Brembo Brake India Pvt. Ltd., Pune V. Dy. Comm. of Income-tax, Pune

ITA 1488/PUN/2011

• Counselvise Citation: 148824514 RSA 2011
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Depreciation; Transfer pricing; Valuation report
• Section: 143(3); 37(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1488/PN/2011 ASSESSMENT YEAR : 2007-08 BREMBO BRAKE INDIA PRIVATE LIMITED, GAT NO.307 (7&8), VILLAGE NANEKARWADI, CHAKAN, TAL KHED, DIST. PUNE 410501 APPELLANT PAN: AACCK6860B VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), PUNE RESPONDENT APPELLANT BY : KETAN VED RESPONDENT BY : M.S. VERMA, CIT DATE OF HEARING : 24-12-2014 DATE OF PRONOUNCEMENT : 25-02-2015 O R D E R PER SUSHMA CHOWLA, J.M: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF D CIT, CIRCLE 1(1), PUNE, DATED 13.09.2011 RELATING TO ASSESSMENT YE AR 2007- 08 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOM E-TAX ACT, 1961 IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLU TION PANEL (IN SHORT DRP'). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED DCIT, IN PURSUANCE OF THE DIRECTIONS OF TH E HONORABLE PANEL, ERRED IN DISALLOWING THE DEPRECIATION AMOUNTING TO RS.2,26,62,278/- CLAIMED BY THE APPELLANT ON INTANGIBLE ASSET. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED DCIT ERRED IN OBSERVING FOLLOWING: 2 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. A. THE ASSETS CLAIMED BY ASSESSEE AS DEPRECIABLE, ARE NOT THE DEPRECIABLE ASSETS AS THEY ARE NOT SUBJECTED TO W EAR AND TEAR DUE TO DIMINISH IN VALUE WITH USE AND EFFLUX OF TIME. B. THESE ASSETS ARE NOT MEASURABLE ASSETS. C. THESE ASSETS ARE NOT CLEARLY, IDENTIFIABLE ASSETS HAVI NG THEIR OWN INDEPENDENT EXISTENCE. D. THESE ASSETS ARE NOT DEFINED UNDER SECTION 32(1)(II) OF THE ACT. E. THESE ASSETS ARE PART AND PARCEL OF AND INGRAINED I N THE TECHNICAL MAN POWER, MACHINERY AND ESTABLISHMENT PURCHASED BY ASSESSEE FROM BOSCH. 3. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR A DD TO THE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN TWO WHEELER BRAKE SYSTEMS AND COMPONENTS. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURN ISHED THE RETURN OF INCOME DECLARING TOTAL INCOME AT NIL. THE FIRST ISSU E RAISED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PRO CEEDINGS WAS IN RELATION TO THE TRANSFER PRICING ADJUSTMENTS IN RESPECT OF PAYMENT OF ROYALTY PURSUANT TO THE ORDER OF TRANSFER PRICING OFFICER. THE ASSESSING OFFICER PROPOSED AN ADJUSTMENT OF RS.1,75,38,458/- WHICH WAS REVERSED BY THE DRP AND THE EXPENDITURE INCURRED ON R OYALTY WAS DIRECTED TO BE ALLOWED. PURSUANT THERETO, THE ASSESSING OFFICER IN THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) ALLOWED T HE CLAIM OF THE ASSESSEE ON THE PAYMENT OF ROYALTY. 4. ANOTHER ISSUE RAISED BY THE ASSESSING OFFICER WAS ON A CCOUNT OF DEPRECIATION ON INTANGIBLE ASSETS AMOUNTING TO RS.2,26,62,278 /-. THE ASSESSING OFFICER REQUISITIONED THE ASSESSEE TO JUSTIFY ITS CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS DURING THE COURSE OF ASS ESSMENT PROCEEDINGS. IN REPLY, THE ASSESSEE CLAIMED THAT IT HAD ENTERED INTO AN 3 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. AGREEMENT TO ASSETS SALE AND TRANSFER WITH M/S. BOSCH C HASSIS SYSTEMS INDIA LTD. (IN SHORT BCSIL) ON 01.02.2006, UNDER WHICH, THE INTANGIBLE ASSETS WERE SPECIFIED WHICH INCLUDED CUSTOMER BA SE, MATERIAL SUPPLIERS, LOW COST PROCESS KNOW-HOW, TECHNICAL MA N POWER, TECHNOLOGY AND PATENTS. THE PLEA OF THE ASSESSEE WAS T HAT AS PER SECTION 2(11) OF THE ACT, THE BLOCK OF ASSETS COMPRISED O F TANGIBLE ASSETS BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE AND THE INTANGI BLE ASSETS COMPRISED OF KNOW-HOW, PATENTS, COPY RIGHTS, TRADE MARKS, LICENSES, ETC. UNDER THE INCOME TAX ACT, DEPRECIATION ON INTANGIBLE ASSETS ACQUIRED AFTER 31.03.1998 WERE ENTITLED TO DEPRECIATION @ 2 5%. THE ASSESSING OFFICER NOTED THAT THE CLAIM OF THE ASSESSEE WAS THAT IT HAD PURCHASED THE ENTIRE BUSINESS FROM BCSIL VIDE AGREEMENT DATED 01.02.2006. IT WAS FURTHER CLAIMED BY THE ASSESSEE THAT AS THE ENTIRE BUSINESS HAD BEEN ACQUIRED, ALONG WITH THAT THE ASSESSE E HAD ALSO ACQUIRED INTANGIBLE ASSETS I.E. CUSTOMER BASE, MATERIAL SUPPLIE RS BASE, TECHNICAL MAN POWER AND DRAWINGS AND DESIGNS AND LIKE ASS ETS. AS PER THE ASSESSEE, ALL THE ASSETS ACQUIRED SATISFIED THE CO NDITIONS PRESCRIBED IN SECTION 32 OF THE ACT AND WHERE THE ASSES SEE HAD PAID PRICE TO ACQUIRE THE SAID ASSETS, IT WAS ELIGIBLE FOR CLAIM OF D EPRECIATION ON THE SAME. SIMILAR CLAIM WAS ALLOWED IN ASSESSMENT YEAR 2 006-07. AN ALTERNATE PLEA WAS MADE TO ALLOW DEDUCTION UNDER SECT ION 37(1) OF THE ACT ON FULL AMOUNT IN ASSESSMENT YEAR 2006-07. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WAS A JOINT VENTURE COM PANY BETWEEN BCSIL AND BREMBO SPA, ITALY AND WAS ENGAGED IN THE TR ADING OF TWO WHEELER BRAKE SYSTEMS. THE ASSESSEE HAD ACQUIRED THE BUSINESS OF M/S. BCSIL VIDE AGREEMENT DATED 01.02.2006 FOR A TOTAL C ONSIDERATION OF RS.28.70 CRORES. THE COST WAS ALLOCATED I.E. 19.01 CROR ES FOR INVENTORY AND FIXED ASSETS AND RS.9.68 CRORES FOR INTANGIB LE ASSETS. 4 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. LATER ON, THE INCIDENTAL EXPENSES LIKE REGISTRATION CHARGES , DUTIES, ETC. WERE ALSO INCLUDED AND FOR FINANCIAL YEAR 2005-06, THE ASSE SSEE HAD ALLOCATED THE COST OF RS.10.36 CRORES TO INTANGIBLE ASSET S. IN ASSESSMENT YEAR 2006-07, DEPRECIATION @ 12.15% EQUAL TO RS.1,29,49,873/- WAS CLAIMED AND THE OPENING WDV OF THE INTA NGIBLE ASSETS BROUGHT FORWARD WAS RS.9,06,49,113/-. THE ASSES SING OFFICER FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD ACQUIR ED THE BUSINESS OF M/S. BCSIL FOR A TOTAL CONSIDERATION OF RS.28.70 CRORES A ND THE FIXED ASSETS AND THE INVENTORY HAD BEEN VALUED AND ACQUIRED AT COST FROM M/S. BCSIL. THE REMAINING AMOUNT PAID BY THE ASSESSEE AS THE PURCHASE CONSIDERATION TO M/S. BCSIL WAS ALLOCATED TO TH E ASSETS NAMED AS INTANGIBLE ASSETS. THE SAID COMPANY I.E. M/S. BCSI L WAS ASSESSED WITH THE SAME ASSESSING OFFICER AND THE FIXED AS SETS SCHEDULE OF M/S. BCSIL AS ON 31.03.2007 WAS ATTACHED AS AN ANNEX URE-I. THE ASSESSING OFFICER ON THE PERUSAL OF THE SAME, NOTED THAT M/S. BCSIL WAS NOT IN POSSESSION OF ANY RECOGNISED INTANGIBLE ASSETS THAT IT COULD HAVE TRANSFERRED TO THE ASSESSEE, IN VIEW OF THE SALE / P URCHASE AGREEMENT. AS PER CLAUSE 1.1.1 OF ARTICLE 1 OF THE AGREEME NT TO ASSETS SALE AND TRANSFER, DATED 01.02.2006, THE INTANGIBLE ASSETS M EANS THE RIGHT TO MANUFACTURE ITEMS OWNED BY RBIC AND WAS DESCR IBED IN APPENDIX ENLISTED. THE ASSESSING OFFICER HAS REPRODUCED T HE APPENDIX I.E. INTANGIBLE ASSETS AT PAGES 7-8 OF THE ASSESSMENT ORDE R. THE ASSESSING OFFICER VIDE PARA 5.5 NOTES THAT BOTH THE ASSE SSEE COMPANY AND SELLER COMPANY HAD APPOINTED VALUER WITH JOINT CONSEN T TO ALLOCATE COSTS TO EACH OTHERS ASSETS. ON THE PERUSAL OF THE VALUATION REPORT, THE ASSESSING OFFICER NOTED THAT THE COST OF THE FIXED ASSETS WERE ALLOCATED AS PER THE VALUATION REPORT AND THE CONSIDERATION PAID O VER AND ABOVE THE SAME, WAS TOWARDS VALUE OF INTANGIBLE ASSETS. AS PER THE ASSESSING 5 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. OFFICER, THE BASIS FOR DETERMINING THE VALUE OF GOODS GROUPED TOGETHER UNDER THE HEAD INTANGIBLE ASSETS HAD NOT BEEN SUBSTANT IATED BY THE ASSESSEE NOR, IT WAS CLEAR FROM THE AGREEMENT. THE ASSE SSING OFFICER, THEN DELIBERATED UPON THE MEANING OF THE WORD DEPRECIATIO N AND CONSIDERED THE ELIGIBILITY OF EACH AND EVERY ASSET CLAIMED BY THE ASSESSEE AS AN INTANGIBLE ASSET AND WAS OF THE VIEW THAT THE ISSUE IN THE PRESENT CASE WAS NOT WHETHER THE DEPRECIATION IS A DMISSIBLE ON INTANGIBLE ASSETS OR NOT, BUT THE ISSUE WAS WHETHER THE ASSETS CLAIMED BY THE ASSESSEE WERE DEPRECIABLE OR NOT. SINCE SECTION 32 OF THE ACT GRANTS DEPRECIATION IN RESPECT OF SPECIFIED ASSETS, THE INTA NGIBLE ASSETS IN POSSESSION OF THE ASSESSEE DID NOT QUALIFY FOR THE BA SIC CHARACTERISTICS OF DEPRECIABLE ASSETS THAT HAPPENS DUE T O WEAR AND TEAR AND EFFLUX OF TIME. THE CONTENTION OF THE ASSESSEE THAT D EPRECIATION HAD BEEN ALLOWED IN ASSESSMENT YEAR 2006-07 WAS BRUSH ED ASIDE BY THE ASSESSING OFFICER SINCE THE RETURN OF INCOME FOR THE SA ID YEAR WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE ALTERNATE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 37(1) OF THE ACT WAS ALSO CONSIDERED TO BE MIS-PLACED. 