Pitney Bowes India (P) Ltd., New Delhi V. DCIT, New Delhi

ITA 289/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2912 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 16-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Assessee Lawyers: ANSHUL KUMAR
• Keywords: Reopening of assessment; Capital asset; Depreciation; Retrospective amendment; Question of law; Tangible material; Difference of opinion; Corroborative evidences; Valuation report; Validity of assessment; Competent authority; Scheme of amalgamation; Assessment record; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 142(1); 32; 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F , NEW DELHI BEFORE SH. I.C. SUDHIR , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO S . 289 TO 293 /DEL/ 2013 ASSESSMENT YEAR S : 2005 - 06 TO 2009 - 10 M/S. PITNEY BOWES INDIA (P) LTD., 2 ND FLOOR, 45, OKHLA INDUSTRIAL ESTATE, PHASE - III, NEW DELHI VS. DCIT, CIRCLE - 14(1) / ADDL.CIT, RANGE - 14 / INCOME TAX OFFICER, WARD - 14(3), NEW DELHI PAN : AADCP3417C (APPELLANT) (RESPONDENT) APPELLANT BY S /S H. G.C. SRIVASTAVA, ADV.; MANONEET DALAL, ADV.; ANUBHAV JAIN AND ANSHUL KUMAR, CA RESPONDENT BY SH. F.R. MEENA, SR.DR DATE OF HEARING 30.03.2017 DATE OF PRONOUNCEMENT 29.05.2017 ORDER PER O.P. KANT , A. M. : THESE FIVE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX ( APPEALS) - XVII, NEW DELHI [I N SHORT THE CIT - (A) ] FOR ASSESSMENT YEAR 2005 - 06, 2006 - 07, 2007 - 08, 2008 - 09 AND 2009 - 10 RESPECTIVELY. IN ALL THESE APPEALS COMMO N ISSUES ARE INVOLVED AND THUS SAME WERE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR CONVENIENCE . 2 ITA NO . 289 TO 293/DEL/2013 ITA NO. 289/DEL/2013 FOR AY: 2005 - 06 2. FIRST WE TAKE UP THE APPEAL IN ITA NO. 289/DEL/2013 FOR ASSESSMENT YEAR 2005 - 06. GROUNDS RAISED IN THE APPEAL ARE REPRODUCED AS UNDER: 1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) { LD. CIT(A) } ERRED IN CONCLUDING THAT ASSESSMENT PROCEEDINGS UNDER SECTION 147/148 OF THE ACT WERE INITIATED CORRECTLY BY LEARNED ASSESSING OFFICER ( LD. AO') BEYOND THE PERIOD OF 4 YEARS AND FROM THE END OF THE ASSESSMENT YEAR. 2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.56,54,840/ - ON THE INTANGIBLE ASSET OF GOVERNMENT AUTHORIZATIONS WHICH WAS ACQUIRED BY THE APPELLANT UNDER A BUSINESS TRANSFER AGREEMEN T WITH THE KILBURN OFFICER AUTOMATION LIMITED. 3) THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCES OF DEPRECIATION ON THE BUSINESS OR COMMERCIAL RIGHTS ACQUIRED IN THE FORM OF NON - COMPETE RIGHTS UNDER SECTION 32 OF THE ACT HAVING TREATED THE SAID NON - COMPETE FEE AS CAPITAL EXPENDITURE IN NATURE. 4) THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN NOT ALLOWING DEPRECIATION ON GOODWILL BEING AN INTANGIBLE ASSET ON WHICH DEPRECIATION IS MANDATORILY ALLOWABLE. THAT THE ABOVE GROUNDS OF APPEAL ARE WITH OUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. THE FACTS IN BRIEF OF THE CASE ARE : 3 ITA NO . 289 TO 293/DEL/2013 (I) THAT DURING RELEVAN T PERIOD , THE ASSESSEE COMPANY WAS SUBSIDIARY OF M/S PITNEY BOWES INTERNATIONAL H OLDING INS USA ( PBIH) , WHO MANUFACTURES FRANKING MACHINES AND TAX METRES. PRIOR TO FORMATION OF THE ASSESSEE COMPANY, THE MACHINES MANUFACTURED BY PBIH , WERE MARKETED IN INDIA BY M/S . KI LBURN O FFICE AUTOMATION L IMITED (KOAL). AFTER FORMATION , THE ASSESSEE COMPANY ENTERED INTO A BUSINESS TRANSFER AGREEMENT (BTA) WITH M/S . KOAL, WHICH WAS EXECUTED ON 15/10/2004 AND BY VIRTUE OF SAID BTA, THE ASSESSEE COMPANY TOOK OVER THE MAILING BUSINESS O F M/S KOAL ON SLUM SALE BASIS. THE BUSINESS TOOK OVER WAS MAINLY COMPRISES OF SELLING FRANKING MACHINES TO END - USERS . (II) THAT FOR THE YEAR UNDER CONSIDERATION, THE ORIGINAL RETURN OF INCOME WAS FILED ON 23/03/2006 DECLARING LOS S OF RS.2,59,84, 980/ - . THE ASSE SSME NT UNDER SECTION 143(3) OF THE I NCOME - TAX ACT, 1961 (IN SHORT THE ACT ) WAS COMPLETED ON 28/12/2007 AS SESSING THE TOTAL INCOME AT RS.3,34, 62,310/ - . IN THE ASSESSMENT COMPLETED, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE FOR ALLOWANCE OF NON - COMPETE FEE OF RS.5,94,84, 980/ - AS REVENUE EXPENDITURE. THIS DISALLOWANCE WAS CONTESTED BY THE ASSESSEE AND THE TRIBUNAL IN ITS ORDER DATED 12/11/20 10 IN ITA NO. 1428/DEL/2009 AND CO NO. 178/DEL/2009, REVERSING THE ORDER OF THE LD. CIT - A HELD THAT NON - COMPETE FEE PAID TO THE ASSESSEE WAS A CAPITAL EXPENDITURE AND NOT ALLOWABLE AS REVENUE EXPENDITURE, HOWEVER ON THE ISSUE OF ALLOWABILITY OF DEPRECIATION ON THE EXPENDITURE, THE MATTER WAS REMANDED BACK TO THE ASSESSING OFFICER. THE ORDER OF THE TRIBUNAL H AS BEEN CONFIRMED BY THE HON BLE DELHI HIGH COURT AND LATER BY THE HON BLE SUPREME COURT. 4 ITA NO . 289 TO 293/DEL/2013 (III) THAT SUBSEQUENT TO THE ASSESSMENT U/S 143(3) OF THE ACT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER IN THE ASSESSMENT PROCEED ING FOR ASSESSMENT YEAR 2007 - 08 , NOTED THAT UNDER THE BTA ONE OF THE ITEMS ACQUIRED BY THE ASSESSEE COMPANY WAS GOVERNMENT AUTHORIZATION /APPROVALS . THE ASSESSEE ASSIGNED THESE GOVER NMENT APPROVALS A VALUE OF RS. 4,51,66,708/ - AND CLAIMED DEPRECIATION OF RS.56,54,840/ - THEREON UND ER SECTION 32 OF THE ACT . ACCORDING TO THE ASSESSING OFFICER, DEPRECIATION UNDER SECTION 32 OF THE ACT WAS AVAILABLE ON THE SPECIFIED ASSETS AND GOVERNMENT APPROVALS/AUTHORIZATION DO NOT FORM PART OF THE SPECIFIED ASSET, THEREFORE, THE CLAIM OF THE DE PRECIATION BY THE ASSESSEE ON GOVERNMENT APPROVALS WAS NOT A S PER THE PROVISIONS OF THE LAW . THUS, ACCORDING TO THE ASSESSING OFFICER, EXCESSIVE DEPRECIATION AMOUNTING TO RS.56,54,840/ - WAS ALLOWED TO THE ASSESSEE AND INCOME TO THAT EXTENT WAS UNDER ASSESSED IN THE ASSESSMENT ORDER DATED 28/12/2007 . A CCORDINGLY, THE ASSESSING OFFICER RECORDED REASONS TO BELIEVE THAT INCOME ESCAPED ASSESSMENT AND REOPENED THE ASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT AFTER OBTAINING APPROVAL OF THE COMPETENT AUTHORITY AND ISSUED NOTICE UNDER SECTION 148 OF THE ACT ON 25/03/2011. A COPY OF REASONS RECORDED WAS ALSO PROVIDED TO THE ASSESSEE ALONGWITH NOTICE UNDER SECTION 148 OF THE ACT. IN RESPONSE , THE ASSESSEE COMPANY FILED RETURN OF INCOME ON 03/05/201 1 DECLARING TOTAL INCOME OF RS.2,15,72, 860/ - . THE ASSESSING OFFICER ISSUED STATUTORY NOTICES UNDER SECTION 143(2) AND 142(1) OF THE ACT WHICH WERE DULY COMPLIED. THE ASSESSEE OBJECTED INITIATION OF REASSESSMENT PROCEEDINGS AFTER THE EXPIRY OF FOUR YEARS FROM 5 ITA NO . 289 TO 293/DEL/2013 THE END OF RELEVANT ASSESSMENT YEAR AND CONTENDED THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS FULLY AND TRULY NECESSARY FOR THE ASSESSMENT. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND AFTER DISPOSING THE OBJECTIONS OF THE ASSESSEE, DISALLOWED THE CLAIM OF DEPRECIATION ON THE GOVERNMENT APPROVALS AMOUNTING TO RS. 56, 54, 840/ - IN THE REASSESSMENT COMPLETED . REGARDING T HE DIRECTION OF THE TRIBUNAL FOR EXAMINING THE DEPRECIATION ON NON - COMPETE FEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT NON - COMPETE FEE WAS NOT IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE MENTIONED IN SECTION 32(1)(II) OF THE ACT AN D ACCORDINGLY, HE DENIED THE DEPRECIATION ON THE NON - COMPETE FEE. THE REASSESSMENT WAS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147 AND 254 OF THE ACT ON 09/12/2011 ,ASSESSING THE TOTAL INCOME AT RS.3,91,17,150/ - AGA INST THE RETURNED INCOME OF RS. 2 ,15,72,860/ - (IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT). (IV) THAT O N APPEAL, THE LD. CIT - ( A ) , UPHELD THE VALIDITY OF REASSESSMENT PROCEEDINGS AS WELL AS SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. BEFORE LD. CIT - ( A ) , THE ASSESSEE MADE A CLAIM FOR ALLOWING DEPRECIATION ON GOODWILL FOR THE FIRST TIME IN THE FORM OF ADDITIONAL GROUND RAISED BEFORE THE LD. CIT - ( A ) , WHICH WAS ALSO REJECTED BY HIM. 3.1 AGGRIEVED , THE ASSESSEE IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 6 ITA NO . 289 TO 293/DEL/2013 4 . IN THE GROUND NO. 1, THE ASSESSEE HAS CHALLENGED REASSESSMENT PROCEEDING INITIATED UNDER SECTION 147/148 OF THE ACT, BEYOND A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. 4 .1 THE FACTS IN RESPECT OF ISSUE IN DISPUTE ARE THAT, ACCORDING TO THE ASSESSEE, IN RESPECT OF DEPRECIATION ON THE GOVERNMENT AUTHORIZATION /APPROVALS , IT HAS MADE COMPLETE DISCLOSURE DURING ASSESSMENT I N THE AUDITED ANNUAL FIN ANCIAL S TATEMENTS (BALANCE SHEETS AND PROFIT AND LOSS ACCOUNT) AND TAX AUDIT REPORTS, FILED ALONGWITH THE RETURN OF INCOME AS UNDER : (I) IN THE FIXED ASSET SCHEDULE - II OF AUDITED FINANCIALS, UNDER THE CATEGORY OF INTANGIBLE ASSETS, GOVERNMENT AUTHORIZATIO N ADDITION OF RS. 4,51,66,708/ - HAS BEEN SHOWN. (II) IN POINT NO. 4 SIGNIFICANT ACCOUNTING POLICIES AND POINT NO. 2 TO NOTES OF ACCOUNT REPORTED IN AUDITED ANNUAL FINANCIAL STATEMENTS , WHICH TALKS ABOUT GOVERNMENT AUTHORIZATION AND ITS TREATMENT IN BOOKS OF ACCOUNTS. (III) IN TAX AUDIT REPORT ALONGWITH DEPRECIATION SCHEDULE , THE DEPRECIATION CLAIMED OF RS. 56,45,639/ - @ 25% ON GOVERNMENT AUTHORIZATIONS OF RS. 4,41,66,706/ - WAS SHOWN . 4 .2 ACCORDING TO THE ASSESSING OFFICER ABOVE DIS CLOSURE WAS NOT SUFFICIENT TO MEET THE REQUIREMENT OF LAW ( I.E. PROV ISO TO SECTION 147 OF THE ACT) THAT THE ASSESSEE SHOULD HA VE DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT, DUE TO FOLLOWING REASONS: (I) THE ASSESSEE DID NOT DIS CLOSE THE CLAIM OF DEPRECIATION ON GOVERNMENT APPROVALS IN THE RETURN OF INCOME OR IN THE ORIGINAL ASSESSMENT PROCEEDING EXCEPT MENTIONING THE CLAIM IN THE DEPRECIATION CHART FILED ALONGWITH THE ORIGINAL RETURN OF INCOME. 7 ITA NO . 289 TO 293/DEL/2013 (II) THE ASSESSEE NEITHER IN THE RETUR N OF INCOME NOR IN THE ASSESSMENT PROCEEDING DISCLOSED ANY FACT WITH REGARD TO INELIGIBILITY OF ASSETS ON WHICH DEPRECIATION WAS CLAIMED AND HAD BEEN ALLOWED. (III) IN ASSESSMENT PROCEEDINGS, BY STATING THAT NO ASSET VALUING ABOVE RS. 10 LAKH S WAS ACQUIRED BY THE ASSESSEE DURING THE YEAR , THE ASSESSEE MISREPRESENTED THE FACTS. 4 .3 ACCORDING TO THE ASSESSING OFFICER, THE REASSESSMENT WAS NOT DUE TO CHANGE OF OPINION BUT IT WAS DUE TO INFUSION OF CERTAIN NEW FACTS , WHICH WERE NOT AVAILABLE WHILE FRAMING THE OR IGINAL ASSESSMENT, FOR EXAMPLE ; (I) NO PAYMENT WAS MADE BY M/S KOA L TO GOVERNMENT FOR OBTAINING THOSE APPROVALS, (II) NO PAYMENTS WAS MADE BY THE ASSESSEE TO M/S KOAL SPECIFICALLY FOR THESE GOVERNMENT AUTHORIZATION /APPROVALS , (III) ASSIGNING VALUE TO THESE GOVERNMENT AUTHORIZATIONS /APPROVALS HYPOTHETICALLY BY THE VALUER AND THAT TOO AFTER A PERIOD OF MORE THAN ONE YEAR, (IV) THE TRANSFER OF THESE GOVERNMENT AUTHORIZATION /APPROVAL (V) A PPROVALS FROM M/S KOA L TO THE ASSESSEE WAS SUBJECT TO OBT AINING NO OBJECTION CERTIFICATE FROM THE GOVERNMENT ETC 4 .4 THE LD. CIT - A VERIFIED THE ASSESSMENT RECORD AND OBSERVED THAT INFORMATION WAS FURNISHED AS PART OF DEPRECIATION STATEMENT IN THE RETURN OF INCOME AS FOLLOWS: S. NO. DESCRIPTION OF ASSET/BLOCK OF ASSET ADDITIONS FOR LESS THAN 180 DAYS RATE % DEPRECIATION DURING THE YEAR FOR 180 DAYS WDV AS ON 31.03.2005 8 ITA NO . 289 TO 293/DEL/2013 1. INTANGIBLE ASSETS GOVT. AUTHORIZATION 45166708/ - 25% 5645839/ - 39520869 4 .4.1 T HE LEARNE D CIT - A FURTHER SAID THAT IN THE SIGNIFICANT ACCOUNT ING POLICIES AND NOTES TO ACCOUNT , THERE WAS A VAGUE MENTION OF GOVERNMENT AUTHORIZATION. HE REPRODUCED THE POINT NO. 4 OF SI GNIFICANT ACCOUNT POLICIES AND POINT NO. 2 OF NOTES TO ACCOUNT AS UNDER: POINT NO. 2 FIXED ASSETS AND DEPRECIATION .ASSETS ACQUIRED FROM KILBURN OFFICE AUTOMATION LIMITED, CONSEQUENT TO ACQUISITION OF MAILING BUSINESS ARE BEING DEPRECIATED OVER THE REMAINING USEFUL LIFE OF THE ASSET . POINT NO. 4 OTHER INTANGIBLE ASSETS AND RELATED AMORTIZATION OTHER INTANGIBLE ASSETS COMPRISING OF GOVERNMENT AUTHORIZATIONS AND NON COMPETE CLAUSE ARE CAPITALIZED AT FAIR VALUES ON THE DATE OF ACQUISITION. AMORTIZATION OF THESE INTANGIBLES IS PROVIDED ON A STRAIGHT LINE BASIS OVER THEIR RES PECTIVE USEFUL LIVES AS FOLLOWS: NON COMPLETE; OVER A PERIOD OF 5 YEARS GOVERNMENT AUTHORIZATIONS; OVER A PERIOD OF 385 DAYS. 4 .4.2 THE LD. CIT - ( A ) FURTHER OBSERVED THAT THE ASSESSING OFFICER ASKED FOR DOCUMENTARY EVIDENCE OF ACQUISITION OF ASSETS ABOU T RS. 10 LAKH WITH EVID ENCE OF PUTTING TO USE, HOWEVER, THE ASSESSEE COMPANY REPLIED THAT IT HAD NOT ACQU IRED ANY FIXED ASSETS ABOVE RS. 10 CRORE S , DURING THE RELEVANT FINANCIA L YEAR . IT WAS EVIDENT THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM OF DEPRECIATION ON 9 ITA NO . 289 TO 293/DEL/2013 GOVERNMENT AUTHORIZATION AND THUS THE ASSESSING OFFICER ALSO DID NOT EXAMINE THE SAID CLAIM OF DEPRECIATION. 4 .4.3 ACCORDING TO THE LD. CIT - ( A ), THE ASSESSEE HAD NOT FURNISHED ANY INFORMATION REGARDING FIXED ASSETS DURING THE ORIGINAL ASSESSMENT PROCEEDING INCLUDING INTANGIBLE ASSETS AND THUS THE CLAIM OF THE ASSESSES THAT IT HAD FURNISHED ALL THE REQUISITE INFORMATION AND SAME WERE EXAMINED BY THE ASSESSING OFFICER , WAS FALSE AND NOT BASED ON EVIDENCE S . IN VIEW OF THE LD. CIT(A) , S INCE THE ASSESSING OFFICER HAD NOT EXAMINED THE CLAIM O F DEPRECIATION AMOUNTING TO RS.56,54, 840/ - DURING THE ASSESSMENT PROCEEDING, THERE WAS NO QUESTION OF ANY CHANGE OF OPINION WHILE REOPENING ASSESSMENT UNDER SECTION 147 OF THE ACT. 4 .4.4 ACCORDING TO THE LD. CIT - ( A ) , THE ASSESSEE HAD NOT DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THEIR ASSESSMENT AND , THEREFORE , THE ASSES SING OFFICER WAS CORRECT IN REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT. 4 .4.5 ACCORDING TO THE LD. CIT - ( A ) , TH E EXCESS DEPRECIATION OF RS.56,45, 839/ - HAS BEEN CLAIMED AND ALLOWED TO THE ASSESSEE ON THE GOVERNMENT AUTHORIZATION, AND THUS INCOME HAD ESCAPED ASSESSMENT IN VIEW OF THE DEEMING PROVISIONS OF SUB CLAUSE (IV) OF CLAUSE (C) OF EXPLANATION - 2 TO SECTION 147 OF THE ACT, WHICH READS AS UNDER: EX PLANATION 2: - FOR THE PURPOSE OF THIS SECTION, THE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WH ERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY: - (C) WHERE AN ASSESSMENT HAS BEEN MADE, BUT - (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED. 10 ITA NO . 289 TO 293/DEL/2013 4 .4.6 I N VIEW OF ABOVE, THE LD. CIT - ( A ) HELD THAT ASSESSING OFFICER HAD REOPENED THE ASSESSMENT CORRECTLY AND ACCORDINGLY , HE UPHELD THE VALIDITY OF THE REASSESSMENT. 