TaxTMI 
TaxTMI 
2017 (7) TMI 416
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....y statutory notice u/s 143(2) of the Act. Finally, the assessment was completed u/s 143(3) of the Act vide order dated 29/12/2009 at a loss of Rs. 35,86,32,378/-. While doing so, the Assessing Officer (AO) has disallowed the claim for depreciation on the value of intangible asset known as "distribution network" of Rs. 5,53,72,500/- and depreciation on other fixed assets was disallowed Rs. 9,53,09,059/- invoking the provision of Explanation 3 to Section 43(1) of the Act. 3. Facts leading to the addition are as under: The assesseecompany was formed as a joint venture of M/s.Sanyo Electric Company Ltd., Japan and M/s.BPL Sanyo Ltd., on 50:50 basis. The assessee-company acquired business of manufacture and trading of colour television from M/s.BPL Ltd., on a slump purchase basis in terms of business transfer agreement dated 14/12/2005 for a consideration of Rs. 360 crores. This purchase consideration was accounted in the books of assessee-company as per values assigned by M/s.Chowdhary & Associates, an independent registered Valuer, among various assets including the distribution network on the basis of market value. As per depreciation schedule, the total value of intangible assets....
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.... Its acquisition viz 15-12-2005 to arrive at the value for the Intangible asset In the form of market know how comprising the valuable customer base at the time of acquisition of CTV division of BPL. The amounts arrived at by us as the fair value of the customer base works out to Rs. 442.98 million (Rs. 44.98 crores). 7.3 Before going any further, it is important to note the following - What is transferred in only the CTV division. The other divisions of BPL like Automation, Printed Circuit Boards, Soft Cell division, Medical appliances Division, Tool room and Electrical appliances Division continues to be with the BPL Ltd. The BPL Ltd is one of the leading companies engaged in the Indian Consumer Electronics and house hold goods sector for a number of years having established 'BPL' brand, distribution and service network and manufacturing facilities in India. - For the purpose of valuation of distribution network only 'dealers and distributors' are considered. - But 'dealers and distributors' are dealers and distributors for all the BPL brand goods including electrical appliances and they are 'not exclusive dealers of....
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.... not proper. For example, the land (for which no depreciation can be claimed) is claimed to have been valued at fair value based on valuer's report. A perusal of 'schedule of fixed assets', the land measuring 4000 sq mtrs or 43,040 sq ft at no. 24, Block C, Phase II, Noida Gautham Budh is valued at only Rs. 92,00,000/- which is certain on lower side. As per this valuation, the value per sq ft works out to Rs. 213/- which is unimaginable in area like Noida. Even in the schedule of fixed assets of M/s BPL Ltd., which is part of the record, the land at Noida at cost is shown at Rs. 1.57 crores. Besides, there existed a structure measuring 5000 sq ft. As per the sale deed dated 14-12-2005, the sale consideration paid by the assessee company to M/s BPL Ltd., was Rs. 1.04.40,000/- for this land whereas the stamp duty paid was Rs. 1,47,40,360/-. The stamp duty is generally 10% of the guidance value. This clearly shows that there is undervaluation of the land. Thus when the asset is revalued there cannot reduced cost of land which is ever appreciating by leaps and bounds. Thus it is clear that the assessee has undervalued the value of almost an acre of land in prime area like &....
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....n 158BE of the Income Tax Act, the Act has inserted a new clarificatory Explanation. An authorisation is deemed to have been executed in the case of search on the conclusion of search as recorded in the last panchanama drawn in relation to any person in whose case the warrant of authorisation has been issued. In regard to requisition under section 132A of the Income Tax Act, the authorisation would be deemed to have been executed on actual receipt of books of account or other documents or assets by the authorised officer. The above amendments will take effect retrospectively from 1st July, 1995 and will, accordingly, apply in relation to the assessment year 1996-97 and subsequent years. The Act has amended section 158BB of the Income Tax Act to clarify that the deduction of salary, interest, commission, bonus or remuneration, by whatever name called, in Explanation (b),in sub-section (1) of section 158BB is in relation to any partner not being a working partner. This amendment is effective from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. 7.6 A plain reading of the circular no.772 dated 23-12-19....