5. THE DRP UPHELD THE PROPOSAL MADE BY THE ASSESSING O FFICER AND CONSEQUENTLY, THE ASSESSING OFFICER IN THE ORDER PASSED U NDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT, DISALLOWED DEPRECIATION ON THE INTANGIBLE ASSETS CLAIMED AT RS.2,26,62,278/-. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER. 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE REFERRING TO THE OBSERVATIONS OF THE ASSESSING OFFICER POINTED OUT THAT VIDE PARA 5.5 IT HAS BEEN ALLEGED THAT THE ASSESSEE HAD ADOPTED W HATEVER VALUE WAS BALANCE TO THE COST OF INTANGIBLE ASSETS AND THIS WAS CORRECT. THE 6 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTH ER REFERRED TO THE VALUATION REPORT OF INTANGIBLE ASSETS PLACED AT PAGES 125 TO 147 OF THE PAPER BOOK AND POINTED OUT THAT THE INTANGIBLE ASSE TS WERE SEPARATELY DEFINED AND IDENTIFIED IN THE AGREEMENT. CONSEQ UENTLY, THE VALUER WAS OF THE VIEW THAT THE VALUATION OF THESE INDIVIDU AL INTANGIBLE ASSETS IN ISOLATION MAY NOT BE APPROPRIATE. THE LEARNED A UTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE A LLEGATION OF ASSESSING OFFICER WAS THAT THE ASSETS WERE NOT COVERED UNDER SECTION 32(1)(II) OF THE ACT, BUT WERE IN THE NATURE OF GOODWILL OF THE BUSINESS. 8. THE FIRST ASPECT POINTED OUT BY THE LEARNED AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEE WAS THAT ALL THE INDIVIDUA L ITEMS OF INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE WERE ENTITLED TO THE DEPRECIATION AS THE VARIOUS TRIBUNALS HAD CONSIDERED EACH OF THE SAID ITEMS IN DIFFERENT DECISIONS AND HELD THE SAME TO BE ELIGIBLE FO R DEPRECIATION. IN RESPECT OF THE SECOND ALLEGATION OF THE A SSESSING OFFICER THAT THE INTANGIBLE ASSETS ACQUIRED BY THE ASSESSE E AT BEST COULD BE CALLED GOODWILL DEVELOPED BY M/S. BCSIL, AS PER THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS ALSO ENT ITLED TO THE CLAIM OF DEPRECIATION IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN CIT VS. SMIFS SECURITIES LIMITED (2012) 348 ITR 302 (SC). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFER RED TO ANOTHER OBSERVATION OF THE ASSESSING OFFICER AT PAGE 11 OF THE IMPU GNED ORDER THAT THE NATURE OF INTANGIBLE ASSETS HAD NOT BEEN SPECIFIE D BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE STATEMENT WAS INCORRECT SINCE THE NATURE OF INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE WAS CLEAR FROM THE AGREEMENT ITSELF. REFERENCE WAS MADE TO CLAUSE 1.1.2 OF TH E AGREEMENT AND THE BREAK-UP OF INTANGIBLE ASSETS DETAILED IN APPENDIX TO THE 7 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. AGREEMENT. ANOTHER ASPECT POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT, IT WAS NOT NE CESSARY TO SEGREGATE VARIOUS INTANGIBLE ASSETS FOR THE PURPOSE OF GR ANTING DEPRECIATION ON THE SAME, AS HELD BY THE MUMBAI BENCH OF THE TRIBUN AL IN DCIT VS. WORLDWIDE MEDIA (P.) LTD. (2014) 43 TAXMANN.COM 18 (MUM. TRIB). ANOTHER OBJECTION OF THE ASSESSING OFFICER WAS THAT, FROM THE PERUSAL OF THE BALANCE SHEET OF M/S. BCSIL, IT WAS AP PARENT THAT THE SELLER DID NOT POSSESS THE INTANGIBLE ASSETS. THE LEA RNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD, STATED T HAT THE INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE WERE SELF GENERATED AN D HENCE WERE NOT REFLECTED IN THE SELLERS BALANCE SHEET. IN ANY CASE, SINCE THE DEPRECIATION ON THE INTANGIBLE ASSETS HAD BEEN ALLOWED TO THE ASSESSEE UNDER SECTION 143(1) OF THE ACT IN ASSESSMENT YEAR 2006 -07, THE CLAIM OF DEPRECIATION COULD NOT BE DENIED IN THE HANDS OF THE A SSESSEE IN ASSESSMENT YEAR 2007-08. OUR ATTENTION WAS DRAWN TO THE VARIOUS CLAUSES OF THE AGREEMENT PLACED AT PAGES 91 TO 97 OF THE PAPER BOOK. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE PLACING RELIANCE ON THE ORDER OF ASSESSING OFFICER POINTED OUT THA T THE ITEMS MENTIONED IN THE AGREEMENT DID NOT APPEAR TO BE GOODWILL. IT WAS ALSO POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE RELIANCE BY THE ASSESSEE ON VARIOUS C ASE LAWS WAS MIS-PLACED. