Brembo Brake India Pvt. Ltd., , Pune vs Assessee

Brembo Brake India Private Limited, Gat No.307 (7&8), Village Nanekarwadi, Chakan, Tal - Khed, Dist. Pune - 410501 ... Appellant

PAN: AACCK6860B

Vs.

The Dy. Commissioner of Income-tax, Circle 1(1), Pune ... Respondent

Appellant by : Ketan Ved Respondent by : M.S. Verma, CIT

Date of hearing : 24-12-2014 Date of pronouncement : 25-02-2015

ORDER

PER SUSHMA CHOWLA, J.M:

This appeal filed by the assessee is against the order of DCIT,

Circle 1(1), Pune, dated 13.09.2011 relating to assessment year 2007-

08 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act,

1961 in pursuance to the directions of the Dispute Resolution Panel (in

short 'DRP').

2. The assessee has raised the following grounds of appeal:-

1. On the facts and in the circumstances of the case and in law, the learned DCIT, in pursuance of the directions of the Honorable Panel, erred in disallowing the depreciation amounting to Rs.2,26,62,278/- claimed by the appellant on intangible asset.

2. On the facts and in the circumstances of the case and in law, the learned DCIT erred in observing following:

2 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

a. The Assets claimed by assessee as depreciable, are not the depreciable assets as they are not subjected to wear and tear due to diminish in value with use and efflux of time.

b. These assets are not measurable assets.

c. These assets are not clearly, identifiable assets having their own independent existence.

d. These assets are not defined under section 32(1)(ii) of the Act.

e. These assets are part and parcel of and ingrained in the technical man power, machinery and establishment purchased by assessee from Bosch.

3. The appellant reserves the right to amend, alter or add to the grounds of appeal.

3. The brief facts of the case are that, the assessee was engaged in

the business of trading in two wheeler brake systems and components.

For the year under consideration, the assessee had furnished the

return of income declaring total income at Nil. The first issue raised by

the Assessing Officer during the course of assessment proceedings was

in relation to the transfer pricing adjustments in respect of payment of

royalty pursuant to the order of Transfer Pricing Officer. The Assessing

Officer proposed an adjustment of Rs.1,75,38,458/- which was

reversed by the DRP and the expenditure incurred on royalty was

directed to be allowed. Pursuant thereto, the Assessing Officer in the

order passed under section 143(3) r.w.s. 144C(13) allowed the claim of

the assessee on the payment of royalty.

4. Another issue raised by the Assessing Officer was on account of

depreciation on intangible assets amounting to Rs.2,26,62,278/-. The

Assessing Officer requisitioned the assessee to justify its claim of

depreciation on intangible assets during the course of assessment

proceedings. In reply, the assessee claimed that it had entered into an 3 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

agreement to assets sale and transfer with M/s. Bosch Chassis

Systems India Ltd. (in short 'BCSIL') on 01.02.2006, under which, the

intangible assets were specified which included Customer Base,

Material Suppliers, Low Cost Process Know-how, Technical Man Power,

Technology and Patents. The plea of the assessee was that as per

section 2(11) of the Act, the block of assets comprised of tangible assets

being buildings, machinery, plant or furniture and the intangible assets

comprised of Know-how, Patents, Copy Rights, Trade Marks, Licenses,

etc. Under the Income Tax Act, depreciation on intangible assets

acquired after 31.03.1998 were entitled to depreciation @ 25%. The

Assessing Officer noted that the claim of the assessee was that it had

purchased the entire business from BCSIL vide agreement dated

01.02.2006. It was further claimed by the assessee that as the entire

business had been acquired, along with that the assessee had also

acquired intangible assets i.e. Customer Base, Material Suppliers Base,

Technical Man Power and Drawings and Designs and like assets. As

per the assessee, all the assets acquired satisfied the conditions

prescribed in section 32 of the Act and where the assessee had paid

price to acquire the said assets, it was eligible for claim of depreciation

on the same. Similar claim was allowed in assessment year 2006-07.

An alternate plea was made to allow deduction under section 37(1) of

the Act on full amount in assessment year 2006-07. The Assessing

Officer noted that the assessee was a joint venture company between

BCSIL and Brembo Spa, Italy and was engaged in the trading of two

wheeler brake systems. The assessee had acquired the business of

M/s. BCSIL vide agreement dated 01.02.2006 for a total consideration

of Rs.28.70 crores. The cost was allocated i.e. 19.01 crores for

inventory and fixed assets and Rs.9.68 crores for intangible assets. 4 ITA No.1488/PN/2011

Brembo Brake India Pvt. Ltd.

