TaxTMI 
TaxTMI 
TaxTMI 
2010 (11) TMI 526
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.... unit purchased from M/s. Raymonds Ltd. and its book value as Goodwill in its books of account in respect of A.Y. 2001-02." Ground Nos. 2 & 3 are general in nature. 3. Briefly stated, the A.O. disallowed an amount of Rs. 16.93 crores out of the total depreciation claimed by the assessee on the ground that the assessee has paid price in excess over and above the books value of the assets purchased in the acquisition of cement units of the TISCO. The assessee is a subsidiary of M/s. Lafarge India Holding Pvt. Ltd., which has been established pursuant to the approval granted by the Foreign Investment Promotion Board on 19th February 1999. Vide agreement dated 9th March 1999 the assessee has entered into a business transfer agreement with TISCO for acquisition of their cement units as going concern. It seems that the TISCO has invited bids through its merchant bankers Jardine Fleming India Securities Ltd. and the assessee was the highest bidder at Rs. 550 crores. The same was accepted by the TISCO in its Board meeting on December 18, 1998. The Actual acquisition was carried out w.e.f. 1st November 1999 when the said units were actually taken over and used in its own production activi....
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....ourt in the case of Jogta Coal Co. Ltd. v. CIT 36 ITR 521 to contend that the cost to be calculated for the purpose of depreciation element is the cost of the assessee and not to the person who make the sale. It is also its contention that when the assessee has not made any provision for goodwill and paid according to the fair market value of assets the question of goodwill does not arise as there was no specific mention in the agreement for payment of any goodwill. With reference to the reliance on the value of separate assets also the assessee relied on the decision of the Hon'ble Gujarat High Court in the case of Ashwin Vanaspati Industries v. CIT 255 ITR 26. After considering the submission of the assessee the CIT(A) vide para 3.2 of the order deleted the addition. His findings are as under: - "3.2 I have considered the foregoing submissions and I have perused the impugned order of assessment. I am of the view that on the facts of the case before me invoking the provisions of Explanation 3 to section 43(1) was not justified so as to reduce the cost of acquisition. It is quite evident that the Assessing Officer has not made out a case to in any manner show that the transaction ....
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....ion adopted in the books of account. He vehemently supported the order of the A.O. 5. The learned counsel in reply stated the facts that the assessee has offered the bid in open tender and being the highest bidder purchased the same at Rs. 550 crores and since the A.O. also accepts the same as slump sale no itemised purchase of assets can be attributed in a slump sale as per the provisions. It is also his submission that the A.O. has not given any finding that the transaction is collusive transition or that there is a tacit understanding to claim depreciation at higher value as required under Explanation 3 to section 43(1). He also contested Assessing Officer's findings that the valuer's report was undated to submit that the report was submitted vide letter dated 05.06.2000 and the valuation as on 01.11.1999 was made. It was his submission that valuation was always made subsequently both under Wealth Tax Act and Income Tax Act and valuation was done later with reference to a particular date and this principles was accepted in the Third Member decision in the case of Chitra Publicity Company (P) Ltd. v. ACIT 127 TTJ (Ahd)(TM) 1 and further in Praxair India (P) Ltd. v. ACIT in ITA N....
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.... it is necessary to extract the provisions of section 43(1) and Explanation 3, which are as under: - "(1) 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... .............. .............. 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 [Assessing] Officer 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 [Assessing] Officer may, with the previous approval of the [Joint Commissioner], determine having regard to all the circumstances of the case." 8. In our opinion section 43(1) is clear that the actual cost to be considered for the purpose of section 32 should be the actual cost paid....
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....essee has apportioned towards fixed assets. This observation also is not correct. Since the assets are acquired on slump sale basis and individual assets are not priced or purchased item-wise, the assessee as per the Accounting Standard 10 to be adopted for the purpose of maintaining the books of account, has obtained a valuation report which has taken the net replacement cost method and arrived at the amount as Rs. 481.61 crores which the assessee has adopted in the books of account. Therefore, the Assessing Officer's observation that the value adopted by the assessee is exactly tallying with the subsequent valuation by the surveyor is without any basis. On the basis of the valuation report assessee has adopted the value. It is also a fact that the said TISCO has shown the profit on the basis of the book value. The A.O., however, has not analysed the actual WDV in the hands of the TISCO. What he has adopted is the book value in the books of TISCO which incidentally will be different from the actual WDV for the purpose of income tax. The A.O. has not even bothered to examine what is the WDV of the assets in the books of TISCO. It is also submitted that eventhough the said TISCO has....
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....rovisions and facts and circumstances of the case, I am unable to accept the stand of the Revenue. As noted above actual cost should ordinarily mean real cost or real worth of assets. If it is not market value, then what is it? Mechanism to take WDV as provided in Expln. 2 to s. 43(6)(c) is not available in Expln. 3 to s. 43(1). Further, assets whose actual cost is to be determined under Expln. 3 are second hand and it is always difficult to find actual cost or value of such assets as compared to new assets. In the case of transfer of an asset between two unconnected parties price fixed is ALP governed by market condition. This ALP between two unconnected parties is nothing but market value of the asset. This ALP has to be taken as the "actual cost" for purposes of depreciation. There is no way to ignore it and it is not possible to record merely that the main purpose of transaction is the reduction of income-tax liability. Such ALP or market value cannot have a different meaning even in case of a transaction between connected and related parties if fixed bonafidely as per market conditions. There is no prohibition on connected parties to carry arm's length transactions where real ....