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR T HE REVENUE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE SUPR EME COURT IN P.K. BADIANI VS. CIT (1976) 105 ITR 642 (SC). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS VIS--VIS CLAIM OF THE ASSESSEE ON ACCOUNT OF DEPRECIATION ON INTANGIBLE ASSETS. THE ASSESSE E WAS 8 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. ENGAGED IN THE BUSINESS OF TRADING IN TWO WHEELER BRAKE SYSTEMS AND COMPONENTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO AN AGREEMENT TO ASSETS SALE AND TRANSFER DATED 01.02.2006 WITH M/S. BCSIL FOR ACQUIRING THE BUSINESS OF MANUFACTURE A ND SALE OF COMPLETE BRAKING SYSTEM FOR TWO WHEELER AND COMPONENTS THERETO (IN SHORT RBIC ASSETS) . THE AGREEMENT DATED 01.02.2006 IS PLACED AT PAGES 91 TO 97 OF THE PAPER BOOK. THE PERUSAL OF THE AGREEMENT REFLEC TS THAT THE INTENTION OF THE PARTIES I.E. M/S. BCSIL DESIRED TO SELL AND TRANSFER AND THE PURCHASER I.E. THE ASSESSEE DESIRED TO PURCHASE AND ACQUIRE FROM THE SELLER THE RBIC ASSETS IN ACCORDANCE W ITH THE TERMS AND CONDITIONS OF THE AGREEMENT DATED 01.02.2006. UNDER THE DEFINITION CLAUSE, RBIC ASSETS WERE DEFINED AS PER CLAUSE 1.1 .3 TO MEAN THE TANGIBLE ASSETS AND ALSO THE INTANGIBLE ASSETS. AS PE R CLAUSE 1.1.2, THE INTANGIBLE ASSETS INCLUDED THE RIGHT TO MANUFACTURE, B EING AN INTANGIBLE ASSETS OWNED BY RBIC, PERTAINING EXCLUSIVELY TO RBIC BUSINESS, AS EXISTING ON CLOSING DATE AND DESCRIBED IN APPE NDIX-2. THE TANGIBLE ASSETS AS PER CLAUSE 1.1.5 WERE CATEGORIZED AND DESCRIBED IN APPENDIX-1 ATTACHED TO THE AGREEMENT. THE ARTICLE 2 TO THE AGREEMENT PROVIDED THAT THE SELLER AGREED TO SELL, TO ASSIGN, TRANSFER , CONVEY AND DELIVER TO THE PURCHASER THE RBIC ASSETS, WHICH THE PUR CHASER AGREED TO PURCHASE. FURTHER, AS PER CLAUSE 3, IT WAS PROVIDED T HAT IN RELATION TO THE SALES AGREEMENT WITH CUSTOMERS OF RBIC BUSINESS CURRENTLY IN FORCE AND EFFECT, THE SELLER AND/ OR THE PURCHASER WOULD H AVE RIGHT TO THE RESPECTIVE CONTRACTING PARTIES OF THE CONTRACT OFFERIN G THEM TO ENTER INTO A NEW CONTRACT WITH THE PURCHASER. IN THE EVENT THAT, ANY CONTRACTING PARTY REFUSES TO ACCEPT THE OFFER, THEN THE PURCHASER UNTIL THE NEXT REGULAR TERMINATION DATE, HAD TO FULFILL THE RESPECT IVE CONTRACT FOR ITS OWN ACCOUNT IN THE NAME OF SELLER. AS PER ARTICLE 7 , THE 9 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. AGGREGATE PRICE FOR THE RBIC ASSETS WERE FIXED AT RS.28 ,70,00,000/-, WHICH WAS BIFURCATED BETWEEN TANGIBLE ASSETS INVENTORY AN D THE INTANGIBLE ASSETS. THE SAID PRICE AGREED TO BY THE PART IES WAS EXCLUSIVE OF ANY REGISTRATION, DUTIES, VAT, SALES TAX OR SIMILAR TAXES, IF ANY. THE APPENDIX -1 ENLISTS THE LIST OF THE TANGIBLE ASSETS I.E. FIXE D ASSETS AND ALSO THE LIST OF INVENTORY ON WHICH THERE IS NO DISPUTE AND THE ASSESSEE HAS BEEN ALLOWED DEPRECIATION. 11. THE APPENDIX 2 TO THE AGREEMENT ENLISTS THE INTA NGIBLE RBIC ASSETS, WHICH READ AS UNDER:- APPENDIX 2 : INTANGIBLE RBIC ASSETS INTANGIBLE RBIC ASSETS MEANS THE ENTIRE BUSINESS, IN DUSTRIAL AND TECHNICAL KNOW-HOW, WHICH RBIC HAS DIRECTLY BUILT UP IN ORDER TO DEVELOP THE INDIAN TWO WHEELER BRAKING SYSTEMS (EXCLUDI NG ABS/TCS/ESP) MARKET (SINCE RBIC ENTERED IN THE LICEN CE AND TECHNOLOGY AGREEMENT WITH BREMBO IN 1999). SUCH BUSIN ESS, INDUSTRIAL AND TECHNICAL KNOW-HOW, WHICH REPRESENTS TH E CAPABILITY AND RIGHT TO MANUFACTURE IS INCLUSIVE OF THE FOLLOWING: A) CUSTOMER BASE: THE CUSTOMER BASE DEVELOPED BY RBIC FOR TWO WHEELER BRAKES BUSINESS IN THE INDIAN MARKET ALONG WITH TRANSFER OF ORDERS IN HAND AND LONG TERM CONTRACTS WITH CUSTOMERS. B) MATERIAL SUPPLIERS: SUPPLIER BASE SPECIFICALLY DEVELOPED FOR THE TWO WHEELER BRAKE COMPONENTS. C) PROCESS KNOW-HOW: LOW COST MANUFACTURING PROCESS KNOW-HOW DEVELOPED BY RBIC WITH RESPECT TO THE LOCAL INDIAN TWO WHEELER BRAKING SYSTEM. D) TECHNICAL MANPOWER: SPECIFIC TECHNICAL KNOWLEDGE AND EXPERIENCE OF RBIC EMPLOYEES RE- EMPLOYED BY THE JVCO. IN TWO WHEELER BRAKE MANUFACTURING THROUGH SPECIALIZATION / SPECIFIC TRAINING WITH RESPECT TO THE INDIAN TWO WHEELER BRAKING SYSTEMS. E) TECHNOLOGY: DRAWINGS AND DESIGNS WITH RESPECT 10 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. TO THE LOCAL ADAPTATION FOR THE PRODUCTS CURRENTLY MANUFACTURED FOR INDIAN APPLICATION F) PATENTS: INTERNALLY DEVELOPED TECHNOLOGY FOR MANUFACTURING OF TWO WHEELER BRAKES RETROFITS. THE REGISTRATION OF PATENT FOR THE SAME BEING IN PROCESS. 