Later on, the incidental expenses like registration charges, duties, etc.

were also included and for financial year 2005-06, the assessee had

allocated the cost of Rs.10.36 crores to intangible assets. In

assessment year 2006-07, depreciation @ 12.15% equal to

Rs.1,29,49,873/- was claimed and the opening WDV of the intangible

assets brought forward was Rs.9,06,49,113/-. The Assessing Officer

further observed that the assessee company had acquired the business

of M/s. BCSIL for a total consideration of Rs.28.70 crores and the fixed

assets and the inventory had been valued and acquired at cost from

M/s. BCSIL. The remaining amount paid by the assessee as the

purchase consideration to M/s. BCSIL was allocated to the assets

named as intangible assets. The said company i.e. M/s. BCSIL was

assessed with the same Assessing Officer and the fixed assets schedule

of M/s. BCSIL as on 31.03.2007 was attached as an Annexure-I. The

Assessing Officer on the perusal of the same, noted that M/s. BCSIL

was not in possession of any recognised intangible assets that it could

have transferred to the assessee, in view of the sale / purchase

agreement. As per clause 1.1.1 of Article 1 of the agreement to assets

sale and transfer, dated 01.02.2006, the intangible assets means the

right to manufacture items owned by RBIC and was described in

Appendix enlisted. The Assessing Officer has reproduced the Appendix

i.e. intangible assets at pages 7-8 of the assessment order. The

Assessing Officer vide para 5.5 notes that both the assessee company

and seller company had appointed Valuer with joint consent to allocate

costs to each other's assets. On the perusal of the valuation report, the

Assessing Officer noted that the cost of the fixed assets were allocated

as per the valuation report and the consideration paid over and above

the same, was towards value of intangible assets. As per the Assessing 5 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

Officer, the basis for determining the value of goods grouped together

under the head intangible assets had not been substantiated by the

assessee nor, it was clear from the agreement. The Assessing Officer,

then deliberated upon the meaning of the word depreciation and

considered the eligibility of each and every asset claimed by the

assessee as an intangible asset and was of the view that the issue in

the present case was not whether the depreciation is admissible on

intangible assets or not, but the issue was whether the assets claimed

by the assessee were depreciable or not. Since section 32 of the Act

grants depreciation in respect of specified assets, the intangible assets

in possession of the assessee did not qualify for the basic

characteristics of depreciable assets that happens due to wear and tear

and efflux of time. The contention of the assessee that depreciation

had been allowed in assessment year 2006-07 was brushed aside by

the Assessing Officer since the return of income for the said year was

processed under section 143(1) of the Act. The alternate claim of the

assessee for deduction under section 37(1) of the Act was also

considered to be mis-placed.

5. The DRP upheld the proposal made by the Assessing Officer and

consequently, the Assessing Officer in the order passed under section

143(3) r.w.s. 144C(13) of the Act, disallowed depreciation on the

intangible assets claimed at Rs.2,26,62,278/-.

6. The assessee is in appeal against the order of Assessing Officer.

7. The learned Authorized Representative for the assessee referring

to the observations of the Assessing Officer pointed out that vide para

5.5 it has been alleged that the assessee had adopted whatever value

was balance to the cost of intangible assets and this was correct. The 6 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

learned Authorized Representative for the assessee further referred to

the valuation report of intangible assets placed at pages 125 to 147 of

the Paper Book and pointed out that the intangible assets were

separately defined and identified in the agreement. Consequently, the

valuer was of the view that the valuation of these individual intangible

assets in isolation may not be appropriate. The learned Authorized

Representative for the assessee pointed out that the allegation of

Assessing Officer was that the assets were not covered under section

32(1)(ii) of the Act, but were in the nature of goodwill of the business.

