TaxTMI 
TaxTMI 
2012 (6) TMI 133
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..... 82,51,157. 2. The CIT(A) did not 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.....
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....157 2.5 As per the above chart, the value as on 12.10.2002 taken at Rs. 82,41,157/- for the accounting period starting from 12.10.2002 (i.e. the date of succession) upto 31.03.2003, relevant for A.Y. 2003-04, the year under appeal. As per AO, the assessee has increased the WDV of the fixed assets by a sum of Rs. 62,66,846/- (Rs. 82,41,157 - 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....
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....tions. In a case falling under section 43(xiii), the provisions of section 45 shall not apply. Section 45 is the charging section for bringing any profits or gains arising out of transfer of a capital asset to the charge of income-tax under the head "capital gain ". Thus, in a case where section 45 would not apply, the transaction would be 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 issu....
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.... preceding previous year and as further adjusted by the increase or reduction, if any. He has therefore mentioned that in the case of the assessee, the WDV should be as it was determined in the immediately preceding previous year in the hands of the said firm where depreciation has actually been allowed. He has referred CIT v. Poulose & Matheni (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 u....
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....ection 43(1) of the Act, ld.AR has informed. He has placed reliance on Habib Hussein v. CIT [1963] 48 ITR 859 (Bom) and CIT v. Standard Vacuum Refining Co. of India Ltd. [1966] 61 ITR 799 (Cal.). He has also placed reliance on Chitra Publicity Co. (P) Ltd. v. CIT [2010] 127 TTJ 1/4 ITR (Trib.) 738 (Ahd.) [TM]. 6. We have heard both the sides at some 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 rais....
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....s that what are those conditions under which the AO is empowered to substitute the "actual cost" as disclosed by the assessee. In this regard, Explanation-3 to section 43(1) says that where the AO is satisfied that the main purpose of the transfer of such assets to the assessee was the reduction of liability to income tax by claiming depreciation with 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 o....
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....e. However, the case in hand is not that a company has been formed from the existing registered firm. It is also not a case that no consideration has actually been paid. As per the clauses of the MoU, under consideration, the assets have been transferred by the firm in favour of the assessee-company in lieu of an amount of consideration. On account of these 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....
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....g used the machinery for the purpose of the business. He has held that the assets in question have been leased out with effect from 27.09.2003, hence assets were "put to use" for more than 180 days, therefore eligible for full rate of depreciation. 8. We have heard both the sides and perused the material placed before us. Once the assessee has demonstrated that 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.....
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.... objection of the ld.DR. Rather, we have asked whether the reconciliation with supporting evidences was in the knowledge of the AO. However, in the absence of any satisfactory answer, we are of the view that natural justice demands to restore this ground of the Revenue back to the stage of the AO to be decided de novo after investigation and verification of the TDS certificates and other corroborative evidences. In the result, this ground of the 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....
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....n of sales and business link of the associate concern. Though the business activity of the group concern is leasing out of LCH cylinders but the dealing with the GACL of the sister-concern should have been taken into account before alleging the diversion of profit. An another fact has also been highlighted by ld.CIT(A) that the said sister-concern was not a loss making concern. Rather, ld.CIT(A) has verified the income tax return of the said sister-concern 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 p....