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ACIT, Circle-I, Meerut Versus Shri Jitender Kumar Gupta

2015 (5) TMI 714 - ITAT DELHI

Excess claim of depreciation - Equipments given on hire - cost of acquisition u//s 43(1) - CIT(A)directing to adopt value of the depreciated assets at ₹ 89,10,245 as against ₹ 22,45,000 taken by the Assessing Officer (AO) and consequently allowing relief of depreciation amounting to ₹ 16,66,311 - Held that:- It is manifest from the order of the ld. CIT(A) that he simply took on record the details from the assessee and proceeded to delete the disallowance without any independent .....

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igns of the parties in arranging their affairs in such a manner so as to scuttle the legitimate tax due to the exchequer. A thing which can be seen with a naked eye, cannot be lost sight of on some unrealistic reasoning.

It is not a case in which the AO has arbitrarily formed a view that the purchase price of the Equipments was declared higher and simply ignored it without any bedrock. Rather, he took pains in establishing that the case of the assessee was caught within the mischief .....

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wn value of such Equipments in the hands of BBW at the time of sale to the assessee stood at ₹ 32.91 lac. No details of Installation charges etc. incurred by BBW has been made available. In our considered opinion, the ends of justice would meet adequately, if the total actual cost of such Equipments purchased from BBW is taken at ₹ 35.00 lac on all inclusive basis. The impugned order on this score is set aside and the AO is directed to allow depreciation by considering ₹ 35.00 .....

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ssailing the view taken by the ld. CIT(A) in directing to adopt value of the depreciated assets at ₹ 89,10,245 as against ₹ 22,45,000 taken by the Assessing Officer (AO) and consequently allowing relief of depreciation amounting to ₹ 16,66,311 by ignoring the provisions of section 43(1) of the Act. Earlier, the tribunal passed order in ITA No.445/Del/2010 for the captioned year u/s 254(1) of the Income-tax Act, 1961 (hereinafter also called the Act ) deciding this issue in favo .....

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which were earlier installed by them in a premises at 225, Okhla Indl. Estate, Phase III, New Delhi, owned by some other person. This premises consisting of basement, mezzanine, ground, first and second floors was simultaneously acquired by M/s Civic Traders (P.) Ltd., another group concern of the assessee, from such third person for a sum of ₹ 1,91,18,472. The premises owned by such third person fitted with the Equipments installed by BBW, prior to its purchase by the assessee and its gro .....

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ursuant to the Agreement with BBW, the assessee was to pay ₹ 75.00 lac towards the price of Equipments and it simultaneously became entitled to recover rent for the three months period prior to its acquisition on 1.4.2000, that is, from 1.1.2000 to 31.3.2000 from Minerva Holding (P) Ltd, totaling ₹ 11.77 lac. After adjusting this amount of ₹ 11.77 lac against the sum of ₹ 75 lac paid to BBW, the assessee capitalized a sum of ₹ 63.22 lac towards this asset. Apart fro .....

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77; 63.22 lac. After conducting inquiries, which we will advert to a little later, he made a reference to the Addtl. CIT u/s 144A of the Act for determining the actual cost of such Equipments. Directions given u/s 144A was made as Annexure J to the assessment order. As per this Annexure, the Addtl. CIT noticed that the Building was owned by M/s Civic Traders Pvt. Ltd and the value of such Land and building in their books as on 31.3.2001, after depreciation, stood at ₹ 1.91 crore. He notice .....

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that it was a case of colourable device employed by the group companies to bifurcate rent between themselves. Since BBW failed to produce any proof of the purchase cost of the Equipments and the assessee also failed to discharge its burden in proving such purchase price as the actual cost, the Additional Commissioner estimated their actual cost at ₹ 20.00 lac. He, however, clarified that the AO was not bound by his opinion and may form his own. The AO adopted this figure of ₹ 20 lac .....

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tified in applying Explanation 3 to Section 43(1) of the Act inasmuch as the requirement under the provision is to determine the actual cost and not its fair market value. Ergo, he directed the AO to take the actual cost incurred by the assessee as actual cost. 4. The Revenue appealed before the Tribunal. The Tribunal in the original order considered the judgment of the Hon ble Delhi High Court in CIT vs. Dalmia Dadri Cement Ltd. (1980) 125 ITR 510 (Del) and upheld the assessment order on this p .....

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ed and the occupier of the premises was to pay rent to the building owner at a specific rate and it did not matter to the occupier that in what manner the total rent paid by it was applied by the related parties, namely, the assessee and Civic Traders, towards rent of building and that of equipment. The Tribunal further noted that half of the total rent received was applied towards building and the remaining half towards these Equipments. In view of these facts, the Tribunal held that the rent r .....

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anation 3 to section 43(1) ought not to have been applied by the AO and resultantly, the disallowance was rightly deleted in the first appeal, the ld. AR relied on the judgment of the Hon ble Allahabad High Court in the case of Jaswant Sugar Ltd. Vs. CIT (1973) Tax LR 1336. The Tribunal, vide its order dated 3.8.2012 passed u/s 254(2), held that non-consideration of the judgment of the Hon ble jurisdictional High Court in Jaswant Sugar Ltd. (supra) and treating the judgment in case of Dalmia Dad .....