8. The first aspect pointed out by the learned Authorized

Representative for the assessee was that all the individual items of

intangible assets acquired by the assessee were entitled to the

depreciation as the various Tribunals had considered each of the said

items in different decisions and held the same to be eligible for

depreciation. In respect of the second allegation of the Assessing

Officer that the intangible assets acquired by the assessee at best could

be called goodwill developed by M/s. BCSIL, as per the learned

Authorized Representative for the assessee was also entitled to the

claim of depreciation in view of the ratio laid down by the Hon'ble Apex

court in CIT Vs. Smifs Securities Limited (2012) 348 ITR 302 (SC). The

learned Authorized Representative for the assessee referred to another

observation of the Assessing Officer at page 11 of the impugned order

that the nature of intangible assets had not been specified by the

assessee. The learned Authorized Representative for the assessee

pointed out that the statement was incorrect since the nature of

intangible assets acquired by the assessee was clear from the

agreement itself. Reference was made to clause 1.1.2 of the agreement

and the break-up of intangible assets detailed in Appendix to the 7 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

agreement. Another aspect pointed out by the learned Authorized

Representative for the assessee was that, it was not necessary to

segregate various intangible assets for the purpose of granting

depreciation on the same, as held by the Mumbai Bench of the Tribunal

in DCIT Vs. Worldwide Media (P.) Ltd. (2014) 43 taxmann.com 18

(Mum. Trib). Another objection of the Assessing Officer was that, from

the perusal of the balance sheet of M/s. BCSIL, it was apparent that

the seller did not possess the intangible assets. The learned Authorized

Representative for the assessee in this regard, stated that the intangible

assets acquired by the assessee were self generated and hence were not

reflected in the seller's balance sheet. In any case, since the

depreciation on the intangible assets had been allowed to the assessee

under section 143(1) of the Act in assessment year 2006-07, the claim

of depreciation could not be denied in the hands of the assessee in

assessment year 2007-08. Our attention was drawn to the various

clauses of the agreement placed at pages 91 to 97 of the Paper Book.

9. The learned Departmental Representative for the Revenue placing

reliance on the order of Assessing Officer pointed out that the items

mentioned in the agreement did not appear to be goodwill. It was also

pointed out by the learned Departmental Representative for the

Revenue that the reliance by the assessee on various case laws was

mis-placed. The learned Departmental Representative for the Revenue

placed reliance on the ratio laid down by the Hon'ble Supreme Court in

P.K. Badiani Vs. CIT (1976) 105 ITR 642 (SC).

10. We have heard the rival contentions and perused the record. The

issue arising in the present appeal is vis-à-vis claim of the assessee on

account of depreciation on intangible assets. The assessee was 8 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

engaged in the business of trading in two wheeler brake systems and

components. During the year under consideration, the assessee

entered into an agreement to assets sale and transfer dated 01.02.2006

with M/s. BCSIL for acquiring the business of manufacture and sale of

complete braking system for two wheeler and components thereto (in

short RBIC assets). The agreement dated 01.02.2006 is placed at

pages 91 to 97 of the Paper Book. The perusal of the agreement reflects

that the intention of the parties i.e. M/s. BCSIL desired to sell and

transfer and the purchaser i.e. the assessee desired to purchase and

acquire from the seller the RBIC assets in accordance with the terms

and conditions of the agreement dated 01.02.2006. Under the

definition clause, RBIC assets were defined as per clause 1.1.3 to mean

the tangible assets and also the intangible assets. As per clause 1.1.2,

the intangible assets included the right to manufacture, being an

intangible assets owned by RBIC, pertaining exclusively to RBIC

business, as existing on closing date and described in Appendix-2. The

tangible assets as per clause 1.1.5 were categorized and described in

Appendix-1 attached to the agreement. The Article 2 to the agreement

provided that the seller agreed to sell, to assign, transfer, convey and

deliver to the purchaser the RBIC assets, which the purchaser agreed

to purchase. Further, as per clause 3, it was provided that in relation

to the sales agreement with customers of RBIC business currently in

force and effect, the seller and/ or the purchaser would have right to

the respective contracting parties of the contract offering them to enter

into a new contract with the purchaser. In the event that, any

contracting party refuses to accept the offer, then the purchaser until

the next regular termination date, had to fulfill the respective contract

for its own account in the name of Seller. As per Article 7, the 9 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

aggregate price for the RBIC assets were fixed at Rs.28,70,00,000/-,

which was bifurcated between tangible assets inventory and the

intangible assets. The said price agreed to by the parties was exclusive

of any registration, duties, VAT, sales tax or similar taxes, if any. The

Appendix -1 enlists the list of the tangible assets i.e. fixed assets and

also the list of inventory on which there is no dispute and the assessee

has been allowed depreciation.

