TaxTMI 
TaxTMI 
2017 (2) TMI 544
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....00/- as against actual cost of acquisition of windmill at Rs. 2,36,10,000/- by assessee. 3. The Commissioner of Income Tax (Appeals) is not justified in holding that provisions of Explanation 3 to section 43(1) is applicable to the cost of acquisition of windmill acquired by assessee from M/s Sundararaja Mills Ltd. 4. The reopening of assessment is not legal to reduce depreciation claim on windmill from Rs. 98,21,273/- to Rs. 94,44,000/-." Grounds taken by Revenue:- "2. Ld. CIT(A) has erred in law and on facts of the case in failing to appreciate that the assessing officer, while computing the 'actual cost' of the asset, has taken into account the effective life of the asset, the wear and tear of the asset during its utilisation, the amount of depreciation already allowed on the asset in the hands of the seller and the intent of the legislature in allowing an accelerated depreciation on the renewable energy device. 3. The Ld. CIT(A) has erred in law and facts of the case that the intention of the assessee in obtaining the second hand windmill at enhanced cost was only to reduce the liability to income-tax and Ld. CIT(A) in his order in para No.4.4 was of the consider....
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.... Thus, as per the A.O., the total asset value, if depreciation alone was considered, came to Rs. 5,07,68,000/-. The A.O. noted that the manufacturer of the windmill, namely, Enercon (India) Ltd. had certified its cost as Rs. 3,00,00,000/- and if the aggregate of the depreciation claimed by M/s Soundararaja Mills Ltd. and by Smt. V. Sabithamani, the assessee, considered together, it would be much more than the cost of windmill. 4. Though the assessee relied on a valuation by a Chartered Engineer, done for the purpose of availing a bank loan of Rs. 144 lakhs, valuing the windmill at Rs. 2,55,34,000/-, the Assessing Officer did not accept such valuation report. As per the A.O., once the depreciation claimed by the original user was considered, it was clear that the price at which assessee acquired the windmill was heavily overvalued. The A.O. noted that WDV of the windmill as on the date of acquisition by the assessee was only Rs. 1920/-. In any case, as per the A.O., by acquiring the windmill at Rs. 2,36,00,000/- from M/s Soundararaja Mills Ltd., assessee was taking undue benefit of the enhanced rate of depreciation available for windmills under the Act. Relying on Explanation 3 to ....
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.... back by M/s Enercon (India) Ltd. and it was an obsolete item. Hence he held that the Assessing Officer was justified in invoking Explanation 3 to Section 43(1) of the Act. However, at the same time, the Ld. CIT(Appeals) held that the method of arriving at the actual cost adopted by the Assessing Officer was not a reasonable one. According to him, the Assessing Officer had applied a multiplication of average units of power generated per annum with per unit value of Rs. 3/- for arriving at such value. As against this, as per the Ld. CIT(Appeals), the assessee had given a working based on a unit rate of Rs. 15/-. The Ld. CIT(Appeals) was of the opinion that the method of valuation based on number of units generated per year may not reflect the future potentiality of the windmill. Ld. CIT(Appeals) noted that Tamilnadu Industrial Investment Corporation, a Government agency, had given a guideline method for valuing second hand windmills and if such method was applied, the value of windmill acquired by the assessee would be Rs. 1,50,00,000/-. The Ld. CIT(Appeals) noted that the assessee herself had suggested adoption of such value in her grounds. Thus, he modified the order of the Assess....
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....(Appeals) had erred in not allowing the depreciation claim of the assessee in full. Though one of the grounds taken by the assessee does assail the reopening, no arguments on this were advanced by the Ld. A.R. 9. Per contra, the Ld. Departmental Representative, in support of the grounds of appeal, submitted that explanation 3 to Section 43(1) of the Act would clearly apply. According to him, unscrupulous persons were taking advantage of the higher depreciation rates available for windmill with ulterior motives. As per the Ld. D.R., if depreciation claimed by the assessee as well as earlier owner were considered, the total depreciation was in excess of Rs. 5 Crores, whereas the windmill itself had a cost of less than Rs. 3 Crores. Thus, according to him, this was the right case where Explanation 3 to Section 43(1) was invoked. 10. We have perused the orders and heard the rival contentions. Claim of the assessee is that she had acquired windmill from M/s Soundararaja Mills Ltd. for a price of Rs. 2,36,10,000/- and M/s Soundararaja Mills Ltd. was in no way related to her. As per the assessee, it was a pure business transaction and assessee was not concerned on the quantum of depreci....
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....ch. In our opinion, when original cost of the windmill was itself much less than Rs. 5 Crores, the main purpose of transfer of windmill by M/s Soundararaja Mills Ltd. to the assessee could only be seen as motivated by an intent to reduce liability to income-tax. It is a well settled principle of law that what is permissible is tax planning and not evasion. When an attempt is made to evade tax, it is the bounden duty of the authorities to find the real intention. It is the duty of the judicial authorities, in every case, when ingenuity is expended to avoid taxes and scuttle welfare legislations, to get behind the smoke screen and discover the true state of affairs. Form has to take make-way for substance. That the parties were not related and transfer of windmill from M/s Soundararaja Mills Ltd. to the assessee was only a business transaction, in our opinion, were not relevant factors. Relevant factor was the main purpose which motivated the assessee to acquire the second hand windmill at an excessive cost. It is not disputed that depreciated value of the said windmill in the hands of M/s Soundararaja Mills Ltd. was negligible at the time of such sale. M/s Enercon (India) Ltd. who m....