2018 (4) TMI 141 - HC - Income Tax

Justification for invoking the provisions of explanation 3 to Section 43(1) - Held that - Eplanation given by the Respondent for purchase of generator sets at ₹ 5.27 Crores was reasonable. This coupled with the facts that Revenue did not make any enquiry to find that the market value of similar generator sets as purchased by the Respondent from Kirloskar Oil Engines Ltd., as found by the Tribunal. We find that the Revenue seems to have proceeded on suspicious rather than on facts to disregard the purchase price of ₹ 5.27 Crores for generator sets and reduce the actual cost. In the above facts, the view taken by the Tribunal is a reasonable and possible view and Explanation III to Section 43(1) of the Act will not apply in these facts. No substantial question of law. Set off of unabsorbed depreciation of assessment year 1999-2000 against the income for Assessment Year 2008-09 - Held that - The issue raised by the Revenue stands concluded against it and in favour of the Assessee by the decisions of this Court in CIT v/s. Hindustan Unilever Ltd. 2016 (7) TMI 1245 - BOMBAY HIGH COURT and Pr. CIT v/s. Hindustan Antibiotics Ltd 2018 (4) TMI 140 - BOMBAY HIGH COURT - No substantial question of law.

Summary

Issues:
1. Interpretation of Explanation 3 to Section 43(1) of the Income Tax Act for reducing actual cost.
2. Set off of unabsorbed depreciation of assessment year 1999-2000 against income for Assessment Year 2008-09.

Interpretation of Explanation 3 to Section 43(1):
The Respondent purchased a second-hand generator set for ?5.27 Crores, with a written down value of ?4.05 Crores in the books of the seller. The Assessing Officer questioned this purchase price and invoked Explanation 3 to Section 43(1) to reduce the actual cost. The Respondent explained the urgent need for power due to the seller's power division closure and the high cost and time required for new generator sets. Despite this, the Assessing Officer reduced the purchase value and depreciation claimed. The CIT(A) upheld this decision. However, the Tribunal found the Respondent's explanation satisfactory, noting the lack of market value inquiry by the Revenue for similar generator sets. The Tribunal deemed the invoking of Explanation 3 unjustified, allowing the appeal.

Set off of Unabsorbed Depreciation:
The Revenue challenged the set off of unabsorbed depreciation of assessment year 1999-2000 against the income for Assessment Year 2008-09. The Revenue's Counsel acknowledged adverse precedents and conceded against the Revenue. Citing previous court decisions, the Court found no substantial question of law for consideration. Consequently, the proposed question was not entertained, leading to the dismissal of the appeal without costs.

This judgment delves into the application and interpretation of tax provisions, specifically Explanation 3 to Section 43(1) and the set off of unabsorbed depreciation. It highlights the importance of factual analysis, justification for transactions, and adherence to legal precedents in tax assessments. The Tribunal's role in scrutinizing Revenue actions and ensuring fair treatment for taxpayers is evident, emphasizing the need for thorough assessments based on facts rather than suspicions.