11. The Appendix- 2 to the agreement enlists the intangible RBIC

assets, which read as under:-

Appendix 2 : Intangible RBIC Assets

Intangible RBIC Assets means the entire business, industrial and technical know-how, which RBIC has directly built up in order to develop the Indian two wheeler braking systems (excluding ABS/TCS/ESP) market (since RBIC entered in the Licence and Technology Agreement with Brembo in 1999). Such business, industrial and technical know-how, which represents the Capability and Right to manufacture is inclusive of the following:

a) Customer Base: The customer base developed by RBIC for two wheeler brakes business in the Indian market along with transfer of orders in hand and long term contracts with customers.

b) Material Suppliers: Supplier base specifically developed for the two wheeler brake components.

c) Process Know-how: Low cost manufacturing process know-how developed by RBIC with respect to the local Indian two wheeler braking system.

d) Technical Manpower: Specific technical knowledge and experience of RBIC employees re- employed by the JVCo. in two wheeler brake manufacturing through specialization / specific training with respect to the Indian two wheeler braking systems.

e) Technology: Drawings and designs with respect 10 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

to the local adaptation for the Products currently manufactured for Indian application

f) Patents: Internally developed technology for manufacturing of two wheeler brakes retrofits. The registration of patent for the same being in process.

12. The parties to the agreement had also got the valuation report

prepared for the tangible assets and also for the intangible assets. The

copy of the valuation report of tangible assets is placed at pages 98 to

124 of the Paper Book and the copy of the valuation report of intangible

assets is placed at pages 125 to 147 of the Paper Book. The perusal of

the said valuation report reflects the valuer to have conducted the

exercise of identification of intangible assets. As per item V, clause 21,

valuer commented that any intangible asset could have three stages i.e.

(i) the asset which may or may not have any future economic benefits

such as inventions, patents; or (ii) asset which can have future

economic benefits subject to happening of certain events (un-

predictable) and (iii) assets which have shown past and present

economic benefit which may or may not have measured but has an

assured future economic benefit. It was reported by the valuer that the

case of the assessee fell within the last stage of identification. Then the

valuer has identified the various parameters and facts based on which,

the identification of intangible assets had been made under different

heads. The list of such sub heads were Technology and Process Know-

how, Material Suppliers (vendors), Customer Base, Patents and

Technical man power.

13. As per clause 29, the intangible assets though had been

separately defined and identified but as per the valuer, the valuation of 11 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

these individual intangible assets in isolation could not have been

appropriated since the same were offered as group and hence have

supplementary / complementary effect on each other in their

subsequent usage and corresponding economic benefits offered by

them over the period.

14. In the said background, the assessee claimed depreciation on

intangible assets. The first year of claim of depreciation on the

intangible assets was assessment year 2006-07, wherein the value of

the intangible assets was declared at Rs.10,35,98,986/-. The assessee

claimed depreciation @ 12.5% amounting to Rs.1,29,49,873/- and the

opening WDV of the intangible assets as on 01.04.2006 was

Rs.9,06,49,113/-. The assessee claimed depreciation of

Rs.2,26,62,278/- @ 25% on the opening WDV of the assets. The issue

arising before us is in relation to the said claim of the assessee i.e. the

depreciation on intangible assets.

15. Depreciation under section 32 of the Act is allowable in respect of

assets which are owned wholly or partly by the assessee and are used

for the purposes of business or profession. The Finance (No.2) Act,

1998 w.e.f. 01.04.1999 had recognized the depreciation on intangible

assets in addition to the depreciation being allowed on tangible assets.

The tangible assets constitute of Building, Machinery, Plant or

Furniture. The intangible assets comprised of Know-how, Patents,

Copy Rights, Trade Marks, Licenses, Franchise or any other business

or commercial rights of similar nature. The basis for allowance of

depreciation on both tangible and intangible assets is the ownership of

such assets by the assessee and its usage for the purpose of business

or profession. As pointed by us in the paras hereinabove, the 12 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

depreciation on tangible assets has been allowed by the Assessing

Officer in the hands of the assessee. However, the depreciation on

intangible assets has not been allowed to the assessee. In order to

adjudicate the issue, we need to look at the nature of assets claimed to

be intangible assets acquired by the assessee. For this, we make a

reference to the Appendix - 2, which is attached to the agreement

entered into between the parties dated 01.02.2006 and also the order of

Assessing Officer which has referred to the submissions of the assessee

on each of the items.

