TMI Blog2015 (3) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act’. 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-tax Authorities while considering the actual cost as contemplated in Explanation 3 to section 43(1).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.The AO has not disputed the objective with which assessee had made this arrangement. The main/primary objective of assessee is relevant for purposes of Explanation 3. If the primary objective was not tax reduction. The Explanation 3 could not be invoked. Companies Act prescribes normally such rates which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired by it. - Decided against assessee. - ITA No. 3259 /Del/2010, ITA No. 4276 /Del/2010 - - - Dated:- 9-11-2012 - SHRI U.B.S. BEDI AND SHRI S.V. MEHROTRA, JJ. For the Appellant: Shri S.D. Kapila, R.R. Maurya Akhil Mahajan, CAs For the Respondent : Ms. Geetmala, CIT(DR) ORDER PER S.V. MEHROTRA, A.M. These are cross appeals directed against the orders of ld. CIT(A) dated 11.06.2010 for A.Y. 2007-08. 2. Brief facts of the case are that the assessee company was incorporated under the Companies Act, 1956 on 22nd July, 2005, with the object to engage itself to carry on the business of generation and distribution of power. The assessee s company original name was Bilt Power Ltd. which was subsequently changed to Avantha Power Infrastructure Ltd. (APIL). For the A.Y. 2007-08, the assessee company filed its return of income declaring income at ₹ 7,98,64,773/-. The Assessing Officer, after detailed discussion determined the total income at ₹ 19,73,68,300/- by making following additions/ disallowances: - a) disallowance of depreciation of ₹ 11,53,53,162/- on differential amount of fixed assets between purchases conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by SPB Project Consultancy Ltd., Chennai and Infrastructure Leasing Services Ltd., Delhi. As per this report, the plant and machinery and civil works of the power division of BILT was valued at ₹ 315.85 crores. This comprised value of the plant and machinery, furniture fixtures at ₹ 292.27 crores and building at ₹ 23.58 crores. It was pointed out before the AO that the transaction at ₹ 235 crores had been determined by the Board of Directors of BILT and APIL based on their individual judgment and taking into consideration the valuation provided by the independent valuers namely; SPB Projects Consultancy Ltd., Chennai (for technical valuation) and Infrastructure Leasing Services Ltd., Delhi (for financial valuation). Details of valuation were as under: - Units Plant Machinery Furniture Fixture Building Ballarpur 564,338,000 70415000 Bhigwan 1394309000 55446000 Shreegopal 644906000 67119000 Sewa 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi, the assessee company paid ₹ 235 crores to BILT towards purported cost of Plant Machinery Building. 10. The AO further noted that after including WDV of other assets, total depreciation claimed was at ₹ 18.57 crores. He further examined the details on record in regard to depreciation claimed by BILT in respect of assets transferred to assessee company. This was as under: - Name of the assets Rate of depreciation WDV as per assessee Depreciation claimed Factory Bldg. 7.84% 22,75,22,879 17837794 Office Bldg. 3.02% 25,95,263 78377 Plant Machinery 7.84% 2,11,64,83,232 166531759 Furniture Fixture 12.77% 33,98,458 433983 Total 2,34,99,99,832 184881913 11. The AO required the assessee to furnish book value of the assets purchased at & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 315 crores and of M/s JMR Consultants determining the value of the business at ₹ 240.85 crores. These were obtained prior to the approval of the Scheme by Court. (iii) It is further submitted that Explanation 7A to Section 43 is not applicable for assessee company as it was not a demerger of power division as defined in sec. 2(19AA) is not satisfied. (iv) As the condition of sec. 2(19AA) were not satisfied, therefore, transferor company i.e. BILT has not got any benefit of sec. 47(vib) of the Act and paid capital gain tax under section 50B of the Act. In other words, BILT has shown transfer of Power Division as slump sale. (v) In the case of slump sale, a break-up of the cost of each asset/liability is not available. Consequently, a problem arises as to how to find out the actual cost of different assets acquired by way of slump sale in the hands of purchaser. Accounting Standard 10 issues by the ICAI provides that where several assets are purchased for a consolidated price, the consideration is appropriated to the various assets on a fair basis as determined by the competent valuers. (vi) There is no specific pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not a case of demerger as contemplated under the Income-tax Act. However, he observed in para 2.9 of his order as under: - The conditions laid down in Sec. 2(19AA)(iv) and 2(19AA)(v) are linked to sec. 2(19AA)(iii). Once assets are transferred not on the book value, then obviously, in case of a transfer which is to be stated on market value, the resulting company will be under no obligation to satisfy the conditions laid down in sec. 2(19AA)(iv) and 2(19AA)(v). But this does not automatically prove that assessee will stand to claim depreciation on the consideration paid. From mere non-compliance of certain conditions of sec. 2(19AA) assessee s claim, that it is entitled for depreciation on the consideration so paid, will be a hasty inference. 