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TMI Blog2015 (3) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... of this appeal. 3. The grounds raised in ITA No. 1956Del2013 (A.Y. 2009-10) read as under- 1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 11,53,53,162- made on account of disallowance of depreciation us. 32 of the I.T. Act, 1961 by invoking Explanation 3 of Section 43(1) of the I.T. Act, 1961. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 4. The facts narrated by the Revenue in both the appeals are not disputed by both the parties, hence, need not to repeat the same here for the sake of brevity. The only issue involved in the presents appeals are regarding the deletion the addition of Rs. 11,63,23,923- for (A.Y. 2008-09) and Rs. 11,53,53,162- (for A.Y. 2009-10) made on account of disallowance of depreciation us. 32 of the I.T. Act, 1961 by invoking Explanation 3 of Section 43(1) of the I.T. Act, 1961. 5. At the time of hearing Ld. Counsel of the assessee made a statement that the issue in dispute has already been adjudicated and decided in assessee's favor by the ITAT in assessee's own case for the Asstt. Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007-08 and the CIT(A) had allowed the depreciation, but had allowed the claim on account of loan processing fee on proportionate basis i.e. 110th of the loan processing fee each year. Both the department and the appellant went in appeal before the ITAT and the ITAT has passed a detailed order dated 9.11.2012.The ITAT has confirmed the finding of the CIT(A) deleting the disallowance of depreciation made by the AO against which the department had gone in appeal; however, in regard to loan processing fee it has reversed the order of CIT(A) and has held the expenditure as capital in nature, however it has directed that the loan processing fee being capital in nature, depreciation should be allowed thereon. 3.1 On the issue of depreciation, the relevant paras- 2.17 to 2.23 of CIT(A)'s order dated 11.6.2010 for AY 2007-08 are reproduced as under- "2.17 The submission of the appellant has been considered. It is admitted position under the law that the Actual cost means arm's length value or real value or worth of assets transferred. A. a. having cited no good ground for not accepting the cost of the assets in question as valued by registered valuer. Moreover, he has not made any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii)all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (iii)the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger; (iv)the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis; (v)the shareholders holding not less than three - fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, Otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; (vi) the transfer of the undertaking is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er provisions of section 32 of the Act. 11 The above finding of the CIT(A) has been confirmed by the ITAT after appreciating the facts and law of their own. The relevant paras 35 to 46 of the order of the ITAT are reproduced as under- 35. We have considered the rival submissions and have perused the record of the case. 36. At the outset, we may observe that AO has not considered the entire scheme as demerger under the Income-tax Act as contemplated us 2(19AA) of the Income-tax Act. Therefore, we do not consider it necessary to examine the observations of AO, and Id. CIT(A) and the submissions of both the parties on this count as it would only be of academic interest. This is evident from the fact that AO has invoked Explanation 3 to sec. 43(1) and not Explanation 7A to sec. 43(1). Further the contention of assessee that transferor company had also paid long term capital gain tax on the sale consideration is also not of much significance because tax liability is to be determined qua assessee. Therefore) the main issue for our consideration is whether AO was justified in invoking Explanation 3 to sec.43(1) by holding that the entire purpose of this scheme was reduction of tax liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessee; iii) the AO is satisfied that the main purpose of transfer rj( such assets was the reduction of liability to Incometax by claiming depreciation with reference to an enhanced cost; iv) The AO can refuse to accept the sale price as the actual cost to the purchaser (assessee) in the purchasers assessments. 37. The legislature has prefixed the word actual to the word cost which clearly signifies that emphasis is on the reality and genuineness of the cost so as to exclude collusive, inflated, deflated or fictitious cost. As already pointed out that the AD is required to judiciously acquire the necessary satisfaction regarding the object of transfer. It is not to be understood that every case wherever assessee acquires a used asset from other person then the object would only be reduction of tax liability. There may be genuine cases also where the asset has appreciated in value since its original purchase and consequently, the market value on the date of the sale is greater than written down value in the AD's chart. In the absence of any finding, that the main purpose of the transfer is to reduce the tax liability with reference to enhanced cost, it is not permissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on tax authorities because the Hon'ble High Court had not adjudicated the issue of actual cost of the assets as per the Income-tax Act. However, this had persuasive value in determining the actual cost of assets. The third argument is in regard to effective date of transfer. We are in agreement with the Id. Counsel for the assessee that the effective