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actual cost of the Equipments by resorting to the provisions to Explanation 3 to section 43(1). This view was sought to be buttressed by relying on the judgment of the Hon ble jurisdictional High Court in Jaswant Sugar Mills Ltd. Vs. CIT (supra). Drawing strength from this judgment, the ld. AR vehemently argued that the AO erred in applying Explanation 3 to section 43(1) which, in the facts and circumstances of the case, was not applicable because of the failure of the AO to record any satisfact .....

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or not the ratio decidendi of the judgment in Jaswant Sugar Mills Ltd. (supra) is applicable to the instant case on merits, we would like to deal with the preliminary argument raised by the ld. DR about the inapplicability of this judgment due to the same having been rendered under the 1922 Act. It goes without saying that if the language of a provision contained in the earlier and the current Acts is same, then the decisions rendered in the context of the earlier Act do not lose their binding .....

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der the head Profits and gains of business or profession . Clause (vi) of section 10(2) of the 1922 Act provides for allowing depreciation. Clause (a) of sub-section (5) of section 10 of the 1922 Act deals with the determination of actual cost. This provision runs as under:- (a) in the case of assets acquired in the previous year, the actual cost to the assessee: Provided that where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purp .....

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ing provision for the determination of actual cost has been enshrined in section 43 of the 1961 Act, the relevant part of which is as under:- Section 43(1) : "actual cost" to mean 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 .....

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all the circumstances of the case. 9. On a conjoint reading of the provisions of the 1922 Act and 1961 Act in this regard, it can be seen that sub-section (1) of section 43 defining actual cost is worded more or less on the same lines as section 10(5)(a) of the 1922 Act, except providing for reducing that portion of cost, if any, as has been met directly or indirectly by any other person or authority. Extantly, we are not dealing with any issue about the deductibility or otherwise of any portion .....

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. Commissioner under the current Act, they are identical. Once the language of the provision in both the Acts is found to be similar, there can be no impediment in considering the decisions given under the 1922 Act while interpreting the analogous provisions of the 1961 Act. We, therefore, refuse to accept this contention advanced on behalf of the ld. DR. 10. Now, let us proceed to see if the ratio laid down by the Hon ble Allahabad High Court in the case of Jaswant Sugar Mills (supra) is applic .....

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,26,040/-. The Income-tax Officer, with the approval of the Inspecting Assistant Commissioner, took recourse to the proviso to section 10(5)(a) and accordingly reduced the actual cost of such machinery to ₹ 1 lac. When the matter finally went before the Hon ble Allahabad High Court, their Lordships noticed that the Income-tax Officer had not recorded any reasons disclosing the grounds on which he was satisfied that the transfer was for reducing tax liability. It was held that the Income-ta .....

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aid down by the Hon ble High Court vide its judgment dated 15.12.1972 that the assessee was entitled to depreciation on the actual cost of the machinery purchased from Seth Banarsi Dass and proviso to section 10(5)(a) was not applicable. 11. At this juncture, it would be befitting to take note of the judgment dated 31st July, 1972 rendered by the Hon ble Supreme Court in Guzdar Kajora Coal Mines Ltd. Vs. CIT (1972) 85 ITR 599 (SC). The assessee in that case purchased colliery lands, hereditament .....

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depreciation on the assets so purchased on the basis of their written down value as per the record of the vendor company and not the above bifurcated value, which was allowed by the ITO. It went on till the assessment year 1952-53 when, again, the ITO allowed depreciation on the old basis. Before the AAC, the assessee raised a ground that the ITO should have worked out depreciation on the value of assets based on the above bifurcation of ₹ 6 lac. This contention was negatived by the ITO, w .....

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1,00,000/- were arbitrarily put and there was no understandable break-up of the valuation. The assessee contended before the Hon ble High Court that the ITO was not competent to go beyond the agreed price and fix a valuation of the assets on his own. The High Court rejected the assessee s contention. When the matter finally went before the Hon ble Supreme Court, their Lordships took into account the provisions of section 10(2) and also 10(5) of the 1922 Act defining the original cost. After tak .....

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d on the evidence of the material produced or available to the IT authorities. Any document or formal deed mentioning the consideration or the cost paid for the purchase of an asset by an assessee would be a piece of evidence and, prima facie, the statements or figures given therein would show how much the cost of the asset to the assessee is. But, 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 .....

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or purchase of such asset. But, if the apparent circumstances suggest that the real position is different and the price has been inflated or deflated for an ulterior motive, then it is open to the income-tax authorities to disregard the apparent value and ascertain the correct actual cost. Ergo, it is discernible that the Hon ble Apex Court dealing, inter alia, with the interpretation of section 10(5) of the 1922 Act has clearly laid down that the ITO should not desist from determining the actua .....

