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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & MS. SUCHITRA KAMBLE
ORDER PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
These three appeals are filed by the Revenue. The Cross Objections are filed by the assessee. As the issues arising in all these appeals are common, for the sake of convenience they are heard together and are disposed of by way of this common order.
Facts in brief:- The facts of the case are culled out at Para 5 of the Ld.CIT(A)’s order is extracted for ready reference.
Ground nos. 1 of A Y. 2007-08 and 3 of A.Y. 2008-09 are directed against the disallowance of Rs.38,67,188/- and Rs.29,00,391/- for A.Ys. 2007-08 and 2008-09 respectively on account of depreciation on technical know-how. As per the facts of the case, the appellant company is engaged in the business of manufacturing of cement bricks, blocks and slabs and other building materials The appellant company acquired the business of Autoclave Aerated Concrete Products (AAC) with the manufacturing unit situated at Palwal, Haryana on a going concern basis for a gross consideration of Rs. 13.75 crores from M/s Premium Energy Transmission Limited (PET) vide Memorandum of Understanding (MOU) dated 20.05.2004. The above business was acquired by the appellant company w.e.f. 01.04.2004. The purchase cost was capitalized by the appellant company in A.Y. 2005-06 over various assets as mentioned below:
Particulars Amount (Rs.) Land 1,20,00,000 Building 3,80,00,000 Plant & Machinery 4,75,00,000 Intangible Assets (Technical Know 2,75,00,000 How) Net Current Assets 1,25,00,000 Gross Consideration 13,75,00,000 The appellant also obtained a valuation report dated 06.12.2004 from M/s
Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd. Vastuki Consultants Pvt. Ltd., Architects and Government Approved Valuers, as per which the value of the various assets was determined as under: Particulars Amount (Rs.) Land 1,20,57,000 Building 3,89,45,713 Plant & Machinery 4,37,39,700 Intangible Assets (Technical Know 2,50,00,000 How) Net Current Assets 1,25,00,000 Gross Consideration 13,22,42,413 The appellant has filed its return of income for A.Ys. 2005-06 and 2006-07 claiming depreciation u/s 32 of the Act as per Table A above which was allowed by the Department vide intimation u/s 143(1) for A.Y 2005-06 and assessment order u/s 143(3) for A.Y 2006-07. However, in A.Y. 2007-08 the AO while accepting the cost of purchase of all the other assets as mentioned above, has fully disallowed depreciation in respect of technical know-how on the ground that there was a difference in the cost of acquisition of the said technical know-how between the appellant's books wherein it was shown at Rs.2,75.00,000/- and the valuation report wherein it was valued at Rs.2,50,00,000/- The AO has also doubted the nature of the intangible asset and has mentioned that the Balance Sheet of the seller company did not show any asset in the nature of technical know-how as on 31.03.2004
On appeal the First Appellate Authority partly allowed the appeal of the assessee. The Ld.CIT(A) held that depreciation is allowable on technical know-how. However, he restricted the depreciation allowance by taking the value of the asset, i.e. know-how, as assigned and valued by the District Valuation Officer (DVO) and not as per the actual consideration paid by the assessee.
Aggrieved, the Revenue filed the appeals on the following grounds for the A.Y. 2007-08 and 2008-09.
1. The Ld.CIT(A) erred on facts and in law on allowing depreciation in respect of technical know-how amounting to Rs.32,42,187/-.
Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
4.1. The Cross Objections were filed by the assessee on the following grounds for these two Assessment Years (hereinafter referred to as the A.Y.).
“The respondent respectfully submits as under:
1. 1. Ld.CIT(A) has erred in allowing depreciation on the value determined by the registered valuer in place of actual cost of the assets acquired by the respondent.
2. Without prejudice to ground no.1 above, Ld.CIT(A) has ignored the provisions of S.32 of the Act for recomputing the WDV of the block of assets and at the prescribed rates.”
4.2. For the A.Y. 2009-10 the Revenue filed the following grounds . “1. Whether the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.21,75,293/- on account of depreciation on technical know-how.
2. Whether the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.1,08,565/- made on account of depreciation on computer peripherals ignoring the fact that the computer and computer software are eligible for depreciation of 60% and the same cannot be extended to computer accessories and peripherals.
3. Whether the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.1,71,31,908/- made on account of difference in trading account u/s 145A ignoring the fact that as per the provisions of S.145A the assessee is required to prepare memorandum trading account for the year under consideration by exclusive and inclusive method.
4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd. 5. We have heard Shri K.K.Jaiswal, Ld.D.R. on behalf of the Revenue and Shri P.C.Yadav, the Ld.Counsel for the assessee.