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....sed by 25% of the closing WDV in the books of BPL Ltd., i.e., seller. The reasoning given for not accepting the values as accounted for in the books of account is given in para.8 of the assessment order which is as under: 8. Depreciation of the acquired assets - Fixed assets: 8.1 As said earlier, the assessee company has acquired the CTV division and has taken over all the assets. Thus the opening WDV of fixed asset should be that of dosing WDV in the books of M/s BPL Ltd., as on 31-3-2006. Whereas the 'Accountants report on valuation', states that "The fair value of the fixed assets of the CTV division has been assessed by M Choudhary and Associates, Registered valuer at Rs. 810.94 million as on December 15, 2005 vide their report". 8.2 In other words, the opening WDV for the FY 2005-06 as shown in the schedule of fixed assets is not the closing WDV in the books of M/s BPL. 8.3 Thus the valuer has revalued the WDV and the same is taken in the books of the assessee company and depreciation is claimed. In 'Significant Accounting Policies and Notes to accounts as on 31-3-2006' also, it is stated that 'Fixed assets taken over on re valued co....
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.... 8.6 The submissions of the assessee are examined carefully. If the provisions of S.43(6) does not apply, then the section to be referred to is S.43(l) which reads as under, 'actual cost' means the actual cost of the assets to the assessee reduced by that portion of cost thereof, if any, as has been met, directly or indirectly by any other person or authority. In the case of assets, which were put to use, before the acquisition by the assessee, the explanation 3 is applicable which reads as under 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. 8.7 In the light of the above and for the sake of ....
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....adras Road measures 11 acres and valued at Rs. 5.32 crores which cannot be true. In FY 2005-06, value per acre in that area was not less than Rs. 1.5 crore per acre. Thus it is clear that the assessee company has undervalued the land and increased the value of other fixed assets. This is obvious from the following table Particulars Closing WDV in books of BPL Ltd., As per valuation report Difference Buildings 3,77,41,417 11,12,50,000 7,35,08,583 Plant & machinery 7,70,89,627 40,59,44,996 32,88,55,369 Dies/tools/moulds 2,20,85,296 15,60,58,136 13,39,72,840 Electrical installations 13,43,226 2,46,36,909 2,32,93,683 Air conditioning 18,60,191 1,18,92,082 1,00,31,891 Canteen equipments 1,856 1,856 Fire fighting equip 1,62,557 16,79,233 15,16,676 Office equipments 3,95,998 15,06,952 11,10,954 Computers 9,50,588 76,17,438 66,66,850 Furniture/fixtures 1,58,33,733 1,77,85,358 19,51,625 Total 15,74,64,490 73,83,71,104 58,09,06,614 8.8 It is not clear, how the value of depreciable items such as plant & machinery, dies, tools and moulds, ele....
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....mpany is in present appeal raising the following grounds of appeal: 1. "In view of the facts and circumstances of the case and in law, the order passed by the CIT (A) is arbitrary, bad in law and without jurisdiction. 2. "The CIT(A) has erred on the facts and law in confirming the disallowance of Rs. 5,53,72,5007-made by the AO while not allowing the depreciation on one of the intangible asset of the Appellant i.e. "Distribution Network". 3. "The CIT(A) has erred on the facts and law in not considering that for the intangible asset namely "Distribution Network", the Appellant has paid sales consideration and the same was valued as per the valuation report prepared by the independent registered valuer (s) and was reflected under the category of intangible assets by the Appellant. 4. "The CIT(A) has erred on the facts and law in not considering that the intangible asset namely "Distribution Network" is duly covered under the provisions of section 32(1) (ii) of the Income Tax Act,1961. 5. "The CIT(A) has erred on the facts and law in confirming the disallowance of Rs. 9,53,09,059/-made by the AO while not allowing the depreciation claimed b....
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....er stamp valuation Act led AO to believe that the value apportioned to various assets is not fair market value but done with intention of claiming higher depreciation i.e. ulterior motive of tax evasion. Therefore, the AO disallowed the claim. 9. The CIT(A) also confirmed the addition holding that there is no transfer of distribution network. He further held that it does not fall within the definition of any other business or commercial rights. 10. We heard rival submissions and perused the material on record. This issue can also considered from another angle. Even assuming that there is no intangible assets as distribution network as claimed by the assessee, excess of consideration paid over assets taken over constitutes goodwill as per judicial precedents in the light of the decision of the Hon'ble Delhi High Court in the case of Triune Energy Services (P) Ltd. In ITA Nos.40 & 189 of 2015. Intangible assets qualifying for depreciation in terms of the law laid down by the Hon'ble Supreme Court in the case of CIT vs. Snifs Securities Ltd.(348 ITR 302). Thus the law is fairly settled to the extent that excess of consideration paid over assets taken over assets constitutes good....
