TMI Blog2010 (11) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the order of the CIT(A) III, Mumbai dated 15.03.2004. 2. Revenue has raised the following ground: - 1(a) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the assessee was entitled to claim of depreciation with reference to the cost of acquisition of two industrial units purchased from TISCO. 1(b) On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the difference in the cost of acquisition of the units and their book value has to be treated as Goodwill in the books of account of the assessee. 1(c) On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the assessee itself has treated the difference in the cost of acquisition of a unit purchased from M/s. Raymonds Ltd. and its book value as Goodwill in its books of account in respect of A.Y. 2001-02. Ground Nos. 2 3 are general in nature. 3. Briefly stated, the A.O. disallowed an amount of Rs. 16.93 crores out of the total depreciation claimed by the assessee on the ground that the assessee has paid price in excess over and above the books value of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an open bid and on the basis of the report of the registered valuer the value was accordingly capitalised to the extent of Rs. 481.39 crores and Assessing Officer s action in taking the WDV of TISCO was not correct as Explanation 3 to 43(1) does not apply in assessee s case as these two companies are independent and not related and further the A.O. has not correctly appreciated the registered valuer s report and the method adopted. The assessee relied on the judgments of the Hon ble Supreme Court in the case of Kalooram Govindram v. CIT 57 ITR 355 and also Guzdar Kajora Coal Mines Ltd. v. CIT 85 ITR 599 with reference to the cost of a particular asset. He also submitted that Assessing Officer s reliance on Explanation 3 to Sec.43(1) was not correct and relied on the judgment of the Hon ble Supreme Court in the case of Jogta Coal Co. Ltd. v. CIT 36 ITR 521 to contend that the cost to be calculated for the purpose of depreciation element is the cost of the assessee and not to the person who make the sale. It is also its contention that when the assessee has not made any provision for goodwill and paid according to the fair market value of assets the question of goodwill does not ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only suites the valuation adopted by the assessee in the books of account. Since no reason was given for paying more amount than the book value of the assets, the A.O. has correctly treated the amount as goodwill and denied depreciation. He also submitted that in the later year the assessee itself has treated the amount as goodwill and accordingly the action of the A.O. should have been upheld by the CIT(A). It is also his submission that the conditions of section 43(1), Explanation (3) are satisfied and since the order was passed by the Joint Commissioner there was no need for referring to the Joint Commissioner for approval. He relied on the orders of the A.O. It is also his further submission that the replacement value adopted by the valuer was not correct and it only suits to the assessee s valuation adopted in the books of account. He vehemently supported the order of the A.O. 5. The learned counsel in reply stated the facts that the assessee has offered the bid in open tender and being the highest bidder purchased the same at Rs. 550 crores and since the A.O. also accepts the same as slump sale no itemised purchase of assets can be attributed in a slump sale as per the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts acquired by the assessee should be the book value of TISCO. Accordingly he restricted the cost of the assets to the above amount thereby treating the balance amount as goodwill and denied depreciation. It is also a fact that the agreement does not speak of any goodwill payment and the assessee has adjusted the entire consideration paid between fixed assets and net current assets. It is also a fact that in the next assessment year assessee acquired another unit from M/s. Raymonds Ltd. and the assessee treated the difference between the fair market value of the assets and the payment made as goodwill and made entries in the books of account accordingly whereas in this year the value paid was for fixed assets and net current assets and goodwill was involved. 7. In order to consider the action of the A.O. it is necessary to extract the provisions of section 43(1) and Explanation 3, which are as under: - (1) In sections 28 to 41 and in this section, unless the context otherwise requires (1) actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various assets on a fair basis as determined by competent valuers. 9. As seen from the assessment order the A.O. has not rejected the valuation of fixed assets done by the registered valuer on merits. His objection to the valuation report was basically two fold (1) that the survey report does not have any date and could have been dated subsequent to the survey which was done after March 31, 2000 to April 16, 2000. This observation of the A.O. about the survey report was not correct as the report was dated 5th June 2000. So, many of the observations made by the A.O. with reference to the date of the report itself are without any foundation. (2) The other observation is that the method adopted by the registered valuer on net replacement cost was only to arrive at the exact amount which the assessee has apportioned towards fixed assets. This observation also is not correct. Since the assets are acquired on slump sale basis and individual assets are not priced or purchased item-wise, the assessee as per the Accounting Standard 10 to be adopted for the purpose of maintaining the books of account, has obtained a valuation report which has taken the net replacement cost method and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision was to carry on the business in the manufacture and sale of cement. Neither acquisition of their business nor the assets comprised therein nor the valuation thereof was with the purpose of reducing the income tax liability of the assessee by claiming higher depreciation. In fact the assessee has acquired a running cement unit in an open tender being the highest bidder and excluded the current assets as per the book value. The balance is considered for cost of fixed assets on the basis of the registered valuer s report. We do not see any reason to reduce the cost, which is actually the cost to the assessee under the provisions of section 43(1). 11. In the case of Chitra Publicity Company (P) Ltd. vs. ACIT 172 TTJ (Ahd) (TM) 1 it was held as under: - 17. After careful consideration of above provisions and facts and circumstances of the case, I am unable to accept the stand of the Revenue. As noted above actual cost should ordinarily mean real cost or real worth of assets. If it is not market value, then what is it? Mechanism to take WDV as provided in Expln. 2 to s. 43(6)(c) is not available in Expln. 3 to s. 43(1). Further, assets whose actual cost is to be determined un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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