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2017 (11) TMI 1351
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.... depreciation claimed by the assessee on market value of assets acquired by the assessee from Deltron Ltd. 2) On the facts and in the circumstances of the case, the disallowance of depreciation of Rs. 6,77,095/- may be deleted. 3) That each ground is independent of and without prejudice to the other grounds raised herein. 2. Ground No. 3 is general in nature, which does not require any adjudication. 3. The only issue which remains for adjudication as involved in ground Nos. 1 & 2 relates to sustenance of addition of Rs. 6,77,095/- made by the AO on account of disallowance of excessive depreciation in respect of assets purchased from Deltron Ltd. 4. The brief facts of the case are that the assessee filed its return of income on 04.10.2010 declaring an income of Rs. 4,26,58,365/- which was processed u/s 143(1) of the Income Tax Act, 1961 on 11.04.2011. Subsequently, the case was selected for scrutiny and statutory notices were issued. During the course of assessment proceedings, the AO noticed that the assessee had claimed depreciation on Plant & Machinery purchased from associate concern M/s Deltron Ltd. He considered the depreciation of Rs. 6,77,095/- as ....
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....the records. We find that the assessee company, a private limited company, has acquired electronic business from a public limited company known as M/s Deltron Limited as a going concern vide agreement dated 27.9.2004 for a consideration of Rs. 7.54 crore. We find that in the assessment order, the AO has observed that the aforesaid fact of purchase of fixed assets was disclosed by the AR only after the probe by him during the assessment proceedings and no such details have been furnished in any manner in the audit report papers enclosed with the return of income. He has also noticed that both the companies deal in electronic business and have same address at C-120, Naraina Industrial Area and run under the same management as the directors/shareholders are also common. We further find that, the AO observes that M/s Deltron Limited for A.Y. 2005-06 has shown net current loss of Rs. 3,39,17,585/- and it has brought forward depreciation of Rs. 46,53,620/-. So according to the AO by the said transaction though M/s Deltron Limited had made a short term capital gain of Rs. 2,16,17,776/- but the said short term capital gain gets absorbed in its business losses and the said company has retur....
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....rectly by any other person or authority: [Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, [but before the 1st day of March, 1975,] and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees.] Explanation 1.-Where an asset is used in the business after it ceases to be used for scientific research related to that business and a deduction has to be made under [clause (ii) of sub-section (1)] of section 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub-section (1) of section 35 or under any corresponding provision of the Indian Income-tax Act, 1922 (11 of 1922). [Explanation 2.-Where an asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the actual cost to the previous owner, ....
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....duction of a liability to income tax without satisfying the same, the AO cannot invoke Explanation 3 to section 43(1). 12. Here, in this case, we firstly notice that the AO's observation that neither in the audit report or in the papers filed alongwith the return the acquisition was not mentioned, is not correct. We find that in the Director's report, it has reported that the assessee had acquired business of Deltron Limited as a going concern (paper book page 2). Similarly, we find that in schedule T of balance sheet being notes on accounts as Note 10, assessee company has disclosed that it has purchased electronic business of M/s Deltron Ltd. at a net consideration of Rs. 7.54 Crores (Paper book Page 22). Thus, we find that the observation of the AO that the assessee did not disclose the transaction is factually incorrect. 13. We further notice that the appellant company and M/s Deltron Ltd. had entered into an agreement dated 27.9.2004, relevant clauses of which are as under:- "AND WHEREAS Deltron Ltd. is also in electronics business and does not have sufficient financial resources to run the business as a profitable unit now and in future as it needs ....
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....The Assessing Officer in the order has opined that the assets as reflected in the books of Deltron Ltd as on 1.4.2004 at Rs. 66,95,884/- were transferred for a consideration of Rs. 1,76,84,338/- though the appellant claims that such a finding is incorrect. It has been pointed out that Deltron Ltd. is a public limited company and had been allowed 100% deduction under section 35(1)(iv)/35(2) of the Act as expenditure and as such, there was certain assets which appeared at Nil cost in the books of Deltron Ltd. It was however stated that such assets were appearing in the balance sheet prepared under the Companies Act as on 31.3.2004 at Rs. 4,71,20,059/- and if the deduction under section 35(1)(iv)/35(2) is ignored, WDV of such assets as on 31.3.2004 would stand at Rs. 2,16,06,346/-. The cumulative position which emerges is as under: Particulars WDV as per Companies Act as on 31.3.2004 WDV as on 31.3.2004 (under IT Act without taking into consideration 100% dep. As (R&D) Value at which taken over by assessee Value adopted by the AO for invoking explanation 3 to section 43(1) Building 74,25,264 36,68,570 66,00,000 66,00,000 Leasehold improvements -----....