12. THE PARTIES TO THE AGREEMENT HAD ALSO GOT THE VALUA TION REPORT PREPARED FOR THE TANGIBLE ASSETS AND ALSO FOR THE INTANGIB LE ASSETS. THE COPY OF THE VALUATION REPORT OF TANGIBLE ASSETS IS PLACED A T PAGES 98 TO 124 OF THE PAPER BOOK AND THE COPY OF THE VALUATION RE PORT OF INTANGIBLE ASSETS IS PLACED AT PAGES 125 TO 147 OF THE PAPER BOOK . THE PERUSAL OF THE SAID VALUATION REPORT REFLECTS THE VALUER TO HAVE CON DUCTED THE EXERCISE OF IDENTIFICATION OF INTANGIBLE ASSETS. AS PER ITEM V, CLAUSE 21, VALUER COMMENTED THAT ANY INTANGIBLE ASSET COULD HAVE TH REE STAGES I.E. (I) THE ASSET WHICH MAY OR MAY NOT HAVE ANY FUTURE ECONO MIC BENEFITS SUCH AS INVENTIONS, PATENTS; OR (II) ASSET WHICH CAN HAVE FUT URE ECONOMIC BENEFITS SUBJECT TO HAPPENING OF CERTAIN EVENTS (UN- PREDICTABLE) AND (III) ASSETS WHICH HAVE SHOWN PAST AND PRES ENT ECONOMIC BENEFIT WHICH MAY OR MAY NOT HAVE MEASURED BUT HAS AN ASSURED FUTURE ECONOMIC BENEFIT. IT WAS REPORTED BY THE VALUER THAT THE CASE OF THE ASSESSEE FELL WITHIN THE LAST STAGE OF IDENTIFICATIO N. THEN THE VALUER HAS IDENTIFIED THE VARIOUS PARAMETERS AND FACTS BAS ED ON WHICH, THE IDENTIFICATION OF INTANGIBLE ASSETS HAD BEEN MADE UNDER DIFFERENT HEADS. THE LIST OF SUCH SUB HEADS WERE TECHNOLOGY AND PROCESS KNOW- HOW, MATERIAL SUPPLIERS (VENDORS), CUSTOMER BASE, PATENTS A ND TECHNICAL MAN POWER. 13. AS PER CLAUSE 29, THE INTANGIBLE ASSETS THOUGH HAD B EEN SEPARATELY DEFINED AND IDENTIFIED BUT AS PER THE VALUER, TH E VALUATION OF 11 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. THESE INDIVIDUAL INTANGIBLE ASSETS IN ISOLATION COULD NOT HAVE BEEN APPROPRIATED SINCE THE SAME WERE OFFERED AS GROUP AND H ENCE HAVE SUPPLEMENTARY / COMPLEMENTARY EFFECT ON EACH OTHER IN TH EIR SUBSEQUENT USAGE AND CORRESPONDING ECONOMIC BENEFITS OFFE RED BY THEM OVER THE PERIOD. 14. IN THE SAID BACKGROUND, THE ASSESSEE CLAIMED DEPRECIA TION ON INTANGIBLE ASSETS. THE FIRST YEAR OF CLAIM OF DEPRECIATION ON THE INTANGIBLE ASSETS WAS ASSESSMENT YEAR 2006-07, WHEREIN T HE VALUE OF THE INTANGIBLE ASSETS WAS DECLARED AT RS.10,35,98,986/-. T HE ASSESSEE CLAIMED DEPRECIATION @ 12.5% AMOUNTING TO RS.1,29,49,873/- AN D THE OPENING WDV OF THE INTANGIBLE ASSETS AS ON 01.04.2006 WAS RS.9,06,49,113/-. THE ASSESSEE CLAIMED DEPRECIATION OF RS.2,26,62,278/- @ 25% ON THE OPENING WDV OF THE ASSETS. THE ISSUE ARISING BEFORE US IS IN RELATION TO THE SAID CLAIM OF THE AS SESSEE I.E. THE DEPRECIATION ON INTANGIBLE ASSETS. 15. DEPRECIATION UNDER SECTION 32 OF THE ACT IS ALLOWABLE IN RESPECT OF ASSETS WHICH ARE OWNED WHOLLY OR PARTLY BY THE ASSESS EE AND ARE USED FOR THE PURPOSES OF BUSINESS OR PROFESSION. THE FINANCE (NO.2) ACT, 1998 W.E.F. 01.04.1999 HAD RECOGNIZED THE DEPRECIATION ON IN TANGIBLE ASSETS IN ADDITION TO THE DEPRECIATION BEING ALLOWED ON TA NGIBLE ASSETS. THE TANGIBLE ASSETS CONSTITUTE OF BUILDING, MACHINERY, PLANT O R FURNITURE. THE INTANGIBLE ASSETS COMPRISED OF KNOW-HOW, PA TENTS, COPY RIGHTS, TRADE MARKS, LICENSES, FRANCHISE OR ANY OTHE R BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE BASIS FOR ALLOWAN CE OF DEPRECIATION ON BOTH TANGIBLE AND INTANGIBLE ASSETS IS THE OWNERSHIP OF SUCH ASSETS BY THE ASSESSEE AND ITS USAGE FOR THE PUR POSE OF BUSINESS OR PROFESSION. AS POINTED BY US IN THE PARAS HEREINABOVE , THE 12 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. DEPRECIATION ON TANGIBLE ASSETS HAS BEEN ALLOWED BY THE A SSESSING OFFICER IN THE HANDS OF THE ASSESSEE. HOWEVER, THE DEPREC IATION ON INTANGIBLE ASSETS HAS NOT BEEN ALLOWED TO THE ASSESSEE. IN ORDER TO ADJUDICATE THE ISSUE, WE NEED TO LOOK AT THE NATURE OF A SSETS CLAIMED TO BE INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE. FOR THIS, WE MAKE A REFERENCE TO THE APPENDIX 2, WHICH IS ATTACHED TO THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES DATED 01.02.2006 AND A LSO THE ORDER OF ASSESSING OFFICER WHICH HAS REFERRED TO THE SUBMISSIONS OF T HE ASSESSEE ON EACH OF THE ITEMS. 