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dgment of the Hon ble Supreme Court in Guzdar Kajora Coal Mines(supra) is dated 31st July, 1972, the judgment of the Hon ble Allahabad High Court in Jaswant Sugar Mill (supra) is dated 15.12.1972. There is no reference to the judgment of the Hon ble Supreme Court in the judgment of the Hon ble High Court, which is otherwise on the interpretation of the same section and directly relevant on the point. It appears that the parties failed to bring the Hon ble Apex Court judgment to the notice of the .....

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declared by the Supreme Court shall be binding on all courts within the territory of India. 14. At this stage, it will be significant to refer to the judgment of the Hon ble Delhi High Court in CIT vs. Dalmia Dadri Cement Ltd. (1980) 125 ITR 510 (Del). In that case, a sum of ₹ 16,46,617 was capitalized as cost of plant and machinery installed during the year which included a sum of ₹ 7,70,000 paid to Bhagwati Glass. It was noticed that the cost of assets got fabricated by Bhagwati Gl .....

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to have paid a sum of ₹ 7,70,000. It was held that the income-tax authorities were right in observing that the capital cost was undoubtedly inflated in the hands of the assessee to enable it to claim higher depreciation and thus ultimately substituting their own figure of actual cost. Here it is relevant to mention that in reaching this conclusion under the provisions of the 1961 Act, their Lordships also referred to the judgment of the Hon ble Supreme Court in the case of Guzdar Kajora Co .....

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. 15. On an overview of all the above discussed judgments led by that of the Hon ble Supreme Court in Guzdar Kajora Coal Mines Ltd. (supra) in the context of the point under consideration, it clearly emerges that when asset before the acquisition by the assessee was used by another person for his business and the AO holds the view and is satisfied that the actual price of such asset has been inflated or deflated for an ulterior purpose, then there can be no fetters on the powers of the AO in rej .....

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5,000 Total 89,10,245 17. It was noticed by the AO that the details of such assets were mutilated by someone to divert his attention. On being pointed out, the assessee filed fresh details, inter alia, of purchase price of Centrally Airconditioning unit with Generator, Otis elevator and Fire fighting equipments acquired from BBW for a gross sum of ₹ 75,00,000. The assessee further claimed to have paid commission of ₹ 10 lac and ₹ 8 lac to M/s Shivaya Laminations Ltd. and M/s Li .....

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s the purchase of Equipments given on hire . Hence we are desisting from commenting on the genuineness or otherwise of such commission payments. To test the veracity of purchase price of Equipments, the AO recorded the statement of Sh. Neeraj Kumar, an accountant of BBW. On being asked to show the basis of determination of ₹ 75.00 lac as the price of the Equipments, he stated that it represented their market price with labour and installation charges, but no further detail was submitted. D .....

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ng Equipments 1,03,050 Total 39,26,890 PLUS: (i) Cost of installation, Civil work, Ducting, Pipe Fittings, Wiring, etc., for Lift, Air Conditioning Plant, Generating Set and Fire Fighting Equipments Approx. 20,00,000 (ii) Cost of Approvals for Lift, Generating Sets, Air Conditioning Plant and Fire Fighting Equipments, etc., from Government and Semi-Government Departments and Municipal Corporation Approx 10,00,000 69,26,890 PLUS: PROFIT - Estimated - Tentative of the Supplier Baba - Buildwell 5,7 .....

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rk and ducting, etc. has been shown at ₹ 20 lac. The claim in this regard is that cost of installation etc. is a little more than 50% of the cost of Equipments itself, which prima facie does not appear probable. There is no corroboration of this figure. What was spent by BBW on installation has also not been shown anywhere. Next item is Cost of approval etc. at ₹ 10.00 lac. Which Government department charges fee of ₹ 10.00 lac for granting approval to install AC and lift etc. .....

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ed and commercially exploited by BBW for at least three months, earning rent of ₹ 11.77 lac from their hiring, before transferring them to the assessee. It defies all the logics that any Equipment commercially exploited for at least three months by giving it on hire, after purchase, would fetch the same price at which it was acquired. What to talk of transferring the Equipments at cost price, the assessee has made out a case of paying premium of ₹ 5.73 lac to BBW, which proposition i .....

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n some unrealistic reasoning. We are confronted with a situation in which the assessee needlessly tried to establish that the gross actual cost of Equipments given on hire was ₹ 75 lac, which in our considered opinion has been rightly refused by the AO after making a detailed discussion and conducting due inquiries from BBW and other related parties. It is not a case in which the AO has arbitrarily formed a view that the purchase price of the Equipments was declared higher and simply ignor .....

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that he was not satisfied with the declared cost. If the exercise done by the AO before rejecting the assessee s version of actual cost, vividly reflects his implied satisfaction in terms of the Expl. 3 to section 43(1), then such implied satisfaction prompted by express actions, cannot be taken as a case of absence of satisfaction. The facts of the instant case amply show that the AO was fully satisfied in not accepting the declared price as the actual cost of Equipments from BBW within the me .....

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