TaxTMI 
TaxTMI 
2006 (1) TMI 451
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....: The amount of depreciation disallowed are : Assessment year 1996-97 : Rs. 41,17,241 Assessment year 1997-98 : Rs. 31,16,805 Assessment year 1998-99 : Rs. 23,37,604 Now we deal with each ground as under :-- Treatment of Interest Income under "Other Sources" 2. Particulars of interest earned for assessment years 1996-97 to 1998-99 are : Assessment year Corporate deposit (Rs.) Bank deposit (Rs.) Car deposit (Rs.) Total (Rs.) 1996-97 54,34,247 1,76,589 5,223 56,15,053 1997-98 From the above sources together 62,00,541 1998-99 From the above sources together 1,11,26,007 It is claimed by the assessee that above interest income is from business as it is intimately connected with carrying on of business. The memorandum of association of the assessee-company empowers it to carry on the business of lending money and therefore, interest earned on inter-corporate deposit is nothing but the business income. It was further submitted before the Assessing Officer that assessee-company has paid aggregate interest of Rs. 2,71,53,427 (assessment year 1998-99) and Rs. 2,57,41,943 (assessment year 1997-98). It relied on the decision of Hon'ble Delhi High Court in the case of ....
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....r :-- "6. The second issue by the assessee in its appeal relates to the consideration of interest of Rs. 46,11,474 under section 80-IA and 80-I, whether it is to be treated as business income or Income from other sources. The contention of the assessee is that it has invested its surplus funds with another company and the interest earned thereon is nothing but business income and it is to be treated accordingly. The department disallowed the said contention of the assessee holding that as this interest income was not derived by the assessee during its course of business and as such it should be treated only as Income from other sources. Therefore, accordingly it taxed under the Act. The assessee contends that in its memorandum of association there is a clause to carry out money lending business also. Basing on this clause in its memorandum of association, assessee claims that since amounts were given to another company and the interest is derived on the said deposits, taking them as nothing, but lending, claims as business receipt. The learned CIT(A) has considered this issue thread-bear in para 8 of the impugned order and after considering related laws, he came to the conclusion ....
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....pute and related facts are as under : The assessee-company purchased certain GG & TG equipment, whose description are as under (as per Assessing Officer) : A 2 Triple Gob (TG) equipments - 21/8 Version. B 3 Triple Gob (TG) equipments - 27/8 Version. C 4 Quadruble Gob (QG) equipment with accessories. These equipments were purchased from a sister concern viz. M/s. Vazir Glass Works Ltd. (in short 'VGWL'). The total consideration paid by assessee-company (NGAIL) was a sum of Rs. 1,70,06,600, on which it claimed depreciation as mentioned in the grounds of appeal above. According to Assessing Officer, the WDV in the hands of VGWL was Rs. 5,30,078. The Assessing Officer invoked the provisions of Explanation 3 to section 43(1) and rejected the cost paid by NGAL to VGWL and adopted WDV in the hands of VGWL as the cost for the purposes of allowing depreciation to NGAIL. 10. According to the Assessing Officer, cost of various equipments to VGWL purchased by NGAIL are as under : (i)Equipment at A from Wheaton International Division, USA for Rs. 9.11 lakhs + Rs. 9.76 lakhs in 1977 (total Rs. 18.87 lakhs). (ii)Equipment at B from M/s. Vidros Vitran Ltd. for Rs. 21.45 lakhs in 1981. ....
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....or bona fide basis behind purchases of these equipments at a sum of Rs. 170.06 lakhs. (6)In a similar case, the Pune Bench of ITAT in the case of Finolex Plastics (P.) Ltd. v. IAC [1993] 47 ITD 333 has held that provisions of Explanation 3 to section 43(1) would be applicable. Thus, the Assessing Officer rejected the claim of actual cost of the equipments at Rs. 170.06 lakhs and adopted WDV in the hands of VGWL as the actual cost in the hands of NGAIL with the previous approval of JCIT and allowed depreciation in the assessment year 1996-97 and subsequent year accordingly. 12. Before the CIT(A), the assessee submitted that :-- "The second issue raised by the assessee in its appeal relates to the consideration of interest of Rs. 46,11,474 under sections 80-IA and 80-I, whether it is to be treated as business income or income from other sources. The contention of the assessee is that it has invested its surplus funds with another company and the interest earned thereon is nothing but business income and it is to be treated accordingly. The department disallowed the said contention of the assessee holding that as this interest income was not derived by the assessee during its cour....
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....as the case." On the other hand, in the case of the appellant the Assessing Officer has not accepted the valuation of the machinery as per valuation report and it has been held that the consideration paid more than the market value of the machinery. During the course of the hearing it was also admitted that Vazir Glass is a loss making company with accumulated business loss. With this background also it becomes clear as to how the tax liability is sought to be reduced by claiming depreciation in the hands of the appellant-company on hiked purchase value of the machinery and in the case of Vazir Glass, the profit on sale of machinery would get absorbed in setting off the unabsorbed loss. 3.5 Coming to the second issue i.e., reliance placed on Bombay Household, as mentioned in the preceding para even as per the observation made in that case, the above provision of Explanation (3) to section 43(1) applicable. Even though in both the cases the sale consideration of the machinery was supported by report of approved valuers but in the case of Bombay Household & Industrial Plastics Mfg. Co. (P.) Ltd. (supra) it was not the case that the sale consideration was more than market value itsel....
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.... of total cost of Rs. 1,70,06,000 cannot be accepted. The Assessing Officer has rightly allowed depreciation to the appellant on the WDV Rs. 5,37,038. The disallowance made out of depreciation is, therefore, upheld. However, the Assessing Officer may verify the submission of the appellant that the correct figure of disallowed depreciation is Rs. 41,55,731 and make the necessary rectification." 14. The main reasons rejecting the appeal of the assessee by CIT(A) are :-- 1.The consideration paid is more than market value. 2.VGWL is loss making company with accumulated losses. The price is paid to set off the loss against profit arising on sale of equipments to NGAIL. 3.The decision in Bombay Household & Industrial Plastics Mfg. Co. (P.) Ltd.'s case (supra) is not applicable as facts are distinguishable whereas the facts in the case of Finolex Plastics (P.) Ltd. (supra) are similar to the facts of the present case. 4.Technology has advanced. Therefore, old equipment could not have fetched so much of price. The machinery always depreciate and in the end they have only salvage value. 5.Higher production in the 2nd half of the year does not justify the price paid by NGAIL. 15. Befo....
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....Distinguishing Pune case - Finolex Plastics (P.) Ltd. (supra), the learned AR submitted that there was no DVO's report in that case hence the case is distinguishable. (3)On the question as to whether case can be set aside to consider the DVO's report, the learned AR submitted that no useful purpose would be served as the Assessing Officer has no option but to take decision in accordance with DVO's report. And if this is so, then Tribunal can also take the same decision, which should be in conformity with DVO's report. (4)The department has not found any fault with approved valuer report and has also criticised the DVO's report. The learned DR is not an expert in valuation unlike the approved valuer/DVO who had physically verified the machinery. The Explanation 3 to section 43(1) is deeming provision, which restricts the actual cost of an asset. It cannot be invoked unless there are valid reasons for doing so. In the present case, the purchase price paid by the assessee is more than the reasonable value because DVO has given higher value than the purchase value shown by the assessee. (5)The learned DR has incorrectly relied on the information received from Mumbai Port Trust regar....
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....these equipments at 15 years. Whereas AVO has pointed out that it is only 6 to 8 years. The learned AR submitted that reference under section 131(1)(d) cannot be made in view of the decision of Hon'ble Supreme Court in Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 . At best it could be only a reference under section 55A. Such references are only advisory in nature. These are not binding on the Assessing Officer. Even though, reference under section 55A is covered under Chapter IV but there is a further division. Sub-Chapter D deals with Profit and Loss from business or profession. Sub-Chapter E deals with capital gains. Even though section 55A refers to reference made for the purpose of this chapter (i.e. Chapter IV) but this reference is for determining FMV of 'capital asset', that is for the purposes of working out capital gains. So far as section 32 is concerned, under which depreciation is allowed, it refers to only "assets" used for the purpose of business. Section 43(1) refers to actual cost of the asset to the assessee and with reference to that Explanation 3 provides as to what would be actual cost in case of an asset which is acquired by an assessee from another person wh....
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....e imported by M/s. Vazir Glass Works Ltd. in March/April 1981 from M/s. Vidros Ltd., Sao Paulo, Brasil in US $. The cost of these equipments as intimated by the assessee-company was Rs. 12,65,642 and Rs. 7,43,644. The purchase cost of these equipments mentioned above does not appear to be justified because all the three equipments are identical and were purchased at the same time. The cost of similar equipment TG 21/8 purchased in 1981 was Rs. 9.11 lakhs and it comes to Rs. 13.2 lakhs by applying the cost index issued by the Ministry of Commerce and Industries (Office of the Economic Advisor), New Delhi during that period. The cost of QG equipment which is also similar and was purchased during the same year was Rs. 12.11 lakhs. (6) The reasons for such enhancement are vague and fanciful. Once original cost of equipment is available then, the DVO could not enhance such cost, substitute his own cost and then workout the present market value. According to learned DR, this is not acceptable. Similarly, there is no basis for estimation of FMV of these machines made by AVO. There are no reasons or basis given by him also as to why the FMV would be Rs. 165 lakhs as on 24-3-1995 as agains....
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....al asset" and the "asset" on which depreciation is claimed or allowable for the purposes of capital gains are not same thing. Even though section 55A refers to "reference under Chapter IV", its operation has to be considered with reference to further words used in that section. Section 55A reads as under :-- "55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer-- (a )in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value; (b)in any other case, if the Assessing Officer is of opinion-- (i )that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or (ii)that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, th....