16. THE FIRST ITEM TO BE CONSIDERED IS THE CUSTOMER BASE. THE PERUSAL OF APPENDIX -2, WOULD REFLECT THAT IT WAS NOT ONLY THE CUSTOMER BASE DEVELOPED BY THE SELLER FOR TWO WHEELER BRAKE SYSTE M, WHICH WAS PASSED UPON THE ASSESSEE, BUT THE SAME WAS ALONG WITH TRANSFER OF ORDERS IN HAND AND LONG TERM CONTRACTS WITH THE CUSTOM ERS. THE CASE OF THE ASSESSING OFFICER WAS THAT NO SEPARATE COSTS HAD BEEN ALLOCATED BY THE ASSESSEE TO THESE ASSETS AND FURTHER, THE SAME DO NOT FIGURE IN THE SPECIFIED ASSETS IN SECTION 32(1)(II) OF THE ACT. ANOTHER OBJECTION RAISED BY THE ASSESSING OFFICER WAS THAT THE ASSET NAMED AS CUSTOMER BASE DOES NOT DIMINISH IN ITS VALUE DUE TO WEAR AND TEAR BECAUSE OF ITS USE AND EFFLUX OF TIME. AT BEST, THE SAME COULD BE CALLED AS GOODWILL DEVELOPED BY THE PRINCIPAL, WHICH WAS ACQUIRED BY THE ASS ESSEE THROUGH THE SAID AGREEMENT, WAS THE OBSERVATION OF ASSE SSING OFFICER. ON THE OTHER HAND, PLEA OF THE LEARNED AUTHORIZED REPRES ENTATIVE FOR THE ASSESSEE WAS THAT THE CUSTOMER BASE IS ENTITLED TO THE DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT AND FURTHER, EVEN IT IS CO NSIDERED AS GOODWILL, THEN ALSO, IN VIEW OF THE RATIO LAID DOWN BY THE HO NBLE SUPREME COURT IN CIT VS. SMIFS SECURITIES LIMITED (SUPRA), THE ASSESSEE IS ENTITLED TO THE DEPRECIATION ON THE SAID GOODWILL. 13 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. 17. ON THE PERUSAL OF THE RECORD AND THE AGREEMENT EN TERED INTO BETWEEN THE PARTIES, IT IS APPARENT THAT THE ASSESSEE HAD ACQUIRED THE ENTIRE BUSINESS ALONG WITH TECHNICAL KNOW-HOW OF TWO WHEELE R BRAKING SYSTEM FROM M/S. BCSIL. ON SUCH ACQUISITION, THE ASSESSEE HAD ACQUIRED THE CUSTOMER BASE DEVELOPED BY M/S. BCSIL ALON G WITH WHICH ORDERS IN HAND AND LONG TERM CONTRACTS WITH THE CUSTOM ERS, WERE TRANSFERRED TO THE ASSESSEE. SUCH ACQUISITION BY THE AS SESSEE WAS FOR THE PURPOSE OF RUNNING ITS BUSINESS AND AS THE CHARACTE RISTIC OF BEING AN INTANGIBLE ASSET WAS FULFILLED AS SUCH, THE ASSESSEE WAS E NTITLED TO THE CLAIM OF DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. RE LIANCE IN THIS REGARD IS PLACED UPON THE FOLLOWING DECISIONS, WHEREIN T HE CUSTOMER BASE WAS HELD TO BE AN INTANGIBLE ASSET ON WHIC H ASSESSEE IS ENTITLED TO THE CLAIM OF DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT:- 1. INDIA CAPITAL MARKETS (P.) LTD. VS. DCIT (2013) 29 TAXMANN.COM 304 (MUMBAI TRIB.) 2. SKS MICRO FINANCE LTD. VS. DCIT (2013) 145 ITD 111 (HYD. TRIB.) 3. COSMOS CO-OP BANK LTD. VS. DCIT (2014) 45 TAXMANN.COM 13 (PUNE TRIB.) 18. IN ANY CASE, WE ALSO FIND MERIT IN THE SECOND PLEA OF TH E ASSESSEE THAT IF THE CUSTOMER BASE IS THE GOODWILL OF THE BUSINESS, T HEN FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. SMIFS SECURITIES LIMITED (SUPRA), THE ASSESSEE IS ENTITLED TO THE C LAIM OF DEPRECIATION ON SUCH GOODWILL. 19. THE NEXT ITEM REFERRED IN APPENDIX-2 WAS THE MATERIA L SUPPLIERS I.E. THE LIST OF SUPPLIERS WHICH HAD BEEN DEVELOPED FOR SUPPLY OF TWO WHEELER BRAKING COMPONENTS. THE SAID ACQUISITION BY THE ASSESSEE IS AKIN TO THE ACQUISITION OF CUSTOMER BASE AND FOLLOWING THE SAME PARITY 14 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. OF REASONING, WE HOLD THE ASSESSEE IS ENTITLED TO CLAIM DEPR ECIATION UNDER SECTION 32(1)(II) OF THE ACT ON THE SAME. THE ASSESSIN G OFFICER HAD TREATED THE SAME TO BE IN THE NATURE OF GOODWILL DEV ELOPED BY THE M/S. BCSIL WHICH HAS BEEN ACQUIRED BY THE ASSESSEE AND FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. S MIFS SECURITIES LIMITED (SUPRA), THE ASSESSEE IS ENTITLED TO THE C LAIM OF DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. 