15. The AO further considered the assessee s contention regarding this being a case of slump sale and transferor company had paid capital gains tax on the said consideration. In this regard he referred to the decision of Hon ble Delhi High Court in the context of transfer of capital asset by the Holding Company to the Subsidiary Company in the case of Dalmia Ceramic Industries Ltd. vs. CIT, 277 ITR 219. With referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (by claiming depreciation with reference to an enhanced cost). In this respect following facts are worth mentioning; a. The assessee company in its present form came into existence out of demerger of BILT. The consideration paid has been mobilized in the following manner; Loan taken from bank ₹ 165.00 crores Share capital from Ballarpur ₹ 18.20 crores Industries Share capital from BILT Paper Holding Ltd. ₹ 51.75 crores b. As regards the loan obtained from the banks matter was further scrutinized to ascertain the security against which the loan was obtained. It was found that the assets which were received from demerged company were in fact pledged as security to the banks to obtain the loan. Details of security with the banks are as under; i) Security with UTI bank; ₹ 825,000,000/- First charge on all fixed and current assets Assignment of Power/Steam Purchase Agreement with BILT executed by borrower Escrow of receivables from BILT ii) Security with ICICI bank - ₹ 825,000,000/- All movable and immovable properties both present and future and such other movables as may be agreed to by ICICI Bank for sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is seen for the land the assessee company has just obtained easement rights on very nominal rents for a period of 15 years. Details thereof are as under; Location Area of Land Rent per annum Unit Ballarpur, Maharashtra 4.45 Acres 100000 Unit Bhigwan, Maharashtra 50 Acres (increased from 41.5 acres) 100000 Plus 300000 subletting charges to MIDC Unit Shreegopal, Haryana 4.5 Acres 100000 Unit Sewa, Orissa 9.40 Acres 100000 It may be seen from the above facts that rent on which property is given is nominal. There also does not appear to be any basis of rent. Irrespective of the size of land, which varies from 4.45 acres to 50 acres, the rent paid is ₹ 1,00,000/- per annum. The transactions are not at arm s length. Obvious reason for this could be that, since the land could never have been subject matter of depreciation, there appears to marginal deployment of funds towards easement rights of land. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O Depreciation claimed Depreciation on allowable Difference Factory Bldg. 7.84% 22,75,22,879 9.68% 85829207 17837794 6729010 11108784 Office Bldg. 3.02% 25,95,263 .11% 975332 78377 29455 48922 Plant Machinery 7.84% 2,11,64,83,232 90.07% 166531759 166531759 62611768 103919991 Furniture Fixture 12.77% 33,98,458 .14% 1241332 433983 158518 275465 Total 2,34,99,99,832 100% 886665364 184881913 69528751 11535162 Therefore, difference amount of ₹ 11,53,53,162/- claimed as depreciation is disallowed and added back to the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts at ₹ 315 crores; JMR Consultants valued at 240.85 crores; in the books of assessee it was 214.16 crores and as per Income-tax computation it was 86.66 crores. She submitted that in the light of these variations, it became incumbent upon the AO to find out the true value of the assets which were transferred at ₹ 235 crores. She submitted that it was a case of related company s transaction and, therefore, the AO rightly invoked Explanation 3 to section 43(1) as the assessee was claiming depreciation on higher value in respect of the assets which were used by the transferor company. She submitted that in this regard AO analyzed the issue with regard to the status of land having these plant and machinery and building and found that the assessee company had obtained easementary rights at a very nominal rent for a period of 15 years and concluded that the transactions were not at arm s length. She submitted that obvious reason for this was that the land was not a subject matter of depreciation. She further submitted that the assets in question were old assets having WDV of 88.66 crores only whereas the value at the time of transfer was taken at ₹ 235 crores. She subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd genuineness thereof. The fixation of actual cost arises only when the AO is satisfied that the main purpose of the transfer of the assets which were used by any other person at any time for the purpose of his business or profession, directly or indirectly, to the assessee was the reduction of a liability to income-tax by claiming depreciation with reference to an enhanced cost. When theAO is so satisfied, he has wide discretion to fix the actual cost having regard to all the circumstances of the case subject to the previous approval of the Deputy Commissioner. The AO had no grievance against the revaluation of the assets done by the approved valuer. His grievance was that it was done with a view to reduce tax liability. No doubt, the firm and the partners being commercial, men