16. The first item to be considered is the Customer base. The

perusal of Appendix -2, would reflect that it was not only the Customer

base developed by the seller for two wheeler brake system, which was

passed upon the assessee, but the same was along with transfer of

orders in hand and long term contracts with the customers. The case

of the Assessing Officer was that no separate costs had been allocated

by the assessee to these assets and further, the same do not figure in

the specified assets in section 32(1)(ii) of the Act. Another objection

raised by the Assessing Officer was that the asset named as Customer

base does not diminish in its value due to wear and tear because of its

use and efflux of time. At best, the same could be called as goodwill

developed by the principal, which was acquired by the assessee

through the said agreement, was the observation of Assessing Officer.

On the other hand, plea of the learned Authorized Representative for

the assessee was that the Customer base is entitled to the depreciation

under section 32(1)(ii) of the Act and further, even it is considered as

goodwill, then also, in view of the ratio laid down by the Hon'ble

Supreme Court in CIT Vs. Smifs Securities Limited (supra), the

assessee is entitled to the depreciation on the said goodwill. 13 ITA No.1488/PN/2011

Brembo Brake India Pvt. Ltd.

17. On the perusal of the record and the agreement entered into

between the parties, it is apparent that the assessee had acquired the

entire business along with Technical Know-how of two wheeler braking

system from M/s. BCSIL. On such acquisition, the assessee had

acquired the Customer base developed by M/s. BCSIL along with which

orders in hand and long term contracts with the customers, were

transferred to the assessee. Such acquisition by the assessee was for

the purpose of running its business and as the characteristic of being

an intangible asset was fulfilled as such, the assessee was entitled to

the claim of depreciation under section 32(1)(ii) of the Act. Reliance in

this regard is placed upon the following decisions, wherein the

Customer base was held to be an intangible asset on which assessee is

entitled to the claim of depreciation under section 32(1)(ii) of the Act:-

1. India Capital Markets (P.) Ltd. Vs. DCIT (2013) 29 taxmann.com 304 (Mumbai - Trib.)

2. SKS Micro Finance Ltd. Vs. DCIT (2013) 145 ITD 111 (Hyd.

Trib.)

3. Cosmos Co-op Bank Ltd. Vs. DCIT (2014) 45 taxmann.com 13 (Pune - Trib.)

18. In any case, we also find merit in the second plea of the assessee

that if the Customer base is the goodwill of the business, then following

the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs

Securities Limited (supra), the assessee is entitled to the claim of

depreciation on such goodwill.

19. The next item referred in Appendix-2 was the Material suppliers

i.e. the list of suppliers which had been developed for supply of two

wheeler braking components. The said acquisition by the assessee is

akin to the acquisition of Customer base and following the same parity 14 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

of reasoning, we hold the assessee is entitled to claim depreciation

under section 32(1)(ii) of the Act on the same. The Assessing Officer

had treated the same to be in the nature of goodwill developed by the

M/s. BCSIL which has been acquired by the assessee and following the

ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs

Securities Limited (supra), the assessee is entitled to the claim of

depreciation under section 32(1)(ii) of the Act.

20. The next item acquired by the assessee was the Process Know-

how which is related to plans, designs and drawings. The Assessing

Officer was of the view that where the Know-how is related to plans,

designs and drawings of the buildings or plant & machinery, then the

same is to be capitalized under the relevant asset head and

depreciation is to be allowed on the total cost of asset including the cost

of Know-how capitalized. The Assessing Officer further held that where

the consideration was for the supply of Know-how being recurring,

under which payments as royalty, technical assistance fee, etc. were

made, then such payments ought to be charged to Profit & Loss

Account. The Assessing Officer denied the depreciation under section

32(1)(ii) of the Act.

21. The issue of allowability of depreciation on the nature of

intangible assets eligible for depreciation under section 32(1)(ii) of the

Act arose before the Hon'ble Delhi High Court in Areva T & D India Ltd.

Vs. DCIT (2012) 345 ITR 421 (Del). The Hon'ble Delhi High Court

considered the nature of business or commercial rights as included in

the definition of intangible assets under section 32(1)(ii) of the Act and

observed as under:-

".......On a perusal of the meaning of the categories of specific intangible assets referred in section 32(1) (ii) preceding the term 15 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

'business or commercial rights of similar nature', it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words 'business or commercial rights of similar nature' have been additionally used, clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of 'business or commercial rights' cannot be restricted to only six categories of assets, viz., know-how, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees and know-how, were all assets, which were invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets were, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor; in the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business." (underline provided by us)

22. The Hon'ble Delhi High Court thus held that where, on the

acquisition of business, the assessee acquires certain information

which is invaluable and would result in carrying out the business in

continuity, which was earlier being carried on by the transferor, then

the said intangible assets were comparable to the licenses to carry out

the existing business of the transferor, in the absence of which, the

assessee would have to commence its business from scratch and go

through gestation period.