20. THE NEXT ITEM ACQUIRED BY THE ASSESSEE WAS THE PR OCESS KNOW- HOW WHICH IS RELATED TO PLANS, DESIGNS AND DRAWINGS. THE A SSESSING OFFICER WAS OF THE VIEW THAT WHERE THE KNOW-HOW IS RELATED TO PLANS, DESIGNS AND DRAWINGS OF THE BUILDINGS OR PLANT & MACHINERY, THEN THE SAME IS TO BE CAPITALIZED UNDER THE RELEVANT ASSET HEAD AND DEPRECIATION IS TO BE ALLOWED ON THE TOTAL COST OF ASSET INCLUDING THE COST OF KNOW-HOW CAPITALIZED. THE ASSESSING OFFICER FURTHER HELD THAT WHERE THE CONSIDERATION WAS FOR THE SUPPLY OF KNOW-HOW BEING R ECURRING, UNDER WHICH PAYMENTS AS ROYALTY, TECHNICAL ASSISTANCE FEE, ETC. WERE MADE, THEN SUCH PAYMENTS OUGHT TO BE CHARGED TO PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER DENIED THE DEPRECIATION UND ER SECTION 32(1)(II) OF THE ACT. 21. THE ISSUE OF ALLOWABILITY OF DEPRECIATION ON THE NATURE O F INTANGIBLE ASSETS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT AROSE BEFORE THE HONBLE DELHI HIGH COURT IN AREVA T & D INDIA LTD. VS. DCIT (2012) 345 ITR 421 (DEL). THE HONBLE DELHI HIGH C OURT CONSIDERED THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS AS INCLUDED IN THE DEFINITION OF INTANGIBLE ASSETS UNDER SECTION 32(1)(II) OF THE ACT AND OBSERVED AS UNDER:- .ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIBLE ASSETS REFERRED IN SECTION 32(1) (II) PRE CEDING THE TERM 15 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT I S SEEN THAT THE AFORESAID INTANGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AFTE R THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BUSINESS OR COMMERCIAL R IGHTS OF SIMILAR NATURE' HAVE BEEN ADDITIONALLY USED, CLEARLY DEM ONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR D EPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMSTANCES, THE NAT URE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTED TO ONLY SIX CATEGORIES OF ASSETS, VIZ., KNOW-HOW, PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES OR FRANCHISES. THE NATURE OF BUS INESS OR COMMERCIAL RIGHTS' CAN BE OF THE SAME GENUS IN WHICH ALL THE AFORESAID SIX ASSETS FALL. ALL THE ABOVE FALL IN THE GENU S OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRADE OF AN ASSESSEE FACILITATING SMOOTH CARRYING ON OF THE BUSINESS. IN TH E CIRCUMSTANCES, IT IS OBSERVED THAT IN CASE OF THE ASS ESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS; BUSINESS INFORMATION; BUSINESS RECORDS; CONTRACTS; EMPLOYEES AND KNOW-HOW, W ERE ALL ASSETS, WHICH WERE INVALUABLE AND RESULT IN CARRYING O N THE TRANSMISSION AND DISTRIBUTION BUSINESS BY THE ASSESS EE, WHICH WAS HITHERTO BEING CARRIED OUT BY THE TRANSFEROR, WITH OUT ANY INTERRUPTION. THE AFORESAID INTANGIBLE ASSETS WERE, TH EREFORE, COMPARABLE TO A LICENSE TO CARRY OUT THE EXISTING TR ANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR; IN THE ABS ENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASSESSEE WOULD HAVE HAD TO COMMENCE BUSINESS FROM SCRATCH AND GO THROUGH THE G ESTATION PERIOD WHEREAS BY ACQUIRING THE AFORESAID BUSINESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT AN UP AND RUNNING BUSINESS. (UNDERLINE PROVIDED BY US) 22. THE HONBLE DELHI HIGH COURT THUS HELD THAT WHERE, ON THE ACQUISITION OF BUSINESS, THE ASSESSEE ACQUIRES CERTAIN INFORM ATION WHICH IS INVALUABLE AND WOULD RESULT IN CARRYING OUT THE BU SINESS IN CONTINUITY, WHICH WAS EARLIER BEING CARRIED ON BY THE TRAN SFEROR, THEN THE SAID INTANGIBLE ASSETS WERE COMPARABLE TO THE LICENSES TO CARRY OUT THE EXISTING BUSINESS OF THE TRANSFEROR, IN THE ABSENCE OF WHICH, THE ASSESSEE WOULD HAVE TO COMMENCE ITS BUSINESS FROM SCRAT CH AND GO THROUGH GESTATION PERIOD. 23. RELIANCE WAS PLACED UPON THE RATIO LAID DOWN BY HONB LE SUPREME COURT IN P.K. BADIANI VS. CIT (SUPRA), BY THE LEARNE D DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IS MIS-PLACED AS THE ISSUE BEFORE THE HONBLE SUPREME COURT IN RELATION TO THE ALLOW ANCE OF INITIAL 16 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. DEPRECIATION ON DEVELOPMENT REBATE, WHICH WAS UNDER THE SAID OLD PROVISIONS OF THE ACT, WAS DISTINCT FROM THE NORMAL DEPREC IATION TO BE ALLOWED ON THE ASSETS. THE SAID PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT HAS NO RELEVANCE TO THE ISSUE RAISED BEFORE US. 24. COMING TO THE AGREEMENT ENTERED INTO BETWEEN THE A SSESSEE AND M/S. BCSIL, THE ASSESSEE HAD ACQUIRED THE ENTIRE BUSINES S ALONG WITH INDUSTRIAL AND TECHNICAL KNOW-HOW