would value the assets only on a real basis and not at cost or at their other value appearing in the books. Therefore, it was all the more certain that the real rights of the partners could not be mutually adjusted on any other basis. But the question that faced the AO was that the position being so strong as it appeared to be, why did he not adopt Explanation 3 to sec. 43(1) when he sufficiently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition for attracting the proviso to section 10(5)(a) of the India Income tax Act, 1922 which corresponds to Explanation 3 to sec. 43(1) of the 1961 Act was satisfied because the assets had been used by the parent company for their business before they were transferred to the assessee company. If the ITO proceeded to fix or determine the actual cost of the transferred assets by adopting the written down value of the assets as per books of account of the firm with the approval of the IAC, if would be difficult to say that the method adopted was unreasonable or irrational. Even if the assessee produced the valuation report, it could not be said that the above conclusion would be different. Therefore, the drawing of adverse inference against the assessee had no impact on the question decided by the Court. It is settled position that the Court has power to disregard the corporate entity if it is sued for tax evasion or to circumvent tax obligation. In this premise, it could not be said that the AO had acted unreasonably or arbitrarily in adopting Explanation 3 to section 43(1) and fixing the actual cost accordingly. Therefore, the assessee was not entitled to claim deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets separately. In this regard she referred to pages 190 to 195 of paper book to demonstrate that assets were separately considered and value had been assigned to each of the asset by the valuers. Ld. DR submitted that net result of the entire exercise was that by showing the enhanced value for old and used assets, the assessee company had gained by claiming higher depreciation. She further submitted that after recording his satisfaction, the AO had further proceeded to ascertain the actual cost of the asset. In this regard he issued notices u/s 133(6) of the Act to the transferor company and came to know that the WDV of the said asset was only 86.66 crores. She referred to the following case laws to buttress her submission that AO was justified in invoking the provisions of Explanation 3 to section 43(1) and had correctly adopted WDV as actual cost : i) Guzdar Kajora Coal Mines Ltd. vs. CIT, 85 ITR 599, in this case, it was, inter-alia, held that if circumstances exist showing that a fictitious price has been put on the asset or there is fraud or collusion between the vendor and the vendee and there has been inflation or deflation of value with ulterior purposes, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, the Tribunal was also further justified in drawing an advserse inference against the assessee company to the effect that, had such material been produced, the same would have gone against the assessee, which, in other words, meant that the correct market value of the assets transferred might have been lower than the consideration for which the transaction was effected and if such adverse inference had been correctly drawn by the Tribunal, it was obvious that the proviso to sec. 10(5)(a) of the 1922 Act would be clearly attracted. What would be the normal market value of the assets as on the date of transfer is a different matter, but for the purpose of attracting the proviso to section 10(5)(a) of the 1922 Act all that is required to be proved is that the market value of the assets transferred as on the date of their transfer was lower than the consideration for which the transfer had taken place and if the circumstances led to that adverse inference then the proviso to section10(5)(a) of the 1922 Act could be clearly attracted. Therefore, the taking authorities as well as the Tribunal were right in coming to the conclusion that this was a case to which the proviso to section10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o adopt a focus business approach for maximizing the benefit and to provide an opportunity for growth. Thus, the power division was transferred to assessee company by Ballarpur Industries Ltd. with a view to become focused entity not only in the domestic market but also abroad. BILT was trying to position itself in its core business of manufacturing in paper. Accordingly, Board of Directors of the said company had decided to reallocate its business operations by transferring aforementioned captive power plants under power division through slump sale route with the expectation to achieve faster growth and development, and enabling exploitation of opportunity for both the companies. The assessee company, in the current economic environment, immediately after its incorporation, had been looking forward to position itself in the business of generation of power and for necessary expansion beyond its existing location. Thus, assessee company did not want to be confine in its newly acquired business at the existing locations but to expand the same business to other locations through acquisition, exploitation, etc. Thus, the main object for the acquisition