TaxTMI 
TaxTMI 
2017 (11) TMI 1351
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.... 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 excessive and made the disallowance of the said amount. The assessee carried the matter in a....
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....m 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 returned total income of "Nil" for the relevant assessment year 2005-06.Further, the AO observed that, "both the com....
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.... 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, as reduced by- (a) the amount of depreciation actually allowed under this Act and the corresponding provisions of the Indian Income-tax Act, 192....
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....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 to continuously invest heavily in R & D and in developing process capabilities to keep pace with the advancing technologies, ..... 1. That the entire electronics business of Deltron Ltd. is agreed to be take....
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....as 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 -------- 7,098 -------- ----- Plant and Machinery 3,71,66,624 1,66,59,047 89,66,000 89,66,000 Computers 82,020 61,446 69,499 2,88,399 Furniture and Fixture 3,76,317 3,63,553 3,46,484 3,46,484 Vehicles 5,95,569 3,91,971 5,11,566 1....
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.... 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 registered valuer Neither in the assessment order nor in the Tribunal's order is there any whisper that the valuation report by the registered valuer is incorrect in any manner whatsoever. Once there is a report by the registered valuer it is encumbent upon the authority to dislodge the same by bringing adequate material on reco....
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....er 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. The second reason is this that even after invoking this Exp.(3) to Section 43(1) rightly or wrongly, the A.O. has not worked out the value of the asset in question in the proper manner. He has ignored the valuation report of various technical experts such as RSML & Co. C.A. and others and instead of obtaining the departmental valuation report or any othe....
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....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 by the Assessing Officer was correct as the partners of the firm had constituted themselves into a private limited company. All the shareholders of the company were the partners or therefore, nominees and the shares were held in the same proportionate as held by the partners. It was also held that valuation was enhanced only for mutual adjustment of rights between t....
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....set. 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 show such valuation was excessive and has been done with anintent to reduce the tax liability. The others judgments as referred by the Assessing Officer are also distinguishable on the facts of the case of the assessee and therefore, cannot be made a basis to draw the conclusion as has been drawn by the Assessing Officer and upheld by the CIT (A). 20. Having re....