2015 (4) TMI 136 - AT - Income Tax

Depreciation - Assets taken over under slump sale - use of computer for more than 180 days or not - Assets taken over under slump sale - date of put to use - CIT(A) allowed the assessee depreciation of ₹ 98,88,500/- on computers relying purely on the revised certificate submitted by the assessee - Held that - there is no reason whatsoever to not rely upon the veracity of the revised statement filed by the auditor. It was only the original certificate which had contained error which led the AO to believe the assets were put to sue from 25.12.2002. There was no other material whatsoever in the possession of the AO. In these circumstances, the AO s reluctance to give credence to the revised certificate of the Auditor is not at all sustainable. Moreover, on the basis of the facts of the case it emerges that assessee has acquired the assets under slump sale with effect from April 1, 2002. In these circumstances, there is no plausible reason why April, 25, 2002 would be mentioned as date on which the assets are put to use. Ld. CIT(A) is correct in observing that the main purpose of taking the undertaking of slump sale basis is to enable such undertaking to run after transfer of the going concern. Hence, if the undertaking has been taken on slump sale, no prudent businessman would leave the undertaking remain idle for so many months, when it is capable of running of its own without any interruption. In the background of the aforesaid discussion, we do not find any infirmity in the order of the Ld. CIT(A). - Decided against revenue.

Summary

Issues:
1. Allowance of depreciation on computers for assessment year 2007-08.
2. Discrepancy in dates of capitalization and put to use of assets acquired under slump sale.
3. Reliability of revised certificate from the auditor regarding the period of use of assets.

Issue 1: Allowance of Depreciation on Computers
The Revenue appealed against the CIT(A)'s decision to allow depreciation of Rs. 98,88,500 on computers, which was based on a revised certificate submitted by the assessee. The AO had initially noted that the assessee claimed depreciation of Rs. 197.77 lacs on computers, but only Rs. 98.88 lacs was allowable as the computers worth Rs. 329.92 lacs were put to use for less than 180 days as certified by the auditors. The assessee contended that all assets acquired under slump sale were put to use from April 1, 2002, and provided a certificate to support this claim. The AO, however, was not satisfied with the explanation and restricted the depreciation to Rs. 98.88 lacs. The CIT(A) upheld the assessee's claim, stating that there was no reason to doubt the revised certificate filed by the auditor, which confirmed that the assets were used for more than 180 days in the relevant financial year.

Issue 2: Discrepancy in Dates of Capitalization and Put to Use
The AO raised concerns about a typographical error in the tax audit report regarding the dates of capitalization and put to use of the assets acquired under slump sale. The assessee clarified that the error led to the wrong date being reflected as the put to use date. The revised certificate from the auditor supported the assessee's claim that the assets were indeed put to use from April 1, 2002. The CIT(A) emphasized that the purpose of a slump sale is to enable the undertaking to run smoothly after transfer, and it would be imprudent to leave the assets idle for an extended period. The tribunal agreed with the CIT(A) and upheld the decision based on the veracity of the revised certificate and the logical explanation provided by the assessee.

Issue 3: Reliability of Revised Certificate
The revised certificate submitted by the auditor played a crucial role in determining the period of use of the assets for depreciation calculation. The tribunal found no reason to doubt the revised certificate, especially considering the explanation provided by the assessee regarding the typographical error in the original report. The tribunal emphasized the importance of the assets being put to use for more than 180 days to claim full depreciation, which was supported by the revised certificate and the logical reasoning behind the slump sale transaction.

In conclusion, the tribunal dismissed the Revenue's appeal and the assessee's cross objection, upholding the CIT(A)'s decision regarding the allowance of depreciation on computers acquired under slump sale for the assessment year 2007-08.