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....pute. The purpose behind the transfer is also not in dispute. All what has been disputed by the Assessing Officer and upheld by the CIT(A) is valuation of the assets adopted for the purpose of transfer. In such circumstances, we find force in the claim made before us that it is not a case of valuation having been adopted by a higher price more particularly when the transaction is between the closely held company and public limited company and price is paid to public limited company by the closely held company. It is also not a case where price as stated in the agreement has not been paid by the assessee. The valuation is supported by registered valuer's report which valuation has not been shown to either fantastic or imaginary or irrational by any cogent evidence. On the contrary, having regard to the book value of the assets standing under the Companies Act, the value as adopted cannot otherwise be said to be unreasonable. 16. In arriving at the above conclusion, we find support from the judgment of Hon'ble Gujarat High Court in the case of Ashwin Vanaspati Industries v. CIT reported in 255 ITR 26 wherein their Lordships had specifically held "The valuation report is by a....
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.... such asset, directly or indirectly to the assessee, was the reduction of liability to income tax by claiming extra depreciation with reference to an enhanced cost. It is not sufficient that one of the main purposes was this. Hence, in our humble opinion, this is the first prerequisite that the A.O. has to establish that the main purpose of transfer of such asset was the reduction of liability to income tax by claiming extra depreciation on enhanced cost. In order to establish this, it has to be established that apart from claiming additional deprecation on enhanced cost, there is no other main purpose for acquiring the asset in question. In the present case, the A.O. is only disputing the valuation of intangible asset i.e. the trademark acquired by the assessee from related parties without even making an allegation that such acquisition of assets was not having any main purpose except claiming extra depreciation. 3.7 In view of our above discussion, we find that the action of the A.O. is not justified for two reasons. The first reason is this that he has not fulfilled the pre requirement for invoking the provision of Exp.(3) to Section 43(1) of the Income tax Act, 1961. T....
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....t been found to be incorrect by any other technical valuation. Hence, we do not subscribe to the conclusion of the authorities below. 19. The Assessing Officer has referred to the judgment of the Kerala High Court in the case of CIT vs Poulose and Mathen (Pvt.) Ltd. 236 ITR 416. In the said case, the assessee was a partner in a partnership firm consisting of nine partners. The partnership firm was dissolved on February 25, 1985 and as per the books of accounts of the firm the written down value of the assets of the firm was Rs. 3,16,110/-. However the assessee company had taken over the assets of the firm after its dissolution and, the assets were revalued at Rs. 22,30,795/- and accordingly, claimed depreciation on the value of Rs. 22,30,795/- as per the revised valuation. On such facts, the High Court held that the Explanation 3 to section 43(1) of the Act correspondents to section 10(5)(a) and 192 of the Act. It was noted that the main purpose of the said provision was that Assessing Officer had power to determine the actual cost if the reduction of liability to income tax by claiming depreciation. The Hon'ble Court held that in such a case, substitution of actual cost b....
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....ities to refuse to accept the price mentioned in the deed or alleged by the assessee ad to ascertain what was the actual original was. It was thus held that it was open to the income tax authorities to determine and to the assessee to show whether the goodwill of the business is or is not included in the consideration or the price paid for the acquisition of the asset. Thus having regard to the above, in such circumstances, it was held that if circumstances exist for going behind the valuation as also the allocation given in the deed of conveyance, it was and is open to the income tax authorities to determine the valuation as well as the allocation between depreciable and non-depreciable assets. There is no dispute to the above conclusion of the Hon'ble Apex Court. However, on the said facts as is the case of the assessee company, such an interference is not warranted as there is nothing on record to show that having regard to the value of the assets held by the transfer or company, such amount paid by the assessee is excessive or unreasonable or irrational. The valuer's report has not been commented upon in any manner by the authorities below either by leading expert opinion or to....