2015 (12) TMI 1737 - AT - Income Tax

Disallowance of excessive depreciation in respect of assets purchased from Deltron Ltd. - Held that - As decided in assessee s own case for the assessment years 2005-06 to 2007-08 and 2009-10 2016 (1) TMI 163 - ITAT DELHI Assessing Officer was not justified in invoking Explanation 3 to section 43(1) of the Act on the facts and circumstances of the case of the appellant company and therefore, appellant is entitled to claim of depreciation on the actual cost as incurred by the appellant on transfer of the electronic business on going concern basis from M/s. Deltron Ltd. to the appellant company

Summary

Issues Involved:

1. Addition of Rs. 8,98,351/- by the AO.
2. Legality of the assessment order passed u/s 143(3)/144C.
3. Disallowance of excessive depreciation of Rs. 8,91,770/- for assets purchased from Deltron Ltd.
4. Applicability of Explanation 3 to Section 43(1) for determining the actual cost of assets.
5. Premature penalty proceedings under Section 271(1)(c).
6. Charging of interest u/s 234D.

Issue-wise Detailed Analysis:

1. Addition of Rs. 8,98,351/- by the AO:
The assessee challenged the addition made by the AO on the grounds that it was based on "wholly illegal, erroneous and untenable grounds." The Tribunal, after reviewing the facts and previous judgments, found that the addition was not justified and deleted it.

2. Legality of the assessment order passed u/s 143(3)/144C:
The assessee contended that the assessment order was "bad in law." The Tribunal did not find any merit in this argument, focusing instead on the substantive issues related to depreciation and valuation of assets.

3. Disallowance of excessive depreciation of Rs. 8,91,770/- for assets purchased from Deltron Ltd:
The AO disallowed the depreciation claimed by the assessee, arguing that the assets were acquired at an inflated price to reduce tax liability. The assessee argued that the assets were valued by government-approved valuers and that the written down value (WDV) was low due to prior deductions under Section 35(1). The Tribunal found that the AO's observations were factually incorrect and that the valuation was supported by a registered valuer's report. The Tribunal concluded that the AO was not justified in invoking Explanation 3 to Section 43(1) and allowed the depreciation claim.

4. Applicability of Explanation 3 to Section 43(1) for determining the actual cost of assets:
The AO invoked Explanation 3 to Section 43(1), arguing that the main purpose of the asset transfer was to reduce tax liability. The Tribunal noted that the AO failed to establish that the main purpose of the transfer was tax reduction. The Tribunal emphasized that the valuation was supported by a registered valuer's report and that the AO did not provide any evidence to discredit this valuation. Consequently, the Tribunal held that the AO was not justified in invoking Explanation 3 to Section 43(1).

5. Premature penalty proceedings under Section 271(1)(c):
The Tribunal found that the penalty proceedings were raised prematurely and did not require any comment.

6. Charging of interest u/s 234D:
The Tribunal noted that the charging of interest under Section 234D was consequential in nature and ordered accordingly.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleted the disallowance of depreciation, and found that the AO was not justified in invoking Explanation 3 to Section 43(1). The charging of interest under Section 234D was deemed consequential. The penalty proceedings under Section 271(1)(c) were considered premature and did not require further comment.