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TMI Blog2015 (5) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... , the tribunal vide its later order dated 3.8.2012, recalled its original order on the first ground. 3. Succinctly, the assessee capitalized a sum of Rs. 89,10,245/- towards certain Equipments (consisting to Centrally Air conditioning unit with Generator, Otis elevator and Fire fighting equipments), purchased from M/s Baba Build Well (BBW), which were earlier installed by them in a premises at 225, Okhla Indl. Estate, Phase III, New Delhi, owned by some other person. This premises consisting of basement, mezzanine, ground, first and second floors was simultaneously acquired by M/s Civic Traders (P.) Ltd., another group concern of the assessee, from such third person for a sum of Rs. 1,91,18,472. The premises owned by such third person fitted with the Equipments installed by BBW, prior to its purchase by the assessee and its group concern, were given on rent by them to M/s Minerva Holding (P) Ltd. The purchase transaction of Equipments by the assessee from BBW took place on 1.4.2000. Even after the purchase of the Equipments and Building by the assessee and M/s Civic Traders (P.) Ltd. respectively, the hitherto tenant/user, namely, M/s. Minerva Holding (P) Ltd, continued to remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner estimated their actual cost at Rs. 20.00 lac. He, however, clarified that the AO was not bound by his opinion and may form his own. The AO adopted this figure of Rs. 20 lac and, then increased it with a sum of Rs. 2,45,000/- incurred towards purchase price of generator and sound proofing equipments. That is how, he computed the actual cost of such Equipments at Rs. 22,45,000/- and allowed depreciation thereon @ 25%, amounting to Rs. 5,61,250/-. The excess claim of depreciation at Rs. 16,66,311/- [Rs.22,27,561/- (claimed by the assessee) minus Rs. 5,61,250/- (allowed by the AO)] was disallowed. The ld. CIT(A) came to hold that the AO was not justified in applying Explanation 3 to Section 43(1) of the Act inasmuch as the requirement under the provision is to determine the actual cost and not its fair market value. Ergo, he directed the AO to take the actual cost incurred by the assessee as actual cost. 4. The Revenue appealed before the Tribunal. The Tribunal in the original order considered the judgment of the Hon'ble Delhi High Court in CIT vs. Dalmia Dadri Cement Ltd. (1980) 125 ITR 510 (Del) and upheld the assessment order on this point. In deciding so, the Tribunal ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us was that the AO was not justified in reducing the actual cost of the Equipments by resorting to the provisions to Explanation 3 to section 43(1). This view was sought to be buttressed by relying on the judgment of the Hon'ble jurisdictional High Court in Jaswant Sugar Mills Ltd. Vs. CIT (supra). Drawing strength from this judgment, the ld. AR vehemently argued that the AO erred in applying Explanation 3 to section 43(1) which, in the facts and circumstances of the case, was not applicable because of the failure of the AO to record any satisfaction that the main purpose of transfer of such assets to the assessee was the reduction of liability of income-tax. This argument was countered by the ld. DR on the preliminary issue by contending that the judgment in Jaswant Sugar Mills Ltd. (supra) was rendered in the context of Income-tax Act, 1922 and, hence, the same cannot be applied in so far as the provisions of the Incomer-tax Act, 1961, currently in force, are concerned. 6. Before considering the factual scenario of the case and whether or not the ratio decidendi of the judgment in Jaswant Sugar Mills Ltd. (supra) is applicable to the instant case on merits, we would like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his business or profession and the Assessing Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the Assessing Officer may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case. 9. On a conjoint reading of the provisions of the 1922 Act and 1961 Act in this regard, it can be seen that sub-section (1) of section 43 defining 'actual cost' is worded more or less on the same lines as section 10(5)(a) of the 1922 Act, except providing for reducing that portion of cost, if any, as has been met directly or indirectly by any other person or authority. Extantly, we are not dealing with any issue about the deductibility or otherwise of any portion of cost which has been met directly or indirectly by any other person or authority. We are concerned with the determination of `actual cost' of an asset, which was earlier used by a previous owner for the purpose of his business. This issue is covered by Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banarsi Dass and proviso to section 10(5)(a) was not applicable. 