TMI Blog2015 (3) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... S.V. Mehrotra And H.S. Sidhu JJ. For the Appellant : Smt. A. Mishra, CIT(DR) For the Respondent : S h. Akhil Mahaja, CA ORDER Per H.S. Sidhu JM The Revenue has filed these Appeals against the common impugned Order dated 0412013 passed by the Ld. Commissioner of Income Tax (Appeals)-V, New Delhi. Since the issue involved in both the appeals is common, hence, we are disposing of the appeals by this consolidated order for the sake of brevity, by dealing the ITA No. 1955Del2013 (A.Y. 2008-09). 2. The grounds raised in ITA No. 1955Del2013 (A.Y. 2008-09) read as under- 1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 11,63,24,923- 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. 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 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antha Power Infrastructure Limited vide Order dated 9.11.2012. We also find that in the asstt. year 2007-08, AO has made similar addition regarding disallowance of depreciation us. 32 of the I.T. Act by invoking the Explanation 3 of Section 43(1) of the I.T. Act, 1961 and aggrieved by the same, Assessee filed an Appeal before the Ld. CIT(A), who has allowed the Appeal filed by the assessee on the issue of depreciation us. 32 and allowed the depreciation. Aggrieved by the order of the Ld. CIT(A), Revenue filed an Appeal before the ITAT, who vide its Order dated 9.11.2012 affirmed the finding of the Ld. CIT(A) on the deletion of disallowance of deprecation made by the AO. We find that the Ld. CIT(A) in the asstt. years in dispute i.e. 2008-09 and 2009-10 has adjudicated the issue vide common order dated 4.1.2013 as under- 3. Basically the grounds of appeal pertain to (i) disallowance of loan processing fee and (ii) disallowance of depreciation on assets acquired. As per the appellant, similar issue was involved in the AY 2007-08 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gains that arose on transfer of such assets. When there is transfer of old assets, valuation of such assets on transfer may arise due to escalation of present value of such assets on transfer. We cannot tax the transferor and transferee company twice on same transaction by disallowing depreciation. When the transferee company is paying higher amount of ₹ 235 crores (and NOT 86 crores), then he should get depreciation on ₹ 235 crores only. The transferor company had paid Long Term Capital Gain on 235 crores after High Court's order of transfer. 2.18 Definition of 'demerger' inclusive of its conditionality for application as per Section 2(19AA) of the Income Tax Act as under- (19AA)demerger, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 39479 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner thatITA (i)a the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii)all the liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feror company therefore, the transfer of undertaking of power generation business is not a demerger as per IT Act as stipulated us 2(19AA) of the Act. 2.22 The assessee had accounted and treated the transfer of the aforesaid undertaking on a slump sale basis. There has been a transfer of an undertaking without assigning the values to individual assets and liabilities. The consideration of ₹ 235 crores is for the entire undertaking of power generation business taken over by the assessee company from Ms Ballarpur Industries Ltd. 2.23 In view of the above, I am of the considered view that the appellant s case does not fall within the ambit of Explanation 3 to Section 43(1) of the Act. Accordingly, disallowance made in the order in respect of depreciation ₹ 11,75,03,529- is not sustainable and hence deleted. Accordingly, A.O. is directed to allow depreciation on actual cost of ₹ 235 crore as adopted on the basis of valuation reports by the valuers and declared in the scheme approved by the court and also computed by the Auditor in the Tax Audit Report as per provisions of section 32 of the Act. 11 The above finding of the CIT(A) has been confirmed by the ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actors. Explanation 3 to section 43(1) reads as under - 43. 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 authority. Explanation 3 - Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the AO is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the asseessee, was the reduction of a liability to income tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the AO may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case. Thus, the basic ingredients of Explanation 3 are as under - i) an asset was already in use in a business in the hands et one persons ii) that person transfers the asset to assessee; iii) the AO is satisfied that the main purpose of transfer rj( such asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faction for invoking Explanation 3 we are not in agreement with Id. Sr. Counsel's argument, because as rightly pointed out by Id. DR, a holistic view is to be taken. The entire discussion by AO proceeds on the premise that the assessee trying to claim higher depreciation on enhanced cost. The next objection of Id. Sr. Counsel is that AO did not determine the actual cost as required in Explanation 3. We are not in agreement with this argument also of Id. Sr. Counsel because, as rightly demonstrated by Id. OR, AO had made all out efforts to find out the actual cost. We do not find any substance in this plea of the assessee because AO had taken into consideration different valuation reports and WOV of assets before arriving at the conclusion that WDV as per Income-tax records was the actual cost of assets. He had also raised the queries with regard to determination of actual cost of the said assets and gathered information from the transferor company by issuing notices us 133(6). We are also in agreement with Id. OR that value approved by the Hon'ble High Court of Delhi Bombay was not binding on tax authorities because the Hon'ble High Court had not adjudicated the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meeting requisite class persons had the relevant material to enable them arrive at an informed decision for approving the Scheme. The majority decision of the concerned class is just and fair to the class as a whole so as to legitimately blind even the dissenting members of that class. 4. Necessary material is placed before the voters at the meetings concerned; 5. The requisite material is placed before the Court and the Court is satisfied about the same; 6. The proposed Scheme is found not to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be setistied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the Scheme and can judiciously X-ray the same; 7. The, requisite class acted in bona fide and in good faith and did not coerce the minority; 8. The Scheme as a whole is just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom [he Scheme is meant; and 9. Once the aforesaid broad parameters are found to have been met, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 235 crores. Court did not find any merit in this objection also and rejected the same. The third objection is in respect of the articles and memorandum of association of the transferee company no. 2 and the proposed scheme under which transferred undertaking no. 2 i.e. (Real Estate Division) is to be transferred to the transferee company no. 2. the Court ordered that it need not examine this aspect as the Mumbai High Court has already granted sanction to the scheme of arrangementdemerger in the case of the transferee company no. 2; and there being no investigation proceedings pending in relation to the petitioner company us 235 to 251 of the Companies Act, 1956. The scheme of ArrangementDemerger in respect of Transferor Company and Transferee Company No. 2 has already been sanctioned by High Court of Judicature at Bombay, Nagpur vide order dt. 25406. 39. Thus, it cannot be denied that the approval granted by the Hon'ble Delhi High Court had persuasive value for deciding the actual cost of assets to the assessee. It could not be ignored particularly because Hon'ble Court expressly considers the bonafide of the entire scheme. However, this is not binding on Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 41. The next aspect is regarding interest liability incurred by assessee towards interest payment on the loan of ₹ 165 crores taken by it. One cannot loose sight of the fact that this was actual cash outflow of assessee and it was not to any related party. This cost incurred by the assessee was solely on business considerations in as much as the AO has allowed the interest charges in assessee s assessment. Here is not a case where assessee has merely claimed depreciation on enhanced value of asset but has simultaneously incurred the interest cost on account of loan taken from Banks. Therefore, it cannot be said that the main object was to claim depreciation on enhanced value of assets. The AO has observed that this loan ultimately benefited BIL T as the payment has been made to that company only by assessee. We do not find much substance in this plea of AO as we do not find any improprietory in this transaction. We further find considerable force in the submission of Id. Sr. Counsel for the assessee that such a big loan could not be availed by assessee without detailed due diligence being undertaken by the respective banks before granting loan. Bank has to ensure full se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required, the assessee's business operations do not hamper for the availability of funds. Therefore, Companies Act prescribes normally such rates which may ensure the achievement of aforementioned objective. However, under the Income Tax Act such rates are prescribed which ensure that assessee recovers its capital cost in shortest possible of time. Therefore, the rates of depreciation prescribed under Companies Act are more realistic. Under the Companies Act the object is that the company's assets should continue in the books upto their entire life span. Be that as it may, since two WDV's were available before the AO for determining the actual cost, he could not have ignored the WDV as per the books of the company the adoption. of which was more beneficial to company. Admittedly, there is very minor difference (235 - 214.16) crores in the valuation of assets as per books of BILT and the actual consideration paid by the assessee company. Therefore, this aspect clearly establishes the bonafide of assessee in adopting the actual cost of assets at ₹ 235 crores. We, therefore, do not find any reason to disturb the findings of Id. CIT(A). In view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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