4 .5 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REFER RED TO COPY OF REASONS RECODED BY THE ASSESSIN G OFFICER, WHICH IS AVAILABLE ON PAGE 39 OF V OLUME - 2 OF THE PAPER BOOK, WHEREIN THE ASSESSING OFFICER HAS MENTIONED THAT DUE TO FAILURE OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACT OF NON - ADMISSIBILITY OF DEPRECIATION CLAIM, THE DEPRECIATION OF RS.56,54, 839/ - HAD WRONGLY BEEN ALLOWED TO THE ASSESSEE. THE LD. COUNSEL FURTHER DRAWN O UR ATTENTION TO PAGE - 10 OF THE VOLUME - 2 OF THE PAPER BOOK, WHICH IS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PERIOD CONTAINING DEPRECIATION AND AMORTIZATION AMOUNT OF RS. 1,95,20,013 / - IN S CHEDULE - II . HE DRAWN OUR ATTENTION TO THE SCHEDULED - II AVAILABLE ON PAGE 12 OF THE VOLUME 2 OF THE PAPER BOOK , CONTAINING DETAIL OF GOVERNMENT AUTHORIZATIONS AMOUNTING TO RS. 4,51,66,708/ - AND DEPRECIATION OF RS. 1,22,00,877/ - CLAIMED A S PER COMPANIES ACT. HE FURTHER REFERRED TO PAGE 14 OF THE VOLUME 2 OF THE PAPER BOOK, WHICH CONTAINED DETAIL S OF ACQUISITION OF MAILIN G BUSINESS FROM M/S KOA L AND SUMMARY OF IDENTIFIED ASSETS, LIABILITIES ACQUIRED AND GOODWILL ARISING ON THE SAME. THE IDE NTIFIED INTANGIBLE ASSETS CONTAINED NON - COMPETE AGREEMENTS OF RS. 5, 94,47,290/ - AND GOVERNMENT AUTHORIZATION OF RS. 4,51,66,708/ - . HE FURTHER REFERRED TO PAGE 23 OF VOLUME 2 OF THE PAPER B OOK, DEPRECIATION CHART AS PER INCOME T AX ACT, 196 1, WHICH FORMS PART OF THE TAX AUDIT R EPORT AND SUBMITTED THAT THIS CHART CONTAINED GOVERNMENT AUTHORIZATION AS INTANGIBLE ASSETS HAVING WRITTEN DOW N VALUE AS RS.4, 51,66,708/ - AND DEPRECIATION THEREON AT TH E RATE OF 25% , COMPUTED AS RS. 56,45,839/ - . 4 .5.1 THE LD. COUNSEL SUBMITTED THAT ALL THE INFORMATION IN RESPECT OF THE DEPRECIATION ON GOVERNMENT AUTHORIZATION WAS FULLY DISCLOSED IN THE 11 ITA NO . 289 TO 293/DEL/2013 RETURN OF INCOME FILED ALONG WITH FINANCIAL STATEMENTS AND TAX AUDIT REPORT (TAR) AND ALL THE CLAIMS OF THE ASSESSEE WERE ACCEPTED BY THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDING, OTHER THAN THAT OF NON - COMPETE FEE. 4 .5.2 HE FURTHER SUBMITTED THAT THE QUESTION OF ANY F AILURE OR OMISSION ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS WHICH WERE NECESSARY FOR ITS ASSESSMENT, DOES NOT AND CANNOT ARISE AS ALL PRIMARY AND MATERIAL FACTS WERE ALREADY MADE AVAILABLE TO THE ASSESSING OFFICER AND WER E CONSIDERED WHILE FINALIZING THE ASSESSMENT. 4 .5.3 THE LD. COUNSEL FURTHER SUBMITTED THAT WHILE PASSING THE ORIGINAL ASSESSMENT ORDER, THE AS SESSING OFFICER REFERRED TO THE BTA AND DISALLOWED THE NON - COMPETE FEES, SO IT CANNOT BE SAID THAT THE ASSESSE E HAS FAILED TO DISCLOSE THE MATERIAL EVIDENCE AS BOTH NON - COMPETE FEE AND GOVERNMENT AUTHORIZATION WERE REPORTED UNDER THE SAME BTA . REGARDING THE FINDING OF THE ASSESSING OFFICER THAT DETAILS RELATED TO FIXED ASSET WERE NOT FURNISHED IN THE ORIGINAL A SSESSMENT PROCEEDING, WHEN CALLED FOR, THE LD. COUNSEL SUBMITTED THAT THE ASSESSING OFFICER HAS SINGLED OUT ONE QUESTION FROM VARIOUS QUESTIONS ASKED FROM THE ASSESSEE, DURING THE ORIGINAL ASSESSMENT PROCEEDING AND TRIED TO CREATE A PICTURE, WHICH WAS NOT THE CORRECT ONE. 4 .5.4 ACCORDING TO THE LD. COUNSEL , THE ASSESSEE DID NOT HIDE OR MISREPRESENT ANY INFORMATION IN RELATION TO GOVERNMENT AUTHORIZATION AND IT HAD DISCLOSED EVERY RELEVANT INFORMATION IN ITS FINANCIAL STATEMENTS AS WELL AS IN THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. 4 .5.5 THE LD. COUNSEL SUBMITTED THAT THE REQUIREMENT OF LAW IS THAT THE ASSESSEE SHOULD HAVE FAILED OR OMITTED TO MAKE FULL DISCLOSURE OF MATERIAL FACTS AND IT IS NOT REQUIRED TO DISCLOSE, STATE OR EXPLAIN THE LAW. IN SUPPORT OF THE CONTENTION, THE LD. COUNSEL PLACED RELIANCE ON T HE CASE OF 12 ITA NO . 289 TO 293/DEL/2013 ATMARAM P ROPERTIES (PVT. ) LTD VS. DCIT (2011) 343 ITR 141 (DEL), WHEREIN IT IS HELD THAT IF THE ASSESSING OFFICER HAS FAILED TO APPLY LEGAL PROVISIONS/SECTION OF THE ACT, FAULT CANNOT BE ATTRIBUTED TO THE ASSESSEE. FURTHER THE LD. COUNSEL SUBMITTED THAT THE REASSESSMENT NOTICE WAS ISSUED ON THE BASIS OF THE SAME MATERIAL AS WAS PREVIOUSLY AVAILABLE WIT H THE ASSESSING OFFICER, AND MERELY CHANGE OF OPINION OR HAVING SECOND THOUGHT ON THE SAME MATERIAL CANNOT BE A GROUND TO COMMENCE PROCEEDING FOR REASSESSMENT UNDER SECTION 147 OF THE ACT. IN SUPPORT OF THE CONTENTION, THE LD. COUNSEL RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN T HE CASE OF CIT VS. KELVINATOR OF INDIA LTD (2010) 322 ITR 561 (SC). 4 .5.6 THE LD. COUNSEL SUBMITTED THAT IN THE REASONS RECORDED THE ASSESSING OFFICER HAS NOT SPECIFIED, WHICH DOCUMENT OR THE EVIDENCE THE ASSESSEE FAILED TO DISCLOSE BEFORE THE ASSESSING OFFICER IN ORIGINAL ASSESSMENT PROCEEDINGS , WHICH AMOUNTED TO NOT A FULL AND TRUE DISCLOSURE OF MATERIAL FACTS ON THE PART OF THE ASSESSEE FOR COMPLETION OF THE ASSESSMENT AND THUS THE REASSESSMENT PROCEEDINGS ARE INVALID IN ITSELF AND NEED TO BE QUASHED. 4 .6 LD. SENIOR DR, ON THE OTHER HAND , SUBMITTED THAT IF ANY INFORMATION HAS COME TO THE ASSESSING OFFICER AFTER THE ORIGINAL ASSESSMENT BY FRESH FACTS REVEALED LATER ON IN SUBSEQUENT ASSESSMENTS, THEN REASSESSMENT PROCEEDINGS DOES NOT AMOUNT TO CHANGE OF OPINION. IN SUPPORT OF THE CONTENTION , HE RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF KALYANJI MAVJI AND C OMPANY VS. COMMISSIONER OF INCOME T AX, (1976) 102 ITR 287. HE FURTHER RELIED ON THE ORDER OF THE ASSESSING OFFICER AND LD. CIT - ( A ) AND SUBMITTED THAT THE ASSESSEE HAS NOT FULLY DISCLOSED THE FACTS IN RESPECT OF DEPRECIATION ON GOVERNMENT AUTHORIZATIONS AND EVEN MISLED THE ASSESSING OFFICER BY REPRESENTING WRONG FACTS THAT NO ASSET MORE THAN RS. 10 LAKH S WERE ACQUIRED BY THE 13 ITA NO . 289 TO 293/DEL/2013 ASSESS EE DURING THE RELEVANT YEAR. HE SUBMITTED THAT IT IS SPECIFICALLY MENTIONED IN EXPLANATION - 1 UNDER SECTION 147 OF THE ACT THAT PRODUCTION OF BOOKS OF ACCOUNTS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY T HE ASSESSING OFFICER, WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE PROVISO BELOW SECTION 147 OF THE ACT. 4 . 7 IN THE REJOINDER, THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAD MADE FULL DISCLOSURE IN RESPECT OF DEPRECIATION ON GOVER NMENT AUTHORIZATIONS IN THE RETURN OF INCOME AND THE ASSESSEE WAS NOT REQUIRED TO EXPLAIN IN THE RETURN OF INCOME THAT PARTICULAR CLAIM IS JUSTIFIED OR NOT. 4 .8 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE REASSESSMENT PROCEEDING ON TWO GROUNDS. ACCORDING TO THE FIRST GROUND, THE ASSESSMENT HAS BEEN REOPENED BEYOND THE PERIOD OF FOUR YEARS FROM THE RELEVANT ASSESSMENT YEAR AND THE ASSESSEE HAS MADE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS IN RESPECT OF DEPRECIATION ON GOVERNMENT AUTHORIZATION IN THE RETURN OF INCOME AND DOCUMENTS APPENDED ALONG WITH ACCORDINGLY, THE CA SE OF THE ASSESSEE COULD NOT BE REOPENED INVOKING PROVISO TO SECTION 147 OF THE ACT. ACCORDING TO THE SECOND GROUND, THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT ON THE BASIS OF SAME MATERIAL WHICH WAS AVAILABLE BEFORE HIM IN ORIGINAL ASSESSMENT PROCE EDING, AND THEREFORE IT AMOUNTS TO CHANGE OF OPINION ON SAME SET OF FACTS, AND REOPENING ON MERE CHANGE OF OPINION IS NOT PERMITTED AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VERSUS KELVINATOR OF INDIA LTD (2002) 256 ITR1, WHICH HAS BEEN FURTHER UPHELD BY THE HON BLE SUPREME COURT IN CIT VERSUS KELVINATOR OF INDIA LTD (SUPRA). 4 .8 .1 BEFORE WE PROCEED TO ADJUDICATE ON THESE TWO ISSUES RAISED, IT IS RELEVANT TO REPRODUCE THE PROVISO UNDER SECTION 147 OF THE ACT AS UNDER: 14 ITA NO . 289 TO 293/DEL/2013 147 .. PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB - SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR: 4 . 8 .2 THUS , IT IS EVIDENT THAT FOR REOPENING THE ASSESSMEN T OF PARTICULAR ASSESSMENT YEAR , INVOKING THE PR OVISO TO SECTION 147 OF THE ACT , FOLLOWING CONDITIONS SHOULD BE FULFILLED: 1. THE ORIGINAL ASSESSMENT SHOULD HAVE BEEN COMPLETED UNDER SECTION 143(3) OR UNDER SECT ION 147 OF THE ACT AND 2. T HE PERIOD OF FOUR YEARS SHOULD HAVE BEEN EXPIRED FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND 3. I NCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF FAILURE ON THE PART OF THE ASSESSEE (A) TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SECTION 142(1) OR SECTION 148 OF THE ACT OR (B) TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. 4 .8 .3 THUS , WHENEVER ASSESSMENT IS COMPLETE D UNDER SECTION 143 (3) OR SECTION 147 OF THE ACT AND FOUR YEARS HAVE ALREADY ELAPSED FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE ASSESSMENT CAN BE REOPENED ONLY IN THE CASE THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO EITHER FILE RETURN OF INCO ME UNDER SECTION 139/142(1)/148 OR DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. 15 ITA NO . 289 TO 293/DEL/2013 4 .8 .4 I N THE INSTANT CASE , THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECT ION 143(3) OF THE ACT AND FOUR YEARS HAVE ALREADY ELAPSED ON THE DATE OF REOPENING OF THE ASSESSMENT I.E. 25/03/2011, THE PREREQUISITE FOR REOPENING OF THE ASSESSMENT WAS FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. 4 .8 .5 ON PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES AND THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE, WE FIND THAT IN THE RETURN OF INCOME FILED ALONGWITH FINANCIAL STATEMENTS AND TAX AUDIT REPORTS, THE ASSESSEE HAS DISCLOSED THE FACT OF DEPRECIATION ON GOVERNMENT AUTHORIZATION /APPROVALS AS UNDER: PAPER BOOK PAGE RELEVANT PAGE INFORMATION PAGE - 12 VOLUME 2 OF THE ASSESSES PAPER BOOK SCHEDULED II FORMING THE PART OF THE ACCOUNTS FOR THE YEAR ENDED ON 31 ST , MARCH 2005 IN THE SCHEDULE , THE FIXED ASSETS ARE DISTRIBUTED IN CATEGORIES OF INTELLIGIB LE ASSET AND INTANGIBLE ASSETS. THE GOVERNMENT AUTHORIZATION HAVE BEEN ADDED D URING THE YEAR AMOUNTING TO RS.4,51,66, 708/ - AS REFLECTED UNDER INTANGIBLE ASSETS ALONGWITH GOODWILL (RS.5,70,03, 830 / - ) AND NON - COMPETE AGREEMENT (RS.5,94,47, 290/ - ). PAGE - 14 VOLUME 2 OF THE ASSESSES PAPER BOOK SCHEDULE - XV OF NOTES NOTES TO ACCOUNT FOR THE YEAR ENDED ON 31/03/2005. INFORMATION RELATED TO ACQUISITION OF MAILING BUSINESS FROM M/S KOA L WHICH CONTAINED ID ENTIFIED INTANGIBLE ASSETS ( NON - COM PETE AGREEMENT AMOUNTING TO RS.5,94,47, 290 / - AND GOVERNME NT ACQUISITION AMOUNTING TO RS.4, 5 1,66,708/ - PAGE - 23 VOLUME 2 OF THE PAESSEE S PAPER BOOK DEPRECIATION CHART ENCLOSED TO THE TAX AUDIT REPORT UNDER THE INTANGIBLE ASSETS CATEGORY , THE ASSESSEE HAS COMPUTED DEPRECIATION AT THE RATE OF 25% ON THE GOVERNMENT AUTHORIZATIONS OF RS. 4,51,66, 708 / - ADDED DURING THE YEAR, WHICH AMOUNTED TO RS. 56,45,839/ - 4 .8 .6 FURTHER, AFTER COMMENCEMENT OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER RAISED QUERIE S ASKING THE ASSESSEE TO REPLY. O NE OF SUCH QUERIES RELATED TO DEPRECIATION , WAS AS UNDER: 16 ITA NO . 289 TO 293/DEL/2013 PL SUBMIT DOCUMENTARY EVIDENCE OF ACQUISITION OF FIXED ASSET ABOVE RS. 10,00,000/ - WITH DOCUMENTARY EVID ENCE OF PUTTING TO USE . 4 .8 .7 THE ASSESSEE FILED REPLY OF THE ABOVE QUERY IN ITS SUBMISSION DATED 20/11/2007, WH ICH IS AVAILABLE ON PAGE 56 - 57 OF THE VOLUME 2 OF THE ASSESSES PAPER BOOK, WHICH READS AS UNDER: IN THIS REGARD, WE SUBMIT THAT COMPANY HAS NOT ACQ UIRED ANY FIXED ASSET ABOVE RS.10,00, 000/ - DURING THE FINANCIAL YEAR 2004 - 05. 4 .8 .8 ACCORDING TO THE LD. SENIOR DR, IT IS THIS INFORMATION WHICH STOPPED, THE ASSESSING OFFICER FROM MAKING ANY FURTHER ENQUIRY IN RESPECT OF DEPRECIATION ON GOVERNMENT AUTHORIZATION. 4 . 8 .9 ACCORDING TO LD. COUNSEL, THE BTA WAS AVAILABLE WITH ASSESSING OFFICER AND HE MADE QUERIES IN RESPECT OF NON - COMPETE FEE AND , THUS , HE COULD HAVE RAISED QUERIES IN RESPECT OF DEPRECIATION ON GOVERNMENT AUTHORIZATION FROM THE BTA AND MAKING ABOVE STATEMENT TO THE ASSESSING OFFICER THAT COMPANY HAD NOT ACQUIRED ANY FIXED ASSET ABOVE RUBIES 10, 00, 000/ - WAS IMMATERIAL. WE ARE NOT CONVINCED WITH THIS ARGUMENT OF THE LD. COUNSEL OF THE ASSESSEE. IN THE BOOKS OF ACCOUNTS OR FINANCIAL STATEMENT, A COMPANY MIGHT TREAT PARTICULAR EXPENDITURE AS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE ACCORDING TO ITS SUITABILITY TO DISCLOSE PROFITABILITY BEFORE THE SHAREHOLDERS, HOWEVER IN THE RETURN OF INCOME FILED BEFORE THE TAX AUTHORITIES, THE TREATMENT OF ANY EXPENDITURE IS TO BE DECIDED AS PER THE PROVISIONS OF THE INCOME TAX ACT AND THEREFORE IT HAS TO BE REPORTED ACCORDINGLY. THEREFORE , MENTIONING OF GOVERNM ENT AUTHORIZATION AS INTANGIBLE ASSETS IN AUDITED FINANCIALS, SIGNIFICANT ACCOUNTING POLICIES OR NOTES TO ACCOUNT IS NOT RELEVANT FOR THE PURPOSE OF 17 ITA NO . 289 TO 293/DEL/2013 INCOME - TAX ACT. WHAT IS MATERIAL AND RELEVANT IS , HOW IT WAS CLAIMED IN THE RETURN OF INC OME FILED BY THE A SSESSEE. THUS, IT CANNOT BE SAID THAT MENTIONING OF GOVERNMENT AUTHORIZATION IN THE SAID SCHEDULE AUTOMATICALLY DISCLOSED THE FACT OF CLAIM OF DEPRECIATION ON SUCH GOVERNMENT AUTHORIZATION IN THE RETURN OF INCOME. THE ASSESSING OFFICER MADE THE SPECIFIC QUERY TO ASCERTAIN THE CLAIM OF DEPRECIATION AND ASKED THE ASSESSEE TO FURNISH THE DOCUMENTARY EVIDENCE OF ASSETS ACQUIRED HAVING VALUE MORE THAN RS. 10 LAKH S ALONG WITH EVIDENCES OF PUTTI NG THOSE TO USE. IN OUR OPINION, WHEN THE ASSESSEE REPLIED IN NEGATIVE THAT IT HAD NOT ACQUIRED ANY FIXED ASSET ABOVE RS. 10 LACS DURING THE RELEVANT FINANCIAL YEAR, IT PREVENTED THE ASSESSING OFFICER FROM MAKING FURTHER ENQUIRY ON THE ISSUE OF THE DEPRECI ATION ON GOVERNMENT AUTHORIZATION . IN OUR CONSIDERED OPINION, THIS AMOUNTS TO MISREPRESENTATION OF FACTS BY THE ASSESSEE AND CANNOT SATISFY THE CONDITION OF DISCLOSURE OF MATERIAL FACTS FULLY AND TRULY, NECESSARY FOR THE ASSESSMENT. REPORTING OF FACT OF GO VERNMENT AUTHORIZATION AS ONE OF THE INTANGIBLE ASSET IN THE FINANCIA L STATEMENT OR TAX AUDIT REPORT , MIGHT BE A DISCLOSURE BY THE ASSESSEE, BUT WHEN WE SEE A FALSE STATEMENT THAT NO FIXED ASSETS MORE THAN RS. 10 LA KH WAS ACQUIRED BY THE ASSESSEE , IN ENTIR ETY OF THE FACTS, WE FIND THAT THE DISCLOSURE WAS NOT FULL AND TRUE AND THE REASON OF FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL IS SQUARELY ATTRIBUTED TO THE ASSESSEE. IN THE CIRCUMSTANCES, WE HOLD THAT REASSESSMENT PROCEEDING HAVE BEEN VALIDLY INIT IATED AS FAR AS THE PROVISO TO SECTION 147 OF THE ACT IS CONCERNED. 4 .9 THE ANOTHER ARGUMENT, WHICH HAS BEEN TAKEN BY THE LD. COUNSEL IS THAT REASSESSMENT PROCEEDINGS AMOUNTED TO CHANGE OF OPINION, AND THEREFORE SAME ARE INVALID AND NOT IN ACCORDANCE WITH LAW. 4 .10 ON PERUSAL OF THE FACTS OF THE CASE, WE FIND THAT AFTER THE SUBMISSION OF THE ASSESSEE THAT NO FIXED ASSETS MORE THAN RS. 10 LAKH WAS ACQUIRED BY THE COMPANY DURING THE YEAR, NO FURTHER QUERY WAS 18 ITA NO . 