TMI Blog2015 (12) TMI 1737X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's case in making additions of ₹ 8,98,351/- on wholly illegal, erroneous and untenable grounds. 2. The order of assessment passed by Ld. AO at the instance of DRP u/s 143(3)/144C is bad in law. 3(a). That the Hon'ble DRP as well as learned AO has erred in law, on facts and in the circumstances of the assessee's case in making addition on account of disallowance of alleged excessive depreciation of ₹ 8,91,770/- in respect of assets purchased from Deltron Ltd. (b) That the Hon'ble DRP as well as learned AO has erred in law, on facts and in the circumstances of the assessee's case in upholding that the assets of Deltron Ltd. were acquired by the assessee at a higher price with a view to reduce the liability of income tax by claiming higher depreciation with reference to enhanced cost, on wholly erroneous and illegal grounds. (c) On the facts and in the circumstances of the case, it may be held that the Plant Machinery, Building etc. were purchased on the basis of valuation of the Govt. approved valuers, who were experts, and as such invoking of the provision of Explanation 3 to section 43(1) was uncalled for and unjustified. (d) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the said order was furnished which is placed on record). 8. In his rival submission the ld. CIT DR although supported the order of the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 9. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts has already been adjudicated by this Bench of the Tribunal in assessee's own case for the preceding assessment years 2005-06 to 2007-08 and the succeeding year 2009-10 in ITA Nos. 134/Del/2009, 1319/Del/2011, 5656/Del/2010 and 316/Del/2013 respectively, copy of the said order dated 16.10.2015 was furnished during the course of hearing which is placed on record and the relevant findings have been given in paras 8 to 20 of the said order which read as under: 8. We have heard both the parties and have perused the records. We find that the assessee company, a private limited company, has acquired electronic business from a public limited company known as M/s Deltron Limited as a going concern vide agreement dated 27.9.2004 for a consideration of ₹ 7.54 crore. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 8,18,386/-, the Assessing Officer has held that the assets acquired by the appellant company were to be used for less than 180 days and therefore, the assessee was entitled to depreciation for only half o the year and not for the entire year. However, we find that before the CIT(A), the AR had pointed out certain differences in the figures in the chart of AO, which according to him, do not tally with the consideration stated in the agreement dated 27.9.2004. The ld. CIT(A) had directed the AO take the correct figures of assets taken over from M/s. Deltron Ltd. as per records and recalculate the differences, and, recomputed the disallowance accordingly. 9. 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: [Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, [but before the 1st day of March, 1975,] and is used otherwise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t:- i) The assets which are acquired by the assessee were used by any other person before the date of acquisition; ii) The Income-tax officer arrives at objective satisfaction that such assets were transferred with the main purpose of reducing tax liability by claiming depreciation with reference to enhanced cost. Continental Device India Ltd. iii) Then the Income- tax officer is empowered to determine the actual cost having regard to all the circumstances of the case. 11. So from a perusal of the aforesaid provision, we find that the AO needs to satisfy that the main purpose of the transfer of such assets directly or indirectly to the assessee was for the reduction of a liability of income tax by claiming deprecation with reference to an enhanced cost. Then only, the AO can invoke Explanation 3 to fix the actual cost. So, therefore, the requirement of law is that the main purpose of the transfer of assets was for the reduction of a liability to income tax without satisfying the same, the AO cannot invoke Explanation 3 to section 43(1). 12. Here, in this case, we firstly notice that the AO's observation that neither in the audit report or in the papers filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble unit by the public limited company. This purpose as stated in the agreement has not been found to be rejected, commented or disputed by any of the authorities below. There is no material to dispute the assertion that M/s. Deltron Ltd., a public limited company had resources to invest heavily in R D or develop process capability to keep pace with the advancing technology. No doubt, the ground of common management and common office is a relevant consideration but the same is not of conclusive nature. The prime requirement under Explanation to section 43(1) of the Act is that the transfer of a going concern has been effected to defraud the revenue and such defraud had been attempted by claiming depreciation at an enhanced cost. We have already stated above that here was a case of transfer by a public limited company and the purpose stated in the agreement is