TaxTMI 
TaxTMI 
2019 (3) TMI 1764
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....nergy. The only issue is related to disallowance of depreciation the tune of Rs. 5,71,92,626/- by the Assessing Officer based upon his order of AY 2009-10 and confirmed by the Ld. CIT(A) following his order for AY 2010-11, which in turn was relied upon Ld. CIT(A) order of AY 2009-10. 4. Against the above order assessee is in appeal before us. 5. We have heard the counsel and perused records. Ld. Counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by ITAT decision in assessee's own case for the earlier year. 6. Per contra Ld. Departmental Representative could not dispute the proposition that the issue is squarely covered by the decision of ITAT in assessee's own case. 7. Upon careful consideration we note that ITAT vide order dated 21.06.2017 in ITA.No. 3861/Mum/2014 for AY 2009-10 in assessee's own case has reversed the decision of Ld. CIT(A) and decided the issue in favour of assessee by holding as under: 7. In the rebuttal, the AR while taking us through the decisions as referred and relied by the Id DR, submitted that the cases are distinguishable on facts and therefore were not applicable to the case of the assesse....
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....on 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shaft not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, 33 the case may be, In the ratio of the number of days for which the assets were used by them." As per the said provision, the total depreciation is required to be allowed to the erstwhile firm and the assessee company on WDV of assets in the hands of the erstwhile firm which shall not exceed the amount of depreciation for that year in which succession has taken place as if no succession has taken place. The assessee company computed the WDV in Its books of accounts after reducing the depreciation from the cost at which the assets were acquired by ft i.e. revalued prices as per section 43(1) which reads as under: ....
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.... India is carried out in accordance with a scheme for 22[demutualization or] corporatization which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);] A careful perusal of the above provisions shows that capital gain on transfer of assets to company as a result of succession of firm by the company is exempt from tax if certain conditions as specified under section 47(xiii) are fulfilled. In the present case, before us, the company has succeeded the firm by fulfilling all the conditions envisaged u/s 47(xiii) of the Act and therefore the erstwhile firm was not liable for any capital gain tax which was also admitted by the AO that no capital gain tax was leviable. Thus, merely because no capital gain tax was paid by the erstwhile firm by virtue of scheme of section 47(xiii) of the Act, the AO cannot be allowed to reject the depreciation claim of the assessee so long as the same is as per the provisions of the Act. The moment the conditions as laid down in section 47(xiii) of the Act are violated, the capital gain tax becomes payable on the transfer of assets from erstwhil....
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....le on the basis of market prices of the assets transferred on succession of the firm to the company. In view of these facts, the assessee company is entitled to be allowed depreciation on the basis of actual cost in its hands as per the provisions of section 43(1) of the Act and not on the WDV of the erstwhile firm. It is also undisputed fact that the assessee company was not in existence as on 30.6.2007 when the assets of the erstwhile firm were revalued. Even if the case of succession by the assessee company of the erstwhile firm is treated as sale /transfer as per the provisions of Act even then the exemption would be available to the erstwhile firm under the provisions of section 47(xiii) of the Act. As regard the explanation 3 to section 43(1) of the Act, the AO has power to reject the claim of the appellant if the main purpose of the transfer of assets is to reduce the tax liability. However, in the present case, we find that the main purpose of transfer/takeover of assets and liabilities of the firm was to carry on business activities in the hands of the assessee in more effective manner effective manner which is evident from the fact that during the turnover of the assessee....
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....e being no Other evidence to show that the report was not reliable, it was held that valuation report filed by the assessee could not be ignored Factual position here is similar...." > In the case of Prakash Chemical Agencies P Ltd, the Ahmedabad Bench of the Tribunal held as under: "6. We have heard both the sides at some length. We have perused the orders of the authorities below in the light of the compilation filed. Undisputed!/, through MOU dated 12th day of October-2002 the assigner, i.e. M/s. Prakash Chemical Agencies, a Registered firm has transferred all its assets and liabilities to assignee, i.e. Prakash Chemicals Agencies Pvt.Ltd. Co. (the assessee-company) and the assignee has taken over ail the liabilities as well and agreed to transfer consideration of Rs, 4 lacs, plus the shares in the name of the partners the said erstwhile firm. The controversy was that the 'WDV as per the of accounts of the firm drawn as on 11.10.2002 were at Rs. 19,84,311/-. On the next day, i.e. on 12.10.2002, when, the assessee company had taken over the said firm, the "cost" in the books of accounts were taken at Rs. 82,51,157/-. The AO has therefore raised a question th....
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....n planation-7 to section 43(1) of IT Act); or transfer of capital asset by demerger (Expianation-7A to section 43(1) of IT Act), then the only recourse for the Revenue Department ought to be that the "actual cost" defined u/s.43(l) should have been taken for the calculation of depreciation, meaning thereby the "actual cost" of the, assets to the 'assessee which has been met directly or indirectly. We have raised a question during the course of hearing to the respondent-assessee that what has happened in the case of erstwhile firm and whether on such transfer any capita! gain was charged by the Revenue Department. In compliance, Id.AR has drawn our attention on an assessment-order passed u/s.143(3) dated 14.3.2006, wherein the AO was aware about the fact that the assets and liabilities of the firm have been acquired by the company w.e.f. 12.10.2002. No further action was taken as far as the transfer of the assets was concerned. In this regard, Id.AR has given the reason that in terms of Section 47(xiii) of the Act, an except has been prescribed that nothing contained in section 45 shall apply to the following transfers viz. any transfer of the capital asset or Intangible asset b....
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....reciation .by invoking Expiantion-3 to section 43(1) of the Act on the basis that the book value of the hoarding was NIL in the books of the firm. It was held that the main purpose to invoke the said Explanation is to empower the AO to determine "actual cost" of assets and the same to be determined having regard to all the circumstances of the case. The AO can determine the ''actual cost" at arm's length value or at real value of the assets transferred. In the said case, the Respected Third Member has opined that at no stage the Revenue Authorities have doubted the correctness of the consideration of Rs. 8 Crores paid by the assesseecompany through allotment of shares. According to us, facts of the present case being akin to the facts of the cited decision, therefore the same can be applied to decide the issue involved. As far as the decisions cited by the ld.AR are concerned, it is correct that the AO is empowered to invoke the Explanation-3 as held in the case of Poulose& Mathen (P) Ltd.(supra), but the fact is that no such Explanation was at all invoked in the present case, An another case law has been cited by the ld.AR i.e.. viz. Kungundi Industrial Works Private L....
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....tinguishable as the assessee company which took over the assets was a partner in the firm having nine partners and other eight partners were shareholder in the > company and the assessee company took over assets and liabilities of the firm by dissolving the firm whereas in the present case the assessee company was born on 31.08.2007 and was not a partner in firm. This decision is also referred to by ITAT and in the case of Prakash Chemical Agencies as relied by the Id AR but not followed. The decision in the case Kungundi Industrial Works P Ltd Vs CIT reported in 57 ITR540(AP) as relied upon in this case is also distinguished by the Ahd ITAT. > In the case of Mahindra Sons Ltd (supra), the Mumbai Bench of the Tribunal has held that since a device was adopted to avoid tax, therefore, the Assessing Officer has rightly calculated the depreciation on the basis of the available figures of WDV as per the books of account but this case are distinguishable as the terms of the deal were not fair, deal was not at arm's length price, assets were revalued at replacement value without any basis and the purpose was purely to claim higher depreciation only, AO made analysis of variou....