289 TO 293/DEL/2013 RAISED BY THE ASSESSING OFFICER ON THE ISSUE OF DEPRECIATION ON GOVERNMENT AUTHORIZATION AND THUS NO QUESTION OF FAILURE IN APPLYING THE LEGAL PROVISIONS ON THE FACTS ARISES. THE RATIO IN T HE CASE OF ATMARAM PROPERTIES (P ) LTD . (SUPRA) THAT IF THE ASSESSING OFFICER HAD FAILED TO APPLY LEGAL PROVISIONS/ SECTIONS OF THE ACT, THE FAULT CANNOT BE ATTRIBUTED TO THE APPELLANT, CANNOT BE APPLIED OVER THE FACTS OF THE INSTANT CASE . THE FACT WHETHER THE ASSESSEE CLAIMED DEPRECIATION ON THE GOVERNMENT AUTHORIZATION , WAS NOT STATED TRULY BY THE ASSESSEE TO THE ASS ESSING OFFICER AND THUS ISSUE OF APPLICATION OF LAW DID NOT ARISE. IN THE INSTANT CASE THE ASSESSING OFFICER WAS PREVENTED TO EXAMINE THE ISSUE BECAUSE OF HIDING THE INFORMATION BY THE ASSESSEE, WE CANNOT SAY THAT ASSESSING OFFICER APPLIED HIS MIND AND FO RMED OPINION TO ALLOW THE DEPRECIATION ON THE GOVERNMENT AUTHORIZATION. DISCOVERY OF THE FACTS THAT THE ASSESSEE CLAIMED DEPRECIATION ON GOVERNMENT AUTHORIZATION CONSTITUTE AN INFORMATION, AND THIS INFORMATION CAME TO THE ASSESSING OFFICER AFTER THE ORIGIN AL ASSESSMENT BY FRESH FACTS REVEALED LATER ON. IN SUCH CIRCUMSTANCES THE ISSUE OF CHANGE OF OPINION IN THE REASSESSMENT PROCEEDINGS CANNOT ARISE, WHEN NO OPINION WAS FRAMED ON THE ISSUE OF DEPRECIATION ON GOVERNMENT AUTHORIZATION IN THE ORIGINAL ASSESSMENT PROCEEDING. IN SIMILAR FACTS, HON BLE SUPREME COURT IN THE CASE OF KALYANJI MAVJI & CO. VERSUS CIT (SUPRA) HELD AS UNDER: 12. WE MIGHT MENTION THAT IT WAS SUBMITTED BY MR. BANERJEE THAT IN FACT THE AMOUNT SOUGHT TO BE DEDUCTED WAS PAID TOWARDS THE INCOME - TAX LIABILITY OF THE PARTNERS AND THIS WAS DONE TO PROTECT THE BUSINESS ITSELF AND TO IMPROVE THE CREDIT OF THE PARTNERS. EVEN THIS SPECIFIC PLEA DOES NOT APPEAR TO HAVE BEEN TAKEN BEFORE THE ITO. WE ARE, HOWEVER, NOT CONCERNED WITH THIS PARTICULAR PLEA BECAUSE WE ARE GIVEN TO UNDERSTAND BY THE COUNSEL FOR THE APPELLANT THAT THE APPEALS AGAINST THE ASSESSMENT ORDERS FOR THE YEARS 1958 - 59 AND 1959 - 60 ARE PENDING BEFORE THE IT AUTHORITIES. IN THESE CIRCUMSTANCES WE ARE CLEARLY OF THE OPINION THAT THE FACTS OF THE PRESENT CASE CLEARLY FALL WITHIN THE TESTS AND PRINCIPLES LAID DOWN BY THIS COURT IN A. RAMAN & CO.'S CASE (SUPRA), INASMUCH AS THE ITO PROCEEDED ON THE BASIS OF THE INFORMATION WHICH CAME TO HIM 19 ITA NO . 289 TO 293/DEL/2013 AFTER THE ORIGINAL ASSESS MENT BY FRESH FACTS REVEALED IN THE ASSESSMENT FOR THE YEAR 1958 - 59 AND CONSISTED OF THE CONDUCT OF THE APPELLANT ITSELF IN NOT ADDUCING ANY EVIDENCE TO SUPPORT ITS PLEA. WE ARE, THEREFORE, HON BLE TO AGREE WITH THE VIEW OF THE TRIBUNAL THAT THIS WAS A CAS E OF A MERE CHANGE OF OPINION BY THE ITO ON THE MATERIALS WHICH WERE ALREADY ON THE RECORD. ( EMPHASIS SUPPLIED EXTERNALLY) 4 .1 1 THE RATIO OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VERSUS KELVINATOR OF INDIA (SUPRA) IS NOT APPLICABLE OVER THE F ACTS OF THE INSTANT CASE AS THERE IS NO CHANGE OF OPINION OBSERVED BY US IN THE INSTANT CASE. THUS, THE ARGUMENT OF THE LD. COUNSEL ON CHANGE OF OPINION ALSO FAILS, AND REASSESSMENT PROCEEDING CANNOT BE INVALIDATED ON THE GROUND OF CHANGE OF OPINION BY THE ASSESSING OFFICER. 4 .1 2 IN VIEW OF ABOVE, WE UPHOLD THE FINDING OF THE LD. CIT - A ON THE ISSUE IN DISPUTE. THE GROUND NO. 1 OF THE APPEAL IS ACCORDINGLY DISMISSED. 5 . IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED DEPRECIATION ON THE GOVERNMENT AUTHORIZATION DENIED BY THE LOWER AUTHORITIES. THE FACTS IN RESPECT OF IS SUE IN DISPUTE ARE THAT M/S KOA L WAS AUTHORIZED BY PITNEY BOWES INC USA, I.E. THE PARENT COMPANY OF THE ASSESSEE, TO SELL VARIOUS MODELS OF FRANKING MACHINES TO CUSTOMERS IN INDIA AN D NEPAL WHICH INCLUDED P OSTAL DEPARTMENT OF GOVERNMENT, BANKS AND OTHERS. IN THIS RESPECT, M/S KOAL WAS GRANTED APPROVALS FR OM THE REGULATORY AUTHORITIES. AFTER FORMATION OF THE ASSESSEE COMPANY, THE BUSINESS OF SALE OF FRANKING MACHINE WAS TRANSFERRED FRO M M/S KOAL TO THE ASSESSEE COMPANY THROUGH A BUSINESS TRANSFER A GREEMENT ( BTA) EXECUTED ON 15/10/2004 ON A SLUMP SALE TRANSACTION, WHERE IN NO SPECIFIC VALUE WAS ASSIGNED TO INDIVIDUAL ASSET AT THE TIME OF SLUMP SALE. THE ACTUAL LUMP SUM CONSIDERATION OF RS. 18.92 CRORES WAS PAID BY THE ASSESSEE TO M/S KOAL . IN THE BTA EXECUTED OF 15/10/2004, NO VALUE WAS ASSIGNED TO THE GOVERNMENT APPROVALS, WHICH WERE LISTED AS ONE OF THE THIRTEEN 20 ITA NO . 289 TO 293/DEL/2013 ASSETS A CQUIRED BY THE ASSESSEE COMPANY . THE VARIOUS OTHER ASSETS ACQUIR ED BY THE ASSESSEE INCLUDED ALL PROPERTIES (INCLUDING PRODUCT REGISTRATION), NON - COMPETE AGREEMENTS, CUSTOMER AND VENDOR LISTS, TRANSFERRED EMPLOYEES, CONTRACTS, AND ALL OTHER RIGHTS IN RESPECT OF MAILING BUSINESS OF M/S KOAL . AF TER A PERIOD OF ALMOST ONE YEAR , THE ASSESSEE ASSIGNED VALUES TO THE NON - COMPETE FEE AND GOVERNMENT AUTHORIZATION , ON THE BASIS OF VALUATION CONDUCTED BY A CONSULT ANT AT THE REQUEST OF THE ASSESSEE. THE ASSESSEE ASSIGNED VALUE OF RS.4,51,66, 708/ - TO GOVERNMENT AUTHORIZATION /APPROVALS AND CLAIMED DEPRECIATION AT THE RAT E OF 25% AMOUNTING TO RS.56,54, 840/ - TREATING THE SAME AS A DEPRECIABLE INTANGIBLE ASSET. 5 .1 BEFORE THE ASSESSING OFFICER, T HE ASSESSEE CONTENDED THAT GOVERNMENT APPROVALS ARE AN ASSET IN THE NATURE OF LICENSE/COMMERCIAL RIGHTS WHICH IT HAD ACQUIRED FROM M/S KOAL AND , THUS , ELIGIBLE FOR DEPRECIATION BEING INTANGIBLE ASSETS. THE ASSESSEE WAS ASKED BY THE ASSESSING OFFICER TO PROVIDE A COPY OF THE FI NANCIAL STATEMENT OF M/S . KOA L AS ON THE DATE OF ITS TAKE OVER , FOR ASCERTAINING THE VALUES ASSIGNED TO VARIO US ASSETS , HOWEVER , SAME WAS NOT MADE AVAILABLE BY THE ASSESSEE . 5 . 1.1 ACCORDING TO THE ASSESSING OFFICER, NO VALUE WAS ASSIGNED BY THE ASSESSEE IN THE BTA DATED 15/10/2004 WHILE ACQUIRING TH E MAILING BUSINESS FROM M/S KOA L AND NO PAYMENT WAS MADE TOWARDS ACQUIRING THESE APPROVALS. ACCORDING TO THE ASSESSING OFFICER, M/S KOAL HAD NOT PAID ANY SUM TO REGULATORY AUTHORITIES TO ACQUIRE SUCH AUTHORIZATION /APPROVALS AND THEREFORE IT HAD NOT ASSIGNED ANY MON ETARY VALUE IN ITS FINANCIAL STATEMENT AND THEREFORE IT WAS NOT AN ASSET IN THE BOOKS OF TRANSFEROR, WHEN THE ASSESSEE ACQUIRED THE BUSINESS. 5 . 1.2 THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT PERMISSION TO MARKET THE ELECTRONIC FRANKING MACH INE, WAS A LICENSE 21 ITA NO . 289 TO 293/DEL/2013 GRANTED BY THE DEPARTMENT OF POST, GOVT . OF INDIA, WHICH FALLS WITHIN THE AMBIT OF SECTION 32 OF THE ACT. IT WAS ALSO CONTENDED THAT SAID GOVERNMENT AUTHORIZATION MIGHT BE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS, WHICH WERE REQUIR ED TO CARRY ON THE BUSINESS ACTIVITY AND HENCE SAME MIGHT BE CONSIDERED UNDER THE EXPRESSIONS, OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE AS LAID DOWN IN SECTION 32 (1)(II) OF THE ACT. 5 . 1.3 ACCORDING TO THE ASSESSING OFFICER GOVERNMENT AUTHORIZATION DO NOT QUALIFY AS AN INTANGIBLE ASSET UNDER SECTION 32(1)(II) OF THE ACT AS THE RIGHTS MENTIONED IN THE SAID SECTION ARE IN THE NATURE OF INTELLECTUAL PROPERTY RIGHTS AND THUS THE GENERAL WORD OF SIMILAR NATURE, OUGHT TO BE CONFINED TO THE CATEGORY OF SIMILARLY PLACED ASSETS AND NOT GOVERNMENT AUTHORIZATION /APPROVALS. THE ASSESSING OF FICER FURTHER HELD THAT M/S KOA L, HAD NO KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS ETC IN RESPECT OF MACHINES MA NUFACTURED BY PITNEY BOWES INC, USA AND WAS THEREFORE IN NO POSITION TO TRANSFER ANY INTELLECTUAL PROPERTY RIGHT. ALL SUCH INTELLECTUAL PROPERTY RIGHTS LI ED WITH PITNEY BOWES INC USA ITSELF, TO WHI CH THE ASSESSEE IS A SUBSIDIARY , ALREADY HAD ACCESS. 5 . 1.4 THE ASSESSING OFFICER FURTHER MENTIONED THAT AFTER ACQUIR ING A BUSINESS FROM THE M/S KOA L, THE ASSESSEE SIMPLY REQUESTED THE DEPARTMENT OF POST ON 04/11/2004 FOR TRANSFERRING THE APPROVALS GIVEN BY THE CENTRAL GOVERNMENT IN ITS NAME AND THE DEPART MENT OF POST ON THE BASIS OF SAID APPLICATION, TRANSFERRED THE APPROVALS IN THE NAME OF THE COMPANY ON 14/12/2004 WITHOUT CHARGING ANY AMOUNT. ACCORDING TO THE A SSESSING OFFICER WHEN M/S KOAL HAD NO AUTHORITY TO TRANSFER THE APPROVAL LETTERS EITHER BY SA LE OR BY NOMINATIONS, THE PAYMENT CANNOT BE REGARDED FOR ACQUIRING LICENSE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS. 22 ITA NO . 289 TO 293/DEL/2013 5 .1.5 THE ASSESSING OFFICER, ACCORDINGLY DENIED THE CLAIM OF DEPRECIATION ON GOVERNMENT AUTHORIZATION /APPROVALS. 5 .1.6 THE LD. COMMISSI ONER OF INCOME - TAX (APPEALS) ALSO UPHELD THE VIEW OF THE ASSESSING OFFICER RELYING ON HIS FINDING IN ASSESSMENT YEAR 2007 - 08 AS UNDER: 5.2 THE ABOVE SUBMISSIONS ARE VAGUE AND WITHOUT ANY FACTUAL BASIS. THE APPELLANT IS NOT EVEN CLEAR AS TO ABOUT THE ASS ET IT OBTAINED FROM M/S KILBURN OFFICES AUTOMATION LTD., BUT STATES THAT NO VALUE WAS ASSIGNED TO ANY OF THE INDIVIDUAL ASSETS. NEITHER HAD THE APPELLANT CLARIFIED AS TO HOW THE ASSET CAN BE TERMED 'INTANGIBLE' NOR THE COMPUTATION OF ITS VALUE IN ITS SUBMI SSIONS. THE APPELLANT'S APPEARS TO BE OF THE VIEW THAT ME AO IS BOUND TO ACCEPT THE INDEPENDENT PROFESSIONAL FIRM'S VALUATION AND THE FINANCIAL STATEMENT SUBMITTED AS TAX AUDIT REPORT. THE AO IS EMPOWERED BY THE INCOME TAX ACT TO EXAMINE THE FACTS OF THE C ASE AND THEN DECIDE WHETHER THE APPELLANT IS ENTITLED FOR ANY DEDUCTION AS PER THE PROVISIONS OF THE ACT. THE ONUS IS ON THE APPELLANT TO PROVE THAT THEY ARE ENTITLED FOR THE DEPRECIATION THEY HAVE CLAIMED IN THE RETURN OF INCOME. IN THIS CASE, THE APPELLA NT HAS FAILED TO DISCHARGE THIS ONUS BOTH AT THE ASSESSMENT AS WELL AS IN THE APPELLATE PROCEEDINGS. 5.3 THE BASIC ISSUE TO BE DECIDED IN THIS ISSUE IN THIS APPEAL IS WHETHER THE AO'S FINDING IS THAT THE APPELLANT OBTAINED ONLY AN NOC FROM M/S KILBURN OFF ICES AUTOMATION LTD. AND THAT THE' APPELLANT HAD NOT VALUED THIS NOC TO CLAIM DEPRECIATION ON IT AS INTANGIBLE ASSET. USING THE ABOVE NOC, THE APPELLANT REQUESTED THE DEPARTMENT OF POST ON 04.11.2004 FOR TRANSFERRING THE APPROVALS TO ITS NAME. THE BUSINESS TRANSFER AGREEMENT IS DATED 15.10.2004 AND THE REQUEST TO THE POSTAL DEPARTMENT FOR TRANSFER OF APPROVAL WAS MADE ON 04.11.2004. FROM ALL THE FACTS MENTIONED ABOVE, THIS ISSUE APPEARS TO BE A TYPICAL CASE OF MAKING 'A MOUNTAIN OUT OF A MOLEHILL AND FURTH ER THE APPELLANT HAD FAILED MISERABLY TO MAKE A LEGAL CASE IN THEIR FAVOUR DURING THE APPELLATE PROCEEDINGS. FROM THE FACTS IT IS VERY CLEAR THAT M/S KILBUM OFFICES AUTOMATION LTD. HAD NOT PAID THE GOVERNMENT ANY AMOUNT FOR OBTAINING THE APPROVAL FOR MARKE TING FRANKING MACHINES AND THE APPELLANT ALSO DID NOT PAY THE GOVERNMENT ANY AMOUNT FOR TRANSFERRING THE APPROVALS IN ITS NAME AFTER OBTAINING THE NOC FROM M/S KILBUM OFFICES AUTOMATION LTD. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT WAS HON BLE TO CONTRADICT THE ABOVE FACTUAL FINDINGS MADE BY THE AO AND PROVE THAT THE APPELLANT HAD ACQUIRED AN ASSET TANGIBLE OR INTANGIBLE . THERE IS NO MATERIAL IN APPELLANT S POSSESSION TO SUBSTANTIATE ITS CLAIM THAT THEY HAVE OBTAINED AN ASSET FROM M/S. KILB URN OFFICERS AUTOMATION LTD. THEIR VALUATION OF INTANGIBLE ASSET IS ALSO VAGUE AND IS MADE WITHOUT ANY BASIS. 5.4 THEREFORE THE ONLY CONCLUSION WHICH IS POSSIBLE ON THIS ISSUE IS THAT THE APPELLANT HAD NOT ACQUIRED ANY ASSET 'TANGIBLE' OR 'INTANGIBLE' FR OM M/S KILBURN OFFICES AUTOMATION LTD. TO CLAIM DEPRECIATION ON GOVERNMENT AUTHORIZATIONS. 23 ITA NO . 289 TO 293/DEL/2013 THUS, I HAVE NO OPTION BUT TO SUSTAIN THE AO'S DISALLOWANCE OF DEPRECIATION ON GOVERNMENT AUTHORIZATIONS RS.74,10,163/ - AND GROUND NO. 3 REGARDING THE DISALLOWANCE O F DEPRECIATION IS HEREBY REJECTED. 5 .2 T HE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE BEFORE US ARE SUMMARIZED AS UNDER: (I) THE GOVERNMENT AUTHORIZATIONS PROVIDED THE ASSESSEE WITHIN IMMEDIATE RIGHT TO SELL ELECTRONIC FRANKING MACHINE AS PER THE APPROVALS REQUIRED FROM M/S. KOA L (II) T HE GOVERNMENT AUTHORIZATION IS WERE SPECIFICALLY MENTIONED AS TRANS FERABLE ASSETS UNDER CLAUSE 2.2 (E) OF THE BTA AND THE SPECI FIC AUTHORIZATION TRANSFERRED TO THE ASSESSEE WERE ALSO LISTED IN THE SCHEDULE 2.2 (E) OF THE BTA ( REFER PAGE 13 AND 50 VOLUME 1 OF PAPER BOOK). SUCH GOVERNMENT AUTHORIZATIONS ARE TRANSFERABLE AND SAME WERE ACTUALLY TRANSFERRED IN THE NAME OF THE ASSESSE E AFTER KOA L GRANTED A NO OBJECTION CERTIFICATE IN THE NAME OF THE ASSESSEE COMPANY. THE TRANSFER WAS ALSO ACKNOWLEDGED BY THE DEPARTMENT OF POST ( REFER PAGE 429 TO 430 OF THE PAPER BOOK). THUS , THE CONTENTION OF THE AO THE KOAL HAD NO AUTHORITY TO TRANSFE R THE GOVERNMENT AUTHORIZATION IS COMPLETELY INCORRECT. (III) THE CONTENTION OF THE ASSESSING OFFICER M/S KOAL HAD NOT PAID ANY SUM TO THE REGULATORY AUTHORITIES FOR ACQUISITION OF THESE GOVERNMENT AUTHORIZATION OR WHETHER GOVERNMENT AUTHORIZATION HAVE BEEN REC OGNIZED AS ASSETS IN THE BOOKS OF KOAL , IS COMPLETELY IRRELEVANT. THE EMPHASIS MAY BE PLACED ON THE FACT THAT THIS INTANGIBLE ASSET IS NOT SELF GENERATED BY THE ASSESSEE AND HAS BEEN ACQUIRED BY PAYING THE PRICE FOR THE SAME, WHICH IS DULY SUPPORTED BY TH E VALUATION REPORT OF AN INDEPENDENT 24 ITA NO . 289 TO 293/DEL/2013 VALUER. THE ACTUAL COST TO THE ASSESSEE AS PROVIDED IN SECTION 43(1) OF THE ACT IS TO BE CONSIDERED FOR ALLOWING DEPRECIATION AND NOT THE COST TO HIS PREDECESSOR/SELLER EXCEPT WHERE SO REQUIRED BY SPECIFICALLY STATED PR OVISION. RELIANCE IN THIS REGARD WAS PLACED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF JOGTA COAL CO. LTD VERSUS CIT (1959) 36 ITR 521 AND RULING OF THE PRIVY COUNCIL IN THE CASE OF CIT VERSUS INDIAN IRON AND STEEL COMPANY LIMITED (1943) 1 1 ITR 324. (IV) SUCH AUTHORIZATIONS ENABLED THE COMPANY TO MARKET THE ALREADY APPROVED MODELS OF ELECTRONIC FRANKING MACHINES AND RELATED MACHINES IMMEDIATELY AND HENCE WERE OF GREAT VALUE TO THE COMPANY. THEREFORE, EVEN THOUGH KOAL DID NOT PAY ANY SUM TO THE R EGULATORY AUTHORITIES, BUT IT WAS REMUNERATED BY THE COMPANY FOR THE TRANSFER OF SUCH AUTHORIZATIONS, AS IT SAVED THE COMPANY FROM FOLLOWING A LONG DRAWN AND CUMBERSOME PROCESS OF OBTAINING THE GOVERNMENT AUTHORIZATIONS. (V) IT IS AMUSING TO NOTE THAT THE VALUE ASSIGNED TO NON - COMPETE FEE AS PER THE VALUATION REPORT HAS BEEN ACCEPTED BY THE DEPARTMENT WITHOUT ANY OBJECTION AS THE DISALLOWANCE ON ACCOUNT OF NON - COMPETE FEE HAS BEEN MADE AT THE VALUE AS PER THE VALUATION REPORT, BUT THE SAME VALUATION REPORT HAS BEEN COMPLETELY IGNORED WHILE ADJUDICATING ON THE CLAIM OF DEPRECIATION ON GOVERNMENT AUTHORIZATIONS . THUS, ACCEPTING THE VALUES OF OTHER ASSETS (OTHER THAN THAT OF GOVERNMENT AUTHORIZATIONS) WHICH WERE TRANSFERRED UNDER THE SAME BUSINESS TRANSFER AGREEMENT AND TAKING AN ISOLATED VIEW ONLY FOR VALUATION OF GOVERNMENT AUTHORIZATIONS IS HIGHLY UNJUSTIFIED AND UNREASONABLE OF PART OF THE LD. AO. THE RULE OF ESTOPPELS 25 ITA NO . 