On a careful consideration of the facts and circumstances of the case, perusal of material on record, orders of lower authorities, case laws cited, we hold as follows.
Shri KK Jaiswal, the Ld.D.R. submitted that : a. No specific agreement vis-a-vis valuation of each of the asset transferred by the seller to assessee was there which would show the value of each of the asset transferred in a specific manner. b. The MOU did not specify that any knowhow was transferred to assessee. c. Whatever technology and plant and machinery transferred to assessee did not cover under section 32 of the Act. d. Opinion of valuer and approvals taken from Central and state authorities cannot be termed as Technical knowhow. e. Consultancy done by seller on purchase of its plant must have been factored in cost of plant and hence there is no need to assign any specific value to technical know-how. f. Approvals taken from Govt and considered by valuer as technical know-how are an imaginary asset and hence not entitled for depreciation. In absence of any agreement relating to transfer of a specific technology no value could be assigned to know-how. g. The mere declaration of sale of knowhow by seller in its ROI could not create an imaginary asset ( know-how). By creating asset like know-how the assessee has in fact reduced the cost of land, on which no depreciation is allowable and further the assessee has created intangible asset for claiming depreciation on the same. h. Both companies are controlled by same set of persons and hence tried to create imaginary asset for the assessee company with unfair tax advantage. i. Valuer’s report is not reliable. There was collusion between the assessee and seller company. Hence there was neither any asset in the name of technical know-how nor any value thereof.
Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd. j. That principle of res-judicata are not applicable in tax proceedings and hence depreciation allowed in previous years cannot be a yard stick for allowing depreciation in this year.
7.1. He relied on the order of the A.O. and submitted that the same be upheld.
7.2. The Ld.Counsel for the assessee submitted that : a. There is no provision under law to disturb opening written down value. b. The impugned asset was part of the block initially for the A.Y. 2005-06 and the assessee’s claim for depreciation for the A.Y. 2005-06 and 2006-07 were allowed in these years. c. The seller has offered the amount received on sale of technical know-how for taxation in its return of income and a copy of the same has been filed before the A.O. d. After acquiring the unit, the assessee company’s turnover grew from Rs.13 crores to Rs.15 crores and tax payments from Rs.8 lakhs to Rs.4.3 crores. e. The A.O. has overlooked the definition of ‘block of assets’ and ‘provision of depreciation’ on such block. f. The value as determined by the Valuer is not relevant as it is only an opinion and the opening written down value during the year cannot be tinkered with, by the Ld.CIT(A), based on the value fixed by the Valuing Officer.
After hearing rival submissions we hold as follows.
The assessee company entered into Memorandum of Understanding (MOU) for transfer of business as going concern with M/s Premium Energy Transmission Ltd. (PET Ltd.). The assessee claimed to have acquired technical know-how. It was disclosed in the accounts and financial statements as an asset and depreciation was claimed on the same kfor the Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd. A.Y. 2005-06. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Thus the depreciation claimed on the block of assets, being technical know-how was not disturbed by the Revenue in the first year of claim. PET Ltd. filed its return of income and offered Rs.2.75 crores as its profit, on sale of know-how to the assessee company. For the A.Y. 2006-07 the assessee company filed its return of income declaring the written down value of know-how and claiming depreciation thereon. The assessment order was passed by the A.O. u/s 143(3) of the Act and the claim of depreciation on technical know-how fees was not disturbed.
9.1. During this year the A.O. for the reasons given in his order, seeks to disturb the opening written down value. In our considered view this is not permitted in law.
9.2. The Mumbai Bench of the ITAT in the case of HSBC Asset Management (India) Pvt. Ltd Vs DDIT in wherein the Hon’ble Bench after considering the provisions of section 32(1) read with section 43(6) (C) has held as under :
“In other words in terms of section 32(1)(ii) of the Act, the AO has to allow depreciation on the WDV of the block of assets and the prescribed rates. The AO cannot in the present Assessment year dispute the opening WDV of the block of Assets nor can he examine the correctness or otherwise of the opening WDV brought forward from the earlier year. It was also submitted by the Id. counsel for the assessee that the order under section 143(3) for A.Y 2003-04 continues to exist and has not been disturbed by any proceedings under the Act. We are therefore, of the view that it was not possible for the AO in the present assessment year to take a stand different from the one taken in the earlier assessment year. Having allowed the depreciation in the immediately preceding year it is not open to the AO to take different stand for the year under consideration. On this short ground, we direct that the Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd. depreciation claimed by the assessee should be allowed. In view of the above, we have not gone into the question whether the sums in question would be terms as intangible assets entitled to depreciation. For the reasons given above we allow the appeal of the assessee.”