of power division from BILT by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to by ICICI Bank for securing the borrowings. Assignment of right under take or pay Agreement with BILT in favour of ICICI Bank. Escrow of receivables from BILT. 24. He submitted that on these aspects there is no dispute and, therefore, even after considering these aspects, the AO wrongly held that the price paid by assessee company was not the actual cost of the assets. As regards reliance placed by the Assessing Officer on the decision of Hon ble Delhi High Court in the case of M/s Dalmia Ceramick Vs. CIT, 277 ITR 219. Ld. Counsel submitted that in that case, it had been, inter-alia, held as under: - There is no dispute that the case falls under clause (iv) of section 47. Therefore, it is clear the actual cost should the written down value of the transferor company. This aspect is required to be born while considering the question. 25. However, in the present case, there is complete absence of transaction between holding company and its subsidiary companies as contemplated u/s 47(iv) or (v) of the Act. Further, the assessee company is not 100% subsidiary of BILT. There is no relationship of holding and subsidiary company in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently the assessee company obtained the loan against those assets from the bank in June, 2006. For this purpose assessee had to incur further expenditure of ₹ 2.2 crores by way of payment to Banks as processing charges. The assessee also incurred interest liability etc. of more than ₹ 11 crores, which had been allowed as business expenditure by the AO. Thus, assessee had incurred huge financial liability by taking loans from the banks for paying the price for acquiring the power plants. Ld. Counsel pointed out that out of total purchase price of ₹ 235 cores, as much as 165 crores (70%) was paid by the assessee in cash for which it had taken loans at its own risk. The transferor company had not borned any financial liability attached to these assets. Ld. Counsel pointed out that it is well known that the banks carry out due diligence and valuation of assets offered for security through independent expert valuers. Further it is also well known that the amount of loan normally does not exceed 2/3rd of the valuation of assets after properly discounting the present devaluation for the term of the loan. He submitted that the satisfaction of the AO as contemplated under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in Chitra Publicity Company 127 TTJ 7 (Ahmedabad Bench, wherein, it was, inter-alia, observed as under: - The revenue authorities and the ld. Accountant Member, in the proposed order, have observed that the AO is authorized to pierce the veil of the corporate and ascertain the true nature of the transaction. There can be no quarrel on the above proposition. However, in my view, it is unnecessary to fall back on the above legal proposition as under the above Explanation, there is sufficient power with the Assessing Officer to disregard the cost of assets taken by the transferee and determined the actual cost of assets. He can made a disallowance, provided the circumstances envisaged in the provision are satisfied. 29. Ld. Sr. Counsel submitted that the transaction was well within the framework of law and the contracts between the parties were enforceable in law. Further Explanation 3 to section 43(1) restricting the meaning of actual cost has been introduced by the legislature to give sufficient power to the AO to determine the actual cost in accordance with law. As regards the objection of AO that though plant and machinery and building had been transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. ₹ 3.89 31. He submitted that even this tax effect disappears if we take into tax suffered by the transferor associate company. 32. Ld. DR in the rejoinder submitted that as regards the submissions of ld. AR that the AO had not lawfully exercised jurisdiction in invoking Explanation 3 to sec. 43(1) of the Act and he should have material to satisfy himself that the main purpose of the transfer of such assets was the reduction of the liability. Ld. DR submitted that the assets which were transferred at the time of demerger were old and used assets and had already depreciated to a value of ₹ 86.66 crores. The nature of assets was not such which will appreciate over the years. 33. As regards the ld. AR s objection that the AO had not determined the actual cost of the assets as laid down in Explanation 3 to sec. 43(1) ld. DR submitted that AO made due efforts to determine the actual cost of the assets in the hands of the assessee. He even obtained information from the transferor company to know the status of the assets in their hands at the time of transfer. The AO s action of adopting WDV as actual cost was supported by var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court, ld. DR submitted that merely because the Hon ble High Court give approval to the scheme of arrangement and demerger under the Companies Act will not automatically entitle the assessee to claim higher depreciation. The Income-tax provisions are specific in this regard and the issue is to be analyzed accordingly. In this regard ld. DR referred to the decision of Hon ble Delhi High Court in the case of Indo Rama Synthetics Limited, 23 Taxman.com 390, wherein it has been held that the Income-tax provision cannot be read as mandatory requirement for all schemes of amalgamation/arrangement/demerger u/s 391/392/394 of Companies Act. Hon ble Delhi High Court, inter-alia, observed as under: - In the proceedings u/s 392(1)(b) of the 1956 Act, the court cannot re write the scheme approved in the meeting called u/s 391(2) of the 1956 Act, but, it can only make such modification as it may consider necessary for proper working of the compromise or arrangement. Thus, at the time of demerger, the specific issues and provisions of the Income-tax Act are not considered and hence, the issue remains to be determined by the tax authorities. 