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HCP Design & Projects Pvt. Ltd. Versus Income Tax Officer

2016 (6) TMI 593 - ITAT AHMEDABAD

Disallowance on account of depreciation claimed applying the provisions of explanation-3 below Section 43(1) - Held that:- Explanation 3 to Section 43(1) can be invoked in the given facts of the case. It prescribes that Assessing Officer must record a proper satisfaction that the main purpose of the transfer of such assets was reduction of liability to income-tax. This mandatory finding is conspicuously missing from the order impugned of the Assessing Officer. Besides, if it is not a case of tra .....

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hat the preponement or postponement of year of claim or allowance is a basically revenue neutral in character, more so when the rate of income tax in case of company is nearly same. The re-classification of asset at the most makes a benign shift in the claim of depreciation of machinery block and computer block. Depreciation being a carried over allowance based on WDV; rate of tax being same, following the Hon’ble Supreme Court judgment, is a revenue neutral exercise. So, in any case, the assess .....

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ssessee is directed against the order of the Commissioner of Income-Tax (Appeals)-VIII, Ahmedabad dated 20.01.2011 for Assessment Year 2001-02. 2. Effective ground raised is as under:- In law and in the facts and circumstances of the appellant s case, the ld. CIT(A) has grossly erred in upholding the disallowance of ₹ 6,17,026/- made by the ld. AO on account of depreciation claimed by the appellant by applying the provisions of explanation-3 below Section 43(1). 3. Additional ground filed .....

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e same value as on 1- 4-2000. However, company auditors found that computer and peripherals were wrongly debited to machinery account, which was corrected in books by transferring such assets in to appropriate block of assets. In other words, aggregate WDV in the hands of the firm and the cost taken in the hands of the new company are at the same value. The deference in claim of depreciation on same WDV resulted due to correction of intra-block of assets variation was reclassified for some items .....

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al, the ld. CIT(A) confirmed the action of ld. Assessing Officer by following observations:- 6.2 I have considered the assessment order, appellants submission and the orders of the ITAT and CIT(A) referred to above. On perusal of the submissions it is noticed that the main contention was that the company had acquired the business of the firm on conversion as per the provisions of the Companies Act and for that purpose had paid consideration by issue of shares. It is further submitted that Explan .....

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of such tax avoidance particularly when the assets were acquired at book value. It is, therefore, claimed that Explanation 3 is not applicable in its case. However, on consideration of the facts I find that there was no reason for adopting the higher opening WDV in respect of certain assets only on the ground that the same value adopted on conversion of firm into company. As rightly pointed out in the order dated 24.11.2004 passed by my predecessor, the assessee had claimed WDV of computers at .....

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at page does not make any difference in the fact for the reason that in the said chart the opening WDV of computer was adopted at ₹ 37,93,321/- as against WDV of computers in the books of firm at ₹ 21,92,984/-. This, as discussed above was not proper. The action of the AO is, therefore, confirmed. 5. Aggrieved assessee is before us, Ld. Counsel contends as under:- (i) Explanation 3 to Section 43(1) is not at all applicable in this case as the increased in depreciation is not due to o .....

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luation of assets with a motive to reduce the tax liability. In the absence of such finding, Section 43(1), Explanation-3, is not at all applicable. Reliance is placed on following decisions of ITAT & High Court:- (a) The decision of Third Member, Ahmedabad Bench in the case of Chitra Publicity Company Pvt Ltd, [2010] 4 ITR (T) 738 (Ahmedabad Tribunal) (b) The decision of Hon ble High Court of Gujarat in the case of Ashwin Vanaspati Industries, 255 ITR 26 (Guj.) (iii) It is pointed out that .....

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ion is unjustified. 6. Ld. Departmental Representative supported the order of the Assessing Officer and contends that the case of Chitra Publicity Company Pvt Ltd (supra) is not applicable to the case of the assessee. In that case, the hoardings were claimed as Revenue expenditure of erstwhile company which was purchased by the new company and depreciation was claimed on them. 7. I have heard the rival contentions and perused the material available on record. In my considered view, Explanation 3 .....

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