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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 ..... er. A thing which can be seen with a naked eye, cannot be lost sight of on some unrealistic reasoning. It is not a case in which the AO has arbitrarily formed a view that the purchase price of the Equipments was declared higher and simply ignored it without any bedrock. Rather, he took pains in establishing that the case of the assessee was caught within the mischief of Expl. 3 to section 43(1).The order passed by the ld. CIT(A) in holding otherwise, is, therefore, overturned. Correctness of the amount substituted as actual cost - Held that:- assessee capitalized actual cost of Equipments purchased from BBW at a net of ₹ 63.22 lac, which has been held by us above to be unacceptable. The AO determined the actual cost of such Equipments at ₹ 20 lac, which is again devoid of rationality and is not more than an ad hocism. - The written down value of such Equipments in the hands of BBW at the time of sale to the assessee stood at ₹ 32.91 lac. No details of Installation charges etc. incurred by BBW has been made available. In our considered opinion, the ends of justice would meet adequately, if the total actual cost of such Equipments purchased from BBW is taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipments 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 as the tenant on an annual rent of ₹ 94,17,060, splitted equally towards Building and Equipment, namely, ₹ 47,08,530 for each. Pursuant to the Agreement with BBW, the assessee was to pay ₹ 75.00 lac towards the price of Equipments and it simultaneously became entitled to recover rent for the three months period prior to its acquisition on 1.4.2000, that is, from 1.1.2000 to 31.3.2000 from Minerva Holding (P) Ltd, totaling ₹ 11.77 lac. After adjusting this amount of ₹ 11.77 lac against the sum of ₹ 75 lac paid to BBW, the assessee capitalized a sum of ₹ 63.22 lac towards this asset. Apart from that, a further sum of ₹ 25.88 lac was incurred towards commission etc. on such Equipments and purchase price of a new Generator set etc., which was also capitalized by the assessee, thereby, making total cost of `Equipments given on hire at ₹ 89,10,245. Depreciation was claimed by the assessee on such an amount. The Assessing Officer was not satisfied, inter alia, with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 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 observed that depreciated value of these assets in the hands of BBW as on 31.3.2000 was only ₹ 32,91,746/-. It further noticed that the assessee could adduce no justification for payment of such huge amount towards these Equipments, which were already put to use by BBW and stood depreciated to a reduced value in their books of account. It further noticed that building was purchased by the group concern of the assessee in which such facilities were installed and the occupier of the premises was to pay rent to the building owner at a specific rate and it did not matter to the occupier that in what manner the total rent paid by it was applied by the related parties, namely, the assessee and Civic Traders, towards rent of building and that of equipment. The Tribunal further noted that half of the total rent received was applied towards building and the remaining half towards these Equipments. In view of these facts, the Tribunal held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 to deal with the preliminary argument raised by the ld. DR about the inapplicability of this judgment due to the same having been rendered under the 1922 Act. It goes without saying that if the language of a provision contained in the earlier and the current Acts is same, then the decisions rendered in the context of the earlier Act do not lose their binding force and vice versa. Thus, it becomes imperative to make a comparative analysis of the corresponding provisions of the former and the current Acts for ascertaining if the language is different or similar. 7. In this regard, it is observed that section 10 of the Income-tax Act, 1922 deals with the determination of income under the head Profits and gains of business, profession or vocation , which is similar to Chapter IV-D of the Income-tax Act, 1961 Act dealing with the computation of income under the head `Profits and gains of business or profession . Clause (vi) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 Explanation 2 to section 43(1) of the 1961 Act and proviso to section 10(5)(a) of the 1922 Act. A cursory look at the language of both these provisions divulges that except for change in the designation of the authorities, which are the AO and Jt. Commissioner under the current Act, they are identical. Once the language of the provision in both the Acts is found to be similar, there can be no impediment in considering the decisions given under the 1922 Act while interpreting the analogous provisions of the 1961 Act. We, therefore, refuse to accept this contention advanced on behalf of the ld. DR. 10. Now, let us proceed to see if the ratio laid down by the Hon ble Allahabad High Court in the case of Jaswant Sugar Mills (supra) is applicable to the facts of the present case. The assessee in that case purchased machinery at a cost of ₹ 1,26,040/- from Seth Banarsi Das, who was using it at Bijnor Sugar Mills. The exact cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the value of assets based on the above bifurcation of ₹ 6 lac. This contention was negatived by the ITO, who noticed that the vendor had been making good profits, but, no provision was made for the goodwill of the company in the above bifurcation of ₹ 6 lac in three categories. The ITO opined that if such provision had been made, the value of goodwill would have worked out at ₹ 2,56,960/- and the remaining amount of ₹ 3,43,040/- (Rs.6,00,000-Rs.2,59,256/-) towards other assets. The Tribunal took note of the fact that the figures of ₹ 3,50,000/-, ₹ 1,50,000/- and ₹ 1,00,000/- were arbitrarily put and there was no understandable break-up of the valuation. The assessee contended before the Hon ble High Court that the ITO was not competent to go beyond the agreed price and fix a valuation of the assets on his own. The High Court rejected the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court in Guzdar Kajora Coal Mines(supra) is dated 31st July, 1972, the judgment of the Hon ble Allahabad High Court in Jaswant Sugar Mill (supra) is dated 15.12.1972. There is no reference to the judgment of the Hon ble Supreme Court in the judgment of the Hon ble High Court, which is otherwise on the interpretation of the same section and directly relevant on the point. It appears that the parties failed to bring the Hon ble Apex Court judgment to the notice of the Hon ble High Court, which resulted in rendering the decision without considering the ratio decidendi laid down by the Hon ble Supreme Court in Guzdar Kajora Coal Mines Ltd. (supra). There is hardly any need to accentuate that the wisdom of a superior court gets precedence and when the superior court is none other than the Hon ble Supreme Court, its judgments have a binding force across the length and br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness 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 course of assessment proceedings, the Assessing Officer noticed that the tax auditor in his report had given the details of `Equipments given on rent as under : - 1.4.2000 Commission for arranging 8,00,000 6.4.2000 Land 10,00,000 17.4.2000 Land 63,22,867 18.4.2000 Land 3,92,377 19.4.2000 Land 1,50,000 21.4.2000 Generator install 1,60,000 25.4.2000 Generator 85,000 Total 89,10,245 17. It was noticed by the AO that the details of such assets were mutilated by someone to divert his attention. On being pointed out, the assessee fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 ₹ 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 ₹ 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 probable. There is no corroboration of this figure. What was spent by BBW on installation has also not been shown anywhere. Next item is Cost of approval etc. at ₹ 10.00 lac. Which Government d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecording 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 liability to income-tax by claiming depreciation with reference to an enhanced cost, the next question is to decide the correctness of the amount substituted as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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