TMI Blog2014 (12) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and going concern and to acquire an undertaking - ₹ 6,03,21,910/- was not sub-divided or bifurcated under the said agreement under different heads - Value of the fixed assets, which were transferred and on which depreciation was earlier claimed by Wimco Ltd. and after acquisition by the assessee was not specified or so stated in the agreement itself – It was lump sum payment. What was purchased by the appellant asseessee was an undertaking there being slump sale and the entire business including assets and liabilities were transferred for a lump sum amount - There was no break-up or division of the said amount in the agreement itself - The amount paid would be the sale consideration paid after taking into account value of the plant, machinery, dead stock as well as work in progress, stock in trade etc., and intangible items like goodwill, manpower, values of different licences etc. - This cost paid would be for both depreciable and non-depreciable assets - difficulties do arise in computing the actual cost of the assets on which depreciation is to be allowed to the purchaser i.e. the appellant assessee. Assessee and the seller had evaluated the plant and machinery o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -91. The actual cost of fixed assets acquired was not examined by the Assessing Officer and assessment made was completed at nil income. The matter regarding determination of actual cost was considered for the first time by the Assessing Officer during the assessment year 1991-92. Relying upon surveyor s report, the value of the said assets was taken as ₹ 3,50,37,238/-. We note that the said surveyor was appointed by the appellant company. The appellant company carried out the matter in appeal to the Commissioner of Income Tax (Appeals) [CIT(Appeals), for short] for both the assessment years 1990-91 and 1991-92. The CIT (Appeals) did not agree and held that the Assessing Officer had rightly computed the cost of fixed assets acquired at ₹ 3,50,37,238/- as against ₹ 6,10,02,641/- claimed by the assessee. He directed the Assessing Officer to make fresh assessment for the assessment year 1990-91 after considering the claim of depreciation of assets acquired from M/s Wimco Ltd. in the light of his findings in the assessment year 1991-92. Thereupon the Assessing Officer passed an appeal effect order under Section 143(3) read with Section 250 of the Act for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ADD: OBLIGATIONS NRDC ROYALTY 75,00,000/- WARRANTIES 72,96,000/- GRATUITY 1,07,413/- LESS:OTHERALLOCATIONS LOSS FOR THE PERIOD 1.12.89 TO 30.3.90 11,57,339/- CAPITAL WORK-IN-PROGRESS NEW PROJECT 39,74,515/- WORKING CAPITAL 89,75,211/- PLANT MACHINERY NEW ADDITION 1,42,22,682/- COST OF FIXED ASSETS CLAIMED IN THE BALANCE SHEET 6,10,02,641/-6,10,02,641/- CASE NOW PUT FORWARD BEFORE HONOURABLE TRIBUNAL LESS: OBLIGATIONS WHICH CANNOT LEGALLY BE CAPITALISED (NRDC, WARRANTIES, AND GRATUITY) CLAIMED AS REVENUE EXPENDITURE AS AND WHEN ACCRUED/INCURRED 1,49,03,413/- 4,60,99,228 INTEREST ON UNPAID PURCHASE CONSIDERATION FOR THE PERIOD 1.12.89 TO 29.3.90 NOW CLAIMED AS REVENUE EXPENDITURE FOR THE ASSESSMENT YEAR 1990-91 21,53,714/- COST OF FIXED ASSETS NOW CLAIMED BEFORE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or relating to business with customers, suppliers and others including the goodwill. Thus, the consideration paid of ₹ 6,03,21,910 was for a running and going concern and to acquire an undertaking. ₹ 6,03,21,910/- was not sub-divided or bifurcated under the said agreement under different heads. Value of the fixed assets, which were transferred and on which depreciation was earlier claimed by Wimco Ltd. and after acquisition by the assessee was not specified or so stated in the agreement itself. It was lump sum payment. 9. The appellant had however filed before us details of final purchase consideration paid to Wimco Ltd., which is as under:- PARTICULARS AMOUNT (in Indian Rupees) Basic purchase, consideration based on Net Operating Assets as on 31.3.1989. 56580256 Increase in purchase consideration @ 17% on the unpaid amount for the period 1.12.89-29.3.90 2153714 Interest on delayed payments 7560 Increase/(Decrease) in purchase consideration due to movements with effect from 1.4.89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciable and non-depreciable assets. In such cases, difficulties do arise in computing the actual cost of the assets on which depreciation is to be allowed to the purchaser i.e. the appellant assessee. There are decisions which hold that the lump-sum price cannot be attributed for different items if no bifurcation or division being made by the assessee or by the purchaser. But in the facts of the present case, there is evidence that the appellant assessee and the seller had evaluated the plant and machinery on the date of the sale. Therefore, the authorities and the Tribunal deemed it appropriate to rely upon the surveyor s report for computing actual cost and we agree with the said conclusion. 13. CIT vs. Artex Manufacturing Co. (1997) 227 ITR 260, was a case of slump sale on lump-sum price, but the Supreme court held that the balancing charge under Section 41(2) of the Act could be computed, inspite of the fact what was payable by the assessee was the difference between written down value and the actual cost of the depreciable asset on sale. This, it was held, was possible in the said case, as necessary information was furnished by the assessee before the Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant assessee. 15. In Challapalli Sugars Ltd. (supra), the Supreme Court has held that the expression cost is not synonyms with price and would include the actual cost paid by the assessee, to acquire the asset in question and other expenses such as freight, warehouse charges or insurance and interest to bring the asset into existence and put them into working condition. Interest on monies borrowed for purchase of fixed asset prior to asset coming into production i.e., till the erection stage should be capitalised. It was held as under:- 15. It would appear from the above that the accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the inte-rest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets which have been created as a result of such expenditure. The above rule of accountancy should, in our view, be adopted for determining the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 43 groups together all provisions in the nature of definitions or interpretations relevant to the computation of income under the head Profits and Gains of Business . Section 43(1) defines actual cost . The definition of actual cost has been amplified by excluding such portion of the cost as is met directly or indirectly by any other person or authority. Explanation 8 has been inserted in Section 43(1) by Finance Act, 1986 (23 of 1986), with retrospective effect from 1.4.1974. It is important to note that the words actual cost would mean the whole cost and not the estimate of cost. Actual cost means nothing more than the cost accurately ascertained. The determination of actual cost in Section 43(1) has relevancy in relation to Section 32(depreciation allowance); Section 32A(investment allowance), Section 33(development rebate allowance), and Section 41 (balancing charge). 13. Actual cost of an asset has no relevancy in relation to Section 36(1)(iii) of the 1961 Act. This reasoning flows from a bare reading of Section 43(1). Section 43 defines certain terms relevant to income from profits and gains of business and, therefore, the said section commences with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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