289 TO 293/DEL/2013 APPLIES ON THE LD. AO AND THE LD. AO CANNOT ACCEPT AND INTE RPRET THE FACTS OF THE CASE AS PER HIS CONVENIENCE. (VI) THE LD. AO COMPLETELY ERRED IN ALLEGING THAT THE VALUES OF GOVERNMENT AUTHORIZATIONS WERE HYPOTHETICALLY ASSESSED BY GETTING THE VALUATION DONE AT THE SUBSEQUENT DATE TO THE ACQUISITION OF THE BUSINESS WH ICH APPEARS BE AN AFTERTHOUGHT. IN THIS REGARD, IT IS SUBMITTED THAT THE FACT THAT AT THE TIME OF TRANSFER I.E. ON 17 DECEMBER, 2004, THE VALUATION REPORT WAS NOT AVAILABLE COULD NOT PREVENT THE APPELLANT TO FIX THE PRICE OR COST OF THE ASSETS AS ON 17 DEC EMBER, 2004. IT IS SUBMITTED THAT IN THE PRESENT CASE, EVEN THOUGH THE VALUATION REPORT IS DATED 22 DECEMBER 2005, THE VALUATION OF INTANGIBLES HAS BEEN DONE AS AT 17 DECEMBER 2004. IT IS A WELL SETTLED PRINCIPLE THAT VALUATION REPORT CANNOT BE IGNORED OR REJECTED ON THE GROUND THAT IT PROVIDES THE VALUATION OF ASSETS ON A PRIOR DATE AND THIS PRINCIPLE HAS BEEN UPHELD BY THE AHMEDABAD ITAT IN THE CASE OF CHITRA PUBLICITY CO. (P) LTD VS. ACIT (2009) (127 TTJ 1). IT WAS HELD IN THE AFOREMENTIONED CASE THAT ON CE THE APPELLANT HAS DULY OBTAINED A VALUATION REPORT FOR VALUING THE ASSETS ACQUIRED BY IT, IT IS INCUMBENT UPON THE AUTHORITY TO DISLODGE THE SAME BY BRINGING ADEQUATE MATERIAL ON RECORD, BECAUSE IN THE ABSENCE OF THE SAME A TECHNICAL EXPERT'S OPINION (V ALUER'S REPORT) CANNOT BE DISLODGED BY THE AUTHORITY BY MERELY IGNORING THE SAME. RELIANCE IS ALSO PLACED ON THE RULING GIVEN BY THE GUJRAT HIGH COURT IN THE CASE OF ASHWIN VANASPATI INDUSTRIES VS. CIT (2002) (174 CTR 90). (VII) FURTHER, THE APPELLANT WISHES TO HIGHLIGHT THAT THE LD. AO AND LD. CIT(A) COMPLETELY FAILED TO APPRECIATE THAT THE TECHNOLOGY, TRADEMARK, COPYRIGHT, PATENT, ETC. IN RESPECT OF THE ELECTRONIC 26 ITA NO . 289 TO 293/DEL/2013 FRANKING MACHINES WERE HELD BY PITNEY BOWES INC. AND NOT BY THE APPELLANT. THE LD. AO AND LD. CIT( A) HAVE COMPLETELY CONFUSED THEMSELVES AND HAVE FAILED TO DIFFERENTIATE BETWEEN TWO DIFFERENT LEGAL ENTITIES OPERATING IN TWO SEPARATE COUNTRIES. THE LD. AO AND LD. CIT(A) HAVE MISUNDERSTOOD PITNEY BOWES INC. AND THE APPELLANT TO BE ONE AND THE SAME ENTITY WHICH IS FAR AWAY FROM THE FACTUAL AND THE LEGAL POSITION. (VIII) FURTHER, EVEN ACCEPTING THE POINT OF THE LD. AO FOR ARGUMENT'S SAKE, THE APPELLANT HAS NEVER CLAIMED THAT IT ACQUIRED ANY INTELLECTUAL PROPERTY FROM KOAL OF THE NATURE OF PATENT, KNOW - HOW AND/OR T ECHNOLOGY TO BE USED IN OR IN RELATION TO MANUFACTURE. IN CONTRAST WHAT HAS BEEN ACQUIRED BY THE APPELLANT IS THE RIGHT TO DO BUSINESS ON PERMITS AND AUTHORIZATIONS PREVIOUSLY ACQUIRED OR OWNED BY KOAL. THE LD. AO HAS FAILED TO APPRECIATE THAT THE CASE OF THE APPELLANT IS OF ACQUIRING A 'LICENCE' OR 'A BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE' AS THE GOVERNMENT AUTHORIZATIONS IS THE APPROVAL/RIGHT GRANTED BY THE GOVERNMENT TO SELL THE APPROVED MACHINES. THUS, THE APPELLANT HAS ACQUIRED SUCH RIGHT TO M ARKET AND SELL THE FRANKING MACHINES RATHER THAN ACQUIRING ANY INTELLECTUAL PROPERTY FROM KOAL IN RESPECT OF MANUFACTURE. (IX) WITHOUT PREJUDICES TO OTHER CONTENTIONS OF THE APPELLANT, IT IS ALSO SUBMITTED THAT, THE LD. AO HAS ALSO FAILED TO APPRECIATE THAT WITHOUT HAVING THE RIGHT AND AUTHORIZATION TO SELL THE ELECTRONIC FRANKING MACHINES IN INDIA, IT WAS EVEN IMMATERIAL FOR THE APPELLANT TO HAVE ANY KIND OF ACCESS TO THE TECHNOLOGY, TRADEMARK, COPYRIGHT, PATENT, ETC. IN RELATION TO THE ELECTRONIC FRANKING M ACHINES. 27 ITA NO . 289 TO 293/DEL/2013 (X) THEREFORE, EVEN IF THE TECHNOLOGY, TRADEMARK, COPYRIGHT, PATENT, ETC. WERE HELD BY PITNEY BOWES INC. IT WAS ONLY KOAL WHICH WAS AUTHORIZED BY THE MINISTRY OF COMMUNICATION AND IT. DEPARTMENT OF POSTS TO MARKET AND DEAL IN THE ELECTRONIC FRANKING M ACHINES IN INDIA AND NO OTHER PERSON OR ENTITY WAS AUTHORIZED TO MARKET AND DEAL WITH THE APPROVED ELECTRONIC MACHINES. THEREFORE, IT WAS ESSENTIAL FOR THE APPELLANT TO ACQUIRE SUCH GOVERNMENT AUTHORIZATIONS FROM KOAL, OTHERWISE THE WHOLE MOTIVE OF ACQUIRI NG BUSINESS BY THE APPELLANT FROM KOAL WOULD BE RENDERED MEANINGLESS. (XI) RELIANCE IS PLACED ON THE DECISION OF HON'BLE DELHI ITAT IN THE CASE OF M/S ONGC VIDESH LTD. (TAXPAYER) [2009 - TIOL - 758 - ITAT - DEL], WHEREIN IT WAS HELD THAT PARTICIPATORY RIGHT TO CARRY OU T THE HYDROCARBON OPERATIONS, ACQUIRED BY THE TAXPAYER, PURSUANT TO A PRODUCTION SHARING ARRANGEMENT (PSA), HELD THAT THE PARTICIPATORY RIGHT ACQUIRED BY THE TAXPAYER WAS IN THE NATURE OF ASSET, IN THE FORM OF 'LICENSE' I.E. LICENSE TO HAVE AN ACCESS AND T O CARRY OUT EXPLORATION, DEVELOPMENT AND PRODUCTION OF HYDROCARBON OPERATIONS AND IS ELIGIBLE FOR DEPRECIATION UNDER THE PROVISIONS OF THE ACT. (XII) IT IS ALSO SUBMITTED THAT THE HON'BLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCKS LTD. (2010) 327 ITR 323 HAS OVERRULED THE JUDGMENT OF HON' BOMBAY HIGH COURT IN THE CASE OF TECHNO SHARES AND STOCKS LTD. (2010) 323 ITR 69 WHEREIN IT WAS HELD THAT THE INTANGIBLE ASSETS AS MENTIONED IN SECTION 32(L)(II) COULD ONLY BE IN THE NATURE OF INTELLECTUAL PROPERTY R IGHTS. THE HON'BLE SUPREME COURT HAS CLEARLY HELD THAT THE INTANGIBLE ASSET CAN BE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHT WHICH 28 ITA NO . 289 TO 293/DEL/2013 IS NOT IN THE NATURE OF INTELLECTUAL PROPERTY. THUS, THE BELIEF OF THE LD. AO IS COMPLETELY MISPLACED AND UNJUSTIFIED. (XIII) TH E PERMISSION TO MARKET THE ELECTRONIC FRANKING MACHINE AND TAX METERS FROM DEPARTMENT OF POSTS AND VARIOUS STATE GOVERNMENTS ('GOVERNMENT AUTHORIZATIONS') ARE THUS IN THE NATURE OF 'LICENSE' WHICH IS SQUARELY COVERED WITHIN THE AMBIT OF SECTION 32 OF THE A CT AND WERE DULY SHOWN UNDER THE HEAD 'INTANGIBLE ASSETS' IN THE DEPRECIATION SCHEDULE ANNEXED TO THE TAX AUDIT REPORT FOR THE RELEVANT ASSESSMENT YEAR. 5 .3 T HE LD. S ENIOR DR , ON THE OTHER H AND , RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT GOVERNMENT AUTHORIZATION /APPROVALS WERE GRANTED IN RESPECT OF THE MACHINES OF PITNEY BOWES INC, USA AND THOSE PRODUCTS ARE APPROVED BY THE DEPARTMENT OF THE POST AND APPROVAL WAS NOT TO M/S K OAL AS AN ENTITY BUT APPROVAL WAS IN AGENT OF PITNEY BOWES INC US. THUS , ON TERMINATION OF AGENCY OR DISTRIBUTORS OF AGREEMENT, M/S KOAL COULD NOT HAVE GET ANY AUTHORIZATION FROM THE DEPARTMENT OF P OST. THIS GOVERNMENT AUTHORIZATION WAS NOT IN THE NATURE O F ANY RIGHT OR LICENSE IN THE HANDS OF THE M/S KOAL ITSELF. FURTHER, THESE GOVERNMENT AUTHORIZATIONS HAVE BEEN TRANSFERRED NOT BY M/S KOAL TO THE ASSESSEE, BUT SAME HAS BEEN ASSIGNED BY THE DEPARTMENT OF POST IN THE FAVOUR OF THE ASSESSEE , THUS SUCH GOVER NMENT AUTHORIZATIONS WERE NOT ANY KIND OF RIGHTS OR LICENSE GIVE N BY THE GOVERNMENTS TO M/S KOAL PER SE. ACCORDING TO HIM, GOVERNMENT AUTHORIZATION CANNOT BE HELD AS A INTANGIBLE ASSETS IN THE HANDS OF THE ASSESSEE. 5 .4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE IN DISPUTE INVOLVED IN THE CASE IS WHETHER THE GOVERNMENT A UTHORIZATION /APPROVALS FALLS UNDER THE CATEGORY OF INTANGIBLE ASSETS MENTIONED IN SECTION 32(1)(II) OF THE ACT READ WITH 29 ITA NO . 289 TO 293/DEL/2013 EXPLANATION - 3 AND EXPLANATION - 4 BELOW THE SAID SECTION. BEFORE WE PRO CEED TO ADJUDICATE ON THE ISSUE, I T IS RELEVANT TO REFER THE SAID SECTION WHICH READS AS UNDER: SECTION 32 . DEPRECIATION (1) IN RESPECT OF DEPRECIATION OF - (I) BUILDING, MACHINE RY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; (II) KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER FIRST DAY OF APRIL 1998, OWNED, WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED - . .. EXPLANATION 3. FOR THE PURPOSES OF THIS SUB - SECTION, THE EXPRESSION 'ASSETS' SHALL MEAN ( A ) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE; ( B ) INTANGIBLE ASSETS, BEING KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. EXPLANATION 4. FOR THE PURPOSES O F THIS SUB - SECTION, THE EXPRESSION 'KNOW - HOW' MEANS ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL - WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDING SEARCHING FOR DISCO VERY OR TESTING OF DEPOSITS FOR THE WINNING OF ACCESS THERETO). 5 .5 THUS , AS PER THE PROVISIONS OF THE ACT DEPRECIATION IS ALLOWABLE ON INTANGIBLE ASSETS OF THE NATURE MENTIONED IN THE PROVISION, WHICH ARE ACQUIRED ON OR AFTER 01/04/1998 AND THEN OWNED AND USED FOR THE PURPOSE OF BUSINESS, THEN DEPRECIATION SHALL BE ALLOWE D AT THE RATE PRESCRIBED UNDER R ULE 5 AND A PPENDIX - I OF INCOME TAX R ULES, 1962. 5 .6 IN THE CASE OF M/S ONGC VIDESH LTD . (SUPRA), THE ASSESSEE WAS ENGAGED IN EXPLORATION, DEVELOPMENT AND PRODUCTION OF HYDROCARBONS IN 30 ITA NO . 289 TO 293/DEL/2013 OVERSEAS JURISDICTIONS TO AUGMENT THE OIL SECURITY OF INDIA MAINLY BY WAY OF ACQUIRING PARTICIPATING INTEREST IN PRODUCTION SHARING CONTRACTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE THROUGH AN ASSIGNMENT AGREEMENT DT. 10TH FEB., 2001 WITH CONSORTIUM MEMBERS AND THE RUSSIAN GOVERNMENT ACQUIRED A 20 PER CENT PARTICIPATING INTEREST IN SAKHALIN PRODUCTION SHARING AGREEMENT ('SAKHALIN PSA'). THE PROJECT RELATES TO THE CHAYVO, ODOPTU AND AR KUTUN - DAGI OIL, GAS AND CONDENSATE FIELDS, WHICH IS OFFSHORE SAKHALIN ISLAND ('SAKHALIN BLOCK'). THE PSA WAS ENTERED INTO ON 30TH JUNE, 1995 AND WAS FOR A PERIOD OF 25 YEARS. THEN THE CONSORTIUM MEMBERS COMMENCED HYDROCARBONS OPERATIONS IN THE SAKHALIN BLO CK. ROSNEFT - S AND SMNG - S HELD 40 PER CENT INTEREST IN THE SAID SAKHALIN PSA AND IN A JOINT OPERATING AGREEMENT. VIDE THE ASSIGNMENT AGREEMENT DT. 10TH FEB., 2001, ROSNEFT - S AND SMNG - S (ASSIGNORS) ASSIGNED 50 PER CENT OF THEIR SHARE IN THE SAKHALIN PSA AND IN A JOINT OPERATING AGREEMENT TO OVI FOR A CONSIDERATION OF RS. 15,590.96 MILLION. CONSEQUENT TO THE ACQUISITION OF SUCH RIGHTS AND LICENSES, THE ASSESSEE BECAME A CONSORTIUM MEMBER AND THE ASSIGNORS WERE RELIEVED FROM OBLIGATION UNDER THE SAKHALIN PSA TO THAT EXTENT. THUS, BY ACQUIRING 20 PER CENT PARTICIPATING INTEREST, ASSESSEE HAS BECOME THE MEMBER OF THE CONSORTIUM AND ACQUIRED PROPORTIONATE SHARE IN RIGHTS AND LICENSES GRANTED BY THE RUSSIAN STATE FOR SAKHALIN BLOCK. BY ACQUIRING THESE BUSINESS RIGHT S AND EXPLORATION AND PRODUCTION LICENSES, THE ASSESSEE BECAME ENTITLED TO CARRY ON HYDROCARBON OPERATIONS IN THE SAKHALIN BLOCK. THE CONTENTION OF ASSESSEE WAS THAT THE RIGHTS AND LICENSES, BEING INTANGIBLE ASSETS, WERE ENTITLED TO DEPRECIATION @ 25 PER C ENT IN VIEW OF THE AMENDED PROVISIONS OF S. 32 OF THE ACT. SAID CLAIM OF THE DEPRECIATION WAS DISALLOWED BY THE ASSESSING OFFICER. THE TRIBUNAL AFTER CONSIDERING THE ARGUMENTS OF BOTH SIDES HELD AS UNDER: 31 ITA NO . 289 TO 293/DEL/2013 12. FROM THE RECORD, WE FOUND THAT HYDROCARBONS IN THEIR NATURAL HABITAT EMBEDDED IN A PARTICULAR TERRITORY ARE THE PROPERTY OF THE STATE GOVERNMENT, JURISDICTION OVER SUCH HYDROCARBONS DOES NOT LIE WITH ANY PRIVATE PERSON OTHER THAN STATE GOVERNMENT AND A PERSON CANNOT CARRY OUT HYDROCARBONS OPERATIONS U NLESS THE PERSON HAD ENTERED INTO A PRODUCTION SHARING AGREEMENT WITH THE GOVERNMENT. IN THE INSTANT CASE, BY ENTERING INTO AN AGREEMENT CALLED PCA, THE GOVERNMENT OWNING THE HYDROCARBONS, GRANTED RIGHTS TO THE ASSESSEE COMPANY ALONG WITH LICENSE FOR CARRY ING ON HYDROCARBONS OPERATIONS. THE BUSINESS RIGHTS IN THE LICENSE ARE OWNED BY THE ASSESSEE ENTERING INTO PCA AND SUCH RIGHT AND LICENSE CAN BE ASSIGNED AND TRANSFERRED TO OTHER PARTIES SUBJECT TO THE TERMS AND CONDITIONS OF THE PCA AND APPROVAL OF THE GO VERNMENT. THE ASSESSEE BY VIRTUE OF ACQUISITION OF 20 PER CENT PARTICIPATING INTEREST BECAME THE MEMBER OF THE CONSORTIUM AND ACQUIRED PROPORTIONATE SHARE IN RIGHTS AND LICENSES GRANTED BY THE RUSSIAN STATE FOR SAKHALIN BLOCK. BY ACQUIRING THESE BUSINESS R IGHTS AND PRODUCTION LICENSES, THE ASSESSEE BECAME ENTITLED TO CARRY ON HYDROCARBON OPERATIONS IN THE SAKHALIN PROJECT. THE STATUTORY EXPRESSION OF THE PROVISION GRANTING DEPRECIATION ON INTANGIBLE ASSET IS THAT : 'KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS , LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER 1ST APRIL, 1988.' 13. A READING OF THE ABOVE STATUTORY EXPRESSION BRINGS HOME THE POINT THAT THE LAW HAS SPECIFIED ITEMS OF IN TANGIBLE ASSETS ELIGIBLE FOR DEPRECIATION IN THE FOLLOWING CATEGORIES : (I) KNOW - HOW 32 ITA NO . 289 TO 293/DEL/2013 (II) PATENTS (III) COPYRIGHTS (IV) TRADEMARKS (V) LICENCES (VI) FRANCHISES (VII) ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. 14. SO FAR AS CLAIM OF DEPRECIATION IN CASE OF INTANGIBLE ASSETS FALLING IN THE CATEGORY OF 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' IS CONCERNED, AS PER OUR CONSIDERED VIEW, ALL THE BUSINESS OR COMMERCIAL RIGHTS ARE NOT BY THEMSELVES ASSET S ELIGIBLE FOR DEPRECIATION, AND THAT ONLY THOSE RIGHTS WHICH ARE SIMILAR IN NATURE WITH THE KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES ETC. ARE ELIGIBLE FOR CLAIM OF DEPRECIATION. IN VIEW OF PRINCIPLE OF EJUSDEM GENERIS, THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS' HAS TO BE READ IN THE COMPANY OF THE PRECEDING WORDS. THIS RULE OF INTERPRETATION MAKES AN ATTEMPT TO RECONCILE INCOMPATIBILITY BETWEEN THE SPECIFIC AND GENERAL WORDS. THE FIRST CATEGORY OF WORDS LIKE KNOW - HOW, PATENTS, COPY RIGHT, ETC., FORMS A DISTINCT GENESIS OR CATEGORY IN AS MUCH AS ALL THOSE ITEMS ARE SPECIFIC AND ELUCIDATED RIGHTS OF BUSINESS OR COMMERCIAL NATURE. IN SUCH CIRCUMSTANCES, THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE ALSO MUST BE IN THE SAME GENESIS OR CATEGORY WITH SPECIFIC AND ELUCIDATED IDENTITY OF COMMERCIAL OR BUSINESS NATURE. THEREFORE, IN THE LIGHT OF THE STATUTORY PROVISIONS CONTAINED IN S. 32(1)(II), THE COMMERCIAL RIGHTS OF EXPLORATION OF MINERAL OILS, AS ACQUIRED BY THE ASSESSEE FALL UNDER THE EXPRESSION OF ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF THE NATURE SIMILAR TO ONE OF THE CATEGORIES I.E., 33 ITA NO . 289 TO 293/DEL/2013 LICENSES AS STIPULATED IN S. 32(1)(II). THE COMMERCIAL RIGHTS OF EXPLORATION AND LICENSES ACQUIRED BY THE ASSESSEE BEING IN THE NATURE OF INTANGIBLE ASSETS ARE ELIGIBLE FOR THE CLAIM OF DEPRECIATION AT THE RATE PRESCRIBED UNDER S. 32(1)(II) OF THE ACT. THE AO HIMSELF IN HIS ORDER HAD OBSERVED THAT AS A RESULT OF ENTERING INTO SUCH AN AGREEMENT I.E., PCA, THE ASSESSEE COMPANY HAS BEEN GRANTED LICENSES BY RUSSIAN GOVERNMENT TO EXPLORE AND PRODUCE HYDROCARBONS IN THE AGREEMENT AREA. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAS INCURRED EXPENDITURE OF RS. 1,559.09 CRORES FOR OBTAINING THE RIGHT AND LICENSE FOR EXPLORATION OF OIL. IT IS NOT POSSIBLE TO SAY THAT SUCH EXPENDITURE WAS NEITHER CAPITAL NOR REVENUE IN NATURE. IF IT IS HELD TO BE CAPITAL, THEN IT IS OBVIOUS THAT WHAT THE ASSESSEE HAS ACQUIRED WAS A PARTICIPATING RIGHT WHICH IS IN THE NATURE OF COMMERCIAL RIGHT OF CAR RYING ON OF BUSINESS OF EXPLORATION AND PRODUCTION OF MINERAL OIL. IT ALSO CANNOT BE SAID THAT THE RIGHT SO ACQUIRED WAS NOT AN ASSET. IF IT IS AN ASSET BEING THE RIGHT THEN IT IS OBVIOUS THAT SAME IS COMMERCIAL RIGHT, THEREFORE IN THE NATURE OF ASSET IN T HE FORM OF LICENSE. THIS RIGHT HAD BEEN GRANTED TO THE ASSESSEE BY WAY OF LICENSE AND THE ASSESSEE BECAME OWNER OF SUCH RIGHT I.E., LICENSE TO HAVE AN ACCESS AND TO CARRY ON OF BUSINESS OF EXPLORATION AND DEVELOPMENT OF MINERAL OIL. ACCORDINGLY, AS PER OUR CONSIDERED VIEW SUCH AN ASSET FALLS WITHIN THE CATEGORY OF ASSET FALLING UNDER S. 32(1)(II) OF THE ACT. ACCORDINGLY, WE ARE INCLINED TO AGREE WITH THE LEARNED SENIOR COUNSEL THAT THE ASSESSEE HAD ACQUIRED BUSINESS AND COMMERCIAL RIGHT AND LICENSE BY MAKIN G PAYMENT OF RS. 1,559.10 CRORES, WHICH IS IN THE NATURE OF INTANGIBLE ASSETS ENTITLED TO CLAIM OF DEPRECIATION UNDER S. 32(1)(II) OF THE IT ACT. 34 ITA NO . 289 TO 293/DEL/2013 14A. IN VIEW OF THE ABOVE DISCUSSION ASSESSEE S CLAIM FOR ALLOWING DEDUCTION OF ENTIRE EXPENDITURE OF RS. 1,55 9.10 CRORES IS DECLINED. THE STAND OF CIT(A) IN TREATING THE ALLEGED EXPENDITURE AS DEFERRED REVENUE EXPENDITURE AND DIRECTING THE AO TO ALLOW 1/19TH OF THE EXPENDITURE DURING THE YEAR IS ALSO DECLINED, SINCE THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDI TURE UNDER IT ACT. AS WE HAVE TREATED THE EXPENDITURE AS CAPITAL IN NATURE THE SAME IS ELIGIBLE FOR CLAIM OF DEPRECIATION AT THE RATES PRESCRIBED FOR THE ASSETS FALLING UNDER S. 32(1)(II) OF THE ACT. WE DIRECT ACCORDINGLY . 5 .7 F URTHER , HON BLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCKS LIMITED (SUPRA) HELD THAT INTANGIBLE ASSETS CAN BE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS, WHICH IS NOT IN THE NATURE OF INTELLECTUAL PROPERTY. 5 .8 IN THE INSTANT CASE, THE CLAIM OF THE ASSES SEE IS THAT THE GOVERNMENT AUTHORIZATION IS THE APPROVAL/RIGHT GRANTED BY THE GOVERNMENT TO SELL THE APPROVED MACHINES WHICH IS AKIN TO A LICENSE OR A BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE AND THUS BY ACQUIRING THE GOVERNMENT AUTHORIZATIONS FR OM M/S KOAL IN SLUM SALE TRANSACTION, THE ASSESSEE HAS ACQUIRED RIGHT TO MARKET AND SELL THE FRANKING MACHINES , WHICH IS A KIND OF RIGHT TO DO BUSINESS ON PERMITS OR AUTHORIZATION . THE ASSESSEE HAS FURTHER CLAIMED THAT IT WAS ESSENTIAL FOR THE ASSESSEE T O ACQUIRE SUCH GOVERNMENT AUTHORIZATION FROM M/S . KOAL, OTHERWISE THE WHOLE MOTIVE OF ACQUIRING THE BUSINESS BY THE ASSESSEE FROM M/S KOAL WOULD BE RENDERED MEANINGLESS. 5 .9 THE ASSESSEE HAS NOT PRODUCED BEFORE US THE APPROVAL GRANTED BY THE DEPARTMENT OF P OST OR OTHER REGULATORY AUTHORITY, ISSUED TO M/S KOAL, WHICH THE ASSESSEE IS CLAIMING AS A LICENSE FOR MARKETING OF FRANKING MACHINES IN INDIA AND SOLD TO THE ASSESSEE UNDER SLUM SALE . 35 ITA NO . 289 TO 293/DEL/2013 HOWEVER , THE ASSESSEE HAS SUBMITTED A COPY OF A LETT ER ISSUED BY THE DEPARTMENT OF P OST, GOVERNMENT OF INDIA TO THE ASSESSEE COMPANY, WHICH IS AVAILA BLE ON PAGE 429 TWO 430 OF THE VOLUME 1B OF ASSESSEE S PAPER BOOK. CONTENTS OF THE SAID LETTER ARE REPRODUCED AS UNDER: 2. AT PRESENT PITNEY BOWES, US A ELECTR ONIC FRANKING MACHINES(EFMS) ARE DISTRIBUTED/MARKETED BY M/S, KILBUM OFFICE AUTOMATION LIMITED. AS STATED IN YOUR LETTER QUOTED ABOVE M/S. PITNEY BOWES OF USA HAS FORMED ITS SUBSIDIARY COMPANY IN INDIA UNDER THE COMPANIES ACT, 1956 AND IT INTENDS TO TAKE OVER THE MARKET ING OF PITNEY BO WES ELECTRON IC FRANKING MACHINES IN INDIA. S INCE M/S. KILB URN H AS GIVEN N O OBJECTION TO TRANSFER THE MARKETING OF SAID ELECTRONIC FRANKING MACHINES, APPROVAL OF THE DIRECTOR GENERAL, DEPARTMENT OF POSTS IS HEREBY ACCORDED FOR MARKETING OF P ITN E Y BOWES, USA E FMS TO M / S . PITNEY BOWES INDIA PVT. LIMI TED, E - 514, GREATER KAILASH, NEW DELHI - 48 IN INDIA TERMINATING THE EXISTING DISTRIBUTION CONTRACT WITH M S. KILBURN OFFICE AUTOMATION LIMITED WITH EF F ECT FROM THE DATE OF ISSUE OF THIS LETTER. THE F OLLOWING PITNEY BOWES ELECTRONIC FRANKING MACHINES(EFMS) WERE EARLIER APPROVED BY THE DEPARTMENT OF POSTS FOR DISTRIBUTION THROUGH M/S. KIL BUM OFFICE AUTOMATION LIMITED. SI .NO. MODEL APPROVAL NO. & DATE 1. A - 900 NO.53 - 2/93 - PMB(CPT) DATED 3.10.96. 2. B - 900 NO.2 - 3/ 96 C PT II DATED 28.7.98 3. GKM(E700) NO.2 - 3/96 CPT II DATED 29.7.98 4. B - 700 NO.2 - 6/98 - CPT.N DATED 23.9.99. 3. THE CONDITIONS GOVERNING THE APPROVAL OF EFMS MODELS CITED ABOVE ARE HEREBY REITERATED AGAIN AS UNDER FOR YOUR INFORMATION : (I) M/ S. PITNEY BOWES INDIA PVT. LIMITED (PBIL) WILL HAVE TO ADHERE TO THE SPECIFICATIONS OF MODEL APPROVED AND NO MODIFICATIONS TO ANY PART OF THE SAID MODELS SHOULD BE DONE WITHOUT WRITTEN AND PRIOR APPROVAL OF T HE DEPARTMENT OF POSTS. (II) PBH WILL HAVE TO MAINTAIN A RECORD SHOWING SALE OF MACHINES TO EACH PARTY WITH PARTICULARS OF LICENCE ISSUED IN RESPECT OF EACH MACHINE AND THIS, RECORD WILL BE OPEN JO SCRUTINY OF 36 ITA NO . 289 TO 293/DEL/2013 AUTHORIZED OFFICIALS OF THE DEPARTMENT OF POSTS WITHOUT PRIOR NOTICE. (III) PBIL WIL L BE HELD RESPONSIBLE FOR ANY MISUSE OF THE MACHINE AND ANY TAMPERING THAT MAY OCCUR IN THE HANDS OF ACTUAL USERS DUE TO ANY FAULT IN ITS DESIGN. IT IS, THEREFORE, NECESSARY TO APPLY RIGID QUALITY CONTROL DURING THE PROCESS OF MANUFACTURING TO ENSURE THAT THE MACHINE IS TAMPER PROOF AND FREE FROM ALL DEFECTS. 3. THE DIRECTOR GENERAL, DEPARTMENT OF POSTS RESERVES THE RIGID TO WITHDRAW THE APPROVAL OF THE SAID MODELS OF THE EFMS IN CASE ANY DEVIATION IN ITS SPECIFICATION AND FEATURE IS NOTICED. THE DIRECTOR GENERAL (POSTS) FURTHER RESERVES THE RIGHT TO TAKE POSSESSION OF ANY OR ALL OF T HE UNAPPROVED FRANKING MACHINES IF THEY - ARC FOUND TO HAVE BEEN MANUFACTURED OR SOLD BY YOUR FIRM CONTRARY TO THE SPECIFICATION OF THE APPROVED MODEL. 4. T HE ABOVE CONDITIONS CAN BE VARIED, ALTERED OR SUPPLEMENTED BY THE DIRECTOR GENERAL, DEPARTMENT OF PO STS, DEPENDING UPON THE VARIOUS OTHER CIRCUMSTANCES THAT MAY WARRANT ANY SUCH CHANGE FOR THE SMOOTH FUNCTIONING OF THE OPERATION OF THE INDIAN POST OFFICES. THE SAID APPROVAL WILL BE SUBJECT TO SUCH VARIED, ALTERED AND SUPPLEMENTED CONDITIONS W. E .F. THE DA TE OF THEIR NOTIFICATIONS. RECEIPT OF THE LETTER MAY PLEASE BE ACKNOWLEDGED. 5 .10 WE FIND THAT CONTENTS OF THE ABOVE LETT ER MANIFEST THAT THE DEPARTMENT OF POST HA D APPROVED SPECIFIC ELECTRONIC FRANKING M ACHINE OF PITNEY BOWES , INC . , USA. . THE APPROVALS WERE GRANTED SEPARATELY FOR FOUR MACHINES BETWEEN 03/10/1996 TO 03/09/1999. THESE FRANKING MACHINES WERE UTILISED FOR SALES OF THE STAMP PAPERS, AND THUS THE DEPARTMENT OF POST APPROVED MODELS WITH THE TECHNICAL SPECIFICATIONS, HAVING RIGID QUA LITY CONTROL DURING THE PROCESS OF MANUFACTURING AND ALSO ENSURED THAT MACHINES ARE TAMPERPROOF AND FREE FROM ALL DEFECTS. THE ASSESSEE HAS NOT PRODUCED BEFORE US COPIES OF THESE APPROVALS TO VERIFY AS TO WHOM THOSE APPROVALS WERE ADDRESSED. THE ASSESSEE HAS ALSO NOT PRODUCED COPY OF LETTER SENT BY THE DEPARTMENT OF POST ADDRESSED TO M/S KOAL. THE LETTER REPRODUCED ABOVE HAS BEEN ISSUED BY THE DEPARTMENT 37 ITA NO . 289 TO 293/DEL/2013 OF POST ON THE REQUEST OF THE ASSESSEE AND FIRST PARA MAKES THAT CLEAR. THE MIDDLE PART OF LETTER CONT AINS LIST OF MACHINES APPROVED A ND BOTTOM PART CONTAINS CERTAIN OBLIGATIONS ON THE ASSESSEE. IF WE PRESUME THAT SIMILAR LETTER WOULD HAVE BEEN ISSUED TO M/S KOAL, THEN, SIMILAR OBLIGATIONS OR DUTIES MUST HAVE BEEN CAST ON M/S KOAL THROUGH THAT LETTER . IN OUR OPINION, ISSUING THE LETTER OF APPROVAL OF MACHINES OF PITNEY BOWES INC, USA TO M/S KOAL IF ANY, CANNOT CREATE ANY RIGHTS IN FAVOUR OF M/S KOAL. THE LETTER , IF ANY ISSUED COMMUNICATING APPROVALS OF M ACHINES OF PITENY BOWES TO M/S KOAL , WAS NOT BECA USE OF ANY KIND OF ELIGIBILITY CRITERIA OF SAID COMPANY. THE LETTER ISSUED TO M/S KOAL WOULD BE IN ITS AGENT STATUS AND COMPLIANCE OF WHICH WAS DEPENDENT ON SUPPLY OF MACHINES BY THE PITNEY BOWES INC, USA TO M/S KOAL. THE MOMENT, THE PITNEY BOWES INC US A, TERMINATES THE AGREEMENT OF DISTRIBUTION OF ITS MACHINES, THE LETTER ISSUED BY THE DEPARTMENT OF POST IN THE NAME OF M/S KOAL ALSO LOSES ITS SANCTION. THE KOAL HAS NOT GOT ANY RIGHTS TO SALE IN FAVOUR DUE TO LETTER ISSUED BY THE DEPARTMENT OF POST. M/S KOAL GOT LETTER FOR SALE OF MACHINES OF M/ S PITNEY BOWES INC , USA BECAUSE IT WAS DISTRIBUTOR OF SAID COMPANY AND THUS IT GOT RIGHT TO SALE OF THOSE MACHINES IN INDIA BECAUSE OF ITS DISTRIBUTION RIGHTS . WE DO NOT FIND ANY MATERIAL WHICH COULD SUGGEST THA T M/S KOAL WAS HAVING RIGHT OF TRANSFERRING SUCH LETTER COMMUNICATING APPROVALS BY THE DEPARTMENT OF POST TO ANY PERSON OF ITS CHOICE. THE DEPARTMENT OF POST HAS CONVEYED APPROVAL OF T HE MACHINES OF PITNEY BOWES INC. USA AND IMPOSED CERTAIN OBLIGATIONS ON THE ASSESSEE TO PERFORM. IN VIEW OF OUR DISCUSSION, WE ARE OF THE OPINION THAT THE ABOVE REFERRED LETTER COMMUNICATING GOVERNMENT AUTHORIZATION /APPROVAL , WAS NEITHER A LICENSE OR BUSINESS OR COMMERCIAL RIGHTS IN THE HANDS OF M/S KOAL NOR IT WAS HAVING ANY RIGHT TO TRANSFER THOSE APPROVALS TO ANY PERSON OF ITS CHOICE. IT IS THE DEPARTMENT OF POST, WHO WAS HAVING AUTHORITY TO APPROVE 38 ITA NO . 289 TO 293/DEL/2013 ELECTRONIC FRANKING MACHINES IN INDIA AND APPROVAL OF MACHINES OF PITNEY BOWES INC USA, HAS NOT CREATED ANY KIND OF RIGHTS IN THE HANDS OF M/S KOAL , WHICH COULD BE TRANSFERRED TO ANY THIRD PARTY. ON THE CONTRARY, IN VIEW OF THE APPROVAL OF MACHINES BY DEPARTMENT OF POST, CERTAIN OBLIGATIONS OF MAINTAINING RECORDS AND ENSURING OF NO TAMPERING, HAVE BEEN IMPOSED ON THE ASSESSE E. THE RIGHT TO SALE THOSE FRANKING MACHINE INDIA WAS AS A RESULT OF DISTRIBUTION RIGHTS GRANTED BY M/S PITNEY BOWES INC , USA, AND NOT DUE TO GOVERNMENT APPROVALS. IN THE CASE OF M/S SHARP BUSINESS SYSTEM 254 CTR 0233, HON BLE, DELHI HIGH COURT HAS HE LD THAT FOR ANY RIGHT TO BE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHT AS LAID DOWN IN SECTION 32(1)(II) OF THE ACT, TWO CRITERIA SHOULD BE MET. FIRST THAT IT SHOULD BE RIGHT IN REM AND THE SECOND IT SHOULD BE ALIENABLE OR TRANSFERABLE. 5.11 IN THE CASE OF M/S ONGC VIDESH LTD . (SUPRA), THE ASSESSEE ACQUIRED THE RIGHT TO PRODUCTION IN A CONSORTIUM FROM PARTIES, WHO WERE HAVING SUCH RIGHT OF PRODUCTION IN THEIR INDEPENDENT CAPACITY. SIMILARLY IN THE CASE OF TECHNO SHARES IN STOCKS LIMITED (SUPRA) , HOLDING OF MEMBERSHIP OF THE STOCK EXCHANGE BY A MEMBER HAS BEEN HELD AS INTANGIBLE ASSETS ELIGIBLE FOR DEPRECIATION. IN BOTH THE CASES THE RIGHTS OF BUSINESS OR COMMERCIAL NATURE WERE POSSESSED BY THE ASSESSE ES, WHEREAS IN THE INSTANT CASE , THE APPROVA L HAS BEEN GRANTED TO MACHINES OF PITNEY BOWES INS, USA ONLY AND NOT TO M/S KOAL, WHICH EVEN IT COULD NOT TRANSFER TO ANY PERSON OF ITS CHOICE. THUS , FACTS OF THE INSTANT CASE ARE DISTINGUISHABLE FROM THE CITED CASES. 5.12 SINCE WE HAVE DECIDED THAT GOVERNMENT AUTHORIZATIONS /APPROVALS ARE NOT ANY KIND OF INTANGIBLE ASSE T IN THE HAND OF THE KOAL, THE OTHER ARGUMENTS OF THE PARTIES THAT M/S KOAL HAS NOT PAID ANY VALUE FOR PURCHASE OF THESE GOVERNMENT APPROVALS AND THE VALUE ASSIGNED BY THE 39 ITA NO . 289 TO 293/DEL/2013 VALUER APPOIN TED BY THE ASSESSEE COMPANY , WAS A HYPOTHETICAL VALUE ONLY ETC ARE NOT REQUIRED TO BE CONSIDERED. 5 .13 IN VIEW OF ABOVE DISCUSSION, WE HOLD THAT GOVERNMENT AUTHORIZATION /APPROVALS ARE NEITHER LICENSE NOR THE RIGHTS OF BUSINESS OR COMMERCIAL NATURE IN THE HANDS OF M/S. KOA L, WHICH COULD BE TRANSFERRED TO THE ASSESSEE AND THEREFORE NO DEPRECIATION ON THE VALUE ASSIGNED TO GOVERNMENT ORGANIZATIONS /APPROVALS BY THE ASSESSEE, COULD BE ALLOWED TO THE ASSESSEE. THE GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 6 . IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGE D DEPRECIATION DISALLOWED ON NON - COMPETE FEE. 6 .1 THE TRIBUNAL IN ITS ORDER DATED 12/11/2010 IN ITA NO. 1428/DEL/2009 AND CO NO. 178/DEL/2009 IN APPEAL AGAINST THE ORDER OF THE LD. CIT - A ARISING FROM THE ORIGINAL ASSESSMENT UNDER SECTION 143(3) OF THE ACT DATED 28/12/2007, UPHELD THE NON - COMPETE FEE EXPENDITURE OF CAPITAL NATURE, HOWEVER THE ALTERNATIVE PLEA OF ALLOWING DEPRECIATION ON NON - COMPETE FEE, IF THE SAME WAS HELD TO BE OF CAPITAL NATURE, WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ISSUE OF NON - COMPETE FEE AS CAPITAL EXPENDITURE WAS SUBSEQUENTLY UPHELD BY THE HON BLE HIGH COURT AS WELL AS HON BLE SUPREME COURT. THE ASSESSING OFFICER IN COMPLIANCE TO THE DIRECTION OF THE TRIBUNAL RAISED QUERIES T O THE ASSESSEE. THE ASSESSEE CONTENDED THAT NON - COMPETE FEE IS SQUAREL Y FALLS WITHIN THE EXPRESSION ANY OTHER BUSINESS/COMMERCIAL RIGHTS OF SIMILAR NATURE USED IN CLAUSE(II) OF SUBSECTION(1) OF SECTION 32 OF THE ACT. HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE MENTIONED IN SUB CLAUSE (II) OF SUBSECTION (1) OF SECTION 32 IS RELATED TO A CLASS OF RIGHTS WHICH ARE INTELLECTUAL PROPERTY RIGHTS WHEREAS THE ALLEGED PAYMENT IS FOR NON - COMPETE FEE. ACCORDIN GLY , HE DENIED DEPRECIATION ON THE NON - COMPETE 40 ITA NO . 289 TO 293/DEL/2013 FEE , WHICH IS SUSTAINED AS CAPITAL EXPENDITURE BY THE TRIBUNAL AND UPHELD BY THE HON BLE HIGH COURT AS WELL AS HON BLE SUPREME COURT. 6 .2 ON FURTHER APPEAL, THE LD. CIT - A FOLLOWING HIS OWN ORDER IN ASSESSM ENT YEARS 2006 - 07, 2007 - 08 AND 2009 - 10 UPHELD THE DISALLOWANCE OF DEPRECIATION ON NON - COMPETE FEE. THE LD. CIT - A IN DECISIONS FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2009 - 10, RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S . SHARP BUSINESS SYSTEMS (INDIA) LIMITED IN ITA NO. 4564/DEL/2004 DATED 30/06/2011. 6 .3 BEFORE US , THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED AS UNDER: 2.4.7 SUCH RIGHT TO CARRY ON BUSINESS UNFETTERED BY ANY COMPETITION FROM KOAL WOULD RESULT IN ACQUISITION OF CAPITAL ASSET OF A 'SIMILAR NATURE' AS 'KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARK OR FRANCHISEE. SIMILAR EXAMINATION WAS DONE IN THE CHENNAI ITAT DECISION OF ITO VS MEDICORP TECHNOLOGIES INDIA LTD. [122 TTJ 394].IN THE FACTS OF THE SAID CASE, THE APPELLANT COMPANY MADE PAYMENT TO ANOTHER COMPANY FOR PURCHASE OF ITS EXPORT BUSINESS. THE CONSIDERATION PAID ALSO INVOLVED PAYMENT FOR THE NON - COMPETE OBLIGATION FOR A PERIOD OF 10 YEARS. THE CHENNAI ITAT HELD THAT THE PAYMENT FOR THE NON - COMPETE FEE FALLS UNDER THE DEFINITION OF 'BUSINESS OR COMMERCIAL RIGHT'. IN EXAMINING WHETHER THE SAID EXPENDITURE WOULD BE TREATED AS SIMILAR NATURE' OR NOT, THE EXAMINATION WAS DON E BY APPLYING THE PRINCIPLES OF EJUSDEM GENERIS WHICH APPLIES WHEN THE MENTION OF SPECIFIC ITEMS OF THE SAME GENUS IS FOLLOWED BY AN EXPRESSION OF A GENERAL OR A RESIDUARY NATURE PERTAINING TO THE SAME GENUS. THE SCOPE OF THIS RULE IS THAT WORDS OF A GENER AL NATURE FOLLOWING SPECIFIC AND PARTICULAR WORDS SHOULD BE CONSTRUED AS LIMITED TO THINGS WHICH ARE OF THE SAME NATURE AS THOSE SPECIFIED. 2.4.8 FURTHER, RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE DECISION OF CIT VS. I NGERSOLL RAND INTERNATIONAL IND. LTD. [2014] 48 TAXMANN.COM 349 (KAR - HC) (REFER FROM PAGE 219 TO 227 OF THE PAPER BOOK FOR CASE LAWS), WHEREIN THE HON'BLE HIGH COURT HELD: 41 ITA NO . 289 TO 293/DEL/2013 'THE TERM 'OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAS TO BE INTERPRETED IN SUCH A WAY THAT IT WOULD HAVE SOME SIMILARITIES AS OTHER ASSETS MENTIONED IN CL.(B) OFEXPLN.3. HERE THE DOCTRINE OF EJUSDEM GENERIS WOULD COME INTO OPERATION AND THEREFORE THE NON - COMPETE FEE VESTS A RIGHT IN THE ASSESSEE TO CARRY ON BUSINES S WITHOUT COMPETITION WHICH IN TURN CONFERS A COMMERCIAL RIGHT TO CARRY ON BUSINESS SMOOTHLY. WHEN ONCE THE EXPENDITURE INCURRED FOR ACQUIRING THE SAID RIGHT IS HELD TO BE CAPITAL IN NATURE, CONSEQUENTLY THE DEPRECIATION PROVIDED UNDER SEC.32(L)(II) IS ATT RACTED AND THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION AS PROVIDED IN THE SAID PROVISION '(PARA 8) (REFER PAGE 227 OF THE PAPER BOOK FOR CASE LAWS) . 