11. At this juncture, it would be befitting to take note of the judgment dated 31st July, 1972 rendered by the Hon'ble Supreme Court in Guzdar Kajora Coal Mines Ltd. Vs. CIT (1972) 85 ITR 599 (SC). The assessee in that case purchased colliery lands, hereditaments and premises, mines, minerals, powers and privileges and all other hereditaments together with the machinery belonging to a company for a consideration of Rs. 6 lac. The total consideration was bifurcated in three parts, namely, Rs. 3,50,000/- for machinery and other moveable properties ; Rs. 1,50,000/- for building and structures, and ; Rs. 1 lac for the rest of properties not capable of being passed by delivery. From the assessment year 1946-47, the assessee started claiming depreciation on the assets so purchased on the basis of their written down value as per the record of the vendor company and not the above bifurcated value, which was allowed by the ITO. It went on till the assessment year 1952-53 when, again, the ITO allowed depreciation on the old basis. Before the AAC, the assessee raised a ground that the ITO should have worked out depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of section 10(5) of the 1922 Act that the original cost of an asset should ordinarily be determined on the basis of the documents showing the cost paid for purchase of such asset. But, if the apparent circumstances suggest that the real position is different and the price has been inflated or deflated for an ulterior motive, then it is open to the income-tax authorities to disregard the apparent value and ascertain the correct actual cost. Ergo, it is discernible that the Hon'ble Apex Court dealing, inter alia, with the interpretation of section 10(5) of the 1922 Act has clearly laid down that the ITO should not desist from determining the actual cost of an asset, if the circumstances show that some fictitious price was put by the parties on the assets with a deceitful intention. The Hon'ble Supreme Court disregarded the apparent price assigned to the assets for the purposes of grant of depreciation and consequently upheld the grant of depreciation to the vendee by treating its actual cost equal to the written down value of such assets in the hands of the vendor prior to the date of sale. 13. It is pertinent to note that whereas the judgment of the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Guzdar Kajora Coal Mines Ltd. (supra) rendered in the context of the analogous provision of the 1922 Act. It is further noticed that similar view has been taken by the Hon'ble Calcutta High Court in the case of CIT vs. Jogta Coal Co. Ltd. (1965) 55 ITR 89 (Cal) laying down that if the circumstances show that an assessee has arranged to put a fictitious price on his assets in a contract or conveyance, it is open to the income-tax authorities to refuse to accept that price and go behind the contract or conveyance. 15. On an overview of all the above discussed judgments led by that of the Hon'ble Supreme Court in Guzdar Kajora Coal Mines Ltd. (supra) in the context of the point under consideration, it clearly emerges that when asset before the acquisition by the assessee was used by another person for his business and the AO holds the view and is satisfied that the actual price of such asset has been inflated or deflated for an ulterior purpose, then there can be no fetters on the powers of the AO in rejecting such declared price and determining the correct actual cost. 16. Reverting to the facts of the instant case, we find that during the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,26,890 PLUS: (i) Cost of installation, Civil work, Ducting, Pipe Fittings, Wiring, etc., for Lift, Air Conditioning Plant, Generating Set and Fire Fighting Equipments Approx. 20,00,000 (ii) Cost of Approvals for Lift, Generating Sets, Air Conditioning Plant and Fire Fighting Equipments, etc., from Government and Semi-Government Departments and Municipal Corporation Approx 10,00,000 69,26,890 PLUS: PROFIT - Estimated - Tentative of the Supplier Baba - Buildwell 5,73,110 75,00,000 18. It is manifest from the order of the ld. CIT(A) that he simply took on record the above details from the assessee and proceeded to delete the disallowance without any independent appraisal. We will evaluate the authenticity of the above details furnished by the assessee. It can be seen that purchase price of Equipments by BBW has been shown at Rs. 39.26 lac, which is based on bills. There should not be any problem in accepting it as correct. Cost of installation, civil work and ducting, etc. has been shown at Rs. 20 lac. The claim in this regard is that cost of installation etc. is a little more than 50% of the cost of Equipments itself, which prima facie does not appear probabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 43(1). The afore elaborated exercise done by the AO, before rejecting the declared price of the Equipments as not its actual cost, reveal nothing less than recording of an objective satisfaction in terms of the Explanation 3. It is not necessary that before invoking Expl. 3 to section 43(1), the AO must make an express mention in the assessment order that he was not satisfied with the declared cost. If the exercise done by the AO before rejecting the assessee's version of actual cost, vividly reflects his implied satisfaction in terms of the Expl. 3 to section 43(1), then such implied satisfaction prompted by express actions, cannot be taken as a case of absence of satisfaction. The facts of the instant case amply show that the AO was fully satisfied in not accepting the declared price as the actual cost of Equipments from BBW within the meaning of the Explanation 3 to section 43(1). The order passed by the ld. CIT(A) in holding otherwise, is, therefore, overturned. 19. Having held that the AO was right in taking recourse to the provisions of Explanation 3 to section 43(1) by holding that the main purpose of the transfer of Equipments to the assessee was the reduction of a liab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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