2012 (5) TMI 306 - AT - Income Tax

Depreciation - cost of acquisition of cement unit - Explanation 3 to section 43(1) of the I.T. Act - Held that - The registered valuer also valued the assets as on 01.11.1999 the price of which was considered to be the cost of fixed asset acquired and the balance to the current assets including the current liabilities. - no reason to invoke Explanation (3) as the A.O. nowhere stated that the main purpose of such a valuation was for reduction of liability to tax. - Decided in favor of the assessee. Lump-sum payment - Deferred revenue expenses - assessee was entitled to benefit over a period of three years - held that - lump-sum prepayment premium for restructuring of loan resulting in deduction on rate of interest is allowable as interest and that section 43B(d) also permits such deduction of payment. Depreciation on intangible goods - whether excess amount paid is goodwill - held that - the nature of payment has to be considered and terminology used in the books of account does not determine the allowability of claim. - held that - assessee has made a vague claim. On the one hand it states the excess payment made over and above the value of tangible asset acquired is for licences quotas business rights etc. and whereas on the other hand it states the excess amount should be taken as that paid for factors like locational advantage contracts with dealers and customers attached to the business etc. This second limb in our view cannot be a business or commercial right but only goodwill. While stating facts alternate or without prejudice stand cannot be taken. The assessee is supposed to know exactly the purpose for which the amount is paid. While tangible assets were valued intangible assets were not valued in this case - held as goodwill - decided against the assessee.

Issues Involved:
1. Entitlement to claim depreciation on the cost of acquisition of cement units.
2. Treatment of excess amount paid over the WDV as goodwill.
3. Deduction of deferred revenue expenses.
4. Depreciation on intangible assets acquired from Raymonds.
5. Adjustment of provision for doubtful debts under section 115JB.

Issue-wise Detailed Analysis:

1. Entitlement to claim depreciation on the cost of acquisition of cement units:
The main issue was whether the assessee was entitled to claim depreciation on the cost of acquisition of cement units purchased from Raymonds, considering the provision of Explanation 3 to section 43(1) of the I.T. Act. The CIT(A) held that the transaction was not collusive and the cost was assessed by an expert agency. The Tribunal upheld the CIT(A)'s decision, noting that the deal was at arm's length and the valuation by the expert was not manipulative. The Tribunal referenced a similar case involving TISCO, where it was held that the actual cost should be the cost paid by the assessee unless proven otherwise.

2. Treatment of excess amount paid over the WDV as goodwill:
The Tribunal examined whether the excess amount paid over the WDV was goodwill. The CIT(A) concluded that the excess amount was not goodwill but was attributable to various intangible assets acquired, such as licenses and business rights. The Tribunal upheld this view, stating that the transaction was at arm's length and the valuation by an expert was credible. The Tribunal referenced the case of Praxair India (P) Ltd., where a similar issue was decided in favor of the assessee.

3. Deduction of deferred revenue expenses:
The issue was whether the entire amount of settlement premium paid to financial institutions for reducing interest rates should be allowed as a revenue expenditure in the current year. The CIT(A) allowed the deduction, stating that the expenditure was for reducing future interest costs and thus was revenue in nature. The Tribunal upheld this decision, referencing the case of Overseas Sanmar Financial Ltd., where it was held that such expenditure is allowable in full in the year of payment.

4. Depreciation on intangible assets acquired from Raymonds:
The issue was whether the assessee was entitled to claim depreciation on the amount paid for intangible assets acquired from Raymonds. The CIT(A) concluded that the amount paid was for various intangible assets like mining rights and business rights, which qualify for depreciation under Explanation 3(b) to section 32. The Tribunal set aside this issue for fresh adjudication by the Assessing Officer to determine the value of intangible assets other than goodwill, as the initial valuation was not specific.

5. Adjustment of provision for doubtful debts under section 115JB:
The issue was whether the provision for doubtful debts should be added back to the net profits for computing book profit under section 115JB. The Tribunal allowed this ground, noting that subsequent to the retrospective amendment to clause (i) of Explanation (1) to section 115JB, such provisions are required to be added back.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on the entitlement to claim depreciation on the cost of acquisition and the treatment of excess amount paid over the WDV. It also upheld the deduction of deferred revenue expenses and set aside the issue of depreciation on intangible assets for fresh adjudication. The Tribunal allowed the adjustment of provision for doubtful debts under section 115JB following the retrospective amendment. The appeals were allowed in part.

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