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TMI Blog2019 (11) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... ee‟s claim of this ground. A bare perusal of provisions of section 40A(2) would show that there is no mention of trust in the list of persons mentioned in clause (b) of sub-section (2). The Hon‟ble Delhi High Court in the case of Shanker Trading (P) Ltd. Vs. Commissioner of Income Tax [ 2012 (7) TMI 282 - DELHI HIGH COURT] has held that the provisions of section 40A(2) are not attracted in the case of trust. After examining the lease agreement we are of considered view that it is a case of purchase of asset by the assessee from CARE in the garb of lease agreement. Accordingly, ground No. 1 of the appeal by assessee is dismissed. Alternate prayer of allowing depreciation and interest on the full value of asset as agreed between the parties - value of asset mutually agreed as per the terms of agreement - HELD THAT: -In the instant case we observe that the Assessing Officer in the assessment order has failed to satisfy both the conditions. Neither actual cost‟ as envisaged under section 43(1) was determined by the Assessing Officer, nor satisfaction was recorded by the Assessing Officer to the effect that the transfer of asset at a rate higher than the writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Ltd., the company having substantial interest in the assessee company, the provisions of section 40A(2)(b) are attracted. iii. The value of the asset is glaringly disproportionate to the written down value calculated as per Act. The assessee filed appeal against the assessment order dated 20-03-2014 passed u/s. 143(3) of the Act. Before the Commissioner of Income Tax (Appeals), the assessee remained unsuccessful, hence, the present appeal. 3. The assessee in appeal has assailed the findings of Commissioner of Income Tax (Appeals) by raising following grounds : 1. a) The learned CIT(A) erred on facts and in law in upholding disallowance of lease charges of ₹ 1,17,32,950/- on Da-Vinci Surgical system. b) The learned CIT (A) erred on facts and in law in upholding that the said lease transaction is not lease transaction, but is a transaction for purchase of a capital asset. He further erred in observing that there is no transparency in the transaction. The reasons assigned are untenable and wholly irrelevant. 2. In any case the learned CIT(A) erred on facts and in law in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction in the return of income. Only actual lease rent paid was claimed as deduction. 4.2 The ld. AR further submitted that two trustees of CARE i.e. Dr. B. Soma Raju and Dr. N. Krishna Reddy are also the Directors of Quality Care India Ltd. The said company holds 76% shares in the assessee company. One of the reasons for rejecting assessee‟s claim is that the trustees of CARE are the Directors of holding company of assessee and hence, the provisions of section 40A(2)(b) get attracted. The ld. AR controverting the findings of authorities below submitted that section 40A(2)(b) does not apply on the trust and that to a public charitable trust registered u/s. 12A of the Act. In support of his submissions the ld. AR placed reliance on the decision of Hon‟ble Delhi High Court in the case of Shanker Trading (P) Ltd. Vs. Commissioner of Income Tax reported as 208 Taxman 526. 4.3 The ld. AR further submitted that merely for the reasons lease agreement provides for transfer of asset at the end of lease period does not mean that the lease rent partake the character of payment of installment towards the cost of asset. To support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and thus cost remained at ₹ 8.16 crs and was taken by the assessee at ₹ 5.75 crs. i.e. at about 70% of the cost. There was thus no enhancement of cost at all. Thus two essential ingredients of expl. 3 are absent. CARE is also not a related party as held by Delhi HC in Shankar Trading s case (254 CTR 44). We asserts that the CIT(A) s finding that CARE has claimed depreciation is factually incorrect. The CIT(A) has not at all adjudicated on the issue of interest claim. 5. On the other hand Shri Sanjeev Ghei representing the Department vehemently defended the order of Commissioner of Income Tax (Appeals) and prayed for dismissing the appeal of assessee. 6. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee acquired Da Vinci Surgical System from CARE on lease. The assessment year under appeal is the first year of assessee‟s claim of deduction of lease rentals for the equipment. The authorities below disallowed assessee‟s claim of lease payment as revenue expenditure primarily on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant case, as we have pointed earlier, lessee has no option of refusal to own leased asset. We further observe that lease rentals agreed between the parties were so crafted that they substantially cover present fair value of equipment. 9. In so far as the objection raised by the Revenue that some of the trustees of CARE were the Directors of holding company of assessee and hence, provisions of section 40A(2)(b) are attracted, we do not find merit in rejecting assessee‟s claim of this ground. A bare perusal of provisions of section 40A(2) would show that there is no mention of trust in the list of persons mentioned in clause (b) of sub-section (2). The Hon‟ble Delhi High Court in the case of Shanker Trading (P) Ltd. Vs. Commissioner of Income Tax (supra) has held that the provisions of section 40A(2) are not attracted in the case of trust. 10. Be that as it may, after examining the lease agreement we are of considered view that it is a case of purchase of asset by the assessee from CARE in the garb of lease agreement. Accordingly, ground No. 1 of the appeal by assessee is dismissed. 11. In ground No. 2 of the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cases where the Assessing Officer is satisfied that the main purpose of transfer of such assets, directly or indirectly, to the assessee was for reduction of liability to income-tax. The relevant extract of the judgment is reproduced herein in under: 4. Explanation 3 to section 43(7) would be attracted only in cases where, before the date of acquisition by theassessee, the assets were at any time used by any other person for the purposes of his business and the ITO is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was for the reduction of the liability to income- tax. There is no other circumstance under which this Explanation can be invoked. The first requirement that the assets would be used by any other person is satisfied in the instant case, inasmuch as the assets were of a dissolved firm, which was paying income-tax. The second and the main requirement that the transfer should be mainly for reducing the liability is not at all established in the instant case. The facts of the case, however, indicate that after the death of the father, the sons could not carry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority : ****** Explanation 3.- Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the Income-tax 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 Income-tax Officer may, with the previous approval of the Inspecting Assistant Commissioner, determine having regard to all the circumstances of the case. 14. Therefore, clause (1) of section 43 lays down that actual cost in the hands of an assessee means the actual cost of the assets as reduced by that portion of the cost which may have been met directly or indirectly by any other person. Explanation 3 to the said sub-section stipulates that: (i)The assets which are acquired by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation 3 to section 43] to place some evidence on record. It could not have substituted its opinion and adopted book value or the written down value in hands of the assessee-company. As can be seen from the Explanation 3 to section 43(1), the ITO is required to determine actual cost to the assessee having regard to all the circumstances of the case and if in his opinion the written down value was the actual cost, he ought to have supported the same by placing sufficient evidence so as to dislodge the valuation report of the registered valuer. On his having failed to do so, even if the earlier portion of the provisions, viz., the condition of the assets having been used by another person before the date of acquisition, stands fulfilled, the provisions cannot be applied. [Emphasized by us] The Hon‟ble High Court in an unambiguous terms held that for invoking the provisions of Section 43(1) and Explanation 3two conditions have to be satisfied viz: i. It is not the written down value or market value that has to be adopted, it is the actual cost of the underlining asset that has to be determined by the AO in accordance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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