IN RELATION TO THE BUSIN ESS OF TWO WHEELER BRAKING SYSTEM BEING CARRIED OUT IN INDIA. WHERE THE ASSESSEE ACQUIRED THE CUSTOMER BASE, THE LIST OF MATERIAL SUPPLIERS, P ROCESS KNOW-HOW, THEN THE SAID ACQUISITIONS WERE THE LICENSES FOR ASSESSEE TO CARRY ON THE BUSINESS OF TWO WHEELER BRAKING SYSTEM IN I NDIA ON ITS ACQUISITION FROM M/S. BCSIL. IN LINE WITH THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN AREVA T & D INDIA LTD. VS. DCIT (SUPRA), THE SAID ASSETS ARE THE INTANGIBLE ASSETS ACQUIRED BY TH E ASSESSEE AND ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 32(1)(II) OF THE ACT. 25. SIMILARLY, THE ASSESSEE HAD ACQUIRED TECHNICAL MAN POWE R, WHEREIN THE ENTIRE TEAM OF ENGINEERS, SUPERVISORS AND SKILLE D OPERATORS WERE OFFERED TO THE ASSESSEE AND THE SAID OFFICERS / TECH NICIANS BROUGHT IN THEIR KNOWLEDGE AND EXPERIENCE FOR CARRYING ON THE BUS INESS BY THE ASSESSEE. THE DRAWINGS AND DESIGNS WITH RESPECT TO LOC AL ADAPTATION IN THE PRODUCTS MANUFACTURED FOR INDIAN APPLICATION I.E. TECHNO LOGY INVOLVED IN OPERATING THE BUSINESS WAS ALSO HANDED OVER TO THE ASSE SSEE AND SUCH ACQUISITION IS CLEARLY FOR STRENGTHENING THE CARR YING ON THE BUSINESS BY THE ASSESSEE AND IS COMPARABLE TO A LICENSE TO CARRY ON THE BUSINESS AND THUS, IS AN INTANGIBLE ASSET ACQUIRED BY THE ASSESSEE. 26. THE PATENTS WHICH WERE INTERNALLY DEVELOPED TECHNOLOG Y FOR MANUFACTURING OF TWO WHEELER BRAKES RETROFITS WERE ALSO T HE ACQUISITION 17 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. OF LICENSE TO CARRY ON THE BUSINESS, EVEN WHEN THE REGIST RATION FOR THE PATENTS WAS IN PROCESS. IN ANY CASE, THE PATENTS ARE DIRECTLY COVERED WITHIN THE PURVIEW OF THE TERM INTANGIBLE ASSET AS DEFINED IN EXPLANATION 3 BELOW SECTION 32(1)(II) OF THE ACT. 27. WE FIND NO MERIT IN THE PLEA OF THE ASSESSING OFFICER THA T THE SAID ASSETS WERE NOT DEPRECIABLE ASSETS AS THE SAME WERE NOT SUBJ ECT TO WEAR AND TEAR DUE TO DIMINISH IN VALUE WITH USE AND EFFLUX OF TIME . IN THE CASE OF INTANGIBLE ASSET BEING COMMERCIAL/BUSINESS RIGHTS DIM INUTION IN VALUE OR PHYSICAL WEAR AND TEAR IS NOT AN ESSENTIAL CON DITION FOR ADMISSIBILITY FOR DEPRECIATION UNDER SECTION 32, IF THE ASSETS USED AS A BUSINESS TOOL FOR EARNING THE INCOME, WAS THE PROPOSITION LAID DOWN BY MUMBAI BENCH OF THE TRIBUNAL IN DCIT VS. WEIZMANN FOREX LT D. (2012) 51 SOT 525 (MUM). FOLLOWING THE SAME, WE FIND NO MERIT IN TH E PLEA OF ASSESSING OFFICER IN DENYING THE CLAIM OF DEPRECIATION UNDER S ECTION 32(1)(II) OF THE ACT. EVEN OTHERWISE, IF THE SAME ARE TREATED AS GOODWILL OF THE BUSINESS ACQUIRED BY THE ASSESSEE, THEN FOLLOWING TH E RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. SMIFS SECUR ITIES LIMITED (SUPRA), THE ALTERNATE PLEA OF THE ASSESSEE IS TO BE ALLOWED VIS--VIS THE CLAIM OF DEPRECIATION ON GOODWILL. FURTHER, THERE IS NO MERIT IN THE OBSERVATIONS OF ASSESSING OFFICER THAT THE SELLER DID NOT PO SSESS ANY INTANGIBLE ASSETS AS THE SAME WERE NOT REFLECTED IN ITS BA LANCE SHEET. THE ASSETS ACQUIRED BY ASSESSEE WERE SELF GENERATED ASSETS OF SELLER AND HENCE NO VALUE REFLECTED IN ITS BALANCE SHEET. WE FIND NO M ERIT IN THE OBSERVATIONS OF ASSESSING OFFICER IN THIS REGARD AND THE SA ME IS DISMISSED. THE NEXT OBSERVATION OF ASSESSING OFFICER THAT N O SEPARATE COSTS HAD BEEN ATTRIBUTED TO INDIVIDUAL ASSETS ACQUIRED BY ASSESSEE HAVE NO RELEVANCE AND THE SAME IS DISMISSED. ACCORDINGLY , WE DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE WDV OF IN TANGIBLE 18 ITA NO.1488/PN/2011 BREMBO BRAKE INDIA PVT. LTD. ASSETS ACQUIRED IN THE PRECEDING YEAR AND BROUGHT FORWA RD IN THE YEAR UNDER CONSIDERATION. THUS, THE ASSESSING OFFICER IS DIRECTE D TO ALLOW DEPRECIATION ON INTANGIBLE ASSETS AT RS.2,26,62,278/-. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 25 TH DAY OF FEBRUARY 2015. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 25 TH FEBRUARY, 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO: - 1. THE ASSESSEE; 2. THE DEPARTMENT; 3. THE DRP, PUNE; 4. THE CONCERNED CIT(A), PUNE; 5. THE DR A BENCH, I.T.A.T., PUNE; 6. GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE