TaxTMI 
TaxTMI 
2012 (5) TMI 306
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....d the assessee company is one of its controlled Affiliates. The assessee company M/s. Lafarge India Ltd., was incorporated in February, 99 and it claims to have started its business operation w.e.f. 01/11/99, i.e., the date on which the assessee company has acquired the cement business of the Tata Iron and Steel Co. Ltd., as a going concern. With a view to establish cement manufacturing facility India, the assessee company was promoted. The assessee company during the last year had acquired cement manufacturing unit of TISCO and during the current year acquired cement manufacturing unit of Raymonds Ltd pursuant to an agreement dated 26/08/2000 for transfer of Business (BTA) from Raymonds Ltd. In this case with regard to the above issue, the first questionnaire was issued on 18/12/2003. The salient features of the questionnaire are as under:- i) Copy of the valuers report along with all documentary evidences. ii) Date of actual transfer of assets with documentary evidences. iii) Written down value of each assets taken over in the books of previous owner i.e., M/s. Raymonds Limited. iv) Treatment of excess payments i.e., written down value and amount c....
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.... assets, such as raw-material, semi-finished goods and finished goods, sundry debtors, spares and tools and other movable and immovable assets were acquired, lock stock and barrels for a consolidated lumpsum consideration of Rs.751 crores. In addition the assessee company has agreed to pay separately for current assets acquired by it. The above consideration of Rs.75l crores has been allocated for in the books of account of the assessee towards fixed assets Rs.550.14 crores and the amount of Rs.180.86 crores has been allocated towards goodwill. After acquiring the plant, the assessee has incurred certain expenses towards further modification and improvisation. Besides, the assessee has also capitalised, pre-operating expenses incurred upto 19/01/2001 amounting to Rs.16.35 crores. Thus, the gross block of fixed assets as per the Balance Sheet of the assessee is of Rs.10,18,59,95,232/-. On this amount, the assessee has claimed depreciation as per the I.T.Act amounting to Rs.17,22,269,769/-. The assessee company field its return of income on 31.10.2002 declaring loss of Rs. 132,19,18,173/-. 4. We have heard Smt. Usha Nair, CIT(A)-Departmental Representative on behalf o....
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....lowance, Assessing Officer rejected the valuation report obtained by Appellant from M/s. K.S. Aiyar and Co. on the following grounds:- (i) that the price of the plant and machineries were artificially jacked up in the report to the level of consideration paid by appellant to Raymond. (ii) that the valuer has adopted the 'Net Replacement Cost' method which according to Assessing Officer is nothing but the cost of brand new individual machinery or the cement plant; (iii) that the valuation report should have been prepared much prior to the date of Business Transfer Agreement dated 26th August 2000 and the seller should have been party to preparation and discussion of the valuation report. Further, the survey was carried out between March 12 to 21, 2001 i.e. subsequent to the date of the Business Transfer Agreement. (iv) The Assessing Officer further held that the only purpose, for which the valuation report has been prepared, was to help and assist the Appellant to appropriate the differential cost to its fixed assets in its books of accounts, thereby entitling the Appellant to claim a larger chunk of depreciation. The Assessing Officer accordi....
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....reciation was allowable to appellant with reference to the cost of acquisition as shown by the appellant duly supported by the Expert/Approved Valuer's report. The Assessing Officer is accordingly directed to allow depreciation accordingly. The ground of appeal is allowed." 8. After hearing rival contention, we find that "A" bench of the Tribunal in ITA No. 5031/Mum/2004 dated 24.11.2010 has considered a similar issue arising out of acquisition of cement unit of TISCO. At para 6 to 13 it is held as follows:- "6. We have examined the issue and considered the arguments of both the parties. As the facts indicate the parties are unrelated and the assessee purchased the cement units at Sonadih in Raipur District of Madhya Pradesh and Singhbum District of Bihar as a slump scale w.e.f. from 01.11.1999. Under the business transfer agreement the assessee not only acquired the fixed assets of the said unit but also the current assets of the same units including the current liabilities for which the total consideration of Rs.550 crores was paid. It is also a fact that the said TISCO has arrived at the profit on sale of Rs.125.26 crores after claming transfer expenses and fees to mer....