6 .4 ON THE OTHER HAND, THE LD. S ENIOR DR SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S . SHARP BUSINESS S YSTEM LTD . (SUPRA) HAS BEEN UPHELD BY THE HON BLE DELHI HIGH COURT AND WHICH IS REPORTED AS SHARP BUSINESS SYSTEM VERSUS COMMISSIONER OF INCOME TAX - III, (2012) 27 TAXMANN.COM 50 (DELHI) AND THUS ISS UE IS COVERED IN FAVOUR OF THE R EVENUE. 6 .5 IN THE REJOINDER, THE LD. COUNSEL ALSO ACCEPTED THE FACT THAT ISSUE IN DISPUTE WAS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS S YSTEM (SUPRA). 6 .6 WE HAVE HEARD THE RIVAL SUBMISS ION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE IN DISPUTE IS WHETHER NON - COMPETE FEE IS IN THE NATURE OF INTANGIBLE ASSETS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. THIS ISSUE HAS BEEN DECIDED BY THE HON BLE HIGH COURT OF DE LHI IN THE CASE OF SHARP BUSINESS S YSTEM (SUPRA) AS UNDER: Q. NOS. 2 AND 3 IN TANGIBLE ASSET - 11. THIS QUESTION AROSE AS A DIRECT SEQUEL TO THE APPELLANT S ALTERNATIVE SUBMISSION THAT IF THE EXPENDITURE IS TREATED AS A CONFERRING CAPITAL ADVANTAGE, NECES SARILY THEY ARE DEPRECIABLE. THE APPELLANT CLAIMS FOR DEPRECIATION OF 'KNOW - HOW', 'PATENTS', 'COPYRIGHTS', 'TRADEMARKS', 'LICENSES', 'FRANCHISES' OR OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS 42 ITA NO . 289 TO 293/DEL/2013 ACQUIRED ON OR AFTER 1 ST DAY OF APRIL 1998. ARGUING BY ANALOGY, LEARNED COUNSEL FOR THE APPELLANT RELIED UPON THE JUDGMENT OF THE SUPREME COURT IN TECHNO SHARES & STOCKS LTD. (SUPRA) WHERE THE ISSUE WAS WHETHER THE CONTENTION OF THE ASSESSEE THAT IT COULD CLAIM DEPRECIATION ON TH E BOMBAY STOCK EXCHANGE MEMBERSHIP CARD HELD BY IT ON THE PLEA THAT IT WAS A LICENSE OR 'BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE' WAS UPHELD. THE APPELLANT ALSO RELIED UPON THE DECISION OF THIS COURT IN HINDUSTAN COCO COLA BEVERAGES P. LTD. (SUPRA) AND THE JUDGEMENT OF THE KERALA HIGH COURT IN B. RAVINDRAN PILLAI V. CIT 332 ITR 531 (KER). AS WOULD BE EVIDENT FROM SECTION 32(1)(II), DEPRECIATION CAN BE ALLOWED IN RESPECT OF INTANGIBLE ASSETS. PARLIAM ENT HAS SPELT - OUT THE NATURE OF SUCH ASSETS BY EXPRESS REFERENCE TO KNOW - HOW , PATENTS , COPYRIGHTS , TRADEMARKS , LICENSES AND FRANCHISES . SO FAR AS PATENTS, COPYRIGHTS, TRADEMARKS, LICENSES AND FRANCHISES ARE CONCERNED, THOUGH THEY ARE INTANGIBLE ASSETS, THE LAW RECOGNIZES THROUGH VARIOUS ENACTMENTS THAT SPECIFIC INTELLECTUAL PROPERTY RIGHTS FLOW FROM THEM. LICENSES ARE DERIVATIVE AND OFTEN ARE THE MEANS OF CONFERRING SUCH INTELLECTUAL PROPERTY RIGHTS. THE ENJOYMENT OF SUCH INTELLECTUAL PROPERTY R IGHT IMPLIES EXCLUSION OF OTHERS, WHO DO NOT OWN OR HAVE LICENSE TO SUCH RIGHTS FROM USING THEM IN ANY MANNER WHATSOEVER. SIMILARLY, IN THE MATTER OF FRANCHISES AND KNOW - HOW, THE PRIMARY BRAND OR INTELLECTUAL PROCESS OWNER OWNS THE EXCLUSIVE RIGHT TO PRODU CE, RETAIL AND DISTRIBUTE THE PRODUCTS AND THE ADVANTAGES FLOWING FROM SUCH BRAND OR INTELLECTUAL PROCESS OWNER, BUT FOR THE GRANT OF SUCH KNOW - HOW RIGHTS OR FRANCHISES. IN OTHER WORDS, OUT OF THESE SPECIES OF INTELLECTUAL PROPERTY LIKE RIGHTS OR ADVANTAGE S LEAD TO THE DEFINITIVE ASSERTION OF A RIGHT IN REM. THE DECISIONS OF THIS COURT IN HINDUSTAN COCO COLA BEVERAGES P. LTD. ITA - 492 - 12 PAGE 11 (SUPRA) AND THAT OF THE KERALA HIGH COURT IN B. RAVINDRAN PILLAI (SUPRA) UNDERLINED THAT GOODWILL IS ALSO A SPECIE S OF DEPRECIABLE RIGHT WHICH CAN CLAIM THE BENEFIT OF SECTION 32. THOSE DECISIONS WERE BASED ON THE RULING OF THE SUPREME COURT IN CIT V. B.C. SRINIVASA SETTY 1981 (128) ITR 294 (SC) AND SUBSEQUENT CASES WHICH HAVE RULED THAT GOODWILL IS A DEPRECIABLE CAPITAL ASSET. SO FAR AS THE DECISIONS IN TECHNO SHARES & STOCKS LTD. (SUPRA) IS CONCERNED, THE SUPREME COURT CLEARLY LIMITED ITS HOLDING THAT THE RIGHT TO MEMBERSHIP OF STOCK EXCHANGE IS IN THE NATURE OF 'AN Y OTHER BUSINESS OR COMMERCIAL RIGHT' WHICH WAS AN INTANGIBLE ASSET AS IS EVIDENT FROM THE FOLLOWING OBSERVATIONS: 'BEFORE CONCLUDING WE WISH TO CLARIFY THAT OUR PRESENT JUDGMENT IS STRICTLY CONFINED TO THE RIGHT TO MEMBERSHIP CONFERRED UPON THE MEMBERSHIP UNDER THE BSE MEMBERSHIP CARD DURING THE RELEVANT ASSESSMENT YEARS. WE HOLD THAT THE SAID RIGHT TO MEMBERSHIP IS 'BUSINESS OR COMMERCIAL ACTIVITY' WHICH GIVES A NON - DEFAULTING CONTINUING MEMBERSHIP AND RIGHT TO ACCESS EXCHANGE AND TO PARTICIPATE THEREIN A ND IN THAT SENSE IT IS A LICENSE OR AKIN TO A LICENSE, IN TERMS OF SECTION 32(1)(II).......' 12. IT IS, THEREFORE, APPARENT THAT THE RULING IN TECHNO SHARES & STOCKS LTD. (SUPRA) WAS CONCERNED WITH AN EXTREMELY LIMITED CONTROVERSY, I.E. DEPRECIABILITY OF STOCK EXCHANGE MEMBERSHIP. THIS COURT OBSERVES THAT SUCH NATURE WAS HELD TO BE AKIN TO A LICENSE BECAUSE IT ENABLE THE MEMBER, FOR THE DURATION OF THE MEMBERSHIP, TO ACCESS THE STOCK EXCHANGE. UNDOUBTEDLY, IT CONFERRED A 43 ITA NO . 289 TO 293/DEL/2013 BUSINESS ADVANTAGE AND WAS AN A SSET WHICH AND WAS CLEARLY AN INTANGIBLE ASSET. THE QUESTION HERE, HOWEVER, IS WHETHER A NON - COMPETE RIGHT OF THE KIND ACQUIRED BY THE ASSESSEE AGAINST L&T FOR SEVEN YEARS AMOUNTS TO A DEPRECIABLE INTANGIBLE ASSET. AS DISCUSSED EARLIER, EACH OF THE SPECIES OF RIGHTS SPELT - OUT IN SECTION 32(1)(II), I.E. KNOW - HOW, PATENT, COPYRIGHT, TRADEMARK, LICENSE OR FRANCHISE AS OR ANY OTHER RIGHT OF A SIMILAR KIND WHICH CONFERS A BUSINESS OR COMMERCIAL OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE HAS TO B E 'INTANGIBLE ASSET'. THE NATURE OF THESE RIGHTS MENTIONED CLEARLY SPELL - OUT AN ELEMENT OF EXCLUSIVITY WHICH ENURES TO THE ASSESSEE AS A SEQUEL TO THE OWNERSHIP. IN OTHER WORDS, BUT FOR THE OWNERSHIP OF THE INTELLECTUAL PROPERTY OR KNOW - HOW OR LICENSE OR F RANCHISE, IT WOULD BE HON BLE TO EITHER ACCESS THE ADVANTAGE OR ASSERT THE RIGHT AND THE NATURE OF THE RIGHT MENTIONED OR SPELT - OUT IN THE PROVISION AS AGAINST THE WORLD AT LARGE OR IN LEGAL PARLANCE 'IN REM'. HOWEVER, IN THE CASE OF A NON - COMPETITION AGRE EMENT OR COVENANT, THE ADVANTAGE IS A RESTRICTED ONE, IN POINT OF TIME. IT DOES NOT NECESSARILY - AND NOT IN THE FACTS OF THIS CASE, CONFER ANY EXCLUSIVE RIGHT TO CARRY - ON THE PRIMARY BUSINESS ACTIVITY. THE RIGHT CAN BE ASSERTED IN THE PRESENT INSTANCE ONL Y AGAINST L&T AND IN A SENSE, THE RIGHT 'IN PERSONAM'. INDEED, THE 7 YEARS PERIOD SPELT - OUT BY THE NON - COMPETING COVENANT BRINGS THE ADVANTAGE WITHIN THE PUBLIC POLICY EMBEDDED IN SECTION 27 OF THE CONTRA CT ACT, WHICH ENJOINS A CONTRACT IN RESTRAINT OF TRADE WOULD OTHERWISE BE VOID. ANOTHER WAY OF LOOKING AT THE ISSUE IS WHETHER SUCH RIGHTS CAN BE TREATED OR TRANSFERRED - A PROPOSITION FULLY SUPPORTED BY THE CONTROLLING OBJECT CLAUSE, I.E. INTANGIBLE ASSET . EVERY SPECIES OF RIGHT SPELT - OUT EXPRESSLY BY THE STATUTE - I.E. OF THE INTELLECTUAL PROPERTY RIGHT AND OTHER ADVANTAGES SUCH AS KNOW - HOW, FRANCHISE, LICENSE ETC. AND EVEN THOSE CONSIDERED BY THE COURTS, SUCH AS GOODWILL CAN BE SAID TO BE ALIENABLE. SUCH IS NOT THE CASE WITH AN AGREEMENT NOT TO COMPETE WHICH IS PURELY PERSONAL. AS A CONSEQUENCE, IT IS HELD THAT THE CONTENTIONS OF THE ASSESSEE ARE WITHOUT MERIT; THIS QUESTION TOO IS ANSWERED AGAINST THE APPELLANT AND IN FAVOUR OF THE REVENUE. 6 .7 RESPECTFULLY, FOLLOWING THE ABOVE DECISION OF THE HON BL E HIGH COURT, WE UPHOLD THE FINDING OF THE LD. CIT - ( A ) ON THE ISSUE IN DISPUTE. THE GROUND OF THE APPEAL IS ACCORDINGLY DISMISSED. 7 . IN GROUND NO. 4 THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF DEPRE CIATION ON GOODWILL. 7 .1 AS REGARDS THE CLAIM OF DEPRECIATION ON GOODWILL, THE ASSESSEE RAISE D ADDITIONAL GROUND FIRST TIME BEFORE THE LD. CIT - ( A ) IN A PPEAL ARISING FROM REASSESSMENT ONLY AND NO CLAIM WAS MADE EITHER IN THE RETURN OF INCOME OR BEFORE THE ASSESSING OFFICER IN ORIGINAL ASSESSMENT PROCEEDINGS OR IN THE FIRST ROUND OF APPELLATE PROCEEDINGS BEFORE LD. CIT - ( A ) OR BEFORE THE TRIBUNAL. THE LD. CIT - ( A ) HAS OBSE RVED THE PLEAS OF THE 44 ITA NO . 289 TO 293/DEL/2013 ASSESSEE A S VAGUE AS THE ASSESSEE WANTED THE AMOUNT INITIALLY SHOW N AS GOVERNMENT AUTHORIZATION TO BE CONSIDERED AS GOODWILL OR AS RESIDUAL INTANGIBLE ASSETS. LD. CIT - ( A ) OBSERVED THAT ASSESSEE HAS NOT FILED ANY EVIDENCE AS TO ACQUISITION OF GOODWILL. ACCORDING TO THE LD. CIT - ( A ), THERE WAS NEITHER ANY REFERENCE OF TRA NSFER OF ANY GOODWILL IN THE BTA NOR THERE WAS ANY MENTION OF GOODWILL IN THE VALUATION REPORT DATED 22/12/2005. HE FURTHER OBSERVED THAT ASSESSEE HAD NOT CLAIMED ANY DEPRECIATION ON GOODWILL IN THEIR PROFIT AND LOSS ACCOUNT OR COMPUTATION STATEMENT AND TH ERE FOR E THE ADDITIONAL GROUND WAS ONLY AN AFTERTHOUGHT WITHOUT ANY SUPPORTING EVIDENCE . THE LD. CIT - ( A ) DISTINGUISHED THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD IN ITA NO. 315/2010 DATED 30/03/2012. ACCORDING TO LD. CIT - ( A ) IN THE SAID CASE , THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE GOODWILL IN THE RETURN OF INCOME FILED WHEREAS IN THE INSTANT CASE NO SUCH CLAIM WAS MADE IN THE RETURN OF INCOME AND CLAIM WAS MADE FOR THE FIRST TIME IN FIRST APPELLATE PROCEEDING. HE FURTHER OBSERVED THAT THE ASSESSEE HAD NOT FURNISHED ANY DEPRECIATION STATEMENT OR VALUATION REPORT SUPPORTING EVIDENCE TO SUBSTANTIATE ITS CLAIM FOR DEPRECIATION ON THE GOODWILL AND ACCO RDINGLY HE REJECTED THE ADDITIONAL GROUND RAISED BY THE ASSESSEE SEEKING DEPRECIATION ON GOODWILL. 7 .2 BEFORE US , THE LD. COUNS EL SUBMITTED THAT THE VALUE OF G OVERNMENT A UTHORIZATION , NON - COMPETE FEE AND OTH ER ASSETS ACQUIRED FROM M/S KOA L WAS REDUCED FR OM THE TOTAL CONSIDERATI ON AND THE RESIDUAL VALUE OF RS.5,70,03, 830/ - WAS ASSIGNED TO THE AS SET OF GOODWILL. HE FURTHER SUBMITTED THAT GOODWILL IS AN INTANGIBLE ASSET AKIN TO THE KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSE, FRANCHISEE ETC AS HELD IN THE CASE OF ARERA T & D INDIA LTD (SUPRA) AND THE ASSETS ACQUIRED BY THE ASSES SEE FROM M/S KOA L ALSO INCLUDED BUSINESS INFORMATION, BUSINESS 45 ITA NO . 289 TO 293/DEL/2013 CONTRACT, TRANSFER OF EMPLOYEES ETC. IN SUPPORT OF THE CONTENTION THAT GOODWILL IS AN INTANGIBLE ASSETS ELIGIBLE F OR DEPRECIATION, THE LD. COUNSEL RELIED ON FOLLOWING DECISIONS: (I) AREA T & D INDIA LTD VERSUS DCIT(2012) 341 ITR 421(DEL). (II) CIT VERSUS SMIFS SECURITIES LTD (2012) 348 ITR 302(SC) (III) TRIUNE ENERGY SERVICES PRIVATE LIMITED VERSUS DCIT (2016) 65 TAXMANN.COM 288 (DE LHI) 7 .2.1 F URTHER , THE LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS WHERE IT IS HELD THAT EXCESS CONSIDERATION OVER THE VALUE OF NET ASSETS WAS CONSIDERED AS GOODWILL: (I) DECISION OF THE TRIBUNAL , MUMBAI BENCH IN THE CASE OF DCIT VS. TOYO E NGINEERING INDIA LTD . IN ITA NO. 3279/M/2008 (II) DECISION OF THE TRIBUNAL , HYDERABAD BENCH IN ITA NO. 198/HYD/2011 7 .2.2 F URTHER , THE LD. COUNSEL SUBMITTED THAT IN THE EVENTUALITY THAT VALUE OF THE G OVERNMENT A UTHORIZATION IS HELD TO BE OF NOT OF ANY VALUE THEN THAT AMOUNTS M AY BE ALLOCATED TO GOODWILL AND DEPRECIATION MIGHT BE ALLOWED ACCORDINGLY. 7 .3 ON THE OTHER HAND, THE LD. S ENIOR DR, RELIED ON THE ORDER OF THE LD. CIT - ( A ) AND SUBMITTED THAT THERE WAS NO MENTION OF GOODWILL IN THE BTA BETWEEN THE ASSESSEE AND M/S KOAL FOR SLUM SALE TRANSACTION. HE FURTHER SUBMITTED THAT THE ASSESSEE GOT THE ASSETS TRANSFERRED UNDER SLUM SALE TRANSACTION VALUED FROM A VALUER AND HE ASSIGNED VALU ES TO VARIOUS ASSETS INCLUDING G OVERNMENT A UTHORIZATION AND NON - COMPETE FEE ETC, HOWEVER HE DI D NOT ASSIGN ANY VALUE TO THE GOODWILL AND THEREFORE ASSESSEE IS NOT ENTITLED TO MAKE A CLAIM OF DEPRECIATION OF THE GOODWILL WHICH NEVER EXISTED. 46 ITA NO . 289 TO 293/DEL/2013 7 .4 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT IN THE CASE OF SMIFS S ECURITIES LTD . (SUPRA) , THE HON BLE SUPREME COURT HAS DECIDED A QUESTION OF LAW RAISED AS UNDER: QUESTION NO.[B]: 'WHETHER GOODWILL IS AN ASSET WITHIN THE MEANING OF SECTION 32 OF THE INCOME TAX ACT, 1961, AND WHETHER DEPRECIATION ON GOODWILL IS ALLOWABLE UNDER THE SAID SECTION?' ANSWER: IN THE PRESENT CASE, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.54,85,430/ - AS DEPRECIATION ON GOODWILL. IN THE COURSE OF HEARING, THE EXPLANATION REGARDING ORIGIN OF SUCH GOODWILL WAS GIVEN AS UNDER: 'IN ACCORDA NCE WITH SCHEME OF AMALGAMATION OF YSN SHARES & SECURITIES (P) LTD WITH SMIFS SECURITIES LTD (DULY SANCTIONED BY HON'BLE HIGH COURTS OF BOMBAY AND CALCUTTA) WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1998, ASSETS AND LIABILITIES OF YSN SHARES & SECURITIES ( P) LTD WERE TRANSFERRED TO AND VEST IN THE COMPANY. IN THE PROCESS GOODWILL HAS ARISEN IN THE BOOKS OF THE COMPANY.' IT WAS FURTHER EXPLAINED THAT EXCESS CONSIDERATION PAID BY THE ASSESSEE OVER THE VALUE OF NET ASSETS ACQUIRED OF YSN SHARES AND SECURITIES PRIVATE LIMITED [AMALGAMATING COMPANY] SHOULD BE CONSIDERED AS GOODWILL ARISING ON AMALGAMATION. IT WAS CLAIMED THAT THE EXTRA CONSIDERATION WAS PAID TOWARDS THE REPUTATION WHICH 47 ITA NO . 289 TO 293/DEL/2013 THE AMALGAMATING COMPANY WAS ENJOYING IN ORDER TO RETAIN ITS EXISTING CLIENTELE. THE ASSESSING OFFICER HELD THAT GOODWILL WAS NOT AN ASSET FALLING UNDER EXPLANATION 3 TO SECTION 32(1) OF THE INC OME TAX ACT, 1961 [ ACT , FOR SHORT]. WE QUOTE HEREIN BELOW EXPLANATION 3 TO SECTION 32(1) OF THE ACT: 'EXPLANATION 3. -- FOR THE PURPOSES OF THIS SUB - SECTION, THE EXPRESSIONS 'ASSETS' AND 'BLOCK OF ASSETS' SHALL MEAN -- [A] TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE; [B] INTANGIBLE ASSETS, BEING KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE.' EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' SHALL MEAN AN INTAN GIBLE ASSET, BEING KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. A READING THE WORDS 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRETING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 'GOODWILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. 7 .4.1 I N THE CASE O F AVERA T & D INDIA LTD (SUPRA) , HON BLE JURISDICTIONAL HIGH COURT, HELD THE BUSINESS INFORMATION, BUSINESS RECORDS, CONT RACTS, 48 ITA NO . 289 TO 293/DEL/2013 SKILLED EMPLOYEE, KNOW - HOW ETC AS BUSINESS AND COMMERCIAL RIGHTS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT , HOWEVER THE ISSUE OF ELIGIBILITY OF GOODWILL FOR DEPRECIATION WAS NOT DECIDED. REGARDING GOODWILL, T HE HON BLE COURT OBSERVED AS UNDER: 15. IN VIEW OF THE ABOVE, IT IS NOT NECESSARY TO DECIDE THE ALTERNATIVE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT GOODWILL PER SE IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. IN THE CIRCUMSTANCES, THE S UBSTANTIAL QUESTION OF LAW IS DECIDED IN THE AFFIRMATIVE AND THIS APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THE IMPUGNED ORDER IS SET ASIDE . 7 . 4.2 IN THE CASE OF TRIUNE ENERGY SERVICES PRIVATE L IMITED (SUPRA), THE TRIBUNAL HELD THAT NO CREDIBLE MATERIAL HAD BEEN BROUGHT IN THE VALUATION REPORT SUBMITTED BY THE ASSESSEE ON THE BASIS OF WHICH A SPECIFIC VALUATION COULD BE ASCRIBED TO ANY SPECIFIC INTANGIBLE ASSETS AND THEREFORE HELD THAT THE AO AND THE CIT - ( A ) WERE JUSTIFIED I N HOLDING THAT THE ASSESSEE WAS NOT ENTITLED TO DEPRECIATION ON TECHNICAL KNOWHOW, VALUATION OF BUSINESS AND NON - COMPETE FEE MENTIONED IN THE REPORT . IN RESPECT OF THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THE ENTIRE SUM OF RS. 40,58,75,529 / - PAID TOWARDS INTANGIBLE BE CONSIDERED AS GOODWILL AND THE TRIBUNAL FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. SMIFS S ECURITIES LTD . (SUPRA) UPHELD THAT ASSESSEE S CONTENTION THE DEPRECIATION COULD BE CLAIMED OF THE GOODWILL, BUT R EMANDED THE MATTER FOR PURPOSE O F THE VALUATION OF THE GOODWILL . THE HON BLE HIGH COURT AFTER CONSIDERING THE ARGUMENTS OF THE RIVAL PARTIES UPHELD THE ELIGIBILITY OF GOODWILL FOR DEPRECIATION WHICH IS ALLOWABLE UNDER SECTION 32 (1)(II) OF THE ACT IN VIEW O F THE DECISION OF HON BLE SUPR EME COURT IN THE CASE OF SMIFS S ECURITIES LTD . (SUPRA). THE HON BLE HIGH COURT FURTHER 49 ITA NO . 289 TO 293/DEL/2013 OBSERVED THAT IN THE BUSINESS IDENTIFICATION SCHEDULE APPENDED TO BUSINESS TRANSFER AGREEMENT APART FROM THE TANGIBLE ASSETS ALSO INCLUDE D CONTRACTS, BUSINESS RECORDS AND KNOW - HOW, EMPLOYEES AND GOODWILL OF THE TRANSFEROR COMPANY AND THE GOODWILL INCLUDED THE GOODWILL IN RELATION TO THE NAME ASSOCIATED TO THE BUSINESS. REGARDING THE GOODWILL , THE HON BLE HIGH COURT HELD AS UNDER: 13. GOODWILL IS INTANGIBLE ASSET PROVIDING A COMPETITIVE ADVANTAGE TO AN ENTITY. THIS INCLUDES A STRONG BRAND, REPUTATION, A COHESIVE HUMAN RESOURCES, DEALER NETWORK, CUSTOMER BASE ETC. THE EXPRESSION GOODWILL SUBSUME WITHIN IT A VARIETY INTANGIBLE BENEFITS THAT ARE REQUIRED WHEN A PERSON ACQUIRES A BUSINESS OF ANOTHER IS A GOING CONCERN. 7 . 4.3 IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES , THE HON BLE HIGH COURT ACCEPTED THE CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE THAT THE CONSIDERATION PAID BY THE ASSESSEE IN EXCESS OF ITS VALUE OF TANGIBLE ASSETS WAS RIGHTLY CLASSIFIED AS GOODWILL. 7 . 4.4 IN THE LIGHT OF ABOVE DECISIONS, WHEN WE LOOK AT THE FACT S OF THE INSTANT CASE WE FIND THAT IN THIS CASE , IN THE BUSINESS TRANSFER AGREEMENT (BTA) THERE IS NO MENTION OF GOODWILL . FURTHER, THE UNIT OF M/S KOAL , WHICH WAS ACTING AS A AGENT FOR SALE OF ELECTRONIC FRANKING MACHINES ETC OF M/S PITNEY BOWES INC, USA, IN INDIA AND NEPAL HAS BEEN TRANSFERRED TO THE ASSESSEE. IT WAS THE MACHINES OF M/S PITNEY BOWES INC . , USA WHICH ARE APPROVED BY THE DEPARTMENT OF POST DUE TO THEIR TECHNICAL COMPETENCY. ALL THE INTELLECTUAL PROPERTY RIGHTS IN THOSE MACHINES WERE LIED WIT H M/S PITNEY BOWES IN C. USA. THUS , IT WAS THE BRAND NAME OF THE PITNEY BOWES ON WHICH M/S KOAL WAS FLOATING. IN THE BUSINESS TRANSFER AGREEMENT (BTA) WHICH IS AVAILABLE ON PAGES 1 - 48 OF THE VOLUME 1 A OF 50 ITA NO . 289 TO 293/DEL/2013 THE PAPER BOOK, O N PAGE 12 , A LIST OF TRANSFERRED ASSETS IS MENTIONED WHICH INCLUDED REAL PROPERTY LEASED, TANGIBLE ASSETS LIKE FURNITURE EQUIPMENTS MACHINERY ETC, CONTRACT LICENSE AGREEMENTS ETC, INVENTORIES OF THE SELLER IN EXISTENCE, GOVERNMENT AUTHORIZATIONS, COMPUTER HARDWARE AND PROPRIETARY SOFTWARE , CUSTOMER AND VENDOR LIST, BUSINESS KNOW - HOW, RI GHT S OF THE SELLER UNDER SALES AND PURCHASE ORDERS, TRANSFERRED EMPLOYEE AND TRANSFERRED RETAILERS, ALL ADVANCES RECEIVED BY THE SELLER FROM ITS CUSTOMERS, ALL EARNEST MONEY DEPOSITS ETC. THE ASSESSEE HAS GO T VALUATION OF GOVERNMENT A UTHORIZATIONS AND NON - COMPETE FEE FROM M/S DELOITTE HASKINS AND SELLS . SAID VALUATION REPORT IS AVAILABLE ON PAGE 431 TO 451 OF THE VOLUME 1B OF PAPER BOOK. TH E VALUER HAS ASSIGNED VALUE TO G OVERNMENT A UTHORIZATIONS AT RS.3.63 CRORES AND VALUE TO NON - COMPETE AGREEMENTS AT RUPEES 4.83 CRORES, HOWEVER , NO VALUE WAS ASSIGNED TO OTHER INTANGIBLE ASSETS. 7 . 4.5 IN VIEW OF THE DECISION CITED ABOVE, WE ARE OF THE VIEW THAT LIST OF TRANSFERRED ASSET INCLUDED BUSINESS KNOW - HOW, CUSTOMER AND VENDOR LIST ETC WHICH ARE BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE AS SPECIFIED IN 32(1)(II) OF THE ACT, WHICH CONSTITUTE PART OF THE GOODWILL OF THE BUSINESS , TRANSFERRED AS GOING CONCERN TO THE ASSESSEE. SINCE IN THE CASE TANGIBLE ASSETS ALO NGWITH OTHER BUSINESS /COMMERCIAL RIGHTS, HAVE BEEN TRANSFERRED TO THE ASSESSEE, THE VALUE OF GOODWILL SHOULD BE COMPUTED BY REDUCING THE VALUE O F ALL LIABILITIES, THE TANGIBLE ASSETS , G OVERNMENT A UTHORIZATIONS VALUED BY THE VALUER AND NON - COMPETE FEE V ALUED BY THE VALUER, OUT OF THE SLUMP SALE CONSIDERATION AND THEN DEPRECIATION SHOULD BE ALLOWED AT THE RATE PRESCRIBED FOR THE INTANGIBLE ASSETS UNDER SECTION32(1)(II) OF THE ACT. 7 . 4.6 THE LD. S ENIOR DR CONTENDED BEFORE US THAT IN THIS CASE THE ORIGINA L ASSESSMENT PROCEEDINGS WERE COMPLETED AND THEREAFTER MAT TER WAS TAKEN BY THE ASSESSEE TO THE HON BLE SUPREME COURT, HOWEVER , IN 51 ITA NO . 289 TO 293/DEL/2013 ALL THOSE APPELLATE PROCEEDINGS, THE ASSESSEE DID NOT FILE ANY CLAIM FOR DEPRECIATION ON THE GOODWILL. THEREAFTER , REASSESSMEN T PROCEEDINGS HAVE BEEN TAKEN UP BY THE ASSESSING OFFICER WHEREIN THE CLAIM OF DEPRECIATION ON GOVERNMENT AUTHORIZATION AND NON - COMPETE FEE WAS DISALLOWED. I N APPELLATE PROCEEDING BEFORE THE LD. CIT - ( A ) , CONSEQ UENT TO THE REASSESSMENT ORDER , THE ASSESSEE FIRST TIME FILED THE CLAIM OF DEPRECIATION ON GOODWILL. ACCORDING TO THE LD. S ENIOR DR , THIS CLAIM WAS MADE IN VIEW OF THE FACT THAT DEPRECIATION ON GOVERNMENT AUTHORIZATION AND NON - COMPETE FEE WAS DISALLOWED. HE FURTHER SUBMITTED THAT REASS ESSMENT PROCEEDINGS WERE INITIATED FOR THE PURPOSE OF ASSESSMENT OF ESCAPED INCOME AND THE ASSESSEE IS NOT ENTITLED FOR ANY CLAIM OF DEDUCTION ENABLING IT TO REDUCE ITS INCOME IN REASSESSMENT PROCEEDINGS . IN SUPPORT OF THE CONTENTION , HE RELIED ON THE DECI SION OF THE HON BLE HIGH COURT OF JAMMU AND KASHMIR IN THE CASE OF CIT VS. STATE AGRO DEVELOPMENT CORPORATION REPORTED IN (2001) 248 ITR 487. 7 .5 WE FIND FORCE IN THE CONTENTION OF THE LD. SR. DEPARTMENTAL REPRESENTATIVE. I N APPELLATE PROCEEDINGS CONSEQU ENT TO ORIGINAL ASSESSMENT BEFO RE THE LD. CIT - ( A ) , THE TRIBUNAL , THE HON BLE HIGH COURT AND THE HON BLE SUPREME COURT , THE ASSESSEE DID NOT FILE ITS CLAIM FOR DEPRECIATION ON GOODWILL AND FOR THE FIRST TIME IT MADE THE CLAIM IN APPELLATE PROCEEDING CORRE SPONDING TO REASSESSMENT PROCEEDINGS. WE FIND THAT IN THE CASE OF CIT VS. STATE AGRO DEVELOPMENT CORPORATION (SUPRA), THE HON BLE HIGH COURT OF JAMMU AND KASHMIR OBSERVED AS UNDER: 8. IN VIEW OF THE ABOVE LEGAL POSITION, IN THE CASE BEFORE IT, THE SUPREME COURT HELD: SINCE THE ORIGINAL ASSESSMENT HAS BEEN CONCLUDED FINALLY AGAINST THE ASSESSEE, IT WAS NOT PERMISSIBLE FOR THE ASSESSEE IN 52 ITA NO . 289 TO 293/DEL/2013 THE REASSESSMENT PROCEEDINGS TO SEEK A REVIEW/R EVISION OF THE CONCLUDED ASSESSMENT FOR THE PURPOSE OF COMPUTATION OF THE ESCAPED INCOME. THE HIGH COURT CLEARLY FELL IN ERROR IN PERMITTING THE ASSESSEE TO RE AGITATE, IN THE REASSESSMENT PROCEEDINGS UNDER S. 147(A) OF THE ACT, THE FINALLY CONCLUDED ASSES SMENT PROCEEDINGS AND TO GRANT TO HIM RELIEF IN RESPECT OF ITEMS NOT ONLY EARLIER REJECTED, BUT ALSO UNCONNECTED WITH THE ESCAPEMENT OF INCOME BY ASSUMING AS IF THE ORIGINAL ASSESSMENT HAD NOT BEEN CONCLUDED OR WAS STILL OPEN . 9. IT IS CLEAR FROM THE ABOVE DECISION OF THE SUPREME COURT THAT PROCEEDINGS UNDER S. 147 OF THE ACT ARE FOR THE BENEFIT OF THE REVENUE AND NOT OF THE ASSESSEE AND THE ASSESSEE CANNOT BE PERMITTED TO CONVERT THE REASSESSMENT PROCEEDINGS TO HIS ADVANTAGE. THE ASSESSEE CANNOT CLAIM THAT ASSESSMENT SHOULD BE COMPLETED AND LOSS SHOULD BE DETERMINED TO ENABLE HIM TO CLAIM THE BENEFIT OF CARRY FORWARD AND SET OFF AGAINST THE INCOME OF SUBSEQUENT YEARS. IN SUCH A CASE, THE PROPER COURSE FOR THE INCOME TAX OFFICER WOULD BE TO DROP THE PRO CEEDINGS UNDER S. 147 OF THE ACT. 7 .6 THOUGH WE HAVE HELD IN PRECEDING P ARAS THAT FOLLOWING THE JUDGMENT OF THE HON BLE SUPR EME COURT IN THE CASE OF SMIFS S ECURITIES LTD . (SUPRA), DEPRECIA TION ON GOODWILL IS ALLOWABLE, BUT IN VIEW OF THE ABOVE DECISION OF THE HON BLE HIGH COURT OF JA MMU AND KASHMIR, IN OUR OPINION , THE CLAIM OF THE DEPRECIATION ON GOODWILL CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. 7 .7 THE ALTERNATIVE PLEA FOR ALLOCATING THE VALUE OF GOVERNMENT AUTHORIZATION TOWARDS GOODWILL IS NOT ACCEPTED AS THE VALUATION HAS BEEN CARRIED OUT BY THE ASSESSEE FROM A VALUER AND THE ASSESSEE IS CLAIMING THE SAME AS INDEPENDENT VALUER, THE ASSESSEE IS BOUND TO ACCEPT THE VALUE ASSIGNED TO GOVERNMENT AUTHORIZATIONS . THIS ALTERNATIVE PLEA OF THE ASSESSEE, IS ACCORDINGLY REJECTED. THE GROUND OF THE ASSESSEE IS DISMISSED. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. 53 ITA NO . 289 TO 293/DEL/2013 ITA NO. 290/DEL/2013 FOR AY 2006 - 07 9 . NOW WE TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO. 290/DEL/2013 FOR ASSESSMENT YEAR 2006 - 07. THE GROUNDS OF APPEAL READS AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ( LD. CIT(A) ) ERRED IN CONCLUDING THAT ASSESSMENT PROCEEDING UNDER SECTION 147/148 OF THE ACT WAS INITIATED CORRECTLY BY LEARNED ASSESSING OFFICER ( LD. AO ). 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION AMOUNTI NG TO RS.98,80,220 ON THE INTANGIBLE ASSET OF GOVERNMENT AUTHORIZATIONS WHICH WAS ACQUIRED BY THE APPELLANT UNDER A BUSINESS TRANSFER AGREEMENT WITH THE KILBURN OFFICE AUTOMATION LIMITED. 3. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCES O F DEPRECIATION ON THE BUSINESS OR COMMERCIAL RIGHTS ACQUIRED IN THE FORM OF NON - COMPETE RIGHTS UNDER SECTION 32 OF THE ACT HAVING TREATED THE SAID NON - COMPETE FEE AS CAPITAL EXPENDITURE IN NATURE. 4. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN NOT ALLOWING DE PRECIATION ON GOODWILL BEING AN INTANGIBLE ASSET ON WHICH DEPRECIATION IS MANDATORILY ALLOWABLE. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF 10 . THE F ACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE FILED ORIGINAL RETURN OF INCOME ON 30/11/2006 DECLARING INCOME OF RS.4,95, 64, 342/ - . THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 30/01/2008. SUBSEQUENTLY, THE ASSESSING OFFICER NOTICED IN ASSESSMENT PROCEEDING OF ASSESSMENT YEAR 2007 - 08, THAT THE ASSES SEE CLAIMED DEPRECIATION OF RS. 98,80,220/ - ON GOVERNMENT APPROVALS/ AUTHORIZATIONS BY TREATING THE SAME AS INTANGIBLE ASSETS, WHICH ACCORDING TO THE ASSESSING OFFICER WAS NOT ALLOWAB LE IN VIEW OF THE PROVISIONS OF LAW. IN 54 ITA NO . 289 TO 293/DEL/2013 THE ASSESSMENT YEAR 2007 - 08 COMPLETED ON 27/12/2010 , THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION CLAIMED ON SUCH GOVERNMENT APPROVALS. ACCORDING TO THE ASSESSING OFFICER INCOME CHARGEABLE TO TAX OF RS.98,80,22 0/ - HAD ESCAPED ASSESSMENT BY ALLOWING ASSESSEE EXCESSIVE DEPRECIATION IN TERMS OF SUB - CLAUSE (IV) OF CLAUSE (C) OF EXPLANATION - 2 TO SECTION 147 OF THE ACT AND THUS, AFTER RECORDING REASONS IN WRITING, HE ISSUED NOTICE UNDER SECTION 148 OF THE ACT. IN RESPONSE, THE ASSESSEE FILED RETURN OF INCOME ON 23/06/2011. IN THE RETURN OF INCOME FILED THE ASSESSEE MAINTAINED I TS CLAIM OF DEPRECIATION ON GOVERNMENT APPROVAL AND ALSO MADE/CLAIM OF RS.1,18,89,458/ - BEING 1/5TH OF NON - COMPETE FEE AS DEFERRED REVENUE EXPENDITURE. THE REASONS RECORDED WERE PROVIDED TO THE ASSESSEE. NOTICES UNDER SECTION 143(2) AND 142(1) OF THE AC T WAS ISSUED AND COMPLIED WITH. THE ASSESSMENT WAS C OMPLETED AT TOTAL INCOME OF RS. 5,94,44,562/ - UNDER SECTION 147 O F THE ACT READ WITH SECTION 143 (3) OF THE ACT ON 09/12/2011 AFTER DISALLOWING DEPRECIATION ON GOVERNMENT APPROVALS AND REJECTING THE CLAIM O F DEPRECIATION ON NON - COMPETE FEE. IN THE APPEAL F ILED BEFORE THE LD. CIT - (A) , THE ASSESEE CHALLENGED VALIDITY OF REASSESSMENT PROCEEDING AND CONTESTED DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE ASSESSEE ALSO RAISED ADDITIONAL GROUND SEEKING DEPRECIAT ION ON GOODWILL. THE LD. CIT - ( A ) UPHELD THE VALIDITY OF THE REASSESSMENT PROCEEDINGS IN VIEW OF THE FACTS THAT RETURN WAS ONLY PROCESSED UNDER SECTION 143(1) OF THE ACT AND REOPENING WAS DONE WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR A ND THUS CONDITIONS OF SECTION 147 OF THE ACT WERE DULY SATISFIED. THE LEARNED CIT - ( A ) RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SH. RAJESH JHAVERI REPORTED IN 291 ITR 500(SC). THE LD. CIT - ( A ) ALSO REJECTED THE CONTENTION OF THE AS S ESSEE THAT IN VIEW OF M/S GKN D RIVESHAFT (INDIA) LTD VS. ITO REPORTED IN 259 ITR 19 (SC) WITHOUT DISPOSING THE OBJECTION FILED BY THE ASSESSEE AGAINST 55 ITA NO . 289 TO 293/DEL/2013 THE INITIATION OF REASSESSMENT PROCEEDING. THE LEARNE D CIT - A UPHELD THE DISALLOWAN CE OF DEPRECIATION OF R S.98,80, 220/ - ON GOVERNMENT AUTHORIZATION FOLLOWING HIS EARLIER ORDERS IN ASSESSMENT YEAR 2007 - 08. SIMILARLY , THE DISALLOWANCE OF 1/5 TH OF NON - COMPETE FEE AS DEFERRED REVENUE EXPENDITURE WAS SUSTAINED. THE ALTERNATIVE PLEA OF ALLOWING DEPRECIATION ON NON - COMPETE FEES WAS ALSO REJECTED FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2007 - 08. THE ADDITIONAL GROUND OF THE ASSESSEE SEEKING DEPRECIATION ON GOODWILL WAS ALSO REJECTED FOLLOWING HIS FINDING IN ASSESSMENT YEAR 2007 - 08. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 11 . IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED VALIDITY OF ASSESSMENT PROCEEDING UNDER SECTION 147 OF THE ACT. 11 .1 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILED PAPER BOOK HAVING TWO VOL UMES I.E. VOLUME 1 AND VOLUME 2 (PAGES 1 TO 104). THE V OLUME 1 WAS FURTHER DIVIDED IN VOLUME 1A ( PAGES FROM 1 TO 242 ) AND VOLUME 1 B ( PAGES FROM 243 TO 451 ). THESE VOLUME 1 A AND V OLUME 1B ARE COMMON FOR THE APPEALS FILED FOR ASSESSMENT YEAR 2005 - 06 TO 20 09 - 10. THE LEARNED COUNSEL REFERRED TO THE REASONS RECORDED, AVAILABLE ON PAGE 29 OF VOLUME 2 OF THE PAPER BOOK AND SUBMITTED THAT THE ENTIRE PRIMARY AND MATERIAL FACTS WERE MADE AVAILABLE AT THE TIME OF ASSESSMENT FOR 2005 - 06 AND THEREFORE THERE WAS NO OM ISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL THE FACTS FULLY AND TRULY. 1 1 .2 HE FURTHER SUBMITTED THAT THERE WAS NO NEW MATERIAL OR BASIS TO REOPEN THE ASSESSMENT PROCEEDING AND ACCORDINGLY THE FUNDAMENTAL CONDITION LAID DOWN FOR INITIAT ION OF PROCEEDING UNDER SECTION 147/148 OF THE ACT WAS NOT SATISFIED IN THIS CASE. 11 .3 HE FURTHER SUBMITTED THAT MERE CHANGE OF OPINION OR HAVING SECOND THOUGHTS ON THE SAME MATERIAL CANNOT BE GROUND TO COMMENCE THE REASSESSMENT PROCEEDING. 56 ITA NO . 289 TO 293/DEL/2013 1 1 .4 IN SUPP ORT OF THE CONTENTION THE LD. COUNSEL RELIED O N THE DECISIONS OF THE HON BLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ORIENT C RAFT LTD . (2013) 29 TAXMANN.COM 392 AND CIT VS. ATUL KUMAR SWAMI(2014) 363 ITR 693 (DELHI). 