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....erefore, right in observing that there was considerable element of collusion in the entire affair which could not be treated as the result of normal commercial considerations. The capital cost has no doubt been inflated in the hands of the assessee to enable it to claim higher depreciation, etc. We find that the term "actual cost" came up for consideration before the Supreme Court in the case of Guzdar Kajora Coal Mines Ltd. v. CIT [1972] 85 ITR 599 . It was observed that the original cost of a particular asset is a question of fact which has to be determined on the evidence of the material produced before or available to the Income-tax authorities. Any document or formal deed mentioning the consideration or the cost paid for the purchase of an asset by an assessee would be a piece of evidence and, prima facie, the statements or figures given therein would show how much the cost of the asset to the assessee is. But if circumstances exist showing that a fictitious price has been put on the asset or there is fraud or collusion between the vendor and the vendee and there has been inflation or deflation of value for ulterior purpose, it is open to the Income-tax authorities to....
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....-alone the Tribunal has observed the interference by way of determination of actual cost can be made, we are of opinion that such Explanations are only elaborative and tend to bring out some of the circumstances in which the main provision of the law can operate. They can by no stretch be treated as exhaustive or to otherwise limit the wide scope which the provision of law may embrace. Rather the incorporation of some of these Explanations by itself shows that the Legislature envisaged interference in given circumstances in the amount of purported actual cost. We are further of opinion that the Tribunal was not justified in restricting the operation of the actuality of cost to cases where part of that consideration was not paid or ploughed back or covered some other items. In these cases, the cost would be what is in fact paid. What was not paid or was returned would never be considered as cost. This will be independent of the provisions contained in the Income-tax Act. The provisions of this Act have not been introduced for this purpose. They have rather a special objective and is directed towards nullifying the malpractices, sometimes indulged in some quarters, of dispro....
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....n the basis of valuation done by an independent valuer among various assets. He submitted that the AO has disallowed depreciation on fixed assets alleging overvaluation of fixed assets in order to claim depreciation. The AO had come to opinion that the assets are over-valued without any basis and evidence. In respect of disallowance of depreciation on distribution network learned counsel for assessee submitted that even assuming that distribution network has not resulted any intangible asset, excess price paid for acquisition of the business should be treated as goodwill which is eligible for depreciation in the light of decision of the Hon'ble Supreme Court in the case of (340 ITR 302). Learned counsel for assessee further submitted that excess consideration paid for assets taken over is nothing but depreciation in terms of law laid down by the Hon'ble Delhi High Court in the case of Truine Energy Services Pvt. Ltd. in ITA Nos.40 & 189/15. The sum and substance of the argument of learned counsel for assessee is that even assuming that no intangible assets are acquired on account of acquisition of erstwhile BTV Manufacturing of BRI Ltd., The excess of consideration should be treate....
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....lt in the method of valuation done by the valuer as, according to him, the immovable property owned by the assessee-company at Noida, the value was shown lesser than the value as per the stamp duty. This made the AO to suspect that the methodology adopted by the Valuer is not free from doubt and therefore, the AO had not accepted the values assigned by the assessee-company to the assets and felt that the assets were overvalued in order to claim depreciation with the intention of avoiding tax liability and therefore, invoked the provisions of Explanation 3 to section 43(1) of the Act. While doing so, the AO accepted that higher value of 25% over and above closing WDV in the hands of M/s.BPL Ltd. i.e. transferor. Permission as envisaged under provisions of Explanation 3 to section 43(1) from higher authorities was also obtained. The only objection of the assessee-company seems to be that except subjective opinion of Assessing Officer, there was no material referred by the AO indicating overvaluation of the assets of the assessee-company. Thus, it was contended that the AO should not have invoked the provisions of Explanation 3 to section 43(1) of the Act. 14. It is needless to men....