contracts and customer relationships, assembled work force and leasehold benefits. The appellant had treated these items as intangible assets which it had acquired from L&T while purchasing the going concern on slump sale basis. The appellant had valued various assets and some were categorized as tangible assets and other was categorized as intangible assets. The appellant had categorized the above items as intangible assets and claimed depreciation u/s 32(2) of the LT. Act, 1961. The A.0. rejected appellant's claim on the ground that appellant had not made claim in the original return of income, it is not included in the financial statement and audit report and this is not intangible assets in view of soc.32(2) of the I. T Act Now the issue to be considered is if the appellant has not claimed in original return of income can it be considered during appellate proceedings. This issue has been considered by Bombay High Court in the case of CIT vs. Pruthvi Brokers & shareholders P. Ltd. 323 taxrnann.com wherein it is held that additional claim and additional grounds not made in the return filed by it can be adjudicated by the appellate authority". In view of the above decision of Bombay High Court the above issues are adjudicated by me.

The A.O second main objection for not allowing the appellant's claim is that these items will not fall under the case cry of sec. 32(1)(ii) of the I T. Act. Sec. See 32(I)(ii) "know-how, patents, copyright, trademarks, licenses or other any business or commercial rights of similar stature being intangible assets acquired on or after she the 1st of April 1998 owned wholly or partially by the assessee and used for the purposes of the business or profession the following deduction shall be allowed.”

On examination of the above intangible assets which are stated in the depreciation we found that appellant is eligible for depreciation on any other business or commercial rights of similar nature which was mentioned in the Act, can these claims of the appellant will fall under any other business or commercial rights of similar nature. The Hon’ble Supreme Court in the case of CIT vs. Smif Securities Ltd. had interpreted these items as tinder "Sec. 32 of the Income-tax Act. 1961 - Depreciation - Allowance/Rate of - Assessment Year 2003-04 - Whether goodwill is an asset under Explanation 3(b) to section 32(l) – held, yes - During relevant assessment year, one 'Y’ Ltd. amalgamated with assessee company - According to assessee, excess consideration paid by is over value of net assets of 'Y’ Ltd. amounted to goodwill on which -depreciation was to be allowed. Authorities below recorded a finding that assets and liabilities of ‘Y’ Ltd. were transferred to assessee for a consideration: that difference between cost of an asset and amount paid constituted goodwill and that assessee company in process of amalgamation had acquired a capital right in form of goodwill because of which market worth of assessee company stood increased - Accordingly, assessee claim was allowed. Whether since revenue could not rebut factual findings recorded by authorities below, impugned order passed by them was to be upheld - Held, yes (in favour of assessee)

The Hon'ble Supreme Court in the above case clearly stated that the difference between cost of asset and amount paid is computed as goodwill and had acquired capital right in the form of goodwill because it has a market value. It is clear from the Supreme Court finding that any difference of value of the other assets and the consideration paid is to be considered as goodwill in this case appellant had not only claimed the depreciation on goodwill, appellant had even allowed certain intangible rights of plan network, non-compete fees, customer contracts and customer relationships, assembled work force and leasehold benefits, can these items conic under category of intangible assets. The word intangible assets was not defined under the Act, however, the word intangible property defined has been defined u/s 928(2)(ii) of the Act. The intangible property defined in Sec. 928(2)(ii) is as under:-

Sec. 92B(ii)- the expression “intangible property” shall include (a) Marketing related intangible assets, such as. trademarks, trade names, brand names, logos; (b) Technology related intangible assets, such as. process parents, patent applications, technical documentation such as laboratory notebooks, technical know-how; (c) Artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights. maps. engravings.' (d) Data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters; (e) Engineering related intangible assets, such as, industrial design, product patents, trade secrets, engineering drawing and schematics, blueprints, proprietary documentation; (f) Customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; (g) Contract related intangible assets, such as supplier, contracts, license agreements, franchise agreements, non-compete agreements; (h) human capital related intangible assets, such as, trained and organized workforce, employment agreements, union contracts; (i)' location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights; (j) goodwill related intangible assets, such as. institutional goodwill, professional practice goodwill, personal goodwill or professional celebrity goodwill, general business going concern value; (k) methods, programmes systems, procedures. campaigns, surveys, studies forecasts, estimates, customer lists, or technical data; (j) any other similar item that derives its value from its intellectual content rather than its physical attributes”

When we examine the above definition of intangible properly and the items on which appellant had claimed depreciation the plan network will be part of the definition in the category of Sec. 92B'(2)(ii)(b), customer contracts and customer relationships will be in the category of see. 92B'(2)(ii)(f), leasehold benefits will be in the category of sec. 92B'(2)(ii)(i), assembled work force will be in the category of sec. 92B'(2)(ii)(h), non-compete fees will be in the category of sec. 92B(2)(ii)(g) or (l). It is clear that though intangible assets was not defined in the Act but was defined as intangible property in the Act which includes above items. When we examine even the definition of intangible assets in view of sec. 32(2) it is clearly mentioned that deprecation is eligible for any other business or commercial rights of similar nature being intangible assets. All these above items on which depreciation is claimed by the appellant are in the nature of business or commercial rights In the case of Sniff Securities Lid., goodwill was interpreted by Supreme Court that membership card of an exchange is it commercial right and it is eligible for depreciation in the category of goodwill. In view of the above decision of the Supreme Court and also in view of the specific definition of intangible property all these items Jail under the category of intangible assets, hence the 4.0. is directed to allow depreciation on all the above items based on the number of days used These grounds of appeal are allowed.

Facts of the issue and circumstances being the same as of the earlier year, since my Id. predecessor had allowed depreciation on Plant Network, non-compete agreement, customer contract and customer relationship, assembled workforce and leasehold benefits in the initial year in which the depreciation was claimed, following the decision of my Id. predecessor, the appellant's grounds of appeal are allowed."

3.2. Before us the DR and the AR made the same arguments that are mentioned at paragraph no.2.3. We have already decided the issue of depreciation on goodwill in the earlier part of the order. There is no doubt that the four items are part of intangible assets that were acquired by the assessee while purchasing the business from L&T. We find that the FAA has followed the judgments of the Hon'ble Bombay High Court and Hon'ble Supreme Court, while allowing the appeal of the assessee. In our opinion, there is no need to interfere with the order of the FAA, as it does not suffer from any legal or factual infirmity. So, confirming his order we decide the second ground of appeal against the AO.

9. As there is no factual difference and issue is exactly identical as in AY 2009-10 i.e. immediate proceeding year, respectfully following the Tribunal’s order, we affirm the order of CIT(A) deleting the disallowance of depreciation. The appeal of Revenue is dismissed.

Order pronounced in the open court on 11-05-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 11.05.2018 kao kI ga[- .