35. We have co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 assessee, 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 of one persons; ii) that person transfers the asset to assessee; iii) the AO is satisfied that the main purpose of transfer of such assets was the reduction of liability to Income-tax by claiming depreciation with reference to an enhanced cost; iv) the AO can refuse to accept t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taken. The entire discussion by AO proceeds on the premise that assessee was trying to claim higher depreciation on enhanced cost. The next objection of ld. 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 ld. Sr. Counsel because, as rightly demonstrated by ld. DR, 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 WDV 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 u/s 133(6). We are also in agreement with ld. DR 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 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 regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 satisfied 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 the Scheme is meant; and 9. 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferee 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 arrangement/demerger in the case of the transferee company no. 2; and there being no investigation proceedings pending in relation to the petitioner company u/s 235 to 251 of the Companies Act, 1956. The scheme of Arrangement/Demerger 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. 25/4/06. 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-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 BILT 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 ld. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned 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 ld. CIT(A). 47. In the result, this ground is dismissed. 48. Ground no. 2 of department s appeal and ground no. 1 2 of assessee s appeal relate to allowability of loan processing fees. 49. Brief facts apropos this issue are that asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no pre-operating period of construction involved here. Ld. CIT(A) observed that in this case the decision of Hon ble SC in M/s Goetz India Ltd. was not applicable because here assessee had booked ₹ 21,50,367/- in the profit and loss account and balance was treated as deferred revenue expenditure. However, he directed the AO to allow deduction of ₹ 21,50,367/- only. 51. Being aggrieved with the findings of ld. CIT(A) both assessee and department are in appeal before us and have taken following grounds of appeal: Grounds of Assessee s appeal: 1. That the ld. CIT(A)-V, New Delhi was wrong in allowing Loan Processing Fees ₹ 21,50,367/- inplace of ₹ 2,43,70,830/- as revenue expenditure u/s 36(1)(iii) which was actually paid/payable by the appellant company during the year under consideration. 2. That the ld. CIT(A) was wrong in treating Loan Processing Fees ₹ 2,43,70,830/- actually paid/payable during the year under consideration as deferred expenditure and such expenditure is allowable in 9 years. 3. That the order is otherwise bad in law. Ground of Department s appeal: 2. The ld. CIT(A) has erred on facts and in law in del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company had acquired the running plant of Ballarpur Industries Ltd. and the loan was taken in July, 2006. However, this loan was for paying the purchase price of assets acquired by the assessee and, therefore, the AO has rightly observed that the incidence of expenditure occurred prior to obtaining assets. Here we have to examine the nature of payment with reference to the assessee company which has acquired the power business of Ballarpur Industries Ltd. Since, the entire amount of loan had been obtained for acquiring the asset, therefore, all the expenses incidental to the acquisition of loan have to be treated as capital in nature. Merely because assessee had acquired going concern will not alter the nature of payment in the hands of the assessee. The intention of the legislature is that all the expenses incurred up to the date of acquisition of asset have to be treated as capital in nature. We, therefore, do not find any infirmity in the order of AO in treating the entire loan processing fee paid for obtaining loan from bank being capital in nature. The assessee however, would be entitled to claim depreciation by capitalizing this figure with the cost of asset acquired by i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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