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2015 (3) TMI 313 - AT - Income TaxDisallowance of depreciation u/s 32 - invoking Explanation 3 of Section 43(1) of the I.T. Act, 1961 - CIT(A) deleted the addition - Held that - The benefit of enhanced depreciation got almost mitigated because of interest payment of the outsider viz. all banks as is evident from the working submitted. The assessee has taken loan from Banks for making payment for availing this facility and had paid more than 2 crores towards loan processing charges. The AO has not disputed the objective with which assessee had made this arrangement. The mainprimary objective of assessee is relevant for purposes of Explanation 3. If the primary objective was not tax reduction. The Explanation 3 could not be invoked. No infirmity in the order of the Ld. CIT(A) and therefore, no interfere is required on our part, hence, we uphold the impugned order passed by the Ld. CIT(A), which is in accordance with the ITAT s Order in assessee s own case for the Asstt. Year 2007-08 2015 (3) TMI 319 - ITAT DELHI - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition made on account of disallowance of depreciation under Section 32 of the Income Tax Act, 1961 by invoking Explanation 3 of Section 43(1) of the Act. Issue-wise Detailed Analysis: 1. Deletion of Addition Made on Account of Disallowance of Depreciation: The Revenue's appeals concern the deletion of additions of Rs. 11,63,24,923 for the assessment year (A.Y.) 2008-09 and Rs. 11,53,53,162 for A.Y. 2009-10, made on account of disallowance of depreciation under Section 32 of the Income Tax Act, 1961 by invoking Explanation 3 of Section 43(1) of the Act. The counsel for the assessee argued that the issue had already been adjudicated in the assessee's favor by the ITAT for A.Y. 2007-08. The Ld. CIT(A) had followed the ITAT's previous order, which had confirmed the deletion of the disallowance of depreciation made by the AO. The ITAT examined the facts and the previous order, noting that the AO had made similar disallowances in A.Y. 2007-08, which were overturned by the CIT(A) and subsequently upheld by the ITAT. The CIT(A) had adjudicated the issue for the years in dispute (2008-09 and 2009-10) by relying on the ITAT's order for A.Y. 2007-08. The CIT(A) had considered the actual cost of assets, the valuation reports, and the High Court's approval of the scheme of arrangement. The CIT(A) concluded that the AO had not provided sufficient grounds to disregard the valuation by registered valuers and the actual cost of Rs. 235 crores paid by the assessee. The AO's lack of technical competency to value the assets and the absence of an attempt to determine the actual cost were noted. The CIT(A) found that the transfer was not a demerger as per Section 2(19AA) and that the transfer of assets was on a slump sale basis. The ITAT agreed with the CIT(A)'s findings, emphasizing that the AO had not demonstrated that the main purpose of the transfer was to reduce tax liability by claiming higher depreciation. The ITAT highlighted that the AO must judiciously acquire satisfaction regarding the object of the transfer and that the valuation approved by the High Court had persuasive value. The ITAT also noted that the assessee had incurred actual cash outflow for the acquisition and had taken loans from banks, further supporting the genuineness of the transaction. The ITAT upheld the CIT(A)'s decision to allow depreciation on the actual cost of Rs. 235 crores, as the AO had not provided sufficient evidence to invoke Explanation 3 to Section 43(1). The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeals. Conclusion: The ITAT upheld the CIT(A)'s order, confirming the deletion of the disallowance of depreciation made by the AO for A.Y. 2008-09 and 2009-10. The appeals of the Revenue were dismissed, and the CIT(A)'s order was found to be well-reasoned and in accordance with the ITAT's previous order for A.Y. 2007-08.
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