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.... at any time by any other person for the purpose of his business or profession and the A.O. is satisfied that the main purpose of the transfer of such assets directly or indirectly to the assessee was reduction of liability to tax for claiming depreciation with reference to enhanced cost, the actual cost of the assets shall be such an amount as the A.O. may determine having regard to all the circumstances of the case. As rightly considered by the CIT(A) the parties are unrelated and the transaction is at arms length basis. The registered valuer also valued the assets as on 01.11.1999, the price of which was considered to be the cost of fixed asset acquired and the balance to the current assets including the current liabilities. In view of this, we do not see any reason to invoke Explanation (3) as the A.O. nowhere stated that the main purpose of such a valuation was for reduction of liability to tax. It is a direct acquisition by the assessee company from another public limited company in an open bid, being the highest bidder. As per AS 10 para 35 the assessee was supposed to take the value on the fair basis as determined by competent valuers. Para 35 of AS 10 is as under:- ....
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....t on the book profits made. Here also the A.O. failed to consider the net consideration adopted by the TISCO for adjustments in the books of account and the values adopted for current assets. The computation in the hands of the TISCO is quite different from the computation to be made in the hands of the assessee. We are of the opinion that the A.O. has not examined the facts and arrived at wrong conclusions without any basis. 10. In the case of Praxair India (P) Ltd. vs. ACIT in ITA No. 789(BANG)/08 the facts were that the said company acquired certain cylinders and the A.O. reduced the cost of acquisition to the cost of the previous owner in the reassessment proceedings. It was held that the assets were used by the Praxair India for their own business and therefore it cannot be said that the assessee's main purpose for the transfer of the said assets directly or indirectly to the assessee was reduction of liability to income tax by claiming depreciation with reference to enhanced cost. It is also further held that the assessee has procured the valuation from a Chartered Engineer in order to consider the slump sale in accordance with a value for claiming depreciation as ent....
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....re as under:- "18.3 It is well-known that registered valuers are experts and value and reliability of their opinion would depend upon the material contained in their report. They are competent to fix value of properties for several earlier years. Even otherwise WTO in the wealth-tax purposes is required to determine in the present, the value of assets as on the valuation dates which may be five or seven years earlier. If this is not possible, as is being inferred by the learned CIT(A) and by the learned AM, then scheme of fixation of value of assets under the WT Act cannot work. Such a view would defeat the very purpose of the WT Act and, therefore, cannot be accepted as correct." 13. In view of the various principles considered by the coordinate benches in the above stated cases, we are in agreement with the findings of the CIT(A) that the A.O. has not made out a case for reducing the actual cost. Since the deal between the TISCO and the assessee company was at arms length price and since the parties are not related and there is no evidence that the transaction is a collusive one or done with an intention to reduce the tax liability and also further that there is n....
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.... the financial institution amount paid Remarks ICICI Bank 4,00,00,000 Reduction in rate of interest from 14.5% to 12.5% on the term loan of Rs. 13.8 crores ILFS 58,33,333 Reduction of rate of interest from 15% to 13% on the NCD of Rs. 20 crores HDFC 1,16,66,667 Reduction of rate of interest from 15% to 13% on the term loan of Rs. 15 crores 5.3 In the books of accounts the said premium was amortised over a period of 3 years and the one-third expenditure being Rs. 1.92 crores was debited to the profit and loss account for the year under consideration. However, in the return of income, the Appellant claimed deduction in respect of the entire amount of settlement premium paid to the financial institutions amounting to Rs. 5.75 crores. 5.4 The A.O. has disallowed the Appellant's claim for deduction in respect of the entire amount on two grounds:- (i) Appellant has not furnished any details as were asked for (page 26 of order) (ii) Further, he has observed that the Appellant has not justified its claim for deduction of entire expenditure in the current year when it has itself amortised the said premium amount for a period of three years in the books.  ....
