ITO 8(1)(3), MUMBAI V. ELSTER METERING P. LTD, MUMBAI

ITA 7409/MUM/2011

• Counselvise Citation: 740919914 RSA 2011
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 24-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 03-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R M MADHAVI
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Depreciation; Valuation report; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 7409 /MUM./ 2011 ( / ASSESSMENT YEAR : 20 0 8 09 ) INCOME TAX OFFICER WARD - 9(1) - 3, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APP ELLANT V/S M/S. ELSTER METRIN G PVT. LTD. UNIT NO.11, PARADIGAM B. MINDSPACE, MALAD LINK ROAD MALAD (W), MUMBAI 400 004 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AABCE1487B / REVENUE BY : MR S . R.M. MADHAVI / ASSESSEE BY : MR. PRAKASH K. JOTWANI / DATE OF HEARING 2 4 .0 9 .2013 / DATE OF ORDE R 30.09.2013 / ORDER , / PER AMIT SHUKLA , J.M. THE P RESENT APPEAL IS PREFERRED BY THE REVENUE , CHALLENGING THE IMPUGNED ORDER DATED 9 TH AUGUST 2011 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) X VI , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER M/S. ELSTER METRING PVT. LTD. 2 SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT') FOR THE ASSESSMENT YEAR 200 8 09 . IN THE ORIGINAL GROUND OF APPEAL, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS : I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF ` 22934232 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION ON TECHNICAL KNOWHOW WITHOUT APPRECIATING THE FACTS OF THE CASE. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ALLOWING THE BROUGHT FORWARD UNABSORBED DEPRECIA TION AMOUNTING TO ` 59889811. 2. FACTS IN BRIEF : THE ASSESSING OFFICER NOTED THAT HE ASSESSEE HAS CLAIMED DEPRECIATION ON THE TECHNICAL KNOWHOW OF ` 1,66,59,105, AND ON ACCOUNT OF RIGHT TO USE TRADEMARK OF ` 62,75,127. HE FURTHER OBSERVED THAT THIS ISSUE O F CLAIM OF DEPRECIATION ON INTANGIBLE ASSET HAS BEEN EXAMINED AT LENGTH BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2004 05 TO 2007 08, ACCORDINGLY, REJECTED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS PURCHASED A UNIT FROM ABB LIMITED A S ON GOING CONCERN FOR A TOTAL CONSIDERATION OF ` 40.74 CRORES FOR THE AGGREGATE ASSET WORTH ` 10.10 CRORES. THESE PURCHASES WERE MADE BY THE ASSESSEE WITHOUT ASSIGNING COST OF EACH ASSET AND HAS NOT PURCHASED TECHNICAL KNOWHOW AND RIGHT TO USE OF THE TRAD E MARK FROM ABB LTD. THEREFORE, IT IS SELF GENERATED ASSET BY THE ASSESSEE. IT HAS BEEN FURTHER HELD BY THE ASSESSING OFFICER THAT THE EARLIER YEARS APPEAL IS BEING CONTESTED BY THE REVENUE BEFORE THE TRIBUNAL ON THIS ISSUE. THE LEARNED COMMISSIONER (A PPEALS), FOLLOWING THE EARLIER YEARS ORDER, DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEPRECIATION. 3. BEFORE US, IT HAS BEEN SUBMITTED THAT THIS ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNAL AND APPEALS RELATING TO THE ASSESSMENT YEAR 200 4 05 TO 2007 08, VIDE ORDER DATED 11 TH APRIL 2012, IN FAVOUR OF THE ASSESSEE. M/S. ELSTER METRING PVT. LTD. 3 4. AFTER GOING THROUGH THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND ALSO THE TRIBUNAL ORDER FOR EARLIER YEARS IN ASSESSEES OWN CASE, WE FIND THAT EXACTLY SAME ISS UE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AFTER DETAILED DISCUSSION. FOR THE SAKE OF READY REFERENCE, THE RELEVANT FINDINGS DRAWN BY THE TRIBUNAL IS REPRODUCED HEREIN BELOW: 8. WE HAVE CONSIDERED THE RIVAL SUB MISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE NET BOOK VALUE OF ASSETS AND LIABILITIES OF THE BUSINESS OF ABB TAKEN OVER BY THE ASSESSEE AS A GOING CONCERN WAS ABOUT RS.10 CRORES ON THE DATE OF TRANSFER WHILE A TOTAL CO NSIDERATION OF RS.40.74 CRORES WAS PAID BY THE ASSESSEE FOR THE ACQUISITION OF THE SAID BUSINESS. A SUM OF MORE THAN RS.30 CRORES WAS PAID BY THE ASSESSEE OVER AND ABOVE THE BOOK VALUE WHICH WAS CLAIMED TO BE PAID ON ACCOUNT OF INTANGIBLES SUCH AS TECHNICA L KNOWHOW, TRADEMARKS AND GOODWILL. ON THE VALUE OF TECHNICAL KNOWHOW AND RIGHT TO USE TRADEMARK AS TAKEN AS PER THE VALUATION REPORT, DEPRECIATION WAS CLAIMED BY THE ASSESSEE WHICH THE AO DISALLOWED MAINLY ON THE GROUND THAT THERE WAS NO INDICATION OF THE SE INTANGIBLES IN THE LIST OF ASSETS TAKEN OVER BY THE ASSESSEE AS GIVEN IN CLAUSE 2.1.2 OF THE PURCHASE AGREEMENT. THE SAID CLAUSE HAS BEEN REPRODUCED BY THE AO IN THE ASSESSMENT ORDER AND CLAUSES (D), (E), (F) AND (I) THEREOF BEING RELEVANT IN THE PRESEN T CONTEXT ARE REPRODUCED BLOW : (D) ALL REGISTERED INTELLECTUAL PROPERTY OWNED BY THE ASSET SELLER, AND ALL INTELLECTUAL PROPERTY (OTHER THAN REGISTERED INTELLECTUAL PROPERTY) OWNED BY THE ASSET SELLER AND USED EXCLUSIVELY IN THE TRANSFERRED BUSINESS; (E) ALL KNOW - HOW IN THE POSSESSION OF THE ASSET SELLER AND USED IN THE TRANSFERRED BUSINESS; (F) ALL RIGHTS (SO FAR AS THE SAME CAN BE LAWFULLY ASSIGNED OR TRANSFERRED) OF THE ASSET SELLER UNDER ALL LICENSES, SUBLICENSES, LEASES, SUBLEASES, CONTRACTS O F INSURANCE AND OTHER CONTRACTS AND AGREEMENTS, AND UNDER ALL SALES AND PURCHASE ORDERS OR BIDS AND OFFERS, ENTERED INTO OR MADE BY TO OR ON BEHALF OF THE ASSET SELLER EXCLUSIVELY IN CONNECTION WITH THE TRANSFERRED BUSINESS; (I) THE GOODWILL OF THE ASSET SELLER IN CONNECTION WITH THE TRANSFERRED BUSINESS CARRIED ON BY IT TOGETHER WITH THE EXCLUSIVE RIGHT (SO FAR AS THE ASSET SELLER CAN GRANT THE SAME) FOR THE PURCHASER TO REPRESENT ITSELF AS CARRYING ON THE TRANSFERRED BUSINESS IN CONTINUATION OF AND IN SU CCESSION TO THE ASSET SELLER. A PERUSAL OF THE ABOVE CLEARLY SHOWS THAT ALL THE INTANGIBLES OF THE BUSINESS OF ABB TAKEN OVER BY THE ASSESSEE WERE TRANSFERRED TO THE ASSESSEE AS PER THE PURCHASE AGREEMENT AND THE AO, IN OUR OPINION, WAS FACTUALLY INCORRE CT TO SAY THAT THESE INTANGIBLES WERE NOT INDICATED IN THE LIST OF ASSETS TRANSFERRED TO THE ASSESSEE AS PER THE PURCHASE AGREEMENT. IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE, THE LEARNED DR HAS SUBMITTED BEFORE US THAT THESE INTANGIBLES WERE NOT APPE ARING IN THE BALANCE SHEET OF ABB AS ON 31 - 03 - 2003. M/S. ELSTER METRING PVT. LTD. 4 HOWEVER, AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE FROM THE SCHEDULE GIVEN ON PAGE NO. 139, TECHNICAL KNOWHOW FOR ENERGY METERS WAS ACQUIRED BY ABB AT RS.32,56,128/ - BUT THE VALUE THEREOF HAD COME DOWN TO NIL ON 31 - 03 - 2003 AS A RESULT OF DEPRECIATION CLAIMED THEREON. EVEN OTHERWISE, IF THESE INTANGIBLES REPRESENTED SELF GENERATED ASSETS OF THE TRANSFEROR, THE SAME CANNOT AND NEED NOT REFLECT IN THE BALANCE SHEET OF THE TRANSFEROR. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE METERS WERE BEING MANUFACTURED BY ABB UNDER THE TRADE NAME ALFA AND EVEN AFTER THE TRANSFER OF BUSINESS, THE ASSESSEE COMPANY CONTINUED TO USE THE SAID TRADEMARK WHICH CLEARLY SHOWS THAT RIGHT TO USE TRADEMAR K WAS GIVEN BY ABB TO THE ASSESSEE. HAVING REGARD TO ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS KEEPING IN VIEW THE TERMS OF THE PURCHASE AGREEMENT, WE ARE OF THE VIEW THAT THE AMOUNT PAID BY THE ASSESSEE COMPANY TO ABB AS CONSIDERATION FOR TRANSFER OF BUSINESS OVER AND ABOVE THE BOOK VALUE WAS PAID FOR ACQUISITION OF INTANGIBLES AND SINCE THE SAID AMOUNT WAS BIFURCATED AND THE VALUES WERE ASSIGNED TO THE SAID INTANGIBLES ON THE BASIS OF VALUATION REPORT, THERE WAS NO JUSTIFIABLE REASON FOR T HE AO TO DISALLOW THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON THESE INTANGIBLES. IN THAT VIEW OF THE MATTER, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR DEPRECIATION ON TECHNICAL KNOWHOW AND RIGHT TO USE TRADEMARK AND DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. THUS, CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA, WE UPHOLD THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) IN ALLOWING THE CLAIM OF DEPRECIATION ON THESE INTANGIBLE ASSETS. 5. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE DIRECTION OF THE LEARNED COMMISSIONER (APPEALS) FOR ALLOWING BROUGHT FORWARD OF UNABSORBED DEPRECIATION AMOUNTING TO ` 5,98,59,811. 6. IT HAS B EEN ADMITTED BY BOTH THE PARTIES THAT ONCE THE DEPRECIATION HAS BEEN ALLOWED IN THE EARLIER YEARS, THE SAME HAS TO BE ALLOWED TO BE CARRIED FORWARD AND THE BENEFIT OF UNABSORBED DEPRECIATION HAS TO BE GIVEN. THIS GROUND IS PURELY CONSEQUENTIAL IN NATURE AN D, HENCE, THE SAME IS DISMISSED. M/S. ELSTER METRING PVT. LTD. 5 7. 7. IN THE RESULT, REVENUE S APPEAL IS TREATED AS DISMISSED . 30 TH SEPTEMBER 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER 2013 SD/ - . D . KARUNAKARA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 30 TH SEPTEMBER 2013 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE ; (2) / THE REVENUE; (3) ( ) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNED ; (5) , , / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J . CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI