TaxTMI 
TaxTMI 
2012 (6) TMI 133
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....appreciate the fact that tthe Hon. Supreme Court had, in the case of Saharanpur Electric Supply Co. v. CIT 194 ITR 294 had held that the definition of written down value in Section 43(6) envisages computation of actual cost in every assessment year and the assessee has no right to claim depreciation on inflated actual cost claiming higher depreciation by artificially inflating the actual cost through revaluation of the assets. 2.1 Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) dated 11.12.2006 were that the assessee-company is an authorized dealer and indenting agent of Gujarat Alkalies & Chemicals Ltd. The assessee-company is also engaged in the business of trading in chemical. The assessee has also earned rent charges on hiring of gas cylinders. It was noticed by the A.O. that the assessee had shown profit before depreciation at Rs. 1,01,56,030/- and after claiming a depreciation of Rs. 85,17,293/- the net income was declared at Rs. 16,25,603/-. 2.2 The background of the case was stated to be that the assessee-company had took over a firm, namely, Prakash Chemical Agencies on 11.10.2002. It was found that as per the Memorandum and Article o....
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....41,157 - Rs. 19,84,311) as on 12.10.2002. The assessee has claimed depreciation on the alleged enhanced amount of WDV and, therefore, the AO has raised an objection that why the assessee has not claimed depreciation on the WDV as shown by the said firm? It was explained that the erstwhile partnership firm Prakash Chemical Agency has' transferred all its assets to Prakash Chemicals Agencies Pvt. Ltd. i.e. the appellant. The depreciation was claimed on the "actual cost" on which the assets of the said firm were acquired by the assessee. It was explained that the depreciation was on the price at which the capital assets were sold by the said firm to the assessee-company. However, the AO was not convinced and after narrating certain provisions of IT Act, namely, section 43(6) of IT Act, section 47(xiii) of IT Act, he has arrived at the conclusion that the assessee was entitled for the claim of depreciation on the WDV as shown by the erstwhile firm and the allowable depreciation as per AO was at Rs. 35,92,535/-, as against that the assessee has claimed the depreciation at Rs. 85,17,293/-, therefore the AO has allowed depreciation only of Rs. 35,92,535/-. Being aggrieved the matter was c....
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.... outside the scope of capital gains. Thus, the transactions would be in the nature of transfer of capital asset although the same would be deemed to be not regarded as transfer for the purpose of charging of capital gains. For all other purposes, the transaction in question satisfy the conditions for "transfer" in relation to the capital asset as defined in section 2(47). In the instant case, the assets were transferred from a firm to the company through the instrument of MoU. Article (2) of the MOV states as under: "Assignee has agreed to pay consideration of Rs. 4,00,000/-(rupees Four lacs only) for the purchase of the running business along with goodwill/trademarks, trade-names, know-how and all the assets, rights, obligation and liabilities in India. The aforesaid consideration shall be discharged within a period of one month hereof by issue of 40,000 (Forty thousand) equity shares each of Rs. 10/- as fully paid up of the assignee company. " 3.2.1 Thus, the consideration for the transfer of the assets was in the form of allotment of shares valued at the difference between the value of the assets and the liabilities. Cost of the assets, therefore, must be taken at the value ad....
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....(P.) Ltd. [1999] 236 ITR 416/[1998] 101 Taxman 97 (Ker.) for the legal proposition that in a case where assets have been taken over from a partnership firm by a company and the assets have been re-valued at a very high figure, then it was held that the AO within his powers after invoking Explanation-3 to section 43(1) has rightly rejected the claim. Ld. DR has therefore argued that in a case where assessee has taken over the assets and liabilities of a firm and if those assets have been re-valued by the assessee-company at a very high figure, then the invocation of the said Explanation was reasonable and the AO is empowered to arrive at the correct figure of the "actual cost". Ld. DR has also cited Escorts Ltd. v. Union of India [1993] 199 ITR 43/[1992] 65 Taxman 420 (SC) for the legal proposition that no double deduction should be allowed under the Act. He has concluded that only the name of the owner has been changed but the assets remained the same on which depreciation had already been granted by the Revenue Department, therefore on those very assets by enhancing the value of those assets the assessee has tried to claim double deduction of depreciation. He has pleaded to affirm....
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....ome length. We have perused the orders of the authorities below in the light of the compilation filed. Undisputedly, through MOU dated 12th day of October-2002 the assigner, i.e. M/s. Prakash Chemical Agencies, a Registered firm has transferred al, its assets and liabilities to assignee, i.e. Prakash Chemicals Agencies Pvt. Ltd. Co. (the assessee-company) and the assignee has taken over all the liabilities as well and agreed to transfer a consideration of Rs. 4 lacs, plus the shares in the name of the partners of the said erstwhile firm. The controversy was that the WDV as per the books of account of the firm drawn as on 11.10.2002 were at Rs. 19,84,311/-. On the next day, i.e. on 12.10.2002, when the assessee-company had taken over the said firm, the "cost" in the books of account were taken at Rs. 82,51,157/-. The AO has therefore raised a question that why the WDV as such was not carried over by the assessee-company and also raised an objection that the enhanced cost was taken up for the purpose of claim of depreciation. The AO has allowed the depreciation on the closing WDV of the said firm and not on the " cost" as recorded by the assessee-company. Once the admitted factual po....
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.... a reference to an enhanced cost, then the "actual cost" to the assessee shall be such an amount as the AO may determine having regard to all the circumstances of the case. In the present case, undisputedly, the AO has not invoked the said Explanation. We can therefore hold that without the invocation of the said explanation, the AO was not justified to disturb the "actual cost" as recorded in the books of account of the assessee-company on the date of its acquisition of assets and liabilities of the erstwhile firm. Rest of the Explanation through which AO could have disturbed the "actual cost" are also not applicable as elaborately explained by Id.AR, because those are in respect of other circumstances, such as, assets received by gift or inheritance (Explanation-2), transaction of sale and lease-back (Explanation 4A), reacquisition of same assets (Explanation-4), or where a portion of the cost is met by the Government by granting subsidy (Explantion-10 of the said section, etc.). Since the action of the AO did not come within the purview of any such enabling sections, therefore we are not in agreement with the substitution of "actual cost" as replaced by the AO. 6.2 In the case ....
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....hese facts, this case law do not apply on the assessee. We therefore affirm the view taken by the ld.CIT(A) and reject these grounds of the Revenue. 7. Ground No.3 reads as under:- 3. On the facts and in the circumstances of the case, the Id.C.I.T(A) has erred in law in directing to allow depreciation of Gas Cylinders Which were not actually put to use in contravention of the decision of Honb'le Mumbai High Court in the case of D.G. Agarwal v. CIT 267 ITR 768, where it was held that the word "used" denotes that the asset has been actually used, and not that it is merely "ready for use ". 7.1 There was an addition to LCH gas cylinders amounting to Rs. 36,21,656/-. The assessee has claimed depreciation @ 80%. It was noticed by the AO that the cylinders were purchased and given on rent to an associate concern namely Prakash Gas Agency. In turn, Prakash Gas Agency has given those cylinders on rent to Gujarat Alkalies & Chemicals. The assessee has received rent from Prakash Gas Agency. The assessee has purchased the cylinders from Indian Sugar & General Engineering Corporation, Yamunanagar Haryana. The assessee was asked to furnish the Xerox copies of the purchase bills. It was expla....
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....hat the cylinders were purchased from Indian Sugar & General Engineering Corporation on 27.9.2003 and were dispatched for its destination and from that very day the assessee has started receiving the lease-rent, then in our considered opinion that date is very relevant to decide whether the assets in question have actually been "put to use" for 180 days or more for the purpose of eligibility of full rate of depreciation. Since the admitted fact is that one of the business of the assessee is hiring of gas cylinders therefore we hereby hold that the ld.CIT(A) has rightly followed the precedents cited and held that the assets in question have actually been leased out with effect from 27.09.2003 and have been "put to use" for hiring business for more than 180 days. I We therefore affirm the factual as well as legal finding of ld.CIT(A) and dismiss this ground of the Revenue. 9. Ground No.4 reads as under:- 4. On the facts and in the circumstances of the case and in law, the Id. C.I.T(A) has erred in not affording the Assessing Officer an opportunity to rebut the evidence put before him on the issue of addition of Rs. 16,12,749/- being difference between receipts credited in profit an....
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....he Revenue may be treated as allowed but for statistical purposes. 12. Ground No.5 reads as under:- 5. On the facts and in the circumstances of the case and in law the Id.C.I.T(A) has erred in deleting the addition of Rs. 2,41,701/- being diversion of profit under charging rent on cylinders leased to the associate concern. 12.1 The AO has opined that there was diversion of profit to assessee's associate concern, Prakash Gas Agencies. The assessee has purchased cylinders from outside parties and given on rent to its associate concern who, in turn, given on rent to Gujarat Alkalies & Chemicals. The AO has prepared a chart and on that basis noted that the rent was received @ Rs. 400/- p.m. for the period 01/04/2003 to 31/08/2003. For the period 01/09/2003 to 31/03/2004, the rate was Rs. 350/- p.m. The said associate concern has received rent from Gujarat Alkalies & Chemicals Ltd.@ Rs. 400/- to Rs. 500/- per cylinder per month. According to AO, the assessee has shown per cylinder per month rent by less amount of Rs. 100/- for the period 01/04/2003 to 31/08/2003 and less by Rs. 50/- per cylinder per month for the period 01/09/2003 to 08/09/2003. The AO has calculated that the less re....
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....n and thereupon held that the rate of tax as applicable in the case of the said sister-concern was identical with the rate of tax of the assessee. According to ld.CIT(A), there was no mala fide motive for such diversion of income on the part of the assessee. Considering the facts and circumstances of the case, we hereby affirm the findings of the ld.CIT(A) and dismiss this ground of the Revenue. 15. Ground No.6 reads as under: 6. On the facts and in the circumstances of the case and in law the Id. C.I.T.(A) has erred in deleting the addition of Rs. 36,801/- Being vehicle expenses for personal use without appreciating the fact that unlike in the case of Sayaji Iron & Works Ltd. 172 CTR 339, there is no addition on account of perquisites in the hands of directors of the assessee company. 15.1 As per P&L Account, the assessee has debited "vehicle expenses" at Rs. 3,68,019/-, however, in the immediate preceding year, as per AO, the vehicle expenses were shown at Rs. 1,15,631/-. According to him, there was a possibility of using the vehicles by the Directors for their personal use. The AO has disallowed 10%, i.e. Rs. 36,801/-. The matter was carried before the ld.CIT(A) who has follo....