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....vs. JCIT, 87 TTJ 556 (Chennai) 17. Learned Departmental Representative's contention is that the benefit in question is spread over the period of time and under the matching concept, only proportionate expenditure is allowable in this year. 18. We find that Chennai "C" bench of the Tribunal in the case of Overseas Sanmar Financial Ltd., 86 ITD 602 (Chennai) considered a similar issue, wherein it is held as follows:- "The fact as is evident from record is that the loan that was taken in ear1ier years was repaid in full in the previous year relevant to the assessment year and this resulted in the payment of charges levied by the financial institutions to the tune of Rs. 56,15,126. It is also evident from the record that the reduction in the rate of interest for fresh loans to be advanced by the financial Institutions led the assessee-company to pay off the entire loan that carried the burden of higher rate of interest. The assessee apparently calculated the amount of interest, that ii: would be paying over the years at the agreed rate of interest and compared it with the foreclosure premium together with the interest that it would pay on the revised rate basis ....
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....ent made over and above the value of tangible assets acquired is claimed attributable to various intangibles transferred alongwith the undertaking such as licenses, know-how, trade marks, coal linkages, rail linkages, business rights, etc. For the sake of convenience and in accordance with the generally accepted accounting practices and provisions of Accountant Standard 14 issued by the Institute of Chartered Accountants of India, the said payments were capitalized in the books as goodw4ll and. depreciation was claimed on the same vide Notes to the Return of Income. The Assessing Officer rejected the claim on the grounds that the definition of intangible assets as defined in Explanation 3(b) to section 32 does not leave any scope for goodwill and since no depreciation is allowable under the law on goodwill, the claim of the Appellant is not tenable and is rejected. The details of the transaction have already been discussed in Para No. 3.1 above. The position is as under: Rs. Crores Total Consideration Paid 751.00 Fixed Assets as per Valuer's Certificate 547.82 Balance 203.18 Capital Work In Progress accepted by A.O. 2.32 Balance 200.86 Out of abov....
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....would be covered under the definition of intangible assets as trade marks/licenses and other business or other commercial rights in the nature of licesnes and hence would qualify for depreciation as per the Explanation 3(b) in section 32. The remaining amount of Rs. 42.11 crores is held to be on account of pure goodwill which is not entitled to depreciation. It is further noticed that during the year an amount of Rs. 20 crores has not been paid by appellant. This amount is distributed between eligible intangible assets and goodwill per-se equally. During the year under consideration then, appellant would be entitled to depreciation on Rs. 147.95 crores (estimated value less 10 crores not paid). The Assessing Officer is directed to grant depreciation in accordance with provisions of Law. Appellant would be entitled to depreciation on 10 crores amount not paid after the same is actually paid. The ground of appeal is decided accordingly." 23. Both sides reiterated their respective stand taken before the learned CIT(A). Crux of the argument of learned counsel for the assessee is that merely because the assessee disclosed the said payment as goodwill, in the books of account, no....
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....efficient manner. Therefore, the term goodwill is covered by the expression 'business or commercial right of similar nature' and eligible for depreciation. 26. The assessee requested the Assessing Officer to allow the claim of depreciation on the amount of goodwill/business and commercial right was acquired in the transaction. 27. It is true that the nature of payment has to be considered and terminology used in the books of account does not determine the allowability of claim. Having said so, we find that the assessee has made a vague claim. On the one hand it states the excess payment made, over and above the value of tangible asset acquired, is for licences, quotas, business rights etc. and whereas on the other hand it states the excess amount should be taken as that paid for factors like locational advantage, contracts with dealers and customers attached to the business etc. This second limb, in our view cannot be a business or commercial right but only goodwill. While stating facts, alternate or without prejudice stand cannot be taken. The assessee is supposed to know exactly the purpose for which the amount is paid. While tangible assets were valued, intangibl....