not a matter of dispute. The Assessing Officer in the order has opined that the assets as reflected in the books of Deltron Ltd as on 1.4.2004 at ₹ 66,95,884/- were transferred for a consideration of ₹ 1,76,84,338/- though the appellant claims that such a finding is incorrect. It has been pointed out that Deltron L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find force in the contention of the learned AR that it is not a case where building as held by the Assessing Officer of ₹ 7,098/- were sold at ₹ 66,00,000/-. On the contrary, it is a case where building having book value of ₹ 74,25,264/- was transferred to the assessee company at ₹ 66,00,000/- and thus, likewise, it is not a case where plant and machinery of ₹ 59.94 lacs as noted by the Assessing Officer has been transferred for consideration of ₹ 89.66 lacs. On the contrary, plant and machinery having book value of ₹ 3,71,66,000/- has been transferred for consideration of ₹ 89,66,000/-. The above value are supported by a registered valuer's report and are not mere arbitrary valuations adopted by the assessee The Assessing Officer vis- -vis registered valuer's report has held that both the companies were engaged in the same kind of electronic business and plant and machinery used by them was unique and they were not ordinarily marketable commodities, so as to have any valuation of their market price. He further observed that both the companies knew that there was no market for the old plant and machinery except for the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer nor the Tribunal have even attempted to state that the valuation report and the values put on the assets are incorrect in any manner whatsoever. They have simply ignored the valuation report. It was further held as under: The assessee having made a claim for depreciation on enhanced cost, which is the actual cost in its hands, it was necessary for the authority who wanted to determine the actual cost (as required by Explanation 3 to section 43 of the Act) to place some evidence on record. It could not have substituted its opinion and adopted the book value or the written down value in the hands of the assessee- company. As can be seen from explanation 3 to section 43(1) of the Act, the Income-tax Officer is required to determine the actual cost to the assessee having regard to all the circumstances of the case and if in his opinion the written down value was the actual cost, he ought to have supported the same by placing sufficient evidence so as to dislodge the valuation report of the registered valuer. On his having failed to do so, seen if the earlier portion of the provision, viz., the condition of the assets having been used by another person before the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted the royalty rate of past instead of expected royalty rate in future. Even from the past royalty rate, he has reduced 50% income on this basis that the goodwill was not transferred and sub-licensed by NCWL to NL and NCCL but he has forgotten that the income of the royalty is not being affected on this count and it is not material as to whether the same is with goodwill or without goodwill. Hence, we have seen that even the valuation done by the A.O. is not proper and therefore, the action of the A.O. is not justified. 18. The Assessing Officer has also laid emphasis on the fact that short term capital gain as declared by the transfer of company namely M/s. Deltron Ltd. has been set off against the losses in the books of the said company. Having regard to the peculiar facts and circumstances in the case of the assessee company as highlighted above, such a factor alone cannot be made a basis to invoke Explanation 3 to section 43(1) of the Act. Explanation 3 to section 43(1) of the Act is not an absolute rule. The Assessing Officer is empowered to substitute the value. However, such a valuation cannot be substituted where there is no intent to reduce the tax liability. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted company to the closely held company for the purpose which has not been disputed by either the Assessing Officer or the CIT(A). Moreover, valuation having regard to the book value of the assets also shows that the claim is not arbitrary or unreasonable or irrational, particularly when supported by registered valuer's report furnished by the assessee. Likewise, is the case of Kungundi Industrial Works Pvt. Ltd. vs. CIT 57 ITR 540 wherein too, it was a case of conversion of firm into company and not a transfer by the public limited company to the private limited company. It was noticed that the shares allotted in the same proportionate to the shareholders as the shares held by the partners in the partnership firm. It was thus held that both the entities are distinct and separate but it is not a case where price is actually paid by one person to another person. Thus the above judgment has also no application to the case of the appellant. In the case of Guzdar Kajora Coal Mines Ltd. vs. CIT, it is seen that the facts were that the assessee purchased through deed of conveyance dated 3.4.1996 all the cumulative lands and other assets together with machinery belonging to Guzdar Kaj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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