date, as per the scheme approved by the Hon'ble High Court, was 010406 in view of the decision of Hon'ble Supreme Court in the case of Marshal! Sons, 223 ITR 809 and the assessee company obtained the loan against the assets acquired by it from bank in June, 2006. Further there is no quarrel with the proposition of Id. OR that in certain circumstances WDV of assets may constitute actual cost to the assessee. Having considered these aspects, now we proceed to decide the main issue which is what was the actual cost to the assessee and consequently whether AO was justified in invoking the Explanation 3 to sec. 43(1). In this context we have to find out the real value of assets acquired by the assessee. In this regard the first aspect to be taken into consideration is the approval of the Hon'ble High Court to the scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Once the aforesaid broad parameters are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the Scheme even if in the view of the Court there would be a better Scheme for the company and its members or creditors." 38. Therefore, in context to present proceedings, the effect of order of Hon'ble Delhi High Court is to be considered keeping in view the aforementioned aspects. We find that Hon'ble Delhi High Court while sanctioning the scheme has observed as under - Department of Company Affairs, Noida, on behalf of Central Government whereby he raiser} three objections; The first objection is that by the proposed scheme of arrangementdemerger, the Transferee Company is liable to pay Rs. 235 crores as consideration for transfer of transferred undertaking" of the Transferor Company. He submitted that share should have been allotted to the shareholders of the Transferor Company, instead of paying consideration of Rs. 235 crores to the Transferor Company and this is prime facie against the interest of shareholders of the Transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. However, this is not binding on Income-tax Authorities while considering the actual cost as contemplated in Explanation 3 to section 43(1) 40. The next aspect to be considered is the object with which BILT hived off its power division to the assessee company. The assessee company was set up to spearhead the power sector initiatives of the Avantha Power & Infrastructure Group. The objective of demerger of the power asset of Ballarpur Industries Ltd. was to create platform, wherein the company could undertake larger power projects. The company's plans were to expand their generation capacity and development efforts in order to capitalize on the prevailing and foreceable future and meet balance deficit between electricity demand and supply in India. It was pointed out by the assessee before Id. CIT(A) that demerger of the power section has resulted in the following benefit - a) Policy to venture into power sector as a business proposition; b) Better focus on the power generation as a profit centre; c) Independent units could be bench marked against peers; d) Better utilization of the capacity since the units has the flexibility to service other entities The company had tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensure full security of the loan given by it. The loan had been given on the security of assets and, therefore, it cannot be denied that they must have taken due care to ensure that the proper valuation of assets was as per the reports of independent valuers. 42. Ld. CIT(A) has observed and rightly so that AO has not pointed out any mistake in the valuation report. It is true that AO is entitled to ignore the valuation report also but for determining the actual cost of assets it cannot be denied that it was very material evidence. 43. The AO has observed that the assessee company had just obtained easementary rights of land having the plant and machinery and buildings at very nominal rents for a period of 15 years. The AO after taking into consideration the nominal rent fixed for this purpose observed that the obvious reason was that the land would never have been subject matter of depreciation. We find that assessee has clarified this aspect by stating that since BIL T itself was leaseholder therefore, it could not transfer the lend. We are unable to discern anything wrong in this explanation, as the facts are on record. 44. In view of above facts, we are of the opinion that Id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) and the order of the ITAT confirming the same, the undersigned holds the appellant eligible for depreciation for both the asstt. years under consideration i.e. A.Y. 2008-09 and 2009-10. The grounds of appeal pertaining to this issue are allowed in both the assessment years." 7. After going through the aforesaid order passed by the Ld. CIT(A) on the issue in dispute as well as the aforesaid ITAT's order dated 9.11.2012 passed in assessee's own case for the asstt. year 2007-08 relied upon by the Ld. CIT(A) while deleting the addition in dispute, we are of the considered view that the Ld. First Appellate Authority has passed a well reasoned order by respectfully following the aforesaid ITAT's Order dated 9.11.2012 in assessee's own case for the Asstt. Year 2007-08. We find no infirmity in the order of the Ld. CIT(A) and therefore, no interfere is required on our part, hence, we uphold the impugned order passed by the Ld. CIT(A), which is in accordance with the ITAT's Order dated 9.11.2012 in assessee's own case for the Asstt. Year 2007-08 in ITA No. 3259Del2010 title Bilt Power Limited (now known as) Avantha Power & Infrastructure Limited and in ITA No. 4276Del2010 (A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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