23. Reliance was placed upon the ratio laid down by Hon'ble

Supreme Court in P.K. Badiani Vs. CIT (supra), by the learned

Departmental Representative for the Revenue is mis-placed as the issue

before the Hon'ble Supreme Court in relation to the allowance of initial 16 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

depreciation on development rebate, which was under the said old

provisions of the Act, was distinct from the normal depreciation to be

allowed on the assets. The said principle laid down by the Hon'ble

Supreme Court has no relevance to the issue raised before us.

24. Coming to the agreement entered into between the assessee and

M/s. BCSIL, the assessee had acquired the entire business along with

Industrial and Technical Know-how in relation to the business of two

wheeler braking system being carried out in India. Where the assessee

acquired the Customer base, the list of Material suppliers, Process

Know-how, then the said acquisitions were the licenses for assessee to

carry on the business of two wheeler braking system in India on its

acquisition from M/s. BCSIL. In line with the ratio laid down by the

Hon'ble Delhi High Court in Areva T & D India Ltd. Vs. DCIT (supra),

the said assets are the intangible assets acquired by the assessee and

are eligible for deduction under section 32(1)(ii) of the Act.

25. Similarly, the assessee had acquired technical man power,

wherein the entire team of Engineers, Supervisors and skilled operators

were offered to the assessee and the said officers / technicians brought

in their knowledge and experience for carrying on the business by the

assessee. The drawings and designs with respect to local adaptation in

the products manufactured for Indian application i.e. technology

involved in operating the business was also handed over to the assessee

and such acquisition is clearly for strengthening the carrying on the

business by the assessee and is comparable to a License to carry on the

business and thus, is an intangible asset acquired by the assessee.

26. The patents which were internally developed technology for

manufacturing of two wheeler brakes retrofits were also the acquisition 17 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

of license to carry on the business, even when the registration for the

Patents was in process. In any case, the Patents are directly covered

within the purview of the term 'intangible asset' as defined in

Explanation 3 below section 32(1)(ii) of the Act.

27. We find no merit in the plea of the Assessing Officer that the said

assets were not depreciable assets as the same were not subject to wear

and tear due to diminish in value with use and efflux of time. In the

case of intangible asset being commercial/business rights diminution

in value or physical wear and tear is not an essential condition for

admissibility for depreciation under section 32, if the assets used as a

business tool for earning the income, was the proposition laid down by

Mumbai Bench of the Tribunal in DCIT Vs. Weizmann Forex Ltd. (2012)

51 SOT 525 (Mum). Following the same, we find no merit in the plea of

Assessing Officer in denying the claim of depreciation under section

32(1)(ii) of the Act. Even otherwise, if the same are treated as goodwill

of the business acquired by the assessee, then following the ratio laid

down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Limited

(supra), the alternate plea of the assessee is to be allowed vis-à-vis the

claim of depreciation on goodwill. Further, there is no merit in the

observations of Assessing Officer that the Seller did not possess any

intangible assets as the same were not reflected in its Balance Sheet.

The assets acquired by assessee were self generated assets of Seller and

hence no value reflected in its Balance Sheet. We find no merit in the

observations of Assessing Officer in this regard and the same is

dismissed. The next observation of Assessing Officer that no separate

costs had been attributed to individual assets acquired by assessee

have no relevance and the same is dismissed. Accordingly, we direct

the Assessing Officer to allow depreciation on the WDV of intangible 18 ITA No.1488/PN/2011 Brembo Brake India Pvt. Ltd.

assets acquired in the preceding year and brought forward in the year

under consideration. Thus, the Assessing Officer is directed to allow

depreciation on intangible assets at Rs.2,26,62,278/-. The grounds of

appeal raised by the assessee are thus, allowed.

28. In the result, the appeal of the assessee is allowed.

Order pronounced on 25th day of February 2015.

Sd/- Sd/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 25th February, 2015

GCVSR

Copy of the order is forwarded to: -

1. The Assessee; 2. The Department; 3. The DRP, Pune; 4. The concerned CIT(A), Pune; 5. The DR "A" Bench, I.T.A.T., Pune; 6. Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune