TaxTMI 
TaxTMI 
2015 (9) TMI 893
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....he sister concerns when the AO had clearly established that the said purchase of plant & machinery was hit by the provisions of Explanation 3 to Sec 43(1) of the I.T. Act 1961 2. "Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 13,23,750/- made by the AO on account of depreciation on technical know-how acquired from the sister concerns when the AO had clearly established that the said acquisition of technical know- how was hit by the provisions of Explanation 3 to Sec 43(1) of the I. T. Act 1961?" 3. "Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 43,86,417/- made by the AO, on account of payment made by the assessee to its sister concern viz. M/s Kinetic Engg. Ltd. for acquisition of tool room?" 4. "Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 43,86,417/-, when the transaction in question, for which the said payment has been made, appears to be a non-genuine and sham transaction?" 5. The order of the Ld. CIT(A) may be vacated and ....
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....ht of aforesaid observations, the Assessing Officer invoked the provisions of Explanation 3 to section 43(1) of the Act. The Assessing Officer observed that the assets purchased from M/s KEL were the assets in respect of which the seller company had been claiming depreciation consequent to which the WDV in their hands had been reduced to Rs.NIL. The Assessing Officer concluded that in view of the provisions of Explanation 3 to section 43(1) of the Act, the WDV of the assets purchased by the assessee from M/s KEL and also from M/s KML are adopted at Rs.NIL. Therefore, the Assessing Officer denied the claim of depreciation of Rs. 1,01,09,779/- on the assets purchased from M/s KEL and M/s KML. Likewise, for the similar reasons, cost of acquisition of technical know-how acquired from M/s KEL was also treated at Rs.NIL by the Assessing Officer. Accordingly, the depreciation claimed of Rs. 13,23,750/- on the technical know-how was also disallowed and added back to the total income of the assessee. 5. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the CIT(A). 6. Before the CIT(A), the assessee submitted that in response to rapidly expanding automot....
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.... assets have been purchased where the full/substantial tax benefits were already availed by the seller companies who happen to be sister concerns. The assessee has once again sought to claim depreciation on the impugned assets. He, therefore, pleaded for restoration of the order of the Assessing Officer. 9. Per contra, the Ld. Authorized Representative for the assessee observed that the observations of the CIT(A) are clear and self-evident. The parties to the transactions are widely held companies listed on the stock exchanges and are subjected to strict corporate governance. The acquisition of the tool room facilities from these parties was a strict business decision as a measure of backward integration to its existing business. The technical know-how agreement was entered to secure drawings & designs of moulds & dies and other testing procedures & quality control specifications to facilitate the assessee to execute the order. The Ld. Authorized Representative for the assessee further observed that the sales of the tool room division for the financial year 2004-05 amounting to Rs. 132.39 lakhs which increased upto Rs. 540.58 lakhs for the financial year 2006-07, the profits deriv....
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.... 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: xxxxxxx xxxxxxx 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." 12. From a bare reading it is evident that the impugned Explanation has three ingredients (i) the assets acquired should be second hand asset; (ii) the main purpose of transaction should be to reduce the tax liability by claiming depreciation with reference to enhanced costs; and, (iii) the Assessing....
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....r some incidental benefits arising from such transaction which can trigger Explanation 3 to S. 43(1). Once the overwhelming commercial advantage from the transaction is displayed, which is done in the instant case, the other considerations fade into insignificance. Thus, while the assessee has clearly demonstrated its bona-fide, the Revenue could not contradict any averment of the assessee. 14. Secondly, having arrived at the finding that the main purpose is taken advantage from such acquisition, the second obligation cast on the revenue is to determine the fair value of the assets and replace it with the cost of acquisition of the Assessee and as a sequel to it, allow depreciation allowance on the adjusted actual cost. Hence, as per the scheme of the Act, the depreciation can not be disallowed in toto but is allowable on the actual cost as determined by the Assessing Officer. The learned Assessing Officer has adopted NIL value of the cost of acquisition and denied the depreciation completely only on the premise that depreciation has been already availed by the previous owner. This action is totally contrary to the plain language of the Explanation and is thus vitiated in law. The....