9.3. Similarly in the case of M/s Godrej Agrovet Ltd. in ITA 1692/Mum/2009 for the A.Y. 2005-06 order dt. 17th September, 2010 at para 3 took a similar view. Thus on this sole ground alone the order of the First Appellate Authority, to the extent of his decision to allow depreciation on technical know-how fees is to be upheld.
9.4. Even otherwise, on merits, we find that the First Appellate Authority has rightly come to a conclusion that the assessee has purchased technical know-how. The seller company had also offered this amount to tax. Under these circumstances the conclusions of the A.O. have rightly been vacated by the First Appellate Authority. In the result the appeals of the Revenue for the A.Y. 2007-08 and 2008-09 have to be dismissed.
Coming to the Cross Objections, we have to uphold the contentions of the assessee. The value of an asset cannot be determined by a valuer. The Ld.CIT(A) cannot tinker with the figure of opening written down value. It is well settled that valuation by a Valuer is an opinion and the transaction between the parties is a fact. An opinion cannot replace a fact. Thus, we allow the Cross Objections of the assessee and direct the A.O. to grant depreciation on the opening written down value of the asset of technical know-how. In the result the Cross Objections are allowed.
We now take up the appeal of the Revenue for the A.Y. 2009-10 in ITA 1261/Del/2013.
Ground no.1 of the Revenue is on the issue of allowability of depreciation on technical know-how.
Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd.
12.1. Consistent with the view taken for the A.Y. 2007-08 and 2008-09 we dismiss this ground of the Revenue.
Ground no.2 is on the issue of rate of depreciation on computer peripherals. The issue is covered by the decision of Hon’ble Delhi High Court in the case of CIT vs. BSES Yamuna Power Ltd. reported in 358 ITR 47 (Delhi) and ACIT vs. Caparo Maruti Ltd. Delhi order dated 13.4.2012. Thus this ground of the Revenue is dismissed.
Ground no.3 is on the issue whether the Ld.CIT(A) was right in law in deleting the addition of Rs.1,71,31,908/- made on account of difference in trading a/c u/s 145A of the Act.
14.1. The First Appellate Authority has at para 6.2 page 11 and 12 held as follows. “6.2 I have carefully considered the submission made by the Ld AR and have gone through the assessment order. From the memorandum trading account u/s 145A prepared on inclusive method as appearing on page no 4 of the assessment order, it is seen that the assessing officer has included the amount of excise duty in opening stock of goods, sales, purchases and closing stock of goods. The assessing officer has increased the amount of sales Rs.41.75 crores by the amount of excise duty Rs.2.76 crores (as appearing in the profit and loss account). However, he has ignored to give allowance of excise duty paid on sales of Rs.1.71 crores paid by the appellant company. While framing the assessment order, the assessing officer has added this amount of excise duty amount to the gross profit inadvertently and has increased the same to make the addition in the returned income. The assessing officer has ignored the fact that the amount of excise duty on closing stock of finished goods Rs.2,82,481/- which was not paid was disallowed u/s 43B of the Act by the appellant company in its return of income as appearing in annexure D of the Form 3CD.
Cross Objection No.422/Del/2012 A.Y. 2008-09 and Cross Objection No.423/Del/2012 ITA No. 1261/Del/2013 A.Y. 2009-10 M/s Biltech Building Elements Ltd. While following ‘Inclusive method’ we include excise duty amount in all the components of the trading account i.e sales, purchase, opening stock and closing stock and we allow allowance/deduction of excise duty amount paid on sale of finished goods. The assessing officer has not allowed this allowance / deduction and has increased the gross profit by the same amount and added to ' the income of the appellant/s 145A of the act.
Therefore, the addition made on this account is directed to be deleted.”
14.2. We find no infirmity in these findings. The A.O. has enhanced the figures of sales, closing stock, opening stock and purchases, by the amount of excise duty while adopting inclusive method. While doing so, he should have reduced the excise duty actually paid by the assessee of Rs.1,71,31,908/- as it has been already included.
In view of the above discussion we uphold the order of the First Appellate Authority and dismiss this appeal of the revenue.
In the result, all the appeals filed by the Revenue for the A.Y. 2007-08, 2008-09 and 2009-10 are dismissed. The Cross Objections filed by the assessee for the A.Y. 2007-08 and 2008-09 are allowed.
In the result the appeals filed by the Revenue are dismissed. The Cross Objections filed by the assessee are allowed.
Order pronounced in the Open Court on 28th June, 2016.