1 1 .5 ON THE OTHER HAND, THE L D. S ENIOR DR , RELYING ON THE ORDERS OF THE LOWER AUTHORITIES SUBMITTED THAT IN THIS CASE ASSESSMENT HAS BEEN REOPENED WITHIN FOUR YEARS FROM THE END OF THE REL EVANT ASSESSMENT YEAR AND THERE FOR E THE REQUIREMENT OF PROVISO TO SECTION 147 OF THE ACT OF HAVING NO FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSING THE FACTS FULLY AND TRULY, WAS NOT ATTRACTED. HE FURTHER SUBMITTED DISCOVERY IN LATER ASSESSMENT YEAR THAT ASSESSEE WAS NOT ELIGIBLE FOR DE PRECIATION ON GOVERNMENT APPROVALS CONSTITUTED INFORMATION AND WHICH CAME TO THE ASSESSING OFFICER BY FRESH FACTS REVEALED LATER ON. IN SUPPORT OF THE CONTENTION HE RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF KALYANJI MAVJI & CO. VS. CIT REPORTED IN 102 ITR 287. HE FURTHER SUBMITTED THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND NO ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT, SO THERE WAS NO OCCASION WITH THE ASSESSING OFFICER TO FRAME A OPINION ON THE ISSUE OF DEPRECIATION ON GOVERNMENT AUTHORIZATION AND THUS IN REOPENING THE ASSESSMENT, THERE WAS NO CHANGE OF OPINION. HE FURTHER RELIED ON THE DECISION OF THE HON BLE DELHI HIGH COURT DATED 16 TH MAY, 2018 IN THE CASE OF INDU LATA RANGWALA IN W.P.(C) 1393/2002 1 1 .6 W E HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE REASONS RECORDED BY THE ASSESSING OFFICER FOR REOPENING OF THE ASSESSMENT ARE AVAILABLE ON PAGE 29 OF THE VOLUME 2 OF THE ASSESSE E S PAPER BOOK , WHICH READS AS UNDE R: 18.02.2011 DURING THE ASSESSMENT PROCEEDING FOR THE A.Y.2007 - 08 IT WAS FOUND THE EXPENDITURE OF NON COMPETE FEE BY TREATING IT AS DEFERRED REVENUE EXPENDITURE. AFTER EXAMINATION IT WAS FOUND THAT THE EXPENDITURE WAS 57 ITA NO . 289 TO 293/DEL/2013 CAPITAL EXPENDITURE IN NATURE AND WAS WRONGLY CLAIMED AS DEFERRED REVENUE EXPENDITURE. THE SIMILAR DEDUCTION WAS CLAIMED DURING THE A.Y.2006 - 07 ALSO. THUS, THE ASSESSEE HAS CLAIM AND WAS ALLOWED WRONG DEDUCTION/EXCESS DEDUCTION IN RESPECT OF AMOUNT OF NON COMPETE FEE. FURTHER THE ASSESSEE HAS TAKEN OVER BUSINESS OF FRANKING MACHINES FROM KOAL UNDER BUSINESS TRANSFER AGREEMENT EXECUTED ON 15/10/2004. THE ACQUISITION OF ABOVE BUSINESS WAS DONE ON SLUMP SALE BASIS BY PAYING A LUMP SUM CONSIDERATION. OUT OF T OTAL SALE CONSIDERATION PAID, THE ASSESSEE ASSIGNED VALUE OF RS. 4,51,66,708/ - TO THE GOVT., APPROVALS GRANTED TO KOAL FOR MARKETING FRANKING MACHINES BY THE DEPARTMENT OF POST, GOVT, OF INDIA AND DIFFERENT STATE GOVERNMENTS. THE ASSESSEE HAS CLAIMED DEPRE CIATION BY TREATING THE GOVT. APPROVALS/AUTHORIZATION AS DEPRECIABLE ASSETS. SINCE THE GOVT. APPROVALS FOR MARKETING THE FRANKING MACHINES ARE NOT DEPRECIABLE ASSET, ASSESSEE HAS WRONGLY CLAIMED AND ALLOWED DEPRECIATION ON IT. THUS, ASSESSEE S INCOME HAS E SCAPED ASSESSMENT TO THIS EXTENT ALSO. UNDER SUCH CIRCUMSTANCES I HAVE REASON TO BELIEVE THAT ASSESSEE'S INCOME TO THE EXTENT MENTIONED ABOVE HAS ESCAPED ASSESSMENT IN THE A.Y.2006 - 07 IN ORDER TO ASSESS THIS INCOME PROCEEDINGS U/S 147 OF THE INCOME TAX A CT, 1961 ARE INITIATED. 1 1 .7 IT IS EVIDENT FROM THE REASONS RECORDED THAT THE ASSESSING OFFICER HAS RELIED ON THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2007 - 08, WHEREIN THE CLAIM OF THE ASSESSEE OF 1/5 TH EXPENDITURE ON NON - COMPETE FEE AS DEFERRED REVENUE EXPENDITUR E AND CLAIM OF DEPRECIATION ON GOVERNMENT A UTHORIZATION HAS BEEN DISALLOWED. IN THE CASE OF KALYANJI MAVJI & C OMPANY VS. CIT (SUPRA) THE HON BLE SUPREME COURT HAS HELD THAT THE INFORMATION MAY COME FROM EXTERNAL SOURCE OR EVEN FROM MATERI ALS ALREADY ON RECORD OR MAY BE DERIVED FROM THE DISCOVERY OF NEW AND IMPORTANT MATTER OR FRESH FACTS. IN THE INSTANT CASE ALSO THE ASSESSING OFFICER DISCOVERED THE FACTS REQUIRED FOR REOPENING THE ASSESSMENT, DURING THE ASSESSMENT PROCEEDING FOR ASSESSMEN T YEAR 2007 - 08 AND WHICH CONSTITUTES AN INFORMATION ON THE BASIS OF WHICH THE ASSESSING OFFICER WAS HAVING REASON TO BELIEVE THAT INCOME ESCAPED ASSESSMENT. THUS , THE CONTENTION OF THE LD . COUNSEL THAT THERE WAS NO 58 ITA NO . 289 TO 293/DEL/2013 FRESH MATERIAL FOR REOPENING OF THE ASSESSMENT IS NOT TRUE. FURTHER , THE L D. COUNSEL CONTENDED THAT THAT THERE WAS NO FAILURE OR OMISSION ON THE PART OF THE ASSESSEE IN DISCLOSING FACTS FULLY AND TRULY. WE FIND THAT THE ASSESSMENT HAS BEEN REOPENED WITHIN THE FOUR YEARS FROM THE END OF THE R ELEVANT ASSESSMENT YEAR AND THEREFORE THE PR OVISO TO SECTION 147 OF THE ACT , ACCORDING TO WHICH NO ASSESSMENT COULD BE REOPENED WITHOUT FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FACT TRULY AND FULLY, IS NOT ATTRACTED IN THE FACTS OF THE INSTANT CASE. 1 1 .8 IN THE CASE OF ORIENT C RAFT LTD . (SUPRA), THE HON BLE HIGH COURT OF DELHI HELD THAT WHERE A RETURN OF INCOME HAS BEEN PROCESSED UNDER SECTION 143(1) OF THE ACT WITHOUT SCRUTINY AND SUBSEQUENTLY, RECORDING THE REASONS THAT ON GOING THROUGH THE RETU RN OF INCOME INCOME ESCAPED ASSESSMENT, AMOUNTED TO PREVIEW OF EARLIER PROCEEDINGS AND AN ABUSE OF POWER OF THE ASSESSING OFFICER. THE HON BLE C OURT IN THE SAID CASE OBSERVED THAT THERE WAS NO TANGIBLE MATERIAL FOR REOPENING THE ASSESSMENT. 1 1 .9 FURTHER , HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ATUL KUMAR SWAMI (SUPRA) HELD THAT MERE CONCLUSION OF PROCEEDING UNDER SECTION 143(1) DOES NOT IPSO FACTO BRINGS POWER OF INVOCATION OF REOPENING ASSESSMENTS. THE RELEVANT PARA OF THE DECISION IS REPRODUCED AS UNDER: 5. AS TO WHAT CONSTITUTES VALID 'REASONS TO BELIEVE' IS NO LONGER A MATTER OF DEBATE. SO LONG AS THE LAW DECLARED IN KELVINATOR (SUPRA) STANDS, A VALID REOPENING OF ASSESSMENT HAS TO BE BASED ONLY ON TANGIBLE MATERIAL TO JUSTIFY THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME. IN THE PRESENT CASE, THE NOTE FORMING PART OF THE RETURN CLEARLY MENTIONED AND DESCRIBED THE NATURE OF THE RECEIPT UNDER A NON - COMPETE AGREEMENT. THE REASONS FOR THE NOTICE UNDER SECTION 147 NOWHERE MENTIONED THAT THE REVENUE CAME UP WITH ANY OTHER FRESH MATERIAL WARRANTING RE - OPENING OF ASSESSMENT. IN THESE CIRCUMSTANCES, THE COURT IS OF THE OPINION THAT MERE CONCLUSION OF 59 ITA NO . 289 TO 293/DEL/2013 THE PROCEEDINGS UNDER SECTION 143(1) IPSO FACTO DOES NOT BRING INVOCATION OF POWERS FOR REOPENING THE ASSESSMENT. WE ARE SATISFIED THAT THE TRIBUNAL'S REASONS ARE JUSTIFIED AND DO NOT CALL FOR ANY INTERFERENCE. 11 .10 IT IS RELEVANT TO REFER THE DECISION OF THE HON BLE J URI SDICTIONAL HIGH COURT DATED MAY 18, 2016 IN THE CASE OF INDU LATA RANGWALA VERSUS DCIT IN WRIT P ETITION (C) 1393/2002 , WHERE IN THE HON BLE HIGH COURT CONSIDERED THE EARLIER DECISIONS AVAILABLE ON THE ISS UE OF REOPENING THE ASSESSMENT AND HELD AS UNDER: SUMMARY OF THE LEGAL POSITION 35.1 THE UPSHOT OF THE ABOVE DISCUSSION IS THAT WHERE THE RETURN INITIALLY FILED IS PROCESSED UNDER SECTION 143 (1) OF THE ACT, AND AN INTIMATION IS SENT TO AN ASSESSEE, IT IS NOT AN 'ASSESSMENT' IN THE STRICT SENSE OF THE TERM FOR THE PURPOSES OF SECTION 147 OF THE ACT. IN OTHER WORDS, IN SUCH EVENT, THERE IS NO OCCASION FOR THE AO TO FORM AN OPINION AFTER EXAMINING THE DOCUMENTS ENCLOSED WITH THE RETURN WHETHER IN THE FORM OF BALANCE SHEET, AUDIT ED ACCOUNTS, TAX AUDIT REPORT ETC. 35.2 THE FIRST PROVISO TO SECTION 147 OF THE ACT APPLIES ONLY (I) WHERE THE INITIAL ASSESSMENT IS UNDER SECTION 143 (3 ) OF THE ACT AND (II) WHERE SUCH REOPENING IS SOUGHT TO BE DONE AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN OTHER WORDS, THE REQUIREMENT IN THE FIRST PROVISO TO SECTION 147 OF THERE HAVING TO BE A FAILURE ON THE PART OF THE ASSESSEE 'TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS' DOES NOT AT ALL APPLY WHERE THE INITIAL RETURN HAS BEEN PROCESSED UNDER SECTION 143 (1) OF T HE ACT. 60 ITA NO . 289 TO 293/DEL/2013 35.3 AS EXPLAINED IN RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) 'AN INTIMATION ISSUED UNDER SECTION 143 (1) CAN BE SUBJECTED TO PROCEEDINGS FOR REOPENING', 'SO LONG AS THE INGREDIENTS OF SECTION 147 ARE FULFILLED'. 35.4 EXPLANATION 2 (B) BELOW SECTION 147 STATES THAT FOR THE PURPOSES OF S ECTION 147 , WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE AO THAT THE ASSESSEE HAS UNDERSTATED THE INCOME AND CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE AND RELIEF IN THE RETURN THEN THAT 'SHALL ALSO BE DEEMED TO BE A CASE WHERE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT'. 35.5 AS EXPLAINED BY THE SUPREME COURT IN RAJESH JHAVERI STOCK BROKERS P. LTD. (SUPRA) AND REITERATED BY IT IN ZUARI ESTATE DEVELOPMENT AND INVESTMENT CO. L TD. (SUPRA) AN INTIMATION UNDER SECTION 143 (1) (A) CANNOT BE TREATED TO BE AN ORDER OF ASSESSMENT. THERE BEING NO ASSESSMENT UNDER SECTION 143 (1) (A), T HE QUESTION OF CHANGE OF OPINION DOES NOT ARISE. 35.6 WHEREAS IN A CASE WHERE THE INITIAL ASSESSMENT ORDER IS UNDER SECTION 143 (3), AND IT IS SOUGHT TO BE REOPENED WITHIN FOUR YEARS FROM THE EXPIRY OF THE RELEVANT ASSESSMENT YEAR, THE AO HAS TO BASE HIS 'REASONS TO BELIEVE' THAT INCOME HAS ESCAPED ASSESSMENT ON SOME FRESH TANGIBLE MATERIAL THAT PROVIDES THE NEXUS OR LINK TO THE FORMATION OF SUCH BELIEF. IN A CASE WHERE THE INITIAL RETURN IS PROCESSED UNDER SECTION 143 (1) OF THE ACT AND AN INTIMATION IS SENT TO THE ASSESSEE, THE REOPENING OF SUCH ASSESSMENT NO DOUBT REQUIRES THE AO TO FORM REASONS TO BELIEVE 61 ITA NO . 289 TO 293/DEL/2013 THAT INCOME HAS ESCAPED ASSESSMENT, BUT SUCH REAS ONS DO NOT REQUIRE ANY FRESH TANGIBLE MATERIAL. 35.7 IN OTHER WORDS, WHERE REOPENING IS SOUGHT OF AN ASSESSMENT IN A SITUATION WHERE THE INITIAL RETURN IS PROCESSED UNDER SECTION 143 (1) OF THE ACT, THE AO CAN FORM REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT BY EXAMINING THE VERY RETURN AND/OR THE DOCUMENTS ACCOMPANYING THE RETURN. IT IS NOT NECESSARY IN SUCH A CASE FOR THE AO TO COME ACROSS SOME FRESH TANGIBLE MATERIAL TO FORM 'REASONS TO BELIEVE ' THAT INCOME HAS ESCAPED ASSESSMENT. 35.8 IN THE ASSESSMENT PROCEEDINGS PURSUANT TO SUCH REOPENING, IT WILL BE OPEN TO THE ASSESSEE TO CONTEST THE REOPENING ON THE GROUND THAT THERE WAS EITHER NO REASON TO BELIEVE OR THAT THE ALLEGED REASON TO BELIEVE IS NOT RELEVANT FOR THE FORMATION OF THE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 35.9 THE DECISIONS OF THIS COURT AND OTHER COURTS TO THE EXTENT INCONSISTENT WITH THE ABOVE DECISIONS OF THE SUPREME COURT CANNOT BE SAID TO REFLECT THE CORR ECT LEGAL POSITION. ( EMPHASIS SUPPLIED EXTERNALLY ) 11 .11 IN VIEW OF THE DECISION, NOW THE REQUIREMENT OF ANY FRESH TANGIBLE MATERIAL FOR REASONS TO BELIEVE , WHERE RETURN IS PROCESSED UNDER SECTION 143(1) OF THE ACT, IS NO LONGER REQUIRED. 11 .12 IN THE INSTANT CASE, THE RETURN IS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THUS IT IS NOT NECESSARY TO HAVE A FRESH TANGIBLE MATERIAL TO FORM REASON TO BELIEVE THAT INCOME HAS ESCAPED. 62 ITA NO . 289 TO 293/DEL/2013 11 .13 IN VIEW OF ABOVE, WE HOLD THAT ASSESSMENT HAS BEEN REOPE NED VALIDLY. ACCORDINGLY , WE UPHOLD THE FINDING OF THE LD. CIT - ( A ) ON THE ISSUE OF DISPUTE AND T HE GROUND OF THE APPEAL IS DISMISSED. 11 .14 THE REMAINING GROUNDS IN THE APPEAL ARE IDENTICAL TO GROUNDS NO. 2 TO 4 RAISED IN ITA NO. 289/DEL/2013 FOR ASSESSMEN T YEAR 2005 - 06 AND THUS , FOLLOWING OUR FINDING IN APPEAL FOR ASSESSMENT YEAR 2005 - 06, WE DISMISS THE GROUND NO. 2 TO 4 IN THE PRESENT APPEAL ALSO. 12 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ITA NOS. 291 TO 293/DEL/2013 FOR AY: 2007 - 08 TO 2009 - 10 13 . NOW WE TAKE UP ITA NO. 291 TO 293/DEL/2013 FOR ASSESSMENT YEAR 2007 - 08 TO 2009 - 10 RESPECTIVELY. THE GROUNDS RAISED IN ALL THE THREE APPEALS ARE IDENTICAL EXCEPT THE AMOUNTS INVOLVED IN GROUNDS. FOR SAKE OF CONVENIENCE, WE ARE REPR ODUCING GROUN DS OF APPEAL FOR A Y : 2007 - 08. 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.74,10,163 ON THE INTANGIBLE ASSET OF GOVERNMENT AUTHORIZATIONS WHI CH WAS ACQUIRED BY THE APPELLANT UNDER A BUSINESS TRANSFER AGREEMENT WITH THE KILBURN OFFICE AUTOMATION LIMITED. 2. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCES OF DEPRECIATION ON THE BUSINESS OR COMMERCIAL RIGHTS ACQUIRED IN THE FORM OF NON - COMPETE RIGHTS UNDER SECTION 32 OF THE ACT HAVING TREATED THE SAID NON - COMPETE FEE AS CAPITAL EXPENDITURE IN NATURE. 3. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN NOT ALLOWING DEPRECIATION ON GOODWILL BEING AN INTANGIBLE ASSET ON WHICH DEPRECIATION IS M ANDATORILY ALLOWABLE. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 63 ITA NO . 289 TO 293/DEL/2013 1 4 . T HE FACTS IN RESPECT OF THE ISSUES IN DISPUTE RAISED IN THE GROUNDS IN THE ABOVE APPEALS, ARE ALMOST IDENTICAL TO THE FACTS IN APPEALS OF ASSESSMENT YEAR 2005 - 06 AND 2006 - 07 DECIDED EARLIER BY US, EXCEPT THAT IN ASSESSMENT YEAR 2005 - 06 AND 2006 - 07, THE ASSE SSMENTS HAVE BEEN COMPLETED UNDER SECTION 147 OF THE ACT AND ACCORDINGLY THE ASSESSEE CHALLENGED THE VALIDITY OF THE REASSESSMENT PROCEEDING ALONG WITH THE ADDITIONS ON MERIT. 15 . SINCE GROUND S NO. 1 AND GROUND NO. 2 RAISED IN ABOVE APPEALS HAVE ALREADY BEEN DECIDED AGAINST THE ASSESSEE IN GROUND NO. 2 AND 3 RESPECTIVELY IN ITA NO. 289/DEL/2013 FOR ASSESSMENT YEAR 2005 - 06, ACCORDINGLY FOLLOWING OUR FINDING S , THE GROUND NO. 1 AND 2, IN THESE APPEALS ARE ALSO DISMISSED. 16 . THE GROUND NO. 3 RAISED IN THE A BOVE APPEALS HAS ALSO BEEN DECIDED IN ITA NO. 289/DEL/2013 FOR ASSESSMENT YEAR 2005 - 06. IN THE SAID APPEAL, THOUGH THE DEPRECIATION ON GOODWILL IS ALLOWED IN PRINCIPLE WITH THE DIRECTION TO COMPUTE THE AMOUNT OF GOODWILL, HOWEVER, THE CLAIM OF DEPRECIATION ON GOODWILL IN THE ASSESSMENT YEAR 2005 - 06 WAS MADE IN FIRST APPELLATE PROCEEDINGS ARISING OUT OF REASSESSMENT PROCEEDING, THUS, DENIAL OF CLAIM BY THE LD. CIT - ( A ) WAS UPHELD. T HE ASSESSMENT YEARS INVOLVED IN PRESENT APPEALS ARE FROM ASSESSMENT YEAR 2007 - 08 TO ASSESSMENT YEAR 2009 - 10 AND NO REASSESSMENT PROCEEDINGS ARE INVOLVED IN THESE ASSESSMENT YEARS, AND THEREFORE, THE DEPRECIATION ON GOODWILL IS ALLOWED TO THE ASSESSEE SUBJECT TO OUR FINDINGS IN IT A NO. 289/DEL/2013. ACCORDINGLY, THE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 17 . ALL T HE THREE APPEALS ABOVE ARE ALLOWED PARTLY FOR STATISTICAL PURPOSE. 64 ITA NO . 289 TO 293/DEL/2013 18 . IN THE RESULT, OUT OF THE FIVE APPEALS OF THE ASSESSEE, THE ITA NO S. 289 AND 290/DEL/2013 FOR ASSESSMENT YEAR S 2005 - 06 AND 2006 - 07 RES PECTIVELY ARE DISMISSED AND THE REMAINING THREE APPEALS FROM ITA NO S . 291 TO 293 FOR ASSESSMENT YEAR S 2007 - 08 TO 2009 - 10 RESPECTIVELY ARE ALLOWED PARTLY FOR STATISTICAL PURPOSE. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 9 T H MAY , 201 7 . S D / - S D / - ( I.C. SUDHIR ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 9 T H MAY , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI